Possibilities in Taxation

for the 2015 Bar Examinations

and Beyond
(Project Phoenix)
General Principles
Revenue Memorandum Order (RMO) No. 1-2000 requires that any availment of a tax treaty
relief (lower income tax rate) must be preceded by an application with the International Tax
Affairs Division (ITAD) of the Bureau of Internal Revenue (BIR) at least 15 days before the
transaction.
Examples:
Particulars

Tax Code Rate

Tax Treaty Rate

BPRT

15%

10%

Dividends

30%/15%

10%

Royalties

30%

10%

Should failure to strictly comply with RMO No. 1-2000 deprive persons or
corporations of the benefit of a tax treaty?
Tax treaties are entered into to minimize, if not eliminate the harshness of international
juridical double taxation, which is why they are also known as double tax treaty or double
tax agreements.
Laws and issuances must ensure that the reliefs granted under tax treaties are accorded to
the parties entitled thereto. The BIR must not impose additional requirements that would
negate the availment of the reliefs provided for under international agreements. More so,
when the Tax Treaty does not provide for any pre-requisite for the availment of the benefits
under said agreement.
The obligation to comply with a tax treaty must take precedence over the objective of RMO
No. 1-2000. Logically, noncompliance with tax treaties has negative implications on
international relations, and unduly discourages foreign investors. While the consequences
sought to be prevented by RMO No. 1-2000 involve an administrative procedure, these may
be remedied through other system management processes, e.g., the imposition of a fine or
penalty. But we cannot totally deprive those who are entitled to the benefit of a treaty for
failure to strictly comply with an administrative issuance requiring prior application for tax
treaty relief. (Deutsche Bank AG Manila Branch vs. CIR, GR No. 188550 dated August 19,
2013)
Section 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any
of the rules and regulations promulgated in accordance with the preceding Sections or any
of the rulings or circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to the taxpayers,
except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return
or any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
Doctrines on Non-retroactivity of Rulings Rule:
1. In order for Sec. 246 to apply, the ruling must be issued to the taxpayer invoking the
same. (CIR vs. Filinvest Development Corporation, GR No. 163653 dated July 19,
2011)

2. But, if the ruling issued is a general interpretative rule, all taxpayers may rely on the
ruling and invoke Sec. 246 if proper. (CIR vs. San Roque, GR No. 187485 dated
February 12, 2013)
3. Section 246 is not limited to a reversal only by the Commissioner because this
Section expressly states, "Any revocation, modification or reversal" without
specifying who made the revocation, modification or reversal. Hence, a reversal by
the Supreme Court is covered under Section 246. (San Roque)
Income Tax
Is retirement pay exempt from income tax and withholding tax?
Retirement benefits received under (1) Republic Act No. 7641 and those received by
officials and employees of private firms, whether individual or corporate, in accordance with
(2) a reasonable private benefit plan maintained by the employer: Provided, That the
retiring official or employee has been in the service of the same employer for at least ten
(10) years and is not less than fifty (50) years of age at the time of his retirement: Provided,
further, That the benefits granted under this subparagraph shall be availed of by an official
or employee only once.
The term reasonable private benefit plan means a pension, gratuity, stock bonus or profitsharing plan maintained by an employer for the benefit of some or all of his officials or
employees, wherein contributions are made by such employer for the officials or employees,
or both, for the purpose of distributing to such officials and employees the earnings and
principal of the fund thus accumulated, and wherein its is provided in said plan that at no
time shall any part of the corpus or income of the fund be used for, or be diverted to, any
purpose other than for the exclusive benefit of the said officials and employees. [Sec. 32(B)
(6)(a) of the Tax Code]
Art. 287.
Retirement. Any employee may be retired upon reaching the retirement
age established in the collective bargaining agreement or other applicable employment
contract.
In case of retirement, the employee shall be entitled to receive such retirement benefits as
he may have earned under existing laws and any collective bargaining agreement and
other agreements: Provided, however, that an employee's retirement under any
collective bargaining and other agreements shall not be less than those provided
herein.
In the absence of a retirement plan or agreement providing for retirement benefits of
employees in the establishment, an employee upon reaching the age of sixty (60) years or
more, but not beyond sixty-five (65) which is declared the compulsory retirement age, who
has served at least five (5) years in the establishment, may retire and shall be entitled to
retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a
fraction of at least six (6) months being considered as one (1) whole year."
RA 7641 Retirement Pay Law / Art. 287 of the Labor Code
A. Those received under existing collective bargaining agreement and other agreements;
B. In the absence of a retirement plan and other agreements:
1. Retiring employee served for at least five (5) years; and,
2. Not less than sixty (60) years of age but not more than sixty five (65).

Note that the CBA or employment contract may provide for the age of retirement.
RA 4917 / Tax Code - Sec. 32(B)(6)(a)
1. Employee retires under a BIR-registered/approved Reasonable Private Benefit Plan;
2. The retiring official or employee must have been in service of the same employer for at
least ten (10) years;
3. He/She is not less than fifty (50) years of age at the time of retirement;

4. The benefit is availed of only once.

In International Broadcasting Corporation, Inc. vs. Amarilla, GR No. 162775 dated
October 27, 2006:
1. The Supreme Court considered the CBA as a retirement plan;
2.
For the retirement benefits to be exempt from the withholding tax (under RA 4917),
the taxpayer is burdened to prove the concurrence of the following elements: (1) a
reasonable private benefit plan is maintained by the employer (approved by the BIR);
(2) the retiring official or employee has been in the service of the same employer for
at least 10 years; (3) the retiring official or employee is not less than 50 years of age
at the time of his retirement; and (4) the benefit had been availed of only once.
Respondents were qualified to retire optionally from their employment with petitioner.
However, there is no evidence on record that the 1993 CBA had been approved or was ever
presented to the BIR; hence, the retirement benefits of respondents are taxable.
R.A. No. 7641 only applies in a situation where:
(1) there is no collective bargaining agreement or other applicable employment contract
providing for retirement benefits for an employee; or
(2) there is a collective bargaining agreement or other applicable employment contract
providing for retirement benefits for an employee, but it is below the requirements
set for by law.
The reason for the first situation is to prevent the absurd situation where an employee, who
is otherwise deserving, is denied retirement benefits by the nefarious scheme of employers
in not providing for retirement benefits for their employees. The reason for the second
situation is expressed in the latin maxim pacta privata juri publico derogare non possunt.
Private contracts cannot derogate from the public law. Ang kasunduang pribado ay hindi
makasisira sa batas publiko. (Oxales vs. Abbot Laboratories, Inc., GR No. 152991 dated July
21, 2008)
Rule No. 1: Retirement Plan provides more benefits
If there is a CBA or Employment Contract or Retirement Plan providing for more benefits vs.
RA No. 7641. The Retirement Plan applies and the requirements under RA No. 4917 or the
Tax Code must be complied with for purposes of income tax exemption availment. (Oxales,
BIR Ruling No. DA-151-04 dated March 31, 2004 and BIR Ruling No. 068-14 dated February
25, 2014)
Scenario 1a:
Employers Plan
1. Benefits given are more;
2. Age 50-55 yrs; or
3. Service 10 yrs;
Actual Facts on Retirement
1. Age 50 yrs;
2. Service 10 yrs;
Scenario 1b:
1. Benefits given are more;

2. Age 50-55 yrs; or

3. Service 10 yrs;
Actual Facts on Retirement
1. Age 60 yrs;
2. Service 5 yrs;
Rule No. 2: Retirement Plan provides for equal or less benefits
If there is a CBA or Employment Contract or Retirement Plan providing for equal or less
benefits vs. RA No. 7641. The retirement pay shall be exempt from income tax provided the
requirements under RA 7614 are met.
This is to avoid the absurd situation where an employee who fails to meet the 50-10
requirement under the Tax Code will be taxed if he receives the retirement from a BIR
approved plan, but not if his employer does not have a plan or if the retirement plan is not
BIR registered.
If the CBA provides for a lower age requirement (below 50) and equal or less benefits, the
tax exemption still applies provided that the employee has rendered at least five (5) years of
service. (BIR Ruling No. DA-151-04 dated March 31, 2004)
Scenario 2a:
Employers Plan
1. Benefits given are equal or less;
2. Age - 60; or
3. Service 10 yrs;
4. Plan registered;
Actual Facts on Retirement
1. Age 60 yrs;
2. Service 5 yrs;
Scenario 2b:
1. Benefits given are equal or less;
2. Age 50 yrs; or

3. Service 10 yrs;
4. Plan not registered;
Actual Facts on Retirement
1. Age 45 yrs;
2. Service 10 yrs;
Rule No. 3: Employee is allowed to avail of Early Retirement
The sole object of the two (2) conditions enumerated [50-10 rule] is in turn unmistakably to
provide merely for the minimum requirement in order that the retirement benefits to be
given to the official or employee may be exempt from income tax and consequently from
withholding tax. However, the Retirement Plan Rules and Regulations of the company may
provide that the normal retirement date or early/optional retirement date be more than what
is required by the Tax Code. Consequently, in case of conflict between the Tax Code and the
Retirement Plan Rules and Regulations, it is the latter that should prevail. (BIR Ruling No.
052-00 dated October 30, 2000)
Scenario 3:
Employers Plan
1. Benefits given are more;
2. Age 55 yrs; or
3. Service 25 yrs;
Actual Facts on Retirement
1. Age 51 yrs;
2. Service 23 yrs;
A non-stock non-profit school leases a portion of its property as a canteen. Is the
rental income subject to income tax?
Section 30. Exemptions from Tax on Corporations. - The following organizations shall not be
taxed under this Title in respect to income received by them as such:
(H) A nonstock and nonprofit educational institution;

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any of their properties, real or personal, or
from any of their activities conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed under this Code.
All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties.
Upon the dissolution or cessation of the corporate existence of such institutions, their assets
shall be disposed of in the manner provided by law. (Paragraph 3, Section 4, Article XIV of
the Constitution)
BIRs Position:
The exemption of non-stock, non-profit educational institutions refers to internal revenue
taxes imposed by the National Government on all revenues and assets used actually,
directly and exclusively for educational purposes (Paragraph 3, Section 4, Article XIV of the
Constitution). Furthermore, revenues derived from assets used in the operation of
cafeterias/canteens and bookstores are exempt from taxation provided they are owned and
operated by the educational institution as ancillary activities and the same are located
within the school premises.
However, they shall be subject to internal revenue taxes on income from trade, business or
other activity, the conduct of which is not related to the exercise or performance by such
educational institutions of their educational purposes or functions (Sec. 2, Finance
Department Order No. 137-87 as amended by Finance Department Order No. 92-88) i. e.
rental payment from their building/premises.
In Commissioner of Internal Revenue vs. Court of Appeals (GR No. 124043 dated October 14,
1998), the Supreme Court gave only two requirements that the educational institution must
prove (in order to claim exemption from income tax), that: (1) it falls under the classification
of a non-stock, non-profit educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and exclusively for educational purposes.
Assuming that the non-stock non-profit educational institution fails to prove that
the rentals paid were actually, directly, exclusively used for educational purposes,
how should the said rentals be taxed?
Thus, even if the charitable institution must be "organized and operated exclusively" for
charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit"
without losing its tax exempt status for its not-for-profit activities. The only consequence is
that the "income of whatever kind and character" of a charitable institution "from any of its
activities conducted for profit, regardless of the disposition made of such income, shall be
subject to tax." Prior to the introduction of Section 27(B), the tax rate on such income from
for-profit activities was the ordinary corporate rate under Section 27(A). With the
introduction of Section 27(B), the tax rate is now 10%. (CIR vs. St. Lukes Medical Center,
Inc., GR No. 195909 dated September 26, 2012)
Estate Tax
D obtained a loan from C in the amount of PhP100k. Upon Ds death the loan
balance amounted to PhP20k. During the settlement of Ds Estate, Ds lawyer was
able to negotiate a compromise with C wherein the actual amount paid to settle
Ds loan is only PhP5k.
How much is the deductible claims against the estate for estate tax purposes?
Supreme Court:
1. The Date-of-Death Valuation Principle applies. Post-death developments are not
material in determining the amount of the deduction. The net value of the property
transferred should be ascertained, as nearly as possible, as of the time of death;
2. There is no law, nor any legislative intent in our tax laws, which disregards the Dateof-Death Valuation principle and particularly provides that post-death developments
must be considered in determining the net value of the estate. (Dizon vs. CTA, GR
No. 140944 dated April 30, 2008)

Donors Tax
Section 100. Transfer for Less Than Adequate and full Consideration. - Where property, other
than real property referred to in Section 24(D), is transferred for less than an adequate and
full consideration in money or money's worth, then the amount by which the fair market
value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year.
Formula:
Fair Market Value - Consideration = Deemed Donation
How do we determine the Fair Market Value of Shares of Stock?
1. Unlisted Shares:
a. Common Book Value using the Adjusted Net Asset Method (Stockholders
Equity/No. of Shares).
b. Preferred Par Value.
c. Listed Shares: Arithmetic Mean (high and low) at or nearest the date of sale or
donation.
Can the taxpayer argue, in order to avoid any Donors Tax liability that the sale
below fair market value (book value) is without any donative intent on the part of
the seller?
No, absence of donative intent, if that be the case, does not exempt the sale of stock
transaction from donors tax since Sec. 100 of the NIRC categorically states that the amount
by which the fair market value of the property exceeded the value of the consideration shall
be deemed a gift. Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, RR No. 6-2008 does not alter Sec. 100 of the NIRC but merely sets the parameters
for determining the fair market value of a sale of stocks. Such issuance was made
pursuant to the CIRs power to interpret tax laws and to promulgate rules and regulations for
their implementation. (Philamlife vs. SOF, GR No. 210987 dated November 24, 2014)
Moreover, RR No. 6-2008 does not alter Sec. 100 of the NIRC but merely sets the parameters
for determining the fair market value of a sale of stocks. Such issuance was made
pursuant to the CIRs power to interpret tax laws and to promulgate rules and regulations for
their implementation. (Philamlife vs. SOF, GR No. 210987 dated November 24, 2014)
Value-added Tax
Persons Liable for VAT (Sec. 105):
1. The sale of services on a reimbursement-on/of-cost basis is subject to VAT. As long as
the entity provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT; (CIR vs. CA and COMASERCO, GR No. 125355 dated March
30, 2000)
2. A dole out or subsidy by a Parent Company on the advertising expenses incurred by
its Subsidiary, while subject to income tax, is not subject to VAT. There was no service
rendered by the Subsidiary to the Parent Company; (CIR vs. Sony Philippines, Inc., GR
No. 178697 dated November 17, 2010)
Transitional Input Tax: [Sec. 111(A)]
Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of
P1,919,500.00 in any 12-month period, or who voluntarily register even if their turnover
does not exceed P1,919,500.00 (except franchise grantees of radio and television
broadcasting whose threshold is P10,000,000.00) shall be entitled to a transitional input tax
on the inventory on hand as of the effectivity of their VAT registration, on the following:
a) goods purchased for resale in their present condition;
b) materials purchased for further processing, but which have not yet undergone
processing;
c) goods which have been manufactured by the taxpayer;
d) goods in process for sale; or
e) goods and supplies for use in the course of the taxpayer's trade or business as a VATregistered person.

The transitional input tax shall be two percent (2%) of the value of the beginning inventory
on hand or actual VAT paid on such, goods, materials and supplies, whichever is higher,
which amount shall be creditable against the output tax of VAT-registered person. The value
allowed for income tax purposes on inventories shall be the basis for the computation of the
2% transitional input tax, excluding goods that are exempt from VAT under Sec. 109 of the
Tax Code.
Is prior payment of taxes necessary before a taxpayer may claim transitional
input VAT under Sec. 111(A) of the Tax Code?
No, if the intent of the law were to limit the input tax credit to cases where actual VAT was
paid, it could have simply said that the tax base shall be the actual value-added tax paid.
Instead, the law as framed contemplates a situation where a transitional input tax credit is
claimed even if there was no actual payment of VAT in the underlying transaction. In such
cases, the tax base used shall be the value of the beginning inventory of goods, materials
and supplies.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies. During that period of transition from non-VAT to
VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the
taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant
portion of the income it derived from its sales as output VAT. The transitional input tax credit
mitigates this initial diminution of the taxpayer's income by affording the opportunity to
offset the losses incurred through the remittance of the output VAT at a stage when the
person is yet unable to credit input VAT payments. (Fort Bonifacio Development vs. CIR, GR
No. 158885 dated April 2, 2009)
Remedies
May the BIR issue an assessment which covers a period outside the taxable year
indicated in the Letter of Authority?
No, such assessment is null and void. Clearly, there must be a grant of authority before any
revenue officer can conduct an examination or assessment. Equally important is that the
revenue officer so authorized must not go beyond the authority given. In the absence of
such an authority, the assessment or examination is a nullity. (CIR vs. Sony Philippines, Inc.,
GR No. 178697 dated November 17, 2010)
Rule on the Waiver of the Statute of Limitations:
Sec. 222 (b) and (d) of the Tax Code:
(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.
(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.
Requisites of a valid waiver:
a) The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not
after ______ 19 ___", which indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription, should be
filled up;
b)
The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized;
c) The waiver should be duly notarized;

d) The CIR or the revenue official authorized by him must sign the waiver indicating that
the BIR has accepted and agreed to the waiver. The date of such acceptance by the
BIR should be indicated. However, before signing the waiver, the CIR or the revenue
official authorized by him must make sure that the waiver is in the prescribed form,
duly notarized, and executed by the taxpayer or his duly authorized representative;
e) Both the date of execution by the taxpayer and date of acceptance by the Bureau
should be before the expiration of the period of prescription or before the lapse of the
period agreed upon in case a subsequent agreement is executed; and,
f) The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement. (CIR vs. Kudos Metal, GR
No. 178087 dated May 5, 2010)
What is the effect if a taxpayer partially pays an assessment despite the invalidity
of a waiver of the statute of limitations?
Had petitioner truly believed that the waiver was invalid and that the assessments were
issued beyond the prescriptive period, then it should not have paid the reduced amount of
taxes in the revised assessment. RCBCs subsequent action effectively belies its insistence
that the waiver is invalid. The records show that on December 6, 2000, upon receipt of the
revised assessment, RCBC immediately made payment on the uncontested taxes. Thus,
RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a
party to gainsay its own act or deny rights which it had previously recognized would run
counter to the principle of equity which this institution holds dear. (RCBC vs. CIR, GR No.
170257 dated September 7, 2011)
Section 223. Suspension of Running of Statute of Limitations. - The running of the Statute of
Limitations provided in Sections 203 and 222 on the making of assessment and the
beginning of distraint or levy a proceeding in court for collection, in respect of any
deficiency, shall be suspended xxx; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or collected: Provided,
that, if the taxpayer informs the Commissioner of any change in address, the running of the
Statute of Limitations will not be suspended; xxx.
Sec. 11. Change of Address. - In case of change of address, the taxpayer must give a written
notice thereof to the Revenue District Officer or the district having jurisdiction over his
former legal residence and/or place of business, copy furnished the Revenue District Officer
having jurisdiction over his new legal residence or place of business, the Revenue Computer
Center and the Receivable Accounts Division, BIR, National Office, Quezon City, and in case
of failure to do so, any communication referred to in these regulations previously sent to his
former legal residence or business address as appearing in is tax return for the period
involved shall be considered valid and binding for purposes of the period within which to
reply. (RR No. 12-85)
Does failure to provide written notice to the BIR that the taxpayer changed his
address automatically warrant the suspension of the prescriptive period?
The suspension of the three-year period to assess applies only if the BIR Commissioner is not
aware of the whereabouts of the taxpayer.
Hence, despite the absence of a formal written notice of respondent's change of address,
the fact remains that petitioner became aware of respondent's new address as shown by
documents replete in its records. As a consequence, the running of the three-year period to
assess respondent was not suspended and has already prescribed. (CIR vs. BASF Coating +
Inks Phils., GR No. 198677 dated November 26, 2014).
Section 228. Protesting of Assessment.

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.
May the BIR declare an assessment final and executory due to the taxpayers
failure to submit the required documents?
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. (CIR vs. First Express Pawnshop, GR Nos. 172045-46 dated
June 16, 2009)
The term the assessment shall become final shall mean the taxpayer is barred from
disputing the correctness of the issued assessment by introduction of newly discovered or
additional evidence, and the Final Decision on the Disputed Assessment shall consequently
be denied (issued). (RR No. 18-2013)
Remedies against issuances of the BIR. Previous rules:
1. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation
issued by the administrative agency in the performance of its quasi-legislative function,
the regular courts have jurisdiction to pass upon the same. (British American Tobacco vs.
Camacho, GR No. 163583 dated August 20, 2008);
2. Rulings or opinions of the CIR are appealable to the CTA. Basis is: other matters arising
under the NIRC or other laws administered by the BIR under the CTA Law. (Asia
Auctioneers, Inc. vs. Parayno, Jr., GR No. 163445 dated December 18, 2007).
BIR issues an unfavorable ruling to a taxpayer. What are the remedies available to
the taxpayer?
1. File a Request for Ruling Review with the Secretary of Finance (SOF) within thirty (30)
days from receipt of the unfavorable ruling. (DOF Department Order No. 23-2001 dated
October 25, 2001);
2. The unfavorable decision of the SOF is appealable to the CTA. Basis is: other matters
arising under the NIRC or other laws administered by the BIR under the CTA Law.
(Philamlife vs. SOF, GR No. 210987 dated November 24, 2014; and, BDO vs. GR No.
198756 dated January 13, 2015)
Philamlife Case:
1. Admittedly, there is no provision in law that expressly provides where exactly the ruling
of the Secretary of Finance under the adverted NIRC provision is appealable to. However,
we find that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law
as it vests the CTA, albeit impliedly, with jurisdiction over the CA petition as other
matters arising under the NIRC or other laws administered by the BIR.
Even though the provision suggests that it only covers rulings of the Commissioner, We
hold that it is, nonetheless, sufficient enough to include appeals from the Secretarys
review under Sec. 4 of the NIRC.
2. The respective teachings in British American Tobacco and Asia International
Auctioneers, at first blush, appear to bear no conflictthat when the validity or
constitutionality of an administrative rule or regulation is assailed, the regular courts
have jurisdiction; and if what is assailed are rulings or opinions of the Commissioner on
tax treatments, jurisdiction over the controversy is lodged with the CTA. The problem
with the above postulates, however, is that they failed to take into consideration one
crucial point - a taxpayer can raise both issues simultaneously.

10

3. In the recent case of City of Manila v. Grecia-Cuerdo, the Court en banc has ruled that
the CTA now has the power of certiorari in cases within its appellate jurisdiction.
xxx. Moreover, City of Manila diametrically opposes British American Tobacco to the
effect that it is now within the power of the CTA, through its power of certiorari, to rule on
the validity of a particular administrative rule or regulation so long as it is within its
appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment
or tax treatment of a certain transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on which the said assessment is based.
BDO Case:
1. The rule on exhaustion of administrative remedies, particularly, appeal to the Secretary
of Finance, may be dispensed with if, among others: (1) the question involved is purely
legal; and, (2) when exhaustion will result in an exercise in futility.
In this case, an appeal to the Secretary of Finance from the questioned 2011 BIR Ruling
would be a futile exercise because it was upon the request of the Secretary of Finance
that the 2011 BIR Ruling was issued by the Bureau of Internal Revenue. It appears that
the Secretary of Finance adopted the Commissioner of Internal Revenues opinions as his
own.
2. We agree with respondents that the jurisdiction to review the rulings of the
Commissioner of Internal Revenue pertains to the Court of Tax Appeals. The questioned
BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection with the
implementation of the 1997 National Internal Revenue Code on the taxability of the
interest income from zero-coupon bonds issued by the government;
3. Legal basis of the decision is again other matters, the decision cites the provisions of
Sec. 11 of 9282 on the period to appeal (30 days) and mode of appeal. (Petition for
Review under Rule 42)
Local Taxation
(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; [Sec. 133(J) of the LGC]
Exception: Franchise tax imposed by provinces and cities on transportation contractors
enjoying a franchise.
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax. (First Philippine Industrial Corporation
vs. CA GR No. 125948, December 29, 1998)
May a city impose business tax on common carriers?
The City of Manila argues that the basis for imposing business tax on common carriers is
Sec. 143(h) of the LGC which provides:
On any business, not otherwise specified in the 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 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.
SC: No, gross receipts of common carriers are not subject to business tax. Section 133 (j) of
the LGC clearly and unambiguously proscribes LGUs from imposing any tax on the gross
receipts of transportation contractors, persons engaged in the transportation of passengers
or freight by hire, and common carriers by air, land, or water. Yet, confusion arose from the
phrase "unless otherwise provided herein," found at the beginning of the said provision. The
City of Manila and its public officials insisted that said clause recognized the power of the
municipality or city, under Section 143 (h) of the LGC, to impose tax "on any business
subject to the excise, value-added or percentage tax under the National Internal Revenue
Code, as amended." And it was pursuant to Section 143 (h) of the LGC that the City of
Manila and its public officials enacted, approved, and implemented Section 21 (B) of the
Manila Revenue Code, as amended.

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Section 133 (j) of the LGC prevails over Section 143 (h) of the same Code. The omnibus
grant of power to municipalities and cities under Section 143 (h) of the LGC cannot
overcome the specific exception/exemption in Section 133 (j) of the same Code. This is in
accord with the rule on statutory construction that specific provisions must prevail over
general ones.
Finally, Sec. 115 (now 117) of the NIRC provides: The gross receipts of common carriers
derived from their incoming and outgoing freight shall not be subjected to the local taxes
imposed under Republic Act No. 7160, otherwise known as the Local Government Code of
1991. (City of Manila vs. Colet, GR No. 120051 etc. dated December 10, 2014)
How do you question the Constitutionality of a Tax Ordinance?
1. Appeal to the Secretary of Justice (SOJ) within 30 days from the effectivity of the
ordinance.
2. SOJ shall render a decision within 60 days from receipt of appeal.
3. Appeal shall not have the effect of suspending the effectivity of the ordinance and
the accrual and payment of the tax, fee, or charge levied therein.
4. Within 30 days after receipt of the decision or the lapse of the 60 period without the
SOJ acting upon the appeal, the aggrieved party may file a declaratory relief petition
with the RTC. (Sec. 187)
The fees imposed in an ordinance which mandates the collection of a fee based on the total
project cost of special projects (including cell sites) is not a tax. The purpose of the
ordinance is primarily regulatory in nature and not primarily revenue raising.
Considering that the fees in the said ordinance are not in the nature of local taxes, and
Smart is questioning the constitutionality of the ordinance, the CTA correctly dismissed the
petition for lack of jurisdiction. Likewise, Section 187 of the LGC, which outlines the
procedure for questioning the constitutionality of a tax ordinance, is inapplicable, rendering
unnecessary the resolution of the issue on non-exhaustion of administrative remedies.
(Smart vs. Municipality of Malvar, Batangas, GR No. 204429 dated February 18, 2014.)
Real Property Taxation
Doctrines on assessments involving the real property tax:
1. Appeal on assessments of real property made under the provisions of the LGC shall,
in no case, suspend the collection of the corresponding realty taxes on the property
involved as assessed by the provincial or city assessor, without prejudice to
subsequent adjustment depending upon the final outcome of the appeal. (Sec. 231 of
the LGC)
2. Payment under protest is necessary. Thus, should the taxpayer/real property owner
question the excessiveness or reasonableness of the assessment, Section 252 directs
that the taxpayer should first pay the tax due before his protest can be entertained.
(Olivarez vs. Marquez 438 SCRA 679)
The requirement of "payment under protest" is a condition sine qua non before a
protest or an appeal questioning the correctness of an assessment of real property
tax may be entertained. (Camp John Hay vs. CBAA, GR No. 169234, October 2, 2013)
3. A claim for exemption from payment of real property taxes does not actually question
the assessor's authority to assess and collect such taxes, but pertains to the
reasonableness or correctness of the assessment by the local assessor, a question of
fact which should be resolved, at the very first instance, by the LBAA. This may be
inferred from Section 206 of RA No. 7160.
Sec. 206, by providing that real property not declared and proved as tax-exempt shall
be included in the assessment roll, the above-quoted provision implies that the local
assessor has the authority to assess the property for realty taxes, and any
subsequent claim for exemption shall be allowed only when sufficient proof has been
adduced supporting the claim.
Therefore, if the property being taxed has not been dropped from the assessment
roll, taxes must be paid under protest if the exemption from taxation is insisted upon.
(Camp John Hay)

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But in NPC vs. Municipal Government of Navotas (GR No. 192300 dated November
24, 2014), a claim of exemption under Sec. 234(c) of the LGC was considered a legal
issue. Thus, direct resort to the RTC was correct and payment under protest was held
as not necessary.
The Supreme Court added that the issue in this particular case is clearly legal given
that it involves an interpretation of the contract between the parties vis--vis the
applicable laws, i.e., which entity actually, directly and exclusively uses the subject
machineries and equipment. The answer to such question would then determine
whether petitioner is indeed exempt from payment of real property taxes. Since the
issue is a question of law, the jurisdiction was correctly lodged with the RTC.
Once an assessment has been issued, what is the proper remedy of the taxpayer?
Once an assessment has already been issued by the assessor, the proper remedy of a
taxpayer depends on whether the assessment was erroneous or illegal.
An erroneous assessment presupposes that the taxpayer is subject to the tax but is
disputing the correctness of the amount assessed. With an erroneous assessment, the
taxpayer claims that the local assessor erred in determining any of the items for computing
the real property tax, i.e., the value of the real property or the portion thereof subject to tax
and the proper assessment levels. In case of an erroneous assessment, the taxpayer must
exhaust the administrative remedies provided under the Local Government Code before
resorting to judicial action.
On the other hand, an assessment is illegal if it was made without authority under the law.
In case of an illegal assessment, the taxpayer may directly resort to judicial action without
paying under protest the assessed tax and filing an appeal with the Local and Central Board
of Assessment Appeals.
In the present case, the PEZA did not avail itself of any of the remedies against a notice of
assessment. A petition for declaratory relief is not the proper remedy once a notice of
assessment
was
already
issued.
Instead of a petition for declaratory relief, the PEZA should have directly resorted to a
judicial action. The PEZA should have filed a complaint for injunction, the appropriate
ordinary civil action to enjoin the City from enforcing its demand and collecting the
assessed taxes from the PEZA. After all, a declaratory judgment as to the PEZAs taxexempt status is useless unless the City is enjoined from enforcing its demand.
A. Erroneous Assessments:
1. Pay the tax then file a written protest with the Local Treasurer within 30 days from
the date of payment of the tax;
2. If protest is denied or upon the lapse of the 60-day period to decide the protest, the
taxpayer may appeal to the LBAA wihin 60 days from the denial of the protest or the
lapse of the 60-day period to decide the protest;
3. The LBAA has 120 days to decide the appeal;
4. If the taxpayer is unsatisfied with the LBAAs decision, the taxpayer may appeal
before the CBAA within 30 days from the receipt of the LBAAs decision;
5. The decision of the CBAA is appealble to the CTA En Banc under Rule 43; and,
6. The decision of the CTA En Banc is appealable to the SC under Rule 45 raising pure
questions of law.
B. Illegal Assessments:
1. Taxpayer shall file a complaint for injunction before the Regional Trial Court to enjoin
the LGU from collecting real property taxes;
2. The party unsatisfied with the decision of the RTC shall file an appeal, not a petition
for certiorari, before the CTA, the complaint being a local tax case decided by the RTC
case decided by the RTC. The appeal shall be filed within 15 days (should be 30
days); and,
3. Decision of the CTA is appealable to the SC under Rule 45 raising pure questions of
law.
C. Remedies on other scenarios:
1. In case the LGU has issued a notice of delinquency, the taxpayer may file a complaint
for injunction to enjoin the impending sale of the real property at public auction;

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2. In case the LGU has already sold the property at public auction, the taxpayer must
first deposit with the court the amount for which the real property was sold, together
with interest of 2% per month from the date of sale to the time of the institution of
action. The taxpayer may then file a complaint to assail the validity of the public
auction;
3. Decisions of the RTC in these cases are appealable to the CTA and the latters
decisions appealable before the SC under Rule 45; (City of Lapu-Lapu vs. PEZA, GR
No. 184203 dated November 26, 2014)
4. Actual cases on illegal assessments:
a. If the taxpayer questions the authority of the assessor to make the assessment
and collect the tax. (Ty vs. Trampe)
b. If the issue is who should pay the tax? (Estate of Concordia Lim)
c. Amount of protest to be paid is huge and the properties were already levied and
to be auctioned-off. In this sense, appeal to the LBAA is not a plain, adequate and
speedy remedy. (Bayan Telecommunications)
d. Claim of exemption under a BOT contract in relation to Sec. 234(C) (NPC vs.
Navotas). But compare with NPC vs. Quezon.
5. Sec. 226 provides: 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.
The "action" referred to in Section 226 (in relation to a protest of real property tax
assessment) thus refers to the local assessors act of denying the protest filed
pursuant to Section 252. Without the action of the local assessor, the appellate
authority of the LBAA cannot be invoked. (NPC vs. Quezon)
6. Section 226 of the LGC lists down the two entities vested with the personality to
contest an assessment: (1) the owner and, (2) the person with legal interest in the
property. A person legally burdened with the obligation to pay for the tax imposed on
a property has legal interest in the property and the personality to protest a tax
assessment on the property.
Contractual stipulation to assume payment of the real property tax does not clothe
the party legal interest for purposes of contesting an assessment.
Corollary thereto, the local government units can neither be compelled to recognize
the protest of a tax assessment from an entity against whom it cannot enforce the
tax liability. (NPC vs. Quezon)
7. A motion for reconsideration of the Provincial Assessors decision is a remedy not
sanctioned by law.
The last action of the local assessor on a particular assessment shall be the notice of
assessment; it is this last action which gives the owner of the property the right to
appeal to the LBAA. The procedure likewise does not permit the property owner the
remedy of filing a motion for reconsideration before the local assessor. (Fels Energy,
Inc. vs. Province of Batangas, GR No. 168557, February 16, 2007)

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