TAXATION 2

COMPILED CASE DIGEST

S.Y.2018-2019

Rhina Angela E.

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[Cordillera Career Development College]

Estate Tax
VILLANUEVA V SPOUSES FROILAN AND LEONILA BRANOCO
G.R. No. 172804: January 24, 2011

Facts:

Petitioner Gonzalo Villanueva (petitioner), here represented by his heirs,

sued spouses Froilan and Leonila Branoco (respondents), in the Regional Trial
Court of Naval, Biliran to recover a 3,492 square-meter parcel of land in
Amambajag, Culaba, Leyte and collect damages. Petitioner claimed ownership
over the Property through purchase in July 1971 from Casimiro Vere, who, in
turn, bought the Property from Alvegia Rodrigo in August 1970. Petitioner
declared the Property in his name for tax purposes soon after acquiring it.

Respondents similarly claimed ownership over the Property through

purchase in July 1983 from Eufracia Rodriguez to whom Rodrigo donated the
Property in May 1965.

The trial court rejected respondents' claim of ownership after treating the
Deed as a donation mortis causa which Rodrigo effectively cancelled by selling
the Property to Vere in 1970.Thus, by the time Rodriguez sold the Property to
respondents in 1983, she had no title to transfer.

Respondents appealed to the Court of Appeals, where the CA found that

the Deed as a testamentary disposition was instead a donation inter vivos.
Accordingly, the CA upheld the sale between Rodriguez and respondents, and,
conversely found the sale between Rodrigo and petitioner's predecessor-in-
interest, Vere, void for Rodrigo's lack of title.

Issue:

Whether or not the contract between Rodrigo and Rodriguez was a

donation or a devise

Held:

It is immediately apparent that Rodrigo passed naked title to Rodriguez

under a perfected donation inter vivos. First. Rodrigo stipulated that "if the
herein Donee predeceases me, the Property will not be reverted to the Donor,
but will be inherited by the heirs of x xx Rodriguez," signaling the irrevocability
of the passage of title to Rodriguez's estate, waiving Rodrigo's right to reclaim

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title. This transfer of title was perfected the moment Rodrigo learned of
Rodriguez's acceptance of the disposition which, being reflected in the Deed,
took place on the day of its execution on 3 May 1965. Rodrigo's acceptance of
the transfer underscores its essence as a gift in presenti, not in futuro, as only
donations inter vivos need acceptance by the recipient.

Second. What Rodrigo reserved for herself was only the beneficial title to
the Property, evident from Rodriguez's undertaking to "give one half x xx of the
produce of the land to Apoy Alve during her lifetime." Thus, the Deed's
stipulation that "the ownership shall be vested on Rodriguez upon my demise,"
taking into account the non-reversion clause, could only refer to Rodrigo's
beneficial title.

Third. The existence of consideration other than the donor's death, such
as the donor's love and affection to the donee and the services the latter
rendered, while also true of devises, nevertheless "corroborates the express
irrevocability of x xx inter vivos transfers."Thus, the CA committed no error in
giving weight to Rodrigo's statement of "love and affection" for Rodriguez, her
niece, as consideration for the gift, to underscore its finding

The petitioner cannot capitalize on Rodrigo's post-donation transfer of

the Property to Vere as proof of her retention of ownership. If such were the
barometer in interpreting deeds of donation, not only will great legal
uncertainty be visited on gratuitous dispositions, this will give license to rogue
property owners to set at naught perfected transfers of titles, which, while
founded on liberality, is a valid mode of passing ownership. The interest of
settled property dispositions counsels against licensing such practice.
Accordingly, having irrevocably transferred naked title over the Property
to Rodriguez in 1965, Rodrigo "cannot afterwards revoke the donation nor
dispose of the said property in favor of another."Thus, Rodrigo's post-donation
sale of the Property vested no title to Vere. As Vere's successor-in-interest,
petitioner acquired no better right than him. On the other hand, respondents
bought the Property from Rodriguez, thus acquiring the latter's title which they
may invoke against all adverse claimants, including petitioner.

Vitug v. CA

G.R. No. 82027, March 29, 1990

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Facts:

Spouses Dolores and Romarico Vitug entered into a survivorship agreement

with the Bank of American National Trust and Savings Association. The said
agreement contained the following stipulations:

(1) All money deposited and to be deposited with the Bank in their joint
savings current account shall be both their property and shall be payable to
and collectible or withdrawable by either or any of them during their lifetime;
and

(2) After the death of one of them, the same shall belong to and be the sole
property of the surviving spouse and payable to and collectible or withdrawable
by such survivor

Dolores died naming Rowena Corona in her wills as executrix. Romarico later
filed a motion asking authority to sell certain shares of stock and real property
belonging to the estate to cover his advances to the estate which he claimed
were personal funds withdrawn from their savings account. Rowena opposed
on the ground that the same funds withdrawn from the savings account
were conjugal partnership properties and part of the estate. Hence, there
should be no reimbursement. On the other hand, Romarico insists that the
same are his exclusive property acquired through the survivorship agreement.

ISSUE:

Whether or not the funds of the savings account subject of the survivorship
agreement were conjugal partnership properties and part of the estate

Held:

No. The Court ruled that a Survivorship Agreement is neither a donation

mortis causanor a donation inter vivos. It is in the nature of an
aleatory contract whereby one or both of the parties reciprocally bind
themselves to give or to do something in consideration of what the other shall
give or do upon the happening of an event which is to occur at an
indeterminate time or is uncertain, such as death. The Court further ruled that
a survivorship agreement is per se not contrary to law and thus is valid unless
its operation or effect may be violative of a law such as in the following
instances: (1) it is used as a mere cloak to hide an inofficious donation; (2) it is
used to transfer property in fraud of creditors; or (3) it is used to defeat the

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legitime of a compulsory heir. In the instant case, none of the foregoing
instances were present. Consequently, the Court upheld the validity of the
survivorship agreement entered into by the spouses Vitug. As such, Romarico,
being the surviving spouse, acquired a vested right over the amounts under the
savings account, which became his exclusive property upon the death of his
wife pursuant to the survivorship agreement. Thus, the funds of the savings
account are not conjugal partnership properties and not part of the estate of
the deceased Dolores.

Dizon v CTA
G.R. No. 140944 April 30, 2008
FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for
the probate of his will was filed with Branch 51 of the Regional Trial Court

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(RTC) of Manila (probate court). The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty.
Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). Petitioner alleged
that several requests for extension of the period to file the required estate tax
return were granted by the BIR since the assets of the estate, as well as the
claims against it, had yet to be collated, determined and identified.

ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the admission
of the pieces of evidence which were not formally offered by the BIR; and

2. Whether the actual claims of the aforementioned creditors may be fully

allowed as deductions from the gross estate of Jose despite the fact that the
said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors Or Whether or not the CA erred in
affirming the CTA in the latter's determination of the deficiency estate tax
imposed against the Estate.

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

2. Yes. The claims existing at the time of death are significant to, and should
be made the basis of, the determination of allowable deductions. Also, as held
in Propstra v. U.S., where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from
deducting the entire amount of the claim for estate tax purposes. This is called
the date-of-death valuation rule.

CIR v. CA G.R. No. 123206; MARCH 22, 2016

Doctrine:
Facts:

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Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during
the second World War, was a part of the infamous Death March by reason of
which he suffered shock and became insane.

His sister Josefina Pajonar became the guardian over his person, while his
property was placed under the guardianship of PNB.

He died on January 10, 1988. He was survived by his two brothers Isidro P.
Pajonar and Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio
Jandog and Mario Jandog and niece Conchita Jandog.

PNB filed an accounting of the decedent's property under guardianship valued

at P3, 037,672.09. However, the PNB did not file an estate tax return, instead it
advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay
the taxes on his estate.

Pursuant to the assessment by the BIR, the estate of Pedro Pajonar paid taxes
in the amount of P2, 557.

The trial court appointed Josefina as the regular administratrix of Pedro

Pajonar's estate.

Pursuant to a second assessment by the BIR for deficiency estate tax, the
estate of Pedro Pajonar paid estate tax in the amount of P1, 527,790.98.

Josefina, in her capacity as administratrix and heir of Pedro Pajonar's estate,

filed a protest with the BIR praying that the estate tax payment in the amount
of
P1, 527,790.98, or at least some portion of it, be returned to the heirs.

However, without waiting for her protest to be resolved by the BIR, Josefina
filed a petition for review with the Court of Tax Appeals praying for the refund
of P1, 527,790.98, or in the alternative, P840, 202.06, as erroneously paid
estate tax.

CTA ordered the CIR to refund Josefina the amount of P252,585.59,

representing erroneously paid estate tax for the year 1988.

Among the deductions from the gross estate allowed by the CTA were the
amounts of P60, 753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50, 000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship

Commissioner of Internal Revenue filed a motion for reconsideration of the

CTA's decision asserting, among others, that the notarial fee for the

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Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings are not deductible expenses.

CTA issued the assailed Resolution ordering the Commissioner of Internal

Revenue to refund Josefina, as
administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
representing erroneously paid estate tax for the year 1988. Also, the CTA
upheld the validity of the deduction of the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings

Commissioner of Internal Revenue filed with the Court of Appeals a petition for
review questioning the validity of the abovementioned deductions.

Issue:
Whether the notarial fee paid for the extrajudicial settlement in the amount of
P60, 753 and the attorney's fees in the guardianship proceedings in the
amount of P50, 000 may be allowed as deductions from the gross estate of
decedent in order to arrive at the value of the net estate.

Ruling:
YES

Respondent maintains that only judicial expenses of the testamentary or

intestate proceedings are allowed as a deduction to the gross estate. The
amount of P60, 753.00 is quite extraordinary for a mere notarial fee.

This Court adopts the view under American jurisprudence that expenses
incurred in the extrajudicial settlement of the estate should be allowed as a
deduction from the gross estate. "There is no requirement of formal
administration. It is sufficient that the expense be a necessary contribution
toward the settlement of the case."

Attorney's fees in order to be deductible from the gross estate must be essential
to the collection of assets, payment of debts or the distribution of the property
to the persons entitled to it. The services for which the fees are charged must
relate to the proper settlement of the estate. In this case, the guardianship
proceeding was necessary for the distribution of the property of the late Pedro
Pajonar to his rightful heirs.

PNB was appointed as guardian over the assets of the late Pedro Pajonar, who,
even at the time of his death, was incompetent by reason of insanity. The
expenses incurred in the guardianship proceeding was but a necessary
expense in the settlement of the decedent's estate. Therefore, the attorney's fee
incurred in the guardianship proceedings amounting to P50,000.00 is a

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reasonable and necessary business expense deductible from the gross estate of
the decedent.

Attorney's fees are allowable deductions if incurred for the settlement of the
estate. It is noteworthy to point that PNB was appointed the guardian over the
assets of the deceased. Necessarily the assets of the deceased formed part of
his gross estate. Accordingly, all expenses incurred in relation to the estate of
the deceased will be deductible for estate tax purposes provided these are
necessary and ordinary expenses for administration of the settlement of the
estate.

Although the Tax Code specifies "judicial expenses of the testamentary or

intestate proceedings," there is no reason why expenses incurred in the
administration and settlement of an estate in extrajudicial proceedings should
not be allowed. However, deduction is limited to such administration expenses
as are actually and necessarily incurred in the collection of the assets of the
estate, payment of the debts, and distribution of the remainder among those
entitled thereto

It is clear then that the extrajudicial settlement was for the purpose of payment
of taxes and the distribution of the estate to the heirs. The execution of the
extrajudicial settlement necessitated the notarization of the same. Hence the
Contract of Legal Services of March 28, 1988 entered into between respondent
Josefina Pajonar and counsel was presented in evidence for the purpose of
showing that the amount of P60,753.00 was for the notarization of the
Extrajudicial Settlement. It follows then that the notarial fee of P60,753.00 was
incurred primarily to settle the estate of the deceased Pedro Pajonar. Said
amount should then be considered an administration expenses actually and
necessarily incurred in the collection of the assets of the estate, payment of
debts and distribution of the remainder among those entitled thereto. Thus,
the notarial fee of P60,753 incurred for the Extrajudicial Settlement should be
allowed as a deduction from the gross estate.

Thus, in Lorenzo v. Posadas the Court construed the phrase "judicial expenses
of the testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it appeared that
such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir.

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement
is clearly a deductible expense since such settlement effected a distribution of
Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to
PNB for acting as the guardian of Pedro Pajonar's property during his lifetime
should also be considered as a deductible administration expense. PNB

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provided a detailed accounting of decedent's property and gave advice as to the
proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.

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Donor’s Tax
GESTOPA VS. CA

Acceptance is a mark that the donation is inter vivos. Donations mortis causa,
being in the form of a will, are not required to be accepted by the donee during
the donor’s lifetime.

FACTS:
Spouses Danlag own six parcels of land. To four parcels of land, they executed
a donation mortis causa in favor of respondent Mercedes Danlag-Pilapil,
reserving donor's rights to amend, cancel, or revoke the donation and to sell or
encumber such properties. Years later, they executed another donation, this
time inter vivos, to six parcels of land in favor of respondents, reserving their
rights to the fruits of the land during their lifetime and for prohibiting the
donee to sell or dispose the properties donated. Subsequently, the spouses sold
2 parcels to herein petitioners, spouses Gestopa, and eventually revoking the
donation. Respondent filed a petition to quiet title, stating that she had already
become the owner of the parcels of land. Trial Court ruled in favor of
petitioners, but CA reversed.

ISSUE:
Whether the (second) donation was inter vivos or mortis causa

RULING:
It was donation inter vivos. The spouses were aware of the difference between
the two donations, and that they needed to execute another deed of donation
inter vivos, since it has a different application to a donation mortis causa. Also,
the court stated four reasons to the matter: (1) that the spouses donated the
parcels of land out of love and affection, a clear indication of a donation inter
vivos; (2) the reservation of a lifetime usufruct; (3) reservation of sufficient
properties for maintenance that shows the intention to part with their six lot;
and (4) respondent's acceptance, contained in the deed of donation. Once a
deed of donation has been accepted, it cannot be revoked, except for
officiousness or ingratitude, which the spouses failed to invoke.

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 DE LUNA VS. JUDGE ABRIGO
FACTS:
De Luna donated a portion of a 75 sq. m. lot to the Luzonian University
Foundation. The donation was embodied in a Deed of Donation Intervivos and
was subject to certain terms and conditions. In case of violation or non-
compliance, the property would automatically revert to the donor. When the
Foundation failed to comply with the conditions, de Luna “revived” the said
donation by executing a Revival of Donation Intervivos with the following terms
and conditions:

1) The Donee shall construct on the land and at its expense a Chapel, Nursery,
and Kindergarten School to be named after St. Veronica
2) Construction shall start immediately and must be at least 70% completed
three years from the date of the Deed unless the Donor grants extensions
3) Automatic reversion in case of violation
The Foundation accepted and the donation was registered and annotated in the
TCT. By a Deed of Segregation, the foundation was issued a TCT for area the
lot donated while the remaining area was retained by the De Luna.

The children and only heirs of the late De Luna (died after the donation) filed a
complaint with the RTC for the cancellation of the donation on the ground that
the terms were violated. The Foundation defended itself by saying that it had
partially and substantially complied with the conditions and that the donor
granted it an indefinite extension of time to complete construction.
The RTC dismissed the petition on the ground of prescription (for being filed
after 4 years). The heirs did not file an MR and went straight to the SC.

ISSUE:
Whether the action prescribes in 4 years (based on art. 764 NCC-judicial
decree of revocation of the donation) or in 10 years (based on art. 1144 –
enforcement of a written contract)

RULING: 10 years
The donation subject of this case is one with an onerous cause.

Under the old Civil Code, it is a settled rule that donations with an onerous
cause are governed not by the law on donations but by the rules on contract.
On the matter of prescription of actions for the revocation of onerous donation,
it was held that the general rules on prescription apply. The same rules apply
under the New Civil Code as provided in Article 733 thereof which provides:

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Donations with an onerous cause shall be governed by the rules on contracts,
and remuneratory donations by the provisions of the present Title as regards
that portion which exceeds the value of the burden imposed.

It is true that under Article 764 of the New Civil Code, actions for the
revocation of a donation must be brought within four (4) years from the non-
compliance of the conditions of the donation. However, said article does not
apply to onerous donations in view of the specific provision of Article 733
providing that onerous donations are governed by the rules on contracts. The
rules on prescription and not the rules on donation applies in the case at bar.

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 Contex Corporation vs Commissioner of Internal Revenue

(G.R. No.151135, July 2, 2004)

Facts:

Petitioner Contex Corporation (CONTEX) is a domestic corporation engaged in

the business of manufacturing hospital textiles and garments and other
hospital supplies for export. Petitioner’s place of business is at the Subic Bay
Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan
Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the
provisions of RA 7227. As an SBMA-registered firm, petitioner is exempt from
all local and national internal revenue taxes except for the 5% preferential tax
provided in RA 7227. Petitioner also registered with the BIR .
The Court of Appeals reversed the CTAs ruling, hence, this petition.

Issue/s:
Was COMASERCO engaged in the sale of services, and thus, liable to pay VAT?

Held:
Yes. Section 99 of the National Internal Revenue Code of 1986 provides that:
Any person who, in the course of trade or business, sells, barters or exchanges
goods, renders services, or engages in similar transactions and any person,
who, imports goods shall be subject to VAT imposed in Sections 100 to 102 of
this Code. The Higher Court clarified the meaning of the term in the course of
trade or business by citing Section 105 of RA 8424 which took effect on
January 1, 1998. The phrase in the course of trade or business means the
regular conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not the
person engaged therein is a non-stock, non-profit organization (irrespective of
the disposition of its net income and whether or not it sells exclusively to
members or their guests), or government entity. It is immaterial whether the

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primary purpose of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-of-cost basis only,
without realizing profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides services for a fee, remuneration or
consideration, then the service rendered is subject to VAT.

Secondly, it is a rule that business taxes are the lifeblood of the nation,
statutes that allow exemptions are construed strictly against the grantee and
liberally in favor of the government. Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the language of the law, it cannot be
merely implied therefrom. In the case of the VAT, Section 109, RA 8424 clearly
enumerates the transactions exempted from VAT. The services rendered by
COMASERCO do not fall within the exemptions.

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 CIR vs. Seagate

GR No. 153866

FACTS: Respondent is a resident foreign corporation duly registered with the

Securities and Exchange Commission to do business in the Philippines and is
registered with the Philippine Export Zone Authority (PEZA). The respondent is
Value Added Tax-registered entity and filed for the VAT returns. An
administrative claim for refund of VAT input taxes in the amount of
P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04
VAT input taxes subject of this Petition for Review), was filed on 4 October
1999, but no final action has been received by the respondent from the
petitioner on the claim for VAT refund. CIR asserts that by virtue of the PEZA
registration alone of respondent, the latter is not subject to the VAT.
Consequently, the capital goods and services respondent has purchased are
not considered used in the VAT business, and no VAT refund or credit is due.

ISSUE: Whether or not Seagate, a VAT-Registered PEZA Enterprise is entitled

to tax refund or credit.

HELD: Yes, Seagate is entitled to refund or credit. As a PEZA-registered

enterprise within a special economic zone, respondent is entitled to the fiscal
incentives and benefit provided for in either PD 66 or EO 226. It shall,
moreover, enjoy all privileges, benefits, advantages or exemptions under both
Republic Act Nos. (RA) 7227 and 7844.

Respondent, which as an entity is exempt, is different from its transactions

which are not exempt. The end result, however, is that it is not subject to the
VAT. The non-taxability of transactions that are otherwise taxable is merely a
necessary incident to the tax exemption conferred by law upon it as an entity,
not upon the transactions themselves.

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The petitioner’s assertion that the capital goods and services respondent has
purchased are not considered used in the VAT business, and thus no VAT
refund or credit is due is non sequitur. On this matter, the SC held that by the
VAT’s very nature as a tax on consumption, the capital goods and services
respondent has purchased are subject to the VAT, although at zero rate.

Seagate has complied with all the requisites for VAT refund or credit. First,
respondent is a VAT-registered entity. Second, the input taxes paid on the
capital goods of respondent are duly supported by VAT invoices and have not
been offset against any output taxes.

To summarize, special laws expressly grant preferential tax treatment to

business establishments registered and operating within an ecozone, which by
law is considered as a separate customs territory. As such, respondent is
exempt from all internal revenue taxes, including the VAT, and regulations
pertaining thereto. Its sales transactions intended for export may not be
exempt, but like its purchase transactions, they are zero-rated. No prior
application for the effective zero rating of its transactions is necessary. Being
VAT-registered and having satisfactorily complied with all the requisites for
claiming a tax refund of or credit for the input VAT paid on capital goods
purchased, respondent is entitled to such VAT refund or credit.

Having determined that respondent’s purchase transactions are subject to a

zero VAT rate, the SC has determined that tax refund or credit is in order.

CIR vs Cebu Toyo Corporation

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Facts: Cebu Toyo Corp. (Cebu) is a domestic subsidiary of Toyo Lens
Corporation Japan, engaged in the manufacture of lenses and various optical
components used in TV set, cameras, CDs, etc. Its principal office is located at
the Mactan Export Processing Zone (MEPZ) as a zone export enterprise
registered with the PEZA. It is also registered with the BIR as a VAT taxpayer.
Cebu sells 80% of its products to its mother corporation, pursuant to an
Agreement of Offsetting. The rest are sold to various enterprises doing business
in the MEPZ.
On March 30, 1998, it filed an application for tax credit/refund of VAT
paid for the period April 1996 to December 1997 amounting to about P4.4
million representing excess VAT input payments. Cebu argues that as a VAT-
registered exporter of goods, it is subject to VAT at the rate of 0% on its export
sales that do not result in any output tax. Hence, the unutilized VAT input
taxes on its purchases of goods and services related to such zero-rated
activities are available as tax credits or refund.
The BIR opposed this on the following grounds: It failed to show that the
tax was erroneously or illegally collected; the taxes paid and collected are
presumed to have been made in accordance with law; and that claims for
refund are strictly construed against the claimant. The CTA ruled that not the
entire amount claimed for refund by Toyo were actually offset against its
related accounts. It determined that the refund/credit amounted only to
P2.1M. The same was affirmed by the CA.

Issue: Whether the CA erred in affirming the CTA granting a refund

representing unutilized input VAT on goods and services.

Ruling: The petition is denied. Cebu is entitled to the P2.1M tax refund/credit.
Petitioners contention that respondent is not entitled to refund for being
exempt form VAT is untenable. This argument turns a blind eye to the fiscal
incentives given to PEZA registered enterprises under RA 7916. Under this
statute, Cebu has to options with respect to its tax burden. It could avail of an
income tax holiday pursuant to EO 226, thus exempting it from income taxes

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for a number of years (in this case, 4 years) but not from other internal revenue
taxes such as VAT; or it could avail of the tax exemption on all taxes, including
VAT under PD 66 and pay only the preferential rate of 5% under RA 7916.
Thus, availing of the first option, respondent is not exempt from VAT and it
correctly registered itself as a VAT taxpayer. In fine, it is engaged in a taxable
rather than exempt transaction. In taxable transactions, the seller (Cebu) shall
be entitled to tax credit for the VAT paid on purchases and leases of goods
properties or services. Under the VAT system, a zero-rate sale by a VAT-
registered person, which is a taxable transaction for VAT purposes, shall not
result in any output tax. However, input tax on his purchase of goods,
properties or services related to such zero-related sale shall be available as a
tax credit or refund. While a zero rating and exemption are computationally the
same, they actually differ in several aspects, to wit:A) A zero-rated sale is a
taxable transaction but does not result in an output tax while an exempted
transaction is not subject to the output tax;B) The input VAt on the purchases
of VAT-registered person with zero-rated sales may be allowed as tax credits or
refunded while the seller in an exempt transaction is not entitled to any output
tax on his purchases despite the issuance of a VAT invoice or receipt;C)
Persons engaged in transactions which are zero-rated, being subject to VAt, are
required to register while registration is optional for VAt-exempt persons.Since
Cebu did not have any output tax against which said input tax may be offset, it
had the option to file a claim for tax refund/credit of its unutilized input taxes.

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS,

INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C.
VILLANUEVA v. HON. BIENVENIDO TAN G.R. No. 81311. June 30, 1988

FACTS:

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The four consolidated cases questions the validity of the VAT (Executive Order
273) for being unconstitutional in that its enactment is not allegedly within the
powers of the President; that the VAT is oppressive, discriminatory, regressive,
and violates the due process and equal protection clauses and other provisions
of the 1987 Constitution.

The Solicitor General prays for the dismissal of the petitions on the ground that
the petitioners have failed to show justification for the exercise of its judicial
powers. He also questions the legal standing of the petitioners who, he
contends, are merely asking for an advisory opinion from the Court, there
being no justiciable controversy for resolution.

ISSUE: Whether VAT is unconstitutional.

RULING:

No. First, the Court held that the President had authority to issue EO 273 as it
was provided in the Provisional constitution that the President shall have
legislative powers.

Second, petitioners have failed to show that EO 273 was issued capriciously
and whimsically or in an arbitrary or despotic manner by reason of passion or
personal hostility. It appears that a comprehensive study of the VAT had been
extensively discussed by this framers and other government agencies involved
in its implementation, even under the past administration.

Lastly, petitioners also failed to prove that EO 273 is oppressive,

discriminatory, unjust and regressive, in violation of the equal protection
clause. Petitioners merely rely upon newspaper articles which are actually
hearsay and have evidentiary value. To justify the nullification of a law. there
must be a clear and unequivocal breach of the Constitution, not a doubtful and
argumentative implication. As the Court sees it, EO 273 satisfies all the
requirements of a valid tax.

In any event, if petitioners seriously believe that the adoption and continued
application of the VAT are prejudicial to the general welfare or the interests of
the majority of the people, they should seek recourse and relief from the
political branches of the government. The Court, following the time-honored
doctrine of separation of powers, cannot substitute its judgment for that of the
President as to the wisdom, justice and advisability of the adoption of the VAT.
The Court can only look into and determine whether or not EO 273 was

20 | P a g e
enacted and made effective as law, in the manner required by, and consistent
with, the Constitution, and to make sure that it was not issued in grave abuse
of discretion amounting to lack or excess of jurisdiction; and, in this regard,
the Court finds no reason to impede its application or continued
implementation.

CIR v. MAGSAYSAY LINES

GR NO. 146984, 2006-07-28
Facts:
The Court of Tax Appeals (CTA) and the Court of Appeals commonly ruled that
the sale is not subject to VAT.

21 | P a g e
Pursuant to a government program of privatization, NDC decided to sell to
private enterprise all of its shares.
Pursuant to a government program of privatization, NDC decided to sell to
private enterprise all of its shares in the National Marine Corporation (NMC).
The NDC decided to sell in one lot its NMC shares and five (5) of its ships,
which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.
The NMC shares and the vessels were offered for public bidding. Among the
stipulated terms and conditions for the public auction was that the winning
bidder was to pay "a value added tax of 10% on the value of the vessels."
Private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the
shares and the vessels for P168, 000,000.00.
The bid was approved by the Committee on Privatization, and a Notice of
Award dated 1 July 1988 was issued to Magsaysay Lines.
VAT Ruling No. 568-88 dated 14 December 1988 from the BIR, holding that the
sale of the vessels was subject to the 10% VAT.
At this point, NDC drew on the Letter of Credit to pay for the VAT, and
the amount of P15,120,000.00 in taxes was paid... private respondents filed an
Appeal and Petition for Refund with the CTA... refund of the VAT payment
made amounting to P15,120,000.00
CIR opposed the petition.
The CTA ruled that the sale of a vessel was an "isolated transaction," not
done in the ordinary course of NDC's business, and was thus not subject to
VAT,... which under Section 99 of the Tax Code, was applied only to sales in
the course of trade or business.
Issues:
Whether the sale by the National Development Company (NDC) of five (5)
of its vessels to the private respondents is subject to value-added tax (VAT)
under the National Internal Revenue Code of 1986 (Tax Code) then prevailing
at the time of the sale.
Ruling:
The fact that the sale was not in the... course of the trade or business of
NDC is sufficient in itself to declare the sale as outside the coverage of VAT.
The tax is... levied only on the sale, barter or exchange of goods or services by
persons who engage in such activities, in the course of trade or business.
Based on the aforecited jurisprudence is that "course of business" or
"doing business" connotes regularity of activity. In the instant case, the sale
was an isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of

22 | P a g e
 Government for privatization could no longer be repeated or carried on
with regularity. It should be emphasized that the normal VAT-registered
activity of NDC is leasing personal property
Principles:
VAT
The conclusion that the sale was not in the course of trade or business, which
the CIR does not dispute before this Court,[24] should have definitively settled
the matter. Any sale, barter or exchange of goods or services not in the course
of trade or... business is not subject to VAT.

CIR vs Toshiba Information Equipment (Phil.)

G.R. No. 150154, 9 August 2005

Facts:

23 | P a g e
Toshiba was claiming a refund for the input tax it paid on unutilized capital
goods purchased. However, the CIR said that it cannot because the capital
goods and services it purchased are considered not used in VAT taxable
business and therefore, it is not entitled to refund of input taxes. Toshiba, on
the other hand, contended that it is PEZA-registered and located within the
ecozone and therefore for, VAT-exempt entity.

Issue:

Whether or not Toshiba is entitled to refund for the input tax it paid on
unutilized capital goods purchased considering that it is registered with PEZA
and located within the ecozone

Ruling:

Yes. CIR failed to differentiate between VAT-exempt transactions from VAT-

exempt entities. An exempt transactions are transactions specifically listed in
and expressly exempted from VAT under the Tax Code without regard to the
tax status, VAT-exempt or not, of the taxpayer. An exempt party, on the other
hand, is a person or entity granted VAT-exemption under the Tax Code, special
law or an international agreement to which the Philippines is a signatory and
by virtue of which its taxable transactions become exempt from VAT.

Toshiba, a PEZA-registered and located within a ecozone is a VAT-exempt

entity because of Sec 8 of Ta 7916 which establishes the fiction that ecozones
are foreign territory. Therefore, a supplier from the custom territory cannot
pass on output VAT to an ecozone enterprise, like Toshiba, since it is exempt.

CIR V AMERICAN EXPRESS INTERNATIONAL, INC. (Phil. Branch)

GR 152609 | June 29, 2005 |

Facts:
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was
tasked with servicing a unit of AMEX-Hongkong Branch and facilitating the
collections of AMEX-HK receivables from card members situated in the
Philippines and payment to service establishments in the Philippines.

24 | P a g e
It filed with BIR a letter-request for the refund of its 1997 excess input taxes,
citing as basis Section 110B of the 1997 Tax Code, which held that “xxx Any
input tax attributable to the purchase of capital goods or to zero-rated sales by
a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.”

In addition, respondent relied on VAT Ruling No. 080-89, which read, “In
Reply, please be informed that, as a VAT registered entity whose service is paid
for in acceptable foreign currency which is remitted inwardly to the Philippine
and accounted for in accordance with the rules and regulations of the Central
Bank of the Philippines, your service income is automatically zero rated xxx”

Petitioner claimed, among others, that the claim for refund should be
construed strictly against the claimant as they partake of the nature of tax
exemption.

CTA rendered a decision in favor of respondent, holding that its services are
subject to zero-rate. CA affirmed this decision and further held that
respondent’s services were “services other than the processing, manufacturing
or repackaging of goods for persons doing business outside the Philippines”
and paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of BSP.

Issue:
W/N AMEX Phils is entitled to refund

Held:
Yes. Section 102 of the Tax Code provides for the VAT on sale of services and
use or lease of properties. Section 102B particularly provides for the services or
transactions subject to 0% rate:
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP;

(2) Services other than those mentioned in the preceding subparagraph, e.g.
those rendered by hotels and other service establishments, the consideration
for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP

Under subparagraph 2, services performed by VAT-registered persons in the

Philippines (other than the processing, manufacturing or repackaging of goods
for persons doing business outside the Philippines), when paid in acceptable
foreign currency and accounted for in accordance with the R&R of BSP, are
zero-rated. Respondent renders service falling under the category of zero rating.

25 | P a g e
As a general rule, the VAT system uses the destination principle as a basis for
the jurisdictional reach of the tax. Goods and services are taxed only in the
country where they are consumed. Thus, exports are zero-rated, while imports
are taxed.
In the present case, the facilitation of the collection of receivables is different
from the utilization of consumption of the outcome of such service. While the
facilitation is done in the Philippines, the consumption is not. The services
rendered by respondent are performed upon its sending to its foreign client the
drafts and bulls it has gathered from service establishments here, and are
therefore, services also consumed in the Philippines. Under the destination
principle, such service is subject to 10% VAT.

However, the law clearly provides for an exception to the destination principle;
that is 0% VAT rate for services that are performed in the Philippines, “paid for
in acceptable foreign currency and accounted for in accordance with the R&R
of BSP.” The respondent meets the following requirements for exemption, and
thus should be zero-rated:
(1) Service be performed in the Philippines

(2) The service fall under any of the categories in Section 102B of the Tax
Code

(3) It be paid in acceptable foreign currency accounted for in accordance with

BSP R&R.

COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS and

COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION
G.R. No. 125355 March 30, 2000

FACTS:
Commonwealth Management and Services Corporation (COMASERCO, for
brevity), is a corporation duly organized and existing under the laws of the
Philippines. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the latter to perform collection, consultative and

26 | P a g e
other technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates.

Petitioner, Commissioner of the Bureau of Internal Revenue (BIR) issued an

assessment to private respondent COMASERCO for deficiency value-added tax
(VAT) amounting to P351, 851.01, for taxable year 1988.

With this, COMASERCO filed with the BIR, a letter-protest objecting to the
latter’s finding of deficiency VAT. In lieu however, the Commissioner of Internal
Revenue sent a collection letter to COMASERCO demanding payment of the
deficiency VAT.

As a result, COMASERCO filed with the Court of Tax Appeals a petition for
review contesting the Commissioner’s assessment asserting that the services it
rendered to Philamlife and its affiliates, relating to collections, consultative and
other technical assistance, including functioning as an internal auditor, were
on a “no-profit, reimbursement-of-cost-only” basis. It averred that it was not
engaged in the business of providing services to Philamlife and its affiliates.
COMASERCO stressed that it was not profit-motivated, thus not engaged in
business. In fact, it did not generate profit but suffered a net loss in taxable
year 1988, hence not liable to pay VAT.
The Court of Tax Appeals rendered decision in favor of the Commissioner of
Internal Revenue.
On its appeal with the Court of Appeals, the appellate court rendered decision
reversing that of the Court of Tax Appeals. The former anchored its decision on
the ratiocination in another tax case involving the same parties, where it was
held that COMASERCO was not liable to pay fixed and contractor’s tax for
services rendered to Philamlife and its affiliates. The Court of Appeals, in that
case, reasoned that COMASERCO was not engaged in business of providing
services to Philamlife and its affiliates. In the same manner, the Court of
Appeals held that COMASERCO was not liable to pay VAT for it was not
engaged in the business of selling services.
Hence, this case.

27 | P a g e
ISSUE: Whether or not COMASERCO was engaged in the sale of services, and
thus liable to pay VAT thereon?
RULING: YES.
The Court agreed with the Petitioner that to “engage in business” and to
“engage in the sale of services” are two different things. Petitioner maintains
that the services rendered by COMASERCO to Philamlife and its affiliates, for a
fee or consideration, are subject to VAT. VAT is a tax on the value added by the
performance of the service. It is immaterial whether profit is derived from
rendering the service.

Pursuant to Republic Act No. 7716, the Expanded VAT Law (EVAT), amending
among other sections, Section 99 of the Tax Code, it is provided that:

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

The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing sale or lease of goods, properties or
services at the time of the effectivity of Republic Act No. 7716.

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

The rule of regularity, to the contrary notwithstanding, services as defined in

this Code rendered in the Philippines by nonresident foreign persons shall be
considered as being rendered in the course of trade or business.

28 | P a g e
Contrary to COMASERCO’s contention the above provision clarifies that even a
non-stock, non-profit, organization or government entity, is liable to pay VAT
on the sale of goods or services. VAT is a tax on transactions, imposed at every
stage of the distribution process on the sale, barter, exchange of goods or
property, and on the performance of services, even in the absence of profit
attributable thereto. The term “in the course of trade or business” requires the
regular conduct or pursuit of a commercial or an economic activity regardless
of whether or not the entity is profit-oriented.

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

Sec. 108 of the National Internal Revenue Code of 1997 10 defines the phrase
“sale of services” as the “performance of all kinds of services for others for a fee,
remuneration or consideration.” It includes “the supply of technical advice,
assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking or
project.” 11

On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling

No. 010-98 12 emphasizing that a domestic corporation that provided
technical, research, management and technical assistance to its affiliated
companies and received payments on a reimbursement-of-cost basis, without
any intention of realizing profit, was subject to VAT on services rendered. In
fact, even if such corporation was organized without any intention realizing
profit, any income or profit generated by the entity in the conduct of its
activities was subject to income tax.

29 | P a g e
Hence, it is immaterial whether the primary purpose of a corporation indicates
that it receives payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT.

COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE HEALTH CARE

PROVIDERS, INC. G.R. No. 168129. April 24, 2007
FACTS:

On 1987, CIR issued VAT Ruling No. 231-88 stating that Philhealth, as a
provider of medical services, is exempt from the VAT coverage. When RA 8424
or the new Tax Code was implemented it adopted the provisions of VAT and E-
VAT. On 1999, the BIR sent Philhealth an assessment notice for deficiency VAT
and documentary stamp taxes for taxable years 1996 and 1997. After CIR did
not act on it, Philhealth filed a petition for review with the CTA. The CTA
withdrew the VAT assessment. The CIR then filed an appeal with the CA which
was denied.

ISSUES:
Whether Philhealth is subject to VAT.
Whether VAT Ruling No. 231-88 exempting Philhealth from payment of VAT
has retroactive application.

RULING:
YES. Section 103 of the NIRC exempts taxpayers engaged in the performance of
medical, dental, hospital, and veterinary services from VAT. But, in Philhealth's
letter requesting of its VAT-exempt status, it was held that it showed Philhealth
provides medical service only between their members and their accredited

30 | P a g e
hospitals, that it only provides for the provision of pre-need health care
services, it contracts the services of medical practitioners and establishments
for their members in the delivery of health services.
Thus, Philhealth does not fall under the exemptions provided in Section 103,
but merely arranges for such, making Philhealth not VAT-exempt. YES.
Generally, the NIRC has no retroactive application except when: where the
taxpayer deliberately misstates or omits material facts from his return or in
any document required of him by the Bureau of Internal Revenue;where the
facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based, orwhere the taxpayer
acted in bad faith.

The Court held that Philhealth acted in good faith. The term health
maintenance organization was first recorded in the Philippine statute books in
1995. It is apparent that when VAT Ruling No. 231-88 was issued in
Philhealth's favor, the term health maintenance organization was unknown
and had no significance for taxation purposes. Philhealth, therefore, believed in
good faith that it was VAT exempt for the taxable years 1996 and 1997 on the
basis of VAT Ruling No. 231-88. The rule is that the BIR rulings have no
retroactive effect where a grossly unfair deal would result to the prejudice of
the taxpayer.

31 | P a g e
32 | P a g e
33 | P a g e
 COMMISSIONER OF INTERNAL REVENUE VS. SONY PHILIPPINES, INC.-

FACTS:

Sony Philippines was ordered examined for “the period 1997 and unverified
prior years” as indicated in the Letter of Authority. The audit yielded
assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late
remittance of Final Withholding Tax on royalties for the period January to
March 1998 and (2) deficiency VAT on reimbursable received by Sony
Philippines from its offshore affiliate, Sony International Singapore (SIS).

ISSUES:

(1) Is Petitioner liable for deficiency Value Added Tax?

(2) Was the investigation of its 1998 Final Withholding Tax return valid?

HELD:

(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT
invoices when it paid for certain advertising costs. This is sufficient to accord it
the benefit of input VAT credits and where the money came from to satisfy said
advertising billings is another matter but does not alter the VAT effect. In the
same way, Sony Philippines can not be deemed to have received the
reimbursable as a fee for a VAT-taxable activity. The reimbursable was couched
as an aid for Sony Philippines by SIS in view of the company’s “dire or adverse
economic conditions”. More importantly, the absence of a sale, barter or
exchange of goods or properties supports the non-VAT nature of the
reimbursement. This was distinguished from the COMASERCO case where
even if there was similarly a reimbursement-on-cost arrangement between
affiliates, there was in fact an underlying service. Here, the advertising services
were rendered in favor of Sony Philippines not SIS.

(2) NO. A Letter of Authority should cover a taxable period not exceeding one
year and to indicate that it covers ‘unverified prior years’ should be enough to
invalidate it. In addition, even if the Final Withholding Tax was covered by
Sony Philippines’ fiscal year ending March 1998, the same fell outside of ‘the
period 1997’ and was thus not validly covered by the Letter of Authority.

34 | P a g e
 Kepco vs. CIR

GR No. 179356, December 14, 2009

Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-registered

independent power producer engaged in the business of generating electricity.
It exclusively sells electricity to National Power Corporation (NPC), an entity
exempt from taxes under Section 13 of Republic Act No. 6395 (RA No. 6395).3

Kepco filed an application for zero-rated sales and subsequently approved

In the course of doing business with NPC, Kepco claimed expenses reportedly
sustained in connection with the production and sale of electricity with NPC,
thus, paying input va andt attributing the same to its zero-rated sales of
electricity with NPC.

Afterwards, Kepco filed before CIR a claim for tax refund covering unutilized
input VAT payments attributable to its zero-rated sales transactions. It also
filed a petition for review before the CTA.

Respondent CIR averred that claims for refund were strictly construed against
the taxpayer as it was similar to a tax exemption

Petitioner argues that the 1997 National Internal Revenue Code (NIRC) does
not require the imprinting of the word zero-rated on invoices and/or official
receipts covering zero-rated sales.26 It claims that Section 113 in relation to
Section 237 of the 1997 NIRC "does not mention the requirement of imprinting
the words ‘zero-rated’ to purchases covering zero-rated transactions."27 Only
Section 4.108-1 of Revenue Regulation No. 7-95 (RR No. 7-95) "required the
imprinting of the word ‘zero-rated’ on the VAT invoice or receipt."28 "Thus,
Section 4.108-1 of RR No. 7-95 cannot be considered as a valid legislation
considering the long settled rule that administrative rules and regulations
cannot expand the letter and spirit of the law they seek to enforce."

The CTA Second Division ruled that out of the total declared zero-rated sales
ofP3,285,308,055.85, Kepco was only able to properly substantiate
P1,451,788,865.52 as its zero-rated sales. Only 44.19% of the validly
supported input VAT payments being claimed could be considered. The CTA

35 | P a g e
Second Division likewise disallowed the P5,170,914.20 of Kepco’s claimed
input VAT due to its failure to comply with the substantiation requirement.
ccordingly, the CTA Second Division partially granted Kepco’s claim for refund
of unutilized input VAT

Kepco moved for partial reconsideration, but the CTA Second Division denied it

Kepco appeal to the CTA En Banc, but dismissed the petition and ruled that "in
order for Kepco to be entitled to its claim for refund/issuance of tax credit
certificate representing unutilized input VAT attributable to its zero-rated sales
for taxable year 2002, it must comply with the substantiation requirements
under the appropriate Revenue Regulations, i.e. Revenue Regulations 7-95.

ISSUE:

1. Whether the word "zero-rated" should be imprinted on invoices and/or

official receipts as part of the invoicing requirement? WON non-compliance of
invoicing requirements should result in the denial of the taxpayer’s refund
claim?

2. WON Section 4.108.1 of Revenue Regulation 07-95 does requires the

word "TIN-VAT" to be imprinted on a VAT-registered person’s supporting
invoices and official receipts?

HELD:

1. Yes. The SC held that Section 4.108-1 of RR 7-95 proceeds from the rule-
making authority granted to the Secretary of Finance under Section 245 of the
1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax
code and of course its amendments. The requirement is reasonable and is in
accord with the efficient collection of VAT from the covered sales of goods and
services. The appearance of the word "zero-rated" on the face of invoices
covering zero-rated sales prevents buyers from falsely claiming input VAT from
their purchases when no VAT was actually paid. If, absent such word, a
successful claim for input VAT is made, the government would be refunding
money it did not collect.

36 | P a g e
Further, the printing of the word "zero-rated" on the invoice helps segregate
sales that are subject to 10% (now 12%) VAT from those sales that are zero-
rated. Unable to submit the proper invoices, petitioner Panasonic has been
unable to substantiate its claim for refund.

Section 4.108-1 of RR 7-9534 neither expanded nor supplanted the tax code
but merely supplemented what the tax code already defined and discussed. In
fact, the necessity of indicating "zero-rated" into VAT invoices/receipts became
more apparent when the provisions of this revenue regulation was later
integrated into RA No. 9337,35 the amendatory law of the 1997 NIRC

Evidently, as it failed to indicate in its VAT invoices and receipts that the
transactions were zero-rated, Kepco failed to comply with the correct
substantiation requirement for zero-rated transactions

Tax Remedies
Commissioner of Internal Revenue vs. Central Luzon Drug
Corporation
G.R. No. 159647 April 15, 2005

Facts:
Respondents operated six drugstores under the business name Mercury Drug.
From January to December 1996 respondent granted 20% sales discount to
qualified senior citizens on their purchases of medicines pursuant to RA 7432
for a total of ₱ 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable
year 1996 declaring therein net losses. On Jan. 16, 1998 respondent filed with
petitioner a claim for tax refund/credit of ₱ 904,769.00 allegedly arising from
the 20% sales discount. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals. The court dismissed
the same but upon reconsideration, the latter reversed its earlier ruling and
ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing
CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing

37 | P a g e
that Sec. 229 of RA 7432 deals exclusively with illegally collected or
erroneously paid taxes but that there are other situations which may warrant a
tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required

neither a tax liability nor a payment of taxes by private establishments prior to
the availment of a tax credit. Moreover, such credit is not tantamount to an
unintended benefit from the law, but rather a just compensation for the taking
of private property for public use.

Issue:
Whether or not respondent, despite incurring a net loss, may still claim the
20% sales discount as a tax credit.

Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of
obtaining a 20% discount on their purchase of medicine from any private
establishment in the country. The latter may then claim the cost of the
discount as a tax credit. Such credit can be claimed even if the establishment
operates at a loss.

A tax credit generally refers to an amount that is “subtracted directly from

one’s total tax liability.” It is an “allowance against the tax itself” or “a
deduction from what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of
these is tax deduction – which is subtraction “from income for tax purposes,”
or an amount that is “allowed by law to reduce income prior to the application
of the tax rate to compute the amount of tax which is due.” In other words,
whereas a tax credit reduces the tax due, tax deduction reduces the income
subject to tax in order to arrive at the taxable income.

A tax credit is used to reduce directly the tax that is due, there ought to be a
tax liability before the tax credit can be applied. Without that liability, any tax
credit application will be useless. There will be no reason for deducting the
latter when there is, to begin with, no existing obligation to the government.

38 | P a g e
However, as will be presented shortly, the existence of a tax credit or its grant
by law is not the same as the availment or use of such credit. While the grant
is mandatory, the availment or use is not. If a net loss is reported by, and no
other taxes are currently due from, a business establishment, there will
obviously be no tax liability against which any tax credit can be applied. For
the establishment to choose the immediate availment of a tax credit will be
premature and impracticable.

ATLAS CONSOLIDATED MINING v. CIR

FACTS: Petitioner corporation is engaged in the business of mining,
production, and sale of various mineral products, such as gold, pyrite, and
copper concentrates. It is a VAT-registered taxpayer.
Petitioner corporation filed with the BIR the application for the refund/credit of
its input VAT on its purchases of capital goods and on its zero-rated sales.
When its application for refund/credit remained unresolved by the BIR,
petitioner filed a Petition for Review with the CTA. The CTA denied the claims
on the grounds that for zero-rating to apply, 70% of the company's sales must
consists of exports, that the same were not filed within the 2-year prescriptive
period (the claim for 1992 quarterly returns were judicially filed only on April
20, 1994), and that petitioner failed to submit substantial evidence to support
its claim for refund/credit.

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

ISSUES:
1. Whether or not the claims were filed within the 2-year prescriptive period
2. Whether or not the claims for refund/credit of input VAT of petitioner
corporation have sufficient legal bases
3. Whether or not petitioner sufficiently established the factual bases for its
applications for refund/credit of input VAT

HELD:
1. YES. The filing of a quarterly income tax returns required in Section 85 (now
Section 68) and implemented per BIR Form 1702-Q and payment of quarterly
income tax should only be considered mere installments of the annual tax due.
These quarterly tax payments which are computed based on the cumulative
figures of gross receipts and deductions in order to arrive at a net taxable
income, should be treated as advances or portions of the annual income tax
due, to be adjusted at the end of the calendar or fiscal year. This is reinforced
by Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year
prescriptive period provided in Section 292 (now Section 230) of the Tax Code
should be computed from the time of filing the Adjustment Return or Annual
Income Tax Return and final payment of income tax.

2. YES. Section 106(b)(2), in relation to Section 100(a)(2) of the Tax Code of

1977, as amended, allowed the refund/credit of input VAT on export sales to
enterprises operating within export processing zones and registered with the
EPZA, since such export sales were deemed to be effectively zero-rated sales.

40 | P a g e
Tax treatment of goods brought into the export processing zones is only
consistent with the Destination Principle and Cross Border Doctrine to which
the Philippine VAT system adheres. According to the Destination Principle,
goods and services are taxed only in the country where these are consumed. In
connection with the said principle, the Cross Border Doctrine mandates that
no VAT shall be imposed to form part of the cost of the goods destined for
consumption outside the territorial border of the taxing authority. Hence,
actual export of goods and services from the Philippines to a foreign country
must be free of VAT, while those destined for use or consumption within the
Philippines shall be imposed with 10% VAT. Export processing zones are to be
managed as a separate customs territory from the rest of the Philippines and,
thus, for tax purposes, are effectively considered as foreign territory. For this
reason, sales by persons from the Philippine customs territory to those inside
the export processing zones are already taxed as exports.

3. NO. For a judicial claim for refund to prosper, however, respondent must not
only prove that it is a VAT registered entity and that it filed its claims within
the prescriptive period. It must substantiate the input VAT paid by purchase
invoices or official receipts. This respondent failed to do. Petitioner corporation
failed to present together with its application the required supporting
documents, whether before the BIR or the CTA.
Tax refunds are in the nature of tax exemptions. It is regarded as in
derogation of the sovereign authority, and should be construed in strictissimi
juris against the person or entity claiming the exemption. The taxpayer who
claims for exemption must justify his claim by the clearest grant of organic or
statute law and should not be permitted to stand on vague implications.

41 | P a g e
 BPI vs CIR
473 SCRA 205, Oct.17, 2005
Facts:
Petitioner BPI On two separate occasions, particularly on 06 June 1985 and 14
June 1985, sold United States (US) $500,000.00 to the Central Bank of the
Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On
10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No.
FAS-5-85-89-002054,[3]finding petitioner BPI liable for deficiency DST on its
afore-mentioned sales of foreign bills of exchange to the Central Bank,
Petitioner BPI received the Assessment, together with the attached Assessment
Notice,[4] on 20 October 1989. Petitioner BPI, through its counsel, protested
the Assessment. Petitioner BPI did not receive any immediate reply to its
protest letter. However, on 15 October 1992, the BIR issued a Warrant of
Distraint and/or Levy against petitioner BPI for the assessed deficiency DST for
taxable year 1985, in the amount of P27,720.00. It served the Warrant on
petitioner BPI only on 23 October 1992.
Then again, petitioner BPI did not hear from the BIR until 11 September 1997,
when its counsel received a letter, dated 13 August 1997, denying its request
for reconsideration.
Petitioner BPI raised in its Petition for Review The defense of prescription of the
right of respondent BIR Commissioner to enforce collection of the assessed
amount. It alleged that respondent BIR Commissioner only had three years to
collect but she waited for seven years and nine months to deny the protest.

42 | P a g e
The CTA ruled that the BIR can still collect since the statute of limitations has
not yet prescribed. The ruling was predicated on the fact that the petitioner
filed its protest on the subject assessment on 1989 and that said protest
stopped the running of the prescriptive period of the commissioner to collect.
The CTA ruled too that the sale of foreign currency by petitioner to central
bank is not subject to DST.
Respondent BIR appealed the decision to the CA. The CA agreed with the CTA
that the prescription period has not prescribed but it disagreed and reversed
the decision of the CA that the sale of foreign currencies is NOT subject to DST.
The court then ordered to pay the amount as deficiency DST for the
aforementioned taxable year. Hence the petition before the court.

Issue: whether or not the right of respondent BIR Commissioner to collect from
petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed;

Ruling: Yes.
The period for the BIR to assess and collect an internal revenue tax is limited
to three years by Section 203 of the Tax Code of 1977. The three-year period
of limitations on the assessment and collection of national internal revenue
taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected,
adjusted, or suspended, in accordance with the following provisions of the
same Code.
As enunciated in these statutory provisions, the BIR has three years, counted
from the date of actual filing of the return or from the last date prescribed by
law for the filing of such return, whichever comes later, to assess a national
internal revenue tax or to begin a court proceeding for the collection thereof
without an assessment.
In the present Petition, there is no controversy on the timeliness of the
issuance of the Assessment, only on the prescription of the period to collect the
deficiency DST following its Assessment. Counting the three-year prescriptive
period, for a total of 1,095 days,[21] from 20 October 1989, then the BIR only
had until 19 October 1992 within which to collect the assessed deficiency DST.

43 | P a g e
 China Banking Corporation v. CIR
G.R. No. 172509
February 4, 2015

Facts:

China Banking Corporation (“CBC”) is a universal bank duly organized

under the laws of the Philippines. It is engaged in transactions involving sales
of foreign exchange to the Central Bank of the Philippines, commonly known as
SWAP Transactions. CBC did not pay tax on the SWAP transactions for the
years 1982-1986.
On 19 April 1989, CBC was assessed by the BIR for deficiency DST on
the sales of foreign bills of exchange to the Central Bank amounting to P
11,383, 165.50. CBC protested asserting five defenses: double taxation,
absence of liability, due process violation, validity of assessment and tax
exemption.
On 6 December 2001, more than 12 years after the filing of the protest,
the Commissioner of Internal Revenue (CIR) rendered a decision reiterating the
deficiency DST assessment and ordered the payment thereof plus increments
within 30 days from receipt of the Decision.
The CIR replied to the CBC’s protest only on 06 December 2001 in which
it ordered CBC to pay its tax deficiency. Thereafter, CBC filed a Petition for
Review with the CTA.
The CTA denied CBC’s petition ruling that the SWAP transaction is a
telegraphic transfer subject to DST; thus, CBC is liable to pay the alleged
deficiency.
On appeal, CBC raised for the first time the issue of prescription. The
BIR did not address the issue of prescription in its Comment.

Issue: Whether the right of the BIR to collect the assessed DST from CBC is barred by
prescription.

Held:

44 | P a g e
 Yes, the BIR’s claim is barred by prescription. Following Sec. 319(c) of the
1977 NIRC (the Tax Code applicable at the time of assessment), assessed tax
must be collected by distraint or levy and/or court proceeding within three
years from the date when the BIR mails/releases/sends the assessment notice
to the taxpayer.
In this case, the records do not show when the assessment notice was
mailed, released or sent to CBC. Nevertheless, the latest possible date that the
BIR could have released, mailed or sent the assessment notice was on the
same date that CBC received it, 19 April 1989. Assuming therefore that 19
April 1989 is the reckoning date, the BIR had three years to collect the
assessed DST. However, the records of this case show that there was neither a
warrant of distraint or levy served on CBC's properties nor a collection case
filed in court by the BIR within the three-year period.
The attempt of the BIR to collect the tax through its Answer with a
demand for CBC to pay the assessed DST in the CTA on 11 March 2002 did
not comply with Section 319(c) of the 1977 Tax Code, as amended. The
demand was made almost thirteen years from the date from which the
prescriptive period is to be reckoned. Thus, the attempt to collect the tax was
made way beyond the three-year prescriptive period.
The Court also stated that although CBC raised the issue of prescription
for the first time only during appeal, this does not negate the applicability of
prescription. Citing Sec. 1 of Rule 9 of the Rules of Court, the Court ruled that
if the pleadings or evidence on record shows that the claim is barred by
prescription; the court is mandated to dismiss the claim even if prescription
was not raised as a defense.
The principle of estoppel likewise applies. As a general rule, the principle
of estoppel and waiver does not prevent the government from collecting taxes
as the BIR is not bound by the mistake or negligence of its agents.
Nonetheless, the Supreme Court enunciated that the principle is not absolute.
Relying on Republic v. Ker & Co. Ltd., the Court ruled that estoppel
cannot apply in this case as the CIR failed to raise the issue of prescription in
its Comment. The 12-year delay in collecting the assessed tax further
convinced the Court that estoppel could not apply in this case.

45 | P a g e
 RCBC v. CIR
G.R. No. 170257 September 7, 2011
FACTS:

January 23, 1997, RCBC executed 2 waivers of Defense of Prescription. Under

the statute of limitation of the NIRC covering the Internal Revenue Taxes due
for 1994 and 1995 extending the assessment up to Dec. 31, 2000.

January 27, 2000: RCBC received a formal letter of demand together with
assessment notices for deficiency taxes. RCBC filed a Protest and then,
a Petition for Review before the CTA pursuant to Sec. 228 of the 1997 Tax
Code.

Dec. 6, 2000: It again received a letter of demand which drastically reduced the
deficiency tax except from the onshore tax and document stamp tax (DST).

RCBC argued the validity of the waivers for not being signed and for the
onshore tax; it should not be primarily liable since it is only a withholding
agent. CTA terminated the assessment for other deficiencies except for the
FCDU shore tax and DST charging 20% deficiency tax. Being denied in CTA en
banc, it raised the matter to the Supreme Court. While the case is pending,
the DST deficiency was paid after the BIR approved its application for
abatement.

ISSUES: W/N RCBC as payee bank can be held liable for deficiency on shore
tax which is mandatory by law to be collected at source in the form of a final
withholding tax.

HELD: Petition is denied. As held in Chamber of Real Estate and Builder's

Association Inc. v. Executive Sec., the purpose of the withholding tax system
are:

1. to provide the taxpayer with a convenient way of paying his tax liability
2. to ensure the collection of tax
3. to improve the governments cash flow.

Under the withholding tax system, the payor is the taxpayer upon whom the
tax is imposed, while the withholding agent simply acts as an agent or a
collector of the government to ensure the collection of taxes

The liability of the withholding agent is independent from that of the

taxpayer. The former cannot be made liable for the tax due because it is the

46 | P a g e
latter who earned the income subject to withholding tax. The withholding
agent is liable only insofar as he failed to perform his duty to withhold the tax
and remit the same to the government. The liability for the tax, however,
remains with the taxpayer because the gain was realized and received by him.

RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame
on the payor-borrower as the withholding agent. The CTA, as a specialized
court dedicated exclusively to the study and resolution of tax problems, has
developed an expertise on the subject of taxation and shall be accorded the
highest respect and shall be presumed valid, in the absence of any clear and
convincing proof to the contrary.

Wonder Mechanical Engineering Corp. v CTA

64 SCRA 555
Facts:
Wonder Corp. was engaged in the business of manufacturing auto spare
parts, lamp shades, rice threshers and other articles. It was also engaged in

47 | P a g e
the business of electroplating and repairs of machines. However, it did not pay
sales tax on the sale of articles and the percentage tax on its electroplating and
repair business.
Commissioner of Internal Revenue caused the investigation of Wonder
Corp. for the purpose of ascertaining its tax liability. Revenue Examiner Pedro
Cabigao reported that Corp. manufactured and sold other articles subject to
7% sales tax but not covered by the Corp’s tax exemption privilege. The Corp.
was assessed with a deficiency percentage tax of P25, 080. and a 25%
surcharge.
Wonder Corp. contends that it was a given a Certificate of Tax Exemption with
respect to the manufacture of machines for making cigarette paper, pails, lead
washer, nails (Those which are determined as new and necessary by RA 901).

Issue:
Whether or not the manufacture and sale of steel chairs, jeep parts which are
not machines for making other products are tax exempt under RA 901.

Held:
No. Wonder Corp. was granted the tax exemption in the manufacture and sale
of machines but not manufacture and sale of the articles produced by the
machines. Such was the intention of the State for new and necessary
industries as an incentive to greater and adequate production of products
made scarce by World War II. Tax exemptions are highly disfavored in law and
those who claim them must be able to justify his claim and must be clearly
expressed in the law. Tax exemptions cannot be established by implication.
In the case, Wonder Corp. was granted tax exemption in the manufacture of
cigarette paper, pails, lead washers, and nails as explicitly stated in the
Certificate of Tax Exemption. The manufacture of steel chairs, jeep parts and
other articles not constituting machines for making certain products does not
fall under RA 901.

48 | P a g e
 COMMISSIONER OF INTERNAL REVENUE,
- versus -
METRO STAR SUPERAMA, INC.,
G.R. No. 185371 December 8, 2010

FACTS:
Petitioner is a domestic corporation.
On January 26, 2001, the Regional Director of Revenue in Legazpi City, issued
Letter of Authority to examine petitioner’s books of accounts and other
accounting records for taxable year 1999.
For petitioner’s failure to comply with several requests to present the
records and Subpoena Duces Tecum, BIR Legal Division issued an
Indorsement to proceed with the investigation based on the best evidence
obtainable preparatory to the issuance of assessment notice.
Then, RDO issued a Preliminary Assessment Notice Letter stating a deficiency
in VAT and withholding taxes in the amount of P292, 874.16 for the year 1999.
Thereafter, a formal letter of demand was sent. The Final Notice of Seizure
came next, giving Metro Star Superama last opportunity to settle its deficiency
tax liabilities within ten (10) days from receipt thereof, otherwise BIR shall be
constrained to serve and execute the Warrants of Distraint and/or Levy and
Garnishment to enforce collection.

49 | P a g e
 Not able to comply, Metro Super Rama received a Warrant of Distraint
and/or Levy demanding payment of deficiency value-added tax and
withholding tax payment in the amount of P292,874.16.
The Commissioner denied the MOR filed by Metro Super Rama.
Denying that it received a Preliminary Assessment Notice (PAN) and claiming
that it was not accorded due process, Metro Star filed a petition for review with
the CTA.
The CTA-Second Division rendered a decision in favor of the Metro Super
Rama. The CTA-Second Division opined that “while there is a disputable
presumption that a mailed letter is deemed received by the addressee in the
ordinary course of mail, a direct denial of the receipt of mail shifts the burden
upon the party favored by the presumption to prove that the mailed letter was
indeed received by the addressee.”
It found that there was no clear showing that Metro Star actually received the
alleged PAN. It, accordingly, ruled that the Formal Letter of Demand and the
Warrant of Distraint and/or Levy dated were void, as Metro Star was denied
due process.
CTA En Banc affirmed in toto the CTA Second Division’s decision. Hence,
this petition.

ISSUE: Is the failure to strictly comply with notice requirements prescribed

under Section 228 of the National Internal Revenue Code of 1997 tantamount
to a denial of due process?

HELD: YES, not complying strictly with the Preliminary Assessment Notice or
PAN is tantamount to a denial of due process.
The Court agrees with the CTA that the CIR failed to discharge its duty and
present any evidence to show that Metro Star indeed received the PAN dated
January 16, 2002. It could have simply presented the registry receipt or the
certification from the postmaster that it mailed the PAN, but failed. Neither did
it offer any explanation on why it failed to comply with the requirement of
service of the PAN. It merely accepted the letter of Metro Star’s chairman dated
April 29, 2002, that stated that he had received the FAN dated April 3, 2002,
but not the PAN.

50 | P a g e
 Section 228 of the Tax Code clearly requires that the taxpayer must first
be informed that he is liable for deficiency taxes through the sending of a PAN.
He must be informed of the facts and the law upon which the assessment is
made. The law imposes a substantive, not merely a formal, requirement. To
proceed heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle in administrative
investigations - that taxpayers should be able to present their case and adduce
supporting evidence.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by

the Assessment Division or by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing in detail, the facts and the
law, rules and. If the taxpayer fails to respond within fifteen (15) days from
date of receipt of the PAN, he shall be considered in default, in which case, a
formal letter of demand and assessment notice shall be caused to be issued by
the said Office, calling for payment of the taxpayer's deficiency tax liability,
inclusive of the applicable penalties. From the provision quoted above, it is
clear that the sending of a PAN to taxpayer to inform him of the assessment
made is but part of the “due process requirement in the issuance of a
deficiency tax assessment,” the absence of which renders nugatory any
assessment made by the tax authorities.
The use of the word “shall” in subsection 3.1.2 describes the mandatory
nature of the service of a PAN. The persuasiveness of the right to due process
reaches both substantial and procedural rights and the failure of the CIR to
strictly comply with the requirements laid down by law and its own rules is a
denial of Metro Star’s right to due process. Thus, for its failure to send the PAN
stating the facts and the law on which the assessment was made as required
by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.

51 | P a g e
 It is an elementary rule enshrined in the 1987 Constitution that no
person shall be deprived of property without due process of law. In balancing
the scales between the power of the State to tax and its inherent right to
prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection
of the laws on the other, the scales must tilt in favour of the individual, for a
citizen’s right is amply protected by the Bill of Rights under under the
Constitution. Thus, while “taxes are the lifeblood of the government,” the power
to tax has its limits, in spite of all its plenitude.
RULING: WHEREFORE, the petition is DENIED.
SO ORDERED.

Samar-I Electric Cooperative (SIEC) v. CIR

GR 193100
December 10, 2014

52 | P a g e
FACTS:

Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with

principal office at Barangay Carayman, Calbayog City.

On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income
tax returns, respectively. Petitioner filed its 1997, 1998, and 1999 Annual
Information Return of Income Tax Withheld on Compensation, Expanded and
Final Withholding Taxes on February 17, 1998, February 1, 1999, and
February 4, 2000, in that order.

On November 13, 2000, respondent issued a duly signed Letter of Authority

(LOA) covering the examination of petitioner's books of account and other
accounting records for income and withholding taxes for the period 1997 to
1999. Petitioner cooperated in the audit and investigation conducted by the
Special Investigation Division of the BIR by submitting the required documents
on December 5, 2000. On October 19, 2001, respondent sent a Notice for
Informal Conference which was received by petitioner in November 2001;
indicating the allegedly income and withholding tax liabilities of petitioner for
1997 to 1999. Attached to the letter is a summary of the report, with an
explanation of the findings of the investigators. In response, petitioner sent a
letter dated November 26, 2001 to respondent maintaining its indifference to
the latter's findings and requesting details of the assessment.On December 13,
2001, petitioner executed a Waiver of the Defense of Prescription under the
Statute of Limitations, good until March 29, 2002. Consequently, on
September 15, 2002, petitioner received a demand letter and assessments
notices (Final Assessment Notices) for the alleged 1997, 1998, and 1999
deficiency withholding tax in the amount of [P]3,760,225.69, as well as
deficiency income tax covering the years 1998 to 1999 in the amount of
[P]440,545.71, or in the aggregate amount of [P]4,200,771.40.
CTA EB: It ruled that SAMELCO-I is exempted in the payment of the Minimum
Corporate Income Tax (MCIT); that due process was observed in the issuance of
the assessments in accordance with Section 228 of the Tax Code; and that the
1997 and 1998 assessments on deficiency withholding tax on compensation
have not prescribed.
Petitioner moved for reconsideration.
In a Resolution dated July 28, 2010, the CTA EB denied the motion.
Petitioner contends that the subject 1997 and 1998 withholding tax
assessments on compensation were issued beyond the prescriptive period of

53 | P a g e
three years under Section 203 of the NIRC of 1997. Under this section, the
government is allowed a period of only three years to assess the correct tax
liability of a taxpayer, viz.:
SEC. 203. Period of Limitation Upon Assessment and Collection.
— Except as provided in Section 222, internal revenue taxes shall
be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a
case where a return is filed beyond the period prescribed by law,
the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the
last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
Relying on Section 203, petitioner argues that the subject deficiency tax
assessments issued by respondent on September 15, 2002 was issued
beyond the three-year prescriptive period. Petitioner filed its Annual
Information Return of Income Tax Withheld on Compensation, Expanded
and Final Withholding Taxes on the following dates: on February 17,
1998 for the taxable year 1997; and on February 1, 1999 for the year
taxable 1998. Thus, if the period prescribed under Section 203 of
the NIRC of 1997 is to be followed, the three-year prescriptive period to
assess for the taxable years 1997 and 1998 should have ended on
February 16, 2001 and January 31, 2002, respectively.|||
ISSUE:
(1) won the 1997 and 1998 assessments on withholding tax on
compensation were issued within the prescriptive period provided by law;
HELD:
(1) YES. While petitioner is correct that Section 203 sets the three-year
prescriptive period to assess, the following exceptions are provided under
Section 222 of the NIRC of 1997, viz.:
SEC. 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes. —
(a) In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of

54 | P a g e
 such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity,
fraud or omission: Provided,That in a fraud assessment
which has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal action
for the collection thereof.
In the case at bar, it was petitioner's substantial underdeclaration of
withholding taxes in the amount of P2,690,850.91 which constituted the
"falsity" in the subject returns — giving respondent the benefit of the
period under Section 222 of the NIRC of 1997 to assess the correct
amount of tax "at any time within ten (10) years after the discovery of the
falsity, fraud or omission."|||
The case of Aznar v. Court of Tax Appeals discusses what acts or omissions
may constitute falsity, viz.:
Petitioner argues that Sec. 332 of the NIRC does not apply
because the taxpayer did not file false and fraudulent returns
with intent to evade tax, while respondent Commissioner of
Internal Revenue insists contrariwise, with respondent Court of
Tax Appeals concluding that the very "substantial
underdeclarations of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax returns
with an intent to evade the payment of tax."
To our minds we can dispense with these controversial
arguments on facts, although we do not deny that the findings of
facts by the Court of Tax Appeals, supported as they are by very
substantial evidence, carry great weight, by resorting to a proper
interpretation of Section 332 of the NIRC. We believe that the
proper and reasonable interpretation of said provision should be
that in the three different cases of (1) false return, (2) fraudulent
return with intent to evade tax, (3) failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within
ten years after the discovery of the (1) falsity, (2) fraud, (3)
omission. Our stand that the law should be interpreted to mean a
separation of the three different situations of false return,
fraudulent return with intent to evade tax, and failure to file a
return is strengthened immeasurably by the last portion of the
provision which segregates the situations into three different

55 | P a g e
 classes, namely "falsity," "fraud" and "omission." That there is a
difference between "false return" and "fraudulent return" cannot
be denied. While the first merely implies deviation from the truth,
whether intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.
A careful examination of the evidence on record yields to no other
conclusion but that petitioner failed to withhold taxes from its employees'
13th month pay and other benefits in excess of thirty thousand pesos
(P30,000.00) amounting to P2,690,850.91 for the taxable years 1997 to
1999 — resulting to its filing of the subject false returns. Petitioner failed
to refute this finding, both in fact and in law, before the courts a quo.

LIQUIGAZ PHILIPPINES CORPORATION v

COMMISSIONER OF INTERNAL REVENUE
G.R. No. 215534 , April 18, 2016

FACTS:

Liquigaz Philippines Corporation (Liquigaz) is a corporation duly organized and

existing under Philippine laws. On July 11, 2006, it received a copy of Letter of
Authority (LOA) dated July 4, 2006, issued by the Commissioner of Internal

56 | P a g e
Revenue (CIR), authorizing the investigation of all internal revenue taxes for
taxable year 2005.

On April 9, 2008, Liquigaz received an undated letter purporting to be a Notice

of Informal Conference (NIC), as well as the detailed computation of its
supposed tax liability. On May 28, 2008, it received a copy of the Preliminary
5
Assessment Notice (PAN), dated May 20, 2008, together with the attached
6
details of discrepancies for the calendar year ending December 31, 2005.
Upon investigation, Liquigaz was initially assessed with deficiency withholding
tax liabilities, inclusive of interest, in the aggregate amount of P23,931,708.72

Thereafter, on June 25, 2008, it received a Formal Letter of Demand (FLD)/

Formal Assessment Notice (FAN), together with its attached details of
discrepancies, for the calendar year ending December 31, 2005. The total
deficiency withholding tax liabilities, inclusive of interest, under the FLD was
P24,332,347.20

On July 25, 2008, Liquigaz filed its protest against the FLD/FAN and
subsequently submitted its supporting documents on September 23, 2008.

Then, on July 1, 2010, it received a copy of the FDDAcovering the tax audit
under LOA No. 00067824 for the calendar year ending December 31, 2005. As
reflected in the FDDA, the CIR still found Liquigaz liable for deficiency
withholding tax liabilities, inclusive of interest, in the aggregate amount of
P22,380,025.19

Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the
CTA Division assailing the validity of the FDDA issued by the CIR.

CTA DIVISION RULING

The CTA Division partially granted Liquigaz’s petition cancelling the EWT and
FBT assessments but affirmed with modification the WTC assessment. It ruled
that the portion of the FDDA relating to the EWT and the FBT assessment was
void pursuant to Section 228 of the National Internal Revenue Code (NIRC) of
1997, as implemented by Revenue Regulations (RR) No. 12-99.

The CTA Division noted that unlike the PAN and the FLD/FAN, the FDDA
issued did not provide the details thereof, hence, Liquigaz had no way of
knowing what items were considered by the CIR in arriving at the deficiency

57 | P a g e
assessments. This was especially true because the FDDA reflected a different
amount from what was stated in the FLD/FAN.

On the other hand, it upheld the WTC assessment against Liquigaz. It noted
that the factual bases used in the FLD and the FDDA with regard thereto were
the same as the difference in the amount merely resulted from the use of a
different tax rate.

The CTA Division relied on the report prepared by Antonio O. Maceda, Jr., the
court-commissioned independent accountant, which found that Liquigaz was
unable to substantiate the discrepancy found by the CIR on its withholding tax
liability on compensation.

Both the CIR and Liquigaz moved for reconsideration, but their respective
motions were denied by the CTA Division in its February 20, 2013 Resolution.

Aggrieved, they filed their respective petitions for review before the CTA En
Banc.

THE CTA En Banc Ruling

The CTA En Banc affirmed the assailed decision of the CTA Division. It
reiterated its pronouncement that the requirement that the taxpayer should be
informed in writing of the law and the facts on which the assessment was made
applies to the FDDA— otherwise the assessment would be void.

FDDA indicated the legal provisions relied upon for the assessment, the source
of the amounts from which the assessments arose were not shown and that
both reflected different amounts. Further, The CTA En Banc highlighted that
the change in the amount of assessed WTC deficiency simply arose from the
revision of the tax rate used—from 32% to the effective tax rate of 25.40%
suggested by Liquigaz.

ISSUE:

1. WHETHER THE COURT OF TAX APPEALS EN BANC ERRED IN PARTIALLY

UPHOLDING THE VALIDITY OF THE ASSESSMENT AS TO THE
WITHHOLDING TAX ON COMPENSATION BUT DECLARING INVALID THE
ASSESSMENT ON EXPANDED WITHHOLDING TAX AND FRINGE BENEFITS
TAX.

2. Whether the assailed FDDA is void for failure to state the facts

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HELD: The Court finds that the CTA erred in concluding that the assessment
on EWT and FBT deficiency was void because the FDDA covering the same was
void. The assessment remains valid notwithstanding the nullity of the FDDA
because as discussed above, the assessment itself differs from a decision on
the disputed assessment.

An FDDA that does not inform the taxpayer in writing of the facts and law on
which it is based renders the decision void. Therefore, it is as if there was no
decision rendered by the CIR. It is tantamount to a denial by inaction by the
CIR, which may still be appealed before the CTA and the assessment evaluated
on the basis of the available evidence and documents. The merits of the EWT
and FBT assessment should have been discussed and not merely brushed
aside on account of the void FDDA.

On the other hand, the Court agrees that the FDDA substantially informed
Liquigaz of its tax liabilities with regard to its WTC assessment.

The Court notes it was Liquigaz itself which proposed the rate of 25.40% as a
more appropriate tax rate as it represented the effective tax on compensation.
As such, Liquigaz was effectively informed in writing of the factual bases of its
assessment for WTC because the basis for the FDDA, with regards to the WTC,
was identical with the F A N - which paid for taxable year 2005 had a detail of
discrepancy attached to it.

*It must be noted that the FDDA must state the facts and law on which it is
based to provide the taxpayer the opportunity to file an intelligent appeal. A
decision of the CIR on a disputed assessment differs from the assessment
itself. Hence, the invalidity of one does not necessarily result to the invalidity of
the other—unless the law or regulations otherwise provide.

THE CTA En Banc

2. The FDDA must state the facts and law on which it is based to provide the
taxpayer the opportunity to file an intelligent appeal. A perusal of the FDDA
issued in the case at bench reveals that it merely contained a table of
Liquigaz’s supposed tax liabilities, without providing any details. The CIR
explains that the FDDA still complied with the requirements of the law as it
was issued in connection with the PAN and FLD/FAN, which had an
attachment of the details of discrepancies. Hence, the CIR concludes that

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Liquigaz was sufficiently informed in writing of the factual bases of the
assessment. Nevertheless, the requirement of providing the taxpayer with
written notice of the facts and law used as basis for the assessment is not to be
mechanically applied. Emphasis on the purpose of the written notice is
important. The requirement should be in place so that the taxpayer could be
adequately informed of the basis of the assessment enabling him to prepare an
intelligent protest or appeal of the assessment or decision.

Thus, substantial compliance with the requirement under Section 228 of the
NIRC is permissible, provided that the taxpayer would be eventually apprised
in writing of the factual and legal bases of the assessment to allow him to file
an effective protest against.

It is undisputed that the FDDA merely showed Liquigaz’ tax liabilities without
any details on the specific transactions which gave rise to its supposed tax
deficiencies. While it provided for the legal bases of the assessment, it fell short
of informing Liquigaz of the factual bases thereof. Thus, the FDDA as regards
the EWT and FBT tax deficiency did not comply with the requirement in
Section 3.1.6 of RR No. 12-99, as amended, for failure to inform Liquigaz of the
factual basis thereof.

The CIR erred in claiming that Liquigaz was informed of the factual bases of
the assessment because the FDDA made reference to the PAN and FAN/FLD,
which were accompanied by details of the alleged discrepancies. The CTA En
Banc highlighted that the amounts in the FAN and the FDDA were different. As
such, the Court agrees with the tax court that it becomes even more imperative
that the FDDA contain details of the discrepancy. Failure to do so would
deprive Liquigaz adequate opportunity to prepare an intelligent appeal.

BPI vs. CIR

G.R. No. 181836. July 9, 2014
Facts:

Petitioner (BPI) is a commercial banking corporation organized and existing

under Philippine laws.
On May 19, 1989, respondent CIR issued an assessment to BPI finding the
latter liable for deficiency DST on its sales of foreign bills of exchange to the
Central Bank totaling Php1.2 million.
On June 16, 1989, BPI received such assessment notice and demand letter.

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On June 23, 1989, BPI filed a protest requesting for the reinvestigation or
reconsideration of the assessment for lack of legal and factual bases. It alleged
that it shouldn’t be liable because:
a. Based on recognized business practice incorporated in the Bankers
Association of the Philippines Foreign Exchange Trading Center Rule
2€, DST was for the account of the buyer;
b. BIR Ruling No. 135-87 stated that neither the tax-exempt entity nor
the other party shall be liable for the payment of DST before PD1994;
c. Since the then law left the tax to be paid indifferently by either party
and the party liable was exempt, the document was exempt from DST;
and
d. The assessed DST was the same assessment made by the BIR for DST
swap transaction covering the taxable years 1982-1986.
On Aug. 4, 1998, CIR Beethoven L. Rualo denied the request of BPI. It held
that BPI’s arguments were untenable. It cited BIR Unnumbered ruling dated
May 30, 1977 and BIR Ruling no. 144-84 dated Sept. 3, 1984, where liability to
pay DST was shifted to the other party, who was not exempt from the tax. CTA
reverses, thus, rules in favor of BPI. It ordered the cancellation of the assessed
DST as neither BPI nor Central Bank could be liable. PD 1994 took effect in
1986, there was no law that shifted the liability to the other party, in case the
party liable to pay was tax exempt. CA reverses CTA ruling, rules in favor of the
CIR. However, the CA 3rd Division found that the assailed assessment DST
may be invalidated because of the statute of limitations on the collection which
has already expired pursuant to Sec. 1, Rule 9 of the Rules of Court and BPI
vs. CIR (510 Phil. 1; 473 SCRA 205 (2005)).
Issue(s): WON action of CIR has already prescribed

Held: YES.

Ratio:

Sec. 1, Rule 9 of the Rules of Court

Section 1. Defenses and objections not pleaded. - Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings or the evidence on record
that the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the action
is barred by prior judgment or by the statute of limitations, the court shall
dismiss the claim.

To determine prescription, what is essential only is that the facts

demonstrating the lapse of the prescriptive period were sufficiently and
satisfactorily apparent on the record either in the allegations of BPI’s
complaint, or otherwise established by the evidence. Under the then applicable
Section 319(c) [now, 222(c)] of the 1977 NIRC, any internal revenue tax which
has been assessed within the period of limitation may be collected by distraint

61 | P a g e
or levy, and/or court proceeding within three years following the assessment of
the tax. The assessment of the tax is deemed made and the three-year period
for collection of the assessed tax begins to run on the date the assessment
notice had been released, mailed or sent by the BIR to the taxpayer.
In this case, although there was no allegation as to when the assessment
notice had been released, mailed or sent to BPI, still, the latest date that the
BIR could have released, mailed or sent the assessment notice was on the date
BPI received the same on June 16, 1989. Counting the 3-year prescriptive
period from June 16, 1989, the BIR had until June 15, 1992 to collect the
assessed DST. But despite the expiration, there was no warrant of distraint or
levy served on BPI’s properties, or any judicial proceedings initiated by the BIR.

BIR’s earliest attempt to collect was when it filed its answer in the CTA on
Feb. 23, 1999, which was several years beyond the 3-year prescriptive period.
However, the BIR’s answer in the CTA was not the collection case contemplated
by the law. Before 2004 or the year R.A. 9282 took effect, the judicial action to
collect internal revenue taxes fell under the jurisdiction of the RTCs, and not
the CTA. Thus, action has already prescribed.

However, BPI argued that the running of the prescriptive period to collect
the tax was suspended by BPI’s filing of a request for the reinvestigation or
reconsideration on June 23, 1989.

The Supreme Court countered it by giving out the distinction between a

request for reconsideration and for reinvestigation. R.R. No. 12-85, issued on
Nov. 27, 1985:

a. Request for reconsideration – refers to a plea for a re-evaluation of an

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

In this case, the protested Assessment was based on a question of law,

whether or not petitioner BPI was liable for DST on its sales of foreign currency
to the Central Bank in taxable year 1985. The same protest letter did not raise
any question of fact; neither did it offer to present any new evidence. In its own
letter to BPI, the BIR itself referred to the protest of BPI as a request for
reconsideration. These considerations would lead to mean that the protest of
BPI was in the nature of a request for reconsideration, and consequently, Sec.
224 of the 1977 NIRC, on the suspension of the running of the statute of
limitations should not apply.

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 Even if there is this distinction, Article 224 of the 1977 NIRC requires that
the request for reinvestigation has first to be been granted by the CIR to
suspend the running of the prescriptive periods for assessment and collection.
In this case, no showing CIR granted such request. CIR only even responded to
BPI on Aug. 4, 1998 or after 9 years from the protest of BPI.

Lascona Land Co. Inc. v. Commissioner of Internal Revenue, G.R.

No. 171251, 05 March 2012

FACTS:

The Commissioner of Internal Revenue (CIR) issued an assessment against

Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency
income tax for the year 1993 in the amount of P753,266.56. Consequently, on
April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R.
Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue,
Revenue Region No. 8, Makati City. On April 12, 1999, Lascona appealed the
decision before the CTA. Lascona alleged that the Regional Director erred in
ruling that the failure to appeal to the CTA within thirty (30) days from the
lapse of the 180-day period rendered the assessment final and executory. The

63 | P a g e
CIR, however, maintained that Lascona’s failure to timely file an appeal with
the CTA after the lapse of the 180-day reglementary period provided under
Section 228 of the National Internal Revenue Code (NIRC) resulted to the
finality of the assessment.

ISSUE

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

HELD
NO.

[T]he Court has held that in case the Commissioner failed to act on the
disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: (1) file a petition for review with the Court of
Tax Appeals within 30 days after the expiration of the 180-day period; or (2)
await the final decision of the Commissioner on the disputed assessments and
appeal such final decision to the Court of Tax Appeals within 30 days after
receipt of a copy of such decision. These options are mutually exclusive and
resort to one bars the application of the other.

Therefore, as in Section 228, when the law provided for the remedy to appeal
the inaction of the CIR, it did not intend to limit it to a single remedy of filing of
an appeal after the lapse of the 180-day prescribed period. Precisely, when a
taxpayer protested an assessment, he naturally expects the CIR to decide
either positively or negatively. A taxpayer cannot be prejudiced if he chooses to
wait for the final decision of the CIR on the protested assessment. More so,
because the law and jurisprudence have always contemplated a scenario where
the CIR will decide on the protested assessment.

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 PAGACOR V BIR G.R. No. 208731 January 27, 2016

Carpio, J:

Doctrine:
A petition before the CTA may only be made after a whole or partial
denial of the protest by the CIR or the CIR's authorized representative.

Facts:
PAGCOR claims that it is a duly organized government-owned and
controlled corporation existing under and by virtue of Presidential Decree No.
1869, as amended, with business address at the 6th Floor, Hyatt Hotel and
Casino INManila. It was created to regulate, establish and operate clubs and
casinos for amusement and recreation, including sports gaming pools, and
such other forms of amusement and recreation.
On the other hand, respondent, is the Head of the [BIR] with authority,
among others, to resolve protests on assessments issued by her office or her
authorized representatives.
PAGCOR provides a car plan program to its qualified officers under
which 60% of the car plan availment is shouldered by PAGCOR and the
remaining 40% for the account of the officer, payable in 5 years.
On October 10, 2007, PAGCOR received a Post Reporting Notice dated
September 28, 2007 from BIR Regional Director Alfredo Misajon [RD Misajon]
of Revenue Region 6 for an informal conference to discuss the result of its
investigation on PAGCOR's internal revenue taxes in 2004. The Post Reporting
Notice shows that [PAGCOR] has deficiencies on Value Added Tax (VAT),

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Withholding Tax on VAT (WTV), Expanded Withholding Tax (EWT), and Fringe
Benefits Tax (FBI).
On January 17, 2008, PAGCOR received a Final Assessment Notice (FAN)
dated January 14, 2008, with demand for payment of deficiency FBT for
taxable year 2004 in the amount of P48,589,507.65. On January 24, 2008,
PAGCOR filed a protest to the FAN addressed to RD Misajon of Revenue Region
No. 6 of the BIR.
On August 14, 2008, [PAGCOR] elevated its protest to respondent CIR in
a Letter dated August 13, 2008, there being no action taken thereon as of that
date.
In a Letter dated September 23, 2008 received on September 25, 2008,
PAGCOR was informed that the Legal Division of Revenue Region No. 6
sustained Revenue Officer Ma. Elena Llantada on the imposition of FBT against
it based on the provisions of Revenue Regulations (RR) No. 3-98. On November
19, 2008, PAGCOR received a letter from the OIC-Regional Director, Revenue
Region No. 6 (Manila), stating that its letter protest was referred to Revenue
District Office No. 33 for appropriate action. On March 11, 2009, PAGCOR filed
the instant Petition for Review alleging respondents' inaction in its protest on
the disputed deficiency FBT.
The CTA 1st Division issued the assailed decision dated 6 July 2011 and
ruled in favor of respondents. The CTA 1st Division ruled that RD Misajon's
issuance of the FAN was a valid delegation of authority, and PAGCOR's
administrative protest was validly and seasonably filed on 24 January 2008.
The CTA En Banc dismissed PAGCOR's petition for review and affirmed
the CTA 1st Division's Decision and Resolution. The CTA En Banc ruled that
the protest filed before the RD is a valid protest; hence, it was superfluous for
PAGCOR to raise the protest before the CIR. When PAGCOR filed its
administrative protest on 24 January 2008, the CIR or her duly authorized
representative had 180 days or until 22 July 2008 to act on the protest. After
the expiration of the 180 days, PAGCOR had 30 days or until 21 August 2008
to assail before the CTA the non-determination of its protest.

Issue:
Whether or not the right of PAGACOR to dispute and protest the
assessment expires?

Held:
Yes, the right of PAGACOR to dispute and protest the assessment
expires.

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Ratio:
Following the verba legis doctrine, the law must be applied exactly as
worded since it is clear, plain, and unequivocal.
1. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days
from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized
representative, then the taxpayer may appeal to the CIR within 30 days
from receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the
protest within 180 days from submission of the required supporting
documents, then the taxpayer may appeal to the CTA within 30 days
from the lapse of the 180-day period.

PAGCOR did not wait for the RD or the CIR's decision on its protest.
PAGCOR made separate and successive filings before the RD and the CIR
before it filed its petition with the CTA. We shall illustrate below how PAGCOR
failed to follow the clear directive of Section 228 and Section 3.1.5. PAGCOR's
protest to the RD on 24 January 2008 was filed within the 30-day period
prescribed in Section 228 and Section 3.1.5. The RD did not release any
decision on PAGCOR's protest; thus, PAGCOR was unable to make use of the
first option as described above to justify an appeal to the CTA. The effect of the
lack of decision from the RD is the same, whether we consider PAGCOR's April
2008 submission of documents or not.

Under the third option described abov, PAGCOR still should have waited
for the RD's decision until 27 October 2008, or 180 days from 30 April 2008.
PAGCOR then had 30 days from 27 October 2008, or until 26 November 2008,
to file its petition before the CTA. However, PAGCOR did not make use of the
third option. PAGCOR did not file a petition before the CTA on or before 26
November 2008.

When PAGCOR filed its petition before the CTA, it is clear that PAGCOR
failed to make use of any of the three options described above. A petition
before the CTA may only be made after a whole or partial denial of the
protest by the CIR or the CIR's authorized representative. When PAGCOR
filed its petition before the CTA on 11 March 2009, there was still no denial of
PAGCOR's protest by either the RD or the CIR. Therefore, under the first
option, PAGCOR's petition before the CTA had no cause of action because it
was prematurely filed. The CIR made an unequivocal denial of PAGCOR's

67 | P a g e
protest only on 18 July 2011, when the CIR sought to collect from PAGCOR the
amount of P46,589,507.65. The CIR's denial further puts PAGCOR in a bind,
because it can no longer amend its petition before the CTA.

It thus follows that a complaint whose cause of action has not yet
accrued cannot be cured or remedied by an amended or supplemental pleading
alleging the existence or accrual of a cause of action while the case is pending.
Such an action is prematurely brought and is, therefore, a groundless suit,
which should be dismissed by the court upon proper motion seasonably filed
by the defendant.

PAGCOR has clearly failed to comply with the requisites in disputing an

assessment as provided by Section 228 and Section 3.1.5. Indeed, PAGCOR's
lapses in procedure have made the BIR's assessment final, executory and
demandable, thus obviating the need to further discuss the issue of the
propriety of imposition of fringe benefits tax.

68 | P a g e
 REPUBLIC OF THE PHILIPPINES represented by the COMMISSIONER OF
INTERNAL REVENUE, Petitioner VS.
TEAM (PHILS.) ENERGY CORPORATION (formerly MIRANT (PHILS.)
ENERGY CORPORATION), Respondent (G.R. No. 188016, January 14,
2015)

FACTS:

Respondent, a domestic corporation, is primarily engaged in the business

of developing, designing, constructing, erecting, assembling, commissioning,
owning, operating, maintaining, rehabilitating, and managing gas turbine and
other power generating plants and related facilities for conversion into
electricity, coal, distillate and other fuel provided by and under contract with
the Government, or any subdivision, instrumentality or agency thereof, or any
government-owned or controlled corporations or any entity engaged in the
development, supply or distribution of energy.

The respondent filed its annual income tax return (ITR) for calendar
years 2002 and 2003 on April 15, 2003 and April 15, 2004, respectively,
reflecting overpaid income taxes or excess creditable withholding taxes in the
amounts of P6, 232,003.00 and P10, 134,410.00 for taxable years 2002 and
2003, respectively.

On March 22, 2005, the respondent filed an administrative claim for

refund or issuance of tax credit certificate with the Bureau of Internal Revenue
(BIR) in the total amount of P16, 366,413.00, representing the overpaid income
tax or the excess creditable withholding tax of the respondent for calendar
years 2002 and 2003.

69 | P a g e
 Due to the inaction of the BIR and in order to toll the running of the two-
year prescriptive period for claiming a refund under Section 229 of the National
Internal Revenue Code (NIRC) of 1997, the respondent filed a petition for review
in the Court of Tax Appeals (CTA) on April 14, 2005. On May 15, 2008, the CTA
in Division rendered its decision in favor of the respondent. It ordered the
petitioner to refund or to issue a tax credit certificate in favor of the
respondent. The CTA in Division found that the respondent had signified in its
ITRs for the same years its intent to have its excess creditable tax withheld for
calendar years 2002 and 2003 be refunded, and that the respondent’s
administrative and judicial claims for refund had been timely filed within the
two-year prescriptive period under Section 204 (C) in relation to Section 229 of
the NIRC

The petitioner then filed a motion for reconsideration, but the CTA in
Division denied the motion on September 5, 2008. The petitioner brought a
petition for review before the CTA En Banc. On April 15, 2009, the CTA En
Banc rendered a decision dismissing the Petition for Review.

The petitioner asserts the necessity of submission of the quarterly return

of the respondent to prove its entitlement to the refund pursuant to Sec. 76 of
the NIRC because such quarterly returns would establish the correctness of
the total amount of payments made and the taxes due as reported on the
adjusted return at the end of the year. Petitioner has brought this appeal.

“Section 76. Final Adjusted Return- Every corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable income for the preceding calendar of fiscal year.
If the sum of the quarterly tax payments made during the said taxable year is not equal to the
total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of the tax still due; or

(B) Carry over the excess credit; or

(C) Be credited or refunded withthe excess amount paid, as the case may be.”

ISSUE:

Whether or not the respondent proved it’s entitlement to the refund?

RULING:

The court denied the petition for review on certiorari.

The requirements for entitlement of a corporate taxpayer for a refund or

the issuance of tax credit certificate involving excess withholding taxes are as
follows:

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 1. That the claim for refund was filed within the two-year reglementary
period pursuant to Section 229 of the NIRC;

2. When it is shown on the ITR that the income payment received is

being declared part of the taxpayer’s gross income; and

3. When the fact of withholding is established by a copy of the

withholding tax statement, duly issued by the payor to the payee,
showing the amount paid and income tax withheld from that amount.

The court do not expound anymore on the first requirement because

even the petitioner does not contest that the respondent filed its administrative
and judicial claim for refund within the statutory period.

With regard to the second requirement, it is fundamental that the

findings of fact by the CTA in Division are not to be disturbed without any
showing of grave abuse of discretion considering that the members of the
Division are in the best position to analyze the documents presented by the
parties. Consequently, we adopt the findings of the CTA in Division, which the
CTA En Banc cited, as follows:

“That the total amount of Creditable Withholding Tax per Annual ITRs for
calendar years ended December 31, 2002 and December 31, 2003 agrees with
the total amount of Creditable Withholding Tax presented on petitioner’s
Schedule of Creditable Withholding Tax Certificates for the calendar years
ended December 31, 2002 and December 31, 2003.”

With respect to the third requirement, the respondent proved that it had
met the requirement by presenting the 10 certificates of creditable taxes
withheld at source. The petitioner did not challenge the respondent’s
compliance with the requirement.

When the respondent was able to establish prima facie its right to the
refund by testimonial and object evidence, the petitioner should have presented
rebuttal evidence to shift the burden of evidence back to the respondent.
Indeed, the petitioner ought to have its own copies of the respondent’s
quarterly returns on file, on the basis of which it could rebut the respondent's
claim that it did not carry over its unutilized and excess creditable withholding
taxes for the immediately succeeding quarters. The BIR's failure to present
such vital document during the trial in order to bolster the petitioner's
contention against the respondent's claim for the tax refund was fatal.

71 | P a g e
 Miguel J. Osorio Pension Foundation, Inc. vs. CA and CIR

GR No. 162175 June 28, 2010

Facts:

Petitioner is a non-stock and nonprofit corporation – it was organized for

the purpose of holding title to and administering the employees trust or
retirement funds (Employees Trust Fund) established for the benefit of the
employees of Victoria’s Milling Company Inc. (VMC). Petitioner as trustee
claims that the income earned by the employees Trust Fund is tax exempt
under Sec. 53(b) (now Sec. 60 (b) of the NIRC.

Petitioner as trustee of the employees fund invested part of said fund to

purchase a lot in Madrigal Business Park (MBP) located in Muntinlupa. Since
petitioner needed funds to pay the retirement and pension benefits of VMC
employees and to reimburse advances made by VMC, petitioner’s board of
trustees authorized the sale of its share in the MBP lot.

VMC eventually sold the MBP lot to Metrobank and as withholding agent;
Metrobank paid the amount of PHP 6, 125, 625.00 as withholding tax on the
sale of the real property.

Petitioner claims that it is a co-owner of the MBP lot as trustee of the

Employees Trust Fund. Further, it contends that the Employees Trust Fund is
exempt from income tax. Since petitioner as trustee purchased 49.59% of the

72 | P a g e
MBP lot using funds of the Trust Fund, it asserts that their 49.59% share in
the income tax paid amounting to PHP 3, 037, 697.40 rounded off to PHP 3,
037, 500 should be refunded. It maintained that the tax exemption of the Trust
Fund rendered the payment of income tax as illegal or erroneous – which
resulted in filing a claim for tax refund.

As action, the BIR stated that under Sec 26 of the Tax Code, petitioner is
not exempt from tax on its income from the sale of real property. The BIR
asked petitioner to submit documents to prove its co-ownership of the MBP lot
and its exemption from tax.

Petitioner in reply said that the applicable provision granting its claim for
tax exemption is not Sec. 26 but Sec. 53 (b) of the Tax Code and that its co-
ownership of the MBP lot is evidenced by Board Resolution #s 92-34 and 96-46
and the MOA among petitioner, VMC and its subsidiaries.

Since the BIR failed to act on petitioner’s claim, it was elevated to CIR -
again no action was taken hence, a petition for tax refund before the CTA was
filed.

The CTA ruled that Sec. 53 (b) of the Tax Code talks about exemption
from income tax on the income or earnings of the Employees trust Fund. Also,
that the petitioner is not the pension trust itself but is a separate and distinct
entity whose function is to administer the pension plan for some VMC
employees.

As to the co-ownership of the lot, the CTA ruled that the evidences are
self-serving and cannot themselves prove the co-ownership of the petitioner of
the MBP lot. Further, petitioner failed to present any evidence to prove that the
money used to purchase the MBP lot came from the Employees Trust Fund.
Thus, petitioner is estopped from claiming a tax exemption.

When the claim was filed before the CA, the CA agreed that the pieces of
documentary evidence submitted are largely self-serving and can be contrived
easily and that the documents failed to show that the funds used to purchase
the MBP lot came from the Employees Trust Fund. Hence this petition.

Issue:

Whether or not petitioner is entitled to claim a refund for the income tax
paid on the sale of its co-owned MBP lot in its capacity as trustee of the
Employees Trust Fund.

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Ruling:

The court ruled that, the tax-exempt character of petitioner’s Employees

Trust Fund is not an issue in this case because the tax-exempt character of the
Employees Trust Fund has long been settled. It is also settled that petitioner
exist for the purpose of holding title to and administering the tax exempt
Employees Trust Fund which was established for the benefit of VMC’s
employees. As such, petitioner has the personality to claim tax refunds due to
the Employees Trust Fund.

As to the proof of co-ownership of the MBP lot, the law expressly allows a
co-owner (1st co-owner) of a parcel of land to register his proportionate share in
the name of his co-owner (2nd co-owner) in whose name the entire land is
registered. The 2nd co-owner serves as a legal trustee of the 1 st co-owner insofar
as the proportionate share of the 1 st co-owner is concerned. The 1st co-owner
remains the owner of his proportionate share and not the 2 nd co-owner in
whose name the entire land is registered, as provided in Art. 1452 of the NCC.

The income from the trust fund investments is therefore exempt from the
payment of income tax and consequently from the payment of the creditable
withholding tax on the sale of their real property.

Thus, the Employees Trust Fund owns 49.59% of the MBP lot.

Since petitioner has proven that the income from the sale of the MBP lot
came from an investment by the Employees Trust Fund, petitioner as trustee is
entitled to claim the tax refund of PHP 3, 037, 500.00 – which was erroneously
paid in the sale of the MBP lot.

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 Chevron Phils., Inc. vs. CIR G.R. No. 210836 | September 1, 2015

FACTS:
Chevron Phils. Inc. (Chevron) sold and delivered petroleum products to
CDC in the period from August 2007 to December 2007. Chevron did not pass
on to CDC the excise taxes paid on the importation of the petroleum products
sold to Clark Development Corporation (CDC) in taxable year 2007; hence, it
filed an administrative claim for tax refund or issuance of tax credit certificate.
Considering that respondent Commissioner of Internal Revenue (CIR) did not
act on the administrative claim for tax refund or tax credit, Chevron elevated
its claim to the CTA by petition for review.
CTA First Division denied Chevron's judicial claim for tax refund or tax
credit through its decision and later on also denied Chevron's Motion for
Reconsideration. In due course, Chevron appealed to the CTA En Banc, which
affirmed the ruling of the CTA First Division, stating that there was nothing in
Section 135(c) of the NIRC that explicitly exempted Chevron as the seller of the
imported petroleum products from the payment of the excise taxes; and
holding that because it did not fall under any of the categories exempted from
paying excise tax, Chevron was not entitled to the tax refund or tax credit.
Chevron sought reconsideration, but the CTA En Banc denied its motion for
that purpose in the resolution.
Chevron appealed to the Court, but the Court (Second Division) denied
the petition for review on certiorari through the resolution for failure to show
any reversible error on the part of the CTA En Banc. Hence, Chevron has filed
the Motion for Reconsideration.

ISSUE: Whether Chevron was entitled to the tax refund or the tax credit for the
excise taxes paid on the importation of petroleum products that it had sold to
CDC in 2007.

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RULING: Yes, Chevron was entitled to the refund or credit of the excise taxes
erroneously paid on the importation of the petroleum products sold to CDC.
Pursuant to Section 135(c), petroleum products sold to entities that are by law
exempt from direct and indirect taxes are exempt from excise tax. As a duly-
registered enterprise in the Clark Special Economic Zone, CDC has been
exempt from paying direct and indirect taxes pursuant to Section 24 of
Republic Act No. 7916 (The Special Economic Zone Act of 1995), in relation to
Section 15 of Republic Act No. 9400 (Amending Republic Act No. 7227,
otherwise known as the Bases Conversion Development Act of 1992). Inasmuch
as its liability for the payment of the excise taxes accrued immediately upon
importation and prior to the removal of the petroleum products from the
customs house, Chevron was bound to pay, and actually paid such taxes. But
the status of the petroleum products as exempt from the excise taxes would be
confirmed only upon their sale to CDC in 2007. Before then, Chevron did not
have any legal basis to claim the tax refund or the tax credit as to the
petroleum products. Consequently, the payment of the excise taxes by Chevron
upon its importation of petroleum products was deemed illegal and erroneous
upon the sale of the petroleum products to CDC. Section 204 of the NIRC
explicitly allowed Chevron as the statutory taxpayer to claim the refund or the
credit of the excise taxes thereby paid.

CIR vs Mindanao II Geothermal Partnership

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 GR 191498 Jan 15 2014

Facts:
Mindanao II is a registered taxpayer whose sales to NAPOCOR are all
zero-rated pursuant to the EPIRA Law. On Oct 6 2005, it filed with the BIR an
application for the refund or credit of accumulated unutilized creditable input
taxes for the second, third, and fourth taxable quarters of the taxable year
2004. The administrative claim was not acted upon until Feb 3 2006, or 120
days after Oct 6 2005. Believing that a judicial claim must be filed within the 2-
year prescriptive period provided under Sec 112 (A) and that it must be
reckoned from the date of filing of its VAT returns, Mindanao filed on July 26
2006 a petition for review before the CTA claiming inaction on the part of the
CIR.
On Aug 12 2008, the CTA Division granted Mindanao II’s claim for
refund/credit and held that its judicial claim was timely filed within the 2-year
prescriptive period. The CIR opposed the rulings claiming that prescription had
already set in when Mindanao II filed its judicial claim beyond the 30-day
period fixed in Section 112 (C).
CTA En Banc's Contentions

Issue 1: W/N Mindanao II’s administrative claim for refund/credit was

timely filed

Yes. Pursuant to Section 112 (A) of the 1997 Tax Code, it is only the
administrative claim which is to be filed within the two-year prescriptive
period, and the two-year prescriptive period begins to run from the close of the
taxable quarter when the sales were made. Here, Mindanao II filed its claim for
refund/credit for the second, third, and fourth quarters of 2004 on Oct 6 2005.
Such date is well within the two-year prescriptive period which runs from June
30 2004 (2nd Quarter), Sept 30 2004 (3rd Quarter) and Dec 31 2004 (4th
Quarter).

Notes ko lang to :) The Atlas and Mirant rulings are simply not applicable in
this case because Mindanao II’s application for refund/credit on Oct 6 2005 was
filed before their promulgation. The Atlas ruling is held to be applicable only on
cases filed from June 8 2007, the date of its promulgation, and up to Sept 12
2008, the date when the Mirant case was promulgated.
In Atlas, the court laid down a rule that the 2-year prescriptive period is
reckoned from the date of filing of the return and payment of taxes. In Mirant,
such rule was abandoned. Following the verba legis doctrine, Mirant held that in
administrative claims for refund/credit of unutilized input VAT, the 2-year
prescriptive period begins to run from the close of taxable quarter when the
relevant sales were made. This rule, which is obviously consistent with the plain
wordings of Section 112 (A), was also affirmed in the recent case of San Roque.]

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Issue 2: W/N Mindanao II’s judicial claim for refund/credit was timely
filed

No. Under Section 112 (C), the judicial claim must be filed by the taxpayer
within 30 days after the 120-day waiting period if its administrative claim was
not acted upon by CIR. Here, Mindanao II filed its application for refund on Oct
6 2005. When it was not acted upon, it filed a judicial claim but only on July
21 2006, or 138 days after the lapse of the 30-day period on 5 March 2006. Its
petition for review before the CTA was therefore filed late.
Contrary to the erroneous contentions of the CTA En Banc, the correct
interpretation of Section 112, as held in San Roque, is that the 30-day period
applies not only to instances of actual denial by the CIR of the claim for refund
or tax credit, but to cases of inaction by the CIR as well. Also, following the
verba legis doctrine, the 30-day period to appeal is both mandatory and
jurisdictional. Section 112 (C) is clear, plain and unequivocal in expressly
providing that the taxpayer has a 30-day period to appeal the decision or
inaction of the Commissioner.

Note to self Rhina))***When reading the full text of this case, please note the
difference in letterings of Section 112 particularly Section 112 (C) and (D) of the
NIRC as amended by RA 9337 of 2005. In this digested version, Section 112 (C)
is used to refer to Section 112 (D) of the old NIRC. ***

Summary of Rules on Prescriptive Periods for Claiming Refund or Credit

of Input Tax
Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year
prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the
close of the taxable quarter when the relevant sales were made. (San
Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June
2007 to12 September 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of unutilized input VAT
payments should be counted from the date of filing of the VAT return and
payment of the tax. (San Roque)
120 + 30 Day Period
1. The taxpayer can file an appeal in one of two ways:
(1) File the judicial claim within thirty days after the Commissioner denies the
claim within the 120-day period, or
(2) file the judicial claim within thirty days from the expiration of the 120-day
period if the Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction
on the part of the CIR.

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 3. As a general rule, the 30-day period to appeal is both mandatory and
jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if
filed between 10 December 2003 and 5 October 2010, when BIR Ruling
No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489-03 was in force. (San Roque)

CIR v. Aichi
G.R. No. 184823 Oct. 6, 2010

FACTS:
Aichi forging, a VAT entity filed a claim for refund of input VAT for its
zero-rated sales with the Dept. of Finance One-Stop Inter-Agency Tax Credit
and Duty Drawback Center on Sept 30, 2004.
On the same date, it filed a Petition for Review with
the CTA. CTA partially granted the refund by reducing the leaseless
claims. CIR filed a Motion for Reconsideration insisting that they were filed

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 beyond the prescriptive period in accordance to Art. 13 that: 1 year = 365
days and that filing an administrative claim is a condition precedent before
a judicial claim can be filed with the CTA.
CTA and CTA En Banc denied petition.

ISSUE:
1. W/N the claim was filed with the prescriptive period of 2 year provided
under Sec. 112 (A) NIRC
2. W/N filing an administrative claim is a condition precedent to a judicial
claim for refund.

HELD:
1. Yes. Sec. 204 (c) and 229 are applied only in instances of erroneous payment
and illegal collection. Sec. 112 (A) of NIRC applies here. Sec. 31 Chapter VIII
Book I of the Administrative Code of 1987 being the more recent law governing
legal period applies making 1 year = 12 months. The principle of Lex
Posterioni Derogati Priori applies. Thus, since it is filed on exactly Sept. 30,
2004 filing is timely.

2. Yes. Sec. 112 (D) of the NIRC clearly provides that the CIR has 120 days
from date of the submission of the complete documents in support of the
application within which to grant or deny the claim. In case of full or partial
denial by the CIR, the recourse is to appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR
fails to act on the application for tax refund, the remedy is to appeal the
inaction of the CIR to the CTA within 30 days.

Winebrenner & Iñigo Insurance Brokers, Inc. v. CIR

(G.R. No. 206526, January 28, 2015)

RE: Proving that no carry-over has been made does not absolutely require the
presentation of the quarterly ITRs

FACTS:
April 7, 2006, petitioner applied for the administrative tax credit/refund
claiming entitlement to the refund of its excess or unutilized CWT for CY 2003.

When CTA initially granted partially the claim for refund, CIR moved for
reconsideration, praying for the denial of the entire amount of refund because

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petitioner failed to present the quarterly Income Tax Returns (ITRs) for CY
2004. To the CIR, the presentation of the 2004 quarterly ITRs was
indispensable in proving petitioner's entitlement to the claimed amount
because it would prove that no carry-over of unutilized and excess CWT for the
four (4) quarters of CY 2003 to the succeeding four (4) quarters of CY 2004 was
made. In the absence of said ITRs, no refund could be granted in accordance
with the irrevocability rule under Section 76 of the NIRC.

CTA then denied the entire claim of petitioner. It reasoned out that petitioner
should have presented as evidence its first, second and third quarterly ITRs for
the year 2004 to prove that the unutilized CWT being claimed had not been
carried over to the succeeding quarters. It stated that before a cash refund or
an issuance of tax credit certificate for unutilized excess tax credits could be
granted, it was essential for petitioner to establish and prove, by presenting the
quarterly ITRs of the succeeding years, that the excess CWT was not carried
over to the succeeding taxable quarters considering that the option to carry
over in the succeeding taxable quarters could not be modified in the final
adjustment returns (FAR). Because petitioner did not present the first, second
and third quarterly ITRs for CY 2004, despite having offered and submitted the
Annual ITR/FAR for the same year, the CTA-En Banc stated that the petitioner
failed to discharge its burden, hence, no refund could be granted

ISSUE:
Whether the submission and presentation of the quarterly ITRs of the
succeeding quarters of a taxable year is indispensable in a claim for refund.

RULING:
The logic in not requiring quarterly ITRs of the succeeding taxable years to be
presented remains true to this day. What Section 76 requires, just like in all
civil cases, is to prove the prima facie entitlement to a claim, including the fact
of not having carried over the excess credits to the subsequent quarters or
taxable year. It does not say that to prove such a fact, succeeding quarterly
ITRs are absolutely needed.

This simply underscores the rule that any document, other than quarterly ITRs
may be used to establish that indeed the non-carry over clause has been
complied with, provided that such is competent, relevant and part of the
records.

It goes without saying that the annual ITR (including any other proof that may
be sufficient to the Court)can sufficiently reveal whether carry over has been
made in subsequent quarters even if the petitioner has chosen the option of tax
credit or refund in the immediately 2003 annual ITR.

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It must be remembered that taxes computed in the quarterly returns are mere
estimates. It is the annual ITR which shows the aggregate amounts of income,
deductions, and credits for all quarters of the taxable year. It is the final
adjustment return which shows whether a corporation incurred a loss or
gained a profit during the taxable quarter. Thus, the presentation of the annual
ITR would suffice in proving that prior year's excess credits were not utilized for
the taxable year in order to make a final determination of the total tax due.

The absence of any amount written in the Prior Year excess Credit — Tax
Withheld portion of petitioner's 2004 annual ITR clearly shows that no prior
excess credits were carried over in the first four quarters of 2004 . And since
petitioner was able to sufficiently prove that excess tax credits in 2003 were not
carried over to taxable year 2004 by leaving the item "Prior Year's Excess
Credits" as blank in its 2004 annual ITR, then petitioner is entitled to a refund.

It must be emphasized that once the requirements laid down by the NIRC have
been met, a claimant should be considered successful in discharging its
burden of proving its right to refund. Thereafter, the burden of going forward
with the evidence, as distinct from the general burden of proof, shifts to the
opposing party that is, the CIR. It is then the turn of the CIR to disprove the
claim by presenting contrary evidence which could include the pertinent ITRs
easily obtainable from its own files.

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