REMEDIES OF THE GOVERNMENT
the last entry in each book until the last day prescribed by Section
SEC. 202- 231 OF THE TAX CODE
I. EXAMINATION/INVESTIGATION
1. POWER OF THE COMMISSIONER TO
EXAMINE SEC 6(A) -- MEMORIZE
SEC. 6. Power of the Commissioner to Make assessments
and Prescribe additional Requirements for Tax
Administration and Enforcement. -
(A) Examination of Returns and Determination of Tax Due. - After
a return has been filed as required under the provisions of this
Code, the Commissioner or his duly authorized representative may
authorize the examination of any taxpayer and the assessment of
the correct amount of tax: Provided, however; That failure to file
a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.
The tax or any deficiency tax so assessed shall be paid upon
notice and demand from the Commissioner or from his duly
authorized representative.
Any return, statement of declaration filed in any office
authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from the date of such filing,
the same may be modified, changed, or amended: Provided,
further, That no notice for audit or investigation of such return,
statement or declaration has in the meantime been actually served
upon the taxpayer.
2. PRESERVATION OF BOOKS OF ACCOUNTS
SEC. 235
SEC. 235. Preservation of Books and Accounts and Other
Accounting Records. -
All the books of accounts, including the subsidiary books
and other accounting records of corporations, partnerships, or
persons, shall be preserved by them for a period beginning from
203 within which the Commissioner is authorized to make an
assessment. The said books
and records shall be subject to examination and inspection by
internal revenue officers: Provided, That for income tax purposes,
such examination and inspection shall be made only once in a
taxable year, except in the following cases:
(a) Fraud, irregularity or mistakes, as determined by the
Commissioner;
(b) The taxpayer requests reinvestigation;
(c) Verification of compliance with withholding tax laws and
regulations;
(d) Verification of capital gains tax liabilities; and
(e) In the exercise of the Commissioner's power under
Section 5(B) to obtain information from other persons in
which case, another or separate examination and
inspection may be made. Examination and inspection of
books of accounts and other accounting records shall be
done in the taxpayer's office or place of business or in the
office of the Bureau of Internal Revenue. All corporations,
partnerships or persons that retire from business shall,
within ten (10) days from the date of retirement or within
such period of time as may be allowed by the
Commissioner in special cases, submit their books of
accounts, including the subsidiary books and other
accounting records to the Commissioner or any of his
deputies for examination, after which they shall be
returned. Corporations and partnerships contemplating
dissolution must notify the Commissioner and shall not be
dissolved until cleared of any tax liability.
Any provision of existing general or special law to the
contrary notwithstanding, the books of accounts and other
pertinent records of tax-exempt organizations or grantees of tax
incentives shall be subject to examination by the Bureau of
Internal Revenue for purposes of ascertaining compliance with the
conditions under which they have been granted tax exemptions or
tax incentives, and their tax liability, if any.
3. FAILURE TO SUBMIT REQUIRED RETURNS
i) ADMINISTRATIVE SEC. 6 (B)
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 2) Prepare the corresponding subpoena in three
SEC. 6. Power of the Commissioner to Make assessments copies for initial and/or signature of the officials concerned,
and Prescribe additional Requirements for Tax the distribution of which shall be as follows:
Administration and Enforcement. -
Original - to be served to the taxpayer
(B) Failure to Submit Required Returns, Statements, Reports and Duplicate - attached to the docket of the case
other Documents. - When a report required by law as a basis for under audit
the assessment of any national internal revenue tax shall not be Triplicate - action lawyer file
forthcoming within the time fixed by laws or rules and regulations
or when there is reason to believe that any such report is false, C. Signatories
incomplete or erroneous, the Commissioner shall assess the proper Only the following revenue officials are hereby authorized to issue
tax on the best evidence obtainable. subpoenas, to wit:

In case a person fails to file a required return or other document at 1) National Office
the time prescribed by law, or willfully or otherwise files a false or a. Assistant Commissioner, Legal Service
fraudulent return or other document, the Commissioner shall make 2) Regional Office
or amend the return from his own knowledge and from such a. Director, or in his absence, the
information as he can obtain through testimony or otherwise, b. Assistant Director
which shall be prima facie correct and sufficient for all legal This does not however preclude the Commissioner and Deputy
purposes. Commissioners to exercise their authority under the National
Internal Revenue Code to issue subpoena in appropriate cases.
ii) CRIMINAL PROSECUTION SEC. 275
D. Service
SEC. 275. Violation of Other Provisions of this Code or Rules 1) By Whom Served
and Regulations in General. - Any person who violates any
provision of this Code or any rule or regulation promulgated by the Ideally, the service of the subpoena should be effected by the
Department of Finance, for which no specific penalty is provided by revenue officers assigned to investigate the case. However, such
law, shall, upon conviction for each act or omission, be punished service may be made by any internal revenue officer authorized for
by a fine of not more the purpose.
than One thousand pesos (P1,000) or suffer imprisonment of not
more than six (6) months, or both. 2) How Service May Be Effected

iii) SUBPOENA DUCES TECUM RMO 35-90 a. The subpoena shall be served by handing the original copy
thereof to the individual named therein in person, or, if he refuses
The Prosecution Division or Legal Branch shall evaluate the to receive it, by tendering it to him witnessed by another revenue
recommendation for issuance of subpoena within 2 working days officer accompanying the server.
from receipt and may take the following alternative actions: b. If personal service cannot be made, service may be
effected by:
1) Return the case to its origin for further 1) Leaving a copy of the subpoena at the taxpayer's
documentation or action; dwelling place or residence with some person of suitable
age and discretion then residing therein; or

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 2) Leaving the copy at taxpayer's office or regular
place of business with some competent person in charge
thereof.
3) In both situations, the leaving of the copy of the
Subpoena with a competent person and or person of
sufficient discretion should be witnessed by another
revenue officer accompanying the server.
3) Proof of Service
Aside from accomplishing the bottom portion of the subpoena, the
server shall make a written report setting forth the manner, place
and date of service, the name of the person who received the
same and such other relevant information. In case of constructive
service, the personal relationship and/or official capacity, if any, of
the person receiving should be indicated.
V. Remedies to Enforce Compliance
Where the taxpayer fails, refuses or neglects to comply with the
commands of the subpoena, he may be proceeded against by:
A. Filing a criminal case for violation of Section 7 , in
relation to Sections 17 and 265 of the Tax Code, as
amended; and/or
B. Initiating proceedings for indirect contempt under
Section 3(f), Rule 71 of the Revised Rules of Court.
4. OTHER MODES OF DETERMINING THE TAX
i) CONDUCT OF SURVEILLANCE SEC. 6 (C)
SEC. 6. Power of the Commissioner to Make assessments
and Prescribe additional Requirements for Tax
Administration and Enforcement.
(C) Authority to Conduct Inventory-taking, surveillance and to
Prescribe Presumptive Gross Sales and Receipts. - The
Commissioner may, at any time during the taxable year, order
inventory-taking of goods of any taxpayer as a basis for
determining his internal revenue tax liabilities, or may place the
business operations of any person, natural or juridical, under
observation or surveillance if there is reason to believe that such
person is not declaring his correct income, sales or receipts for
internal revenue tax purposes. The findings may be used as the
basis for assessing the taxes for the other months or quarters of
the same or different taxable years and such assessment shall be
deemed prima facie correct.
When it is found that a person has failed to issue receipts
and invoices in violation of the requirements of Sections 113 and
237 of this Code, or when there is reason to believe that the books
of accounts or other records do not correctly reflect the
declarations made or to be made in a return required to be filed
under the provisions of this Code, the Commissioner, after taking
into account the sales, receipts, income or other taxable base of
other persons engaged in similar businesses under similar
situations or circumstances or after considering other relevant
information may prescribe a minimum amount of such gross
receipts, sales and taxable base, and such amount so prescribed
shall be prima facie correct for purposes of determining the
internal revenue tax liabilities of such person.
ii) THIRD PARTY INFORMATION SEC. 5
SEC. 5. Power of the Commissioner to Obtain Information,
and to Summon, Examine, and Take Testimony of Persons. -
In ascertaining the correctness of any return, or in making a
return when none has been made, or in determining the liability of
any person for any internal revenue tax, or in collecting any such
liability, or in evaluating tax compliance, the Commissioner is
authorized:
(A) To examine any book, paper, record, or other data
which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other
than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or officer
of the national and local governments, government agencies
and instrumentalities, including the Bangko Sentral ng
Pilipinas and government-owned or -controlled corporations,
any information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of
taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies,
insurance companies, regional operating headquarters of
multinational companies, joint accounts, associations, joint
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 ventures or consortia and registered partnerships, and their
members;
(C) To summon the person liable for tax or required to
file a return, or any officer or employee of such person, or
any person having possession, custody, or care of the books
of accounts and other accounting records containing entries
relating to the business of the person liable for tax, or any
other person, to appear before the Commissioner or his duly
authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or
other data, and to give testimony;
(D) To take such testimony of the person concerned,
under oath, as may be relevant or material to such inquiry;
and
(E) To cause revenue officers and employees to make
a canvass from time to time of any revenue district or region
and inquire after and concerning all persons therein who
may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or
possession of any object with respect to which a tax is
imposed.
The provisions of the foregoing paragraphs
notwithstanding, nothing in this Section shall be construed as
granting the Commissioner the authority to inquire into bank
deposits other than as provided for in Section 6(F) of this Code.
iii) INQUIRE INTO BANK ACCOUNTS SEC 6 (F)
SEC. 6. Power of the Commissioner to Make assessments
and Prescribe additional Requirements for Tax
Administration and Enforcement.
(F) Authority of the Commissioner to inquire into Bank Deposit
Accounts. - Notwithstanding any contrary provision of Republic
Act No. 1405 and other general or special laws, the Commissioner
is hereby authorized to inquire into the bank deposits of:
MEMORIZE
(1) a decedent to determine his gross estate; and
(2) any taxpayer who has filed an application for
compromise of his tax liability under Sec. 204 (A) (2)
of this Code by reason of financial incapacity to pay his
tax liability.
In case a taxpayer files an application to compromise the
payment of his tax liabilities on his claim that his financial position
demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in
writing his privilege under Republic Act No. 1405 or under other
general or special laws, and such waiver shall constitute the
authority of the Commissioner to inquire into the bank deposits of
the taxpayer.
2. ASSESSMENTS
1. POWER OF THE COMMISSIONER TO MAKE
ASSESSMENT SEC 6(A) & (B)
SEC. 6. Power of the Commissioner to Make assessments
and Prescribe additional Requirements for Tax
Administration and Enforcement. -
(A) Examination of Returns and Determination of Tax Due. - After
a return has been filed as required under the provisions of this
Code, the Commissioner or his duly authorized representative may
authorize the examination of any taxpayer and the assessment of
the correct amount of tax: Provided, however; That failure to file a
return shall not prevent the Commissioner from authorizing the
examination of any taxpayer.
The tax or any deficiency tax so assessed shall be paid upon
notice and demand from the Commissioner or from his duly
authorized representative.
Any return, statement of declaration filed in any office
authorized to receive the same shall not be withdrawn: Provided,
That within three (3) years from the date of such filing, the same
may be modified, changed, or amended: Provided, further, That no
notice for audit or investigation of such return, statement or
declaration has in the meantime been actually served upon the
taxpayer.
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(B) Failure to Submit Required Returns, Statements, Reports and
other Documents. - When a report required by law as a basis for
the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by laws or rules and regulations
or when there is reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall assess the proper
tax on the best evidence obtainable.
In case a person fails to file a required return or other
document at the time prescribed by law, or willfully or otherwise
files a false or fraudulent return or other document, the
Commissioner shall make or amend the return from his own
knowledge and from such information as he can obtain through
testimony or otherwise, which shall be prima facie correct and
sufficient for all legal purposes.
2. DEFINITION OF ASSESSMENT
i) BLACKS LAW DICTIONARY
It is a written notice to a taxpayer to the effect that the amount
stated therein is due as tax and containing a demand for the
payment. It is a finding by the taxing agency that the taxpayer has
not paid his correct taxes.
Note: A notice of assessment contains not only a computation of
tax liabilities but also a demand for the payment within a
prescribed period. It also signals the time when penalties and
interests begin to accrue.
CIR V. PASCOR REALTY & DEVT CORP
309 SCRA 402 (1999)
FACTS:
The CIR authorized certain BIR officers to examine the
books of accounts and other accounting records of Pascor
Realty. The examination resulted in recommendation for
the issuance of an assessment.
The Commissioner filed a criminal complaint for tax
evasion against PRDC, its president and treasurer before
the DOJ.
Private respondents filed immediately an urgent request
for reconsideration on reinvestigation disputing the tax
assessment and tax liability.
The Commissioner denied private respondents request for
reconsideration/reinvestigation on the ground that no
formal assessment has been issued which the latter
elevated to the CTA on a petition for review.
ISSUES:
(1) WON the criminal complaint for tax evasion can be construed
as an assessment.
(2) WON an assessment is necessary before criminal charges for
tax evasion may be instituted.
HELD: The filing of the criminal complaint with the DOJ
cannot be construed as a formal assessment. Neither the Tax
Code nor the revenue regulations governing the protest
assessments provide a specific definition or form of an
assessment.
An assessment must be sent to and received by the
taxpayer, and must demand payment of the taxes described
therein within a specific period. The revenue officers affidavit
merely contained a computation of respondents tax liability. It did
not state a demand or period for payment. It was addressed to the
Secretary of Justice not to the taxpayer. They joint affidavit was
meant to support the criminal complaint for tax evasion; it was not
meant to be a notice of tax due and a demand to private
respondents for the payment thereof. The fact that the complaint
was sent to the DOJ, and not to private respondent, shows that
commissioner intended to file a criminal complaint for tax evasion,
not to issue an assessment.
An assessment is not necessary before criminal charges can
be filed. A criminal charge need not only be supported by a prima
facie showing of failure to file a required return. The CIR had, in
such tax evasion cases, discretion on whether to issue an
assessment, or to file a criminal case against the taxpayer, or to
do both.
3. PRESUMPTION OF REGULARITY OF
ASSESSMENT
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SY PO V. CTA
G.R. NO 81446 (1988)
FACTS:
1) the Secretary of Finance directed the Finance-BIR-NBI
team to investigate SCWF.
2) Based on the investigation, CIR assessed deficiency
income tax and deficiency specific tax.
3) Petitioner protested the deficiency assessments. BIR
recommended the reiteration of the assessments in view of
the taxpayers failure to present the books of accounts for
examination
ISSUE: WON the assessments have a valid and legal basis
HELD: Yes. The rule on the Best Evidence Obtainable applies
when a tax report required by law for the purpose of assessment is
not available or when a tax report is incomplete or fraudulent.
The tax assessment by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to prove
otherwise. In the absence of proof of irregularities in the
performance of duties, an assessment duly made by the BIR
examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness
of tax assessments.
4. ASSESSMENTS BASED ON BEST EVIDENCE
OBTAINABLE
i) RMC 23-2000
An assessment based on best evidence obtainable is justified when
any of the ff grounds are clearly established:
(1) The report/s requested from the taxpayer are not
forthcoming, i.e. records are lost, refusal of
taxpayer to submit such records
(2) The report/s are false, incomplete or erroneous
NOTE: Where a taxpayer is ordered to be examined and he refuses
or fails to submit his records giving rise to a subpoena duces
tecum, the assessment shall only be issued after a criminal case
has been instituted for failure to obey summons.
ii) ASSESSMENTS BASED ON ACTUAL FACTS
CIR V. EMBROIDERY & GARMENTS INDUSTRIES PHILS
G.R. NO 96262 (1999)
FACTS: CFI issued search warrants for the seizure of certain
documents from the offices of Embroidery and Garments. Armed
with the warrants, agents of the Anti-Technical Smuggling Unit,
BIR, seized various business records and documents from
respondents offices.
1) CIR subsequently issued a revised assessment for
deficiency income tax.
2) respondent filed with the BIR a protest disputing the
revised assessments and requesting further investigation
which was subsequently denied.
3) Respondent filed with the CTA a petition for review of the
disputed tax assessments.
4) CTA held that the assessments were of doubtful validity as
they were based on incompetent evidence consisting of an
informants report and the sworn statement of a
disgruntled former general manager of respondent. On
the other hand, respondent adduced evidence consisting of
official records of the Bureau of Customs. The tax court
ruled that the assessments must be based on actual
facts and proved by competent evidence, not
imposed based on unverified information supplied by
an informant, or disputed presumptions.
HELD: The issues raised are clearly factual and must be
resolved on the basis of the evidence adduced before the
tax court.
5. PROCEDURES IN PREPARING
ASSESSMENTS RR 12-99
i) INFORMAL CONFERENCES
(1) The Revenue Officer who audited the taxpayers
records, shall state whether the taxpayer agrees with
the findings that he is liable for deficiency tax
(2) If not amenable, the taxpayer shall be informed by
the RDO or Chief of Division of the discrepancies in
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 the taxpayers payment of his internal revenue taxes
for Informal Conference
(3) Purpose: Due process; to afford the taxpayer an
opportunity to present his side
(4) Failure to respond within 15 days from date of
receipt, the taxpayer shall be considered in default
(5) Effect of failure to respond: The case shall be
endorsed to the Assessment Division of Revenue
Regional Office (RRO) or CIR for appropriate review
and issuance of deficiency tax assessment
ii) PRELIMINARY ASSESSMENT NOTICES (PAN)
(1) If after review there is sufficient basis to assess the
taxpayer deficiency taxes, the RRO shall issue a
Preliminary Notice of Assessment (PAN), showing in
detail: facts, law and rules and regulations, and
jurisprudence on which the proposed assessment is
based
(2) If taxpayer fails to respond within 15 days from date
of receipt of PAN, he shall be considered in default
(3) Effect: A formal letter of demand and assessment
notice shall be sent to taxpayer, calling for payment
of tax deficiency and applicable penalties
EXCEPTIONS TO PAN
PAN shall not be required:
(a) When the finding of any deficiency tax is the result of
mathematical error in computing the tax filed by
taxpayer
(b) When the discrepancy has been determined between tax
withheld and amount actually remitted by the
withholding agent
(c) When a taxpayer has opted to claim a tax credit or
refund of excess withholding tax for a taxable period was
determined to have carried over and automatically
applied the same amount against the estimated tax
liabilities for the taxable quarter/s of the succeeding
taxable year
(d) When the excise tax due on excisable articles has not
been paid; or
(e) When an article locally purchased or imported by an
exempt person, e.g. vehicles, capital equipment,
machineries and spare parts, have been sold, traded or
transferred to non-exempt persons
CIR V. METRO STAR SUPERAMA
G.R. NO 185371 (2010)
FACTS: Regional Director issued a letter authority to examine
petitioners books of accounts and other records for income tax
and other internal revenue taxes. However, petitioner failed to
comply with several requests for presentation of records
1) As such, the RDO proceeded with the investigation based
on the best evidence obtainable preparatory to issuance of
an assessment notice
2) In 2002, petitioner received a formal letter of demand
(FAN), assessing the petitioner for deficiency taxes
3) Subsequently, RDO sent a final notice of seizure which
petitioner received
4) Petitioner denied that it received a PAN and claimed that it
was denied due process
ISSUES:
1. WON Metro Star was denied due process
2. Is the failure to strictly comply with notice requirements
prescribed by Sec 228 NIRC and RR 12-99 tantamount to
denial of due process
HELD:
FIRST ISSUE: Yes.
CAB: CIR failed to discharge its duty to present any evidence to
show that Metro Star indeed received the PAN. It could have
presented the registry receipt or the certification from the
postmaster that it mailed the PAN, but failed to do so. Neither did
it offer any explanation on why it failed to comply with the
requirement of service of PAN.
SECOND ISSUE: Yes. Both Sec 228 and RR 12-99 clearly show
that the sending of PAN to a taxpayer to inform him of the
assessment made is part of the due process requirement in
the issuance of a deficiency tax assessment, the absence
of which renders VOID any assessment made by the tax
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authorities. Thus, for its failure to send a PAN stating the facts
and law on which the assessment was made as required by law,
the assessment by CIR is void.
iii) FINAL ASSESSMENT NOTICES (FAN)
(1) FAN shall state the facts, law, rules and regulations,
or jurisprudence on which the assessment is based
otherwise, FAN shall be void
(2) It shall be sent only by registered mail or personal
delivery
(3) If sent by personal delivery: the taxpayer shall
acknowledge receipt of the duplicate copy of FAN
showing the ff: (a) name; (b) signature; (c)
designation and authority to for taxpayer; and (d)
date of receipt
3. COLLECTION
1. SUMMARY REMEDIES
(1) DISTRAINT OF PERSONAL PROPERTY SEC. 205
(A)
SEC. 205. Remedies for the Collection of Delinquent Taxes. -
The civil remedies for the collection of internal revenue taxes, fees
or charges, and any increment thereto resulting from delinquency
shall be:
(a) By distraint of goods, chattels, or effects, and other
personal property of whatever character, including stocks
and other securities, debts, credits, bank accounts and
interest in and rights to personal property, and by levy
upon real property and interest in rights to real property;
and
a) ACTUAL DISTRAINT SEC 207 (A)
SEC. 207. Summary Remedies. -
(A) Distraint of Personal Property. - Upon the failure of the person
owing any delinquent tax or delinquent revenue to pay the same
at the time required, the Commissioner or his duly authorized
representative, if the amount involved is in excess of One million
pesos (P1,000,000), or the Revenue District Officer, if the amount
involved is One million pesos (P1,000,000) or less, shall seize and
distraint any goods, chattels or effects, and the personal property,
including stocks and other securities, debts, credits, bank
accounts, and interests in and rights to personal property of such
persons in sufficient quantity to satisfy the tax, or charge, together
with any increment thereto incident to delinquency, and the
expenses of the distraint and the cost of the subsequent sale.
A report on the distraint shall, within ten (10) days from
receipt of the warrant, be submitted by the distraining officer to
the Revenue District Officer, and to the Revenue Regional Director:
Provided, That the Commissioner or his duly authorized
representative shall, subject to rules and regulations promulgated
by the Secretary of Finance, upon recommendation of the
Commissioner, have the power to lift such order of distraint:
Provided, further, That a consolidated report by the Revenue
Regional Director may be required by the Commissioner as often
as necessary.
b) CONSTRUCTIVE DISTRAINT SEC. 206,
RMC 5-2001
SEC. 206. Constructive Distraint of the Property of a
Taxpayer. - To safeguard the interest of the Government, the
Commissioner may place under constructive distraint the property
of a delinquent taxpayer or any taxpayer who, in his opinion, is
retiring from any business subject to tax, or is intending to leave
the Philippines or to remove his property therefrom or to hide or
conceal his property or to perform any act tending to obstruct the
proceedings for collecting the tax due or which may be due from
him.
The constructive distraint of personal property shall be
effected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt covering
the property distrained and obligate himself to preserve the same
intact and unaltered and not to dispose of the same in any manner
whatever, without the express authority of the Commissioner.
In case the taxpayer or the person having the possession
and control of the property sought to be placed under constructive
distraint refuses or fails to sign the receipt herein referred to, the
revenue officer effecting the constructive distraint shall proceed to
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prepare a list of such property and, in the presence of two (2)
witnessed, leave a copy thereof in the premises where the
property distrained is located, after which the said property shall
be deemed to have been placed under constructive distraint.
RMC. 5-2001
When to Issue Notice or Warrant of Constructive Distraint on the
Property of a Taxpayer. In order to safeguard the interest of the
government, the Commissioner may place under constructive
distraint the personal or movable property/ies of
a.) a delinquent taxpayer, or
b.) any taxpayer who, in his opinion, is retiring from any
business subject to tax, or intending to leave the Philippines, or
intending to remove his property/ies from the Philippines, or
intending to hide or conceal his property/ies, or intending to
perform any act tending to obstruct the proceedings for collecting
the tax due or which may be due from him.
Specific Cases When a Notice or Warrant of Constructive Distraint
over the Property/ies of a Taxpayer may be Issued.
a.) When a taxpayer who applies for retirement from
business has a huge amount of assessment pending with
the BIR. An assessment is huge if the amount thereof is
equal to or bigger than the networth or equity of the
taxpayer;
b.) When a taxpayer who is under tax investigation has a
record of leaving the Philippines at least twice a year,
unless such trips are justified and/or connected with his
business, profession or employment;
c.) When a taxpayer, other than a banking institution, who is
under tax investigation has a record of transferring his
bank deposits and other valuable personal property/ies
from the Philippines to any foreign country;
d.) When the taxpayer uses aliases in bank accounts, other
than the name for which he is legally and/or popularly
known;
e.) When the taxpayer keeps bank deposits and owns other
property/ies under the name of other persons, whether
or not related to him, and the same are not under any
lawful fiduciary or trust capacity;
f.) When a taxpayer's big amount of undeclared income is
known to the public or to the BIR by credible means and
there is a strong reason to believe that the taxpayer, in
the natural course of events, will have a great tendency to
hide or conceal his property/ies. For this purpose, the
term "big amount of undeclared income" means an
amount exceeding thirty percent (30%) of the gross sales,
gross receipts or gross revenue declared per return;
g.) When the BIR receives information or complaint
pertaining to undeclared income in an amount exceeding
30% of gross sales, gross receipts or gross revenue
declared per return of a particular taxpayer and there is
enough reason to believe that the said information is
correct as when the complaint or information is
supported by substantial and credible evidence.
Persons Who May Conduct the Constructive Distraint. In
general, it is only the Commissioner. However, the Commissioner
may delegate this power by specific orders since this power is not
one of those which cannot be delegated as enunciated in Section 7
of the Tax Code of 1997. Thus, pursuant to aforesaid section, this
power can be delegated to any subordinate official with the rank
equivalent to a Division Chief or higher.
Procedures in Conducting Constructive Distraint. The
constructive distraint of personal or movable property/ies of a
taxpayer shall be effected by requiring him or any person having
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possession or control of such property/ies to sign a receipt covering
the property/ies distrained. He shall obligate himself to preserve
the same intact and unaltered and not to dispose of the same in any
manner whatever without the express authority of the
Commissioner. Provided, however, that if the subject of the
constructive distraint is a bank deposit, the mere service of the
notice is sufficient for this purpose.
In case the subject taxpayer or the person having the
possession and control of the property/ies sought to be placed
under constructive distraint refuses or fails to sign the receipt
herein referred to, the Revenue Officer effecting the constructive
distraint shall proceed to prepare a list of such property/ies. He
shall thereafter leave a copy of the Notice of Constructive Distraint
and the list of such property/ies distrained in the premises where
the said property/ies are located in the presence of at least two (2)
witnesses, who may or may not be revenue officers, after which the
subject personal or movable property/ies shall be deemed to have
been placed under constructive distraint.
c) PROCEDURE IN DISTRAINT SEC 208
SEC. 208. Procedure for Distraint and Garnishment. - The
officer serving the warrant of distraint shall make or cause to be
made an account of the goods, chattels, effects or other personal
property distrained, a copy of which, signed by himself, shall be
left either with the owner or person from whose possession such
goods, chattels, or effects or other personal property were taken,
or at the dwelling or place of business of such person and with
someone of suitable age and discretion, to which list shall be
added a statement of the sum demanded and note of the time and
place of sale.
Stocks and other securities shall be distrained by serving a
copy of the warrant of distraint upon the taxpayer and upon the
president, manager, treasurer or other responsible officer of the
corporation, company or association, which issued the said stocks
or securities.
Debts and credits shall be distrained by leaving with the
person owing the debts or having in his possession or under his
control such credits, or with his agent, a copy of the warrant of
distraint. The warrant of distraint shall be sufficient authority to
the person owing the debts or having in his possession or under
his control any credits belonging to the taxpayer to pay to the
Commissioner the amount of such debts or credits.
Bank accounts shall be garnished by serving a warrant of
garnishment upon the taxpayer and upon the president, manager,
treasurer or other responsible officer of the bank. Upon receipt of
the warrant of garnishment, the bank shall turn over to the
Commissioner so much of the bank accounts as may be sufficient
to satisfy the claim of the Government.
d) SALE OF PROPERTY DISTRAINT SEC
209, SEC 211, SEC 212, SEC 224, SEC
225
SEC. 209. Sale of Property Distrained and Disposition of
Proceeds. - The Revenue District Officer or his duly authorized
representative, other than the officer referred to in Section 208 of
this Code shall, according to rules and regulations prescribed by
the Secretary of Finance, upon recommendation of the
Commissioner, forthwith cause a notification to be exhibited in not
less than two (2) public places in the municipality or city where the
distraint is made, specifying the time and place of sale and the
articles distrained. The time of sale shall not be less than twenty
(20) days after notice to the owner of possessor of the property as
above specified and the publication or posting of such notice . One
place for the posting of such notice shall be at the Office of the
Mayor of the city or municipality in which the property is
distrained.
At the time and place fixed in such notice, the said
revenue officer shall sell the goods, chattels, or effects, or other
personal property, including stocks and other securities so
distrained, at public auction, to the highest bidder for cash, or with
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the approval of the Commissioner, through duly licensed
commodity or stock exchanges.
In the case of Stocks and other securities, the officer
making the sale shall execute a bill of sale which he shall deliver to
the buyer, and a copy thereof furnished the corporation, company
or association which issued the stocks or other securities. Upon
receipt of the copy of the bill of sale, the corporation, company or
association shall make the corresponding entry in its books,
transfer the stocks or other securities sold in the name of the
buyer, and issue, if required to do so, the corresponding
certificates of stock or other securities.
Any residue over and above what is required to pay the
entire claim, including expenses, shall be returned to the owner of
the property sold. The expenses chargeable upon each seizure and
sale shall embrace only the actual expenses of seizure and
preservation of the property pending the sale, and no charge shall
be imposed for the services of the local internal revenue officer or
his deputy.
SEC. 211. Report of Sale to Bureau of Internal Revenue. -
Within two (2) days after the sale, the officer making the same
shall make a report of his proceedings in writing to the
Commissioner and shall himself preserve a copy of such report as
an official record.
SEC. 212. Purchase by Government at Sale Upon Distraint. -
When the amount bid for the property under distraint is not equal
to the amount of the tax or is very much less than the actual
market value of the articles offered for sale, the Commissioner or
his deputy may purchase the same in behalf of the national
Government for the amount of taxes, penalties and costs due
thereon.
Property so purchased may be resold by the Commissioner
or his deputy, subject to the rules and regulations prescribed by
the Secretary of Finance, the net proceeds therefrom shall be
remitted to the National Treasury and accounted for as internal
revenue.
SEC. 224. Remedy for Enforcement of Forfeitures. - The
forfeiture of chattels and removable fixtures of any sort shall be
enforced by the seizure and sale, or destruction, of the specific
forfeited property. The forfeiture of real property shall be enforced
by a judgment of condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may require.
SEC. 225. When Property to be Sold or Destroyed. - Sales of
forfeited chattels and removable fixtures shall be effected, so far
as practicable, in the same manner and under the same conditions
as the public notice and the time and manner of sale as are
prescribed for sales of personal property distrained for the non-
payment of taxes.
Distilled spirits, liquors, cigars, cigarettes, other
manufactured products of tobacco, and all apparatus used in or
about the illicit production of such articles may, upon forfeiture, be
destroyed by order of the Commissioner, when the sale of the
same for consumption or use would be injurious to public health or
prejudicial to the enforcement of the law.
All other articles subject to excise tax, which have been
manufactured or removed in violation of this Code, as well as dies
for the printing or making of internal revenue stamps and labels
which are in imitation of or purport to be lawful stamps, or labels
may, upon forfeiture, be sold or destroyed in the discretion of the
Commissioner.
Forfeited property shall not be destroyed until at least twenty (20)
days after seizure.
e) RELEASE OF DISTRAINT PROPERTY
SEC. 210
SEC. 210. Release of Distrained Property Upon Payment
Prior to Sale. - If at any time prior to the consummation of the
sale all proper charges are paid to the officer conducting the sale,
the goods or effects distrained shall be restored to the owner.
(2) LEVY OF REAL PROPERTY SEC. 205 (A)
SEC. 205. Remedies for the Collection of Delinquent Taxes. -
The civil remedies for the collection of internal revenue taxes, fees
or charges, and any increment thereto resulting from delinquency
shall be:
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(a) By distraint of goods, chattels, or effects, and other personal
property of whatever character, including stocks and other
securities, debts, credits, bank accounts and interest in and rights
to personal property, and by levy upon real property and interest
in rights to real property; and
a) PROCEDURE OF LEVY SEC. 207 (B)
SEC. 207. Summary Remedies. -
(B) Levy on Real Property. - After the expiration of the time
required to pay the delinquent tax or delinquent revenue as
prescribed in this Section, real property may be levied upon,
before, simultaneously or after the distraint of personal property
belonging to the delinquent. To this end, any internal revenue
officer designated by the Commissioner or his duly authorized
representative shall prepare a duly authenticated certificate
showing the name of the taxpayer and the amounts of the tax and
penalty due from him. Said certificate shall operate with the force
of a legal execution throughout the Philippines.
Levy shall be affected by writing upon said certificate a
description of the property upon which levy is made. At the same
time, written notice of the levy shall be mailed to or served upon
the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from
the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or if there be none, to the
occupant of the property in question.
In case the warrant of levy on real property is not issued
before or simultaneously with the warrant of distraint on personal
property, and the personal property of the taxpayer is not
sufficient to satisfy his tax delinquency, the Commissioner or his
duly authorized representative shall, within thirty (30) days after
execution of the distraint, proceed with the levy on the taxpayer's
real property.
Within ten (10) days after receipt of the warrant, a report
on any levy shall be submitted by the levying officer to the
Commissioner or his duly authorized representative: Provided,
however, That a consolidated report by the Revenue Regional
Director may be required by the Commissioner as often as
necessary: Provided, further, That the Commissioner or his duly
authorized representative, subject to rules and regulations
promulgated by the Secretary of Finance, upon recommendation of
the Commissioner, shall have the authority to lift warrants of levy
issued in accordance with the provisions hereof.
b) ADVERTISEMENT AND SALE SEC. 213
SEC. 213. Advertisement and Sale. - Within twenty (20) days
after levy, the officer conducting the proceedings shall proceed to
advertise the property or a usable portion thereof as may be
necessary to satisfy the claim and cost of sale; and such
advertisement shall cover a period of a least thirty (30) days. It
shall be effectuated by posting a notice at the main entrance of the
municipal building or city hall and in public and conspicuous place
in the barrio or district in which the real estate lies and by
publication once a week for three (3) weeks in a newspaper of
general circulation in the municipality or city where the property is
located. The advertisement shall contain a statement of the
amount of taxes and penalties so due and the time and place of
sale, the name of the taxpayer against whom taxes are levied, and
a short description of the property to be sold. At any time before
the day fixed for the sale, the taxpayer may discontinue all
proceedings by paying the taxes, penalties and interest. If he does
not do so, the sale shall proceed and shall be held either at the
main entrance of the municipal building or city hall, or on the
premises to be sold, as the officer conducting the proceedings shall
determine and as the notice of sale shall specify.
Within five (5) days after the sale, a return by the
distraining or levying officer of the proceedings shall be entered
upon the records of the Revenue Collection Officer, the Revenue
District officer and the Revenue Regional Director. The Revenue
Collection Officer, in consultation with the Revenue district Officer,
shall then make out and deliver to the purchaser a certificate from
his records, showing the proceedings of the sale, describing the
property sold stating the name of the purchaser and setting out
the exact amount of all taxes, penalties and interest: Provided,
however, That in case the proceeds of the sale exceeds the claim
Page | 12
and cost of sale, the excess shall be turned over to the owner of
the property.
The Revenue Collection Officer, upon approval by the
Revenue District Officer may, out of his collection, advance an
amount sufficient to defray the costs of collection by means of the
summary remedies provided for in this Code, including the
preservation or transportation in case of personal property, and
the advertisement and subsequent sale, both in cases of personal
and real property including improvements found on the latter. In
his monthly collection reports, such advances shall be reflected
and supported byreceipts.
FAILURE OF NOTICE
CABRERA V. PROVINCIAL TREASURER OF TAYABAS
75 PHIL 780
FACTS: The Provincial Treasurer of Tayabas issued a notice for the
sale at public auction of the real properties of Nemesio Cabrera
forfeited for tax delinquency.
The letter sent to Nemesio Cabrera was returned marked
Unclaimed for the latter was already dead.
The land was actually sold in a rescheduled public auction
sale.
Basilia Cabrera, the registered owner of the land subject to
attachment, filed a complaint against the Provincial
Treasurer and Catigbac attacking the validity of the sale on
the grounds that she was not notified, even though the
property had remained in the assessment book in the
name of Nemesio Cabrera, because she became the
registered owner thereof when a Torrens Title was issued
to her by the Register of Deeds of Tayabas.
ISSUE: Is there a need for new notices if the land was not sold on
the date specified in the previous notice?
HELD: Yes. Under the law, even if the notice state that the sale
would take place on a specified date and every day thereafter, it is
a general and indefinite notice. In order to protect the
taxpayers rights, the taxpayer should at least be apprised
of the exact date of the proceeding by which she is to lose
her property. Besides, the appellee admittedly being not
notified also vitiates the proceeding. She is the registered
owner of the land and had become liable for taxes thereon. For all
purposes, she is the delinquent taxpayer "against whom the taxes
were assessed." It cannot be Nemesio for the latter's obligation to
pay ended where Basilia's liability began.
Basilia may be criticized for failure to have changed the name in
the assessment record. However, such circumstance, nevertheless,
cannot supplant the absence of notice.
DEFECT NAME / DESCRIPTION
VELAYO V. ORDONEZA
102 PHIL 385
It is hardly possible to sanction the tax sale of a property with a
description distinct and different from that which appears in its
certificate of title, without impairing the full and credence with the
same in meant to command and, hence, without effecting the
essence of the Torrens Systems.
This suggest the advisability or need of adopting means and ways
tending to insure that the records of the assessment for purpose of
real estate tax on registered properties contain a description
thereof which dovetails with that of the records of the
corresponding registration proceedings.
Thus, instead of being merely a formality, which often does not
really give the notice demanded by the requirements of due
process, the advertisement of tax sales prescribed by law
would furnished substantially the information and warning
it is meant to convey to, among others, the owner and
delinquent taxpayer, in order that he may either make
payment before the sale, and thus suspend the same, or
redeem his property within the statutory period.
MARCOS II V. CA
273 SCRA 46 (1997)
FACTS: "The approval of the court sitting in probate is not a
mandatory requirement in the collection of estate taxes."
"In case of failure to file a return, the tax may be assessed at
anytime within 10 years after the omission."
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 Bongbong Marcos sought for the reversal of the ruling of
the Court of Appeals to grant CIR's petition to levy the
properties of the late Pres.
Marcos to cover the payment of his tax delinquencies
during the period of his exile in the US.
The Marcos family was assessed by the BIR after it failed
to file estate tax returns.
However the assessment were not protested
administratively by Mrs. Marcos and the heirs of the late
president so that they became final and unappealable after
the period for filing of opposition has prescribed. Marcos
contends that the properties could not be levied to cover
the tax dues because they are still pending probate with
the court, and settlement of tax deficiencies could not be
had, unless there is an order by the probate court or until
the probate proceedings are terminated.
Issue: WON the proper avenue of assessment and collection was
taken by respondent bureau.
HELD: Apart from failing to file the required estate tax return
within the time required for filing the same, petitioner and other
Marcos heirs never questioned the assessment served upon
them, allowing the same to lapse into finality, and
prompting the BIR to collect said taxes by levying upon the
properties left by the late President Marcos.
The Notice of Levy upon real property were issued within
the prescriptive period and in accordance with Sec. 222 of
the Tax Code. The deficiency tax assessment, having
become final, executory and demandable, the same can
now be collected through the summary remedy of distraint
and levy pursuant to Sec. 205 of the Tax Code.
c) REDEMPTION SEC 214
SEC. 214. Redemption of Property Sold. - Within one (1) year
from the date of sale, the delinquent taxpayer, or any one for him,
shall have the right of paying to the Revenue District Officer the
amount of the public taxes, penalties, and interest thereon from
the date of delinquency to the date of sale, together with interest
on said purchase rice at the rate of fifteen percent (15%) per
annum from the date of purchase to the date of redemption, and
such payment shall entitle the person paying to the delivery of the
certificate issued to the purchaser and a certificate from the said
Revenue District Officer that he has thus redeemed the property,
and the Revenue District Officer shall forthwith pay over to the
purchaser the amount by which such property has thus been
redeemed, and said property thereafter shall be free from the lien
of such taxes and penalties.
The owner shall not, however, be deprived of the
possession of the said property and shall be entitled to the rents
and other income thereof until the expiration of the time allowed
for its redemption.
d) FAILURE TO REDEEM SEC 202
SEC. 202. Final Deed to Purchaser. - In case the taxpayer shall
not redeem the property as herein provided the Revenue District
Officer shall, as grantor, execute a deed conveying to the
purchaser so much of the property as has been sold, free from all
liens of any kind whatsoever, and the deed shall succintly recite all
the proceedings upon which the validity of the sale depends.
e) FORFEITURE TO GOVERNMENT SEC
215, SEC 216, SEC 224
SEC. 215. Forfeiture to Government for Want of Bidder. - In
case there is no bidder for real property exposed for sale as
hereinabove provided or if the highest bid is for an amount
insufficient to pay the taxes, penalties and costs, the Internal
Revenue Officer conducting the sale shall declare the property
forfeited to the Government in satisfaction of the claim in question
and within two (2) days thereafter, shall make a return of his
proceedings and the forfeiture which shall be spread upon the
records of his office. It shall be the duty of the Register of Deeds
concerned, upon registration with his office of any such declaration
of forfeiture, to transfer the title of the property forfeited to the
Government without the necessity of an order from a competent
court.
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Within one (1) year from the date of such forfeiture, the taxpayer,
or any one for him may redeem said property by paying to the
Commissioner or the latter's Revenue Collection Officer the full
amount of the taxes and penalties, together with interest thereon
and the costs of sale, but if the property be not thus redeemed,
the forfeiture shall become absolute.
SEC. 216. Resale of Real Estate Taken for Taxes. - The
Commissioner shall have charge of any real estate obtained by the
Government of the Philippines in payment or satisfaction of taxes,
penalties or costs arising under this Code or in compromise or
adjustment of any claim therefore, and said Commissioner may,
upon the giving of not less than twenty (20) days notice, sell and
dispose of the same at public auction, or with prior approval of the
Secretary of Finance, dispose of the same at private sale. In either
case, the proceeds of the sale shall be deposited with the National
Treasury, and an accounting of the same shall rendered to the
Chairman of the Commission on Audit.
SEC. 224. Remedy for Enforcement of Forfeitures. - The
forfeiture of chattels and removable fixtures of any sort shall be
enforced by the seizure and sale, or destruction, of the specific
forfeited property. The forfeiture of real property shall be enforced
by a judgment of condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may require.
(3) FURTHER DISTRAINT & LEVY SEC. 217
SEC. 217. Further Distraint or Levy. - The remedy by distraint
of personal property and levy on realty may be repeated if
necessary until the full amount due, including all expenses, is
collected.
(4) INJUNCTION
a) SEC. 218
SEC. 218. Injunction not Available to Restrain Collection of
Tax. - No court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee or
charge imposed by this Code.
CIR V. CEBU PORTLAND CEMENT
G.R. NO L-29059 (1987)
FACTS:
CTA decision ordered the petitioner CIR to refund to the
Cebu Portland Cement Company overpayments of ad
valorem taxes on cement sold by it.
Execution of judgment was opposed by the petitioner citing
that respondent had an outstanding sales tax liability to
which the judgment debt had already been credited. In
fact, there was still a P4 M plus balance they owed.
The CTA, in holding that the alleged sales tax liability of
the private respondent was still being questioned and
therefore could not be set-off against the refund, granted
private respondent's motion.
Respondent questioned the assessed tax, contending that
cement was adjudged a mineral and not a manufactured
product; and thusly they were not liable for their alleged
tax deficiency. Thereby, petitioner filed this petition for
review.
ISSUE: WON assessment of taxes can be enforced even if there is
a case contesting it.
HELD: The argument that the assessment cannot as yet be
enforced because it is still being contested loses sight of the
urgency of the need to collect taxes as "the lifeblood of the
government." If the payment of taxes could be postponed by
simply questioning their validity, the machinery of the state would
grind to a halt and all government functions would be paralyzed.
That is the reason why, save for the exception in RA 1125 , the
Tax Code provides that injunction is not available to
restrain collection of tax. Thereby, we hold that the respondent
Court of Tax Appeals erred in its order.
EXCEPTION: COLLECTOR V. ZULUETA
100 PHIL 872 (1957)
Section 11 of Republic Act No. 1125 is therefore premised on the
assumption that the collection by summary proceedings is by
itself in accordance with existing laws; and then what is
suspended is the act of collecting, whereas, in the case at
bar, what the respondent Court suspended was the use of
Page | 15
the method employed to verify the collection which was
evidently illegal after the lapse of the three-year limitation
period. The respondent Court issued the injunction in question on
the basis of its findings that the means intended to be used by
petitioner in the collection of the alleged deficiency taxes were in
violation of law. It would certainly be an absurdity on the part of
the Court of Tax Appeals to declare that the collection by the
summary methods of distraint and levy was violative of the law,
and then, on the same breath, require the petitioner to deposit or
file a bond as a pre-requisite of the issuance of a writ of injunction.
2. JUDICIAL ACTION
(f) CIVIL ACTION SEC 228, SEC 220
SEC. 228. Protesting of Assessment. When the
Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer
of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the
tax withheld and the amount actually remitted by the
withholding agent; or
When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not
been paid; or
(e) When the article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and
the facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an assessment based on
his findings.
Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and manner
as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the
assessment shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one
hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.
SEC. 220. Form and Mode of Proceeding in Actions Arising
under this Code. Civil and criminal actions and proceedings
instituted in behalf of the Government under the authority of this
Code or other law enforced by the Bureau of Internal Revenue
shall be brought in the name of the Government of the Philippines
and shall be conducted by legal officers of the Bureau of Internal
Revenue but no civil or criminal action for the recovery of taxes or
the enforcement of any fine, penalty or forfeiture under this Code
shall be filed in court without the approval of the Commissioner.
a) APPROVAL OF CIR
ARCHES V. BELOSILLO
20 SCRA 32 (1967)
FACTS: Petitioner filed his income tax return. Within five years
thereafter, deficiency income tax and residence tax assessments
were issued against him.
Said assessments not having been disputed BIR filed suit
to recover from petitioner the deficiency income tax.
Page | 16
 Arches moved to dismiss the complaint on the ground that
it did not expressly show the approval of the Revenue
Commissioner.
ISSUE: WON the CFI correctly dismissed the petition of the
petitioner?
HELD: YES.
Lack of approval of the Revenue Commissioner is not
jurisdictional, but one relating to capacity to sue or
affecting the cause of action only. So, in ruling on said
question, whatever error if any the municipal court
committed, was merely an error of judgment, not correctible
by certiorari.
The court relied upon Memorandum Order of the Revenue
Commissioner, approved by the Finance Secretary, wherein
the former's functions regarding the administration and
enforcement of revenue laws and regulations covering the
approval of court actions were expressly delegated to the
Regional Directors. This regulation, the issuance of which was
authorized by statute, has the force and effect of law.
The verification by the Regional Director of the complaint
constitutes sufficient approval thereof already. It states that
said Director has caused the preparation of the complaint and that
he has read the allegations thereof and they are true and correct
to the best of his knowledge and belief.
We have already ruled8 that the proper prescriptive period for
bringing civil actions is five years from the date of the assessment.
Here, the action was commenced one year, ten months and three
days after the assessments were made; hence, well within the
period.
b) CAN THE POWER TO APPROVE FILING
OR CIVIL AND CRIMINAL ACTIONS BE
DELEGATED?
Two ways to enforce civil liability through civil actions:
1. By filing a civil case for collection of a sum of money with
proper regular court (MTC or RTC); or
2. By filing an answer to the petition for review filed by
taxpayer with CTA.
Resorted to:
1. When a tax is assessed and the assessment becomes final
and unappealable because the taxpayer fails to file an
administrative protest with the CIR within 30 days from
receipt; or
2. When a protest against assessment is filed and a decision
becomes final, executory and demandable for failure of the
taxpayer to appeal the decision to the CTA within 30 days
for receipt of the decision.
3. When the protest is not acted upon within 180 days from
submission of documents and the taxpayer failed to appeal
with the CTA within 30 days from the lapse of the 180-day
period.
NOTE: JUDICIAL ACTION may be resorted to even before
assessment, although impractical, as stated in SEC. 203, NIRC,
and no proceeding in court without assessment for the collection of
such taxes shall be instituted after the expiration of such (3-year)
period.
REPUBLIC v. HIZON
320 SCRA 573 (1999)
FACTS:
In 1986, the BIR issued to respondent a deficiency income
tax assessment. Respondent not having contested the
assessment, the petitioner served warrants of distraint and
levy to collect the tax deficiency. However it did not
proceed to dispose of the attached properties.
Respondent wrote the BIR requesting a reconsideration of
her tax deficiency assessment. The BIR denied the
request. Respondent filed a case with the RTC to collect
the tax deficiency. The complaint was signed by the Chief
of the Legal Division and verified by the Bureaus Regional
Director.
Page | 17
 Respondent moved to dismiss the case on two grounds:
(1) that the complaint was not filed upon authority of the BIR
Commissioner; and
(2) that the action had already prescribed.
The trial court granted the motion and dismissed the
complaint. Hence, this petition.
ISSUES:
I. WON the institution of the civil case for collection of
taxes was without the approval of Commissioner.
NO.
II. WON the action or collection of taxes had been barred by
prescription. YES.
HELD:
1. the trial court stated The NIRC explicitly provides that the
absence of the approval of the commissioner in the institution of
the action is fatal to the cause of the plaintiff . . . .
The trial court arrived at this conclusion because the complaint
filed by the BIR was not signed by then Commissioner.
SC held that, Revenue Administrative Order No. 5-83 of the
BIR provides that the Regional Director is authorized to sign
all pleadings which requires the signature of the
Commissioner. AND Revenue Administrative Order No. 10-
95 authorizes the Litigation and Prosecution Section of the
Legal Division of regional district offices to institute the
necessary civil and criminal actions for tax collection. As
the complaint filed in this case was signed by the BIRs Chief of
Legal Division for Region 4 and verified by the Regional Director,
there was compliance with the law.
However, the lower court refused to recognize said Revenue
Administrative Order saying that:
[M]emorand[a], circulars and orders are not laws which
courts can take judicial notice of. As such, they have no
binding effect upon the courts for such memorand[a] and circulars
are not the official acts of the legislative, executive and
judicial departments of the Philippines . . .
This is erroneous. NIRC authorizes the BIR Commissioner to
delegate the powers vested in him to any subordinate official with
the rank equivalent to a division chief or higher, EXCEPT the
following:
(a) The power to recommend the promulgation of
rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to
reverse, revoke or modify any existing ruling of the
Bureau;
(c) The power to compromise or abate under 204(A)
and (B) of this Code, any tax deficiency; and
(d) The power to assign or reassign internal revenue
officers to establishments where articles subject to
excise tax are produced or kept.
None of the exceptions relates to the Commissioners power
to approve the filing of tax collection cases.
2. Petitioner argued that respondents request for
reinvestigation of her tax deficiency assessment suspended
the running of the period of prescription such that the
government could still file a case for tax collection. The
court does not agree with the petitioner. The request for
reconsideration was not filed within the 30 day period
hence no request for reconsideration was actually made.
So, the period for prescription was not suspended.
Consequently, the action is barred by the 3 year
prescription period.
RE: PARTICIPATION OF THE SOLICITOR GENERAL
The Solicitor General is the principal law officer and legal
defender of the government sec. 220, NIRC must not
understood as overturning the long established procedure before
this court (SC) in requiring the Sol Gen to represent the interest
of the Republic. This court continues to maintain that it is the Sol
Gen who has primary responsibility to appear for the government
in APPELLATE proceedings. This pronouncement fins justification
in the various laws defining the Office of the Sol Gen. beginning
with ACT No. 135 (June 16, 1901) up to the present Administrative
Code of 1987.
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JURISDICTION:
1. CTA where the principal amount of taxes and fees,
exclusive of charges and penalties claimed is 1Million and
above.
2. RTC/MTC/MeTC where the principal amount of taxes
and fees, exlcusive of charges and penalties claimed is
less than 1Million
DEFENSES PRECLUDED BY FINAL AND EXECUTORY
ASSESSMENTS:
1. Validity or legality of the assessments; and
2. Prescription of the Governments right to assess.
c) COLLECTION CASE UPON FINALITY OF
ASSESSMENT
DAYRIT ET AL V. CRUZ
G.R. NO L-39910 (1988)
FACTS: Dayrit filed with the CFI testate and intestate proceedings
for the settlement of the Spouses Teodoros estates.
The notice of deficiency assessments was received by
Dayrit. Petitioners asked for a reconsideration of the said
assessments alleging that the same are contrary to law
and not supported by sufficient evidence and requested a
period of 30 days within which to submit their position
paper in support of their claim.
Meanwhile, on October 16, 1972, P.D No. 23 amended by
P.D. No. 67 was entitled Proclaiming Tax Amnesty Subject
to Certain Conditions.
1974, CIR filed a motion for Allowance of Claim
against the estates of spouses Teodoro and for an
order of payment of taxes in Special Proceeding with
the CFI praying that petitioner Dayrit be ordered to
pay the BIR the sum of P6Million plus surcharges
and interest.
Petitioners filed 2 separate oppositions alleging that the
estate and inheritance taxes sought to be collected have
already been settled in accordance with the
provisions of P.D. No. 23, as amended by P.D. No. 67
and that at any rate, the assessments have not
become final and executory.
In reply thereto, the Commissioner alleged that petitioners
could not avail of the tax amnesty in view of the existence
of a prior assessment.
HELD:
1. Anent petitioners' claim that the tax assessments
against the estates of the Teodoro spouses are not yet
final, the court finds the claim untenable. In
petitioners' MR of the aforementioned assessments,
petitioners requested then Commissioner for a
period of thirty (30) days from October 7, 1972 within
which to submit a position paper that would embody
their grounds for reconsideration. However, no
position paper was ever filed. Such failure to file a
position paper may be construed as abandonment of
the petitioners' request for reconsideration.
The court notes that it took the respondent Commissioner a
period of more than one (1) year and five (5) months, before
finally instituting the action for collection. Under the
circumstances of the case, the act of the Commissioner in
filing an action for allowance of the claim for estate and
inheritance taxes, may be considered as an outright denial
of petitioners' request for reconsideration.
From the date of receipt of the copy of the Commissioner's
letter for collection of estate and inheritance taxes against
the estates of the late Teodoro spouses, petitioners must
contest or dispute the same and, upon a denial thereof, the
petitioners have a period of thirty (30) days within which to
appeal the case to the Court of Tax Appeals. This they failed
to avail of.
Tax assessments made by tax examiners are presumed correct
and made in good faith. A taxpayer has to prove
otherwise. Failure of the petitioners to appeal to the Court of
Tax Appeals in due time made the assessments final,
executory and demandable.
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 2. The petitioners' allegation that the CFI lacks jurisdiction
over the subject of the case is likewise untenable. The
assessments having become final and executory, the
CFI properly acquired jurisdiction.
Petitioners' contention that the absence of a decision on their
request for reconsideration of the assessments is a bar to granting
the claim for collection is likewise without merit. This Court ruled
that "nowhere in the Tax Code is the Collector of Internal
Revenue required to rule first on a taxpayer's request for
reconsideration before he can go to court for the purpose of
collecting the tax assessed.
3. The requirement for the Commissioner to rule on
disputed assessments before bringing an action for
collection is applicable only in cases where the
assessment was actually disputed, adducing reasons
in support thereto. In the present case where the
petitioners did not actually contest the assessments by
stating the basis thereof, the respondent Commissioner
need not rule on their request.
Considering that P.D. No. 23 was issued on October 16, 1972, the
court rules that the said decree embraces only those income
declared in pursuance thereof within the taxable year 1972. The
time frame cannot be stretched to include declarations made prior
to the issuance of the said decree or those made outside of the
time frame as envisioned in the said decree. Thus, the estates of
the Teodoro spouses which have been declared separately
sometime in the 1960's are clearly outside the coverage of the tax
amnesty provision.
(2) CRIMINAL ACTION
a) AS A COLLECTION REMEDY SEC. 205
(B) (2)
SEC. 205. Remedies for the Collection of Delinquent Taxes. -
The civil remedies for the collection of internal revenue taxes, fees
or charges, and any increment thereto resulting from delinquency
shall be:
(b) By civil or criminal action.
The judgment in the criminal case shall not only impose the
penalty but shall also order payment of the taxes subject of the
criminal case as finally decided by the Commissioner.
b) AS ENFORCEMENT OF STATUTORY
PENALTIES SEC 221
SEC. 221. Remedy for Enforcement of Statutory Penal
Provisions. - The remedy for enforcement of statutory penalties
of all sorts shall be by criminal or civil action, as the particular
situation may require, subject to the approval of the
Commissioner.
*STATUTORY OFFENSES AND PENALTIES
Statutory offenses and penalties secs. 250-268
1. Willful failure to file return, statement or list, or keep any
record or supply information required on the date
prescribed. PENALTY, P1,000 per failure but the
aggregate amount shall not exceed P25,000 for all such
failure during a calendar year; (se. 250)
2. Failure of a withholding agent to withhold and remit tax or
aids or abets to evade payment of tax. PENALTY, equal
to the amount of the tax not withheld, counted for, or
remitted; (sec. 251)
3. Failure of a withholding agent to refund excess withholding
tax. PENALTY, equal to the amount of refunds not
refunded. (sec. 252)
4. Attempt to evade or defeat tax. PENALTY, fine not less
P30,000 but not more than P100,000 and
IMPRISONMENT of not less 2 years but not more than 4
years. Provided that the conviction and acquittal obtained
shall not be a bar to the filing of a civil suit for the
collection of taxes. (sec. 254)
5. Failure to file return, supply correct and Accurate
information, pay tax, withhold and remit tax and refund
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 excess taxes withheld on compensation at the time
required by law. PENALTY, not less than P10,000,
IMPRISONMENT, not less than 1year BUT not more
than 10years. (sec. 255)
6. Attempt to make it appear that a return or statement is
actually filed or the withdrawal of a return or statement
that actually filed after securing the official receiving seal
or stamp of receipt of an internal revenue officer.
PENALTY, not less than P10,000 BUT not more than
P20,000 and IMPRISONMENT not less than 1year BUT
not less than 3years. (sec. 255)
NOTE: in case of CORPORATION, ASSOCIATION, OR
GENERAL CO-PARTNERSHIP, in addition to the penalties
imposed to the responsible corporate officers, partners, or
employees. PENALTY, not less than P50,000 but not more
than P100,000
7. Making false entries, records, or reports, or using falsified
or fake accountable forms. (sec. 257)
Any financial officer or independent CPA
engaged to examine and audit books of
accounts of corporations, companies,
partnerships, or persons required to keep
book of acconunts who:
(a) Willfully falsifies report or statement
bearing on any examination or audit,
or renders a report, including exhibits,
statements, schedules or other forms
of accountancy work which has not
been verified by him personally or
under his supervision or by a member
of his firm or by a member of his staff
in accordance with sound auditing
practices; or
(b) Certifies financial statements of a
business enterprise containing an
essential misstatement of facts or
omission in respect of the transactions,
taxable income, deduction and
exemption of his client; or
Any person who:
(a) Not being an independent CPA or a
financial officer, examines and audits
books of accounts of taxpayers; or
(b) Offers to sign and certify financial
statements without audit; or
(c) Offers any taxpayer the use of accounting
bookkeeping records for internal revenue
purposes not in conformity with the
requirements prescribed in this Code or
rules and regulations promulgated
thereunder; or
(d) Knowingly makes any false or fictitious
name in the books of accounts or record
mentioned in the preceding paragraphs;
or
(e) Keeps 2 or more sets of such records or
books of accounts; or
(f) In any way commits an act or omission,
in violation of the provisions of this
Section; or
(g) Fails to keep the books of accounts or
records in a native language, English or
Spanish, or to make a true and
complete translation, or whose books of
accounts or records kept in a native
language, English or Spanish, and
found to be at material variance with
books or records kept by him in another
language; or
(h) Willfully attempts to evade or defeat any
tax imposed under this Code, or
knowingly uses fake or falsified revenue
official receipts, Letters of Authority,
certificates authorizing registration, Tax
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 Credit Certificates, Tax Debit
Memoranda and other accountable
forms. PENALTY, for each act or
omission, not less than P50,000 but not
more than P100,000. IMPRISONMENT,
not less than 2years BUT not more than
6 years.
NOTE: Offender is a CPA, his certificate as a CPA shall be
automatically revoked or cancelled upon conviction.
IF FOREIGNERS, immediate deportation after serving
sentence, without further proceedings for deportation. (sec.
257)
8. Carrying on a business without paying the corresponding
annual registration fee. PENALTY, not less than P5,000
BUT not more than P20,000. IMPRISONMENT, not less
than 6months BUT not more than 2years.
In case of a person engaged in the business of
distilling, rectifying, repacking, compounding or manufacturing
article subject to excise tax. PENALTY, not less than P30,000
BUT not more than P50,000. IMPRISONMENT, not less than
2years BUT not more than 4years. (sec. 258)
9. Knowingly undertaking the collection of foreign payments
as provided under sec. 67 without having obtained a
license therefor, or without complying with its
implementing rules and regulations. PENALTY, not less
than P20,000 BUT not more than P50,000.
IMPRISONMENT, not less than 1year BUT not more than
2years. (sec. 259)
10. Possession of cigarette paper in bobbins or rolls, cigarette
tipping paper or cigarette filter tips by any person,
importer, manufacturer or cigar and cigarettes without the
corresponding authority therefor issued by the
Commissioner. PENALTY, not less than P20,000 BUT not
more than P100,000. IMPRISONMENT, not less than
6years and 1day BUT not more than 12 years. (sec. 260)
11. Unlawful use of denatured alcohol. PENALTY, not less
than P20,000 BUT not more than P100,000.
IMPRISONMENT, not less than 6years and 1day BUT not
more than 12years.
Any person who unlawfully recover or attempt to
recover by distillation or other process any denatured
alcohol or knowingly sells or offers for sale, conceals or
disposes of alcohol so recovered or redistilled shall be
subject to the same penalties. (sec. 261)
12. Shipment or removal of liquor or tobacco products under
false name or brand or as an imitation of any existing or
otherwise known product name or brand. PENALTY, not
less than P20,000 BUT not more than P100,000.
IMPRISONMENT, not less than 6years and 1day BUT not
more than 12 years. (sec. 262)
13. Unlawful possession or removal of imported articles
subject to excise tax without payment of the tax.
(a) if the appraised value does not exceed P1,000.
PENALTY, Not less than P1,000 nor more than
P2,000. IMPRISONMENT, not less than 60days
BUT not more than 100 days.
(b) If the appraised value exceeds P1,000 BUT does
not exceed P50,000. PENALTY, not less than
P10,000 BUT not more than P20,000.
IMPRISONMENT, not less than 2years BUT not
more than 4years.
(c) If the appraised value is more than P50,000 BUT
does not exceed P150,000. PENALTY, not less
than P30,000 BUT not more than P60,000.
IMPRISONMENT, not less than 4years BUT not
more than 6years.
(d) If the appraised value is more than P100,000.
PENALTY, not less than P50,00 BUT not more
than P100,000. IMPRISONMENT, not less than
10years BUT not more than 12 years.
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 Unlawful possession of locally manufactured
articles subject to excise tax without payment of the tax.
PENALTY, not less than 10times the amount of excise tax
due on the articles found BUT not less than P500.
IMPRISONMENT, not less than 2years BUT not more
than 4years.
Manufacturer, owner or person in charge of article
subject to tax who removes or allows or causes the
unlawful removal such articles from the place of production
or warehouse which the excise tax has not been paid, or
any person who knowingly aids or abets in the removal of
such articles, or conceals the same after illegal removal
shall for the first offense, PENALTY, not less than 10times
the amount of excise tax due on the articles but not less
than P1,000. IMPRISONMENT, not less than 1 year BUT
not more than 2 years. (sec. 263)
14. Failure or refusal to issue receipts or sales or commercial
invoices that do not truly reflect or contain all the
information required to be shown. For each act or
commission, PENALTY, not less than P1,000 BUT not
more than P50,000. IMPRISONMENT, not less than 2
years BUT not more than 4 years.
Any person who commits the acts below shall be
penalized in the same manner:
(a) Printing of receipts or sales or commercial
invoices without authority from the BIR; or
(b) Printing of double or multiple sets of
invoices or receipts; or
(c) Printing of unnumbered receipts or sales or
commercial invoices, not bearing the
name, business style, taxpayer
Identification number, and business
address of the person or entity. (sec. 264)
15. The following acts will have a PENALTY, not less than
P20,000 BUT not more than P50,000. IMPRISONMENT,
not less than P4years BUT not more than 8years.
(a) Making, importing, selling, using or processing
without express authority from the Commissioner,
any die for printing or making stamps, labels, tags,
or playing cards;
(b) Erasing the cancellation marks of any stamp
previously used, or altering the written figures or
letters or cancellation marks on internal revenue
stamps;
(c) Possessing false, counterfeit, restored or altered
stamps, labels or tags or causing the commission
of any such offense by another;
(d) Selling or offering for sale any box or package
containing articles subject to excise tax with false,
spurious or counterfeit stamps or labels or selling
from any such fraudulent box, package or
container as aforementioned; or
(e) Giving away or accepting from another, or selling,
buying or using containers on which the stamps
are not completely destroyed.
16. Failure to obey summons. PENALTY, not less than
P5,000 BUT not more than P10,000. IMPRISONMENT,
not less than 1year BUT not more than 2years.
17. Willful filing of a declaration, return or statement
containing information which is not true and correct as to
every material matter. Subject to penalties prescribed for
PERJURY under RPC.
18. Misdeclaration or misrepresentation of Manufacturers
subject to excise tax. PENALTY, summary cancellation or
withdrawal of the permit to engage in business as a
manufacture of articles subject to excise tax.
19. Chattels, machinery and removal of fixtures used in
Unlicensed Business of articles subject to excise tax or
Dies Used for Printing False Stamps Etc. shall be
forfeited.
20. All articles subject to excise tax stored or allowed to
remain in the distillery warehouse, bonded warehouse or
other place where has been paid or withdrawn from any
such place or any article from customs custody or
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 imported into the country without the payment of the
required tax shall be forfeited.
c) CIVIL LIABILITY IN CASE OF
ACQUITTAL OF CRIMINAL LIABILITY
REPUBLIC V. PATANAO
In the complaint filed by the Republic of the Philippines, through
the Solicitor General, against Patanao. It is alleged that:
1. defendant failed to file income tax returns for 1953 and
1954, and although he filed income tax returns for 1951,
1952 and 1955, the same were false and fraudulent
because he did not report substantial income earned by
him from his business;
2. that it was ascertained that deficiency of income taxes
and additional residence taxes is due from defendant;
3. that plaintiff sent a letter of demand with enclosed income
tax assessment to the defendant requiring him to pay the
said amount;
4. that notwithstanding repeated demands the defendant
refused, failed and neglected to pay said taxes;
5. and that the assessment for the payment of the taxes has
become final, executory and demandable, because it was
not contested before the Court of Tax Appeals.
Defendant moved to dismiss the complaint that the action is
barred by prior judgment, defendant having been acquitted in two
criminal cases of the same court, which were prosecutions for
failure to file income tax returns and for non-payment of income
taxes.
The lower court held in favor of Patanao. It reasoned that the
accused once acquitted is exempt from both criminal and
civil responsibility because when a criminal action is
instituted, civil action arising from the same offense is
impliedly instituted unless the offended party expressly
waives the civil action or reserves the right to file it
separately.
ISSUE: WON the acquittal of the taxpayer in a criminal action
result in the exoneration of taxpayer from his civil liability to pay
taxes?
HELD: NO.
The acquittal in the said criminal cases cannot operate to
discharge defendant appellee from the duty of paying the taxes
which the law requires to be paid, since that duty is imposed by
statute prior to and independently of any attempts by the
taxpayer to evade payment. It is neither a mere
consequence of the felonious acts charged nor is it a mere
civil liability arising from crime that could be wiped out by the
judicial declaration of non-existence of the criminal acts charged.
The civil liability to pay taxes arises not because of felony but upon
taxpayers failure to pay taxes. Criminal liability in taxation arises
as a result of ones liability to pay taxes.
d) IMPOSITION OF SUBSIDIARY
IMPRISONMENT
PEOPLE V. BALAGTAS
105 PHIL 1362
FACTS: Appeal from a decision of the Court of First Instance of
Manila finding appellant guilty of violation of Section 51 of NIRC.
The Information filed by the government on August 17, 1954,
alleged that the said appellant failed to pay his income taxes for
the years 1946, 1947, 1948 and 1949m, in the total amount of
Php 10, 431.22.Upon his plea of guilty, he was sentenced to pay a
fine of Php 300.00with subsidiary imprisonment in case of
insolvency, to indemnify the Republic the sum of Php 10, 431.00,
also with subsidiary imprisonment in case of insolvency.
ISSUES:
1. Whether the lower court erred in not holding that the
violation alleged in the information has already prescribed,
and;
2. in imposing subsidiary imprisonment relative to his civil
liability.
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HELD: 1. Section 51, paragraphs (b) and (c) of the Internal
Revenue Code provide that the tax imposed by that title shall be
paid on or before the 15th day of May following the close of the
calendar year, and in case of installment the close of the calendar
year, and in case of installment payments, the second installment
shall be paid on or before the 15th day of August of the following
year.
Section 354 of the same Code provides that violations of
any provision thereof shall prescribe after (5) five years. With
respect, to the failure of Appellants to pay his income taxes for
1946, 1947, and 1948 on or before May 15 th or August 15th as the
case may be, of the year 1947, 1948 and 1949, respectively, the
same could not have been prosecuted by reason of prescription, as
the information was filed on August 17, 1954 or before more than
five years have elapsed counted from August 16, 1949. With
respect to his tax for 1949 which should have been paid on or
before May 15th or August 15th, as the case may be, of 1950, the
violation has not yet prescribed, it appearing that only 4 years and
a few days have elapsed when the information was filed.
2. Relative to the imposition of subsidiary imprisonment in
case of insolvency, Section 358 is clear that the subsidiary
penalty provided therein refers only to non-payment of the
fine and not of the taxes due. For want of express provision
of law, subsidiary imprisonment cannot be imposed in this
case.
e) IS DEFICIENCY ASSESSMENT
NECESSARY BEFORE FILING A
CRIMINAL CASE?
CIR V.PASCOR REALTY
G.R. NO 128315 (1999)
The filing of the criminal complaint with the DOJ cannot be
construed as a formal assessment.
Accordingly, an affidavit, which was executed by revenue
officers stating the tax liabilities of a taxpayer and attached
to a criminal complaint for tax evasion, cannot be deemed
an assessment that can be questioned before the CTA.
The recommendation letter of the Commissioner addressed to the
DOJ for the filing of a criminal complaint against the taxpayer
cannot be considered a formal assessment. Even a cursory
perusal of the said letter would reveal three key points:
1. It was not addressed to the taxpayer;
2. There was no demand made on the taxpayer to pay the
tax liability, nor a period for payment set therein.
3. The letter was never mailed or sent to the taxpayer by the
Commissioner.
An assessment is not necessary before criminal charges can
be filed. A criminal charge need not only be supported by a
prima facie showing of failure to file a required return. The
CIR had, in such tax evasion cases, discretion on whether to
issue an assessment, or to file a criminal case against the
taxpayer, or to do both.
UNGAB V. CUSI
97 SCRA 877 (1980)
On the second issue, the Court ruled that what is involved here
is not the collection of taxes where the assessment of the
CIR may be reviewed by the Court of Tax Appeals, but a
criminal prosecution for violations of the National Internal
Revenue Code which is within the cognizance of CFI.
While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed it
is NOT a requirement for the filing thereof that there be a
precise computation and assessment of the tax, since what
is involved in the criminal action is not the collection of tax
but a criminal prosecution for the violation of the NIRC.
Provided, however, that there is a prima facie showing of a willful
attempt to evade taxes or failure to file the required return.
Before anyone is prosecuted for willful attempt to evade or
defeat any tax, the fact that a tax is due must first be
proved.
CIR V. CA
G.R. NO 119322 (1996)
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FACTS: Respondent moved for reconsideration of the assessment.
Meanwhile the Commissioner filed a complaint with the DOJ
against private respondent Fortune for alleged fraudulent tax
evasion for non-payment of the correct income, ad valorem and
VAT for 1992. The complaint was referred to the DOJ Task Force
on revenue cases which found sufficient basis to further
investigate the charges against Fortune.
Respondents filed a petition that the preliminary
investigation be suspended pending determination by CIR
of Fortunes motion for reconsideration/reinvestigation of
the August 13, 1993 assessment of taxes due.
The trial court granted the petition for a writ of preliminary
injunction to enjoin the preliminary investigation on the
complaint for tax evasion pending before the DOJ, ruling
that the tax liability of private respondents first be settled
before any complaint for fraudulent tax evasion can be
initiated.
ISSUE: Whether the basis of private respondents tax liability first
be settled before any complaint for fraudulent tax evasion can be
initiated.
HELD: Fraud cannot be presumed. If there was fraud on willful
attempt to evade payment of ad valorem taxes by private
respondent through the manipulation of the registered wholesale
price of the cigarettes, it must have been with the connivance of
cooperation of certain BIR officials and employees who supervised
and monitored Fortunes production activities to see to it that the
correct taxes were paid. But there is no allegation, much less
evidence, of BIR personnels malfeasance at the very least, there
is the presumption that BIR personnel performed their duties in
the regular course in ensuring that the correct taxes were paid by
Fortune.
Before the tax liabilities of Fortune are finally determined, it
cannot be correctly asserted that private respondents have
willfully attempted to evade or defeat any tax under Secs.
254 and 256, 1997 NIRC, the fact that a tax is due must
first be proved.
ADAMSON V. CA
G.R. NO 120935 (2009)
FACTS: Commissioner filed with the DOJ her Affidavit of Complaint
against petitioners.
Petitioners filed with the DOJ a motion to suspend
proceedings on the ground of prejudicial question,
pendency of a civil case with the Supreme Court, and
pendency of their letter-request for re-investigation with
the Commissioner.
After the preliminary investigation, State Prosecutor found
probable cause. Lucas G. Adamson, Therese JuneD.
Adamson and Sara S. de los Reyes were charged before
the RTC.
They filed a Motion to Dismiss or Suspend the Proceedings.
They invoked the grounds that there was yet no final
assessment of their tax liability, and there were still
pending relevant Supreme Court and CTA cases.
ISSUES:
1. WON the Commissioner's recommendation letter can be
considered as a formal assessment of private respondents'
tax liability- NO
2. WON the filing of the criminal complaints against the
private respondents by the DOJ is premature for lack of a
formal assessment- NO
3. WON t he CTA has jurisdiction to take cognizance of both
the criminal and civil cases here at bar. YES
HELD:
The law (SEC 269 of NIRC) is clear. When fraudulent tax
returns are involved as in the cases at bar, a proceeding in
court after the collection of such tax may be begun without
assessment.
In this seminal case, the Court ruled that there was no need
for precise computation and formal assessment in order for
criminal complaints to be filed against him.
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3. OTHERS
(1) TAX LIEN
a) SEC 219
SEC. 219. Nature and Extent of Tax Lien. - If any person,
corporation, partnership, joint-account (cuentas en participacion),
association or insurance company liable to pay an internal revenue
tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the
Philippines from the time when the assessment was made by the
Commissioner until paid, with interests, penalties, and costs that
may accrue in addition thereto upon all property and rights to
property belonging to the taxpayer: Provided, That this lien shall
not be valid against any mortgagee, purchaser or judgment
creditor until notice of such lien shall be filed by the Commissioner
in the office of the Register of Deeds of the province or city where
the property of the taxpayer is situated or located.
b) PREFERENCE OF LIENS
NATURE OF TAX LIEN
It Is enforced as payment of tax, interest, penalties, costs upon
the entire property and rights to the property of the taxpayer,
however, to be valid, against any mortgagee, purchaser or
judgment creditor, notice of such lien must be filed by CIR with the
Registry of Deeds (Sec 219 NIRC)
NOTE: A valid assessment is required before a tax lien shall be
annotated at the proper registry of property.
(1) Preference of Liens A tax lien created in favor of the
government is superior to all other claims or preferences
CIR V. NLRC
238 SCRA 42 (1994)
FACTS: CIR sent two demand letters to Maritime Company of the
Phils for deficiency common carriers tax, fixed tax, 6%
Commercial Brokers tax, documentary stamp tax, income tax and
withholding tax
1) The assessment became final and executory. For failure to
pay the deficiency taxes, CIR issued warrants of distraint
on personal property and levy of real property of Maritime
Co.
2) 4 of the barges placed under constructive distraint by CIR
were levied upon execution by the deputy sheriff of Manila
to satisfy a judgment for unpaid wages and other benefits
of employees of Maritime Co
3) CIR asked the labor arbiter (LA) to annul the sale and
enjoin the sheriff from disposing of the proceeds of the
sale, or in the alternative, remit them to BIR so that the
amount could be applied to the payment of Maritime Cos
tax liabilities
4) LA denied the motion on the ground that CIR failed to
show that the barges had been validly placed under
constructive distraint. LA also rejected petitioners
contention that the governments claim for taxes was
preferred under Art 2247 NCC since only taxes and fees
which are due on specific movables enjoy preference,
whereas the taxes claimed by CIR were not due on the 4
barges in question
ISSUE: WON the constructive distraint on the barges in question
are valid
HELD: Yes.
It is settled that the claim of the government predicated on a tax
lien is superior to the claim of a private litigant predicated on
judgment. The tax lien attaches not only from the service of the
warrant of distraint of personal property but from the time the tax
became due and payable. Besides, the distraint on the subject
properties of Maritime Co as well as the notice of their seizure
were made by petitioner CIR long before the writ of execution was
issued by RTC Manila.
There is no question then that at the time of the writ of execution
was issued, the two barges were no longer property of Maritime
Page | 27
Co. the power of the court in execution of judgments extends only
to properties unquestionably belonging to the judgment debtor.
Execution sales affect the rights of the judgment debtor only, and
the purchaser in an auction sale acquires only such right as the
judgment debtor had at the time of sale. It is also well-settled that
the sheriff is not authorized to attach or levy on property not
belonging to the debtor.
c) OTHER LIENS SEC 107 (B), SEC 131
(A)
SEC. 107. Value-Added Tax on Importation of Goods.
(B) Transfer of Goods by Tax-Exempt Persons. - In the case of
tax-free importation of goods into the Philippines by persons,
entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to
nonexempt persons or entities, the purchasers, transferees or
recipients shall be considered the importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax
due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the
possessor thereof.
SEC. 131. Payment of Excise Taxes on Importer Articles. -
(A) Persons Liable. - Excise taxes on imported articles shall be paid
by the owner or importer to the Customs Officers, conformably
with the regulations of the Department of Finance and before the
release of such articles from the customs house, or by the person
who is found in possession of articles which are exempt from
excise taxes other than those legally entitled to exemption.
In the case of tax-free articles brought or imported into
the Philippines by persons, entitles, or agencies exempt from tax
which are subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entitles, the purchasers or
recipients shall be considered the importers thereof, and shall be
liable for the duty and internal revenue tax due on such
importation.
The provision of any special or general law to the contrary
notwithstanding, the importation of cigars and cigarettes, distilled
spirits and wines into the Philippines, even if destined for tax and
duty-free shops, shall be subject to all applicable taxes, duties,
charges, including excise taxes due thereon. This shall apply to
cigars, and cigarettes, distilled spirits fermented liquors and wines
brought directly into the duly chartered or legislated freeports of
the Subic Special Economic and Freeport Zone, created under
Republic Act No. 7227; the Cagayan Special Economic Zone and
Freeport, created under Republic Act No. 7922; and the
Zamboanga City Special Economic Zone, created under Republic
Act No. 7903, and such other Freeport as may hereafter
established or created by law: Provided, further, That importations
of cigars and cigarettes, distilled spirits and wines made directly by
a government-owned and operated duty-free shop, like the Duty-
Free Philippines (DFP), shall be exempted from all applicable duties
only: Provided, still further, That such articles directly imported by
a government-owned and operated duty-free shop like the Duty-
Free Philippines, shall be labeled "duty-free" and "not for
resale":Provided, finally, That the removal and transfer of tax and
duty-free goods, products, machinery, equipment and other similar
articles, other than cigars and cigarettes, distilled spirits,
fermented liquors and wines, from one Freeport to another
Freeport, shall not be deemed an introduction into the Philippine
customs territory.
Cigars and cigarettes, distilled spirits and wines within the
premises of all duty-free shops which are not labelled as
hereinabove required, as well as tax and duty-free articles
obtained from duty-free shop and subsequently found in a non-
duty-free shop to be offered for resale shall be confiscated, and
the perpetrator of such non-labelling or re-selling shall be
punishable under the applicable provisions of this code.
Articles confiscated shall be disposed of in accordance with
the rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner of Customs
and Internal Revenue, upon consultation with the Secretary of
Tourism and the General manager of the Philippine Tourism
Authority.
The tax due on any such goods, products, machinery,
equipment or other similar articles shall constitute a lien on the
Page | 28
article itself, and such lien shall be superior to all other charges or
liens, irrespective of the possessor thereof.
(2) COMPROMISE SEC 204 (A)
SEC. 204. Authority of the Commissioner to Compromise,
Abate and Refund or Credit Taxes. - The Commissioner may
(A) Compromise the Payment of any Internal Revenue Tax,
when:
(1) A reasonable doubt as to the validity of the claim
against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates
a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be
subject to the following minimum amounts:
For cases of financial incapacity, a minimum compromise
rate equivalent to ten percent (10%) of the basic assessed tax;
and
For other cases, a minimum compromise rate equivalent to
forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos
(P1,000.000) or where the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.
a) GROUNDS TO ACCEPT COMPROMISE
l. Doubtful validity of the assessment. The offer to
compromise a delinquent account or disputed assessment under
these Regulations on the ground of reasonable doubt as to the
validity of the assessment may be accepted when it is shown that:
(a) The delinquent account or disputed assessment is
one resulting from a jeopardy assessment (For this
purpose, "jeopardy assessment" shall refer to a tax
assessment which was assessed without the benefit of
complete or partial audit by an authorized revenue officer,
who has reason to believe that the assessment and
collection of a deficiency tax will be jeopardized by delay
because of the taxpayer's failure to comply with the audit
and investigation requirements to present his books of
accounts and/or pertinent records, or to substantiate all or
any of the deductions, exemptions, or credits claimed in
his return); or
(b) The assessment seems to be arbitrary in nature,
appearing to be based on presumptions and there is
reason to believe that it is lacking in legal and/or factual
basis; or
(c) The taxpayer failed to file an administrative protest
on account of the alleged failure to receive notice of
assessment or preliminary assessment and there is reason
to believe that the assessment is lacking in legal and/or
factual basis; or
(d) The taxpayer failed to file a request for
reinvestigation/reconsideration within 30 days from receipt
of final assessment notice and there is reason to believe
that the assessment is lacking in legal and/or factual basis;
or
(e) The taxpayer failed to elevate to the Court of Tax
Appeals (CTA) an adverse decision of the Commissioner, or
his authorized representative, in some cases, within 30
days from receipt thereof and there is reason to believe
that the assessment is lacking in legal and/or factual basis;
or
(f) The assessments were issued on or after January
1, 1998, where the demand notice allegedly failed to
comply with the formalities prescribed under Sec. 228 of
the Tax Code of 1997; or
(g) Assessments made based on the "Best Evidence
Obtainable Rule" and there is reason to believe that the
same can be disputed by sufficient and competent
evidence.
2. Financial incapacity. The offer to compromise
based on financial incapacity may be accepted upon
showing that:
Page | 29
 (a) The corporation ceased operation or is already dissolved;
or
(b) The taxpayer is suffering from surplus or earnings deficit
resulting to impairment in the original capital by at least
50%; or
(c) The taxpayer is suffering from a networth deficit
computed by deducting total liabilities (net of deferred
credits) from total assets (net of prepaid expenses,
deferred charges, pre-operating expenses, as well as
appraisal increases in fixed assets), taken from the latest
audited financial statements; or
(d) The taxpayer is a compensation income earner with no
other source of income and the family's gross monthly
compensation income does not exceed the levels of
compensation income provided for under Sec. 4.1.1 of
these Regulations, and it appears that the taxpayer
possesses no other leviable/distrainable assets, other
than his family home; or
(e) The taxpayer has been granted by the Securities and
Exchange Commission (SEC) or by any competent
tribunal a moratorium or suspension of payments to
creditors, or otherwise declared bankrupt or insolvent.
The Commissioner shall not consider any offer for compromise
settlement by reason of financial incapacity unless and until the
taxpayer waives in writing his privilege of the secrecy of bank
deposits under Republic Act No. 1405 or under other general or
special laws, and such waiver shall constitute as the authority of
the Commissioner to inquire into the bank deposits of the
taxpayer.
For purposes of these Regulations, the term "assessment" includes
the preliminary assessment notice (PAN) issued as of June 30,
2001 by the appropriate "Review Office". In fine, it does not
include the post reporting notice issued by the head of the
investigating unit.
b) CASES WHICH MAY BE COMPROMISED
3. Delinquent accounts;
4. Cases under administrative protest pending in the Regional
Offices, Revenue District Offices, Legal Service, Large
Taxpayer Service (LTS), Collection Service, Enforcement
Service and other offices in the National Office;
5. Civil tax cases being disputed before the courts, e.g., MTC,
RTC, CTA, CA, SC;
6. Collection cases filed in courts;
7. Criminal violations, other than those already filed in court or
those involving criminal tax fraud; and
8. Cases covered by pre-assessment notices but taxpayer is not
agreeable to the findings of the audit office as confirmed by
the review office.
c) CASE WHICH MAY NOT BE
COMPROMISED
1. Withholding tax cases;
2. Criminal tax fraud cases;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of
installment payments;
5. Cases where final reports of reinvestigation or
reconsideration have been issued resulting to reduction in
the original assessment and the taxpayer is agreeable to
such decision. On the other hand, other protested cases
shall be handled by the Regional Evaluation Board (REB) or
the National Evaluation Board (NEB) on a case to case
basis; and
6. Cases which become final and executory after final
judgment of a court.
d) DELEGATION OF POWER TO
COMPROMISE SEC. 7 (C)
SEC. 7. Authority of the Commissioner to Delegate Power. -
The Commissioner may delegate the powers vested in him under
the pertinent provisions of this Code to any or such subordinate
officials with the rank equivalent to a division chief or higher,
subject to such limitations and restrictions as may be imposed
under rules and regulations to be promulgated by the Secretary of
finance, upon recommendation of the Commissioner: Provided,
however, That the following powers of the Commissioner shall not
be delegated:
(a) The power to recommend the promulgation of
rules and regulations by the Secretary of Finance;
Page | 30
 (b) The power to issue rulings of first impression or to
reverse, revoke or modify any existing ruling of the
Bureau;
(c) The power to compromise or abate, under Sec. 204 (A)
and (B) of this Code, any tax liability: Provided,
however, That assessments issued by the regional
offices involving basic deficiency taxes of Five hundred
thousand pesos (P500,000) or less, and minor criminal
violations, as may be determined by rules and
regulations to be promulgated by the Secretary of
finance, upon recommendation of the Commissioner,
discovered by regional and district officials, may be
compromised by a regional evaluation board which
shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, the heads
of the Legal, Assessment and Collection Divisions and
the Revenue District Officer having jurisdiction over
the taxpayer, as members;
e) IMPOSITION OF COMPROMISE
PENALTY RR 12-99,
Suggested Compromise Penalty in Extra-judicial Settlement
of a Taxpayer's Criminal Violation. Section 204 of the Tax
Code of 1997 provides that "All criminal violations may be
compromised except: (a) those already filed in court, or (b) those
involving fraud." This means that, in general, the taxpayer's
criminal liability arising from his violation of the pertinent provision
of the Code may be settled extra-judicially instead of the BIR
instituting against the taxpayer a criminal action in Court. A
compromise in extra-judicial settlement of the taxpayer's criminal
liability for his violation is consensual in character, hence, may not
be imposed on the taxpayer without his consent. Hence, the BIR
may only suggest settlement of the taxpayer's liability through a
compromise.
The extra-judicial settlement of the taxpayer's criminal
liability and the amount of the suggested compromise penalty shall
conform with the schedule of compromise penalties provided under
Revenue Memorandum Order No. 1-90 or as hereafter revised.
RR 7-2001 IMPLEMENTING SEC 7(C), 204(A) AND 290 NIRC
ON COMPROMISE SETTLEMENT
SECTION 2. CASES WHICH MAY BE COMPROMISED. The
following cases may, upon taxpayer's compliance with the basis
set forth under Section 3 of these Regulations, be the subject
matter of compromise settlement, viz:
1. Delinquent accounts;
2. Cases under administrative protest pending in the Regional
Offices, Revenue District Offices, Legal Service, Large
Taxpayer Service (LTS), Collection Service, Enforcement
Service and other offices in the National Office;
3. Civil tax cases being disputed before the courts, e.g., MTC,
RTC, CTA, CA, SC;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in court
or those involving criminal tax fraud; and
6. Cases covered by pre-assessment notices but taxpayer is
not agreeable to the findings of the audit office as
confirmed by the review office.
EXCEPTIONS:
1. Withholding tax cases;
2. Criminal tax fraud cases;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of
installment payments;
5. Cases where final reports of reinvestigation or
reconsideration have been issued resulting to reduction in
the original assessment and the taxpayer is agreeable to
such decision. On the other hand, other protested cases
shall be handled by the Regional Evaluation Board (REB) or
the National Evaluation Board (NEB) on a case to case
basis; and
6. Cases which become final and executory after final
judgment of a court.
SECTION 3. BASIS FOR ACCEPTANCE OF COMPROMISE
SETTLEMENT. The Commissioner may compromise the
payment of any internal revenue tax on the following grounds:
Page | 31
1. Doubtful validity of the assessment. The offer to
compromise a delinquent account or disputed assessment
under these Regulations on the ground of reasonable
doubt as to the validity of the assessment may be
accepted when it is shown that:
(a) The delinquent account or disputed assessment is
one resulting from a jeopardy assessment (For this
purpose, "jeopardy assessment" shall refer to a tax
assessment which was assessed without the
benefit of complete or partial audit by an
authorized revenue officer, who has reason to
believe that the assessment and collection of a
deficiency tax will be jeopardized by delay because
of the taxpayer's failure to comply with the audit
and investigation requirements to present his
books of accounts and/or pertinent records, or to
substantiate all or any of the deductions,
exemptions, or credits claimed in his return); or
(b) The assessment seems to be arbitrary in nature,
appearing to be based on presumptions and there
is reason to believe that it is lacking in legal and/or
factual basis; or
(c) The taxpayer failed to file an administrative protest
on account of the alleged failure to receive notice
of assessment or preliminary assessment and
there is reason to believe that the assessment is
lacking in legal and/or factual basis; or
(d) The taxpayer failed to file a request for
reinvestigation/reconsideration within 30 days
from receipt of final assessment notice and there is
reason to believe that the assessment is lacking in
legal and/or factual basis; or
(e) The taxpayer failed to elevate to the Court of Tax
Appeals (CTA) an adverse decision of the
Commissioner, or his authorized representative, in
some cases, within 30 days from receipt thereof
and there is reason to believe that the assessment
is lacking in legal and/or factual basis; or
(f) The assessments were issued on or after January
1, 1998, where the demand notice allegedly failed
to comply with the formalities prescribed under
Sec. 228 of the Tax Code of 1997; or
(g) Assessments made based on the "Best Evidence
Obtainable Rule" and there is reason to believe
that the same can be disputed by sufficient and
competent evidence.
2. Financial incapacity. The offer to compromise based on
financial incapacity may be accepted upon showing that:
(a) The corporation ceased operation or is already
dissolved; or
(b) The taxpayer is suffering from surplus or earnings
deficit resulting to impairment in the original
capital by at least 50%; or
(c) The taxpayer is suffering from a networth deficit
computed by deducting total liabilities (net of
deferred credits) from total assets (net of prepaid
expenses, deferred charges, pre-operating
expenses, as well as appraisal increases in fixed
assets), taken from the latest audited financial
statements; or
(d) The taxpayer is a compensation income earner
with no other source of income and the family's
gross monthly compensation income does not
exceed the levels of compensation income
provided for under Sec. 4.1.1 of these Regulations,
and it appears that the taxpayer possesses no
other leviable/distrainable assets, other than his
family home; or
(e) The taxpayer has been granted by the Securities
and Exchange Commission (SEC) or by any
competent tribunal a moratorium or suspension of
payments to creditors, or otherwise declared
bankrupt or insolvent.
The Commissioner shall not consider any offer for compromise
settlement by reason of financial incapacity unless and until the
taxpayer waives in writing his privilege of the secrecy of bank
deposits under Republic Act No. 1405 or under other general or
special laws, and such waiver shall constitute as the authority of
the Commissioner to inquire into the bank deposits of the
taxpayer.
For purposes of these Regulations, the term "assessment" includes
the preliminary assessment notice (PAN) issued as of June 30,
Page | 32
2001 by the appropriate "Review Office". In fine, it does not
include the post reporting notice issued by the head of the
investigating unit.
SECTION 4. PRESCRIBED MINIMUM PERCENTAGES OF
COMPROMISE SETTLEMENT. The compromise settlement of
the internal revenue tax liabilities of taxpayers, reckoned on a per
tax type assessment basis, shall be subject to the following
minimum rates based on the basic assessed tax:
1. For cases of "financial incapacity"
1.1. If taxpayer is an individual whose only source of income is
from employment and whose monthly salary, if single, is P10,500
or less, or if married, whose salary together with his spouse is
P21,000 per month, or less 10%
1.2. If taxpayer is an individual without any source of income
10%
1.3. Where the taxpayer is under any of the following
conditions:
1.3.1. Zero networth computed in accordance with Sec. 3.2(c)
hereof 10%
1.3.2. Negative networth computed in accordance with Sec.
3.2(c) hereof 10%
1.3.3. Dissolved corporations 20%
1.3.4. Already non-operating companies for a period of:
(a) three (3) years or more as of the date of application
for compromise settlement 10%
(b) Less than 3 years 20%
1.3.5. Surplus or earnings deficit resulting to impairment in the
original capital by at least 50% 20%
1.3.6. With moratorium/suspension of payments; declared
insolvent or bankrupt 10%
2. For cases of "doubtful validity" A minimum compromise
rate equivalent to forty percent (40%) of the basic assessed tax.
The taxpayer may, nevertheless, request for a compromise rate
lower than forty percent (40%): Provided, however, that he shall
be required to submit his request in writing stating therein the
reasons, legal and/or factual, why he should be entitled to such
lower rate: Provided, further, that for applications of compromise
settlement based on doubtful validity of the assessment involving
an offer lower than the minimum forty percent (40%) compromise
rate, the same shall be subject to the prior approval by the NEB.
The herein prescribed minimum percentages shall likewise apply in
compromise settlement of assessments consisting solely of
increments, i.e., surcharge, interest, etc., based on the total
amount assessed.
SECTION 5. DOCUMENTARY REQUIREMENTS.
1. If the application for compromise is premised under Sec.
4.1.1 hereof, the taxpayer-applicant shall submit with his
application (a) a certification from his employer on his
prevailing monthly salary, including allowances; and (b) a
sworn statement that he has no other source of income
other than from employment.
2. If the application is premised under Sec. 4.1.2 hereof, the
taxpayer-applicant shall submit with his application a
sworn statement that he derives no income from any
source whatever.
3. If the application is premised under Sec. 4.1.3 hereof, a
copy of the applicant's latest audited financial statements
or audited Account Information Form filed with the BIR
shall be submitted with the application. Nonetheless, for
situation under Sec. 4.1.3.3 hereof, the "Notice of
Dissolution" submitted to SEC or other similar or
equivalent document should likewise be submitted. For
situation under Sec. 4.1.3.6, a copy of the order granting
the moratorium or suspension of payments or of
bankruptcy or insolvency shall be submitted. DHSCEc
SECTION 6. APPROVAL OF OFFER OF COMPROMISE.
Except for offers of compromise where the approval is delegated to
the REB pursuant to the succeeding paragraph, all compromise
settlements within the jurisdiction of the National Office (NO) shall
be approved by the NEB composed of the Commissioner and the
four (4) Deputy Commissioners. All decisions of the NEB, whether
favorable or otherwise, shall have the concurrence of the
Commissioner.
Offers of compromise of assessments issued by the Regional
Offices involving basic deficiency taxes of Five Hundred Thousand
Pesos (P500,000) or less and for minor criminal violations
discovered by the Regional and District Offices, shall be subject to
the approval by the Regional Evaluation Board (REB), comprised of
the following Officers of the Region:
Page | 33
Regional Director Chairman
Members:
Assistant Regional Director
Chief, Legal Division
Chief, Assessment Division
Chief, Collection Division
Revenue District Officer having jurisdiction over
the taxpayer-applicant
Provided, however, that if the offer of compromise is less than the
prescribed rates set forth in Sec. 4 hereof, the same shall always
be subject to the approval of the NEB.
If the compromise offer meets the conditions for availment set
forth in Sections 3, 4, and 5 of these Regulations, the case is
considered provisionally closed on the day compromise amount is
fully paid and the approval of the compromise offer becomes a
matter of course on the part of the approving authority referred to
in this Section.
SECTION 7. REPORT OF THE COMMISSIONER ON THE
EXERCISE OF HIS AUTHORITY TO COMPROMISE TO THE
CONGRESSIONAL OVERSIGHT COMMITTEE. The
Commissioner shall submit to the Congressional Oversight
Committee through the Chairmen of the Committee on Ways and
Means of both the Senate and House of Representatives, every six
(6) months of each calendar year, a report on the exercise of his
powers to compromise the tax liabilities of taxpayers. In this
regard, the REB should submit to the Commissioner all the
necessary reports and data in due time for the latter to be able to
submit the required reports to the Congressional Oversight
Committee.
(3) ABATEMENT SEC 204 (B)
a) GROUNDS TO ACCEPT ABATE
SEC. 204. Authority of the Commissioner to Compromise,
Abate and Refund or Credit Taxes. - The Commissioner may
(B) Abate or Cancel a Tax Liability, when:
(1) The tax or any portion thereof appears to be unjustly
or excessively assessed; or
(2) The administration and collection costs involved do not
justify the collection of the amount due.
All criminal violations may be compromised except: (a) those
already filed in court, or (b) those involving fraud.
(4) FORFEITURE SEC 224, SEC 225, SEC 226, SEC
230, SEC 231
SEC. 224. Remedy for Enforcement of Forfeitures. - The
forfeiture of chattels and removable fixtures of any sort shall be
enforced by the seizure and sale, or destruction, of the specific
forfeited property. The forfeiture of real property shall be enforced
by a judgment of condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may require.
SEC. 225. When Property to be Sold or Destroyed. - Sales of
forfeited chattels and removable fixtures shall be effected, so far
as practicable, in the same manner and under the same conditions
as the public notice and the time and manner of sale as are
prescribed for sales of personal property distrained for the non-
payment of taxes.
Distilled spirits, liquors, cigars, cigarettes, other
manufactured products of tobacco, and all apparatus used in or
about the illicit production of such articles may, upon forfeiture, be
destroyed by order of the Commissioner, when the sale of the
same for consumption or use would be injurious to public health or
prejudicial to the enforcement of the law.
All other articles subject to excise tax, which have been
manufactured or removed in violation of this Code, as well as dies
for the printing or making of internal revenue stamps and labels
which are in imitation of or purport to be lawful stamps, or labels
may, upon forfeiture, be sold or destroyed in the discretion of the
Commissioner.
Forfeited property shall not be destroyed until at least twenty (20)
days after seizure.
Page | 34
SEC. 226. Disposition of funds Recovered in Legal
Proceedings or Obtained from Forfeitures. - all judgments and
monies recovered and received for taxes, costs, forfeitures, fines
and penalties shall be paid to the Commissioner or his authorized
deputies as the taxes themselves are required to be paid, and
except as specially provided, shall be accounted for and dealt
within the same way.
SEC. 230. Forfeiture of Cash Refund and of Tax Credit.
(A) Forfeiture of Refund. - A refund check or warrant issued
in accordance with the pertinent provisions of this Code,
which shall remain unclaimed or uncashed within five (5)
years from the date the said warrant or check was
mailed or delivered, shall be forfeited in favor of the
Government and the amount thereof shall revert to the
general fund.
(B) Forfeiture of Tax Credit. - A tax credit certificate issued
in accordance with the pertinent provisions of this Code,
which shall remain unutilized after five (5) years from
the date of issue, shall, unless revalidated, be considered
invalid, and shall not be allowed as payment for internal
revenue tax liabilities of the taxpayer, and the amount
covered by the certificate shall revert to the general
fund.
(C) Transitory Provision. - For purposes of the preceding
Subsection, a tax credit certificate issued by the
Commissioner or his duly authorized representative prior
to January 1, 1998, which remains unutilized or has a
creditable balance as of said date, shall be presented for
revalidation with the Commissioner or his duly
authorized representative or on before June 30, 1998.
SEC. 231. Action to Contest Forfeiture of Chattel. - In case of
the seizure of personal property under claim of forfeiture, the
owner desiring to contest the validity of the forfeiture may, at any
time before sale or destruction of the property, bring an action
against the person seizing the property or having possession
thereof to recover the same, and upon giving proper bond, may
enjoin the sale; or after the sale and within six (6) months, he
may bring an action to recover the net proceeds realized at the
sale.
a) FORFEITURE V.SEIZURE
BPI V. TRINIDAD
41 PHIL 220
Forfeiture is "the divestiture of property without compensation, in
consequence of an offense. The effect of such forfeiture is to
transfer the title to the specific thing from the owner to the
sovereign power." There is a great difference between a seizure
under forfeiture and a seizure to enforce a tax lien. In the former
all the proceeds derived from the sale of the thing forfeited are
turned over to the CIR (sec. 148, Act No. 2339); in the latter, the
residue of such proceeds over and above what is required to pay
the tax sought to be realized, including expenses, is returned to
the owner of the property (second paragraph, sec. 152, Act No.
2339).
A chattel mortgage is a conditional sale of personal property as
security for the payment of a debt, or the performance of some
other obligation specified therein, the condition being that the sale
shall be void upon the seller paying the purchaser a sum of money
or doing some other act named. Therefore, as long as the
mortgage exists, the dominion with respect to the mortgaged
personal property rests with the creditor-pledgee from the time of
the inscription of the mortgage in the registry, and the furniture
ceases to be the property of the debtor for the reason that it has
become the property of the creditor, in like manner as the
dominion of a thing sold is transferred to the purchaser and ceases
to belong to the vendor from the moment of the delivery thereof,
as a result of the sale.
US V. SURLA
20 PHIL 163
FACTS: This is an appeal from a judgment of the Court of First
Instance of the Province of Pampanga, convicting the accused of a
violation of Section 57 of Act No. 1189 and sentencing him to one
year in prison to the payment of the costs of the action, and
confiscating in favor of the Insular Government of the cigarettes
sold in violation of the Internal Revenue Law, the factory, the land
upon which it stands, the machinery, fixtures, and all other
property located therein, and ordering the disposition of the goods
Page | 35
and the rendition of an account of the proceeds of the same in the
manner provided by law.
The court has arrived at the conclusion that the accused Surla
maliciously and criminally transferred to the transfer from his
factory of the 42, 000 cigarettes in question without paying the tax
imposed by law on or before the amount of such transfer, and it
appearing that the accused, according to Exhibit A, was convicted
on the 20th of March, 1908, for a similar infraction of the law, he
must by virtue of Section 56 of the Internal Revenue Law be
punished as a second offender.
The accused asserts that the act, in declaring forfeited the factory
and all of its contents and the ground upon which stands, is
unconstitutional. Contents that the judgment of the trial court is
fatally defective in that it fails to state how the property forfeited
shall be disposed of and its proceeds accounted for.
ISSUE: Whether the form of the judgment of confiscation is
proper
RULING: As to the form of the judgment of confiscation, it is
sufficient to say that it is entirely immaterial to the defendant,
legally speaking, how the property confiscated is disposed of and
where, its proceeds go. The property, having been forfeited,
belongs absolutely to the government, and the proceeds arising
from the disposal thereof, also belong to the Government. (US vs
Stowell, 133 US, 1). Section 42 (1189) invoked by the accused for
the purpose of demonstrating how the forfeited property should be
disposed of, and its proceeds divided, he asserting that under the
terms thereof he is entitled to have the balance returned to him
after the liquidation of the unpaid taxes and expenses of sale, is
entirely inapplicable to forfeited property. It relates solely to the
sale of property distrained to pay taxes of delinquents and the
disposition of the proceeds thereof. The title of such property
remains in the delinquent until the sale. It is never forfeited and is
never on the government unless it becomes a purchaser of the
sale. The property being his he is entitled to whatever surplus
there may be after the payment of the taxes and all the expenses
of the distraint and sale. In case of a forfeiture of property of
crime, however, the title and ownership of the convict are
absolutely divested and pass to the government. He ceases to
have any interest in its proceeds. Section 50 (1189) prescribes the
disposition of the property in such cases.
b) STILL SUBJECT TO CRIMINAL ACTION
GARCIA V. COLLECTOR
66 phil 441
FACTS: Collector required respondent Garcia to pay a specific tax
of P204.07 after the latter had been sentenced to a criminal case
to pay a fine for having taken 1606 liters of alcohol from the
distillery of Suntay without having paid the corresponding specific
tax therefor
1) However, the court in its decision refused to impose the
same for the alleged reason that as the alcohol in question
had been confiscated and as the value of the same was
probably greater than the amount of the tax, the
Government already has had an opportunity to recover it
ISSUE: WON Collector is barred from collecting the tax due
HELD: No. The payment of the tax was not sought in the criminal
case because the object of the information was the imposition
upon the offender of the corresponding penalty for violation of Sec
2727 of the Revised Administrative Code. The tax should have
been recovered by CIR independently of the criminal action
instituted against Garcia. Therefore, the fact that in the judgment
rendered ins aid case no pronouncement whatsoever as regard
said tax had been made, was no bar to the Governments
recovering it afterwards, as the CIR, has done.
Moreover, the confiscation in the criminal case was an accessory
penalty imposed by Art 25 RPC, which is entirely different from the
payment of tax.
(5) SUSPENSION OF BUSINESS OPERATION OF VAT
TAXPAYER SEC 115
SEC. 115. Power of the Commissioner to Suspend the
Business Operations of a Taxpayer. - The Commissioner or his
authorized representative is hereby empowered to suspend the
Page | 36
business operations and temporarily close the business
establishment of any person for any of the following violations:
(a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as
required under Section 114; or
(3) Understatement of taxable sales or receipts by
thirty percent (30%) or more of his correct
taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under
Section 236. - The temporary closure of the establishment
shall be for the duration of not less than five (5) days and
shall be lifted only upon compliance with whatever
requirements prescribed by the Commissioner in the
closure order.
SEC. 114. Return and Payment of Value-Added Tax. -
(A) In General. - Every person liable to pay the value-
added tax imposed under this Title shall file a quarterly return of
the amount of his gross sales or receipts within twenty-five (25)
days following the close of each taxable quarter prescribed for
each taxpayer: Provided, however, That VAT-registered persons
shall pay the value-added tax on a monthly basis.
Any person, whose registration has been cancelled in
accordance with Section 236, shall file a return and pay the tax
due thereon within twenty-five (25) days from the date of
cancellation of registration: Provided, That only one consolidated
return shall be filed by the taxpayer for his principal place of
business or head office and all branches.
(B) Where to File the Return and Pay the Tax. - Except as
the Commissioner otherwise permits, the return shall be filed with
and the tax paid to an authorized agent bank, Revenue Collection
Officer or duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where the taxpayer
is registered or required to register.
(C) Withholding of Creditable Value-Added Tax. - The
Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or - controlled corporations
(GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-
added tax imposed in Sections 106 and 108 of this Code, deduct
and withhold the value-added tax due at the rate of five percent
(5%) of the gross payment thereof: Provided, that the payment
for lease or use of properties or property rights to nonresident
owners shall be subject to twelve percent (12%) withholding tax at
the time of payment. For purposes of this section, the payor or
person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month the
withholding was made.
(6) ENFORCEMENT OF CIVIL PENALTIES
a) RR 12-99
SECTION 4. Civil Penalties.
4.1 25% Surcharge. There shall be imposed, in addition to
the basic tax required to be paid, a penalty equivalent to twenty-
five percent (25%) thereof, in any the following cases:
4.1.1 Failure to file any return and pay the tax due
thereon as required under the provisions of this Code or
rules and regulations on the date prescribed; or
4.1.2 Unless otherwise authorized by the Commissioner,
filing a return with an internal revenue officer other than
those with whom the return is required to be filed; or
4.1.3 Failure to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment; or
4.1.4 Failure to pay the full or part of the amount of tax
shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full
amount of tax due for which no return is required to be
filed, on or before the date prescribed for its payment.
4.2 50% Surcharge:
4.2.1 In case of willful neglect to file the return within
the period prescribed by the Code, or in case a false or
fraudulent return is willfully made, the penalty to be
Page | 37
 imposed shall be fifty percent (50%) of the tax or of the
deficiency tax, in case any payment has been made on the
basis of such return before the discovery of the falsity or
fraud: Provided, That a substantial underdeclaration of
taxable sales, receipts or income, or a substantial
overstatement of deductions, as determined by the
Commissioner or his duly authorized representative, shall
constitute prima facie evidence of a false or fraudulent
return: Provided, further, That failure to report sales,
receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of
deductions in an amount exceeding thirty percent (30%) of
actual deductions, shall render the taxpayer liable for
substantial underdeclaration of sales, receipts or income or
for overstatement of deductions, as mentioned herein:
Provided, further, that the term "willful neglect to file the
return within the period prescribed by the Code" shall not
apply in case the taxpayer, without notice from the
Commissioner or his authorized representative, voluntarily
files the said return, in which case, only 25% surcharge
shall be imposed for late filing and late payment of the tax
in lieu of the above 50% surcharge. Conversely, the 50%
surcharge shall be imposed in case the taxpayer files the
return only after prior notice in writing from the
Commissioner or his duly authorized representative.
4.2.2 Section 6 (A) of the Code provides that any tax return filed
by a taxpayer "may be modified, changed or amended" by the
taxpayer "within three (3) years from date of such filing" provided,
however, that "no notice for audit or investigation of such return,
statement or declaration has, in the meantime, been actually
served upon the taxpayer." Thus, if upon investigation, it is
determined that the taxpayer's originally filed tax return is false or
fraudulent, such taxpayer shall remain liable to the 50% civil
penalty regardless that the taxpayer has filed his amended tax
return, if the said amended tax return, however, has been filed
only after issuance of the Letter of Authority for the investigation
of the taxpayer's tax return or such amendment has been made in
the course of the said investigation.
b) SEC. 248 -249
SEC. 248. Civil Penalties. - (A) There shall be imposed, in
addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25%) of the amount due, in the following
cases:
(1) Failure to file any return and pay the tax due thereon as
required under the provisions of this Code or rules and
regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a
return with an internal revenue officer other than those
with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed
for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown
on any return required to be filed under the provisions of
this Code or rules and regulations, or the full amount of
tax due for which no return is required to be filed, on or
before the date prescribed for its payment.
(B) In case of willful neglect to file the return within the period
prescribed by this Code or by rules and regulations, or in case a
false or fraudulent return is willfully made, the penalty to be
imposed shall be fifty percent (50%) of the tax or of the deficiency
tax, in case, any payment has been made on the basis of such
return before the discovery of the falsity or fraud: Provided, That a
substantial underdeclaration of taxable sales, receipts or income,
or a substantial overstatement of deductions, as determined by
the Commissioner pursuant to the rules and regulations to be
promulgated by the Secretary of Finance, shall constitute prima
facie evidence of a false or fraudulent return: Provided, further,
That failure to report sales, receipts or income in an amount
exceeding thirty percent (30%) of that declared per return, and a
claim of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.
SEC. 249. Interest. -
(A) In General. - There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of twenty percent (20%)
Page | 38
per annum, or such higher rate as may be prescribed by rules and
regulations, from the date prescribed for payment until the
amount is fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due, as the
term is defined in this Code, shall be subject to the interest
prescribed in Subsection (A) hereof, which interest shall be
assessed and collected from the date prescribed for its payment
until the full payment thereof.
(C) Delinquency Interest. - In case of failure to pay:
(1) The amount of the tax due on any return to be
filed, or
(2) The amount of the tax due for which no return is
required, or
(3) A deficiency tax, or any surcharge or interest
thereon on the due date appearing in the notice and
demand of the Commissioner, there shall be assessed and
collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully
paid, which interest shall form part of the tax.
(D) Interest on Extended Payment. - If any person required to pay
the tax is qualified and elects to pay the tax on installment under
the provisions of this Code, but fails to pay the tax or any
installment hereof, or any part of such amount or installment on or
before the date prescribed for its payment, or where the
Commissioner has authorized an extension of time within which to
pay a tax or a deficiency tax or any part thereof, there shall be
assessed and collected interest at the rate hereinabove prescribed
on the tax or deficiency tax or any part thereof unpaid from the
date of notice and demand until it is paid.
STATUTE OF LIMITATIONS
A. PRESCRIPTION OF RIGHT TO ASSESS
1. GENERAL RULE SEC 203
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.
2. COUNTING THE PRESCRIPTIVE PERIOD
a) COUNTING OF THE 3 YEARS RMC 48-90
The 3-year prescriptive period expires on the 1095th day
notwithstanding the fact that within the period, there is a
leap year which is of 366 days (RMC 48-90).
The 3-year period of assessment shall be computed from:
1. if the return was filed on or before the deadline for filing within
3 years after the last prescribed by law; and
2. If the return was filed beyond or after the deadline within 3
years from the date of such filing.
3. the tax may be assessed within the period agreed upon by the
taxpayer and the commissioner.
NOTE: sec. 222 provides:
b. if before the expiration of the time prescribed in sec. 203 for the
assessment of the tax, both the Commissioner and the taxpayer
have agreed in writing to its assessment after such time, the tax
may be assessed within the period agreed upon. The period so
agreed upon may be extended by subsequent written agreement
made before the expiration of the period previously agreed upon.
Page | 39
 b) DATE OF FILING TAX RETURNS/AMENDED
RETURNS/WRONG RETURN
1) Before the deadline
2) On the date of the deadline
3) After the deadline
In the case of Phoenix v. Commissioner (14 SCRA 52), the SC
explained the following rules in case there is an amendment of
the return:
o If the amendment is substantial, the counting of
the prescriptive period shall be reckoned on the
date the substantial amendment was made
o If the amendment was superficial, the counting of
the prescriptive period is still the original period
c) FAILURE TO FILE RETURN
d) WHEN LAW DOES NOT PRESCRIBE FILING OF
RETURN
The Government has 2 remedies (options) under ABNORMAL
assessment and collection:
1. Assessment and Collection
o Prescriptive Period for Assessment Within 10 years
from the discovery of the non-filing of the return or the
fraudulent or false return
o Prescriptive Period for Collection 5 years from the
date of the Final Assessment (FAN)
2. Collection without Assessment through Judicial Action
o Prescriptive Period for Assessment There would be
NO prescriptive period for assessment as there is no
assessment
o Prescriptive Period for Collection 10 years from the
date of discovery of the non-filing of the return or the
fraudulent or false return
3. EXCEPTION SEC 222
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 such
tax may be filed without assessment, at any time within
ten (10) years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud
assessment which has become final and executory,
the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in
Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to
its assessment after such time, the tax may be assessed
within the period agreed upon. The period so agreed upon
may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed
within the period of limitation as prescribed in paragraph
(a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the
assessment of the tax.
(d) Any internal revenue tax, which has been assessed
within the period agreed upon as provided in paragraph
(b) hereinabove, may be collected by distraint or levy or
by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5) -year period.
The period so agreed upon may be extended by
subsequent written agreements made before the
expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately
preceding and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into
Page | 40
 any tax return filed in accordance with the provisions of
any tax amnesty law or decree.
4. WAIVER OF PRESCRIPTION
TO CONSTITUTE A VALID WAIVER, THE FOLLOWING
REQUIREMENTS MUST BE MET:
1. Valid form in conformity with RMO 20-90;
2. Before the expiration of the ordinary prescriptive
periods for assessment and collection;
3. For a definite period beyond the ordinary prescriptive
periods for assessment and collection;
4. signed by the taxpayer and the CIR or authorized RDO
indicating that the bureau has accepted and agreed to
the waiver;
5. the date of such acceptance by the Bureau should be
indicated specify a definite agreed date between the
BIR and petitioner, within which the former may assess
and collect revenue taxes; and
6. Notice to the taxpayer or the second copy must be
furnished to the taxpayer
CIR V. WESTERN PACIFIC CORP
G.R. NO 18804 (1965)
FACTS: On March 2, 1959, respondent Western Pacific Corp was
assessed deficiency income tax for the year 1953. The assessment
was brought about by the disallowance listed in respondents
return as bad debts
1. The assessment was received by respondent on the same
date (March 2, 1959).
2. On March 5, 1959, CIR wrote a demand letter with the
final breakdown of the assessment.
3. However, on June 29, 1959, Western Pacific Corp
requested for non-assessment, claiming that the claim had
prescribed and that said items should be considered as
allowable deductions
4. On July 30, 1959, CIR denied the request and demanded
payment of the same within 30 days from receipt of
demand
5. Respondent corporation, on September 19, 1959,
requested that it be allowed until September 25 to submit
its formal objections to the assessment. The formal
objections submitted by Western Pacific were identical to
its former objections and as such, CIR denied the request.
6. The CIR, then, sent on October 28, 1959 a letter
demanding payment within 10 days
7. On appeal, CA absolved the respondent from the
assessment however it ruled out that the assessment
letter dated March 2, 1959 was within 5-year prescriptive
period
ISSUE: WON the assessment had prescribed
HELD: No. February 28, 1959 fell on a Saturday. Pursuant to
Republic Act No. 1880, as, implemented by Executive Order No.
25, effective July 1, 1959, all bureaus and offices of the
government, except schools, court, hospitals and health clinics,
hold office only five days a week or from Monday to Friday.
Saturday and Sunday, are constituted public holidays or days of
exemption from labor or work as far as government offices,
including that of respondent Commissioner, are concerned. The
offices and bureaus concerned are officially closed on those days.
So that on February 28, 1959 and March 1, 1959, which
were Saturday and Sunday, respectively, the office of
respondent was officially closed. And where the last day for
doing an act required by law falls on a holiday, the act may
be done on the next succeeding business day. (Section 31,
Revised Administrative Code.) Similarly, in computing any period
of time prescribed by statute, the day of the act after which the
designated period of time begins to run is not included. But the
last day of the period so computed is to be included, unless it is a
Sunday or a legal holiday, in which event the time shall run until
the end of the next day which is neither a Sunday or a holiday
(Section 1, Rule 28, Rules of Court). Consequently, since
February 28, 1959 was a Saturday and the next day, March
1, 1959, a Sunday, respondent had until the next
succeeding business day, March 2, 1959, Monday, within
which to issue the deficiency assessment. The assessment in
question having been issued on March 2, 1959, it was, therefore,
seasonably made.
However, contrary to the ruling of the CTA, the assessment made
by the Commissioner should be maintained, for the simple reason
Page | 41
that when the petition for review was brought to the CTA by
the respondent corporation, the said Court no longer had
jurisdiction to entertain the same. The assessment had long
become final. A petition for review should be presented,
within the reglementary period, as provided for in Section
11, Republic Act No. 1125, which is "thirty (30) days from
receipt of the assessment." The thirty (30) day period is
jurisdictional.
CAB: The assessment was received by the respondent corporation
on March 2, 1959. It was only on June 29, 1959, when said
corporation formally assailed the assessment, on the grounds of
prescription in making the assessment and the impropriety of the
disallowance of the listed deductions. From March 3 to June 29,
1959, manifestly more than thirty (30) days had lapsed and the
assessment became final, executory and demandable.
CIR V. PHOENIX ASSURANCE CO
G.R. NO L-19127 (1965)
FACTS: Phoenix Assurance is a foreign insurance company
organized under the laws of Great Britain, is licensed to do
business in the Philippines.
1. Through its head office, it entered in London into
worldwide reinsurance treaties with various foreign
insurance companies.
2. It agree to cede a portion of premiums received on original
insurances underwritten by its head office, subsidiaries,
and branch offices throughout the world, in consideration
for assumption by the foreign insurance companies of an
equivalent portion of the liability from such original
insurances.
3. Pursuant to such reinsurance treaties, Phoenix Assurance
Co., Ltd., ceded portions of the premiums it earned from
its underwriting business in the Philippines on the years
1952 to 1954.
4. Upon which the Commissioner of Internal Revenue, by
letter of May 6, 1958, assessed the withholding tax for
each year from 1952-1954.
5. On April 1, 1951, Phoenix Assurance Co., Ltd. filed its
Philippine income tax return for 1950, claiming therein,
among others, a deduction of P37,147.04 as net addition
to marine insurance reserve equivalent to 40% of the
gross marine insurance premiums received during the
year.
a. The Commissioner of Internal Revenue disallowed
P11,772.57 of such claim for deduction and
subsequently assessed against Phoenix Assurance
Co., Ltd. the sum of P1,884.00 as deficiency
income tax.
b. The Commissioner assumed that "ninety and
third, days are approximately the length of time
required before shipments reach their destination
or before claims are received by the insurance
companies."
6. On April 1, 1953, Phoenix Assurance Co., Ltd. filed
its Philippine income tax return for 1952, declaring
therein a deduction from gross income of P35,912.25 as
part of the head office expenses incurred for its Philippine
business, computed at 5% on its gross Philippine income.
7. On August 30, 1955 it amended its income tax return
for 1952 by excluding from its gross income the amount
of P316,526.75 representing reinsurance premiums ceded
to foreign reinsurers and further eliminating deductions
corresponding to the coded premiums.
8. The Commissioner of Internal Revenue disallowed
P15,826.35 of the claimed deduction for head office
expenses and assessed a deficiency tax of P5,667.00 on
July 24, 1958.
9. On April 30, 1954, Phoenix Assurance Co., Ltd. filed its
Philippine income tax return for 1953..
10. On August 30, 1955 it amended its 1953 income tax
return.
11. To avoid the prescriptive period provided for in Section 306
of the Tax Code, it filed a petition for review on April 11,
1956 in the Court of Tax Appeals praying for such refund.
After verification of the amended income tax return the
Commissioner of Internal Revenue disallowed P12,304.10
of the deduction representing head office expenses
allocable to Philippine business thereby reducing the
refundable amount to P20,180.00.
12. On April 29, 1955, Phoenix Assurance Co., Ltd. filed its
Philippine income tax return for 1954.
Page | 42
 13. On August 1, 1958 the Bureau of Internal Revenue
released the for deficiency income tax for the years
1952 and 1954 against Phoenix Assurance Co., Ltd.
a. The above assessment resulted from the
disallowance of a portion of the deduction claimed
by Phoenix Assurance Co., Ltd. as head office
expenses allocable to its business in the Philippines
fixed by the Commissioner at 5% of the net
Philippine income instead of 5% of the gross
Philippine income as claimed in the returns.
b. Phoenix Assurance Co., Ltd. protested against the
aforesaid assessments for withholding tax and
deficiency income tax. However, the Commissioner
of Internal Revenue denied such protest.
14. Subsequently, Phoenix Assurance Co., Ltd. appealed to the
Court of Tax Appeals.
15. In a decision dated February 14, 1962, the Court of Tax
Appeals allowed in full the decision claimed by Phoenix
Assurance Co., Ltd. for 1950 as net addition to marine
insurance reserve; determined the allowable head office
expenses allocable to Philippine business to be 5% of the
net income in the Philippines; declared the right of the
Commissioner of Internal Revenue to assess
deficiency income tax for 1952 to have prescribed;
absolved Phoenix Assurance Co., Ltd. from payment of the
statutory penalties for non-filing of withholding tax return.
ISSUE: WON the right of CIR to assess the deficiency income tax
for 1952 has already prescribed
HELD: NO.
Phoenix Assurance Co., Ltd. filed its income tax return for
1952 on April 1, 1953 showing a loss of P199,583.93. It
amended said return on August 30, 1955 reporting a tax
liability of P2,502.00. On July 24, 1958, after examination of
the amended return, the Commissioner of Internal Revenue
assessed deficiency income tax in the sum of P5,667.00.
The Court of Tax Appeals found the right of the
Commissioner of Internal Revenue barred by prescription,
the same having been exercised more than five years from
the date the original return was filed.
On the other hand, the Commissioner of Internal Revenue insists
that his right to issue the assessment has not prescribed inasmuch
as the same was availed of before the 5-year period provided for
in Section 331 of the Tax Code expired, counting the running of
the period from August 30, 1955, the date when the
amended return was filed.
Should the running of the prescriptive period commence
from the filing of the original or amended return?
Prescriptive period shall commence from the filing of the
AMENDED RETURN.
The Court of Tax Appeals that the original return was a complete
return containing "information on various items of income and
deduction from which respondent may intelligently compute and
determine the tax liability of petitioner, hence, the prescriptive
period should be counted from the filing of said original return.
THE SC RULED IN FAVOR OF THE CIR: The changes and
alterations embodied in the amended income tax return
substantially MODIFIED the original return.
Considering that the deficiency assessment was based on
the amended return which, as aforestated, is substantially
different from the original return, the period of limitation of
the right to issue the same should be counted from the
filing of the amended income tax return. From August 30,
1955, when the amended return was filed, to July 24, 1958, when
the deficiency assessment was issued, less than five years
elapsed. The right of the Commissioner to assess the deficiency
tax on such amended return has not prescribed.
To strengthen our opinion, we believe that to hold otherwise, we
would be paving the way for taxpayers to evade the payment of
taxes by simply reporting in their original return heavy losses and
amending the same more than five years later when the
Commissioner of Internal Revenue has lost his authority to assess
the proper tax thereunder. The object of the Tax Code is to
impose taxes for the needs of the Government, not to
enhance tax avoidance to its prejudice.
Page | 43
BUTUAN SAWMILL INC V. CTA
G.R. NO L-20601 (1966)
FACTS: Butuan Sawmill, Inc. (BSI) sold logs to Japanese firms at
prices FOB Agusan. The FOB feature of the sales indicated that
the parties intended the title to pass to the buyer upon delivery of
the logs in Agusan on board the vessels that took the goods to
Japan. The sales, being domestic or local, are subject to sales tax
under Sec. 186 of the Tax Code as amended.
1. 2. Upon investigation by the BIR, it was ascertained that
no sales tax return was filed and neither did BSI pay the
corresponding sales tax. For the period Jan. 31, 1951 to
June 8, 1953, the CIR assessed initially assessed BSI the
amount of P40,004.01 but as a result of reinvestigation,
the amount was reduced to P38,917.74, as deficiency sales
tax and surcharge due on its sales of logs to the Japanese
buyers.
2. The lower court held that the amended assessment of the
sales tax and surcharge were domestic or local sales and
therefore subject to sales tax and that the assessment
thereof was made well within the ten year period
prescribed by Sec. 332(a) of the same Code since
petitioners herein omitted to file its sales tax returns for
the years 1951-53, and this omission was discovered only
on Sept. 17.1957.
3. It is clear that the said export sales had been
consummated in the Philippines and hence, subject to
sales tax. Petitioner allege that the filing of its income tax
return, wherein the proceeds of the disputed sales were
declared, is substantial compliance with the requirements
of filing a sales tax return, and if there should be deemed
a return filed, Sec. 331 and not Sec. 332(a) of the Tax
Code providing for a five year prescriptive period within
which to make an assessment and collection of the tax in
question from the time the return was deemed filed,
should be applied to the case at bar.
4. Since petitioner filed its income tax returns for the years
1951, 1952 and 1953, and the assessment was made in
1957 only it further contends that the assessment of the
sales tax corresponding to the years 1951 and 1952 had
already prescribed for having been made outside the five
year period prescribed in Sec. 331 of the Tax Code and
should, therefore, be deducted from the assessment of the
deficiency sales tax made by the BIR.
ISSUE: WON the assessment was made within the prescriptive
period provided by the law.
HELD: Yes.
1. An income tax return cannot be considered as a
return for compensating tax for purposes of
computing the period of prescription under Sec. 331
of the Tax Code and that the taxpayer must file a
return for the particular tax required by law in order
to avail himself of the benefits of Sec. 331 of the Tax
Code; otherwise, if he does not file a return, an
assessment may be made within the time stated in
Sec. 332(a) of the same Code.
2. It is undisputed that petitioner failed to file a return for the
disputed sales corresponding to the years 1951, 1952 and
1953, and this omission was discovered only on September
17, 1957, and that under Section 332(a) of the Tax Code
assessment thereof may be made within ten (10)
years from and after the discovery of the omission to
file the return, it is evident that the lower court
correctly held that the assessment and collection of
the sales tax in question has not yet prescribed.
BISAYA LAND TRANSPORATION CO INC V. CIR
105 PHIL 1338 (1960)
DOCTRINE: In order that the filing of a return may serve as the
starting point of the period for the making of an assessment, the
return must be as substantive complete as to include the needed
details on which the full assessment may be made, and appellants
have not shown that such was the nature of the return they would
infer had been filed by the corporation.
When there is no provision in the law requiring the filing of return
but the tax is such that its amount cannot be ascertained without
the date that is pertinent thereto, the Commissioner may, by
appropriate regulations, require the filing of the necessary returns.
In any event, with or without such regulations, it is to the interest
Page | 44
of the taxpayer to file said return if he wishes to avail himself of
the benefits of the three-year prescriptive period. If this
notwithstanding, he does not file return at all, then an assessment
may be made at anytime within the ten-year prescriptive period.
FACTS: BLTC acquired equipment from US Commercial Co. which
it used in the operation of its buses without paying the
corresponding taxes.
1. The revenue agents who investigated its books discovered
that its gross receipts of the transportation business from
1946-1951 were not declared for taxation. And from 1945-
1952, petitioner issued freight receipts but the
corresponding documentary stamps were not affixed;
deficiency additional tax was also determined.
2. CIR assessed and demanded P4,949.91consisting of 1)
compensating tax, 2) common carriers percentage tax, 3)
documentary stamp tax, and 4) additional residence tax.
3. January 11, 1955, BLTC filed a petition for review with the
CTA which upheld the assessment. But ruled that the
deficiency common carriers percentage tax for 1946, the
1st quarter of 1947, and the additional residence tax of
1947 were barred by the statute of limitations. Both
parties appealed.
4. Petitioner alleged that CTA erred in not holding that the
compensating and residence tax have also prescribed
because the period of prescription should be computed
from the filing of its income tax returns. And that the
compensating, documentary stamp, and common carrier
percentage tax were not chargeable.
ISSUE: Has the assessment made by the CIR been barred by
Statute of Limitations?
HELD: No.
The income tax returns were not introduced in evidence, therefore,
there was no means to determine what data were included to
apprise the BIR that the company should pay the compensating
tax.
When there is no provision in the law requiring the filing of
return but the tax is such that its amount cannot be
ascertained without the date that is pertinent thereto, the
Commissioner may, by appropriate regulations, require the
filing of the necessary returns. In any event, with or without
such regulations, it is to the interest of the taxpayer to file said
return if he wishes to avail himself of the benefits of the three-year
prescriptive period. If this notwithstanding, he does not file
return at all, then an assessment may be made at anytime
within the ten-year prescriptive period.
TUPAZ V. HON ULEP
G.R. NO 12777 (1999)
DOCTRINE: By its nature, the tax violation can only be committed
after service of notice and demand for payment of the deficiency
taxes upon the tax payer. Hence, it cannot be said that the
offense been committed as early as 1980 upon filing of the income
tax return.
FACTS: State Prosecutor filed with the Metropolitan Trial Court
(MeTC), Quezon City an information against herein petitioner
Petronila C. Tupaz and her late husband, Jose J. Tupaz, Jr., as
corporate officers of El Oro Engravers Corporation for nonpayment
of deficiency in corporate income tax for the year 1979 but was
later dismissed and denied upon reconsideration. Subsequently,
the same prosecutor filed two (2) informations before Regional
Trial Court (RTC), for the same alleged non-payment of deficiency
of corporate income tax for the year 1979, one was raffled to
Branch 105 while the other to Branch 86. Respondent Judge Ulep
issued an order directing the prosecution to withdraw the
information in Branch 86 after discovering that said information
was identical to that filed with Branch 105. The prosecutor
withdrew the information but later on filed a motion to reinstate
the same, stating that the motion to withdraw information was
made through palpable mistake, and the result of excusable
neglectto which the respondent Judge granted the motion over
the objections of the petitioner. Petitioner files this petition
assailing that respondent Judge committed a grave abuse of
discretion in reinstating the information because the offense has
prescribed and exposed her to double jeopardy. Petitioner argues
that while Section 318 and 319 of the National Internal Revenue
Page | 45
Code (NIRC) of 1997 provide a five (5) year period of limitation for
the assessment and collection of internal revenue taxes, Batas
Pambansa Blg. 700 (enacted on February 22, 1984), amended the
two (2) sections and reduced the period to three (3) years. As
provided under B.P. Blg. 700, the Bureau of Internal Revenue
(BIR) has three (3) years to assess the tax liability, counted from
the last day of filing the return or from the date the return is filed,
whichever comes later. Since the tax return was filed in April
1980, the assessment made on July 1984 was beyond the three
(3) year prescriptive period.
ISSUES: Whether or not the offense has prescribed
HELD: As to the first issue, the Supreme Court ruled in the
negative. The shortened period of three (3) years prescribed
under B.P. Blg. 700 is not applicable to petitioner. B.P. Blg. 700
specifically states that the shortened period of three years shall
apply to assessments and collections of internal revenue beginning
taxable year 1984. The deficiency income tax under consideration
is for taxable year 1979. Thus, the period of assessment is still
five (5) years, under the old law. The income tax return was filed
in April 1980. Hence, the July 16, 1984 tax assessment was
issued within the prescribed period of five (5) years, from the last
day of filing the return, or from the date the returns is filed,
whichever comes later.
Neither is there prescription for the prescription of criminal action
by the BIR on June 8, 1989. Petitioner was charged with failure to
pay deficiency income tax after repeated demands by the taxing
authority. In Lim, Sr. v. Court of Appeals, we stated that by its
nature the violation could only be committed after service of notice
and demand for payment of the deficiency taxes upon the
taxpayer. Hence, it cannot be said that the offense has been
committed as early as 1980, upon filing of the income tax return.
This is so because prior to the finality of the assessment, the
taxpayer has not committed any violation for nonpayment of the
tax. The offense was committed only after the finality of the
assessment coupled with taxpayer's willful refusal to pay the taxes
within the allotted period. In this case, when the notice of
assessment was issued on July 16, 1984, the taxpayer still had
thirty (30) days from receipt thereof to protest or question the
assessment. Otherwise, the assessment would become final and
unappealable. As he did not protest, the assessment became final
and unappealable on August 16, 1984. Consequently, when the
complaint for preliminary investigation was filed with the
Department of Justice on June 8, 1989, the criminal action was
instituted within the five (5) year prescriptive period.
AZNAR V. CIR
58 SCRA 519
Matias H. Aznar who died on May 18, 1958, predecessor in interest
of herein petitioner, during his lifetime as a resident of Cebu City,
filed his income tax returns on the cash and disbursement basis.
B.I.R. Examiner Honorio Guerrero ascertain the taxpayer's true
income and discovered that from 1946 to 1951, his net worth had
increased every year, which increases in net worth was very much
more than the income reported during 1946-1951
Based on the above findings of Examiner Guerrero, respondent
Commissioner, in his letter dated November 28, 1952,
notified the taxpayer (Matias H. Aznar) of the assessed tax
delinquency.
CIR, thru the City Treasurer of Cebu, placed the properties
of Matias H. Aznar under distraint and levy to secure
payment of the deficiency income tax in question. Aznar
filed his petition for review of the case with the Court of Tax
Appeals..
Court of Tax Appeals - the lower court concluded that the tax
liability of the late Matias H. Aznar for the year 1946 to 1951,
inclusive should be P227,788.64 minus P96.87 representing the
tax credit for 1945, or P227,691.77
ISSUE/HELD: Petitioner's contention is that the provision of
law applicable to this case is the period of five years
limitation upon assessment and collection from the filing of
the returns provided for in See. 331 of the National Internal
Revenue Code. He argues that since the 1946 income tax
return could be presumed filed before March 1, 1947 and
the notice of final and last assessment was received by the
taxpayer on March 2, 1955, a period of about 8 years had
elapsed and the five year period provided by law (Sec. 331
Page | 46
of the National Internal Revenue Code) had already
expired. The same argument is advanced on the taxpayer's return
for 1947, which was filed on March 1, 1948, and the return for
1948, which was filed on February 28, 1949.
Respondents, on the other hand, are of the firm belief that
regarding the prescriptive period for assessment of tax returns,
Section 332 of the National Internal Revenue Code should apply
because, as in this case, "(a) In the case of a false or fraudulent
return with intent to evade tax or of a 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 falsity, fraud or omission" (Sec.
332 (a) 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 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.
The ordinary period of prescription of 5 years within which
to assess tax liabilities under Sec. 331 of the NIRC should
be applicable to normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its
lawful agents from proper assessment of tax liabilities due
to false returns, fraudulent return intended to evade
payment of tax or failure to file returns, the period of ten
years provided for in Sec. 332 (a) NIRC, from the time of
the discovery of the falsity, fraud or omission even seems to
be inadequate and should be the one enforced. There being
undoubtedly false tax returns in this case, We affirm the
conclusion of the respondent Court of Tax Appeals that Sec. 332
(a) of the NIRC should apply and that the period of ten years
within which to assess petitioner's tax liability had not expired at
the time said assessment was made.
The lower court's conclusion regarding the existence of fraudulent
intent to evade payment of taxes was based merely on a
presumption and not on evidence establishing a willful filing of
false and fraudulent returns so as to warrant the imposition of the
fraud penalty. The fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to induce
another to give up some legal right. Negligence, whether slight or
gross, is not equivalent to the fraud with intent to evade the tax
contemplated by the law. It must amount to intentional wrong-
doing with the sole object of avoiding the tax. It necessarily
follows that a mere mistake cannot be considered as fraudulent
intent, and if both petitioner and respondent Commissioner of
Internal Revenue committed mistakes in making entries in the
returns and in the assessment, respectively, under the inventory
method of determining tax liability, it would be unfair to treat the
mistakes of the petitioner as tainted with fraud and those of the
respondent as made in good faith.
REPUBLIC V. LIM DE YU
10 SCRA 738 (1964)
FACTS: Respondent Lim de Yu filed her yearly income tax returns
from 1948 through 1953. BIR assed the taxes due thereon and
respondent paid them accordingly
1. On July 17, 1956, BIR assessed respondent deficiency
income tax for the years 1945 to 1953.
2. Lim de Yu protested the assessment and requested a
reinvestigation.
3. On August 30, 1956, respondent signed a waiver of the
statute of limitations under NIRC as a condition to the
reinvestigation requested.
4. Thereafter, on July 18, 1958, BIR issued respondent
income tax notices for the year 1948 to 1953 amounting to
Page | 47
 P35,379.63. The last assessment included the basic
deficiency income tax and 50% surcharge
5. Petitioner claims that the lower court erred in ruling that
(1) the deficiency income taxes due from Lim for the years
1049, 1949 and 1956 were not assessed on tine; and (2)
in dismissing the case, CIRs right to collect had already
prescribed. Petitioner maintains that since the respondent
filed false or fraudulent returns (the annual net income
reported in the returns were much less than what was
computed by BIR), under Sec 332(a) NIRC, BIR had 10
years from the date of the discovery of the fraud or falsity,
i.e. May 25, 1955, to assess the taxes or file a collection
suit.
ISSUE: WON CIRs right to collect based on the assessment had
already prescribed
HELD: As to the years 1948 to 1950, it had already prescribed.
Fraud must not only be alleged in the complaint, it should also be
established. It appears that BIR was not sure as to the
amounts of respondents net income since it arrived at
different computations on 3 different occasions. Fraud not
having been proven, the period of limitation for assessment
was five years from the filing of the return (Sec 331). The
right to assess or collected for the years 1948 to 1950 had
already prescribed when BIR issued the deficiency tax
assessment on July 17, 1956.
The tax years 1948 to 1950 cannot be deemed included in the
waiver of the statute of limitations under the NIRC executed by
the respondent on August 30, 1956. The 5-year period
assessment, counted from the date the return is filed, may be
extended upon the agreement of the CIR and the taxpayer, but
such agreement must be made before the expiration of the original
period.
However, the waiver validly covers the tax years 1951 and
1952, since the 5-year period had not yet elapsed when the
said waiver was executed. With respect to the tax year
1953, the waiver was not necessary because the
assessment was within the original 5-year period provided
by law (July 18, 1958).
Respondents theory that collection could be made only up to the
end of the period of extension stated in the waiver (December 31,
1958) is without merit. Assessment and collection are different.
Thus, although under the waiver Lim consented to the
assessment and collection if not made later than
December 31, 1958, such expiration must be deemed to
refer only to the extension of the assessment period.
Insofar as collection is concerned, the period does not apply
because otherwise the effect of the waiver would be to
shorten the legal period for that purpose. As such, BIR had
within 5 years from 1958 within which to file his action,
which was actually filed in 1959.
Hence, respondent is liable to pay the deficiency income taxes due
for the years 1951, 1952 and 1953 plus 5% surcharge and 1%
monthly interest until full satisfaction.
BASILAN ESTATES V. CIR
The reckoning point of prescription would be the date when the
demand letter or notice of assessment is released, mailed or sent
to the taxpayer that constitutes actual assessment (Basilan Estates
Inc v. CIR, G.R. no L-22492)
ARCHES V. BELLOSILLO
The court relied upon Memorandum Order No. V-634 of the
Revenue Commissioner, approved by the Finance Secretary,
wherein the former's functions regarding the administration
and enforcement of revenue laws and regulations powers
broad enough to cover the approval of court actions as
required in the Tax Code were expressly delegated to the
Regional Directors. This regulation, the issuance of which
was authorized by statute, has the force and effect of
law. To rely upon it, hence, would not be tantamount to
whimsical and arbitrary exercise of judgment.
The verification by the Regional Director of the complaint
constitutes sufficient approval thereof already. It states,
that said Director has caused the preparation of the
complaint and that he has read the allegations thereof and
they are true and correct to the best of his knowledge and
belief.
Page | 48

Petitioner-appellant would also raise the question of
prescription. Again, this is not jurisdictional. And, We have
already ruled that the proper prescriptive period for
bringing civil actions is five years from the date of the
assessment. The three-year period urged by petitioner
under Section 51 (d) refers only to the summary remedies
of distraint and levy. Here, the action was commenced one
year, ten months and three days after the assessments
were made; hence, well within the period.
SY CHUICO V. COLLECTOR
107 PHIL 428
DOCTRINE: For the purposes of amusement tax, the term
"GROSS RECEIPTS" embraces all the receipts of the proprietor or
operator of the business. Prescription is evidentiary in nature.
FACTS: Petitioner was the owner and operator of the La Loma
Cabaret in QC from 1926 to January 1956. It charged its
customers P0.30 per dance: P0.10 entrance fee and the remaining
P0.20 to be paid to the "bailarinas" after the dance. The
customers were informed of the fees by means of posters found in
conspicuous places of the cabaret stating:
1. From January 1947 - August 1950, petitioner declared
in his return only the following gross receipts:
o receipts from gate admissions at P0.10 each,
P59,160.40;
o receipts from restaurant sales, P5,339.90;
o receipts from bar sales, P47,459.10,
o --- and paid thereon a 10 % amusement tax of
P11,197.40.
2. Petitioner failed to declare for tax purposes the P0.20
dance fee. Thus, respondent assessed against him a
deficiency amusement tax, including50 % surcharge of
P17,616.05. As well as P300.00 penalty in settlement of
his violation of Section 260 of the Tax Code and the
Bookkeeping Regulations.
3. Petitioner appealed to the CTA which affirmed the
contention of respondent holding petitioner liable to pay
P17,616.05 as deficiency amusement tax and surcharge
for January 1947 - August, 1950; but, CTA rejected the
P300.00 penalty alleging lack of power or authority to
order the payment of such penalty. Hence, this petition.
4. Petitioner contends that because those dance fees go to
the "bailarinas", they could not be considered as part of
the gross receipts of the cabaret.
ISSUES:
1. Should the gross receipts include the dance fee charged by
the cabaret for its "bailarinas"? YES.
2. Has the collection of the tax in question already
prescribed? SC considered that petitioner waived this
defense.
HELD: Section 260 of the Tax Code applies. The owner or
operator of a cabaret is required to pay an amusement tax
equivalent to 10 % of the gross receipts of his business
irrespective of whether or not any amount is charged or paid for
admission. The law further adds that, for the purposes of
amusement tax, the term "GROSS RECEIPTS" embraces all the
receipts of the proprietor or operator of the business. A cabaret is
a place of amusement where customers go because of their desire
to dance and where the "bailarinas" are the main attraction.
Dancing is the main business and customers patronize the place
attracted by the "bailarinas". As a matter of fact, "bailarinas" are
the indispensable factor in the operation of the business. Whatever
is paid to them should, therefore, be considered as paid on
account of the business, and as such it should be considered as
part of petitioner's gross receipts.
RE SURCHARGE: While there is no direct evidence to show actual
fraud on the part of petitioner, the circumstances found by the CTA
indicate that he has deliberately omitted in his book a
sizeable portion of his taxable income which in substance
amounts to fraud.
RE PRESCRIPTION: This was not raised as an issue in the petition
for review filed in the CTA. It was not even touched by him in the
memorandum he submitted. There is, therefore, enough reason to
believethat petitioner has waived this defense and so it
Page | 49
cannot now be entertained. To hold otherwise would be to
deprive respondent of his right to show the contrary, this matter
being evidentiary in nature.
CIR V. CA & CARNATION PHILS INC
G.R. NO 115712 (2000)
Sec. 318 (now Section 203) of the National Internal Revenue
Code, the law then applicable reads:
Sec 318.Period of Limitations upon assessment and
collection. Except as provided in the succeeding
section, internal revenue taxes shall be assessed
within five years after the return was filed, and no
proceeding in court without assessment for the
collection of such taxes shall be begun after the
expiration of such period. For the purpose 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: Provided,
That this limitation shall not apply to cases already
investigated prior to the approval of this
Code. (emphasis ours)
Carnation filed its annual income tax and percentage tax
returns for the fiscal year ending September 30, 1981 on
January 15, 1982 and November 20, 1981, respectively. In
accordance with the above-quoted provision of law, private
respondent's 1981 income and sales taxes could have been
validly assessed only until January 14, 1987 and November
19, 1986, respectively. However, Carnation's income and
sales taxes were assessed only on July 29, 1987, beyond
the five-year prescriptive period.
Petitioner BIR Commissioner contends that the waivers signed by
Carnation were valid although not signed by the BIR Commissioner
because (a) when the BIR agents/examiners extended the period
to audit and investigate Carnation's tax returns, the BIR gave its
implied consent to such waivers; (b) the signature of the
Commissioner is a mere formality and the lack of it does not
vitiate binding effect of the waivers; and (c) that a waiver is not a
contract but a unilateral act of renouncing ones right to avail of the
defense of prescription and remains binding in accordance with the
terms and conditions set forth in the waiver.
Petitioner's submission is inaccurate. The same tax code is clear on
the matter, to wit:
Sec. 319.Exceptions as to period of limitation of
assessment and collection of taxes.(a) . . .
(b) Where before the expiration of the time
prescribed in the preceding section for the
assessment of the tax, both the Commissioner of
Internal Revenue and the taxpayer have consented
in writing to its assessment after such time, the
tax may be assessed at anytime prior to the
expiration of the period agreed upon. The period
so agreed upon may be extended by subsequent
agreement in writing made before the expiration of
the period previously agreed upon.
Verily, we discern no basis for overruling the aforesaid conclusions
arrived at by the Court of Appeals. In fact, there is every reason to
leave undisturbed the said conclusions, having in mind the precept
that all doubts as to the correctness of such conclusions will be
resolved in favor of the Court of Appeals.
What is more, the waivers in question reveal that they are
in no wise unequivocal, and therefore necessitates for its
binding effect the concurrence of the Commissioner of
Internal Revenue. In fact, in his reply dated April 18, 1995,
the Solicitor General, representing the Commissioner of
Internal Revenue, admitted that subject waivers executed
by Carnation were "for end in consideration of the approval
by the Commissioner of Internal Revenue of its request for
reinvestigation and/or reconsideration of its internal
revenue case involving tax assessments for the fiscal year
ended September 30, 1981 which were all pending at the
time". On this basis neither implied consent can be
presumed nor can it be contended that the waiver required
under Sec. 319 of the Tax Code is one which is unilateral
nor can it be said that concurrence to such an agreements a
mere formality because it is the very signatures of both the
Commissioner of Internal Revenue and the taxpayer which
give birth to such a valid agreement.
CIR V. BF GOODRICH PHILS
Page | 50
G.R. NO 104171 (1999)
FACTS: BF Goodrich was an American-owned and controlled
corporation. As a condition for approving the manufacture of tires
and other rubber products, the Central Bank required that it
should develop a rubber plantation.
1. In compliance with this requirement, it purchased from the
Philippine government, certain parcels of land and there
developed a rubber plantation.
2. On August 2, 1973, the justice secretary rendered an
opinion stating that, upon the expiration of the Parity
Amendment, the ownership rights over public agricultural
lands, including the right to dispose or sell their real
estate, would be lost.
3. On the basis of this Opinion, private respondent sold to
Siltown Realty, its Basilan landholding for P500,000. In
accord with the terms of the sale, Siltown Realty, leased
the land to private respondent for a period of 25 years,
with an extension of another 25 years at the latter's
option.
4. The books and accounts of private respondent were
examined for the purpose of determining its tax liability for
taxable year 1974. The examination resulted in the April
23, 1975 assessment of for deficiency income tax, which it
duly paid.
5. Subsequently, the BIR also examined Siltown's business,
income and tax liabilities. The BIR issued against private
respondent on October 10, 1980, an assessment for
deficiency in donor's tax in relation to the sale of its
Basilan landholdings to Siltown. The BIR deemed the
consideration for the sale insufficient.
6. On November 24, 1980, private respondent contested this
assessment. On April 9, 1981, it received another
assessment dated March 16, 1981, which increased the
amount demanded for the alleged deficiency donor's tax,
surcharge, interest and compromise penalty.
7. Private respondent appealed the correctness and the
legality of these last two assessments.
ISSUE: WON petitioner's right to assess herein deficiency donor's
tax has indeed prescribed as ruled by public respondent Court of
Appeals.
HELD: The petition has no merit. Applying this provision of law to
the facts at hand, it is clear that the October 16, 1980 and the
March 1981 assessments were issued by the BIR beyond the five-
year statute of limitations.
The subsequent assessment made by the respondent
Commissioner on October 40, 1980, modified by that of March 16,
1981, violates the law. Involved in this petition is the income of
the petitioner for the year 1974, the returns for which were
required to be filed on or before April 15 of the succeeding year.
The returns for the year 1974 were duly filed by the petitioner,
and assessment of taxes due for such year including that on the
transfer of properties on June 21, 1974 was made on April 13,
1975 and acknowledged by Letter of Confirmation terminating the
examination on this subject.
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides
a statute of limitations in the collection of taxes. Thus, the
law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. As a
corollary, the exceptions to the law on prescription should
perforce be strictly construed.
Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a
report required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming within the
time fixed by law or regulation, or when there is reason to believe
that any such report is false, incomplete, or erroneous, the
Commissioner of Internal Revenue shall assess the proper tax on
the best evidence obtainable." Clearly, Section 15 does not provide
an exception to the statute of limitations on the issuance of an
assessment, by allowing the initial assessment to be made on the
basis of the best evidence available. Having made its initial
assessment in the manner prescribed, the commissioner could not
have been authorized to issue, beyond the five-year prescriptive
period, the second and the third assessments under consideration
before us.
Nor is petitioner's claim of falsity sufficient to take the questioned
assessments out of the ambit of the statute of limitations. It is
possible that real property may be sold for less than adequate
Page | 51
consideration for a bona fide business purpose; in such event, the
sale remains an "arm's length" transaction.
Since the BIR failed to demonstrate clearly that private
respondent had filed a fraudulent return with the intent to
evade tax, or that it had failed to file a return at all, the
period for assessments has obviously prescribed. Such
instances of negligence or oversight on the part of the BIR cannot
prejudice taxpayers, considering that the prescriptive period was
precisely intended to give them peace of mind.
Based on the foregoing, a discussion of the validity and legality of
the assailed assessments has become moot and unnecessary.
CIR V. PASCOR REALTY
An assessment contains not only a computation of tax liabilities,
but also a demand for payment within a prescribed period. It also
signals the time when penalties and interests begin to accrue
against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on
and received by the taxpayer. Accordingly, an affidavit, which was
executed by revenue officers stating the tax liabilities of a
taxpayer and attached to a criminal complaint for tax evasion,
cannot be deemed an assessment that can be questioned before
the Court of Tax Appeals.
Private respondents maintain that the filing of a criminal complaint
must be preceded by an assessment. This is incorrect, because
Section 222 of the NIRC specifically states that in cases where a
false or fraudulent return is submitted or in cases of failure to file a
return such as this case, proceedings in court may be commenced
without an assessment.
Furthermore, Section 205 mandates that the civil and criminal
aspects of the case may be pursued simultaneously.
To reiterate, said Section 222 states that an assessment is not
necessary before a criminal charge can be filed. This is the general
rule. Private respondents failed to show that they are entitled to an
exception. Moreover, the criminal charge need only be supported
by a prima facie showing of failure to file a required return. This
fact need not be proven by an assessment.
PROCEDURE: The issuance of an assessment must be
distinguished from the filing of a complaint. Before an assessment
is issued, there is, by practice, a pre-assessment notice sent to the
taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment
signed by him or her is then sent to the taxpayer informing the
latter specifically and clearly that an assessment has been made
against him or her. In contrast, the criminal charge need not go
through all these. The criminal charge is filed directly with the
DOJ. Thereafter, the taxpayer is notified that a criminal case had
been filed against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is
instituted not to demand payment, but to penalize the taxpayer for
violation of the Tax Code.
CIR V. SUYOC CONSOLIDATED MINING
104 PHIL 819
FACTS: Due to the chaos caused by World War II, Congress
extended the filing of income tax returns for the year 1941. The
extension was up to December 31, 1945. However, Suyoc
Consolidated Mining Company (SCMC) due to lost records
requested the Commissioner of Internal Revenue (CIR)
for further extension. The same was granted and SCMC was
allowed to file its return until February 15, 1946. On February 12,
1946, SCMC filed a tentative income tax return. On November 28,
1946, SCMC filed a second final return. In February 1947, the CIR
made an assessment notifying SCMC that is liable for P33k in
taxes. The CIR gave SCMC 3 months to pay but the latter failed to
make payment.
What followed was a series of negotiations as SCMC repeatedly
asked for reconsideration and reinvestigation. Due to SCMCs
requests, the CIR had to revise the assessment several times.
Eventually in July 1955, the CIR made a final assessment notice
(FAN) notifying SCMC that it is liable for P24k in taxes. This time,
SCMC questioned the validity of the assessment as it now
alleged that it was issued beyond the 5 year prescriptive period.
(NOTE: Under the National Internal Revenue Code of 1997,
prescriptive period for normal assessment is 3 years).
Page | 52

The issue reached CTA and ruled that the assessment issued is
void because in the first place, when SCMC requested for a
reinvestigation, there was no agreement as to the extension of
the prescriptive period; that a mere request for reinvestigation
does not automatically suspend the running of the prescriptive
period. The CTA ruled that the FAN issued in 1955 was already
way beyond the 5 year prescriptive period.
ISSUE: WON the CTA is correct
HELD: No. This is one case where a taxpayer is barred from
setting up the defense of prescription even though there was not a
written agreement. It is true that when a request for
reinvestigation is made by the taxpayer, the same does
not toll the running of the prescriptive period unless there is a
written agreement between the CIR and the taxpayer. However, in
this case, due to the repeated requests of SCMC which were acted
upon by the government for good reasons the government was
persuaded to delay the final assessment. The applicable principle is
fundamental and unquestioned. He who prevents a thing from
being done may not avail himself of the nonperformance which he
has himself occasioned, for the law says to him in effect this is
your own act, and therefore you are not damnified. The tax could
have been collected, but the government withheld action at the
specific request of SCMC. SCMC is now estopped and should not
be permitted to raise the defense of the Statute of Limitations.
PHILIPPINE JOURNALISTS INC V. CIR
G.R. NO 162582 (2004)
DOCTRINE: The law prescribing a limitation of actions for the
collection of the income tax is beneficial both to the Government
and to its citizens; to the Government because tax officers would
be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription
citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of
taxpayers, not to determine the latters real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding
citizens. Without such a legal defense taxpayers would furthermore
be under obligation to always keep their books and keep them
open for inspection subject to harassment by unscrupulous tax
agents. The law on prescription being a remedial measure should
be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval
of the law. (Republic of the Phils. v. Ablaza)
A waiver of the statute of limitations under the NIRC, to a
certain extent, is a derogation of the taxpayers right to security
against prolonged and unscrupulous investigations and must
therefore be carefully and strictly construed.
It is an agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is
extended to a date certain. The waiver does not mean that the
taxpayer relinquishes the right to invoke prescription unequivocally
particularly where the language of the document is equivocal. For
the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a
statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally
construed in order to afford such protection. As a corollary, the
exceptions to the law on prescription should perforce be strictly
construed.
The waiver is not a unilateral act by the taxpayer or the BIR, but is
a bilateral agreement between two parties to extend the period to
a date certain. The conformity of the BIR must be made by either
the Commissioner or the Revenue District Officer.
RE RMO NO.20-90 (RMO No. 20-90) VALID WAIVER OF THE
STATUTE OF LIMITATIONS. CA held that the requirements and
procedures laid down in the RMO are only formal in nature and did
not invalidate the waiver that was signed even if the requirements
were not strictly observed.
Sections 203 and 222 of NIRC provides for a statute of limitations
on the assessment and collection of internal revenue taxes in order
to safeguard the interest of the taxpayer against unreasonable
investigation. Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because this
deprives the taxpayer of the assurance that it will no longer be
Page | 53
subjected to further investigation for taxes after the expiration of a
reasonable period of time.
RMO No. 20-90 implements these provisions of the NIRC relating
to the period of prescription for the assessment and collection of
taxes. The Order supports petitioners argument that the RMO
must be strictly followed. Any revenue official found not to have
complied shall be administratively dealt with.
The waiver of the statute of limitations is not a waiver of
the right to invoke the defense of prescription as
erroneously held by the Court of Appeals. RMO No. 20-90
explains the rationale of a waiver:
The phrase "but not after _________ 19___" should be filled up.
This indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular 3-year period of
prescription. The period agreed upon shall constitute the time
within which to effect the assessment/collection of the tax in
addition to the ordinary prescriptive period.
As found by the CTA, the Waiver of Statute of Limitations, signed
by petitioners comptroller (September 22, 1997) is not valid and
binding because it does not conform with the provisions of
the RMO. It did not specify a definite agreed date between the
BIR and petitioner, within which the former may assess and collect
revenue taxes. Thus, petitioners waiver became unlimited in
time, violating Section 222(b) of the NIRC.
The waiver is also defective from the government side because
it was signed only by a revenue district officer, NOT the
Commissioner, as mandated by the NIRC and RMO No. 20-90.
The waiver is not a unilateral act by the taxpayer or the BIR, but is
a bilateral agreement between two parties to extend the period to
a date certain. The conformity of the BIR must be made by either
the Commissioner or the Revenue District Officer.
This case involves taxes amounting to more than P1M and
executed almost seven months before the expiration of the three-
year prescription period. For this, the RMO requires the
Commissioner of Internal Revenue to sign for the BIR.
Section 319 of NIRC is clear and explicit that the waiver of the
5-year prescriptive period must be in writing and signed by both
the BIR Commissioner and the taxpayer.
RE DEFECT IN THE DATE OF ACCEPTANCE. CA held that the date
of the execution of the waiver on September 22, 1997 could
reasonably be understood as the same date of acceptance by the
BIR. Petitioner points out however that Revenue District Officer
(Ms.Sarmiento) could not have accepted the waiver yet because
she was not the Revenue District Officer on such date. Sarmientos
transfer and assignment to RDO was only signed by the BIR
Commissioner on January 16, 1998. CTA noted that it is
unlikely as well that Ms. Sarmiento made the acceptance on
January 16, 1998 because "Revenue Officials normally have to
conduct first an inventory of their pending papers and property
responsibilities."
RE PETITIONER WAS NOT FURNISHED A COPY OF THE WAIVER.
Under RMO No. 20-90, the waiver must be executed in 3 copies
with the 2nd copy for the taxpayer. CA did not think this was
important because the petitioner need not have a copy of the
document it knowingly executed. It stated that the reason copies
are furnished is for a party to be notified of the existence of a
document, event or proceeding. CA assumes that the waiver is a
unilateral act of the taxpayer when it is in fact and in law an
agreement between the taxpayer and the BIR. When the
petitioners comptroller signed the waiver on September 22,
1997, it was not yet complete and final because the BIR had
not assented. There is compliance with the provision only
after the taxpayer received a copy of the waiver accepted
by the BIR. The requirement to furnish the taxpayer with a copy
of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of
the agreement.
The waiver document is incomplete and defective and thus the 3-
year rescriptive period was not tolled or extended and continued to
run until April 17, 1998. Consequently, the Assessment issued on
December 9, 1998 was invalid because it was issued beyond the
(3) year period. Similarly, the Warrant of Distraint and/or Levy is
also null and void for having been issued pursuant to an invalid
assessment. WHEREFORE, the instant petition for review is
GRANTED.
Page | 54
 3 years from the last 10 years from No prescriptive period
TAXATION : Three-year period within which to assess Internal day prescribed by law discovery of non- for assessment when
Revenue Taxes, Waiver and Extension, Requisites for Validity. for the filing of the filing of return or the Government opts
return, of if filed filing of false or to collect without
beyond the period fraudulent return assessment
prescribed by law,
B. PRESCRIPTION OF RIGHT TO COLLECT SEC from the day the
203 & SEC 222 return was filed
PRESCRIPTIVE PERIOD FOR COLLECTION
PRESCRIPTIVE PERIOD FOR COLLECTION The NIRC 3 years from issuance 5 years from the 10 years from
does not provide for a prescriptive period for the collection of of assessment unless date of Final discovery of non-filing
taxes under Sec 203 there is fraud in which Assessment of the return or filing
There are 2 views regarding the prescriptive period for case it is 5 years, or a of fraudulent or false
collection period agreed upon return
a. 1st VIEW: 5 years from FINAL ASSESSMENT. Under the between the CIR and
old Code, the prescriptive period for both normal and the taxpayer (which
abnormal assessment is 3 years. Under the new Code, may be less than 7
the prescriptive period fro abnormal is 5 years, hence years) in case of an
it can be concluded that the prescriptive period for extended assessment
normal is also 5 yers (Sababan, Taxation Law Review agreed upon under
2008 ed., p. 182) Sec 222 (b)
b. 2nd VIEW: Within 3 years from the issuance of an
assessment notice where the was a return filed. The 5-
year period refers to an instance where there is an
assessment issued on the basis of false or fraudulent C. SUSPENSION OF RUNNING OF PRESCRIPTION
return , the absence of a return [Sec 222(c) in relation SEC. 223
to Sec 222(a)] or in the instance of an extended
assessment under Sec 222(d). The interpretation SEC. 223. Suspension of Running of Statute of Limitations. -
should be in favor of the taxpayer, providing for a The running of the Statute of Limitations provided in Sections 203
shorter period of 3 years from the issuance of an and 222 on the making of assessment and the beginning of
assessment, because the 5-year period places a law- distraint or levy a proceeding in court for collection, in respect of
abiding taxpayer in the same category as the one who any deficiency, shall be suspended for the period during which the
is not law-abiding i.e., one who files a false or Commissioner is prohibited from making the assessment or
fraudulent return, who does not file a return etc beginning distraint or levy or a proceeding in court and for sixty
(Domondon, Bar Reviewer in Taxation Vol 1, 2008 ed, (60) days thereafter; when the taxpayer requests for a
p. 414-415) reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the
TABLE OF PRESCRIPTIVE PERIODS return filed upon which a tax is being assessed or collected:
NORMAL OR ABNORMAL OR COLLECTION Provided, that, if the taxpayer informs the Commissioner of any
ORDINARY EXTRAORDINARY WITHOUT change in address, the running of the Statute of Limitations will
ASSESSMENT ASSESSMENT ASSESSMENT not be suspended; when the warrant of distraint or levy is duly
PRESCRIPTIVE PERIOD FOR ASSESSMENT served upon the taxpayer, his authorized representative, or a

Page | 55
member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the
Philippines.
GROUNDS FOR SUSPENSION OF THE RUNNING OF THE
STATUTE OF LIMITATIONS (PRA PO)
1. When the CIR is PROHIBITED from making the
assessment or beginning the distraint or levy or a
proceeding in court AND for 60 days thereafter
NOTE: This may happen where there is a pending petition
for review in the CTA from the decision on the protested
assessment. The filing o such petition interrupts the
running of the prescriptive period for collection.
But the filing of a criminal case against he taxpayer does
not suspend the prescriptive period; such is entirely
separate and distinct from the civil action (Dimaampao,
Tax Principles and Remedies, 2002 ed)
2. When the taxpayer requests for
REINVESTIGATION which is granted by CIR
NOTES:
o The above Section is plainly worded in order to
suspend the running of the prescriptive periods for
assessment and collection, the request for
reinvestigation must be granted by CIR. The act of
requesting a reinvestigation alone does not
suspend the period. The request should first be
granted, in order to effect suspension. The burden
of proof that the request for reinvestigation had
been actually granted shall be on the CIR. Such
grant may be expressed in its communications with
the taxpayer or implied from the action of the CIR
or his authorized representative in response to the
request for reinvestigation (BPI v. CIR, G.R. no
174942, March 07, 2008)
o The only agreement that can suspend the running
of the prescriptive period for collection of taxes is a
WRITTEN agreement by the taxpayer and CIR
before the expiration of the 5-year period
extending the period of limitation (Mamalateo, Tax
Reviewer)
REPUBLIC V. ACEBEDO
G.R. NO L-20477 (1968)
FACTS: This is a suit for collection of deficiency income tax for the
year 1948 in the amount of P5,962.83.
1. The corresponding notice of assessment was issued on
September 24, 1949.
2. The complaint was filed on December 27, 1961.
3. After the defendant filed his answer but before trial started
he moved to dismiss on the ground of prescription.
4. The court received evidence on the motion, and on
September 1, 1962 issued an order finding the same
meritorious and hence dismissing the complaint.
5. Plaintiff appealed from the order of dismissal.
ISSUE: WON the right to collect has already prescribed.
HELD: YES
a The statute of limitations which governs this case is Section 332,
subsection (c), of the National Internal Revenue Code, which
provides for an exemption as to the period of limitation that
tax may be collected by distraint or levy or by a proceeding
in court, but only if begun (1) within five years after the
assessment of the tax, or (2) prior to the expiration of any
period for collection agreed upon in writing by the Collector
of Internal Revenue and the taxpayer before the expiration
of such five-year period. The period so agreed upon may be
extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.
The present suit was not begun within five years after the
assessment of the tax, which was in 1949.
Was it, however, begun prior to the expiration of any period
for collection agreed upon in writing by the Commissioner
of Internal Revenue and the defendant before the
expiration of such five-year period? NO.
Page | 56
The only evidence of such written agreement, in the form of
a "waiver of the statute of limitations" signed by the
defendant, dated December 17, 1959. But this waiver was
ineffective because it was executed beyond the original
five-year limitation.
The plaintiff contends that the period of prescription was
suspended by the defendant's various requests for reinvestigation
or reconsideration of the tax assessment. The trial court
rejected this contention, saying that a mere request for
reinvestigation or reconsideration of an assessment does
not have the effect of such suspension. The ruling is logical,
otherwise there would be no point to the legal requirement
that the extension of the original period be agreed upon in
writing.
There are certain decisions where the taxpayer may be in
estoppel to claim prescription as a defense even if he has
not previously waived it in writing:
IN the case of CIR vs Consolidated Mining the SC ruled that when
by his repeated requests or positive acts, the government
has been for good reasons, persuaded to postpone
collection.
Likewise, when a taxpayer asks for a reinvestigation of the
tax assessment issued to him and such reinvestigation is made,
on the basis of which the Government makes another assessment,
the five-year period with which an action for collection may be
commenced should be counted from this last assessment.
In the case at bar, the defendant, after receiving the assessment
notice of September 24, 1949, asked for a reinvestigation thereof
on October 11, 1949. There is no evidence that this request
was considered or acted upon. In fact, on October 23, 1950 the
then Collector of Internal Revenue issued a warrant of distraint
and levy for the full amount of the assessment at (Exh. D), but
there was no follow up of this warrant. Consequently, the
request for reinvestigation did not suspend the running of
the period for filing an action for collection.
The next communication of record is a letter signed for the
defendant by one Troadio Concha and dated October 6, 1951,
again requesting a reinvestigation of his tax liability (Exh. B).
Nothing came of this request either.
Then on February 9, 1954, the defendant's lawyers wrote the
Collector of Internal Revenue informing him that the books of their
client were ready at their office for examination (Exh. C). The
reply was dated more than a year later, or on October 4,
1955, when the Collector bestirred himself for the first time in
connection with the reinvestigation sought, and required that the
defendants specify his objections to the assessment and execute
"the enclosed forms for waiver, of the statute of limitations." The
last part of the letter was a warning that unless the waiver "was
accomplished and submitted within 10 days the collection of the
deficiency taxes would be enforced by means of the remedies
provided for by law."
It will be noted that up to October 4, 1955 the delay in
collection could not be attributed to the defendant at all. His
requests in fact had been unheeded until then, and there
was nothing to impede enforcement of the tax liability by
any of the means provided by law.
By October 4, 1955, more than five years had elapsed since
assessment in question was made, and hence prescription
had already set in, making subsequent events in connection
with the said assessment entirely immaterial. Even the
written waiver of the statute signed by the defendant on December
17, 1959 could no longer revive the right of action, for under the
law such waiver must be executed within the original five-year
period within which suit could be commenced.
CIR V. WYETH SUACO LABORATORIES & CTA
202 SCRA 125 (1991)
Settled is the rule that the prescriptive period provided by law to
make a collection by distraint or levy or by a proceeding in court is
interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment, and starts to run again when
said request is denied (CIR vs. Capitol Subdivision, Inc).
Partial payment would not prevent the government from suing the
taxpayer. Because, by such act of payment, the government is not
thereby "persuaded to postpone collection to make him feel that
Page | 57
the demand was not unreasonable or that no harassment or authorized representative in response to the request for
injustice is meant." This is the underlying reason behind the rule reinvestigation.
that the prescriptive period is arrested by the taxpayer's request
for re-examination or reinvestigation - even if he "has not There is nothing in the records of this case which indicates,
previously waived it (prescription in writing)". expressly or impliedly, that the CIR had granted the request for
reinvestigation filed by BPI.
BPI (FEBTC) V. CIR
G.R. NO 174942 (2008) CIR V. PHIL. GLOBAL COMMUNICATION
The statute of limitations on assessment and collection of national Reinvestigation tolls the running of the Statute of Limitations
internal revenue taxes was shortened from 5 years to 3 years by because it entails reception and evaluation of additional, which will
Batas PambansaBlg. 700. Thus, the CIR has 3 years from the date take more time than the Reconsideration, which will be limited to
of actual filing of the tax return to assess a national internal the evidence already at hand (CIR v. Philippine Global
revenue tax or to commence court proceedings for the collection Communications Inc, G.R. no 167146, October 31, 2006)
thereof without an assessment.

When it validly issues an assessment within the 3-year period, it

has another 3 years within which to collect the tax due by
distraint, levy, or court proceeding. The assessment of the tax is
deemed made and the 3-year period for collection of the assessed
tax begins to run on the date the assessment notice had been
released, mailed or sent to the taxpayer.

As applied to the present case, the CIR had 3 years from the time
he issued assessment notices to BPI on 7 April 1989 or until 6 April
1992 within which to collect the deficiency DST. However, it was
only on 9 August 2002 that the CIR ordered BPI to pay the
deficiency.

In order to determine whether the prescriptive period for collecting

the tax deficiency was effectively tolled by BPIs filing of the
protest letters dated 20 April and 8 May 1989 as claimed by the
CIR, Section 320 is plainly worded. In order to suspend the
running of the prescriptive periods for assessment and collection,
the request for reinvestigation must be granted by the CIR. The
act of requesting a reinvestigation alone does not suspend
the period. The request should first be granted, in order to
effect suspension.

The Court went on to declare that the burden of proof that the
request for reinvestigation had been actually granted shall be on
the CIR. Such grant may be expressed in its communications with
the taxpayer or implied from the action of the CIR or his

Page | 58
REMEDIES OF THE TAXPAYER
A. PROTESTING AN ASSESSMENT SEC. 228.
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a pre-
assessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result
of mathematical error in the computation of the tax
as appearing on the face of the return; or
(b) When a discrepancy has been determined between
the tax withheld and the amount actually remitted
by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a
taxable period was determined to have carried over
and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year;
or
(d) When the excise tax due on exciseable articles has
not been paid; or
(e) When the article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and
the facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment in such form and manner
as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by
the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory
and demandable.
RR 12-99
SECTION 3. Due Process Requirement in the Issuance of a
Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency
tax assessment:
3.1.1 Notice for informal conference. The Revenue Officer
who audited the taxpayer's records shall, among others, state in
his report whether or not the taxpayer agrees with his findings
that the taxpayer is liable for deficiency tax or taxes. If the
taxpayer is not amenable, based on the said Officer's
submitted report of investigation, the taxpayer shall be
informed, in writing, by the Revenue District Office or by the
Special Investigation Division, as the case may be (in the case
Revenue Regional Offices) or by the Chief of Division concerned (in
the case of the BIR National Office) of the discrepancy or
discrepancies in the taxpayer's payment of his internal
revenue taxes, for the purpose of "Informal Conference," in
order to afford the taxpayer with an opportunity to present
his side of the case. If the taxpayer fails to respond within
Page | 59
fifteen (15) days from date of receipt of the notice for
informal conference, he shall be considered in default, in
which case, the Revenue District Officer or the Chief of the Special
Investigation Division of the Revenue Regional Office, or the Chief
of Division in the National Office, as the case may be, shall
endorse the case with the least possible delay to the Assessment
Division of the Revenue Regional Office or to the Commissioner or
his duly authorized representative, as the case may be, for
appropriate review and issuance of a deficiency tax assessment, if
warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after
review and evaluation by the Assessment Division or by the
Commissioner or his duly authorized representative, as the case
may be, it is determined that there exists sufficient basis to
assess the taxpayer for any deficiency tax or taxes, the said
Office shall issue to the taxpayer, at least by registered
mail, a Preliminary Assessment Notice (PAN) for the
proposed assessment, showing in detail, the facts and the
law, rules and regulations, or jurisprudence on which the
proposed assessment is based (see illustration in ANNEX A
hereof). If the taxpayer fails to respond within fifteen (15)
days from date of receipt of the PAN, he shall be considered
in default, in which case, a formal letter of demand and
assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The
notice for informal conference and the preliminary assessment
notice shall not be required in any of the following cases, in which
case, issuance of the formal assessment notice for the payment of
the taxpayer's deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax
appearing on the face of the tax return filed by the
taxpayer; or
(ii) When a discrepancy has been determined between the
tax withheld and the amount actually remitted by the
withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed
against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not
been paid; or
(v) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt
persons.
3.1.4 Formal Letter of Demand and Assessment Notice.
The formal letter of demand and assessment notice shall be issued
by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayer's
deficiency tax or taxes shall state the facts, the law, rules
and regulations, or jurisprudence on which the assessment
is based, otherwise, the formal letter of demand and
assessment notice shall be void (see illustration in ANNEX B
hereof). The same shall be sent to the taxpayer only by registered
mail or by personal delivery. If sent by personal delivery, the
taxpayer or his duly authorized representative shall acknowledge
receipt thereof in the duplicate copy of the letter of demand,
showing the following: (a) His name; (b) signature; (c)
designation and authority to act for and in behalf of the taxpayer,
if acknowledged received by a person other than the taxpayer
himself; and (d) date of receipt thereof.
3.1.5 Disputed Assessment. The taxpayer or his duly
authorized representative may protest administratively
against the aforesaid formal letter of demand and
assessment notice within thirty (30) days from date of
receipt thereof. If there are several issues involved in the formal
letter of demand and assessment notice but the taxpayer only
disputes or protests against the validity of some of the
issues raised, the taxpayer shall be required to pay the
deficiency tax or taxes attributable to the undisputed
issues, in which case, a collection letter shall be issued to the
taxpayer calling for payment of the said deficiency tax, inclusive of
the applicable surcharge and/or interest. No action shall be
taken on the taxpayer's disputed issues until the taxpayer
Page | 60
has paid the deficiency tax or taxes attributable to the said
undisputed issues. The prescriptive period for assessment
or collection of the tax or taxes attributable to the disputed
issues shall be suspended.
The taxpayer shall state the facts, the applicable law, rules
and regulations, or jurisprudence on which his protest is
based, otherwise, his protest shall be considered void and
without force and effect. If there are several issues involved in
the disputed assessment and the taxpayer fails to state the
facts, the applicable law, rules and regulations, or
jurisprudence in support of his protest against some of the
several issues on which the assessment is based, the same
shall be considered undisputed issue or issues, in which
case, the taxpayer shall be required to pay the
corresponding deficiency tax or taxes attributable thereto.
The taxpayer shall submit the required documents in
support of his protest within sixty (60) days from date of
filing of his letter of protest, otherwise, the assessment
shall become final, executory and demandable. The phrase
"submit the required documents" includes submission or
presentation of the pertinent documents for scrutiny and
evaluation by the Revenue Officer conducting the audit. The said
Revenue Officer shall state this fact in his report of investigation.
If the taxpayer fails to file a valid protest against the formal
letter of demand and assessment notice within thirty (30)
days from date of receipt thereof, the assessment shall
become final, executory and demandable.
If the protest is denied, in whole or in part, by the
Commissioner, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from date of receipt of the
said decision, otherwise, the assessment shall become final,
executory and demandable.
In general, if the protest is denied, in whole or in part, by the
Commissioner or his duly authorized representative, the taxpayer
may appeal to the Court of Tax Appeals within thirty (30) days
from date of receipt of the said decision, otherwise, the
assessment shall become final, executory and demandable:
Provided, however, that if the taxpayer elevates his protest to
the Commissioner within thirty (30) days from date of
receipt of the final decision of the Commissioner's duly
authorized representative, the latter's decision shall not be
considered final, executory and demandable, in which case,
the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized representative
fails to act on the taxpayer's protest within one hundred
eighty (180) days from date of submission, by the taxpayer,
of the required documents in support of his protest, the taxpayer
may appeal to the Court of Tax Appeals within thirty (30)
days from the lapse of the said 180-day period, otherwise,
the assessment shall become final, executory and
demandable.
3.1.6 Administrative Decision on a Disputed Assessment. The
decision of the Commissioner or his duly authorized
representative shall (a) state the facts, the applicable law,
rules and regulations, or jurisprudence on which such
decision is based, otherwise, the decision shall be void (see
illustration in ANNEX C hereof), in which case, the same shall not
be considered a decision on a disputed assessment; and (b) that
the same is his final decision.
3.1.7 Constructive Service. If the notice to the taxpayer
herein required is served by registered mail, and no
response is received from the taxpayer within the
prescribed period from date of the posting thereof in the
mail, the same shall be considered actually or
constructively received by the taxpayer. If the same is
personally served on the taxpayer or his duly authorized
representative who, however, refused to acknowledge receipt
thereof, the same shall be constructively served on the
taxpayer. Constructive service thereof shall be considered
effected by leaving the same in the premises of the taxpayer and
this fact of constructive service is attested to, witnessed and
signed by at least two (2) revenue officers other than the revenue
officer who constructively served the same. The revenue officer
who constructively served the same shall make a written report of
this matter which shall form part of the docket of this case (see
illustration in ANNEX D hereof).
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1. WHAT CONSTITUTE A FINAL DECISION OF
THE CIR ON A DISPUTED ASSESSMENT
CIR V. UNION SHIPPING CORP & CTA
FACTS:
COMMISSIONER assessed against YEE Fong Hong Corp.
and respondent Union shipping the total sun of 580K as
deficiency income tax.
Respondent received by petitioner.
Petitioner without ruling on the protest, issued a warrant of
Distraint and Levy.
Respondent reiterated its request for reinvestigation of the
assessment and for the reconsideration of the summary
collection thru the Warrant of Distraint and Levy.
Petitioner, again, without acting on the request for
reinvestigation and reconsideration of the Warrant of
Distraint and Levy, filed a collection suit.
13 days after the summons was received, respondent filed
with CTA petition for review of the petitioners assessment
of its deficiency income taxes.
Petitioner contends that:
The period to appeal to the CTA commenced to run from
receipt of said Warrant so that when respondent sought
redress from the Tax Court, petitioners decision has long
become final and executor.
CTA: NOT TIME BARRED
ISSUE: WON the respondents appeal with the CTA was
time-barred?
HELD: NO.
The Commissioner not having clearly signified his final
action on the disputed assessment, legally the period to
appeal has not commenced to run.
Thus, it was only when respondent received the summons
the civil suit for collection of deficiency income that the
period to appeal commenced to run.
The request for reinvestigation and reconsideration was in
effect considered denied by the petitioner when the latter
filed a civil suit for collection of deficiency income.
Thus, when respondent filed the appeal with CTA it
consumed a total of only 13 days well within the 30-day
period to appeal.
The commissioner opined that respondent being merely a
husbanding agent is not liable for the payment of the income taxes
due from the foreign ship owners loading cargoes in the
Philippines.
Neither can respondent be liable for withholding tax since it is not
in possession, custody or control of the funds received by and
remitted to Yee Fong Hong.
DISPOSITION: DECISION OF CTA AFFIRMED
SURIGAO ELECTRIC V. CTA
FACTS: Petitioner Surigao received a warrant of distraint and levy
to enforce the collection of a deficiency franchise tax.
The petitioner asked for reconsideration of the assessment,
admitting liability only for the 2% tax franchise tax in
accordance with its legislative franchise and not a higher
rate of 5% imposed by NLRC.
The controversy culminated in a revised assessment dated
April 29, 1963 which was received by petitioner on May 8,
1963.
The petitioner then requested a recomputation of the
revised assessment.
The Commissioner, however, denied the request for
recomputation on June 28, 1963 which was received by
the petitioner on July 16, 1963.
August 1, 1963 petitioner appealed to the CTA. The CTA
dismissed the appeal on the ground that the appeal was
filed beyond the 30-day period of appeal.
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ISSUE: WON the petitioners appeal to the CTA was time-barred?
HELD: YES.
The letter of demand dated April 29, 1963 unquestionably
constitutes the final action taken by the Commissioner on
the petitioners several requests for reconsideration and
recomputation. In this letter, the Commissioner not only in
effect demanded that the petitioner to pay but also gave a
warning that in the event it failed to pay, the said
Commissioner would be constrained to enforce the
collection by means of the remedies provided by law.
The tenor of the letter, especially statement regarding the
resort to legal remedies unmistakably indicates the final
nature of the determination made by the Commissioner of
the petitioners deficiency franchise tax liability.
The following sent by the Commissioner to taxpayers as
embodying rulings appealable to the tax court:
(a) A letter which stated the result of the reinvestigation
requested by the taxpayer and the consequent
modification of the assessment;
(b) A letter which denied the request of the taxpayer for the
reconsideration, cancellation, or withdrawal of the
original assessment;
(c) A letter which contained a demand on the taxpayer fro
the payment of the revised or reduced assessment; and
(d) A letter which notified the taxpayer of a revision of
previous assessment.
The revised assessment dated April 29, 1963 being the final ruling
reviewable by the tax court, the 30-day appeal period should be
counted from May 8, 1963, the day the petitioner received a copy
of the said letter.
The 30-day period to file his appeal is a jurisdictional
requirement, and the failure of a taxpayer to lodge his
appeal within the prescribed period bars his appeal and
renders the questioned decision final and executor.
We deem it appropriate to state that the CIR should always
indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a
taxpayer constitutes his final determination on the disputed
assessment. On the basis of this indicium indubitably
showing that the Commissioners communicated action is
his final decision on the contested assessment, the
aggrieved taxpayer would then be able to take recourse to
the tax court at the opportune time.
DISPOSITION: DECISION AFFIRMED
Teehankee, J. Separate Opinion
since petitioners request for recomputation of the revised
assessment was but a pro forma and did not adduce new facts or
arguments and that a taxpayer may not delay indefinitely a tax
assessment by reiterating his original defenses over and over
again, without substantial variation.
CIR V. ISABELA CULTURAL CORP
FACTS: Commissioner had the preliminary finding that respondent
incurred a total income tax deficiency.
Upon protest by respondent, the said preliminary
assessment was reduced.
Feb. 23, 1990 respondent received from petitioner an
assessment letter demanding payment of the amounts of
deficiency income tax.
March 22, 1990 respondent requested a reconsideration of
the subject assessment.
Feb. 9, 1995 respondent received from petitioner a Final
Notice Before Seizure. In said letter, petitioner demanded
payment of the subject assessment within 10 days from
receipt thereof. Otherwise, failure on its part would
constrain petitioner to collect the subject assessment
through summary remedies.
Respondent considered said final notice of seizure as final
decision. Hence, this petition for review.
CTA dismissed the petition.
Respondent argued that the Final Notice Before Seizure
constitutes its decision on respondents request for
reinvestigation, which the respondent may appeal to the
Page | 63
 CTA. The Notice should be deemed as petitioners last act,
since failure to comply with it would lead to the distraint
and levy of respondents properties.
CA reversed the decision of the CTA. Considered that the final
notice before seizure had effectively denied petitioners request for
a reconsideration of the commissioners assessment, which was
appealable to the CTA.
PETITTIONER CONTENDS THAT the final notice was a
mere reiteration of the delinquent taxpayers obligation to
pay the taxes due. It was a mere demand that should not
have been mistaken for a decision on a protested
assessment.
ISSUES:
WON final notice before constitutes the final decision of the
CIR appealable to the CTA.
HELD: YES
Indisputably, respondent received an assessment letter dated
February 9, 1990, stating that it had delinquent taxes due; and it
subsequently filed its motion for reconsideration on March 23,
1990. In support of its request fro reconsideration, it sent to the
CIR additional documents on April 18, 1990. The next
communication respondent received was already the Final notice
before seizure dated November 10, 1994.
Thus, the final notice before seizure should be considered as
the commissioners decision disposing of the request for
reconsideration. Its content and tenor supported the theory that
it was the CIRs final act regarding the request for reconsideration.
The very title indicated that it was a final notice prior to seizure of
property. The letter itself clearly stated that respondent was being
given this LAST OPPORTUNITY to pay, otherwise, its properties
would be subjected to distraint and levy.
Furthermore, section 228 of the NILRC states that a delinquent
taxpayer may nevertheless directly appeal a disputed
assessment, if its request for reconsideration remains
unacted upon 180 days after submission thereof. In this
case, the said period of 180 days had already lapsed when
respondent filed its request for reconsideration on March 23, 1990,
without any action on the part of the CIR.
Lastly, jurisprudence dictates that a final demand letter for
payment of delinquent taxes may be considered a decision
on a disputed or protested assessment
OCEANIC WIRELESS NETWORK INC. V. CIR, CTA and
CA
FACTS:
Petitioner received from BIR deficiency tax assessment.
Petitioner filed its protest against the tax assessments and
requested a reconsideration.
January 24, 1991, acting in behalf of the BIR
Commissioner, the Chief of the BIR Accounts Receivable
and Billing Division, reiterated the tax assessments while
denying petitioners request for reinvestigation.
Said letter likewise requested petitioner to pay within 10
days from receipt thereof, otherwise warrants of distraint
and levy shall be issued.
Upon petitioners failure to pay the subject tax
assessments within the prescribed period, warrants of
distraint and levy was issued on October 10, 1991.
November 8, 1991, petitioner filed a petition for review
with the CTA.
CTA dismissed for filing it beyond the 30-day period to
appeal reckoned from the time when the demand letter of January
24, 1991 was received by petitioner.
Petitioner filed a MR arguing that the demand letter of Jan. 24,
1990 cannot be considered as the final decision of the CIR on its
protest because the same was signed by a mere subordinate and
not by the Commissioner himself.
CA denied the petition.
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ISSUE: WON a demand letter for tax deficiency assessments
issued and signed by a subordinate officer who was acting in
behalf of the CIR is deemed final and executory and subject to an
appeal of the CTA.
HELD: YES.
A demand letter for payment of delinquent taxes may be
considered a decision on a disputed or protested
assessment. The determination on whether or not a demand
letter is final is conditioned upon the language used or the tenor of
the letter being sent to the taxpayer.
We laid down the rule that the CIR should always indicate
to the taxpayer in clear and unequivocal language what
constitutes his final determination of the disputed
assessment. On the basis of his statement indubitably showing
that the Commissioners communicated action is his final decision
on the contested assessment, the aggrieved taxpayer would then
be able to take recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues.
In this case, the letter of demand dated January 1991,
unquestionably constitutes the final action taken by the BIR
on petitioners request for reconsideration when it
reiterated the tax deficiency assessments due from
petitioner and requested its payment. Failure to do so
would result in the issuance of a warrant of distraint and
levy to enforce its collection without further notice. In
addition, the letter contained a notation indicating that
petitioners request for reconsideration had been denied for
lack of supporting documents.
The demand letter received by petitioner signified a
character of finality. Therefore, it was tantamount to a
rejection of the request for reconsideration.
Regarding the matter as to whether said demand letter indeed
attained finality despite the fact that it was issued and signed by
the Chief of Accounts Receivable and Billing Division instead of the
BIR Commissioner.
The authority to make tax assessments may be delegated to
subordinate officers. Said assessment has the same force and
effect as that issued by the Commissioner himself, if not reviewed
or revised by the latter such as in this case.
A request for reconsideration must be made within 30 days
from the taxpayers receipt of the tax deficiency
assessment, otherwise, the decision becomes final,
unappealable and demandable and cannot be contested.
Here, petitioner failed to avail of its right to bring the matter
before the CTA within the reglementary period upon the receipt of
the demand letter reiterating the assessed delinquent taxes and
denying its request for reconsideration which constituted the final
determination by the BIR on petitioners protest. Being a final
disposition by said agency, the same would have been a proper
subject for appeal to the CTA.
For the CTA to acquire jurisdiction, an assessment must first be
disputed by the taxpayer and ruled upon by the CIR to warrant a
decision from which a petition fro review may be taken to CTA.
Where an adverse ruling has been rendered by the CIR with
reference to a disputed assessment or a claim for refund or credit,
the taxpayer may appeal the same within 30 days after receipt
thereof
2. RIGHT TO BE INFORMED IN WRITING
CIR V. ENRON SUBIC POWER CORP.
FACTS:
ENRON filed its annual income tax return where he
indicated a net loss.
Subsequently, the BIR through a preliminary 5-day
letter, informed it of a proposed assessment of an alleged
deficiency income tax. Enron disputed the proposed
deficiency assessment in its first protest letter.
Enron then received from the CIR a formal assessment
notice requiring it to pay the alleged deficiency income tax.
Enron protested this deficiency tax assessment.
Page | 65
 Due to the non-resolution of its protest within the 180-day
period, Enron filed a petition for review in the CTA. It
argued that the deficiency tax assessment disregarded the
provisions of sec. 228 of the NIRC and RR 12-99 by not
providing the legal and factual bases of the assessment.
CTA granted Enrons petition and ordered the cancellation of its
deficiency tax assessment reasoning that the assessment notice
failed to comply with the requirements of a valid written notice
under sec. 228 and RR 12-99.
CA affirmed
CIR insists that an examination of the facts shows that Enron
was properly apprised of its tax deficiency by informing it of the
proposed tax deficiency tax assessment thru a preliminary 5-day
letter and furnished Enron a copy of the audit working paper
allegedly showing in detail the legal and factual bases of the CIR
argues that these steps sufficed to inform Enron of the laws and
facts on which the deficiency tax assessments was based.
HELD:
A taxpayer must be informed in writing of the legal and
factual bases of the tax assessment made against him.
In this case, the CIR merely issued a formal assessment
and indicated therein the supposed tax, surcharge, interest
and compromise penalty due thereon. The revenue officers of
the CIR in the issuance of the Final Assessment Notice did not
provide Enron with the written bases of the law and facts on which
the subject assessment is based.
The CIR did not bother to explain how it arrived at such an
assessment. CIR (Moreso) failed to mention the specific provision
of the Tax Code or rules and regulations which were not complied
with by Enron.
The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary 5-day letter, were not valid
substitutes for the mandatory notice in writing of the legal and
factual bases of the assessment.
These steps were mere perfunctory discharges of the CIRs duties
in correctly assessing a taxpayer. The requirement for issuing a
preliminary or final notice, as the case may be, informing a
taxpayer of the existence of a deficiency tax assessment in
markedly different from the requirement of what such notice must
contain. Just because the CIR issued an advice, a preliminary
letter during the pre-assessment stage and a final notice, in the
order required by law, does not necessarily mean that Enron was
informed of the law and facts on which the deficiency tax
assessment was based.
In view of the absence of a fair opportunity for Enron to be
informed of the legal and factual bases of the assessment
against it, the assessment in question was void.
This is in keeping with the constitutional principle that no
person shall be deprived of property without due process.
Such collection should be made in accordance with law as any
arbitrariness will negate the very reason for the Government itself.
B. RECOVERY OF TAX ERRONEOUSLY OR
ILLEGALLY PAID
SEC. 204. Authority of the Commissioner to Compromise,
Abate and Refund or Credit Taxes. - The Commissioner may
(C) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused
stamps that have been rendered unfit for use and refund their
value upon proof of destruction.
No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a
written claim for credit or refund.
Page | 66

A Tax Credit Certificate validly issued under the provisions of
this Code may be applied against any internal revenue tax,
excluding withholding taxes, for which the taxpayer is
directly liable. Any request for conversion into refund of
unutilized tax credits may be allowed, subject to the provisions of
Section 230 of this Code: Provided, That the original copy of the
Tax Credit Certificate showing a creditable balance is
surrendered to the appropriate revenue officer for
verification and cancellation: Provided, further, That in no
case shall a tax refund be given resulting from availment of
incentives granted pursuant to special laws for which no
actual payment was made.
The Commissioner shall submit to the Chairmen of the
Committee on Ways and Means of both the Senate and House of
Representatives, every six (6) months, a report on the exercise
of his powers under this Section, stating therein the following
facts and information, among others: names and addresses of
taxpayers whose cases have been the subject of abatement
or compromise; amount involved; amount compromised or
abated; and reasons for the exercise of power: Provided,
That the said report shall be presented to the Oversight Committee
in Congress that shall be constituted to determine that said powers
are reasonably exercised and that the government is not unduly
deprived of revenues.
SEC. 229. Recovery of Tax Erroneously or Illegally
Collected. - no suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been
excessively or in any manner wrongfully collected without
authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after
the expiration of two (2) years from the date of payment of
the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears
clearly to have been erroneously paid.
1. FILING OF REFUND
CIR V. ACOSTA
FACTS:
Respondent is an employee of Intel Manufacturing and for
the period of Jan. 1996 Dec. 1996, respondent was
assigned in a foreign country.
During that period, Intel withheld the taxes due on
respondents compensation income and remitted to the
BIR.
In March 1997, respondent and her husband filed with the
BIR their joint individual Income Tax Return for the year
1996.
Later, in June 1997, respondent filed an amended return
and a Non-resident Citizen Income Tax Return.
October 1997, she filed another amended return indicating
an overpayment.
Claiming that the income taxes withheld and paid by Intel
and respondent resulted in an overpayment, respondent
filed a petition for review with the CTA.
The CIR moved to dismiss the petition for failure of the
respondent to file a mandatory written claim for refund
before the CIR.
CTA dismissed respondents petition. It held that respondent
failed to file a written claim for refund with the CIR, a condition
precedent to the filing of a petition for review before the CTA.
CA reversed CTA ruling that respondents filing an amended return
indicating an overpayment was sufficient compliance with the
requirement of a written claim for refund.
Page | 67
Petitioners avers that an amended return showing an
overpayment does not constitute the written claim for refund
required under the old tax code. He claims that an actual written
claim for refund is necessary before a suit for its recovery may
proceed in any court.
Respondent contends that the filing of an amended return
indicating overpayment constitutes a written claim for refund
pursuant to the clear provision stated in the last sentence of sec.
204 (c) of the 1997 NILRC.
ISSUE:
1. Does the amended return filed by respondent
indicating overpayment constitute the written claim
for refund required by law?
2. Can the 1997 NLRC be applied retroactively?
HELD:
The applicable law on refund pertaining to the 1996 compensation
income is the old tax code. The requirements under the old tax
code for claims are as follows:
a) A written claim for refund or tax credit must be filed by the
taxpayer with the Commissioner;
b) The claim for refund must be a categorical demand for
reimbursement;
c) The claim for refund or tax credit must be filed, or the suit
or proceeding therefore must be commenced in court
within 2 years from the date of payment of the tax or
penalty regardless of any supervening cause.
The law is clear. A claimant must first file a written claim for
refund, categorically demanding recovery of overpaid taxes
with the CIR, before resorting to an action in court this
obviously is intended, first, to afford the CIR an opportunity
to correct the action of subordinate officers; and second, to
notify the government that such taxes have been
questioned, and the notice should then be borne in mind in
estimating the revenue available for expenditure.
1. NO.
Entrenched in our jurisprudence is the principle that tax
refunds are in the nature of tax exemptions which are
construed strictissimi juris against the tax payer and
liberally in favor of the government.
A tax refunds involve a return of revenue from the government,
the claimant must show indubitably the specific provision of law
from which her right arises; it cannot be allowed to exist upon a
mere vague implication or inference nor can it be extended beyond
the ordinary and reasonable intendment of the language actually
used by the legislature in granting the refund.
We cannot agree that the amended return filed by
respondent constitutes the written claim for refund
required by the old tax code.
2. NO.
Tax laws are prospective in operation, unless the language
of the statute clearly provides otherwise.
Note that the issue on the retroactivity of sec. 204 (c) of the 1997
NIRC arose because the last paragraph of sec. 204 (c) was not
found in sec. 230 of the Old Code.
A party seeking an administrative remedy must not merely initiate
the prescribed administrative procedure to obtain relief, but also
pursue it to its appropriate conclusion before seeking judicial
intervention in order to give the administrative agency an
opportunity to decide the matter itself correctly and prevent
unnecessary and premature resort to court action.
It could not escape notice that at the time respondent filed
her amended return, the 1997 NIRC was not yet in effect.
Hence, respondent had no reason at that time to think that
the filing of an amended return would constitute the written
claim fro refund required by applicable law.
Page | 68
We cannot agree with the CA finding that the nature of the instant
case calls for the application of remedial laws. Revenue statutes
are substantive laws and in no sense must their application
be equated with that of remedial laws. Revenue laws are not
intended to be liberally construed. Tax laws must be faithfully and
strictly implemented.
2. ALTERNATIVE REMEDIES
DR. FELISA VDA DE SAN AGUSTIN V. CIR
FACTS: Petitioner received a pre-assessment notice from the BIR
showing a deficiency estate tax including surcharge, interest and
penalties.
Within the 10-day period given in the pre-assessment
notice, the executor filed a letter with the petitioner
Commissioner expressing readiness to pay the basic
deficiency estate tax (500k) as soon as the RTC approves
withdrawal of that sum from the estate but requesting that
the surcharge, interest, and other penalties be waived.
However, petitioner received from the commissioner
Assessment Notice insisting payment of the tax due on or
before 30 days upon receipt thereof.
The executor requested the reconsideration of the
assessment and waiver of the surcharge.
The request for reconsideration was not acted upon and
the executor received a letter stating that there is no legal
justification for the waiver of the interests, surcharge and
compromise penalty and requiring full payment of such
charges within 10 days from receipt thereof.
The petitioner estate paid the amount said charges under
protest.
A petition for review was filed by the executor with the
CTA praying that the Commissioners decision be reversed
and that a refund of the paid charges be ordered.
The Commissioner opposed the said petition, alleging that
the CTAs jurisdiction was not properly invoked inasmuch
as no claim fro a tax refund of the deficiency tax collected
was filed with the BIR before the petition was filed in
violation of sec. 204 & 230 of NIRC. Moreover, there is no
statutory basis for the refund of the deficiency surcharges,
interests and penalties charged by the Commissioner upon
the estate of the decedent.
CTA ordered the reimbursement.
CA held that CTA did not acquire jurisdiction over the subject
matter and that, accordingly, its decision was null and void.
ISSUE: WON the filing of a claim for refund is essential before the
filing of the petition for review.
HELD:
The case has a striking resemblance to the controversy in Roman
Catholic V. CIR. The petitioner in that case paid under protest
certain amount by way of income tax, surcharge and interest and
then filed a petition for review before the CTA.
Then CIR set up several defenses, one of which was that petitioner
had failed to first file a written claim for refund of the amounts
paid.
Convinced that the lack of a written claim for refund was fatal to
petitioners recourse to it, the CTA dismissed the petition fro lack
of jurisdiction.
On appeal to this court, the tax courts ruling was reversed; the
court held: we agree with petitioner that sec. 7 of RA 1125,
creating the CTA in providing fro appeals from allows an appeal
from a decision of the Collector in cases involving disputed
assessments as distinguished from cases involving refunds of
internal revenue taxes, fees or other charges, that the present
action involves a disputed assessment; because from the time
petitioner received assessment disallowing certain deductions
claimed by him in his income tax returns, he already protested and
refused to pay the same, questioning the correctness and legality
of such assessments; and that the petitioner paid the disputed
assessments under protest before filing his petition for review with
the court a quo, only to forestall the sale of his properties that had
been placed under distraint by the respondent Collector.
To hold that the taxpayer has now lost the right to appeal
from the ruling on the disputed assessment but must
Page | 69
prosecute his appeal under section 306 of the Tax Code,
which requires a taxpayer to file a claim for refund of the
taxes paid as a condition precedent to his right to appeal,
would in effect require of him to go through a useless and
needless ceremony that would only delay the disposition of
the case, for the Collector (now Commissioner) would
certainly disallow the claim for refund in the same way as
he disallowed the protest against the assessment.
The law, should not be interpreted as to result in absurdities. The
Court sees no cogent reason to abandon the above dictum and to
require a useless formality that can serve the interest of neither
the government nor the taxpayer. The tax court has aptly acted in
taking cognizance of the taxpayers appeal to it.
3. COUNTING OF 2-YEAR PRESCRIPTIVE PERIOD TO
CLAIM FOR REFUND
BPI V. CIR
FACTS:
Prior to its merger with petitioner BPI, on July 1, 1985
FBTC earned income consisting of rentals from its leased
properties and interest from its treasury notes from Jan. 1
to Jan. 30, 1985.
FBTC remitted to CIR the creditable withholding taxes.
FBTC however, suffered a net loss during the period in
question.
It also had an excess credit from the previous year.
Thus, upon its dissolution, FBTC had a refundable amount
representing that years tax credit of 174K and the
previous years excess credit of 2M.
BPI as successor in interest, claimed tax refund but CIR
refunded only the tax credit of the previous year leaving a
balance of 174K.
Petitioner filed a petition for review in the CTA seeking the
refund of the said amount.
CTA denied its claim for refund on the ground that the claim had
already prescribed. It ruled that the prescriptive period should be
counted 30 days after the approval by the SEC of the plan of
dissolution in view of sec. 78 of the NIRC. Where one corporation
succeeds another both are separate entities and the income
earned by the predecessor corporation before organization of its
successor is not income to the successor. That FBTC after the end
of its corporate life should have filed its income tax return within
30 days after the cessation of its business or 30 days after the
approval of merger.
CA affirmed the decision of the CTA.
ISSUE:
WON petitioners claim is barred by prescription?
When is the 2-year period of prescription started to run?
HELD:
In case of the dissolution of a corporation, the period of
prescription should be reckoned from the date of filing of
the return required by sec. 78 of the Tax Code. Accordingly,
we hold that petitioners claim for refund is barred by prescription.
Generally speaking, it is the Final Adjustment Return, in which
amounts of the gross receipts and deductions have been audited
and adjusted, which is reflective of the results of the operations of
a business enterprise. It is only when the return, covering the
whole year, is filed that the taxpayer will be able to
ascertain whether a tax is still due or a refund can be
claimed based on the adjusted and audited figures. Hence,
this Court has ruled that at the earliest, the two-year
prescriptive period for claiming a refund commences to run
on the date of filing of the adjusted final tax return.
Sec. 46 (a) applies only to instances in which the
corporation remains subsisting and its business operations
are continuing.
As FBTC did not file its quarterly income tax returns for the
year 1985, there was no need for it to file a Final
adjustment Return because there was nothing for it to
adjust or to audit. After it ceased operations on June 30, 1985,
its taxable year was shortened to six months, from January 1,
1985 to June 30, 1985. The situation of FBTC is precisely what was
contemplated under 78 of the Tax Code. It thus became
necessary for FBTC to file its income tax return within 30
days after approval by the SEC of its plan or resolution of
Page | 70
dissolution. Indeed, it would be absurd for FBTC to wait until the
fifteenth day of April, or almost 10 months after it ceased its
operations, before filing its income tax return.
Petitioner contends that it is not feasible for the certified
public accountants to complete their report and audited
financial statements, which are required to be submitted
together with the plan of dissolution to the SEC, within the period
contemplated by 78. It maintains that, in turn, the SEC would
not have sufficient time to process the papers considering
that 78 also requires the submission of a tax clearance
certificate before the SEC, can approve the plan of
dissolution.
Petitioner could have asked for an extension of time to file its
income tax return under 47 of the NIRC.
Any corporation contemplating dissolution must submit tax return
on the income earned by it from the beginning of the year up to
the date of its dissolution or retirement and pay the corresponding
tax due upon demand by the Commissioner of Internal Revenue.
Nothing in 78 of the Tax Code limited the return to be filed by the
corporation concerned to a mere information return.
Considering that 78 of the Tax Code, in relation to 244 of
Revenue Regulation No. 2, applies to FBTC, the two-year
prescriptive period should be counted from July 30, 1985,
i.e., 30 days after the approval by the SEC of its plan for
dissolution. In accordance with 292 of the Tax Code, July 30,
1985 should be considered the date of payment by FBTC of the
taxes withheld on the earned income. Consequently, the two-
year period of prescription ended on July 30, 1987. As
petitioners claim for tax refund before the Court of Tax Appeals
was filed only on December 29, 1987, it is clear that the claim is
barred by prescription.
CIR V. CA, CTA AND BPI AS LIQUIDATOR
FACTS: BPI acts as liquidator of Paramount corporation. April 2,
1986, Paramount filed its corporate annual income tax return and
paid the BIR its quarterly income tax.
After deducting Paramounts total quarterly income tax
payments from its income tax, the return showed a
refundable amount.
BPI filed a letter reiterating its claim for refund. And on the
following day or on April 15, 1988, BPI filed the petition to
toll the running of the prescriptive period for filing a claim
for refund of overpaid income taxes.
CTA ruled that the 2-year period of prescription to have
commenced to run from April 15, 1986, the last day for filing the
corporate income tax return, and, since the claim for refund was
filed on April 14, 1988 and the action was brought on April 15,
1988, it held that prescription had not set in.
CA affirmed the CTAs decision.
Petitioner contends that the two-year prescriptive period
should be computed from April 2, 1984, when the final
adjustment return was actually filed, because that is the
time of payment of the tax, within the meaning of 230 of the
NIRC.
ISSUE:
WHETHER the 2-year period of prescription for filing a claim
for refund is to be counted from the time the corporate
income tax was filed or from the final adjustment return
could still be filed without incurring any penalty
HELD: FROM THE FILING OF FINAL ADJUSTMENT RETURN.
It can be deduced from the foregoing that, in the contest of 230,
which provides for a two-year period of prescription counted "from
the date of payment of the tax" for actions for refund of corporate
income tax, the two-year period should be computed from
the time of actual filing of the Adjustment Return or Annual
Income Tax Return. This is so because at that point, it can
already be determined whether there has been an
overpayment by the taxpayer. Moreover, under 49(a) of the
NIRC, payment is made at the time the return is filed.
In the case at bar, Paramount filed its corporate annual
income tax return on April 2, 1986. However, private
Page | 71
respondent BPI, as liquidator of Paramount, filed a written
claim for refund only on April 14, 1988 and a petition for
refund only on April 15, 1988. Both claim and action for
refund were thus barred by prescription.
GIBBS V. CIR
FACTS: CIR issued against the petitioners deficiency income tax
assessment notice with the demand that the said amount should
be paid on or before March 15, 1956.
Allusion signing as attorney-in-fact acknowledged receipt
of the above assessment.
In the same letter, Allison questioned the disallowance of
the items which gave rise to the deficiency assessment
and requested for a correction of it.
CIR denied said request and instead requested to pay the
deficiency tax within 10 days from receipt of the order.
Having deemed the above reply as the final decision of the
CIR, Allison wrote CIR and sent a check to cover the
deficiency assessment and at the same time demanded the
refund of the same.
Oct. 26, 1956 CIR denied the said refund.
Said letter denying the refund was received by Allison on
November 14, 1956.
Sept. 29, 2958, Allison wrote another letter to CIR
reiterating its demand for refund.
CIR never replied to this letter.
Oct. 1, 1958, the petitioners filed a petition for review and
refund of income tax.
CIR contends that petition for review praying for the credit of said
amounts was filed beyond the 2-year prescriptive period, hence
the court lost its jurisdiction.
CTA ruled in favor of the CIR.
PETITIONER CONTENDS THAT CTA erred in ruling that their
petition for review was filed outside the 30-day period because
there is neither evidence nor record that the petitioner received a
copy of the letter denying their claim for refund and the aforesaid
letter is not a denial of their claim for refund.
Petitioners also contends that the statute of limitation of two years
prescribed in Section 306 of the NIRC does not start to run until
respondent Commissioner has acted on the claim for refund
or credit by the non-resident taxpayer and so notified the
taxpayer because until then the withholding tax cannot be
treated as a payment by the alien-resident taxpayer; until
then it is a mere deposit held by respondent Commissioner for the
account of the non-resident alien taxpayer.
HELD:
ALLISON, signing as attorney-in-fact, acknowledged fro petitioners
receipt of the deficient income tax assessment; formally protested
the same in writing, paid the assessment and likewise formally
demanded in writing its refund.
Besides, in one of his letters to the CIR, he stated that if his
demand for refund was not effected, he would collect from the said
respondent certain charges including certain charges including
attorneys fees.
The foregoing circumstances show that Allison acted not
merely as an agent or attorney-in-fact but as their legal
counsel.
The receipt therefore by Allison of the CIRs decision
denying the claim fro refund was receipt of the same by the
petitioners, and the 30-day prescriptive period fro the filing
of a petition fro review should be computed from the date
of such receipt.
Parenthetically, it may be observed, that in view of our finding
that the respondent court had no jurisdiction over the
petition for review because it was filed beyond the 30-day
period, hence, there is no need for extensive discussion of
the second issue, namely: Whether the withholding tax
credits amount to payment for the purpose of determining
the two-year period as provided for by Section 306 of the
Internal Revenue Code.
A taxpayer, resident or non-resident, who contributes to the
withholding tax system, does so not really to deposit an
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amount to the Commissioner of Internal Revenue, but, in
truth, to perform and extinguish his tax obligation for the
year concerned. In other words, he is paying his tax
liabilities for that year. Consequently, a taxpayer whose income
is withheld at the source will be deemed to have paid his tax
liability when the same falls due at the end of the tax year. It is
from this latter date then, or when the tax liability falls due, that
the two-year prescriptive period under Section 306 of the Revenue
Code starts to run with respect to payments effected through the
withholding tax system. It is of no consequence whatever that a
claim for refund or credit against the amount withheld at the
source may have been presented and may have remained
unresolved since the delay of the CIR rendering decision does not
extend the peremptory period fixed by the statute.
GIBBS V. COLLECTOR
FACTS:
Petitioners protested the deficiency income tax assessment
issued by CIR on the ground that said deficiency
assessment was based on a disallowance of bad debts and
losses claimed in their income tax return.
CIR rejected petitioners protest and reiterated his
demand.
Petitioners then sent a check to CIR as payment of said
deficiency assessment and at the same time demanding
the immediate refund of the amount paid.
CIR denied the request for refund. Notice of said denial
was received by petitioners on Nov. 14, 1956.
Sept. 27, 1957, petitioners filed a petition for review and
refund.
CIR filed a motion to dismiss on the ground that the
petition was filed beyond the 30-day period.
CTA dismissed the petition for having filed it more than 10
months .
ISSUE:
WON the petitioners appeal for review and refund from the
decision of the CIR was filed with CTA within the statutory
period?
HELD: NO
It is not disputed that petitioners received on November 14, 1956,
notice of respondent Collector's decision denying their request for
a refund of the deficiency assessment paid by them. Pursuant to
the above-quoted provision of Section 11 of Republic Act 1125,
they had 30 days from said date within which to file their appeal
(petition for review and refund) with respondent court. However,
they filed said appeal only on September 27, 1957, or more
than ten (10) months thereafter, much beyond the
aforementioned 30-day period within which to file the
same. Consequently, respondent court had acquired no
jurisdiction to entertain said appeal and the dismissal of the same
was proper.
Any person adversely affected by a decision or ruling of the CIR,
may file an appeal in the CTA within 30 days after the receipt of
such decision or ruling. In this case, petitioner had filed their
appeal beyond the 30-day period, the respondent CTA had
acquired no jurisdiction to entertain said appeal, and the dismissal
of the same was proper.
A taxpayer who has paid the tax, whether under protest or
not, and who is claiming a refund of the same, must comply
with the requirements of both sections, that is, he must file
a claim for refund with the Collector of Internal Revenue
within 2 years from the date of his payment of the tax, as
required by said Section 306 of the National Internal
Revenue Code, and appeal to the Court of Tax Appeals
within 30 days from receipt of the Collector's decision or
ruling denying his claim for refund, as required by said
Section 11 of Republic Act No. 1125. If, however, the
Collector takes time in deciding the claim, and the period of
two years is about to end, the suit or proceeding must be
started in the Court of Tax Appeals before the end of the
two-year period without awaiting the decision of the
Collector. This is so because of the positive requirement of
Section 306 and the doctrine that delay of the Collector in
rendering decision does not extend the peremptory period
fixed by the statute.
In the case of a taxpayer who has not yet paid the tax and who is
protesting the assessment made by the Collector of Internal
Revenue, he must file his appeal with the Court of Tax Appeals
Page | 73
within 30 days from his receipt of the Collector's assessment, as
required by said Section 11 of Republic Act No. 1125. Otherwise,
his failure to comply with said statutory requirement would bar his
appeal and deprive the Court of Tax Appeals of its jurisdiction to
entertain or determine the same.
Appellants contend that under the above-quoted provisions, only
the Collector has the authority to deal in refund cases. This is
fallacious. In the first place, the cited provisions refer to the
authority of the Collector of Internal Revenue to compromise, or to
credit or refund taxes erroneously or illegally received, that is,
when the action, in a manner of speaking, is against the
Government. In such case, the authority is vested exclusively
in the Collector himself. The purpose is to assure that no
improper compromise, credit, or refund is made to the prejudice of
the Government. But in the case before us, the action taken by
the Deputy Collector in his letter of October 26, 1956, was
precisely to deny the request for refund and demand the
payment of the deficiency tax from petitioners. Certainly,
this is well within the authority of the Deputy Collector and
is final and binding unless revoked by the Collector.
CIR AND PARCERO V. PRIMETOWN PROPERTY GROUP
FACTS:
March 11, 1999, Yap applied for the refund or credit of
income tax which the respondent paid.
He explained that the increase in the cost of labor and
materials and difficulty in obtaining financing for projects
and collecting receivables caused the real estate industry
to slowdown.
According to yap, because respondent suffered losses, it
was not liable for income taxes.
Nevertheless, respondent paid its quarterly income tax and
remitted creditable withholding tax from real estate sales
to the BIR. Therefore, respondent was entitled to tax
refund or tax credit.
Revenue officer required respondent to submit additional
documents to support its claim. Respondent complied but
its claim was not acted upon. Thus, respondent filed a
petition for review in the CTA.
CTA dismissed the petition as it was filed beyond the 2-year
prescriptive period for filing a judicial claim for tax refund or tax
credit.
CTA found that respondent filed its final adjusted return on April
14, 1998. Thus, its right to claim a refund or credit commenced
on that date.
That the 2-year prescriptive period was equivalent to 730 days and
because the year 2000 was a leap year, respondents petition,
which was filed 731 days after respondent filed its final adjusted
return, was filed beyond the reglementary period.
CA reversed the decision of the CTA. It ruled that civil code did
not extinguish between a regular year and a leap year.
Petitioner contends that tax refunds being in the nature of an
exemption should be strictly construed against claimants and that
prescriptive period begins to run on the day claimants file their
final adjusted returns. Hence the claim should have been filed on
or before April 13, 2000 or within the 730 days, reckoned from the
time respondent files its final adjusted return.
ISSUE: How should the two-year prescriptive period be
computed?
HELD:
As already quoted, Article 13 of the Civil Code provides that
when the law speaks of a year, it is understood to be
equivalent to 365 days. In National Marketing Corporation v.
Tecson, we ruled that a year is equivalent to 365 days
regardless of whether it is a regular year or a leap year.
A calendar month is a month designated in the calendar without
regard to the number of days it may contain.[28] It is the
period of time running from the beginning of a certain numbered
day up to, but not including, the corresponding numbered day of
the next month, and if there is not a sufficient number of days in
the next month, then up to and including the last day of that
month.[29] To illustrate, one calendar month from December 31,
Page | 74
2007 will be from January 1, 2008 to January 31, 2008; one
calendar month from January 31, 2008 will be from February 1,
2008 until February 29, 2008.
Both Article 13 of the Civil Code and Section 31, Chapter VIII,
Book I of the Administrative Code of 1987 deal with the same
subject matter the computation of legal periods. Under the
Civil Code, a year is equivalent to 365 days whether it be a
regular year or a leap year. Under the Administrative Code of
1987, however, a year is composed of 12 calendar months.
Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant.
There obviously exists a manifest incompatibility in the
manner of computing legal periods under the Civil Code and the
Administrative Code of 1987. For this reason, we hold that
Section 31, Chapter VIII, Book I of the Administrative Code
of 1987, being the more recent law, governs the
computation of legal periods. Lex posteriori derogat priori.
ATLAS CONSOLIDATED V. CIR
FACTS: Atlas Consolidated is a zero-rated VAT person for being an
exporter of copper concentrates.
On January 1994, Atlas filed its VAT return for the fourth
quarter of 1993, showing a total input tax and an excess
VAT credit.
Then, on January 1996, Atlas filed for a tax refund or tax
credit certificate with CIR. However, the CTA denied Atlas
claim for refund due to Atlas failure to comply with the
documentary requirements prescribed under Sec. 16 of RR
No. 5-87, as amended by RR No. 3-88.
CTA denied Atlas MR stating that Atlas has failed to
substantiate its claim that it has not applied its alleged
excess in put taxes to any of its subsequent quarters
output tax liability.
The CA affirmed CTAs ruling.
ISSUE:
What are the documents required to claim for VAT input refund?
W/N Atlas is entitled to claim to a tax refund.
RULING:
When claiming tax refund/credit, the VAT-registered taxpayer
must be able to establish that it does not have refundable or
creditable input VAT, and the same has not been applied against
its output VAT liabilities information which are supposed to be
reflected in the taxpayers VAT returns.
Thus, an application for tax refund/credit must be accompanied by
copies of the taxpayers VAT return/s for the taxable quarter/s
concerned. The formal offer of evidence of Atlas failed to include
photocopy of its export documents, as required. Without the
export documents, the purchase invoice/receipts submitted by
Atlas as proof of its input taxes cannot be verified as being directly
attributable to the goods so exported.
Atlas claim for credit or refund of input taxes cannot be granted
due to its failure to show convincingly that the same has not been
applied to any of its output tax liability as provided under
Sec.106(a) of the Tax Code. National Internal Revenue Code;
value-added tax; claim for creditor refund of input value-added
tax; documentary requirements.
When claiming tax refund or credit, the value-added taxpayer
must be able to establish that it does have refundable or creditable
input value-added tax (VAT), and the same has not been applied
against its output VAT liabilities-information which are supposed to
be reflected in the taxpayers VAT returns.
Thus, an application for tax refund or credit must be accompanied
by copies of the taxpayers VAT return or returns for taxable
quarter or quarters concerned.
Atlas Consolidated Mining and Development Corporation vs
Commissioner of Internal Revenue, G.R. No. 159471, January 26,
2011. In the recent case of Mirant Pagbilao Corporation V. CIR
(G.R. No. 172129, September 12, 2008) , the Supreme Court had
ruled that the claim for refund of unutilized input VAT payments
Page | 75
must be filed within two (2) years from the close of the taxable
quarter when the relevant sales were made.
Said ruling, however, should not be made to apply to the present
case but should be applied prospectively pursuant to and
consistent with the numerous rulings of the Supreme Court, given
that petitioner Kepco's claim involves unutilized input taxes for
the3rd quarter of 2000. Hence, the prescriptive period applicable
in the instant case would still be the period enunciated in the case
of Atlas Consolidated Mining and Development Corporation V.
CIR(G.R. Nos. 141104 & 148763, June 8, 2007), where it was held
that the counting of the two-year prescriptive period is reckoned
from the filing of the quarterly VAT returns. Kepco Ilijan
Corporation v. Commissioner of Internal Revenue, C.T.A. E.B.Case
No. 528 (C.T.A. Case No. 6550), October 14, 20
4. RELIANCE ON AN ADMINISTRATIVE ISSUANCE
PBCOM V. CIR, CTA & CA
FACTS:
Petitioner PBCom filed its first and second quarter income tax
returns, reported profits, and paid income taxes amounting to
P5.2M in 1985. However, at the end of the year PBCom suffered
losses so that when it filed its Annual Income Tax Returns for the
year-ended December 31, 1986, the petitioner likewise reported a
net loss of P14.1 M, and thus declared no tax payable for the year.
In 1988, the bank requested from CIR for a tax credit and tax
refunds representing overpayment of taxes. Pending investigation
of the respondent CIR, petitioner instituted a Petition for Review
before the Court of Tax Appeals (CTA). CTA denied its petition for
tax credit and refund for failing to file within the prescriptive period
to which the petitioner belies arguing the Revenue Circular No.7-
85 issued by the CIR itself states that claim for overpaid taxes are
not covered by the two-year prescriptive period mandated under
the Tax Code.
ISSUE: Is the contention of the petitioner correct? Is the
revenue circular a valid exemption to the NIRC?
HELD: No.
The rule states that the taxpayer may file a claim for refund or
credit with the Commissioner of Internal Revenue, within two (2)
years after payment of tax, before any suit in CTA is commenced.
The two-year prescriptive period provided, should be computed
from the time of filing the Adjustment Return and final payment of
the tax for the year.
Basic is the principle that taxes are the lifeblood of the nation.
Due process of law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so because it is
upon taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost importance
that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible.
From the same perspective, claims for refund or tax credit should
be exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should
not be unduly delayed or hampered by incidental matters.
Any excess of the total quarterly payments over the actual income
tax computed in the adjustment or final corporate income tax
return, shall either (a) be refunded to the corporation, or (b) may
be credited against the estimated quarterly income tax liabilities
for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment
return (by marking the option box provided in the BIR form) its
intention, whether to request for a refund or claim for an
automatic tax credit for the succeeding taxable year. To ease the
administration of tax collection, these remedies are in the
alternative, and the choice of one precludes the other.
A memorandum-circular of a bureau head could not operate to
vest a taxpayer with shield against judicial action. For there are no
vested rights to speak of respecting a wrong construction of the
law by the administrative officials and such wrong interpretation
could not place the Government in estoppel to correct or overrule
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the same [Tan Guan V. Court of Tax Appeals, 19 SCRA 903
(1967)].
5. BASIS OF FILING REFUND: QUARTERLY OR FINAL
RETURNS?
CITIBANK NA V. CA
FACTS: From the pleadings and supporting papers on hand, it can
be gathered that Citibank N.A. Philippine Branch (CITIBANK) is a
foreign corporation doing business in the Philippines. In 1979 and
1980, its tenants withheld and paid to the Bureau of Internal
Revenue the following taxes on rents due to Citibank, pursuant to
Section 1(c) of the Expanded Withholding Tax Regulations
(BIR Revenue Regulations No. 13-78, as amended) On April 15,
1980, Citibank filed its corporate income tax returns for the year
ended December 31, 1979, showing a net loss of P74,854,916.00
and its tax credits totalled P6,257,780.00, even without including
the amounts withheld on rental income under the Expanded
Withholding Tax System, the same not having been utilized or
applied for the reason that the year's operation resulted in a loss.
The taxes thus withheld by the tenants from rentals paid to
Citibank in 1979 were not included as tax credits although a rental
income amounting to P7,796,811.00 was included in its income
declared for the year ended December 31, 1979.
For the year ended December 31, 1980, Citibank's corporate
income tax returns, filed on April 15, 1981, showed a net loss of
P77,071,790.00 for income tax purposes. Its available tax credit
(refundable) at the end of 1980amounting to P11,532,855.00 was
not utilized or applied. The said available tax credits did not
include the amounts withheld by Citibank's tenants from rental
payments in 1980 but the rental payments for that year were
declared as part of its gross income included in its annual income
tax returns.
ISSUE
First Issue : Determination of the Illegality or Error in
Assessment or Collection
Second Issue : Onus of Disputing a Claim for Refund
The appellate court ruled that it was not enough for petitioner to
show its lack of income tax liability against which the five percent
withholding tax could be credited. Petitioner should have also
shown that the withholding tax was illegally or erroneously
collected and remitted by the tenants. On the other hand,
petitioner counters that Respondent Court failed to grasp "two
fundamental concepts in the present income tax system, namely:
(1) the yearly computation of the corporate income tax and (2) the
nature of the creditable withholding tax."
In the main, petitioner thus raises the following issues: (1) for
creditable withholding tax to be refundable, when should the
illegality or error in its assessment or collection be reckoned: at
the time of withholding or at the end of the taxable year? (2)
Where the income tax returns show that no income tax is payable
to the government, is a
creditable withholding tax, as contradistinguished from a final tax,
refundable (or creditable) at the end of the taxable year?
RESOLUTION
The assailed Decision is hereby REVERSED and the decision of the
Court of Tax Appealsis REINSTATED. No costs.
CIR V. TMX
The claim for refund has prescribed. The counting of the two year
prescriptive periodfor filing a claim for refund is counted not from
the date when the quarterly income taxes were paid but on the
date when the final adjustment return was filed.
CIR V. PHILAMLIFE
For VAT refunds, the counting of the two year prescriptive period is
counted from the close of the taxable quarter.
6. GRANT OF REFUND DESPITE EXISTENCE OF TAX
LIABILITY
CIR V. CA, CITYTRUST & CTA
Citytrust filed a claim for refund with BIR in the amount of
P19,971,745.00 representing the alleged overpayment of income
tax as computed in its final income tax return for the calendar year
ending December 31, 1985. To interrupt the prescriptive period,
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Citytrust filed a petition with the Court of Tax Appeals, claiming
the refund of its income tax overpayments for the years 1983,
1984 and 1985. The OSG in their answer contended that the claim
of Citytrust from 1983 was not properly documented and that even
if they are entitled for such claim the right to claim the same has
prescribed with respect to income tax payments prior to August
28, 1984, pursuant to Sections 292 and 295 of the National
Interna lRevenue Code of 1977, as amended, since the petition
was filed only on August 28, 1986. The case was submitted for
decision based solely on the pleadings and evidence submitted by
herein private respondent Citytrust because the petitioner failed to
present evidence due to the failure of Tax Credit/Refund Division
of the BIR to transmit the records of the case, as well as the
investigation report thereon, to the Solicitor General. The
petitioner filed a motion to suspend the proceedings but the same
was denied. The case was decided and the Tax court ruled in
ordering BIR to refund the overpaid tax for the year 1984 and
1985 only. Petitioner filed a motion for reconsideration contending
that Citytrust has an outstanding tax liability amounting to P56M in
1984. Both parties filed a motion for reconsideration which was
denied by the CA and the court affirmed the decision of CTA.
Hence this petition.
Issue: Whether or not the state is bound to the mistakes
committed by its agents
Ruling:
It is a long and firmly settled rule of law that the
Government is not bound by the errors committed by its
agents.
In the performance of its governmental functions, the State cannot
be stopped by the neglect of its agent and officers. Although the
Government may generally be estopped through the affirmative
acts of public officers acting within their authority, their neglect or
omission of public duties as exemplified in this case will not and
should not produce that effect. Nowhere is the aforestated rule
more true than in the field of taxation. It is axiomatic that the
Government cannot and must not be estopped particularly in
matters involving taxes.
Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State
effects its functions for the welfare of its constituents.
The errors of certain administrative officers should never be
allowed to jeopardize the Government's financial position,
especially in the case at bar where the amount involves millions of
pesos the collection whereof, if justified, stands to be prejudiced
just because of bureaucratic lethargy. Wherefore the Judgment of
CA is hereby set aside and the case is remanded to CTA
7. WHO CAN CLAIM REFUND?
CIR V. PROCTER AND GAMBLE
A "person liable for tax" has been held to be a "person subject to
tax" and properly considered a "taxpayer." 4 The terms liable for
tax" and "subject to tax" both connote legal obligation or duty to
pay a tax. It is very difficult, indeed conceptually impossible, to
consider a person who is statutorily made "liable for tax" as not
"subject to tax." By any reasonable standard, such a person should
be regarded as a party in interest, or as a person having sufficient
legal interest, to bring a suit for refund of taxes he believes were
illegally collected from him.
If, as pointed out in Philippine Guaranty, the withholding agent
is also an agent of the beneficial owner of the dividends
with respect to the filing of the necessary income tax return
and with respect to actual payment of the tax to the
government, such authority may reasonably be held to
include the authority to file a claim for refund and to bring
an action for recovery of such claim. This implied authority is
especially warranted where, is in the instant case, the withholding
agent is the wholly owned subsidiary of the parent-stockholder and
therefore, at all times, under the effective control of such parent-
stockholder. In the circumstances of this case, it seems
particularly unreal to deny the implied authority of P&G-Phil. to
claim a refund and to commence an action for such refund.
CIR V. WANDER PHILS.
In any event, the submission of petitioner that Wander is but a
withholding agent of the government and therefore cannot claim
Page | 78
reimbursement of the alleged overpaid taxes, is untenable. It will
be recalled, that said corporation is first and foremost a wholly
owned subsidiary of Glaro. The fact that it became a withholding
agent of the government which was not by choice but by
compulsion under Section 53 (b) of the Tax Code, cannot by any
stretch of the imagination be considered as an abdication of its
responsibility to its mother company. Thus, this Court construing
Section 53 (b) of the Internal Revenue Code held that "the
obligation imposed thereunder upon the withholding agent
is compulsory." It is a device to insure the collection by the
Philippine Government of taxes on incomes, derived from
sources in the Philippines, by aliens who are outside the
taxing jurisdiction of this Court (Commissioner of Internal
Revenue V. Malayan Insurance Co., Inc., 21 SCRA 944). In fact,
Wander may be assessed for deficiency withholding tax at
source, plus penalties consisting of surcharge and interest
(Section 54, NLRC). Therefore, as the Philippine
counterpart, Wander is the proper entity who should for the
refund or credit of overpaid withholding tax on dividends
paid or remitted by Glaro.
C. APPEAL TO CTA
1. WHEN TO ELEVATE ASSESSMENT TO CTA?
RCBC V. CIR
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of the said decision,
or from the lapse of the one hundred eighty (180)-day
period; otherwise the decision shall become final, executory
and demandable.
2. SUBMISSION OF RELEVANT DOCUMENTS
CIR V. FIRST EXPRESS PAWNSHOP
An assessment may be protested by filing a request for
reconsideration or reinvestigation within 30 days from receipt of
the assessment by the taxpayer. Within 60 days from filing of the
protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
The term relevant supporting documents should be understood
as those documents necessary to support the legal basis in
disputing a tax assessment as determined by the taxpayer. The
BIR can only inform the taxpayer to submit additional documents.
The BIR cannot demand what type of supporting documents
should be submitted. Otherwise, a taxpayer will be at the mercy
of the BIR, which may require the production of documents that a
taxpayer cannot submit
After respondent submitted its letter-reply stating that it
could not comply with the presentation of the proof of DST
payment, no reply was received from petitioner.
Section 228 states that if the protest is not acted upon
within 180 days from submission of documents, the
taxpayer adversely affected by the inaction may appeal to
the CTA within 30 days from the lapse of the 180-day
period. Respondent, having submitted its supporting documents
on the same day the protest was filed, had until 31 July 2002 to
wait for petitioners reply to its protest. On 28 August 2002 or
within 30 days after the lapse of the 180-day period counted from
the filing of the protest as the supporting documents were
simultaneously filed, respondent filed a petition before the CTA.
Respondent has complied with the requisites in disputing an
assessment pursuant to Section 228 of the Tax Code. Hence, the
tax assessment cannot be considered as final, executory and
demandable.
Page | 79
CUSTOMS TAXES AND DUTIES needless and disturbing sounds made by water craft
in the ports of the Philippines or in parts of rivers
included in such ports.
TARIFF AND CUSTOMS CODE OF THE
f. The exclusion, if the conditions of traffic should at
PHILIPPINES any time so require, of vessels of more than one
hundred and fifty tons from entering, berthing or
mooring in the Pasig River.
1. POWERS AND JURISDICTION OF CUSTOMS
g. The admeasurement, registration, documenting and
licensing of vessels built or owned in the Philippines,
Section 601. Chief Officials of Bureau of Customs. The
the recording of sales, transfers and encumbrances
Bureau of Customs shall have one chief and one assistant
of such vessels, and the performance of all the duties
chief, to be known respectively at the Commissioner (hereinafter
pertaining to marine registry.
known as the "Commissioner") and Assistant Commissioner of
Customs, who shall each receive an annual compensation in
h. The inspection of Philippine vessels, and supervision
accordance with the rates prescribed by existing laws. The
over the safety and sanitation of such vessels.
Assistant Commissioner of Customs shall be appointed by
the proper department head.
i. The enforcement of the lawful quarantine regulations
for vessels entering Philippine ports.
Sec. 602. Functions of the Bureau. The general duties,
powers and jurisdiction of the bureau shall include:
j. The enforcement of the tariff and customs laws and
all other laws, rules and regulations relating to the tariff
a. The assessment and collection of the lawful revenues
and customs administration.
from imported articles and all other dues, fees, charges,
fines and penalties accruing under the tariff and
k. The licensing of marine officers who have qualified in
customs laws.
the examination required by law to be carried on
Philippine vessels, the determination of the
b. The prevention and suppression of smuggling and
qualifications of pilots, the regulation of this service,
other frauds upon the customs.
and the fixing of the fees which they may charge.
c. The supervision and control over the entrance and
l. The supervision and control over the handling of
clearance of vessels and aircraft engaged in foreign
foreign mails arriving in the Philippines, for the
commerce.
purpose of the collection of the lawful duty on dutiable
articles thus imported and the prevention of smuggling
d. The general supervision, control and regulation of
through the medium of such mails.
vessels engaged in the carrying of passengers and
freight or in towage in coastwise trade and in the bays
Sec. 603. Territorial Jurisdiction. For the due and effective
and rivers of the Philippines.
exercise of the powers conferred by law and to the extent requisite
therefor, said bureau shall have the right of supervision and
e. The prohibition and suppression of unnecessary
police authority over all seas within the jurisdiction of the
noises, such as explosion of gasoline engines, the
excessive blowing of whistles or sirens, and other

Page | 80
Philippines and over all coasts, ports, airports, harbors,
bays, rivers and inland waters navigable from the sea.
When a vessel becomes subject to seizure by reason of an
act done in Philippine waters in violation of the tariff and
customs laws, a pursuit of such vessel begun within the
jurisdictional waters may continue beyond the maritime zone, and
the vessel may be seized on the high sea. Imported articles
which may be subject to seizure for violation of the tariff and
customs laws may be pursued in their transportation in the
Philippines by land, water or air and such jurisdiction exerted over
it at any place therein as may be necessary for the due
enforcement of the law.
Sec. 604. Jurisdiction over Premises Used for Customs
Purposes. The Bureau of Customs shall, for customs
purposes, have exclusive control, direction and management
of custom-houses, warehouses, offices, wharves, and other
premises in the respective ports of entry, in all cases
without prejudice to the general police powers of the city or
municipality wherein such premises are situated.
Sec. 605. Enforcement of Port Regulation of Bureau of
Quarantine. Customs officials and employees shall cooperate
with the quarantine authorities in the enforcement of the port
quarantine regulations promulgated by the Bureau of Quarantine
and shall give effect to the same in so far as they are connected
with matters of shipping and navigation.
Sec. 606. Power of the President to Subject Premises to
Jurisdiction of Bureau of Customs. When any public wharf,
landing place, street or land, not previously under the jurisdiction
of the Bureau of Customs, in any port of entry, is necessary or
desirable for any proper customs purpose, the President of the
Philippines may, by executive order, declare such premises to be
under the jurisdiction of the Bureau of Customs, and thereafter the
authority of such Bureau in respect thereto shall be fully effective.
Sec. 607. Annual Report of Commissioner. The annual
report of the Commissioner shall, among other things, contain a
compilation of the (a) volume and value of articles imported
into the Philippines and the corresponding customs duties
assessed and collected thereon itemized in accordance with the
tariff classification provided in this Code and (b) volume and
value of articles exported from the Philippines for the
preceding year.
Sec. 608. Commissioner to Make Rules and Regulations.
The Commissioner shall, subject to the approval of the
department head, make all rules and regulations necessary to
enforce the provisions of this Code.
Sec. 2208. Right of Police Officer to Enter Inclosure. For
the more effective discharge of his official duties, any person
exercising the powers herein conferred, may at anytime enter,
pass through, or search any land or inclosure or any
warehouse, store or other building, not being a dwelling
house.
A warehouse, store or other building or inclosure used for the
keeping of storage of articles does not become a dwelling
house within the meaning hereof merely by reason of the fact
that a person employed as watchman lives in the place, nor will
the fact that his family stays there with him alter the case.
Sec. 2209. Search of Dwelling House. A dwelling house
may be entered and searched only upon warrant issued by a
judge or justice of the peace, upon sworn application showing
probable case and particularly describing the place to be
searched and person or thing to be seized.
Sec. 2210. Right to Search Vessels or Aircrafts and Persons
or Articles Conveyed Therein. It shall be lawful for any
official or person exercising police authority under the provisions of
this Code to go abroad any vessel or aircraft within the limits of
any collection to go aboard any vessel or aircraft within the limits
of any collection district, and to inspect, search and examine
said vessel or aircraft and any trunk, package, box or envelope
on board, and to search any person on board the said vessel
or aircraft and to this end to hail and stop such vessel or
aircraft if under way, to use all necessary force to compel
compliance; and if it shall appear that any breach or violation
of the customs and tariff laws of the Philippines has been
committed, whereby or in consequence of which such vessels or
aircrafts, or the article, or any part thereof, on board of or
Page | 81
imported by such vessel or aircraft, is liable to forfeiture, to
make seizure of the same or any part thereof.
The power of search hereinabove given shall extend to the
removal of any false bottom, partition, bulkhead or other
obstruction, so far as may be necessary to enable the officer
to discover whether any dutiable or forfeitable articles may
be concealed therein.
No proceeding herein shall give rise to any claim for the damage
thereby caused to article or vessel or aircraft.
Sec. 2211. Right to Search Vehicles, Beasts and Persons.
It shall also be lawful for a person exercising authority as
aforesaid to open and examine any box, trunk, envelope or
other container, wherever found where he has reasonable
cause to suspect the presence therein of dutiable or
prohibited article or articles introduced into the Philippines
contrary to law, and likewise to stop, search and examine any
vehicle, beast or person reasonably suspected of holding or
conveying such article as aforesaid.
Sec. 2212. Search of Persons Arriving From Foreign
Countries. All persons coming into the Philippines from foreign
countries shall be liable to detention and search by the
customs authorities under such regulations as may be
prescribed relative thereto.
Female inspectors may be employed for the examination and
search of persons of their own sex.
JAO V. CA
ISSUE: WON the RTC has jurisdiction over cases questioning the
validity of seizure and forfeiture proceedings conducted by the
Bureau of Customs
HELD: NO.
The RTC is devoid of any competence to pass upon the
validity or regularity of seizure and forfeiture proceedings
conducted by the Bureau of Customs and to enjoin or
otherwise interfere with these proceedings .
The Collector of Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear and
determine all questions touching on the seizure and
forfeiture of dutiable goods. The Regional Trial Courts are
precluded from assuming cognizance over such matters
even through petitions of certiorari, prohibition or
mandamus.
It is likewise well-settled that the provisions of the Tariff and
Customs Code and RA1125 "An Act Creating the Court of Tax
Appeals," specify the proper for a and procedure for the ventilation
of any legal objections or issues raised concerning these
proceedings.
Actions of the Collector of Customs are appealable to the
Commissioner of Customs, whose decision, in turn, is
subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals and from there to the Court of Appeals.
ENRILE V. VINUYA
ISSUE: WON the court of first instance is vested with jurisdiction
to entertain a complaint for replevin for the recovery of a Cadillac
car, subject of a seizure and forfeiture proceeding in the Bureau of
Customs
HELD NO.
The prevailing doctrine is that the exclusive jurisdiction in seizure
and forfeiture cases vested in the Collector of Customs precludes a
court of first instance from assuming cognizance over such a
matter.
Section 2303 of the Tariff and Customs Code requires the Collector
of Customs to give to the owner of the property sought to be
forfeited written notice of the seizure and to give him the
opportunity to be heard in his defense. This provision clearly
indicates the intention of the law to confine in the Bureau of
Customs the determination of all questions affecting the disposal
of property proceeded against in a seizure and forfeiture case. The
judicial recourse of the property owner is not in the Court of First
Instance but in the Court of Tax Appeals, and only after
exhausting administrative remedies in the Bureau of Customs."
Page | 82
PAPA V. MAGO
"Petitioner Martin Alagao and his companion policemen had
authority to effect the seizure without any search warrant issued
by a component court. The Tariff and Customs Code does not
require said warrant in the instant case. The Code authorizes
persons having police authority under Section 2203 of the Tariff
and Customs Code to enter, pass through or search any land,
inclosure, warehouse, store or building, not being a dwelling house
and also to inspect, search and examine any vessel or aircraft and
any trunk, package, box or envelope or any person on board, or
stop and search and examine any vehicle, beast or person
suspected of holding or conveying any dutiable or prohibited article
introduced into the Philippines contrary to law, without mentioning
the need of a search warrant in said cases. But in the search of a
dwelling house, the Code provides that said "dwelling house may
be entered and searched only upon warrant issued by a judge or
justice of the peace. It is our considered view, therefore, that
except in the case of the search of a dwelling house,
persons exercising police authority under the customs law
may effect search and seizure without a search warrant in
the enforcement of customs laws."
2. ADMINISTRATIVE PROCEEDINGS
Sec. 2301. Warrant for Detention of Property Bond.
Upon making any seizure, the Collector shall issue a warrant for
the detention of the property; and if the owner or importer desires
to secure the release of the property for legitimate use, the
Collector may surrender it upon the filing of a sufficient bond, in an
amount to be fixed by him, conditioned for the payment of the
appraised value of the article and/or any fine, expenses and costs
which may be adjudged in the case: Provided, That articles the
importation of which is prohibited by law shall not be
released under bond.
Sec. 2302. Report of Seizure To Commissioner and Auditor.
When a seizure is made for any cause, the Collector of the
district wherein the seizure is effected shall immediately make
report thereof to the Commissioner and to the Auditor General.
Sec. 2303. Notification to Owner or Importer. The Collector
shall give the owner or importer of the property or his agent a
written notice of the seizure and shall give him an opportunity to
be heard in reference to the delinquency which was the occasion of
such seizure.
For the purpose of giving such notice and of all other proceedings
in the matter of such seizure, the importer, consignee or person
holding the bill of lading shall be deemed to be the "owner" of the
article included in the bill.
For the same purpose, "agent" shall be deemed to include not only
any agent in fact of the owner of the seized property but also any
person having responsible possession of the property at the
(missing) of the seizure, if the owner or his agent in fact is
unknown or cannot be reached.
Sec. 2304. Notification to Unknown Owner. Notice to an
unknown owner shall be effected by posting a notice for fifteen
days in the public corridor of the customhouse of the district in
which the seizure was made, and, in the discretion of the
Commissioner, by publication in a newspaper or by such other
means as he shall consider desirable.
Sec. 2305. Description and Appraisal and Classification of
Seized Property. The Collector shall also cause a list and
particular description of the property seized to be prepared and an
appraisement or classification of the same at its wholesale value in
the local market in the usual wholesale quantities to be made by at
least two appraising officials, if there are such officials at or near
the place of seizure; in the absence of such officials, then by two
competent and disinterested citizens of the Philippines, to be
selected by him for that purpose, residing at or near the place of
seizure, which list and appraisement shall be properly attested to
by such Collector and the persons making the appraisal.
Sec. 2306. Proceedings in Case of Property Belonging to
Unknown Parties. If, within fifteen days after the notification
prescribed in section twenty-three hundred and four of this Code,
no owner or agent can be found or appears before the Collector,
Page | 83
the latter shall declare the property forfeited to the government to
be sold at auction in accordance with law.
Sec. 2307. Settlement of Case by Payment of Fine or
Redemption of Forfeited Property. If, in any seizure case,
the owner or agent shall, while the case is yet before the Collector
of the district of seizure, pay to such Collector the fine imposed by
him or, in case of forfeiture, shall pay the appraised value of the
property, or, if after appeal of the case, he shall pay to the
Commissioner the amount of the fine as finally determined by him,
or, in case of forfeiture, shall pay the appraised value of the
property, such property shall be forthwith surrendered, and all
liability which may or might attach to the property by virtue of the
offense which was the occasion of the seizure and all liability which
might have been incurred under any bond given by the owner or
agent in respect to such property shall thereupon be deemed to be
discharged.
Redemption of forfeited property shall not be allowed in any case
where the importation is absolutely prohibited or where the
surrender of the property to the person offering to redeem the
same would be contrary to law.
Sec. 2308. Protest and Payment upon Protest in Civil
Matters. When a ruling or decision of the Collector is made
whereby liability for duties, fees, or other money charge is
determined, except the fixing of fines in seizure cases, the party
adversely affected may protest such ruling or decision by
presenting to the Collector at the time when payment of the
amount claimed to be due the Government is made, or
within thirty days thereafter, a written protest setting forth his
objections to the ruling or decision in question, together with the
reasons therefor. No protest shall be considered unless payment of
the amount due after final liquidation has first been made.
Sec. 2309. Protest Exclusive Remedy in Protestable Case.
In all cases subject to protest, the interested party who desires to
have the action of the Collector reviewed, shall make a protest,
otherwise, the action of the Collector shall be final and
conclusive against him, except as to matters correctible for
manifest error in the manner prescribed in section one thousand
seven hundred and seven hereof.
Sec. 2310. Form and Scope of Protest. Every protest shall
be filed in accordance with the prescribed rules and regulations
promulgated under this section and shall point out the particular
decision or ruling of the Collector to which exception is taken or
objection made, and shall indicate with reasonable precision the
particular ground or grounds upon which the protesting party
bases his claim for relief.
The scope of a protest shall be limited to the subject matter of a
single adjustment or other independent transaction; but any
number of issue may be raised in a protest with reference
to the particular item or items constituting the subject
matter of the protest.
"Single adjustment", as hereinabove used, refers to the entire
content of one liquidation, including all duties, fees, surcharges or
fines incident thereto.
Sec. 2311. Samples to be Furnished by Protesting Parties.
If the nature of the articles permit, importers filing protests
involving questions of fact must, upon demand, supply the
Collector with samples of the articles which are the subject matter
of the protests. Such samples shall be verified by the custom
official who made the classification against which the protest are
filed.
Sec. 2312. Decision or Action by Collector in Protest and
Seizure Cases. When a protest in proper form is presented in a
case where protest in required, the Collector shall reexamine the
matter thus presented, and if the protest is sustained, in whole or
in part, he shall enter the appropriate order, the entry reliquidated
if necessary.
In seizure cases, the Collector, after a hearing, shall in writing
make a declaration of forfeiture or fix the amount of the fine or
take such other action as may be proper.
Sec. 2313. Review by Commissioner. The person aggrieved
by the decision or action of the Collector in any matter presented
upon protest or by his action in any case of seizure may, within
fifteen days after notification in writing by the Collector of his
Page | 84
action or decision, give written notice to the Collector of his desire
to have the matter reviewed by the Commissioner. Thereupon the
Collector shall forthwith transmit all the records of the proceedings
to the Commissioner, who shall approve, modify or reverse the
action or decision of the Collector and take such steps and make
such orders as may be necessary to give effect to his decision.
Sec. 2314. Notice of Decision of Commissioner. Notice of
the decision of the Commissioner shall be given to the party by
whom the case was brought before him for review, and in seizure
cases such notice shall be effected by personal service if
practicable.
Sec. 2315. Supervisory Authority of Commissioner And of
Department Head in Certain Cases. If in any case involving
the assessment of duties the importer shall fail to protest the
ruling of the Collector, and the Commissioner shall be of the
opinion that the ruling was erroneous and unfavorable to the
Government, the latter may order a reliquidation; and if the
ruling of the Commissioner in any unprotested case should,
in the opinion of the department head, be erroneous and
unfavorable to the Government, the department head may
require the Commissioner to order a reliquidation.
Except as in the preceding paragraph provided, the supervisory
authority of the department head over the Bureau of Customs shall
not extend to the administrative review of the ruling of the
Commissioner in matters appealed to the Court of Tax Appeals.
3. WHEN IMPORTATION BEGINS AND
TERMINATED
Section 1201. Articles to Be Imported Only Through
Customhouse. All articles imported into the Philippines,
whether subject to duty or not, shall be entered through a
customhouse at a port of entry.
Sec. 1202. When Importation Begins and Deemed
Terminated. Importation begins when the carrying vessel
or aircraft enters the jurisdiction of the Philippines with
intention to unlade therein. Importation is deemed terminated
upon payment of the duties, taxes and other charges due
upon the articles, or secured to be paid, at a port of entry and
the legal permit for withdrawal shall have been granted, or in case
said articles are free of duties, taxes and other charges, until they
have legally left the jurisdiction of the customs.
Sec. 1210. Disposition of Imported Articles Remaining on
Vessel After Time for Unlading. Imported articles remaining
on board any vessel after the expiration of the said period for
discharge, and not reported for transshipment to another port,
may be unladen by the customs authorities and stored at the
vessel's expense.
Articles so stored may be claimed and entered at any time within
fifteen days after discharge or such longer period not beyond thirty
days as the Collector shall approve. If not entered it shall be sold
at public auction at the next ensuing regular sale, though at any
time prior to sale it may be entered for consumption or
warehouse, and be withdrawn upon payment of duties, taxes and
other charges, and expenses.
EFFECT OF FAILURE TO FILE ENTRY
ABANDONMENT OF IMPORTED ARTICLES
Sec. 1801. Abandonment, Kinds and Effect of Abandonment is
express when it is made direct to the Collector by the interested
party in writing, and it is implied when, from the action or
omission of the interested party, an intention to abandon can be
clearly inferred. The failure of any interested party to file the
import entry within fifteen days or any extension thereof
from the discharge of the vessel or aircraft, shall be implied
abandonment. An implied abandonment shall not be effective
until the article is declared by the Collector to have been
abandoned after notice thereof is given to the interested party as
in seizure cases.
Any person who abandons an imported article renounces all his
interests and property rights therein.
Page | 85
Sec. 1802. Abandonment of Imported Articles. The owner
or importer of any articles may, within ten days after filing of
the import entry, abandon to the Government all or a part
of the articles included in an invoice, and, thereupon, he shall
be relieved from the payment of duties, taxes and all other
charges and expenses due thereon: Provided, That the portion
so abandoned is not less than ten per cent of the total invoice and
is not less than one package, except in cases of articles
imported for personal or family use. The article so abandoned
shall be delivered by the owner or importer at such place within
the port of arrival as the Collector shall designate, and upon his
failure to so comply, the owner or importer shall be liable for all
expenses that may be incurred in connection with the disposition
of the articles.
Nothing in this section shall be construed as relieving such owner
or importer from any criminal liability which may arise from any
violation of law committed in connection with the importation of
the abandoned article.
CHEVRON PHILIPPINES V. COMMISSIOER OF
CUSTOMS
whether entry under Section 1301 in relation to Section
1801 of the TCC refers to the IED or the IEIRD? both
The filing of the Import Entry Declaration and Import Entry
Internal Revenue Declaration has several important purposes: to
ascertain the value of the imported articles, collect the correct and
final amount of customs duties and avoid smuggling of goods into
the country. Entry refers to both. They must be filed within 30
days.
4. ARTICLES SUBJECT TO DUTY
Section 101. Imported Articles Subject to Duty. All articles,
when imported from any foreign country into the Philippines, shall
be subject to duty upon each importation, even though previously
exported from the Philippines, except as otherwise specifically
provided for in this Code or in other laws.
Sec. 1205. Importations by the Government. Except as
otherwise specifically provided, all importations by the government
for its own use or that of its subordinate branches on
instrumentalities, or corporations, agencies or instrumentalities
owned or controlled by the government, shall be subject to the
duties, taxes, fees and other charges provided for in this Code:
Provided, however, That upon certification of the head of the
department or political subdivision concerned, with the approval of
the Auditor General, that the imported article is actually being
used by the government or any of its political subdivision
concerned, the amount of duty, tax, fee or charge shall be
refunded to the government or the political subdivision which paid
it.
EFFECTIVITY DATE OF RATE OF DUTY
Sec. 205. Effective Date of Rates of Import Duty. Imported
articles shall be subject to the rate or rates of import duty existing
at the time of entry, or withdrawal from warehouse in the
Philippines, for consumption.
On and after the day when this Code shall go into effect all articles
previously imported, for which no entry has been made, and all
articles previously entered without payment of duty and under
bond for warehousing, transportation, or any other purpose, for
which no permit of delivery to the importer or his agent has been
issued, shall be subject to the rates of duty imposed by this Code
and to no other duty, upon the entry, or withdrawal thereof from
warehouse, for consumption.
On articles abandoned or forfeited to, or seized by, the
government, and then sold at public auction, the rate of duty and
the tariff in force on the date of the auction shall apply: Provided,
That duty based on the weight, volume and quantity of
articles shall be levied and collected on the weight, volume
and quantity at the time of their entry into the warehouse
or the date of abandonment, forfeiture and/or seizure.
TYPES OF DUTIES
kinds of tariffs or customs duties
Page | 86
 1. Regular tariff or customs duties - these are taxes
imposed or assessed upon merchandise from, or exported
to, a foreign country for the purpose of raising revenues.
2. Special tariffs or custom duties - these are additional
import duties imposed on specific kinds of imported
articles under certain conditions. They are imposed for the
protection of consumers and manufacturers, as well as
Philippine products from undue competition posed by
foreign made products, specifically:
a. Safeguard duties
b. Dumping duties
c. Countervailing duties
d. Marking duties
e. Retaliatory duties
a. SAFEGUARD DUTIES
Safeguard measures are defined as emergency" actions with
respect to increased imports of particular products, where such
imports have caused or threaten to cause serious injury to the
importing Member's domestic industry.
It is a measure provided by the State to protect domestic
industries and producers from increased imports which cause or
threaten to cause serious injury to those domestic industries and
producers.
Authorized person to impose safeguard measures
1. Secretary of Agriculture If the article in question is an
agricultural product;
2. Secretary of Trade and Industry If the article is non-
agricultural product.
The factual findings of the Tariff Commission on the
existence or non-existence of conditions warranting the
imposition of general safeguard measures binding upon the
DTI Secretary
The positive final determination by the Tariff Commission operates
as an indispensable requisite to the imposition of the safeguard
measure. Congress in enacting the SMA and prescribing the roles
to be played therein by the Tariff Commission and the DTI
Secretary did not envision that the President, or his/her alter ego,
could exercise supervisory powers over the Tariff Commission- the
Tariff Commission does not fall under the administrative
supervision of the DTI.
B. DUMPING DUTIES
Sec. 301. Dumping Duty.
a. Whenever the Secretary of Finance (hereinafter called the
Secretary") has reason to believe, from invoices or other papers or
from information made available to him by any government
agency or interested party, that a specific kind or class of foreign
article, whether dutiable or duty-free, is being sold or is likely to
be sold for exportation to, or in, the Philippines, at a price less
than its fair value, as hereinafter defined, the importation or
sale of which might injure, or prevent the establishment of, or
is likely to injure an industry in the Philippines, he shall so
advise the Tariff Commission>
b. The Commission, upon receipt of such advice from the
Secretary, shall conduct an investigation to
1. Verify if the kind or class of articles in question is being
sold or is likely to be sold for exportation to, or in, the
Philippines at a price less than its fair value;
2. Determine if, as a result thereof, an industry in the
Philippines is being injured or is likely to be injured or is
prevented from being established by reason of the
importation or sale of such kind or class of article into the
Philippines; and
3. Ascertain the difference, if any, between the purchase
price or, in the absence thereof, the exporter's sales price,
and the fair value of the article. The Commission shall
submit its findings to the Secretary within one
month after receipt of the aforesaid advice.
c. The Secretary shall, within fifteen days from the report of the
Commission, decide whether the article in question is being
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imported in violation of this section and shall give due notice of
such finding and shall direct the Commissioner of Customs to
cause the dumping duty, to be levied, collected and paid, as
prescribed in this section, in addition to any other duties, taxes
and charges imposed by law on such article.
d. The "dumping duty" as provided for in subsection "e" hereof
shall be equal to the difference between the purchase price
or, in the absence thereof, the exporter's sales price, and the
fair value of the article.
e. For the purpose of this section
1. The "fair value" of an article shall be its foreign
market value, or, in the absence of such value, its cost
of production.
2. The "purchase price" of an imported article shall be the
price at which such article has been purchased or
agreed to be purchased, prior to the time of
exportation, by the person by whom or for whose
account the article is imported, plus, when not included in
such price
(a) The cost of all containers and coverings and all
other costs, charges and expenses incident to
placing the article in condition, packed ready for
shipment to the Philippines;
(b) The amount of any export tax paid in the country
of exportation on the exportation of the article to
the Philippines;
(c) The amount of any import duties imposed by the
country of exportation which have been rebated, or
which have not been collected, by reason of the
exportation of the article to the Philippines; and
(d) The amount of any taxes imposed in the country of
exportation upon the manufacturer, producer or
seller, in respect to the manufacture, production or
sale of the article, which have been rebated, or
which have not been collected, be reason of the
exportation of the article of the Philippines.
Any additional costs, charges and expenses incident to
bringing the article from the place of shipment in the
country of exportation to the place of delivery in the
Philippines and Philippine customs duties imposed thereon
shall not be included.
3. The "exporter's sale price" of an imported article shall be the
price at which such article is sold or agreed to be sold in the
Philippines, before or after the time of exportation, by or for
the account of the exporter, including
(a) The cost of all containers and coverings and all
other costs, charges and expenses incident to
placing the article in condition, packed ready for
shipment to the Philippines;
(b) The amount of any import duties imposed by the
country of exportation which have been rebated, or
which have not been collected, by reason of the
exportation of the article to the Philippines; and
(c) The amount of any taxes imposed in the country of
exportation upon the manufacturer, producer or
seller in respect to the manufacture, production or
sale of the article, which have been rebated, or
which have not been collected, by reason of its
exportation to the Philippines. The following
amount, if included, shall be deducted
(1) The amount of costs, charges and
expenses, and Philippine customs duties,
incident to bringing the article from the
place of shipment in the country of
exportation to the place of delivery in the
Philippines;
(2) The amount of commissions, if any, for
selling in the Philippines the particular
article under consideration;
(3) An amount equal to the expenses, if any,
generally incurred by or for the account
of the exporter in the Philippines in
selling identical or substantially identical
article; and
(4) The amount of any export tax paid in the
country of exportation on the exportation
of the article to the Philippines.
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4. The "foreign market value" of an imported article shall be the
price, at the time of exportation of such article to the
Philippines, at which such or similar article is sold or freely
offered for sale to all purchasers in the principal markets of the
country from which exported, in the usual wholesale quantities and
in the ordinary course of trade for home consumption (or, if not
sold or offered for sale for home consumption, then for exportation
to countries other than the Philippines), including the cost of all
containers and coverings and all other costs, charges and
expenses incident to placing the article in condition packed
ready for shipment to the Philippines, except that in the
case of articles purchased or agreed to be purchased by the
person by whom or for whose account the article is
imported, prior to the time of exportation, the foreign
market value shall be ascertained as of the date of such
purchase or agreement to purchase. In the ascertainment of
foreign market value for the purpose of this section, no pretended
sale or offer for sale, and no sale or offer for sale intended to
establish a fictitious market, shall be taken into account.
5. The "cost of production" of an imported article shall be
the sum of
(a) The cost of materials of, and of fabrication, manipulation or
other process employed in manufacturing or producing, identical or
substantially identical article, at a time preceding the date of
shipment of the particular article under consideration which would
ordinarily permit the manufacture or production of the particular
article under consideration in the usual course of business;
(b) The usual general expenses not less than 10 per cent of such
cost, in the case of identical or substantially identical articles;
(c) The cost of all containers and coverings, and all other costs,
charges and expenses incident to placing the particular article
under consideration in condition, packed ready for shipment to the
Philippines; and
(d) An addition for profit not less than 8 per cent of the sum of the
amounts determined under subparagraphs (a) and (b) hereof,
equal to the profit which is originally added, in the case of articles
of the same general character as the particular article under
consideration, by manufacturers or producers in the country of
manufacture or production who are engaged in the same general
trade as the manufacturer or producer of the particular article
under consideration.
f. For the purposes of this section the "exporter" of an imported
article shall be the person by whom or for whose account the
article is imported into the Philippines
1. If such person is the agent or principal of the exporter,
manufacturer or producer; or
2. If such person owns or controls, directly or indirectly,
through stock ownership or control or otherwise, any
interest in the business of the exporter, manufacturer or
producer; or
3. If the exporter, manufacturer or producer owns or
controls, directly or indirectly, through stock ownership or
control or otherwise, any interest in any business
conducted by such persons; or
4. If any person or persons, jointly or severally, directly or
indirectly, through stock ownership or control or otherwise,
own or control in the aggregate 20 per cent or more of the
voting power or control in the business carried on by the
person by whom or for whose account the article is
imported into the Philippines, and also 20 per cent or more
of such power or control in the business of the exporter,
manufacturer or producer.
g. Pending investigation and final decision of the case, the article
in question, and articles of the same specific kind or class
subsequently imported under similar circumstances, shall be
released to the owner, importer, consignee or agent upon the
giving of a bond in an amount equal to the double the estimated
value thereof. Articles which may have been delivered under the
provision of section fifteen hundred and three of this Code prior to
the institution of the investigation provided in this section shall,
pending final decision, be ordered returned to the custody of the
collectors of customs unless released under bond in accordance
with this section.
h. Any aggrieved party may only appeal the amount of
dumping duty that is levied and collected by the
Commissioner of Customs to the Court of Tax Appeals in the
same manner and within the same period provided for by law in
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the case of appeals from decisions of the Commissioner of
Customs.
i.
(1) The article, if it has not been previously released under
bond as provided in subsection "g" hereof, shall be
released after payment by the party concerned of the
corresponding dumping duty in addition to any other
duties, taxes and charges, if any, or re-exported by the
owner, importer, consignee or agent, at his option and
expense, upon the filing of a bond in an amount equal to
double the estimated value of the article, conditioned upon
the presentation of a landing certificate issued by a
consular officer of the Philippines at the country of
destination; or
(2) If the article has been previously released under bond, as
provided in subsection "g" hereof, the party concerned
shall be required to pay the corresponding dumping done
in addition to any other duties, taxes and charges, if any.
j. Any investigation to be conducted by the Commission
under this section shall include a hearing or hearings where
the owner, importer, consignee or agent of the imported article,
the local producers of a like article, other parties directly affected,
and such other parties as in the judgment of the Commission are
entitled to appear, shall be given an opportunity to be heard
and to present evidence bearing on the subject matter.
k. It shall be the duty of collectors of customs at all ports of
entry to levy and collect the dumping duty in accordance with
subsection "d" hereof on the specific kind or class of article as to
which the Secretary has made a decision of dumping.
It shall also be their duty to bring to the attention of the Secretary,
thru the Commissioner of Customs, any case coming within their
notice which may, in their opinion, require action as provided in
this section.
l. The Secretary shall promulgate all rules and regulations
necessary to carry out the provisions of this section.
f. COUNTERVAILING DUTIES
Sec. 302. Countervailing Duty. a. On articles dutiable under
this Code, upon the production, manufacture or export of which
any bounty, subsidy or subvention is directly or indirectly granted
in the country of origin and/or exportation, and the importation of
which has been determined by the Secretary, after investigation
and report of the Commission, as likely to materially injure an
established industry, or prevent or considerably retard the
establishment of an industry in the Philippines, there shall be
levied a countervailing duty equal to the ascertained or estimated
amount of such bounty, subsidy or subvention: Provided, That
the exception of any exported article from a duty or tax imposed
on like articles when destined for consumption in the country of
origin and/or exportation or the refunding of such duty or tax,
shall not be deemed to constitute a grant of a bounty, subsidy or
subvention within the meaning of this section; however, should an
article be allowed drawback by the country of origin and/or
exportation, only the ascertained or estimated excess of the
amount of the drawback over the total amount of the duties
and/or internal taxes, if any, shall constitute a bounty, subsidy or
subvention.
b. The Commission, on its own motion or upon application of any
interested party, when in its judgment there is good and sufficient
reason therefor, shall ascertain, determine or estimate the net
amount of such bounty, subsidy or subvention and shall transmit
to the Secretary the amounts so ascertained, determined or
estimated, if any. Wherever it is ascertained that the
conditions which necessitated the imposition of the
countervailing duty have ceased to exist, and the Commission
shall so certify to the Secretary, the latter shall take the necessary
steps to suspend or discontinue the imposition of such duty.
c. The Secretary shall make all rules and regulations necessary to
carry out the provisions of this section.
g. Marking duties
Sec. 303. Marking of Imported Articles and Containers.
a. Marking of Articles. Except as hereinafter provided, every
article of foreign origin (or its container, as provided in subsection
Page | 90
"b" hereof) imported into the Philippines shall be marked in any
official language of the Philippines and in a conspicuous place as
legibly, indelibly and permanently as the nature of the article (or
container) will permit in such manner as to indicate to an ultimate
purchaser in the Philippines the name of the country of origin of
the article. The Commissioner of Customs shall, with the approval
of the department head, issue rules and regulations to
(1) Determine the character of words and phrases or abbreviations
thereof which shall be acceptable as indicating the country of
origin and prescribe any reasonable method of marking, whether
by printing, stenciling, stamping, branding, labeling or by any
other reasonable method, and a conspicuous place on the article or
container where the marking shall appear;
(2) Require the addition of any other words or symbols which may
be appropriate to prevent deception or mistake as to the origin of
the article or as to the origin of any other article with which such
imported article is usually combined subsequent to importation but
before delivery to an ultimate purchaser; and
(3) Authorize the exception of any article from the requirements of
marking if
(a) Such article is incapable of being marked;
(b) Such article cannot be marked prior to shipment to the
Philippines without injury;
(c) Such article cannot be marked prior to shipment to the
Philippines, except at an expense economically prohibitive
of its importation;
(d) The marking of a container of such article will reasonably
indicate the origin of such article;
(e) Such article is a crude substance;
(f) Such article is imported for use by the importer and not
intended for sale in its imported or any other form;
(g) Such article is to be processed in the Philippines by the
importer or for his account otherwise than for the purpose
of concealing the origin of such article and in such manner
that any mark contemplated by this section would
necessarily be obliterated, destroyed or permanently
concealed;
(h) An ultimate purchaser, by reason of the character of such
article or by reason of the circumstance of its importation,
must necessarily know the country of origin of such article
even though it is not marked to indicate its origin;
(i) Such article was produced more than twenty years prior to
its importation into the Philippines; or
(j) Such article cannot be marked after importation except at
an expense which is economically prohibitive, and the
failure to mark the article before importation was not due
to any purpose of the importer, producer, seller or shipper
to avoid compliance with this section.
b. Marking of Containers. Whenever an article is excepted
under subdivision (3) of subsection "a" of this section from the
requirements of marking, the immediate container, if any, of such
article, or such other container or containers of such article as may
be prescribed by the Commissioner of Customs with the approval
of the department head, shall be marked in such manner as to
indicate to an ultimate purchaser in the Philippines the name of
the country of origin of such article in any official language of the
Philippines, subject to all provisions of this section, including the
same exceptions as are applicable to articles under subdivision (3)
of subsection "a".
c. Marking Duty for Failure to Mark. If at the time of
importation any article (or its container, as provided in subsection
"b" hereof), is not marked in accordance with the requirements of
this section, there shall be levied, collected and paid upon such
article a marking duty of 5 per cent ad valorem, which shall be
deemed to have accrued at the time of importation, except when
such article is exported or destroyed under customs
supervision and prior to the final liquidation of the
corresponding entry.
d. Delivery Withheld until Marked. No imported article held
in customs custody for inspection, examination or appraisement
shall be delivered until such articles and/or their containers,
whether released or not from customs custody, shall have been
marked in accordance with the requirements of this section and
until the amount of duty estimated to be payable under subsection
"c" of this section shall have been deposited. Nothing in this
section shall be construed as excepting any article or its container
from the particular requirements of marking provided for in any
provisions of law.
Page | 91

e. The failure or refusal of the owner or importer to mark the
articles as herein required within a period of thirty days after due
notice shall constitute as an act of abandonment of said articles
and their disposition shall be governed by the provisions of this
Code relative to abandonment of imported articles.
h. Retaliatory duties
Sec. 304. Discrimination by Foreign Countries.
a. The President, when he finds that the public interest will be
served thereby, shall by proclamation specify and declare new or
additional duties in an amount not exceeding 50 per cent of the
existing rates as hereinafter provided upon articles wholly or in
part the growth or product of, or imported in a vessel of, any
foreign country whenever he shall find as a fact that such country
(1) Imposes, directly or indirectly, upon the disposition in, or
transportation in transit through or re-exportation from such
country of any article wholly or in part the growth or product of the
Philippines any unreasonable charge, exaction, regulation or
limitation which is not equally enforced upon the like articles of
every foreign country; or
(2) Discriminates in fact against the commerce of the Philippines,
directly or indirectly, by law or administrative regulation or
practice, by or in respect to any customs, tonnage, or port duty,
fee, charge, exaction, classification, regulation, condition,
restriction or prohibition, in such manner as to place the commerce
of the Philippines at a disadvantage compared with the commerce
of any foreign country.
b. If at any time the President shall find it to be a fact that any
foreign country has not only discriminated against the commerce
of the Philippines, as aforesaid but has, after the issuance of a
proclamation as authorized in subsection "a" of this section,
maintained or increased its said discriminations against the
commerce of the Philippines, the President is hereby authorized, if
he deems it consistent with the interests of the Philippines, to
issue a further proclamation directing that such product of said
country or such articles imported in its vessels as he shall deem
consistent with the public interests, shall be excluded from
importation into the Philippines.
c. Any proclamation issued by the President under the authority of
this section shall, if he deems it consistent with the interests of the
Philippines, extend to the whole of any foreign country or may be
confined to any subdivision or subdivisions thereof; and the
President shall, whenever he deems the public interests require,
suspend, revoke, supplement or amend any such proclamation.
d. All articles imported contrary to the provisions of this section
shall be forfeited to the Government of the Philippines and shall be
liable to be seized, prosecuted and condemned in like manner and
under the same regulations, restrictions and provisions as may
from time to time be established for the recovery, collection,
distribution and remission of forfeiture to the government by the
tariff and customs laws. Whenever the provision of this section
shall be applicable to importations into the Philippines of articles
wholly or in part the growth or product of any foreign country,
they shall be applicable thereto whether such articles are imported
directly or indirectly.
e. It shall be the duty of the Commission to ascertain and at all
times to be informed whether any of the discriminations against
the commerce of the Philippines enumerated in subsections "a"
and "b" of this section are practiced by any country; and if and
when such discriminatory acts are disclosed, it shall be the duty of
the Commission to bring the matter to the attention of the
President, together with recommendation.
f. The Secretary shall make such rules and regulations as are
necessary for the execution of such proclamation as the President
may issue in accordance with the provisions of this section.
g. The authority granted herein to the President shall be exercised
only when Congress is not in session.
Other types of fees charged by the Bureau of Customs
1. Arrastre charge is the amount due for the handling,
receiving and custody of the imported or exported article
or the baggage of the passenger.
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 2. Wharfage dues counterpart of license, charged not for
the use of any wharf but for a special fund known as the
Port Works Fund
3. Berthing fee are levied on a vessel coming or mooring
within specified places or waters of a port. No berthing
charges may be collected from vessels moored at
municipal/private ports.
4. Harbor fee collected port charges on the different
activities of a vessel engaged in foreign trade for entrance
into or departure from a port of entry.
5. Tonnage duescollected port charges on the different
activities of a vessel engaged in foreign trade for coming to
the Philippines from a foreign port or for going to a foreign
port from the Philippines.
PROHIBITED IMPORTATIONS
Sec. 102. Prohibited Importations. The importation into the
Philippines of the following articles is prohibited:
a. Dynamite, gunpowder, ammunitions and other explosives,
firearm and weapons of war, and detached parts thereof,
except when authorized by law.
b. Written or printed article in any form containing any
matter advocating or inciting treason, rebellion,
insurrection or sedition against the Government of the
Philippines, of forcible resistance to any law of the
Philippines, or containing any threat to take the life of or
inflict bodily harm upon any person in the Philippines.
c. Written or printed articles, photographs, engravings,
lithographs, objects, paintings, drawings or other
representation of an obscene or immoral character.
d. Articles, instruments, drugs and substances designed,
intended or adapted for preventing human conception or
producing unlawful abortion, or any printed matter which
advertises or describes or gives directly or indirectly
information where, how or by whom human conception is
prevented or unlawful abortion produced.
e. Roulette wheels, gambling outfits, loaded dice, marked
cards, machines, apparatus or mechanical devices used in
gambling, or in the distribution of money, cigars,
cigarettes or other articles when such distribution is
dependent upon chance, including jackpot and pinball
machines or similar contrivances.
f. Lottery and sweepstakes tickets except those authorized
by the Philippine Government, advertisements thereof and
lists of drawings therein.
g. Any article manufactured in whole or in part of gold silver
or other precious metal, or alloys thereof, the stamps
brands or marks of which do not indicate the actual
fineness or quality of said metals or alloys.
h. Any adulterated or misbranded article of food or any
adulterated or misbranded drug in violation of the
provisions of the "Food and Drugs Act."
i. Marihuana, opium poppies, coca leaves, or any other
narcotics or synthetic drugs which are or may hereafter be
declared habit forming by the President of the Philippines,
any compound, manufactured salt, derivative, or
preparation thereof, except when imported by the
Government of the Philippines or any person duly
authorized by the Collector of Internal Revenue, for
medicinal purposes only.
j. Opium pipes and parts thereof, of whatever material.
k. All other articles the importation of which is prohibited by
law.
CUSTOMS VALUATION
R.A. 9135
(a) TRANSACTION VALUE SYSTEM
Page | 93
"SEC. 201. Basis of Dutiable Value.
(A) Method One. Transaction Value. - The dutiable value of
an imported article subject to an ad valorem rate of duty shall be
the transaction value, which shall be the price actually paid or
payable for the goods when sold for export to the
Philippines, adjusted by adding:
(1) The following to the extent that they are incurred by the
buyer but are not included in the price actually paid or payable for
the imported goods:
(a) Commissions and brokerage fees (except buying
commissions);
(b) Cost of containers;
(c) The cost of packing, whether for labour or materials;
(d) The value, apportioned as appropriate, of the following goods
and services: materials, components, parts and similar items
incorporated in the imported goods; tools; dies; moulds and
similar items used in the production of imported goods; materials
consumed in the production of the imported goods; and
engineering, development, artwork, design work and plans and
sketches undertaken elsewhere than in the Philippines and
necessary for the production of imported goods, where such goods
and services are supplied directly or indirectly by the buyer free of
charge or at a reduced cost for use in connection with the
production and sale for export of the imported goods;
(e) The amount of royalties and license fees related to the goods
being valued that the buyer must pay, either directly or indirectly,
as a condition of sale of the goods to the buyer;
(2) The value of any part of the proceeds of any subsequent
resale, disposal or use of the imported goods that accrues directly
or indirectly to the seller;
(3) The cost of transport of the imported goods from the
port of exportation to the port of entry in the Philippines;
(4) Loading, unloading and handling charges associated with
the transport of the imported goods from the country of
exportation to the port of entry in the Philippines; and
(5) The cost of insurance.
All additions to the price actually paid or payable shall be
made only on the basis of objective and quantifiable data.
No additions shall be made to the price actually paid or
payable in determining the customs value except as provided in
this Section: Provided, That Method One shall not be used in
determining the dutiable value of imported goods if:
(a) There are restrictions as to the disposition or use of the
goods by the buyer other than restrictions which:
(i) Are imposed or required by law or by Philippine
authorities;
(ii) Limit the geographical area in which the goods may be resold;
or
(iii) Do not substantially affect the value of the goods.
(b) The sale or price is subject to some condition or
consideration for which a value cannot be determined with respect
to the goods being valued;
(c) Part of the proceeds of any subsequent resale, disposal
or use of the goods by the buyer will accrue directly or indirectly to
the seller, unless an appropriate adjustment can be made in
accordance with the provisions hereof; or
(d) The buyer and the seller are related to one another, and
such relationship influenced the price of the goods. Such persons
shall be deemed related if:
(i) They are officers or directors of one anothers businesses;
(ii) They are legally recognized partners in business;
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(iii) There exists an employer-employee relationship between
them;
(iv) Any person directly or indirectly owns, controls or holds five
percent (5%) or more of the outstanding voting stock or shares of
both seller and buyer;
(v) One of them directly or indirectly controls the other;
(vi) Both of them are directly or indirectly controlled by a third
person;
(vii) Together they directly or indirectly control a third person; or
(viii) They are members of the same family, including those
related by affinity or consanguinity up to the fourth civil degree.
Persons who are associated in business with one another in
that one is the sole agent, sole distributor or sole concessionaire,
however described, of the other shall be deemed to be related for
the purposes of this Act if they fall within any of the eight (8)
cases above.
(B) Method Two. Transaction Value of Identical
Goods. Where the dutiable value cannot be determined
under method one, the dutiable value shall be the transaction
value of identical goods sold for export to the Philippines and
exported at or about the same time as the goods being valued.
"Identical goods" shall mean goods which are the same in all
respects, including physical characteristics, quality and reputation.
Minor differences in appearances shall not preclude goods
otherwise conforming to the definition from being regarded as
identical.
(C) Method Three. Transaction Value of Similar
Goods. Where the dutiable value cannot be determined under
the preceding method, the dutiable value shall be the transaction
value of similar goods sold for export to the Philippines and
exported at or about the same time as the goods being valued.
"Similar goods" shall mean goods which, although not alike in all
respects, have like characteristics and like component materials
which enable them to perform the same functions and to be
commercially interchangeable. The quality of the goods, their
reputation and the existence of a trademark shall be among the
factors to be considered in determining whether goods are similar.
If the dutiable value still cannot be determined through the
successive application of the two immediately preceding methods,
the dutiable value shall be determined under method four or, when
the dutiable value still cannot be determined under that method,
under method five, except that, at the request of the importer, the
order of application of methods four and five shall be reversed:
Provided, however, That if the Commissioner of Customs deems
that he will experience real difficulties in determining the dutiable
value using method five, the Commissioner of Customs may refuse
such a request in which event the dutiable value shall be
determined under method four, if it can be so determined.
(D) Method Four. Deductive Value. The dutiable
value of the imported goods under this method shall be the
deductive value which shall be based on the unit price at which the
imported goods or identical or similar imported goods are sold in
the Philippines, in the same condition as when imported, in the
greatest aggregate quantity, at or about the time of the
importation of the goods being valued, to persons not related to
the persons from whom they buy such goods, subject to
deductions for the following:
(1) Either the commissions usually paid or agreed to be
paid or the additions usually made for profit and general expenses
in connection with sales in such country of imported goods of the
same class or kind;
(2) The usual costs of transport and insurance and
associated costs incurred within the Philippines; and
(3) Where appropriate, the costs and charges referred to in
subsection (A) (3), (4) and (5); and
(4) The customs duties and other national taxes payable in
the Philippines by reason of the importation or sale of the goods.
If neither the imported goods nor identical nor similar
imported goods are sold at or about the time of importation of the
goods being valued in the Philippines in the conditions as
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imported, the customs value shall, subject to the conditions set
forth in the preceding paragraph hereof, be based on the unit price
at which the imported goods or identical or similar imported goods
sold in the Philippines in the condition as imported at the earliest
date after the importation of the goods being valued but before the
expiration of ninety (90) days after such importation.
If neither the imported goods nor identical nor similar
imported goods are sold in the Philippines in the condition as
imported, then, if the importer so requests, the dutiable value
shall be based on the unit price at which the imported goods, after
further processing, are sold in the greatest aggregate quantity to
persons in the Philippines who are not related to the persons from
whom they buy such goods, subject to allowance for the value
added by such processing and deductions provided under
Subsections (D)(1), (2), (3) and (4) hereof.
(E) Method Five. Computed Value. The dutiable
value under this method shall be the computed value which shall
be the sum of:
(1) The cost or the value of materials and fabrication or
other processing employed in producing the imported goods;
(2) The amount for profit and general expenses equal to
that usually reflected in the sale of goods of the same class or kind
as the goods being valued which are made by producers in the
country of exportation for export to the Philippines;
(3) The freight, insurance fees and other transportation
expenses for the importation of the goods;
(4) Any assist, if its value is not included under paragraph
(1) hereof; and
(5) The cost of containers and packing, if their values are
not included under paragraph (1) hereof.
The Bureau of Customs shall not require or compel any
person not residing in the Philippines to produce for examination,
or to allow access to, any account or other record for the purpose
of determining a computed value. However, information supplied
by the producer of the goods for the purposes of determining the
customs value may be verified in another country with the
agreement of the producer and provided they will give sufficient
advance notice to the government of the country in question and
the latter does not object to the investigation.
(F) Method Six. Fallback Value. If the dutiable value
cannot be determined under the preceding methods described
above, it shall be determined by using other reasonable
means and on the basis of data available in the Philippines.
If the importer so requests, the importer shall be informed
in writing of the dutiable value determined under Method Six and
the method used to determine such value.
No dutiable value shall be determined under Method Six on
the basis of:
(1) The selling price in the Philippines of goods produced in
the Philippines;
(2) A system that provides for the acceptance for customs
purposes of the higher of two alternative values;
(3) The price of goods in the domestic market of the
country of exportation;
(4) The cost of production, other than computed values,
that have been determined for identical or similar goods in
accordance with Method Five hereof;
(5) The price of goods for export to a country other than
the Philippines;
(6) Minimum customs values; or
(7) Arbitrary or fictitious values.
If in the course of determining the dutiable value of
imported goods, it becomes necessary to delay the final
determination of such dutiable value, the importer shall
nevertheless be able to secure the release of the imported goods
Page | 96
upon the filing of a sufficient guarantee in the form of a surety
bond, a deposit, cash or some other appropriate instrument in an
amount equivalent to the imposable duties and taxes on the
imported goods in question conditioned upon the payment of
customs duties and taxes for which the imported goods may be
liable: Provided, however, That goods, the importation of which is
prohibited by law shall not be released under any circumstance
whatsoever.
Nothing in this Section shall be construed as restricting or
calling into question the right of the Collector of Customs to satisfy
himself as to the truth or accuracy of any statement, document or
declaration presented for customs valuation purposes. When a
declaration has been presented and where the customs
administration has reason to doubt the truth or accuracy of the
particulars or of documents produced in support of this
declaration, the customs administration may ask the importer to
provide further explanation, including documents or other
evidence, that the declared value represents the total amount
actually paid or payable for the imported goods, adjusted in
accordance with the provisions of Subsection (A) hereof.
If, after receiving further information, or in the absence of a
response, the customs administration still has reasonable doubts
about the truth or accuracy of the declared value, it may, without
prejudice to an importers right to appeal pursuant to Article 11 of
the World Trade Organization Agreement on customs valuation, be
deemed that the customs value of the imported goods cannot be
determined under Method One. Before taking a final decision, the
Collector of Customs shall communicate to the importer, in writing
if requested, his grounds for doubting the truth or accuracy of the
particulars or documents produced and give the importer a
reasonable opportunity to respond. When a final decision is made,
the customs administration shall communicate to the importer in
writing its decision and the grounds therefor."
(b) POST ENTRY AUDIT
"SEC. 3515. Compliance Audit or Examination of Records. -
The importers/customs brokers shall allow any customs officer
authorized by the Bureau of Customs to enter during office hours
any premises or place where the records referred to in the
preceding section are kept to conduct audit examination,
inspection, verification and/or investigation of those records either
in relation to specific transactions or to the adequacy and integrity
of the manual or electronic system or systems by which such
records are created and stored. For this purpose. A duty
authorized customs officer shall be full and free access to all
books, records, and documents necessary or relevant for the
purpose of collecting the proper duties and taxes.
In addition, the authorized customs officer may make
copies of, or take extracts from any such documents. The records
or documents must, as soon as practicable after copies of such
have been taken, be returned to the person in charge of such
documents.
A copy of any such document certified by or on behalf of
the importer/broker is admissible in evidence in all courts as if it
were the original.
An authorized customs officer is not entitled to enter any
premises under this Section unless, before so doing, the officer
produces to the person occupying or apparently in charge of the
premises written evidence of the fact that he or she is an
authorized officer. The person occupying or apparently in charge of
the premises entered by an officer shall provide the officer with all
reasonable facilities and assistance for the effective exercise of
powers under this Section.
Unless otherwise provided herein or in other provisions of law, the
Bureau of Customs may, in case of disobedience, invoke the aid of
the proper regional trial court within whose jurisdiction the matter
falls. The court may punish contumacy or refusal as contempt. In
addition, the fact that the importer/broker denies the authorized
customs officer full and free access to importation records during
the conduct of a post-entry audit shall create a presumption of
inaccuracy in the transaction value declared for their imported
goods and constitute grounds for the Bureau of Customs to
conduct a re-assessment of such goods.
Page | 97
 This is without prejudice to the criminal sanctions imposed
by this Code and administrative sanctions that the Bureau of
Customs may impose against contumacious importers under
existing laws and regulations including the authority to hold
delivery or release of their imported articles."
"SEC. 3516. Scope of the Audit.
(a) The audit of importers shall be undertaken:
(1) When firms are selected by a computer-aided risk
management system, the parameters of which are to be based on
objective and quantifiable data and are to be approved by the
Secretary of Finance upon recommendation of the Commissioner
of Customs. The criteria for selecting firms to be audited shall
include, but not be limited to, the following:
(a) Relative magnitude of customs revenue from the firm;
(b) The rates of duties of the firms imports;
(c) The compliance tract records of the firm; and
(d) An assessment of the risk to revenue of the firms import
activities.
(2) When errors in the import declaration are detected;
(3) When firms voluntarily request to be audited, subject to
the approval of the Commissioner of Customs.
(b) Brokers shall be audited to validate audits of their
importer clients and/or fill information gaps revealed during an
audit of their importers clients."
"SEC. 3517. Documents in Foreign Language. - Where a document
in a foreign language is presented to a customs officer in relation
to the carrying out of any duty or the exercise of any power of the
Bureau of Customs under this Code, said document in a foreign
language must be accompanied with a translation in the
official language of this country."
"Sec. 3518. Records to Be Kept by Customs. The Bureau of
Customs shall likewise keep a record of audit results in a database
of importer and broker profiles, to include but not be limited to:
(a) Articles of Incorporation;
(b) The company structure, which shall include but not be limited
to:
(1) Incorporators and Board of Directors;
(2) Key officers; and
(3) Organizational structure;
(c) Key importations;
(d) Privileges enjoyed;
(e) Penalties; and
(f) Risk category (ies)."
6. IMPORTATION IN VIOLATION OF TCCP
PENAL PROVISION
Sec. 3601. Unlawful Importation. Any person who shall
fraudulently import or bring into the Philippines, or assist in so
doing, any article, contrary to law, or shall receive, conceal, buy,
sell, or in any manner facilitate the transportation, concealment, or
sale of such article after importation, knowing the same to have
been imported contrary to law
PUNISHABLE BY a fine of not less than P600 nor more than
P5,000 and imprisonment for not less than 6 months nor more
than 2years and, if the offender is an alien, he shall be deported
after serving the sentence.
When, upon trial for a violation of this section, the defendant is
shown to have or to have had possession of the article in question,
such possession shall be deemed sufficient evidence to authorize
conviction, unless the defendant shall explain the possession to the
satisfaction of the court.
Sec. 3602. Various Fraudulent Practices Against Customs
Revenue. Any person who makes or attempts to make any
entry of imported or exported article by means of any false or
fraudulent invoice, declaration, affidavit, letter, paper, or by
means of any false statement, written or verbal, or by means of
Page | 98
any false or fraudulent practice whatsoever, or shall be guilty of
any willful act or omission by means of whereof the Government
might be deprived of the lawful duties, taxes and other charges, or
any portion thereof, accruing from the article or any portion
thereof, embraced or referred to in such invoice, declaration,
affidavit, letter, paper, or statement, or affected by such act or
omission, shall, for each offense
PUNISHABLE BY a fine of not less than P600 nor more than
P5,000 and by imprisonment for not less than 6months nor more
than 2years and if the offender is an alien, he shall be deported
after serving the sentence.
PROPERTIES SUBJECT TO FORFEITURE
Sec. 2530.Property Subject to Forfeiture Under Tariff and
Customs Laws. Any vessel or aircraft, cargo, articles and other
objects shall, under the following conditions, be subject to
forfeiture:
a. Any vessel or aircraft, including cargo, which shall be used
lawfully in the importation or exportation of articles into or from
any Philippine port or place except a port of entry; and any vessel
which, being of less than thirty tons capacity shall be used in the
importation of articles into any Philippine port or place except into
a port of the Sulu sea where importation in such vessel may be
authorized by the Commissioner, with the approval of the
department head.
b. Any vessel engaging in the coastwise trade which shall have on
board any article of foreign growth, product or manufacture in
excess of the amount necessary for sea stores, without such article
having been properly entered or legally imported.
c. Any vessel or aircraft into which shall be transferred cargo
unladen contrary to law prior to the arrival of the importing vessel
or aircraft at her port of destination.
d. Any part of the cargo of a vessel or aircraft arriving from a
foreign port which is unladen before arrival at the vessel's or
aircraft's port of destination and without authority from the proper
customs official; but such cargo shall not be forfeited if such
unlading was due to accident, stress of weather or other necessity
and is subsequently approved by the Collector.
e. Any article which is fraudulently concealed in or removed from
any public or private warehouse under customs supervision.
f. Any article of prohibited importation or exportation, the
importation or exportation of which is effected or attempted
contrary to law, and all other articles which, in the opinion of the
Collector, have been used, are or were intended to be used as
instrument in the importation or exportation of the former.
g. Unmanifested article found on any vessel or aircraft, if manifest
therefor is required.
h. Sea stores or stores for aircraft adjudged by the Collector to be
excessive, when the duties assessed by the Collector thereon are
not paid or secured forthwith upon assessment of the same.
i. Any package of imported article which is found by the examining
official to contain any article not specified in the invoice or entry,
including all other packages purportedly containing imported
articles similar to those declared in the invoice or entry to be the
contents of the misdeclared package, provided the Collector is of
the opinion that the misdeclaration was caused with fraudulent
intent.
j. Boxes, cases, trunks, envelopes and other containers of
whatever character used as receptacles or as devices to conceal
article which is itself subject to forfeiture under the customs and
tariff laws or which is so designed as to conceal the character of
such article.
k. Any beast actually being used for the conveyance of article
subject to forfeiture under the customs and tariff laws with its
equipage or trappings, and any vehicles similarly used, together
with its equipage and appurtenances, including the beast, team or
other motive power drawing or propelling the same; but the
forfeiture shall not be effected if it is established that the owner of
the means of conveyance used as aforesaid or his agent in charge
thereof at the time, has no knowledge of the unlawful act.
Page | 99
l. Any money or thing of value offered as a bribe or for the purpose
of exerting improper influence over a customs official or employee.
m. Any article sought to be imported or exported:
(1) Without going through a customhouse, whether the act
was consummated, frustrated or attempted;
(2) By failure to mention to a customs official, articles found in
the baggage of a person arriving from abroad.
Forfeiture proceedings are proceedings in rem and are directed
against the res. It is no defense that the owner of the vessel
sought to be forfeited had no actual knowledge that his property
was used illegally. The absence or lack of actual knowledge of such
use is a defense personal to the owner himself which cannot in any
way absolve the vessel from the liability of forfeiture.

(3) On the strength of a false declaration or affidavit executed

by the owner, importer, exporter or consignee concerning
the importation or exportation of such article.

(4) On the strength of a false invoice or other document

executed by the owner, importer, exporter or consignee
concerning the importation or exportation of such article.

(5) Through any other fraudulent practice or device by means

of which such articles was entered through a customhouse
to the prejudice of the government.

Sec. 2531. Conditions Affecting Forfeiture of Article. As

regards imported or exported article or articles whereof the
importation or exportation is merely attempted, the forfeiture shall
be effected only when and while the article is in the custody or
within the jurisdiction of the customs authorities or in the hands or
subject to the control of the importer, exporter, original owner,
consignee, agent or other person effecting the importation, entry
or exportation in question, or in the hands or subject to the control
of some person who shall receive, conceal, buy, sell or transport
the same or aid in any such acts, with knowledge that the article
was imported, or was the subject of an attempt at importation or
exportation, contrary to law.

COMMISSIONER OF CUSTOM V. MANILA STAR FERRY

Section 2530(a) of the Tariff and Customs Code in unmistakable
terms provides that a vessel engaged in smuggling "in a port of
entry" cannot be forfeited. This is the clear and plain meaning of
the law. It is not within the province of the Court to inquire into
the wisdom of the law, for indeed, we are bound by the words of
the statute.

Page | 100
LOCAL GOVERNMENT TAXATION aggrieved party may file appropriate proceedings with a court of
competent jurisdiction.

Section 188. Publication of Tax Ordinances and Revenue

II. LOCAL GOVERNMENT TAXATION Measures. - Within ten (10) days after their approval, certified
true copies of all provincial, city, and municipal tax ordinances or
revenue measures shall be published in full for three (3)
A. REQUIREMENTS FOR IMPOSITION OF LOCAL consecutive days in a newspaper of local circulation:
Provided, however, That in provinces, cities and municipalities
TAXES BY LGUs SECS. 132, 186-192, LGC
where there are no newspapers of local circulation, the same may
be posted in at least two (2) conspicuous and publicly
Section 132. Local Taxing Authority. - The power to impose a
accessible places.
tax, fee, or charge or to generate revenue under this Code shall be
exercised by the sanggunian of the local government unit
Section 189. Furnishing of Copies of Tax Ordinances and
concerned through an appropriate ordinance.
Revenue Measures. - Copies of all provincial, city, and municipal
and barangay tax ordinances and revenue measures shall be
Section 186. Power To Levy Other Taxes, Fees or Charges. -
furnished the respective local treasurers for public dissemination.
Local government units may exercise the power to levy taxes, fees
or charges on any base or subject not otherwise specifically
Section 190. Attempt to Enforce Void or Suspended Tax
enumerated herein or taxed under the provisions of the National
Ordinances and revenue measures. - The enforcement of any
Internal Revenue Code, as amended, or other applicable laws:
tax ordinance or revenue measure after due notice of the
Provided, That the taxes, fees, or charges shall not be unjust,
disapproval or suspension thereof shall be sufficient ground for
excessive, oppressive, confiscatory or contrary to declared
administrative disciplinary action against the local officials and
national policy: Provided, further, That the ordinance levying
employees responsible therefor.
such taxes, fees or charges shall not be enacted without
any prior public hearing conducted for the purpose.
Section 191. Authority of Local Government Units to Adjust
Rates of Tax Ordinances. - Local government units shall have
Section 187. Procedure for Approval and Effectivity of Tax,
the authority to adjust the tax rates as prescribed herein not
Ordinances and Revenue Measures; Mandatory Public
oftener than once every five (5) years, but in no case shall such
Hearings. - The procedure for approval of local tax ordinances
adjustment exceed ten percent (10%) of the rates fixed under this
and revenue measures shall be in accordance with the provisions
Code.
of this Code: Provided, That public hearings shall be conducted for
the purpose prior to the enactment thereof: Provided, further, That
Section 192. Authority to Grant Tax Exemption Privileges. -
any question on the constitutionality or legality of tax ordinances
Local government units may, through ordinances duly approved,
or revenue measures may be raised on appeal within thirty (30)
grant tax exemptions, incentives or reliefs under such terms and
days from the effectivity thereof to the Secretary of Justice who
conditions as they may deem necessary.
shall render a decision within sixty (60) days from the date
of receipt of the appeal: Provided, however, That such appeal
shall not have the effect of suspending the effectivity of the DRILON V.LIM
ordinance and the accrual and payment of the tax, fee, or ISSUE: WON the RTC was correct in declaring the ordinance
charge levied therein: Provided, finally, That within thirty (30) unconstitutional.
days after receipt of the decision or the lapse of the sixty-day
period without the Secretary of Justice acting upon the appeal, the HELD: We do not share that view.

Page | 101
Section 187 authorizes the Secretary of Justice to review only the
constitutionality or legality of the tax ordinance and, if warranted,
to revoke it on either or both of these grounds. When he alters or
modifies or sets aside a tax ordinance, he is not also permitted to
substitute his own judgment for the judgment of the local
government that enacted the measure.
Secretary Drilon did set aside the Manila Revenue Code, but he did
not replace it with his own version of what the Code should be. He
did not pronounce the ordinance unwise or unreasonable as a basis
for its annulment. He did not say that in his judgment it was a bad
law. What he found only was that it was illegal. All he did in
reviewing the said measure was determine if the petitioners were
performing their functions in accordance with law, that is, with the
prescribed procedure for the enactment of tax ordinances and the
grant of powers to the city government under the Local
Government Code. As we see it, that was an act not of control but
of mere supervision.
An officer in control lays down the rules in the doing of an act. If
they are not followed, he may, in his discretion, order the act
undone or re-done by his subordinate or he may even decide to do
it himself. Supervision does not cover such authority. The
supervisor or superintendent merely sees to it that the rules are
followed, but he himself does not lay down such rules, nor does he
have the discretion to modify or replace them. If the rules are not
observed, he may order the work done or re-done but only to
conform to the prescribed rules. He may not prescribe his own
manner for the doing of the act. He has no judgment on this
matter except to see to it that the rules are followed. In the
opinion of the Court, Secretary Drilon did precisely this, and no
more nor less than this, and so performed an act not of control but
of mere supervision.
The issue of non-compliance with the prescribed procedure in the
enactment of the Manila Revenue Code is another matter.
In his resolution, Secretary Drilon declared that there were no
written notices of public hearings on the proposed Manila Revenue
Code that were not sent to interested parties, nor were copies of
the proposed ordinance published in three successive issues of a
newspaper of general circulation. No minutes were submitted to
show that the obligatory public hearings had been held. Neither
were copies of the measure as approved posted in prominent
places in the city. Finally, the Manila Revenue Code was not
translated into Pilipino or Tagalog and disseminated among the
people for their information and guidance.
Judge Palattao found otherwise. He declared that all the procedural
requirements had been observed in the enactment of the Manila
Revenue Code and that the City of Manila had not been able to
prove such compliance before the Secretary only because he had
given it only five days within which to gather and present to him
all the evidence which was later submitted to the trial court.
We have carefully examined every one of these exhibits and agree
with the trial court that the procedural requirements have indeed
been observed. Notices of the public hearings were sent to
interested parties. The minutes of the hearings are found in the
Exhibits. The proposed ordinances were published in the Balita and
the Manila Standard respectively, and the approved ordinance was
published in the Manila Standard and Balita.
The only exceptions are the posting of the ordinance as approved
but this omission does not affect its validity, considering that its
publication in three successive issues of a newspaper of general
circulation will satisfy due process. It has also not been shown that
the text of the ordinance has been translated and disseminated,
but this requirement applies to the approval of local development
plans and public investment programs of the local government unit
and not to tax ordinances.
COCA-COLA BOTTLERS PHIL V. CITY OF MANILA
ISSUE: Whether or not Tax Ordinance no. 7988 is null and void.
HELD: YES. It is undisputed from the facts of the case that Tax
Ordinance No. 7988 has already been declared by the DOJ
Secretary, in its Order, dated 17 August 2000, as null and void
and without legal effect due to respondents failure to
satisfy the requirement that said ordinance be published for
three consecutive days as required by law. Neither is there
quibbling on the fact that the said Order of the DOJ was never
appealed by the City of Manila, thus, it had attained finality after
the lapse of the period to appeal.
Page | 102
Furthermore, the RTC of Manila, Branch 21, in its Decision dated C. COMMON LIMITATIONS ON TAXING POWERS
28 November 2001, reiterated the findings of the DOJ Secretary OF THE LGU SEC. 133, LGC
that respondents failed to follow the procedure in the enactment of
tax measures as mandated by Section 188 of the Local
Government Code of 1991, in that they failed to publish Tax
Section 133. Common Limitations on the Taxing Powers of
Ordinance No. 7988 for three consecutive days in a newspaper of
Local Government Units. - Unless otherwise provided herein,
local circulation. From the foregoing, it is evident that Tax
the exercise of the taxing powers of provinces, cities,
Ordinance No. 7988 is null and void as said ordinance was
municipalities, and barangays shall not extend to the levy of the
published only for one day in the 22 May 2000 issue of the
following: (DICE-OtABEV-TR2ExCoopGov)
Philippine Post in contravention of the unmistakable directive of
the Local Government Code of 1991.
(a) INCOME tax, EXCEPT when levied on banks and other financial
institutions;
Despite the nullity of Tax Ordinance No. 7988, the court a quo, in
the assailed Order, dated 8 May 2002, went on to dismiss
(b) DOCUMENTARY stamp tax (DST);
petitioners case on the force of the enactment of Tax Ordinance
No. 8011, amending Tax Ordinance No. 7988. Significantly, said
(c) Taxes on ESTATES, inheritance, gifts, legacies and other
amending ordinance was likewise declared null and void by the
acquisitions mortis causa, except as otherwise provided herein;
DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that
"[I]nstead of amending Ordinance No. 7988, [herein] respondent
(d) CUSTOMS DUTIES, registration fees of vessel and wharfage on
should have enacted another tax measure which strictly complies
wharves, tonnage dues, and all other kinds of customs fees,
with the requirements of law, both procedural and substantive.
charges and dues except wharfage on wharves constructed and
The passage of the assailed ordinance did not have the effect of
maintained by the local government unit concerned;
curing the defects of Ordinance No. 7988 which, any way, does not
legally exist." Said Resolution of the DOJ Secretary had, as
(e) Taxes, fees, and charges and OTHER IMPOSITIONS upon goods
well, attained finality by virtue of the dismissal with finality
carried into or out of, or passing through, the territorial
by this Court of respondents Petition for Review .
jurisdictions of local government units in the guise of charges for
wharfage, tolls for bridges or otherwise, or other taxes, fees, or
charges in any form whatsoever upon such goods or merchandise;
B. AUTHORITY TO ADJUST RATES AND GRANT
EXEMPTIONS SECS. 191, 192 LGC (f) Taxes, fees or charges on AGRICULTURAL and aquatic products
when sold by marginal farmers or fishermen;
Section 191. Authority of Local Government Units to Adjust
Rates of Tax Ordinances. - Local government units shall have (g) Taxes on BUSINESS enterprises certified to by the Board of
the authority to adjust the tax rates as prescribed herein not Investments as pioneer or non-pioneer for a period of six (6) and
oftener than once every five (5) years, but in no case shall such four (4) years, respectively from the date of registration;
adjustment exceed ten percent (10%) of the rates fixed under this
Code. (h) EXCISE TAXES on articles enumerated under the national
Internal Revenue Code, as amended, and taxes, fees or charges
Section 192. Authority to Grant Tax Exemption Privileges. - on petroleum products;
Local government units may, through ordinances duly approved,
grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.

Page | 103
(i) Percentage OR VALUE-ADDED TAX (VAT) on sales, barters or
exchanges or similar transactions on goods or services except as
otherwise provided herein;
(j) Taxes on the gross receipts of TRANSPORTATION
CONTRACTORS and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code;
(k) Taxes on premiums paid by way or REINSURANCE or
retrocession;
(l) Taxes, fees or charges for the REGISTRATION of motor vehicles
and for the issuance of all kinds of licenses or permits for the
driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually
EXPORTED, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and COOPERATIVES duly registered under R.A. No.
6810 and Republic Act Numbered Sixty-nine hundred thirty-eight
(R.A. No. 6938) otherwise known as the "Cooperative Code of the
Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National
GOVERNMENT, its agencies and instrumentalities, and local
government units.
PROVINCE OF BULACAN V. CA
G.R. NO 126232 (1998)
FACTS: On June 26, 1992, the SangguniangPanlalawigan of
Bulacan passed Provincial Ordinance No. 3, known as "An
ordinance Enacting the Revenue Code of the Bulacan Province,"
which was to take effect on July 1, 1992. Section 21 of the
ordinance provides as follows:
Section 21. Imposition of Tax. There is hereby levied and
collected a tax of 10% of the fair market value in the locality per
cubic meter of ordinary stones, sand, gravel, earth and other
quarry resources, such, but not limited to marble, granite, volcanic
cinders, basalt, tuff and rock phosphate, extracted from public
lands or from beds of seas, lakes, rivers, streams, creeks and
other public waters within its territorial jurisdiction.
1. The Provincial Treasurer of Bulacan then assessed Republic
Cement Corporation (RCC) the amount of P2.5 million for
extracting limestone, shale and silica from several parcels
of private land in the province during the third quarter of
1992 up to the second quarter of 1993.
2. RCC, believing that the province on the basis of the above
ordinance had no authority to impose taxes on quarry
resources extracted from private land, formally contested
the same on Dec. 23, 1993. The same was denied by the
Provincial Treasurer. RCC filed a petition for declaratory
relief with the RTC of Bulacan which ruled that such relief
was improper allegedly because a breach of the ordinance
had been committed by RCC.
3. RCC then filed a petition for certiorari with the SC seeking
to reverse the RTC decusuib, The SC referred the case to
the CA.
4. Pending resolution in the CA, the Province of Bulacan
(Bulacan) issued a warrant of levy against RCC because of
its unpaid tax liabilities. Negotiations between Bulacan
and RCC resulted in an agreement and modus vivendi
whereby RCC paid P1.2 million under protest, representing
50% of the assessed tax, in exchange for the lifting of the
warrant of levy.
ISSUE: WON the provincial government could impose and/or
assess taxes on quarry resources extracted by RCC from private
lands pursuant to the Ordinance.
HELD: NO. A province has no authority to impose taxes on
stones, sand, gravel and earth and other quarry resources
extracted from private lands.
The pertinent provisions of the Local Government Code are as
follows:
Sec. 134. Scope of Taxing Powers. - Except as otherwise provided
in this Code, the province may levy only the taxes, fees, and
charges as provided in this Article.
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. - The
province may levy and collect not more than ten percent (10%) of
Page | 104
fair market value in the locality per cubic meter of ordinary stones,
sand, gravel, earth, and other quarry resources, as defined under
the National Internal Revenue Code, as amended, extracted
from public lands or from the beds of seas, lakes, rivers,
streams, creeks, and other public waters within its territorial
jurisdiction.
Bulacan claims that the tax imposed is an excise tax, being a tax
upon the performance, carrying on or exercise of an activity. A
province may not levy excise taxes on articles already taxed
by the NIRC. The NIRC clearly provides a tax on ALL quarry
resources, regardless of origin, whether extracted from
public or private lands.
Section 151. - Mineral Products. -NIRC
(A) Rates of Tax. - There shall be levied, assessed and collected
on minerals, mineral products and quarry resources, excise tax as
follows:
(2) On all nonmetallic minerals and quarry resources, a tax of
two percent (2%) based on the actual market value of the gross
output thereof at the time of removal, in case of those locally
extracted or produced; or the values used by the Bureau of
Customs in determining tariff and customs duties, net of excise tax
and value-added tax, in the case of importation.
Thus, a province may not ordinarily impose taxes on stones, sand,
gravel, earth and other quarry resources, as the same are already
taxed under the National Internal Revenue Code. The province
can, however, impose a tax on stones, sand, gravel, earth and
other quarry resources extracted from public land because it is
expressly empowered to do so under the Local Government
Code. As to stones, sand, gravel, earth and other quarry
resources extracted from private land, however, it may not do so,
because of the limitation provided by Section 133 of the Code in
relation to Section 151 of the National Internal Revenue Code.
PETRON CORP V. TIANGCO
G.R. NO 15881 (2008)
FACTS: Petron maintains a depot at the NavotasFishport Complex.
Through that depot, it has engaged in the selling of diesel fuels to
vessels used in commercial fishing in and around Manila Bay.
1 March 2002, Petron received a tax assessment from the
office of Mayor Tiangco covering sale of diesel from 1997 to
2001 amounting to P6,259,087.62, (derived from the gross
sales of the depot). The computation sheets that were
attached to the letter in reference to Ordinance 92-03 (New
Navotas Revenue Code).
Petron filed with Navotas a letter-protest to the notice of
assessment pursuant to Section 195 of the Code. It argued
that it was exempt from local business taxes in view of :
o Art. 232(h) of the IRR of the Code, and
o ruling of the Bureau of Local Government Finance of
the Department of Finance stating that sales of
petroleum fuels are not subject to local taxation.
The letter-protest was denied by the Municipal Treasurer. This
was followed by a Final Demand to Pay letter from the
Mayor requiring Petron to pay the assessed amount within (5)
days from its receipt, with a threat of closure of Petron's
operations should there be no payment. Petron replied
objecting to the threat of closure. The Mayor did not respond
to this last letter.
20 May 2002, Petron filed with the Malabon-RTC a Complaint
for Cancellation of Assessment for Deficiency Taxes. While the
case was pending, respondents refused to issue a business
permit, prompting Petron to file a Supplemental Complaint
with Prayer for Preliminary Mandatory Injunction against
Respondents.
5 May 2003, RTC dismissed Petron's complaint and ordered it
to pay the assessed amount. 11 days later, Petron received a
Closure Order from the Mayor. Petron sought a TRO from the
RTC, but this was denied. MR was also denied.
SC issued a TRO, enjoining the respondents from closing
Petron's Navotas plant. The controversy hinges on the correct
interpretation of Section 133(h) of the LGC, and the
applicability of Article 232 (h) of the IRR.
Section 133(h) of the LGC reads as follows:
Sec. 133.Common Limitations on the Taxing Powers of Local
Government Units. - Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and Barangays shall not extend to the levy of the following:
(h) Excise taxes on articles enumerated under the NIRC, as
amended, AND taxes, fees or charges on petroleum products;
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ISSUE: Is an LGU empowered under the Local Government Code
to impose business taxes on persons or entities engaged in the
sale of petroleum products? NO.
HELD: Section 133 prescribes the limitations on the capacity of
LGU to exercise their taxing powers otherwise granted to them
under the LGC. Apparently, paragraph (h) mentions two kinds of
taxes which cannot be imposed by LGU, namely: "excise taxes
on articles enumerated under the NIRC, as amended;" and "taxes,
fees or charges on petroleum products."
The power of a municipality to impose business taxes is
provided for in Section 143 of the LGC. A municipality is
authorized to impose business taxes on a whole host of
business activities. Unless there is another provision of law
which states otherwise.
Nonetheless, Article 232 of the IRR defines with more particularity
the capacity of a municipality to impose taxes on businesses. The
enumeration that follows is generally a positive list of businesses
which may be subjected to business taxes, and paragraph (h) of
Article 232 does allow the imposition of local business taxes "[o]n
any business not otherwise specified in the preceding paragraphs
which the sanggunian concerned may deem proper to tax," but
subject to this important qualification, thus:
"xxx provided further, that in line with existing national policy, any
business engaged in the production, manufacture, refining,
distribution or sale of oil, gasoline and other petroleum products
shall not be subject to any local tax imposed on this article.
RE BUSINESS TAX:
Petron argues that the "business taxes" on its sale of diesel fuels
partakes of an excise tax, which if true, could invalidate the
challenged tax solely on the basis of the phrase "excise taxes on
articles enumerated under the NIRC. It cites Cordero v. Conda, as
having explained that "an excise tax is a tax upon the
performance, carrying on, or the exercise of an activity."
Respondents, on the other hand, argue that what the provision
prohibits is the imposition of excise taxes on petroleum products,
but not the imposition of business taxes on the same citing
Philippine Petroleum Corporation v. Municipality of Pililia.
NIRC categorize two different kinds of excise taxes: "specific
tax" which is imposed and based on weight or volume capacity or
any other physical unit of measurement; and "ad valorem tax"
which is imposed and based on the selling price or other specified
value of the goods.
The current definition of an excise tax is that of a tax levied
on a specific article, rather than one "upon the performance,
carrying on, or the exercise of an activity." This current definition
was already in place when the LGC was enacted in 1991, and we
can only presume that it was what the Congress had intended as it
specified that local government units could not impose "excise
taxes on articles enumerated under the [NIRC]."
Thus, Petron's argument concerning excise taxes is founded not on
what the NIRC or the Code actually provides, but on a non-
statutory definition sourced from a legal paradigm that is no longer
applicable in this jurisdiction.
EXCISE TAXES as imposed under the NIRC, DO NOT pertain to
"the performance, carrying on, or exercise of an activity," at least
not to the extent of equating excise with business taxes.
RE BUSINESS TAXES BASED ON THE SALE OF PETROLEUM
PRODUCTS:
The power of a municipality to impose business taxes derives from
Section 143 of the Code that specifically enumerates several types
of business on which it may impose taxes, including
manufacturers, wholesalers, distributors, dealers of any article of
commerce of whatever nature. This ability of LGUs to impose
business or other local taxes is rooted in the 1987 Constitution.
Section 5, Article X assures that "[e]ach local government unit
shall have the power to create its own sources of revenues and to
levy taxes, fees and charges," though the power is "subject to
such guidelines and limitations as the Congress may provide." The
FISCAL AUTONOMY of LGUs has received greater affirmation
than ever. Section 5(b) then proceeds to assert that "[i]n case of
doubt, any tax ordinance or revenue measure shall be construed
strictly against the LGU enacting it, and liberally in favor of the
taxpayer." Evidently, local fiscal autonomy should not necessarily
translate into abject deference to the power of local government
units to impose taxes.
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Respondents assert that the phrase "taxes, fees or charges on
petroleum products" pertains to the imposition of direct or excise
taxes on petroleum products, and not business taxes. If the phrase
actually pertains to excise taxes, then it would be an exercise in
utter redundancy, since the preceding phrase already prohibits the
imposition of excise taxes on articles already subject to such taxes
under the NIRC, such as petroleum products.
SC concedes that a tax on a business is distinct from a tax on the
article itself, that a business tax is distinct from an excise tax.
However, such distinction is immaterial insofar as the latter
part of Section 133(h) is concerned, for the phrase "taxes,
fees or charges on petroleum products" does not qualify the kind
of taxes, fees or charges that could withstand the absolute
prohibition imposed by the provision. The absence of such a
qualification leads to the CONCLUSION that all sorts of taxes on
petroleum products, including business taxes, are prohibited by
Section 133(h). Where the law does not distinguish, we
should not distinguish.
While LGUs are authorized to burden all such other class of goods
with "taxes, fees and charges," excepting excise taxes, a specific
prohibition is imposed barring the levying of any other type of
taxes with respect to petroleum products.
RE OIL DEREGULATION LAW:
Respondents argue that since the oil industry is presently
deregulated the basis for exempting petroleum products from
business taxes no longer exists. The Code itself does not connect
its prohibition on taxation of petroleum products with any existing
or future national oil policy, so the change in such national policy
with the regime of oil deregulation is ultimately of no moment.
The reasoning behind singling out petroleum products, among all
other commodities, as beyond the power of local government units
to levy local taxes: There is an inevitable link between the
fluctuation of oil prices and the prices of every other commodity.
The reality, indeed, is oil is a political commodity. Its shortage of
supply or a slight, upward spiral in its price shakes our economic
foundation. It can be reasonably presumed that if
municipalities, cities and provinces were authorized to
impose business taxes on manufacturers and retailers of
petroleum products, the resulting losses to these
enterprises would be passed on to the consumers,
triggering the chain of increases that normally accompany
the increase in oil prices. No similarly massive trigger effect
would ensue upon the imposition of business taxes on other
commodities, including those already subject to excise taxation
under the NIRC.
While Section 133(h) does not generally bar the imposition of
business taxes on articles burdened by excise taxes under the
NIRC, it specifically prohibits local government units from
extending the levy of any kind of "taxes, fees or charges on
petroleum products." Accordingly, the subject tax assessment
is ultra vires and void.
CITY OF MANILA V. COCA-COLA BOTTLERS PHILS
G.R. NO 181845 (2009)
FACTS: Respondent paid the local business tax only as a
manufacturers as it was expressly exempted from the business tax
under a different section and which applied to businesses subject
to excise, VAT or percentage tax under the Tax Code. The City of
Manila subsequently amended the ordinance by deleting the
provision exempting businesses under the latter section if they
have already paid taxes under a different section in the ordinance.
This amending ordinance was later declared by the Supreme Court
null and void. Respondent then filed a protest on the ground of
double taxation. RTC decided in favor of Respondent and the
decision was received by Petitioner on April 20, 2007. On May 4,
2007, Petitioner filed with the CTA a Motion for Extension of Time
to File Petition for Review asking for a 15-day extension or until
May 20, 2007 within which to file its Petition. A second Motion for
Extension was filed on May 18, 2007, this time asking for a 10-day
extension to file the Petition. Petitioner finally filed the Petition on
May 30, 2007 even if the CTA had earlier issued a resolution
dismissing the case for failure to timely file the Petition.
HELD: There is indeed double taxation if respondent is subjected
to the taxes under both Sections 14 and 21 of the tax ordinance
since these are being imposed: (1) on the same subject matter
the privilege of doing business in the City of Manila; (2) for the
same purpose to make persons conducting business within the
City of Manila contribute to city revenues; (3) by the same taxing
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authority petitioner City of Manila; (4) within the same taxing
jurisdiction within the territorial jurisdiction of the City of
Manila; (5) for the same taxing periods per calendar year; and
(6) of the same kind or character a local business tax imposed
on gross sales or receipts of the business.
FIRST PHIL INDUSTRIAL CORP V. CA
G.R. NO 125948 (2000)
FACTS: FPIC grantee of a pipeline concession under Republic Act
No. 387, as amended, to contract, install and operate oil pipelines
It applied for a mayors permit with the Office of the Mayor
of Batangas City. Before the permit could be issued, it was
required by the City Treasurer to pay a local tax based on
its gross receipts for the fiscal year 1993 pursuant to the
Local Government Code. It paid the tax under protest.
It filed a complaint for tax refund alleging that 1) the
imposition and collection of the business tax on its gross
receipts violates Section 133 of the Local Government
Code which grants tax exemption to common carriers; 2)
the authority of cities to impose and collect a tax on the
gross receipts of contractors and independent
contractors under Sec. 141 (e) and 151 does not include
the authority to collect such taxes on transportation
contractors for, as defined under Sec. 131 (h), the term
contractors excludes transportation contractors; and, 3)
the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund
of the tax paid.
ISSUES: 1. WON FPIC is a common carrier; 2. WON it is
exempted from paying the taxes required by the City
Treasurer
HELD: 1. Yes. FPIC is engaged in the business of transporting or
carrying goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and
transports the goods by land and for compensation.
common carrier - holds himself out to the public as
engaged in the business of transporting persons or
property from place to place, for compensation, offering
his services to the public generally (see also Art. 1732)
test for determining whether a party is a common carrier
of goods:
a. engaged in the business of carrying goods for others as
a public employment, and must hold himself out as ready
to engage in the transportation of goods for person
generally as a business and not as a casual occupation;
b. undertakes to carry goods of the kind to which his
business is confined
c. undertakes to carry by the method by which his
business is conducted and over his established roads
d. transportation is for hire
common service coincides with public service
public service includes every person that now or
hereafter may own, operate. manage, or control in the
Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class,
express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant,
canal, irrigation system gas, electric light heat and power,
water supply and power petroleum, sewerage system, wire
or wireless communications systems, wire or wireless
broadcasting stations and other similar public services (CA
No. 1416, as amended, otherwise known as the Public
Service Act)
FPIC - considered a common carrier under Art. 86 of the
Petroleum Act of the Philippines (RA 387), which provides
that: Art. 86. Pipe line concessionaire as common carrier.
A pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation
capacity pro rata for the transportation of such other
petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have
been approved by the Secretary of Agriculture and Natural
Resources.
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 FPIC is also a public utility pursuant to Art. 7 of RA 387
which states that everything relating to the exploration
for and exploitation of petroleum . . . and everything
relating to the manufacture, refining, storage, or
transportation by special methods of petroleum, is hereby
declared to be a public utility
2. Yes. Legal basis is Section 133 (j), of the Local Government
Code which provides that Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following: Taxes
on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this
Code.
Reason for the exception: to avoid duplication of tax
LTO V. CITY OF BUTUAN
G.R. NO 131512 (2000)
The SC ruled that the registration and licensing functions are
vested in the LTO while franchising and regulatory responsibilities
are vested in the LTFRB. Under the Local Government Code, LGUs
have the power to regulate the operation of tricycle for hire and to
grant franchise for the operation thereof.
MIAA V. COURT OF APPEALS
G.R. NO 155650 (2006)
FACTS: MIAA received Final Notices of Real Estate Tax
Delinquency from the City of Paraaque for the taxable years 1992
to 2001. MIAAs real estate tax delinquency was estimated at P624
million.
The City of Paraaque, through its City Treasurer, issued notices of
levy and warrants of levy on the Airport Lands and Buildings. The
Mayor of the City of Paraaque threatened to sell at public auction
the Airport Lands and Buildings should MIAA fail to pay the real
estate tax delinquency.
MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or
temporary restraining order. The petition sought to restrain the
City of Paraaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands and
Buildings.
Paranaques Contention: Section 193 of the Local Government
Code expressly withdrew the tax exemption privileges of
government-owned and-controlled corporations upon the
effectivity of the Local Government Code. Respondents also argue
that a basic rule of statutory construction is that the express
mention of one person, thing, or act excludes all others. An
international airport is not among the exceptions mentioned in
Section 193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and Buildings
are exempt from real estate tax.
MIAAs contention: Airport Lands and Buildings are owned by the
Republic. The government cannot tax itself. The reason for tax
exemption of public property is that its taxation would not inure to
any public advantage, since in such a case the tax debtor is also
the tax creditor.
ISSUE: WON Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws? Yes. Ergo, the real estate
tax assessments issued by the City of Paraaque, and all
proceedings taken pursuant to such assessments, are void.
HELD:
1. MIAA is Not a Government-Owned or Controlled Corporation
MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from
local taxation.
MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares.
MIAA is also not a non-stock corporation because it has no
members. A non-stock corporation must have members.
MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the
only difference is that MIAA is vested with corporate powers.
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When the law vests in a government instrumentality corporate
powers, the instrumentality does not become a corporation. Unless
the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers. Thus,
MIAA exercises the governmental powers of eminent domain,
police authority and the levying of fees and charges. At the same
time, MIAA exercises all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with
the provisions of this Executive Order.
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic of the
Philippines.
No one can dispute that properties of public dominion mentioned in
Article 420 of the Civil Code, like roads, canals, rivers, torrents,
ports and bridges constructed by the State, are owned by the
State. The term ports includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a port constructed by the
State. Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus owned by
the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because
they are used by the public for international and domestic travel
and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character
of the Airport Lands and Buildings as properties for public use.
The charging of fees to the public does not determine the
character of the property whether it is of public dominion or not.
Article 420 of the Civil Code defines property of public dominion as
one intended for public use. The terminal fees MIAA charges to
passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of
MIAA. The collection of such fees does not change the character of
MIAA as an airport for public use. Such fees are often termed
users tax. This means taxing those among the public who actually
use a public facility instead of taxing all the public including those
who never use the particular public facility
b. Airport Lands and Buildings are Outside the Commerce of Man
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an auction
sale.
Properties of public dominion, being for public use, are not subject
to levy, encumbrance or disposition through public or private sale.
Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public
policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Paraaque can foreclose and
compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in
trust for the Republic. Section 48, Chapter 12, Book I of the
Administrative Code allows instrumentalities like MIAA to hold title
to real properties owned by the Republic. n MIAAs case, its status
as a mere trustee of the Airport Lands and Buildings is clearer
because even its executive head cannot sign the deed of
conveyance on behalf of the Republic. Only the President of the
Republic can sign such deed of conveyance.
d. Transfer to MIAA was Meant to Implement a Reorganization
The transfer of the Airport Lands and Buildings from the Bureau of
Air Transportation to MIAA was not meant to transfer beneficial
ownership of these assets from the Republic to MIAA. The purpose
was merely toreorganize a division in the Bureau of Air
Transportation into a separate and autonomous body. The Republic
remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any
ownership rights over MIAAs assets adverse to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Sec 234 of the LGC provides that real property owned by
the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable
person following are exempted from payment of the real
property tax. However, portions of the Airport Lands and
Buildings that MIAA leases to private entities are not
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exempt from real estate tax. For example, the land area
occupied by hangars that MIAA leases to private corporations is
subject to real estate tax.
D. SCOPE OF TAXING POWERS OF PROVINCES,
MUNICIPALITIES, CITIES AND BARANGAY
1. COMMON REVENUE-RAISING POWERS SECS.
153-155, LGC
Section 153. Service Fees and Charges. - Local government
units may impose and collect such reasonable fees and charges for
services rendered.
Section 154. Public Utility Charges. - Local government units may
fix the rates for the operation of public utilities owned,
operated and maintained by them within their jurisdiction.
Section 155. Toll Fees or Charges. - The sanggunian concerned
may prescribe the terms and conditions and fix the rates for the
imposition of toll fees or charges for the use of any public road,
pier, or wharf, waterway, bridge, ferry or telecommunication
system funded and constructed by the local government unit
concerned: Provided, That no such toll fees or charges shall be
collected from officers and enlisted men of the Armed Forces of the
Philippines and members of the Philippine National Police on
mission, post office personnel delivering mail, physically-
handicapped, and disabled citizens who are sixty-five (65) years or
older.
When public safety and welfare so requires, the sanggunian
concerned may discontinue the collection of the tolls, and
thereafter the said facility shall be free and open for public use.
2. CITIES SEC. 151, LGC
Section 151. Scope of Taxing Powers. - Except as otherwise
provided in this Code, the city, may levy the taxes, fees, and
charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this
Code.
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not
more than fifty percent (50%) except the rates of professional and
amusement taxes.
3. PROVINCES SECS. 134-141, LGC
Section 134. Scope of Taxing Powers. - Except as otherwise
provided in this Code, the province may levy only the taxes, fees,
and charges as provided in this Article.
Section 135. Tax on Transfer of Real Property Ownership.
(a) The province may impose a tax on the sale , donation, barter,
or on any other mode of transferring ownership or title of real
property at the rate of not more than fifty percent (50%) of the
one percent (1%) of the total consideration involved in the
acquisition of the property or of the fair market value in case the
monetary consideration involved in the transfer is not substantial,
whichever is higher. The sale, transfer or other disposition of real
property pursuant to R.A. No. 6657 shall be exempt from this tax.
(b) For this purpose, the Register of Deeds of the province
concerned shall, before registering any deed, require the
presentation of the evidence of payment of this tax. The provincial
assessor shall likewise make the same requirement before
cancelling an old tax declaration and issuing a new one in place
thereof, Notaries public shall furnish the provincial treasurer with a
copy of any deed transferring ownership or title to any real
property within thirty (30) days from the date of notarization.
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It shall be the duty of the seller, donor, transferor, executor or
administrator to pay the tax herein imposed within sixty (60) days
from the date of the execution of the deed or from the date of the
decedent's death.
Section 136. Tax on Business of Printing and Publication. - The
province may impose a tax on the business of persons engaged in
the printing and/or publication of books, cards, posters, leaflets,
handbills, certificates, receipts, pamphlets, and others of similar
nature, at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar year.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or any fraction
thereof, as provided herein.
The receipts from the printing and/or publishing of books or other
reading materials prescribed by the Department of Education,
Culture and Sports as school texts or references shall be exempt
from the tax herein imposed.
Section 137. Franchise Tax. - Notwithstanding any exemption
granted by any law or other special law, the province may impose
a tax on businesses enjoying a franchise, at the rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or any fraction
thereon, as provided herein.
Section 138. Tax on Sand, Gravel and Other Quarry
Resources. - The province may levy and collect not more than ten
percent (10%) of fair market value in the locality per cubic meter
of ordinary stones, sand, gravel, earth, and other quarry
resources, as defined under the National Internal Revenue Code,
as amended, extracted from public lands or from the beds of seas,
lakes, rivers, streams, creeks, and other public waters within its
territorial jurisdiction.
The permit to extract sand, gravel and other quarry resources shall
be issued exclusively by the provincial governor, pursuant to the
ordinance of the sangguniang panlalawigan.
The proceeds of the tax on sand, gravel and other quarry
resources shall be distributed as follows:
(1) Province - Thirty percent (30%);
(2) Component City or Municipality where the sand, gravel, and
other quarry resources are extracted - Thirty percent (30%); and
(3) Barangay where the sand, gravel, and other quarry resources
are extracted - Forty percent (40%).
Section 139. Professional Tax. -
(a) The province may levy an annual professional tax on each
person engaged in the exercise or practice of his profession
requiring government examination at such amount and reasonable
classification as the sangguniang panlalawigan may determine but
shall in no case exceed Three hundred pesos (P300.00).
(b) Every person legally authorized to practice his profession shall
pay the professional tax to the province where he practices his
profession or where he maintains his principal office in case he
practices his profession in several places: Provided, however, That
such person who has paid the corresponding professional tax shall
be entitled to practice his profession in any part of the Philippines
without being subjected to any other national or local tax, license,
or fee for the practice of such profession.
(c) Any individual or corporation employing a person subject to
professional tax shall require payment by that person of the tax on
his profession before employment and annually thereafter.
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(d) The professional tax shall be payable annually, on or before the
thirty-first (31st) day of January. Any person first beginning to
practice a profession after the month of January must, however,
pay the full tax before engaging therein. A line of profession does
not become exempt even if conducted with some other profession
for which the tax has been paid. Professionals exclusively
employed in the government shall be exempt from the payment of
this tax.
(e) Any person subject to the professional tax shall write in deeds,
receipts, prescriptions, reports, books of account, plans and
designs, surveys and maps, as the case may be, the number of
the official receipt issued to him.
Section 140. Amusement Tax. -
(a) The province may levy an amusement tax to be collected from
the proprietors, lessees, or operators of theaters, cinemas, concert
halls, circuses, boxing stadia, and other places of amusement at a
rate of not more than thirty percent (30%) of the gross receipts
from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors, lessees, or operators
and paid to the provincial treasurer before the gross receipts are
divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films.
(c) The holding of operas, concerts, dramas, recitals, painting and
art exhibitions, flower shows, musical programs, literary and
oratorical presentations, except pop, rock, or similar concerts shall
be exempt from the payment of the tax hereon imposed.
(d) The sangguniang panlalawigan may prescribe the time,
manner, terms and conditions for the payment of tax. In case of
fraud or failure to pay the tax, the sangguniang panlalawigan may
impose such surcharges, interest and penalties as it may deem
appropriate.
(e) The proceeds from the amusement tax shall be shared equally
by the province and the municipality where such amusement
places are located.
Section 141. Annual Fixed Tax For Every Delivery Truck or Van of
Manufacturers or Producers, Wholesalers of, Dealers, or Retailers
in, Certain Products. -
(a) The province may levy an annual fixed tax for every truck, van
or any vehicle used by manufacturers, producers, wholesalers,
dealers or retailers in the delivery or distribution of distilled spirits,
fermented liquors, soft drinks, cigars and cigarettes, and other
products as may be determined by the sangguniang panlalawigan,
to sales outlets, or consumers, whether directly or indirectly,
within the province in an amount not exceeding Five hundred
pesos (P500.00).
(b) The manufacturers, producers, wholesalers, dealers and
retailers referred to in the immediately foregoing paragraph shall
be exempt from the tax on peddlers prescribed elsewhere in this
Code.
A. FRANCHISE TAX
PLDT V. CITY OF DAVAO
FACTS: Petitioner PLDT paid a franchise tax equal to three percent
(3%) of its gross receipts.
1. The franchise tax was paid "in lieu of all taxes on this
franchise or earnings thereof" pursuant to R.A. No. 7082
amending its charter, Act. No. 3436.
2. The exemption from "all taxes on this franchise or earnings
thereof" was subsequently withdrawn by R.A. No. 7160
(Local Government Code of 1991), which at the same time
gave local government units the power to tax businesses
enjoying a franchise on the basis of income received or
earned by them within their territorial jurisdiction.
3. The Local Government Code (LGC) took effect on January
1, 1992.
The pertinent provisions of the LGC state:
Sec. 137. Franchise Tax. Notwithstanding any exemption
granted by any law or other special law, the province may impose
a tax on businesses enjoying a franchise, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual
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receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. .
Sec. 193. Withdrawal of Tax Exemption Privileges. Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or -controlled corporations,
except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this
Code.
4. Pursuant to these provisions, the City of Davao enacted
Ordinance No. 519, Series of 1992, which in pertinent part
provides:
Notwithstanding any exemption granted by any law or other
special law, there is hereby imposed a tax on businesses enjoying
a franchise, at a rate of Seventy-five percent (75%) of one percent
(1%) of the gross annual receipts for the preceding calendar year
based on the income or receipts realized within the territorial
jurisdiction of Davao City.
5. Subsequently, Congress granted in favor of Globe Mackay
Cable and Radio Corp. (Globe)2 and Smart Information
Technologies, Inc. (Smart)3 franchises which contained "in
lieu of all taxes" provisos.
6. In 1995, it enacted R.A. No. 7925 (Public
Telecommunications Policy of the Philippines), 23 of
which provides that "Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises,
or may hereafter be granted, shall ipso factobecome part
of previously granted telecommunications franchises and
shall be accorded immediately and unconditionally to the
grantees of such franchises." The law took effect on March
16, 1995.
7. In January 1999, when PLDT applied for a mayors permit
to operate its Davao Metro Exchange, it was required to
pay the local franchise tax for the first to the fourth
quarter of 1999 which then had amounted to
P3,681,985.72.
8. PLDT challenged the power of the city government to
collect the local franchise tax and demanded a refund of
what it had paid as local franchise tax for the year 1997
and for the first to the third quarters of 1998.
9. PLDT filed a petition in the RTC.
10. RTC- dismissed the petition.
a. The trial court ruled that the LGC had withdrawn
tax exemptions previously enjoyed by persons and
entities and authorized local government units to
impose a tax on businesses enjoying franchises
within their territorial jurisdictions, notwithstanding
the grant of tax exemption to them.
ISSUE: Whether, by virtue of R.A. No. 7925, 23, PLDT is
again entitled to exemption from the payment of local
franchise tax in view of the grant of tax exemption to Globe
and Smart.
HELD: NO
1. Petitioner contends that because their existing franchises
contain "in lieu of all taxes" clauses, the same grant of tax
exemption must be deemed to have become ipso
facto part of its previously granted telecommunications
franchise.
But the rule is that tax exemptions should be granted only by clear
and unequivocal provision of law "expressed in a language too
plain to be mistaken."4 If, as PLDT contends, the word "exemption"
in R.A. No. 7925 means "tax exemption" and assuming for the
nonce that the charters of Globe and of Smart grant tax
exemptions, then this runabout way of granting tax exemption to
PLDT is not a direct, "clear and unequivocal" way of
communicating the legislative intent.
The best refutation of PLDTs claim that R.A. No. 7925, 23 grants
tax exemption is the fact that after its enactment on March 16,
1995, Congress granted several franchises containing both an
"equality clause" similar to 23 and an "in lieu of all taxes" clause.
If the equality clause automatically extends the tax exemption of
franchises with "in lieu of all taxes" clauses, there would be no
need in the same statute for the "in lieu of all taxes" clause in
order to extend its tax exemption to other franchises not
containing such clause.
2. Petitioner contends that the legislative intent to promote
the development of the telecommunications industry is
evident in the use of words as "development," "growth,"
and "financial viability," and that the way to achieve this
purpose is to grant tax exemption or exclusion to
franchises belonging in this industry.
Page | 114
The contention is untenable. The thrust of the law is to promote
the gradual deregulation of entry, pricing, and operations of all
public telecommunications entities and thus to level the playing
field in the telecommunications industry. An intent to grant tax
exemption cannot even be discerned from the law. The records of
Congress are bereft of any discussion or even mention of tax
exemption.
Nor does the term "exemption" in 23 of R.A. No. 7925 mean tax
exemption. The term refers to exemption from certain regulations
and requirements imposed by the National Telecommunications
Commission (NTC).
3. PLDT says that the policy of the law is to promote healthy
competition in the telecommunications
industry.10According to PLDT, the LGC did not repeal the
"in lieu of all taxes" provision in its franchise but only
excluded from it local taxes, such as the local franchise
tax.
One can speak of healthy competition only between equals. For
this reason, the law seeks to break up monopoly in the
telecommunications industry by gradually dismantling the barriers
to entry and granting to new telecommunications entities
protection against dominant carriers through equitable access
charges and equal access clauses in interconnection agreements
and through the strict policing of predatory pricing by dominant
carriers.
SMART COMMUNICATIONS V. CITY OF DAVAO
On In lieu of all taxes Clause in RA 7294:
R.A. No. 7294 is not definite in granting exemption to Smart from
local taxation. Section 9 of R.A. No. 7294 imposes on Smart a
franchise tax equivalent to three percent (3%) of all gross receipts
of the business transacted under the franchise and the said
percentage shall be in lieu of all taxes on the franchise or earnings
thereof. R.A. No 7294 does not expressly provide what kind of
taxes Smart is exempted from. It is not clear whether the in lieu
of all taxes provision in the franchise of Smart would include
exemption from local or national taxation. What is clear is that
Smart shall pay franchise tax equivalent to three percent (3%) of
all gross receipts of the business transacted under its franchise.
But whether the franchise tax exemption would include exemption
from exactions by both the local and the national government is
not unequivocal.
In this case, the doubt must be resolved in favor of the City
of Davao. The in lieu of all taxes clause applies only to national
internal revenue taxes and not to local taxes. It is clear that the
in lieu of all taxes clause apply only to taxes under the NIRC and
not to local taxes. It is not even applied to income tax, as shown
in the provision itself, to wit:
proviso in the first paragraph of Section 9,
Smart's franchise states that the grantee
shall "continue to be liable for income
taxes payable under Title II of the National
Internal Revenue Code."
second paragraph of Section 9, speaks of
tax returns filed and taxes paid to the
"Commissioner of Internal Revenue or his
duly authorized representative in
accordance with the National Internal
Revenue Code."
same paragraph, declares that the tax
returns "shall be subject to audit by the
Bureau of Internal Revenue."
If Congress intended the "in lieu of all taxes" clause in Smart's
franchise to also apply to local taxes, Congress would have
expressly mentioned the exemption from municipal and provincial
taxes.
It should be noted that the in lieu of all taxes clause in R.A. No.
7294 has become functus officio with the abolition of the franchise
tax on telecommunications companies. Currently, Smart along with
other telecommunications companies pays the uniform 10% value-
added tax. The VAT on sale of services of telephone franchise
grantees is equivalent to 10% of gross receipts derived from the
sale or exchange of services, as provided in R.A. No. 7716, as
amended by the Expanded Value Added Tax Law (R.A. No. 8241).
On the burden of grant to Tax exemptions:
Page | 115
Tax exemptions are never presumed and are strictly construed City v. Bayan Telecommunications, sustained the power of
against the taxpayer and liberally in favor of the taxing authority. Congress to grant tax exemptions over and above the
They can only be given force when the grant is clear and power of the local government's delegated power to tax.
categorical. If the intention of the legislature is open to doubt,
then the intention of the legislature must be resolved in favor of A claim of tax exemption must be clearly shown and based on
the State. language in law too plain to be mistaken. The burden of proof rests
upon the party claiming the exemption to prove that it is in fact
QUEZON CITY V. ABS-CBN CORP covered by the exemption so claimed.
Now to go back to the Quezon City Revenue Code which imposed
real estate taxes on all real properties within the city's territory Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax
and removed exemptions theretofore "previously granted to, or equivalent to 3% of all gross receipts of the radio/television
presently enjoyed by all persons, whether natural or juridical " business transacted under the franchise and the franchise tax shall
there can really be no dispute that the power of the QC be "in lieu of all taxes" on the franchise or earnings thereof.
Government to tax is limited by Section 232 of the LGC which
The "in lieu of all taxes" provision in the franchise of ABS-
expressly provides that "a province or city or municipality within
CBN does not expressly provide what kind of taxes ABS-CBN
the Metropolitan Manila Area may levy an annual ad valorem tax
is exempted from. It is not clear whether the exemption would
on real property such as land, building, machinery, and other
include both local, whether municipal, city or provincial, and
improvement not hereinafter specifically exempted." Under this
national tax. What is clear is that ABS-CBN shall be liable to pay
law, the Legislature highlighted its power to thereafter
3% percent franchise tax and income taxes under Title II of the
exempt certain realties from the taxing power of local
NIRC. But whether the "in lieu of all taxes provision" would include
government units.
exemption from local tax is not unequivocal.
The Philippine Congress enacted R.A. No. 7966 (March 30, 1995)
As adverted to earlier, the right to exemption from local franchise
subsequent to the effectivity of the LGC (January 1, 1992). Under
tax must be clearly established and cannot be made out of
it, ABS-CBN was granted the franchise to install and operate radio
inference or implications but must be laid beyond reasonable
and television broadcasting stations in the Philippines. Section 8
doubt. Verily, the uncertainty in the "in lieu of all taxes"
imposed on ABS-CBN the duty of paying 3% franchise tax.
provision should be construed against ABS-CBN.ABS-CBN has
Payment of the percentage franchise tax shall be "in lieu of
the burden to prove that it is in fact covered by the exemption so
all taxes" on the said franchise.
claimed. ABS-CBN miserably failed in this regard.
Congress has the inherent power to tax, which includes the power
to grant tax exemptions. On the other hand, the power of Quezon
City to tax is prescribed by Section 151 in relation to Section 137 4. MUNICIPALITIES SECS. 142, 143, 147 149, LGC
of the LGC which expressly provides that notwithstanding any
exemption granted by any law or other special law, the City may
Section 142. Scope of Taxing Powers. - Except as otherwise
impose a franchise tax. It must be noted that Section 137 of the
provided in this Code, municipalities may levy taxes, fees, and
LGC does not prohibit grant of future exemptions. SC in Quezon charges not otherwise levied by provinces.

Page | 116
Section 143. Tax on Business. - The municipality may impose
750,000.00 or more but less than 10,000.00
taxes on the following businesses:
1,000,000.00

(a) On manufacturers, assemblers, repackers, processors, 1,000,000.00 or more but less than 13,750.00
brewers, distillers, rectifiers, and compounders of liquors, 2,000,000.00
distilled spirits, and wines or manufacturers of any article
of commerce of whatever kind or nature, in accordance 2,000,000.00 or more but less than 16,500.00
with the following schedule: 3,000,000.00

3,000,000.00 or more but less than 19,000.00

With gross sales or receipts for the Amount of Tax 4,000,000.00
preceding calendar year in the amount of: Per Annum
4,000,000.00 or more but less than 23,100.00
Less than 10,000.00 165.00 5,000,000.00

P 10,000.00 or more but less than 220.00 5,000,000.00 or more but less than 24,375.00
15,000.00 6,500,000.00

15,000.00 or more but less than 20,000.00 202.00 6,000,000.00 or more at a rate not exceeding thirty-seven and
a half percent (37%) of one percent (1%)
20,000.00 or more but less than 30,000.00 440.00

30,000.00 or more but less than 40,000.00 660.00 (b) On wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature in accordance with
40,000.00 or more but less than 50,000.00 825.00 the following schedule:
50,000.00 or more but less than 75,000.00 1,320.00
With gross sales or receipts for the Amount of Tax
75,000.00 or more but less than 1,650.00 preceding calendar year in the amount of: Per Annum
100,000.00
Less than 1,000.00 18.00
100,000.00 or more but less than 2,200.00
150,000.00 P 1,000.00 or more but less than 2,000.00 33.00

150,000.00 or more but less than 2,750.00 2,000.00 or more but less than 3,000.00 50.00
200,000.00
3,000.00 or more but less than 4,000.00 72.00
200,000.00 or more but less than 3,850.00
300,000.00 4,000.00 or more but less than 5,000.00 100.00

300,000.00 or more but less than 5,500.00 5,000.00 or more but less than 6,000.00 121.00
500,000.00
6,000.00 or more but less than 7,000.00 143.00
500,000.00 or more but less than 8,000.00
750,000.00 7,000.00 or more but less than 8,000.00 165.00

Page | 117
 exceeding one-half () of the rates prescribed under
8,000.00 or more but less than 10,000.00 187.00
subsection (a), (b) and (d) of this Section:
10,000.00 or more but less than 15,000.00 220.00 (1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products,
15,000.00 or more but less than 20,000.00 275.00
locally manufactured, processed or preserved food,
20,000.00 or more but less than 30,000.00 330.00 sugar, salt and other agricultural, marine, and
fresh water products, whether in their original
30,000.00 or more but less than 40,000.00 440.00 state or not;
(3) Cooking oil and cooking gas;
40,000.00 or more but less than 50,000.00 660.00
(4) Laundry soap, detergents, and medicine;
50,000.00 or more but less than 75,000.00 990.00 (5) Agricultural implements. equipment and post-
harvest facilities, fertilizers, pesticides,
75,000.00 or more but less than 1,320.00
insecticides, herbicides and other farm inputs;
100,000.00
(6) Poultry feeds and other animal feeds;
100,000.00 or more but less than 1,870.00 (7) School supplies; and
150,000.00
(8) Cement.
150,000.00 or more but less than 2,420.00 (d) On retailers.
200,000.00
With gross sales or receipts for the preceding Rate of Tax Per
200,000.00 or more but less than 3,300.00 calendar year in the amount of: Annum
300,000.00

300,000.00 or more but less than 4,400.00 P400,000.00 or less 2%

500,000.00
more than P400,000.00 1%
500,000.00 or more but less than 6,600.00
750,000.00 Provided, however, That barangays shall have the
exclusive power to levy taxes, as provided under Section
750,000.00 or more but less than 8,800.00 152 hereof, on gross sales or receipts of the preceding
1,000,000.00 calendar year of Fifty thousand pesos (P50,000.00) or less,
in the case of cities, and Thirty thousand pesos
1,000,000.00 or more but less than 10,000.00 (P30,000.00) or less, in the case of municipalities.
2,000,000.00
(d) On contractors and other independent contractors,
2,000,000.00 or more at a rate not exceeding fifty percent in accordance with the following schedule:
(50%) of one percent (1%).

(c) On exporters, and on manufacturers , millers, With gross sales or receipts for the Amount of Tax
producers, wholesalers, distributors, dealers or retailers of preceding calendar year in the amount of: Per Annum
essential commodities enumerated hereunder at a rate not
Less than 5,000.00 27.50

Page | 118
P 5,000.00 or more but less than P
10,000.00
10,000.00 or more but less than 15,000.00
15,000.00 or more but less than 20,000.00
20,000.00 or more but less than 30,000.00
30,000.00 or more but less than 40,000.00
40,000.00 or more but less than 50,000.00
50,000.00 or more but less than 75,000.00
75,000.00 or more but less than
100,000.00
100,000.00 or more but less than
150,000.00
150,000.00 or more but less than
200,000.00
200,000.00 or more but less than
250,000.00
250,000.00 or more but less than
300,000.00
300,000.00 or more but less than
400,000.00
400,000.00 or more but less than
500,000.00
500,000.00 or more but less than
750,000.00
750,000.00 or more but less than
1,000,000.00
1,000,000.00 or more but less than
2,000,000.00
61.60 2,000,000.00 or more at a rate not exceeding fifty percent
(50%) of one percent (1%)
104.50
(f) On banks and other financial institutions, at a rate not
165.00 exceeding fifty percent (50%) of one percent (1%) on the
gross receipts of the preceding calendar year derived from
275.00 interest, commissions and discounts from lending
385.00 activities, income from financial leasing, dividends, rentals
on property and profit from exchange or sale of property,
550.00 insurance premium.
880.00 (g) On peddlers engaged in the sale of any merchandise or
article of commerce, at a rate not exceeding Fifty pesos
1,320.00
(P50.00) per peddler annually.
(h) On any business, not otherwise specified in the
1,980.00 preceding paragraphs, which the sanggunian concerned
may deem proper to tax: Provided, That on any business
subject to the excise, value-added or percentage tax under
2,640.00 the National Internal Revenue Code, as amended, the rate
of tax shall not exceed two percent (2%) of gross sales or
receipts of the preceding calendar year.
3,630.00
The sanggunian concerned may prescribe a schedule of graduated
tax rates but in no case to exceed the rates prescribed herein.
4,620.00
Section 147. Fees and Charges. - The municipality may impose
6,160.00 and collect such reasonable fees and charges on business and
occupation and, except as reserved to the province in Section 139
of this Code, on the practice of any profession or calling,
8,250.00 commensurate with the cost of regulation, inspection and licensing
before any person may engage in such business or occupation, or
practice such profession or calling.
9,250.00
Section 148. Fees for Sealing and Licensing of Weights and
10,250.00 Measures. -
(a) The municipality may levy fees for the sealing and
licensing of weights and measures at such reasonable
11,500.00
rates as shall be prescribed by the sangguniang bayan.
(b) The sangguniang bayan shall prescribe the necessary
regulations for the use of such weights and measures,
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 subject to such guidelines as shall be prescribed by the
Department of Science and Technology. The sanggunian
concerned shall, by appropriate ordinance, penalize
fraudulent practices and unlawful possession or use of
instruments of weights and measures and prescribe the
criminal penalty therefor in accordance with the provisions
of this Code. Provided, however, That the sanggunian
concerned may authorize the municipal treasurer to settle
an offense not involving the commission of fraud before a
case therefor is filed in court, upon payment of a
compromise penalty of not less than Two hundred pesos
(P200.00).
Section 149. Fishery Rentals, Fees and Charges. -
(a) Municipalities shall have the exclusive authority to
grant fishery privileges in the municipal waters and impose
rentals, fees or charges therefor in accordance with the
provisions of this Section.
(b) The sangguniang bayan may:
(1) Grant fishery privileges to erect fish corrals,
oysters, mussels or other aquatic beds or bangus
fry areas, within a definite zone of the municipal
waters, as determined by it: Provided, however,
That duly registered organizations and
cooperatives of marginal fishermen shall have the
preferential right to such fishery privileges:
Provided, further, That the sangguniang bayan
may require a public bidding in conformity with
and pursuant to an ordinance for the grant of such
privileges: Provided, finally, That in the absence of
such organizations and cooperatives or their failure
to exercise their preferential right, other parties
may participate in the public bidding in conformity
with the above cited procedure.
(2) Grant the privilege to gather, take or catch
bangus fry, prawn fry or kawag-kawag or fry of
other species and fish from the municipal waters
by nets, traps or other fishing gears to marginal
fishermen free of any rental, fee, charge or any
other imposition whatsoever.
(3) Issue licenses for the operation of fishing
vessels of three (3) tons or less for which purpose
the sangguniang bayan shall promulgate rules and
regulations regarding the issuances of such
licenses to qualified applicants under existing laws.
Provided, however, That the sanggunian concerned
shall, by appropriate ordinance, penalize the use of
explosives, noxious or poisonous substances,
electricity, muro-ami, and other deleterious
methods of fishing and prescribe a criminal penalty
therefor in accordance with the provisions of this
Code: Provided, finally, That the sanggunian
concerned shall have the authority to prosecute
any violation of the provisions of applicable fishery
laws.
A. BUSINESS TAX
ERICSSON COMMUNICATIONS V. CITY OF PASIG
FACTS: In an Assessment Notice, petitioner was assessed a
business tax deficiency for the years 1998 and 1999 amounting to
P9,466,885.00 and P4,993,682.00, respectively, based on its gross
revenues as reported in its audited financial statements for the
years1997 and 1998. Petitioner filed a Protest claiming that the
computation of the local business tax should be based on gross
receipts and not on gross revenue. The City of Pasig (respondent)
issued another Notice of Assessment to petitioner on November
19, 2001, this time based on business tax deficiencies for the
years 2000 and2001, amounting to P4,665,775.51 and
P4,710,242.93, respectively, based on its gross revenues for the
years 1999 and 2000. Again, petitioner filed a Protest on January
21,2002, reiterating its position that the local business tax should
be based on gross receipts and not gross revenue. Respondent
denied the protest. The RTC, however, canceled and set aside the
assessments made by respondent and its City Treasurer. The CA
reversed and set aside the complaint for lack of authority.
ISSUE: Whether or not the local business tax on contractors
should be based on gross receipts or gross revenue.
RULING: Insofar as petitioner is concerned, the applicable
provision is subsection (e), Section 143 of the same Code covering
contractors and other independent contractors. The provision
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specifically refers to gross receipts which is defined under Section
131 of the Local Government Code, as follows:
(n) Gross Sales or Receipts include the total amount of money or
its equivalent representing the contract price, compensation or
service fee, including the amount charged or materials supplied
with the services and the deposits or advance payments actually or
constructively received during the taxable quarter for the services
performed or to be performed for another person excluding
discounts if determinable at the time of sales, sales return, excise
tax, and value-added tax (VAT);
The law is clear. Gross receipts include money or its equivalent
actually or constructively received in consideration of services
rendered or articles sold, exchanged or leased, whether actual or
constructive. In Commissioner of Internal Revenue v. Bank of
Commerce, the Court interpreted gross receipts as including those
which were actually or constructively received, viz.:
Actual receipt of interest income is not limited to physical receipt.
Actual receipt may either be physical receipt or constructive
receipt. When the depository bank withholds the final tax to pay
the tax liability of the lending bank, there is prior to the
withholding a constructive receipt by the lending bank of the
amount withheld. From the amount constructively received by the
lending bank, the depository bank deducts the final withholding
tax and remits it to the government for the account of the lending
bank. Thus, the interest income actually received by the lending
bank, both physically and constructively, is the net interest plus
the amount withheld as final tax.
There is constructive receipt, when the consideration for the
articles sold, exchanged or leased, or the services rendered has
already been placed under the control of the person who sold the
goods or rendered the services without any restriction by the
payor. In contrast, gross revenue covers money or its equivalent
actually or constructively received, including the value of services
rendered or articles sold, exchanged or leased, the payment of
which is yet to be received. This is in consonance with the
International Financial Reporting Standards, which defines revenue
as the gross inflow of economic benefits (cash, receivables, and
other assets) arising from the ordinary operating activities of an
enterprise (such as sales of goods, sales of services, interest,
royalties, and dividends),which is measured at the fair value of the
consideration received or receivable. The imposition of local
business tax based on petitioners gross revenue will inevitably
result in the constitutionally proscribed double taxation taxing of
the same person twice by the same jurisdiction for the same thing
inasmuch as petitioners revenue or income for a taxable year
will definitely include its gross receipts already reported during the
previous year and for which local business tax has already been
paid. Thus, respondent committed a palpable error when it
assessed petitioners local business tax based on its gross revenue
as reported in its audited financial statements, as Section 143 of
the Local Government Code and Section 22(e) of the Pasig
Revenue Code clearly provide that the tax should be computed
based on gross receipts.
YAMANE V. BA LEPANTO
Facts: Petitioner City Treasurer of Makati holds respondent, in a
Notice of Assessment, liable to pay the correct business taxes, fees
and charges totaling to P1.6M in which the respondents protested
contending that condominium does not fall under the definition of
a business, thus, they are not liable for such taxes.
Issue: Whether or not the City Treasurer of Makati may collect
business taxes on condominium corporations
Held: Petition denied. Accordingly, and with significant degree of
comfort, we hold that condominium corporations are generally
exempt from local business taxation under the LGC, irrespective of
any local ordinance that seeks to declare otherwise.
The power of the local government units to impose taxes within its
territorial jurisdiction derives from the Constitution itself, which
recognizes the power of these units to create its own sources of
revenue and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy.
5. BARANGAY SEC. 152, LGC
Section 152. Scope of Taxing Powers. - The barangays may levy
taxes, fees, and charges, as provided in this Article, which shall
exclusively accrue to them:
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 (a) Taxes - On stores or retailers with fixed business
establishments with gross sales of receipts of the
preceding calendar year of Fifty thousand pesos
(P50,000.00) or less, in the case of cities and Thirty
thousand pesos (P30,000.00) or less, in the case of
municipalities, at a rate not exceeding one percent (1%)
on such gross sales or receipts.
(b) Service Fees or Charges. - Barangays may collect
reasonable fees or charges for services rendered in
connection with the regulations or the use of barangay-
owned properties or service facilities such as palay, copra,
or tobacco dryers.
(c) Barangay Clearance. - No city or municipality may
issue any license or permit for any business or activity
unless a clearance is first obtained from the barangay
where such business or activity is located or conducted.
For such clearance, the sangguniang barangay may impose
a reasonable fee. The application for clearance shall be
acted upon within seven (7) working days from the filing
thereof. In the event that the clearance is not issued
within the said period, the city or municipality may issue
the said license or permit.
(d) Other fees and Charges. - The barangay may levy
reasonable fees and charges:
(1) On commercial breeding of fighting cocks,
cockfights and cockpits;
(2) On places of recreation which charge admission
fees; and
(3) On billboards, signboards, neon signs, and
outdoor advertisements.
6. RATES IN METRO MANILA SEC. 144, LGC
Section 144. Rates of Tax within the Metropolitan Manila Area. -
The municipalities within the Metropolitan Manila Area may levy
taxes at rates which shall not exceed by fifty percent (50%) the
maximum rates prescribed in the preceding Section.
7. PAYMENT OF BUSINESS TAXES SEC. 146,
LGC
Section 146. Payment of Business Taxes. -
(a) The taxes imposed under Section 143 shall be payable
for every separate or distinct establishment or place where
business subject to the tax is conducted and one line of
business does not become exempt by being conducted
with some other business for which such tax has been
paid. The tax on a business must be paid by the person
conducting the same.
(b) In cases where a person conducts or operates two (2)
or more of the businesses mentioned in Section 143 of this
Code which are subject to the same rate of tax, the tax
shall be computed on the combined total gross sales or
receipts of the said two (2) or more related businesses.
(c) In cases where a person conducts or operates two (2)
or more businesses mentioned in Section 143 of this Code
which are subject to different rates of tax, the gross sales
or receipts of each business shall be separately reported
for the purpose of computing the tax due from each
business.
8. RETIREMENT OF BUSINESS SEC. 145, LGC
Section 145. Retirement of Business. - A business subject to tax
pursuant to the preceding sections shall, upon termination thereof,
submit a sworn statement of its gross sales or receipts for the
current year. If the tax paid during the year be less than the tax
due on said gross sales or receipts of the current year, the
Page | 122
difference shall be paid before the business is considered officially
retired.
MOBIL PHIL INC V. CITY TREASURER OF MAKATI
On the year an establishment retires or terminates its business
within the municipality, it would be required to pay the difference
in the amount if the tax collected, based on the previous years
gross sales or receipts, is less than the actual tax due based on
the current years gross sales or receipts.
For the year 1998, petitioner paid a total of P2,262,122.48 to the
City Treasurer of Makati as business taxes for the year 1998. The
amount of tax as computed based on petitioners gross sales for
1998 is only P1,331,638.84.
Since the amount paid is more than the amount computed based
on petitioners actual gross sales for 1998, petitioner upon its
retirement is not liable for additional taxes to the City of Makati.
Thus, we find that the respondent erroneously treated the
assessment and collection of business tax as if it were income tax,
by rendering an additional assessment of P1,331,638.84 for the
revenue generated for the year 1998.
9. SITUS OF TAX SEC. 150, LGC
Section 150. Situs of the Tax. -
(a) For purposes of collection of the taxes under Section
143 of this Code, manufacturers, assemblers, repackers,
brewers, distillers, rectifiers and compounders of liquor,
distilled spirits and wines, millers, producers, exporters,
wholesalers, distributors, dealers, contractors, banks and
other financial institutions, and other businesses,
maintaining or operating branch or sales outlet elsewhere
shall record the sale in the branch or sales outlet making
the sale or transaction, and the tax thereon shall accrue
and shall be paid to the municipality where such branch or
sales outlet is located. In cases where there is no such
branch or sales outlet in the city or municipality where the
sale or transaction is made, the sale shall be duly recorded
in the principal office and the taxes due shall accrue and
shall be paid to such city or municipality.
(b) The following sales allocation shall apply to
manufacturers, assemblers, contractors, producers, and
exporters with factories, project offices, plants, and
plantations in the pursuit of their business:
(1) Thirty percent (30%) of all sales recorded in
the principal office shall be taxable by the city or
municipality where the principal office is located;
and
(2) Seventy percent (70%) of all sales recorded in
the principal office shall be taxable by the city or
municipality where the factory, project office,
plant, or plantation is located.
(c) In case of a plantation located at a place other than the
place where the factory is located, said seventy percent
(70%) mentioned in subparagraph (b) of subsection (2)
above shall be divided as follows:
(1) Sixty percent (60%) to the city or municipality
where the factory is located; and
(2) Forty percent (40%) to the city or municipality
where the plantation is located.
(d) In cases where a manufacturer, assembler, producer,
exporter or contractor has two (2) or more factories,
project offices, plants, or plantations located in different
localities, the seventy percent (70%) sales allocation
mentioned in subparagraph (b) of subsection (2) above
shall be prorated among the localities where the factories,
project offices, plants, and plantations are located in
proportion to their respective volumes of production during
the period for which the tax is due.
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 (e) The foregoing sales allocation shall be applied
irrespective of whether or not sales are made in the
locality where the factory, project office, plant, or
plantation is located.
LINBERG PHILS V. CITY OF MAKATI
FACTS: Linberg is a duly organized corporation, with principal
office in Ayala Avenue, Makati City. It is engaged in the business
of financing the construction and operation of power plants
primarily through "Build Operate -Transfer" (BOT) agreements
with its customers.
1. Respondent City of Makati is a public corporation created
and existing pursuant to law. Co-respondent Nelia A. Barlis
is the incumbent Treasurer of the City of Makati and is
impleaded in her official capacity.
2. On March 7, 2003, Linberg received the questioned Notice
of Assessment for deficiency business taxes plus
surcharges and interests covering the taxable years 2000,
2001 and 2002. The alleged deficiency business taxes
arose from respondent's reclassification of petitioner's
business from a "holding or investment" company to a
"contractor.
3. Not in agreement with the questioned assessment,
petitioner filed a Letter Protest, but this was denied by
respondent City Treasurer. Linberg assailed the denial of
the protest before the RTC of Makati City. The case was
dismissed for lack of merit. The Motion for Reconsideration
was likewise denied. Petitioner appealed the said denial
before this Court which partially granted the petition and
reduced the deficiency taxes of petitioner.
ISSUE: whether or not the Court in Division committed errors of
fact or law that would warrant a reversal or modification of its
assailed.
Petitioner's Arguments
Petitioner submits that upholding the taxing jurisdiction of
respondent Makati City on thirty percent (30%) of sales made in
the locality where petitioner has a branch office is contrary to the
situs rules under Section 150 of the Local Government Code and
Article 243 of its Implementing Rules and Regulations (IRR). The
Court in Division allegedly assumed that petitioner and its
customers negotiated and planned the construction of the power
plants in Makati City, and that its sales are recorded in Makati City
because its sales invoices are reviewed and approved in its
principal office in Makati.
However, petitioner contends that these are merely assumptions
that are not supported by evidence. If petitioner is classified as a
contractor, as respondent Makati City maintains , all if not
substantially all, of the controlling or operative acts that constitute
petitioner's sale of services, must be done in Makati City .
Further, petitioner argues that Section 150 of the Local
Government Code and Article 243 of the IRR of said Code clearly
provide that if a sale made in a locality where the taxpayer
maintains a branch or sales office , the tax thereon shall accrue
and be paid to the city or municipality where such branch or sales
office is located . It is only in a case when there is no branch office
in the locality where the sale transaction is made, that the sale
shall allegedly be duly recorded in the principal office, and the
taxes due thereon shall be allocated between the principal office
and the factory, project office, plant or plantation using the 30-70
formula prescribed in Section 150.
Respondents' Counter-arguments
Respondents counter-argue that the existence of petitioner's
principal office in Makati City, and the admission thereof,
constitutes prima facie evidence that it is conducting business in
said territorial jurisdiction, and therefore, respondent Makati City
has jurisdiction to tax petitioner.
Although petitioner has been insistent, contradicting itself at times,
that it has not been doing business in Makati City but only in its
branch offices, it is necessarily obligated to prove its claim that
indeed, the offices maintained outside the City of Makati are
branch offices as defined by law, and that, it has been paying its
due taxes thereat, otherwise, such bare and naked argument,
allegedly stays as it is, bare and naked.
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THE COURT EN BANC'S RULING
Petitioner's arguments are devoid of merit.
At the outset, petitioner questions the jurisdiction of respondent
City of Makati to tax its business. The Court in Division settled this
issue by pronouncing that the City of Makati, where petitioner's
principal office is found , has the power to tax its business , but as
much as only thirty (30%) percent of petitioner's gross
sales/receipts .
We note that aside from petitioner's admission that its principal
office is in Makati City, the Court in Division found that its principal
office is in charge of reviewing and approving the correctness of
the invoices issued by the branch offices. Such activities done in
the principal office is evident of business transactions which should
necessarily be recorded. This, petitioner failed to refute as it did
not adduce evidence to prove that there are no recorded sales or
business transactions in its office in Makati City, and its alleged
payments of its business taxes to the municipalities where it has
its branch offices were also not proven .
It bears emphasizing that petitioner cannot merely deny the fact
that it is covered by the taxing jurisdiction of Makati City without
adducing evidence to prove otherwise.
Petitioner's business involves financing the construction and
operation of private power plants through a Built-Operate-Transfer
(BOT) arrangements with its customers. Admittedly, under the
BOT arrangement, petitioner advances the necessary capital by
employing and paying for the services of a contractor which will
build the power plant. These transactions, prior to the completion
of the power plants and branch offices of petitioner, are considered
as activities of doing business, which are necessarily taxable in its
principal office, considering that all the documents and deals were
arranged in its principal office in Makati City .
In this regard, petitioner is correct in invoking the applicability of
Section 150 of the Local Government Code for purposes of
determining the situs of tax in the instant case. However, we
would like to stress the importance of the relevant portion of said
provision, to wit:
"Section 150.Situs of the Tax .-(a) xxx. In cases where there is no
such branch or sales outlet in the city or municipality where the
sale or transaction is made, the sale shall be duly recorded in the
principal office and the taxes due shall accrue and shall be paid to
such city or municipality."
We reiterate that in the ordinary course of business, particularly in
the nature of a BOT business, prior to the building and
construction of any power plant at any locality, the usual
negotiations thereon, until the full completion of the contract of
BOT, is usually done in the principal office.
Naturally, this transaction is taxable as it is an exercise of a
business. Although the power
plants, which are subject of petitioner's contract of BOT, are
situated at different localities, still the act of financing the
construction and operation thereof, are considered as "doing
business" which appears to have been performed at petitioner's
principal office in Makati City . It is therefore clear that respondent
City of Makati has jurisdiction to tax petitioner.
We maintain that petitioner is a contractor, and not a financing or
holding company. Contractor is referred to in the Local
Government Code of 1991 as to include persons, natural or
juridical, not subject to professional tax under Section 139 of this
Code whose activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the performance of
the service calls for the exercise or use of the physical or mental
faculties of such contractor or his employees.
Finally, on the issue regarding the imposition of surcharge and
penalties, we find that the same to be in accordance with law.
Consequently, upon discovery by the local government that
petitioner misrepresented itself and caused a different tax rate to
be applied to it, there is legal basis to impose surcharge and
penalties.
Even granting for the sake of argument that it was respondent
who classified petitioner as a holding or investment company, still,
it was petitioner who submitted certain documents which misled or
caused respondent to believe that petitioner was engaged in an
investment business.
Page | 125
10. COLLECTION OF TAXES SECS. 165 171, on the unpaid amount or a portion thereof exceed thirty-six (36)
LGC months.

Section 170. Collection of Local Revenue by Treasurer. - All local

taxes, fees, and charges shall be collected by the provincial, city,
Section 165. Tax Period and Manner of Payment. - Unless
municipal, or barangay treasurer, or their duly authorized
otherwise provided in this Code, the tax period of all local taxes,
deputies.
fees and charges shall be the calendar year. Such taxes, fees and
charges may be paid in quarterly installments.
The provincial, city or municipal treasurer may designate the
barangay treasurer as his deputy to collect local taxes, fees, or
Section 166. Accrual of Tax. - Unless otherwise provided in this
charges. In case a bond is required for the purpose, the provincial,
Code, all local taxes, fees, and charges shall accrue on the first
city or municipal government shall pay the premiums thereon in
(1st) day of January of each year. However, new taxes, fees or
addition to the premiums of bond that may be required under this
charges, or changes in the rates thereof, shall accrue on the first
Code.
(1st) day of the quarter next following the effectivity of the
ordinance imposing such new levies or rates.
Section 171. Examination of Books of Accounts and Pertinent
Records of Businessmen by Local Treasurer. - The provincial, city,
Section 167. Time of Payment. - Unless otherwise provided in
municipal or barangay treasurer may, by himself or through any of
this Code, all local taxes, fees, and charges shall be paid within the
his deputies duly authorized in writing, examine the books,
first twenty (20) days of January or of each subsequent quarter, as
accounts, and other pertinent records of any person, partnership,
the case may be. The sanggunian concerned may, for a justifiable
corporation, or association subject to local taxes, fees and charges
reason or cause, extend the time for payment of such taxes, fees,
in order to ascertain. assess, and collect the correct amount of the
or charges without surcharges or penalties, but only for a period
tax, fee, or charge. Such examination shall be made during regular
not exceeding six (6) months.
business hours, only once for every tax period, and shall be
certified to by the examining official. Such certificate shall be made
Section 168. Surcharges and Penalties on Unpaid Taxes, Fees, or of record in the books of accounts of the taxpayer examined.
Charges. - The sanggunian may impose a surcharge not exceeding
twenty-five (25%) of the amount of taxes, fees or charges not
In case the examination herein authorized is made by a duly
paid on time and an interest at the rate not exceeding two percent
authorized deputy of the local treasurer, the written authority of
(2%) per month of the unpaid taxes, fees or charges including
the deputy concerned shall specifically state the name, address,
surcharges, until such amount is fully paid but in no case shall the
and business of the taxpayer whose books, accounts, and
total thirty-six (36%) months.
pertinent records are to be examined, the date and place of such
examination and the procedure to be followed in conducting the
Section 169. Interests on Other Unpaid Revenues. - Where the same.
amount of any other revenue due a local government unit, except
voluntary contributions or donations, is not paid on the date fixed
For this purpose, the records of the revenue district office of the
in the ordinance, or in the contract, expressed or implied, or upon
Bureau of Internal Revenue shall be made available to the local
the occurrence of the event which has given rise to its collection,
treasurer, his deputy or duly authorized representative.
there shall be collected as part of that amount an interest thereon
at the rate not exceeding two percent (2%) per month from the
date it is due until it is paid, but in no case shall the total interest

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E. REMEDIES
A. GOVERNMENTS REMEDIES, SEC. 172-185,
LGC
Section 172. Application of Chapter. - The provisions of this
Chapter and the remedies provided hereon may be availed of for
the collection of any delinquent local tax, fee, charge, or other
revenue.
Section 173. Local Government's Lien. - Local taxes, fees,
charges and other revenues constitute a lien, superior to all liens,
charges or encumbrances in favor of any person, enforceable by
appropriate administrative or judicial action, not only upon any
property or rights therein which may be subject to the lien but also
upon property used in business, occupation, practice of profession
or calling, or exercise of privilege with respect to which the lien is
imposed. The lien may only be extinguished upon full payment of
the delinquent local taxes fees and charges including related
surcharges and interest.
Section 174. Civil Remedies. - The civil remedies for the
collection of local taxes, fees, or charges, and related surcharges
and interest resulting from delinquency shall be:
(a) By administrative action thru distraint of goods,
chattels, or effects, and other personal property of
whatever character, including stocks and other securities,
debts, credits, bank accounts, and interest in and rights to
personal property, and by levy upon real property and
interest in or rights to real property;
(b) By judicial action.
Either of these remedies or all may be pursued
concurrently or simultaneously at the discretion of the local
government unit concerned.
Section 175. Distraint of Personal Property. - The remedy by
distraint shall proceed as follows:
(a) Seizure - Upon failure of the person owing any local
tax, fee, or charge to pay the same at the time required,
the local treasurer or his deputy may, upon written notice,
seize or confiscate any personal property belonging to that
person or any personal property subject to the lien in
sufficient quantity to satisfy the tax, fee, or charge in
question, together with any increment thereto incident to
delinquency and the expenses of seizure. In such case, the
local treasurer or his deputy shall issue a duly
authenticated certificate based upon the records of his
office showing the fact of delinquency and the amounts of
the tax, fee, or charge and penalty due. Such certificate
shall serve as sufficient warrant for the distraint of
personal property aforementioned, subject to the
taxpayer's right to claim exemption under the provisions of
existing laws. Distrained personal property shall be sold at
public auction in the manner hereon provided for.
(b) Accounting of distrained goods. - The officer executing
the distraint shall make or cause to be made an account of
the goods, chattels or effects distrained, a copy of which
signed by himself shall be left either with the owner or
person from whose possession the goods, chattels or
effects are taken, or at the dwelling or place or business of
that person and with someone of suitable age and
discretion, to which list shall be added a statement of the
sum demanded and a note of the time and place of sale.
(c) Publication - The officer shall forthwith cause a
notification to be exhibited in not less than three (3) public
and conspicuous places in the territory of the local
government unit where the distraint is made, specifying
the time and place of sale, and the articles distrained. The
time of sale shall not be less than twenty (20) days after
the notice to the owner or possessor of the property as
above specified and the publication or posting of the
notice. One place for the posting of the notice shall be at
the office of the chief executive of the local government
unit in which the property is distrained.
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(d) Release of distrained property upon payment prior to
sale - If at any time prior to the consummation of the sale,
all the proper charges are paid to the officer conducting
the sale, the goods or effects distrained shall be restored
to the owner.
(e) Procedure of sale - At the time and place fixed in the
notice, the officer conducting the sale shall sell the goods
or effects so distrained at public auction to the highest
bidder for cash. Within five (5) days after the sale, the
local treasurer shall make a report of the proceedings in
writing to the local chief executive concerned.
Should the property distrained be not disposed of within
one hundred and twenty (120) days from the date of
distraint, the same shall be considered as sold to the local
government unit concerned for the amount of the
assessment made thereon by the Committee on Appraisal
and to the extent of the same amount, the tax
delinquencies shall be cancelled.
Said Committee on Appraisal shall be composed of the city
or municipal treasurer as chairman, with a representative
of the Commission on Audit and the city or municipal
assessor as members.
(f) Disposition of proceeds - The proceeds of the sale shall
be applied to satisfy the tax, including the surcharges,
interest, and other penalties incident to delinquency, and
the expenses of the distraint and sale. The balance over
and above what is required to pay the entire claim shall be
returned to the owner of the property sold. The expenses
chargeable upon the seizure and sale shall embrace only
the actual expenses of seizure and preservation of the
property pending the sale, and no charge shall be imposed
for the services of the local officer or his deputy. Where
the proceeds of the sale are insufficient to satisfy the
claim, other property may, in like manner, be distrained
until the full amount due, including all expenses, is
collected.
Section 176. Levy on Real Property. - After the expiration of the
time required to pay the delinquent tax, fee, or charge, real
property may be levied on before, simultaneously, or after the
distraint of personal property belonging to the delinquent
taxpayer. To this end, the provincial, city or municipal treasurer,
as the case may be, shall prepare a duly authenticated certificate
showing the name of the taxpayer and the amount of the tax, fee,
or charge, and penalty due from him. Said certificate shall operate
with the force of a legal execution throughout the Philippines. Levy
shall be effected by writing upon said certificate the description of
the property upon which levy is made. At the same time, written
notice of the levy shall be mailed to or served upon the assessor
and the Register of Deeds of the province or city where the
property is located who shall annotate the levy on the tax
declaration and certificate of title of the property, respectively, and
the delinquent taxpayer or, if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the
liability arose, or if there be none, to the occupant of the property
in question.
In case the levy on real property is not issued before or
simultaneously with the warrant of distraint on personal property,
and the personal property of the taxpayer is not sufficient to
satisfy his delinquency, the provincial, city or municipal treasurer,
as the case may be, shall within thirty (30) days after execution of
the distraint, proceed with the levy on the taxpayer's real
property.
A report on any levy shall, within ten (10) days after receipt of the
warrant, be submitted by the levying officer to the sanggunian
concerned.
Section 177. Penalty for Failure to Issue and Execute Warrant. -
Without prejudice to criminal prosecution under the Revised Penal
Code and other applicable laws, any local treasurer who fails to
issue or execute the warrant of distraint or levy after the
expiration of the time prescribed, or who is found guilty of abusing
the exercise thereof by competent authority shall be automatically
dismissed from the service after due notice and hearing.
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Section 178. Advertisement and Sale. - Within thirty (30) days
after the levy, the local treasurer shall proceed to publicly
advertise for sale or auction the property or a usable portion
thereof as may be necessary to satisfy the claim and cost of sale;
and such advertisement shall cover a period of at least thirty (30)
days. It shall be effected by posting a notice at the main entrance
of the municipal building or city hall, and in a public and
conspicuous place in the barangay where the real property is
located, and by publication once a week for three (3) weeks in a
newspaper of general circulation in the province, city or
municipality where the property is located. The advertisement shall
contain the amount of taxes, fees or charges, and penalties due
thereon, and the time and place of sale, the name of the taxpayer
against whom the taxes, fees, or charges are levied, and a short
description of the property to be sold. At any time before the date
fixed for the sale, the taxpayer may stay they proceedings by
paying the taxes, fees, charges, penalties and interests. If he fails
to do so, the sale shall proceed and shall be held either at the
main entrance of the provincial, city or municipal building, or on
the property to be sold, or at any other place as determined by the
local treasurer conducting the sale and specified in the notice of
sale.
Within thirty (30) days after the sale, the local treasurer or his
deputy shall make a report of the sale to the sanggunian
concerned, and which shall form part of his records. After
consultation with the sanggunian, the local treasurer shall make
and deliver to the purchaser a certificate of sale, showing the
proceeding of the sale, describing the property sold, stating the
name of the purchaser and setting out the exact amount of all
taxes, fees, charges, and related surcharges, interests, or
penalties: Provided, however, That any excess in the proceeds of
the sale over the claim and cost of sales shall be turned over to
the owner of the property.
The local treasurer may, by ordinance duly approved, advance an
amount sufficient to defray the costs of collection by means of the
remedies provided for in this Title, including the preservation or
transportation in case of personal property, and the advertisement
and subsequent sale, in cases of personal and real property
including improvements thereon.
Section 179. Redemption of Property Sold. - Within one (1) year
from the date of sale, the delinquent taxpayer or his
representative shall have the right to redeem the property upon
payment to the local treasurer of the total amount of taxes, fees,
or charges, and related surcharges, interests or penalties from the
date of delinquency to the date of sale, plus interest of not more
than two percent (2%) per month on the purchase price from the
date of purchase to the date of redemption. Such payment shall
invalidate the certificate of sale issued to the purchaser and the
owner shall be entitled to a certificate of redemption from the
provincial, city or municipal treasurer or his deputy.
The provincial, city or municipal treasurer or his deputy, upon
surrender by the purchaser of the certificate of sale previously
issued to him, shall forthwith return to the latter the entire
purchase price paid by him plus the interest of not more than two
percent (2%) per month herein provided for, the portion of the
cost of sale and other legitimate expenses incurred by him, and
said property thereafter shall be free from the lien of such taxes,
fees, or charges, related surcharges, interests, and penalties.
The owner shall not, however, be deprived of the possession of
said property and shall be entitled to the rentals and other income
thereof until the expiration of the time allowed for its redemption.
Section 180. Final Deed to Purchaser. - In case the taxpayer fails
to redeem the property as provided herein, the local treasurer
shall execute a deed conveying to the purchaser so much of the
property as has been sold, free from liens of any taxes, fees,
charges, related surcharges, interests, and penalties. The deed
shall succinctly recite all the proceedings upon which the validity of
the sale depends.
Section 181. Purchase of Property By the Local Government Units
for Want of Bidder. - In case there is no bidder for the real
property advertised for sale as provided herein, or if the highest
bid is for an amount insufficient to pay the taxes, fees, or charges,
related surcharges, interests, penalties and costs, the local
treasurer conducting the sale shall purchase the property in behalf
of the local government unit concerned to satisfy the claim and
within two (2) days thereafter shall make a report of his
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proceedings which shall be reflected upon the records of his office.
It shall be the duty of the Registrar of Deeds concerned upon
registration with his office of any such declaration of forfeiture to
transfer the title of the forfeited property to the local government
unit concerned without the necessity of an order from a competent
court.
Within one (1) year from the date of such forfeiture, the taxpayer
or any of his representative, may redeem the property by paying
to the local treasurer the full amount of the taxes, fees, charges,
and related surcharges, interests, or penalties, and the costs of
sale. If the property is not redeemed as provided herein, the
ownership thereof shall be fully vested on the local government
unit concerned.
Section 182. Resale of Real Estate Taken for Taxes, Fees, or
Charges. - The sanggunian concerned may, by ordinance duly
approved, and upon notice of not less than twenty (20) days, sell
and dispose of the real property acquired under the preceding
section at public auction. The proceeds of the sale shall accrue to
the general fund of the local government unit concerned.
Section 183. Collection of Delinquent Taxes, Fees, Charges or
other Revenues through Judicial Action. - The local government
unit concerned may enforce the collection of delinquent taxes,
fees, charges or other revenues by civil action in any court of
competent jurisdiction. The civil action shall be filed by the local
treasurer within the period prescribed in Section 194 of this Code.
Section 184. Further Distraint or Levy. - The remedies by
distraint and levy may be repeated if necessary until the full
amount due, including all expenses, is collected.
Section 185. Personal Property Exempt from Distraint or Levy. -
The following property shall be exempt from distraint and the levy,
attachment or execution thereof for delinquency in the payment of
any local tax, fee or charge, including the related surcharge and
interest:
(a) Tools and implements necessarily used by the
delinquent taxpayer in his trade or employment;
(b) One (1) horse, cow, carabao, or other beast of burden,
such as the delinquent taxpayer may select, and
necessarily used by him in his ordinary occupation;
(c) His necessary clothing, and that of all his family;
(d) Household furniture and utensils necessary for
housekeeping and used for that purpose by the delinquent
taxpayer, such as he may select, of a value not exceeding
Ten thousand pesos (P10,000.00);
(e) Provisions, including crops, actually provided for
individual or family use sufficient for four (4) months;
(f) The professional libraries of doctors, engineers, lawyers
and judges;
(g) One fishing boat and net, not exceeding the total value
of Ten thousand pesos (P10,000.00), by the lawful use of
which a fisherman earns his livelihood; and
(h) Any material or article forming part of a house or
improvement of any real property.
B. TAXPAYERS REMEDIES SECS. 194-196, LGC
Section 194. Periods of Assessment and Collection. -
(a) Local taxes, fees, or charges shall be assessed within
five (5) years from the date they became due. No action
for the collection of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted after the
expiration of such period: Provided, That. taxes, fees or
charges which have accrued before the effectivity of this
Code may be assessed within a period of three (3) years
from the date they became due.
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 (b) In case of fraud or intent to evade the payment of
taxes, fees, or charges, the same may be assessed within
ten (10) years from discovery of the fraud or intent to
evade payment.
(c) Local taxes, fees, or charges may be collected within
five (5) years from the date of assessment by
administrative or judicial action. No such action shall be
instituted after the expiration of said period: Provided,
however, That, taxes, fees or charges assessed before the
effectivity of this Code may be collected within a period of
three (3) years from the date of assessment.
(d) The running of the periods of prescription provided in
the preceding paragraphs shall be suspended for the time
during which:
(1) The treasurer is legally prevented from making
the assessment of collection;
(2) The taxpayer requests for a reinvestigation and
executes a waiver in writing before expiration of
the period within which to assess or collect; and
(3) The taxpayer is out of the country or otherwise
cannot be located.
Section 195. Protest of Assessment. - When the local treasurer or
his duly authorized representative finds that correct taxes, fees, or
charges have not been paid, he shall issue a notice of assessment
stating the nature of the tax, fee, or charge, the amount of
deficiency, the surcharges, interests and penalties. Within sixty
(60) days from the receipt of the notice of assessment, the
taxpayer may file a written protest with the local treasurer
contesting the assessment; otherwise, the assessment shall
become final and executory. The local treasurer shall decide the
protest within sixty (60) days from the time of its filing. If the local
treasurer finds the protest to be wholly or partly meritorious, he
shall issue a notice cancelling wholly or partially the assessment.
However, if the local treasurer finds the assessment to be wholly
or partly correct, he shall deny the protest wholly or partly with
notice to the taxpayer. The taxpayer shall have thirty (30) days
from the receipt of the denial of the protest or from the lapse of
the sixty (60) day period prescribed herein within which to appeal
with the court of competent jurisdiction otherwise the assessment
becomes conclusive and unappealable.
Section 196. Claim for Refund of Tax Credit. - No case or
proceeding shall be maintained in any court for the recovery of any
tax, fee, or charge erroneously or illegally collected until a written
claim for refund or credit has been filed with the local treasurer.
No case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such
tax, fee, or charge, or from the date the taxpayer is entitled to a
refund or credit.
JARDINE DAVIES INSURANCE BROKERS INC V.
ALIPOSA
ISSUE: Whether or not petitioner was proscribed from filing its
complaint with the RTC and for a refund of its alleged
overpayment, petitioner having paid without any protest the taxes
due to respondent Makati under the ordinance.
HELD: YES
The Court agrees with petitioner that as a general precept, a
taxpayer may file a complaint assailing the validity of the
ordinance and praying for a refund of its perceived overpayments
without first filing a protest to the payment of taxes due under the
ordinance.
Petitioner, relying on the resolution of the Secretary of Justice
in The Philippine Racing Club, Inc. v. Municipality of Makati case,
posited in its complaint that the ordinance which was the basis of
respondent Makati for the collection of taxes from petitioner was
null and void. However, the Court agrees with the contention of
respondents that petitioner was proscribed from filing its complaint
with the RTC of Makati for the reason that petitioner failed to
appeal to the Secretary of Justice within 30 days from the
effectivity date of the ordinance as mandated by Section 187 of
the Local Government Code.
Failure of a taxpayer to interpose the requisite appeal to
the Secretary of Justice is fatal to its complaint for a refund.
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Clearly, the law requires that the dissatisfied taxpayer who
questions the validity or legality of a tax ordinance must file his
appeal to the Secretary of Justice, within 30 days from effectivity
thereof.
In case the Secretary decides the appeal, a period also of 30 days
is allowed for an aggrieved party to go to court. But if the
Secretary does not act thereon, after the lapse of 60 days, a party
could already proceed to seek relief in court. These three separate
periods are clearly given for compliance as a prerequisite before
seeking redress in a competent court. Such statutory periods are
set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions. For this reason the courts construe
these provisions of statutes as mandatory.
A municipal tax ordinance empowers a local government unit to
impose taxes. The power to tax is the most effective instrument to
raise needed revenues to finance and support the myriad activities
of local government units for the delivery of basic services
essential to the promotion of the general welfare and enhancement
of peace, progress, and prosperity of the people. Consequently,
any delay in implementing tax measures would be to the detriment
of the public. It is for this reason that protests over tax ordinances
are required to be done within certain time frames. In the instant
case, it is our view that the failure of petitioners to appeal to the
Secretary of Justice within 30 days as required by Sec. 187 of R.A.
7160 is fatal to their cause.
Moreover, petitioner even paid without any protest the amounts of
taxes assessed by respondents Makati and Acting Treasurer as
provided for in the ordinance. Evidently, the complaint of petitioner
with the Regional Trial Court was merely an afterthought.
SAN JUAN V. CASTRO
FACTS: Romulo D. San Juan (petitioner), registered owner of real
properties in Rancho Estate I, Concepcion II, Marikina City covered
by Transfer Certificates of Title ,] with the consent of his wife,
conveyed on August 24, 2004, by Deed of Assignment, the
properties to the Saints and Angels Realty Corporation (SARC),
then under the process of incorporation, in exchange for 258,434
shares of stock therein with a total par value of P2,584,340. Two
hundred thousand (200,000) of the said shares of stock with a par
value of P2,000,000 were placed in San Juans name while the
remaining 58,434 shares of stock with a par value of P584,340
were placed in the name of his wife.
1. On June 24, 2005, the Securities and Exchange
Commission approved the Articles of Incorporation of
SARC.
2. San Juans representative thereafter went to the Office of
the Marikina City Treasurer to pay the transfer tax based
on the consideration stated in the Deed of
Assignment. Ricardo L. Castro (respondent), the City
Treasurer, informed him that the tax due should be based
on the fair market value of the property, which is P7.0
million and not on what is stated in the Deed of
Assignment.
3. San Juan protested the basis of the tax due. Castro
replied that in cases of transfer of real property not
involving monetary consideration, it is certain that the fair
market value or zonal value of the property is the basis of
the tax rate. As provided in the Local Government Code
(LGC), fair market value is defined as the price at which a
property may be sold by a seller who is not compelled to
sell and bought by a buyer who is not compelled to buy.
Hence, the computation based on fair market value is
correct.
4. San Juan then filed with the RTC of Marikina a petition for
mandamus and damages against Castro in his capacity as
City Treasurer of Marikina praying that Castro be
compelled to perform a ministerial duty, that is, to accept
the payment of transfer tax based on the actual
consideration of the transfer/assignment.
ISSUE: Is Mandamus the proper procedure adopted by San Juan?
NO.
HELD:
1. Under Section 195 of the Local Government Code which is
quoted immediately below, a taxpayer who disagrees with a tax
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assessment made by a local treasurer may file a written protest
thereof:
SECTION 195. Protest of Assessment. When the local treasurer
or his duly authorized representative finds that the correct taxes,
fees, or charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee, or charge, the
amount of deficiency, the surcharges, interests and
penalties. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest with the local
treasurer contesting the assessment; otherwise, the assessment
shall become final and executory.
The local treasurer shall decide the protest within sixty (60) days
from the time of its filing. If the local treasurer finds the protest to
be wholly or partly meritorious, he shall issue
notice cancelling wholly or partially the assessment. However, if
the local treasurer finds the assessment to be wholly or partly
correct, he shall deny the protest wholly or partly with notice to
the taxpayer. The taxpayer shall have thirty (30) days from
the receipt of the denial of the protest or from the lapse of
the sixty-day (60) period prescribed herein within which to
appeal with the court of competent jurisdiction, otherwise
the assessment becomes conclusive and unappealable.
That petitioner protested in writing against the assessment of tax
due and the basis thereof is on record as in fact it was on that
account that respondent sent him the above-quoted July 15,
2005 letter which operated as a denial of petitioners written
protest. Petitioner should thus have, following the earlier above-
quoted Section 195 of the Local Government Code, either appealed
the assessment before the court of competent jurisdiction or paid
the tax and then sought a refund.
Petitioner did not observe any of these remedies available to him,
however. He instead opted to file a petition for mandamus to
compel respondent to accept payment of transfer tax as computed
by him.
Mandamus lies only to compel an officer to perform a ministerial
duty (one which is so clear and specific as to leave no room for the
exercise of discretion in its performance) but not a discretionary
function (one which by its nature requires the exercise of
judgment). Respondents argument that mandamus cannot lie to
compel the City Treasurer to accept as full compliance a tax
payment which in his reasoning and assessment is deficient and
incorrect is thus persuasive.
III. REAL PROPERTY TAXATION
A. FUNDAMENTAL PRINCIPLES SEC. 198, LGC
a Section 198. Fundamental Principles. - The appraisal,
assessment, levy and collection of real property tax shall be guided
by the following fundamental principles:
(a) Real property shall be appraised at its current and fair
market value;
(b) Real property shall be classified for assessment
purposes on the basis of its actual use;
(c) Real property shall be assessed on the basis of a
uniform classification within each local government unit;
(d) The appraisal, assessment, levy and collection of real
property tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be
equitable
B. ASSESSMENT APPEALS
1. LOCAL BOARD OF ASSESSMENT APPEALS
SEC. 226, LGC
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Section 226. Local Board of Assessment Appeals. - Any owner or
person having legal interest in the property who is not satisfied
with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the
Board of Assessment Appeals of the provincial or city by filing a
petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
2. ACTION OF THE LBAA SEC. 229, LGC
Section 229. Action by the Local Board of Assessment Appeals. -
(a) The Board shall decide the appeal within one hundred
twenty (120) days from the date of receipt of such appeal.
The Board, after hearing, shall render its decision based on
substantial evidence or such relevant evidence on record
as a reasonable mind might accept as adequate to support
the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board
shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and
issue subpoena and subpoena duces tecum. The
proceedings of the Board shall be conducted solely for the
purpose of ascertaining the facts without necessarily
adhering to technical rules applicable in judicial
proceedings.
(c) The secretary of the Board shall furnish the owner of
the property or the person having legal interest therein
and the provincial or city assessor with a copy of the
decision of the Board. In case the provincial or city
assessor concurs in the revision or the assessment, it shall
be his duty to notify the owner of the property or the
person having legal interest therein of such fact using the
form prescribed for the purpose. The owner of the property
or the person having legal interest therein or the assessor
who is not satisfied with the decision of the Board, may,
within thirty (30) days after receipt of the decision of said
Board, appeal to the Central Board of Assessment Appeals,
as herein provided. The decision of the Central Board shall
be final and executory.
3. PAYMENT UNDER PROTEST SEC. 152, LGC
Section 152. Scope of Taxing Powers. - The barangays may levy
taxes, fees, and charges, as provided in this Article, which shall
exclusively accrue to them:
(a) Taxes - On stores or retailers with fixed business
establishments with gross sales of receipts of the preceding
calendar year of Fifty thousand pesos (P50,000.00) or less, in
the case of cities and Thirty thousand pesos (P30,000.00) or
less, in the case of municipalities, at a rate not exceeding one
percent (1%) on such gross sales or receipts.
(b) Service Fees or Charges. - Barangays may collect
reasonable fees or charges for services rendered in connection
with the regulations or the use of barangay-owned properties
or service facilities such as palay, copra, or tobacco dryers.
(c) Barangay Clearance. - No city or municipality may issue
any license or permit for any business or activity unless a
clearance is first obtained from the barangay where such
business or activity is located or conducted. For such
clearance, the sangguniang barangay may impose a
reasonable fee. The application for clearance shall be acted
upon within seven (7) working days from the filing thereof. In
the event that the clearance is not issued within the said
period, the city or municipality may issue the said license or
permit.
(d) Other fees and Charges. - The barangay may levy
reasonable fees and charges:
(1) On commercial breeding of fighting cocks, cockfights
and cockpits;
(2) On places of recreation which charge admission fees;
and
(3) On billboards, signboards, neon signs, and outdoor
advertisements.
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