PM Reyes 2015 Bar Supplement

TAXATION LAW
QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT

JURISPRUDENCE AND BIR ISSUANCES FOR THE 2015 BAR
ATTY. PIERRE MARTIN D. REYES
This covers the significant and relevant Supreme

Court jurisprudence on taxation law and BIR
issuances from March 31, 2014 to March 31,
2015.
GENERAL PRINCIPLES
Q. What is a tax amnesty?
A. A tax amnesty is a general pardon or the
intentional overlooking by the State of its
authority to impose penalties on persons
otherwise guilty of violation of a tax law. It
partakes of an absolute waiver by the
government of its right to collect what is due
it and to give tax evaders who wish to relent
a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never
favored or presumed in law. The grant of a
tax amnesty, similar to a tax exemption, must
be construed strictly against the taxpayer and
liberally in favor of the taxing authority. (LG
Electronics Philippines v. CIR, G.R. No.

165451, December 3, 2015)
Q. Can a claimant have personality to file a tax

refund even if it only bears the economic
burden of the tax?
A. Yes. The Supreme Court has held that the
propriety of a tax refund claim is hinged on
the kind of tax exemption upon which the
refund calim is based. If the law confers an
exemption from both direct or indirect taxes,
a claimant is entitled to a tax refund even if it
only bears the economic burden of the
applicable tax. On the other hand, if the
exemption conferred only applies to direct
taxes, then the statutory taxpayer is regarded
as the proper party to file the refund claim.
(CIR v. PAL, G.R. Nos. 212536-37, August
27, 2014)
Q. The City of Manila assessed and collected
taxes from certain taxpayers pursuant to
either Section 15 (Tax on Wholesalers,
Distributors, or Dealers) or Section 17 (Tax
on Retailers). The City imposed additional
taxes pursuant to Section 21 of the Revenue

Code. Section 21 imposes a tax on a person
who sold goods and services in the course of
trade or business based on a certain
percentage of his gross sales or receipts in the
preceding calendar year. The taxpayers
contend the imposition of the tax under
Section 21 constituted double taxation
because they were already paying local
business taxes pursuant to Section 15 or
Section 17. Is there double taxation?
A. Yes. Firstly, because Section 21 of the
Revenue Code of Manila imposed the tax on
a person who sold goods and services in the
course of trade or business based on a certain
percentage of his gross sales or receipts in the
preceding calendar year, while Section 15
and Section 17 likewise imposed the tax on a
person who sold goods and services in the
course of trade or business but only identified
such person with particularity, namely, the
wholesaler, distributor or dealer (Section
15), and the retailer (Section 17), all the
taxes being imposed on the privilege of
doing business in the City of Manila in order
to make the taxpayers contribute to the citys
revenues were imposed on the same
subject matter and for the same purpose.
Secondly, the taxes were imposed by the
same taxing authority (the City of Manila)
and within the same jurisdiction in the same
taxing period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of
local business taxes. (Nursery Care
Corporation v. Treasurer of Manila, G.R. No.

180651, July 30, 2014).
INCOME TAX
Q. What are deemed de minimis benefits?

A. As provided in RR No. 3-98, as last amended
by RR No. 1-2015, the following are
considered as de minimis benefits granted to
each employee:
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NOTICE
This material supplements the authors 2013 Bar Reviewer, 2014 Bar Supplement, and Tax Audit Primer.
No portion of the supplement may be copied or reproduced without the written permission of the author.
Possessors may reproduce and distribute this supplement provided the name of the author remains clearly
associated with my work and no alterations in the form and content of this supplement are made. No
stamping is allowed.
TAXATION LAW
a) Monetized unused vacation leave credits

of private employees not exceeding ten
(10) days during the year;
b) Monetized value of vacation and sick
leave credits paid to government officials
and employees;
c) Medical cash allowance to dependents of
employees, not exceeding Seven
Hundred Fifty Pesos (P750) per
employee per semester or One Hundred
Twenty Five (P125) per month;
d) Rice subsidy of One Thousand Five
Hundred (P1,500) or one (1) sack of 50
kg. rice per month amounting to not
more than P1,500;
e) Uniform and clothing allowance not
exceeding Five Thousand Pesos (P5,000)
per annum;
f) Actual medical assistance, e.g. medical
allowance to cover medical and
healthcare needs, annual medical checkup, maternity assistance, and routine
consultations, not exceeding Ten
Thousand Pesos (P10,000) per annum;
g) Laundry allowance not exceeding Three
Hundred Pesos (P300) per month;
h) Employees achievement awards, e.g. for
length of service or safety achievement,
with an annual monetary value not
exceeding
Ten
Thousand
Pesos
(P10,000);
i) Gifts given during Christmas and major
anniversary celebrations not exceeding
Five Thousand Pesos (P5,000) per
employee per annum;
j) Daily meal allowance for overtime work
and night/graveyard shift not exceeding
Twenty-Five Percent (25%) of the basic
minimum wage per region basis.
k) Benefits received by an employee by
virtue of a collective of a collective
bargaining agreement (CBA) and
productivity incentive schemes provided
that the total annual monetary value
received from both CBA and productivity
incentive schemes combined do not
exceed ten thousand pesos (P10,000) per
employee per taxable year.
Q. What is now the threshold amount of the 13th

month pay and other benefits excluded from
gross income pursuant to Section 32(B) of
the Tax Code?
A. RA No. 10653 increased the ceiling from
Thirty Thousand Pesos (P30,000) to Eighty
Two Thousand Pesos (P82,000).
RR 3-2015, which implements RA 10653,
clarifies that the threshold amount of
P82,000 shall only apply to the following;
1. Thirteenth-month pay equivalent to the
mandatory one month basic salary of
officials and employees of the
government, (whether national or local),
including government-owned or controlled corporations, and or private
offices received after the 12th-month pay;
and
2. Other benefits, such as Christmas bonus,
productivity-incentive bonus, loyalty
award, gifts in cash or in kind and other
benefits of similar nature actually
received by officials and employees of
both government and private offices.
Q. What are the conditions that must be met in
order to exempt interest income from longterm deposit or investments from income
taxes?
A. The following conditions must be met:
1. The depositor or investor is an individual
citizen (resident or non-resident) or
resident alien or non-resident alien
engaged in the trade or business in the
Philippines;
2. The long-term deposits or investment
certificates should be under the name of
the individual and not under the name of
the corporation or the bank or the trust
department/unit of the bank;
3. The long-term deposits or investments
must be in the form of savings, common
or individual trust funds, deposit
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TAXATION LAW
4.
5.
6.
7.
8.
substitutes, investment management

accounts
and
other
investments
evidenced by certificates in such form
prescribed by the Bangko Sentral ng
Pilipinas (BSP);
The long-term deposit or investments
must be issued by banks only and not by
other entities or individuals;
The long-term deposits or investments
must have a maturity period of not less
than five (5) years;
must be in denominations of Ten
Thousand Pesos (P10,000) and other
denominations as may be prescribed by
the BSP;
should not be terminated by the original
investor before the fifth (5th) year,
otherwise they shall be subjected to the
graduated rates of 5%, 12% or 20% on
interest income earnings; and
Except those specifically exempted by law
or regulations, any other income such as
gains from trading, foreign exchange gain
shall not be covered by income tax
exemption.
For the interest income derived by

individuals investing in common or
individual trust funds or investment
management accounts to be exempt from
income tax, the following additional
characteristics/conditions must all be
present:
1. The investment of the individual investor
in the common or individual trust fund or
investment management account must be
actually held/managed by the bank for
the named individual at least five (5)
years without interruption.
2. The underlying investments of the
common or individual trust account or
investment management accounts must
comply with the requirements of Section
22(FF) of the Tax Code, as amended, as
well as the requirements mentioned

above;
3. The common or individual trust account
or investment management account must
hold on to such underlying investment in
continuous and uninterrupted period for
at least five (5) years. (RMC No. 7-2015)
Q. Fort Bonifacio Development Corporation
(FBDC) transferred some of its real
properties to the Bases Conversion and
Development Authority (BCDA), in
redemption of its preferred shares held by
BCDA. What is the income tax treatment on
the said redemption?
A. When preferred shares are redeemed for
retirement in accordance with its nature, the
capital gain or capital loss derived upon
redemption shall be recognized on the basis
of the difference between the amount/value
received at the time of redemption and the
cost of the preferred shares. The capital gain
or capital loss shall be subject to the regular
income tax rate under the Tax Code, as
amended, on individual taxpayers or to the
corporate income tax rate under the Tax
Code, in case of corporations.
Here, on the part of BCDA, any gain realized
by it on the redemption of shares by FBDC
shall be subject to corporate income tax and
consequently, to creditable withholding tax.
On the part of FBDC, the transaction is not
subject to income tax considering that the
redeeming corporation does not realize any
gain or loss on the redemption of its shares.
(RMC No. 3-2014 citing Section 9, RR 62008)
Q. What is the income tax treatment of stock
option plans?
A. A stock option is an option granted by a
person, natural or juridical, to a person or
entity entitling said person or entity to
purchase shares of stock of a corporation,
which may or may not be the shares of stock
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TAXATION LAW
of the grantor itself, at a specific price to be

exercise at a specific date or a period. Stock
options are shares of stock as defined
under the Tax Code and are taxable as such.
The grant, sale, transfer, or exercise of a
stock option may result to taxable events as
follows:
the exercise price to the grantor and

the latter is obligated to deliver the
stocks to the owner of the option, the
tax treatment is as follows:
i.
1. Grant of Option
a. If the option was granted due to an
employer-employee
relationship
where the grantor is the employer
and the grantee is the employee, and
no payment was received for the
grant of said option, on the year an
option was granted, the grantor
cannot claim deductions for the grant
of the stock option.
b. If the option was granted for a price,
the full price of the option shall be
considered capital gains, and shall be
taxed as such.
ii.
2. Sale or transfer of option

a. The sale is treated as a sale, barter, or
exchange of shares of stock not listed
on the stock exchange. Thus, any
grant of an option for consideration,
or transfer of the option is subject to
capital gains tax.
b. If the option was granted without
consideration, the cost base of the
option for purposes of computing the
capital gains shall be zero.
c. If the option is transferred by the
grantee/subsequent owner without
any consideration, the same be shall
treated as a donation of shares of
stock subject to donors tax. The basis
shall be the fair market value of the
option at the time of donation.
3. Exercise of option
a. In an equity-settlement option (where
the grantee/subsequent owner pays
iii.
If the option was granted by an

employer
involving
the
employers own shares of stock
or shares it owns, upon the
exercise of the option by a rankand-file employee, an additional
compensation equivalent to the
difference
of
the
book
value/fair market value of the
shares, whichever is higher, at
the time of the exercise of the
stock option and the price fixed
on the grant date, shall be
recognized and subject to
income tax and consequently,
to
withholding
tax
on
compensation.
However, if the employee
occupies a supervisory or
managerial
position,
the
difference
of
the
book
treated as fringe benefit subject
to fringe benefit tax.
If the option was granted to a
supplier of goods or services,
the difference of the book
recognized
as
additional
consideration for the services
rendered or goods supplied by
said supplier, and shall be
subject
to
the
relevant
withholding tax at source and
other applicable taxes.
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iv.
If the option was granted to a

person, natural or juridical,
who is not an employee, or a
supplier of goods or services to
the grantor, the difference of
the book value/fair market
value of the shares, whichever is
higher, at the time of the
exercise of the stock option and
the price fixed on the grant
date, shall be considered a
donation subject to donors tax.
b. In a cash-settlement option, the same

rules apply. The only difference is that
cash-settled options do not require
actual delivery of the stocks. Instead,
the market value, at exercise date, of
the stock is compared to the exercise
price, and the difference if in a
favorable direction is paid by the
grantor to the holder of the option.
(RMC 79-2014)
Q. MERALCO obtained a loan from
Norddeutsche Landesbank Girozentrale
(NORD/LB) Singapore Branch, which is a
foreign
government-owned
financing
institution of Germany. Under the loan
agreement, the income received by
NORD/LB, by way of MERALCOs interest
payments, shall be paid in full without
deductions, as MERALCO shall bear the
obligation of paying and remitting to the BIR
the final withholding tax. MERALCO paid
and remitted to the BIR the corresponding
final withholding taxes. Is the income derived
by NORD/LB subject to income tax?
A. No. NORD/LB is owned, controlled or
enjoying refinancing from the Federal
Republic of Germany, a foreign government.
Section 32(B)(7)(a) of the Tax Code, as
amended, exempts from income tax income
derived from investments in the Philippines
in loans by financing institutions owned,
controlled, or enjoying refinancing from
foreign governments. (CIR v. Meralco, G.R.

No. 181459, June 9, 2014)
Q. Differentiate between the tax treatment of
capital gains of individuals and corporations
from the sale of real properties.
A. Capital gains of individuals and corporations
from the sale of real properties are taxed
differently. Individuals are taxed on capital
gains from sale of all real properties located
in the Philippines and classified as capital
assets. For corporations, the National
Internal Revenue Code of 1997 treats the
sale of land and buildings, and the sale of
machineries and equipment, differently.
Domestic corporations are imposed a 6%
capital gains tax only on the presumed gain
realized from the sale of lands and/or
buildings. The National Internal Revenue
Code of 1997 does not impose the 6% capital
gains tax on the gains realized from the sale
of machineries and equipment. Therefore,
only the presumed gain from the sale of
petitioners land and/or building may be
subjected to the 6% capital gains tax. The
income from the sale of petitioners
machineries and equipment is subject to the
provisions on normal corporate income tax.
(SMI-ED Philippines v. Commissioner of
Internal Revenue, G.R. No. 175410,

November 12, 2014)
Q. The Republic, through the Department of

Public Works and Highways (DPWH), filed
a complaint for expropriation against a
property owner before the RTC. In addition
to the order to pay just compensation, the
RTC likewise ordered DPWH to pay the
property owner consequential damages,
which shall include the value of the transfer
tax necessary for the transfer of the subject
property from the name of the owner to that
of the Republic. The Republic contends that
the transfer taxes, in the nature of Capital
Gains Tax and Documentary Stamp Tax,
necessary for the transfer of the subject
property are liabilities of the property owner
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and not the Republic. Is the Republic

correct?
A. Yes. Pursuant to Sections 24(D) and 56(A)(3)
of the 1997 National Internal Revenue Code,
capital gains tax due on the sale of real
property is a liability for the account of the
seller. It has been held that since capital gains
tax is a tax on passive income, it is the seller,
not the buyer, who generally would shoulder
the tax. As far as the government is
concerned, therefore, the capital gains tax
remains a liability of the seller since it is a tax
on the seller's gain from the sale of the real
estate. (Republic v. Soriano, G.R. No.
211666, February 25, 2015)
Q. In 2001, the Caucus of Development NGO
Networks (CODE-NGO) with the assistance
of its financial advisors, requested an
approval from the Department of Finance for
the issuance by the Bureau of Treasury of 10year zero-coupon treasury bonds. The said
bonds would initially be purchased by a
special purpose vehicle on behalf of CODENGO and then repackaged and sold at a
premium to investors as Poverty Eradication
and Alleviation Certificates or PEACe
Bonds. The net proceeds from the sale will be
used to endow a permanent fund to finance
meritorious activities and projects of
accredited non-government organizations
(NGOs) throughout the country. The BIR
issued BIR Ruling No. 020-2001 which
confirmed that the PEACe Bonds would not
be classified as deposit substitutes and would
not be subject to the corresponding
withholding tax. This was reiterated in
subsequent rulings. During the auction,
RBCB which participated on behalf of
CODE-NGO was declared the winning
bidder having tendered the lowest bids.
RCBC entered into an underwriting
agreement with CODE-NGO whereby RBCB
was appointed as the Issue Manager and
Lead Underwriter for the offering of the
PEACe Bonds. In the agreement, CODE-
NGO represented that all income derived

from the Bonds, inclusive of premium on
redemption and gains on the trading of the
same, are exempt from all forms of taxation
as confirmed by BIR Rulings. RCBC then
sold the government bonds in the secondary
market. However, in 2011, the BIR issued
BIR Ruling No. 370-2011 declaring that the
PEACe Bonds being deposit substitutes are
subject to the 20% final withholding tax.
Pursuant to this ruling, the Secretary of
Finance directed the Bureau of Treasury to
withhold a 20% final tax from the face value
of the PEACe Bonds upon their payment at
maturity on October 18, 2011. Is the
discount or interest income arising from the
PEAce bonds subject to the 20% final
withholding tax?
A. No. The term deposit substitutes shall mean
an alternative form of obtaining funds from
the public other than deposits, through the
issuance, endorsement, or acceptance of debt
instruments for the borrowers own account,
for the purpose of relending or purchasing of
receivables and other obligations, or
financing their own needs or the needs of
their agent or dealer. The term 'public' means
borrowing from twenty (20) or more
individual or corporate lenders at any one
time). Based on this definition, the number of
lenders is determinative of whether a debt
instrument should be considered a deposit
substitute and consequently subject to the
20% final withholding tax.
BIR Ruling No. 370-2011 is void because it
completely disregarded the 20 or more
lender rule. The transactions executed for the
sale of the PEACe Bonds are: (1) the issuance
of the Bonds by the Bureau of Treasury to
RCBC/CODE-NGO; and (2) the sale and
distribution by RCBC (underwriter) on
behalfof CODE-NGO of the PEACe Bonds to
undisclosed investors. It may seem that there
was only one lender RCBC on behalf of
CODE-NGO to whom the PEACe Bonds
were issued at the time of origination.
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However, a reading of the underwriting

agreement and RCBC term sheet reveals that
the settlement dates for the sale and
distribution by RCBC Capital (as underwriter
for CODE-NGO) of the PEACe Bonds to
various undisclosed investors would fall on
the same day, October 18, 2001, when the
PEACe Bonds were supposedly issued to
CODE-NGO/RCBC. In reality, therefore, the
entire borrowing received by the Bureau of
Treasury in exchange for the PEACe Bonds
was sourced directly from the undisclosed
number of investors to whom RCBC
Capital/CODE-NGO distributed the PEACe
Bonds all at the time of origination or
issuance. However, the number of investors
to which the PEACe Bonds were sold to by
RCBC is not known. Should there have been
a simultaneous sale to 20 or more
lenders/investors, the PEACe Bonds are
deemed deposit substitutes and RCBC
Capital/CODE-NGO would have been
obliged to pay the 20% final withholding tax
on the interest or discount from the PEACe
Bonds. Further, the obligation to withhold
the 20% final tax on the corresponding
interest from the PEACe Bonds would
likewise be required of any lender/investor
had the latter turned around and sold said
PEACe Bonds, whether in whole or part,
simultaneously to 20 or more lenders or
investors.
It must be noted, however, that interest
income received by individuals from longterm deposits or investments with a holding
period of not less than five (5) years is
exempt from the final tax. Thus, should the
PEACe Bonds be found to be within the
coverage of deposit substitutes, the proper
procedure was for the Bureau of Treasury to
pay the face value of the PEACe Bonds to the
bondholders and for the Bureau of Internal
Revenue to collect the unpaid final
withholding tax directly from RCBC
Capital/CODE-NGO, or any lender or
investor if such be the case, as the
withholding agents. (Banco de Oro v.
Republic, G.R. No. G.R. No. 198756,

January 13, 2015)
Q. What are the substantiation requirements of
donors claiming donations and contributions
to
accredited
non-stock,
non-profit
corporation/NGO as deductions from their
taxable business income?
A. The donors must submit Certificate/s of
Donation indicating the following:
1. Actual receipt by the accredited nonstock, non-profit corporation/NGO of

the donation or contribution and date of
receipt thereof; and
2. The amount of the charitable donation or
contribution, if in cash; if property,
whether real or personal, the acquisition
cost of the said property. (RMC No. 862014 citing Section 8, RR No. 13-98)
RMC 86-2014 now provides a Certificate of
Donation (BIR Form 2322) which consists of

two parts a donee certification and a
donors statement of values. The first part is
a certification by the donee that it has
received on the date indicated the subject
matter of the donation. The second part
requires the donor to execute a statement
which provides descriptions, acquisition
costs, and net book values of the properties
donated as reflected in the financial
statements of the donor. The statement must
be accompanied by deed of sale/bill of sale to
prove the acquisition cost of the properties.
Q. RMO No. 1-2000 provides that any availment
of the tax treaty relief shall be preceded by an
application by filing BIR Form No. 0901
(Application for Relief from Double
Taxation) with ITAD at least 15 days before
the transaction i.e. payment of dividends,
royalties, etc., accompanied by supporting
documents justifying the relief. Is the prior
application for an ITAD ruling pursuant to
RMO No. 1-2000 necessary before a
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TAXATION LAW
taxpayer can avail of the preferential tax rates

under income tax treaties entered into by the
Philippines with other countries?
A. No. The Philippine Constitution provides for
adherence to the general principles of
international law as part of the law of the
land. The time-honored international
principle of pacta sunt servanda demands the
performance in good faith of treaty
obligations on the part of the states that enter
into the agreement. In this jurisdiction,
treaties have the force and effect of law. The
obligation to comply with a tax treaty must
take precedence over the objective of RMO
No. 1-2000. Not only is the requirement
illogical, but it is also an imposition that is not
found at all in the applicable tax treaties. The
BIR should not impose additional
requirements that would negate the
availment of the reliefs provided for under
international agreements, especially since
said tax treaties do not provide for any
prerequisite at all for the availment of the
benefits under said agreements. It bears
reiterating that the application for a tax treaty
relief from the BIR should merely operate to
confirm the entitlement of the taxpayer to the
relief. So long as the taxpayer requests for
confirmation before it filed its administrative
claim for refund, the same should be deemed
substantial compliance with RMO No. 12000. (CBK Power Company Limited v. CIR,
G.R. No. 193383-84 and G.R. No. 19340708, January 15, 2015)
Q. What are considered inurements prohibited

under Section 30 of the NIRC?
A. In order for an entity to qualify as a non-stock
and/or non-profit corporation/ association/
organization exempt from income tax under
Section 30 of the Tax Code, as amended, its
earnings or assets shall not inure to the
benefit of any of its trustees, organizers,
officers, members, or any specific person.
The following are considered inurements
of such nature:
1. The payment of compensation, salaries,

or honorarium to its trustees or
organizers;
2. The payment of exorbitant or
unreasonable compensation to its
employees;
3. The provision of welfare aid and financial
assistance to its members. An
organization is not exempt from income
tax if its principal activity is to receive and
manage funds associated with savings
and investment programs, including
pension or retirement programs. This
does not cover a society, order,
association, or non-stock corporation
under Section 30(C) of the Tax Code
providing for the payment of life,
sickness, accident, and other benefits
exclusively to its members or their
dependents;
4. Donation to any person or entity
(exception donations made to other
entities formed for the purpose/purposes
similar to its own;
5. The purchase of goods or services for
amounts in excess of the fair market
value of such goods or value of such
services from an entity in which one or
more of its trustees, officers, or
fiduciaries has an interest; and
6. When upon dissolution and satisfaction
of all liabilities, its remaining assets are
distributed to its trustees, organizers,
officers or members. Its assets must be
dedicated to its exempt purpose.
Accordingly, its constitute documents
must expressly provide that in the event
of dissolution, its assets shall be
distributed to one or more entities
formed for the purpose/purposes similar
to its own, or to the Philippine
government for public purpose (RMC 512014)
Q. Distinguish income tax from withholding tax.
A. Income tax is different from withholding tax.
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Income tax is the tax on all yearly profits

arising from property, professions, trades or
offices, or as a tax on a persons income,
emoluments, profits and the like. On the
other hand, withholding tax is a method of
collecting income tax in advance. In the
operation of the withholding tax system, the
payee is the taxpayer, the person on whom
the tax is imposed, while the payor, a
separate entity, acts no more than an agent of
the government for the collection of the tax
in order to ensure its payment. Obviously,
the amount thereby used to settle the tax
liability is deemed sourced from the proceeds
constitutive of the tax base. (LG Electronics
Philippines v. CIR, G.R. No. 165451,

December 3, 2015)
Q. What document shall withholding agents
require from all individuals and entities
claiming exemption from income taxes and
consequently withholding taxes?
A. Concerned withholding agents shall require

all individuals and entities claiming such
exemption to provide a copy of a valid,
current, and subsisting tax exemption
certificate or ruling. The tax exemption
certificate or ruling must explicitly recognize
the grant of tax exemption, as well as the
corresponding exemption from imposition of
withholding tax. Failure on the part of the
taxpayer to present said tax exemption
certificate or ruling shall subject him to the
payment of the appropriate taxes. On the
other hand, the withholding agents failure to
withhold notwithstanding the lack of tax
exemption certificate or ruling shall cause the
imposition of penalties. (RMC No. 8-2014)
Q. Does the requirement to present tax
exemption certificate or ruling pursuant to
RMC No. 8-2014 apply to general
professional partnerships?
A. No. The requirement to present tax
exemption certificate or ruling pursuant to
RMC No. 8-2014 does not apply to general
professional partnerships. RMC No. 3-2012

sufficiently discussed that income payments
made to a GPP in consideration of its
professional services are not subject to
income tax and consequently to withholding
taxes. (RMC No. 60-2014)
Q. Is the Special Allowance for the Judiciary
(SAJ) of court officials and employees
subject to income tax?
A. Yes. In fact, the Supreme Court issued A.M.
No. 12-4-6-SC which approves the
withholding and remittance of the correct
amount of tax as required to be deducted and
withheld from the Special Allowance for the
Judiciary (SAJ) of officials and employees, as
well as the withholding tax of the
corresponding taxes from the following:
1. The monthly SAJ of incumbent justices,
judges, and judiciary officials with the
equivalent rank of a Court of Appeals
justice or Regional Trial Court judge;
2. The monthly special allowance in an
amount equivalent to the SAJ being
received by judiciary officials not
included in item no. 1; and
3. The additional allowance from the
surplus of the SAJ Fund that may be
authorized to be given to judiciary
officials and employees who are not
direct beneficiaries under RA 9227
(RMC 58-2014)
DONORS TAX
Q. Philamlife owns 498,590 shares in Philam
Care Health Systems. To divest itself of
interests in the health maintenance
organization industry, Philamlife sold the
said shares to STI Investments at a price
lower than their book value. The BIR
contends that donors tax became imposable
on the price difference. Philamlife argues
that the same is not subject to donors tax as
there was no donative intent. Is the
Philamlife correct?
Page 9 of 27
NOTICE
TAXATION LAW
A. No. The absence of donative intent, if that be

the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100
of the Tax Code 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. Pursuant to RR 6-2008,
fair market value shall be, in the case of
shares of stock not listed and traded in the
local stock exchanges, the book value of the
shares of stock as shown in the financial
statements duly certified by an independent
certified public accountant nearest to the
date of sale shall be the fair market value. The
difference between the book value and the
selling price in the sales transaction is taxable
donation subject to donors tax. (Philippine
American Life and General Insurance

Company v. The Secretary of Finance and
Commissioner of Internal Revenue, G.R. No.
210987, November 24, 2014)
VALUE-ADDED TAX
Q. Fort Bonifacio Development Corporation

(FBDC) transferred some of its real
properties to the Bases Conversion and
Development Authority (BCDA), in
redemption of its preferred shares held by
BCDA. Is the transfer of the subject real
properties subject to VAT?
A. Yes. In general, the sale of real properties
held primarily for sale to customers or held
for lease in the ordinary course of trade or
business of the seller shall be subject to VAT.
The transfer of the real properties of FBDC
to BCDA to redeem its shares although not
occurring in the regular conduct or in the
course of FBDCs trade or business and is a
transaction which is not done with regularity,
is nevertheless subject to VAT the same being
considered a transaction deemed sale
under Section 106(B)(1) of the Tax Code
(RMC No. 3-2014)

Q. What are the rules on the determination of the
prescriptive period for filing a tax refund or
credit of unutilized input VAT as provided in
Section 112 of the 1997 Tax Code?
A. In Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue, and

Mindanao I Geothermal Partnership v.
Commissioner of Internal Revenue, G.R. Nos.
193301 and 194637, March 11, 2013, the
Supreme Court provided the following rules
on prescriptive periods involving VAT:
1. An administrative claim must be filed with

the CIR within two years after the close of
the taxable quarter when the zero-rated or
effectively zero-rated sales were made.
2. The CIR has 120 days from the date of
submission of complete documents in
support of the administrative claim within
which to decide whether to grant a refund
or issue a tax credit certificate. The 120day period may extend beyond the two-year
period from the filing of the administrative
claim if the claim is filed in the later part of
the two-year period. If the 120-day period
expires without any decision from the CIR,
then the administrative claim may be
considered to be denied by inaction.
3. A judicial claim must be filed with the CTA
within 30 days from the receipt of the
CIRs decision denying the administrative
claim or from the expiration of the 120-day
period without any action from the CIR.
4. All taxpayers, however, can rely on BIR
Ruling No. DA-489- 03 from the time of its
issuance on 10 December 2003 up to its
reversal by this Court in Aichi on 6 October
2010, as an exception to the mandatory
and jurisdictional 120+30 day periods.
(Miramar Fish Company Inc. v. CIR, G.R. No.
185432, June 4, 2014; Visayas Geothermal

Power Company v. CIR, G.R. No. 197525,
June 4, 2014; CIR v. Mindanao II Geothermal
Partnership, G.R. No. 189440, June 18, 2014;
Page 10 of 27
NOTICE
TAXATION LAW
Taganito Mining Corporation v. CIR, G.R. No.

197591, June 18, 2014; San Roque Power
Corporation v. CIR, G.R. No. 205543, June
30, 2014; CIR v. CE Luzon Geothermal
Power Company, G.R. No. 190198,
September 17, 2014; CNK Power Company
Limited v. CIR, G.R. No. 202066 and G.R.
No. 205353, September 30, 2014; CIR v.
Aichi, G.R. No. 183421, October 22, 2015;
CIR v. Burmeistor, G.R. No. 190021, October
22, 2014; Taganito Mining Corporation v.
CIR, G.R. No. 198076, November 19, 2014;
AT&T Communications Services Phils., Inc. v.
CIR, G.R. No. 185969, November 19, 2014;
Taganito Mining Corporation v. CIR, G.R. No.
201195, November 26, 2014; CBK Power
Company Limited v. CIR, G.R. No. 198928,
December 3, 2014; Mindanao II Geothermal
Partnership v. CIR, G.R. No. 204745,
December 8, 2014; Panay Power Corporation
v. CIR, G.R. No. 203351, January 21, 2015;
Nippon Express (Philippines) Corporation v.
CIR, G.R. No. 185666, February 4, 2015;
Northern Mindanao Power Corporation v.
CIR, G.R. No. 185115, February 18, 2015;
Cargill Philippines, Inc. v. CIR, G.R. No.
203774, March 11, 2015)
Q. In a refund of unutilized input taxes, is the
inaction of the Commissioner deemed a
denial or a decision denying the claim?
A. Previously, it was held as an inaction is
deemed a denial. However, the Supreme
Court has unequivocally stated that the CIRs
inaction within the 120-day period is a
decision in itself. When the 120-day period
lapses and there is inaction on the part of the
CIR, the taxpayer must no longer wait for the
CIR to decide. The inaction is already a
decision denying the refund claim.
Consequently, the taxpayer must file his
appeal within 30 days from the lapse of the
120-day
period.
(Rohm
Apollo
Semiconductor Philippines v Commissioner

of Internal Revenue, G.R. No. 168950,
January 14, 2015)
Note: The shift from inaction deemed a

denial to inaction as a decision of denial in
itself is significant. This means that the
taxpayer can no longer expect a decision
from the BIR after the lapse of the 120-day
period. Since the CIRs inaction is a decision
in itself, the BIR is barred from further
processing the claim.
RMC 54-2014 also provides that in case the
taxpayer has already filed a petition for

review with the CTA, the CIR loses
jurisdiction over the administrative claim.
The CIR can still evaluate internally the claim
but only for the purpose of intelligently
opposing the taxpayers judicial claim.
Q. What is the exception to the rule that the twoyear prescriptive period within which the
administrative claim must be filed should be
counted from the close of the taxable quarter
when the relevant sales were made?
A. Reckoning the two-year period from the date
of payment of the output tax is allowed if the
claim is filed between 8 June 2007 and 12
September 2008, when the Atlas Doctrine
was still in effect. (Visayas Geothermal
Power Company v. CIR, G.R. No. 197525,

June 4, 2014; AT&T Communications
Services Phils., Inc. v. CIR, G.R. No.
185969, November 19, 2014)
Note: Previously, in Atlas Consolidated
Mining v Commissioner of Internal Revenue,
G.R. Nos. 141104 & 148763, June 8, 2007,
the Supreme Court held that the two-year
prescriptive period should be reckoned from
the date of the return and payment of the tax
due, which should be made within twenty
(20) days from the end of each quarter. The
Atlas doctrine was abandoned in
Commissioner of Internal Revenue v Mirant
Pagbilao Corporation, G.R. No. 172129,
September 12, 2008, where the Supreme
Court held that the two-year period should be
reckoned from the close of the taxable
Page 11 of 27
NOTICE
TAXATION LAW
quarter where the relevant sales were made.

The Mirant ruling adopted the verbal legis
rule, thus applying Section 112(A) in
computing the two-year prescriptive period
in claiming refund or credit of input VAT.
Q. A taxpayer filed a claim for refund or tax
credit of unutilized input VAT. The CIR
argued that the 120-day period for her to
decide has not yet commenced as the
taxpayer failed to submit the complete
documents as enumerated in RMO 53-98. Is
the CIRs contention correct?
A. No. The CIRs reliance on RMO 53-98 is
misplaced. There is nothing in Section 112 of
the NIRC, RR 3-88 or RMO 53-98 itself that
requires submission of the complete
documents enumerated in RMO 53-98 for a
grant of a refund or credit of input VAT. The
subject of RMO 53-98 states that it is a
Checklist of Documents to be Submitted by
a Taxpayer upon Audit of his Tax Liabilities
x x x. Even assuming that RMO 53-98
applies, it specifically states that some
documents are required to be submitted by
the taxpayer if applicable. If the taxpayer
indeed failed to submit the complete
documents in support of its application, the
CIR could have informed the taxpayer of its
failure. In this case, the CIR did not inform
the taxpayer of the document it failed to
submit, even up to the present petition. (CIR
v. Team Sual Corporation, G.R. No. 205055,

July 18, 2014)
Note: RMC 54-2014 states that an
application for VAT refund/tax credit must
be accompanied by complete supporting
documents as enumerated in Annex A
provided in said circular. The taxpayer will
now also have to execute a statement under
oath attesting to the completeness of the
submitted documents.
Q. What is the effect of the absence of the

statement that the seller is a VAT-registered
person to the claim for refund or tax credit of
unutilized input VAT?

A. Section 113 of the NIRC of 1997, as
amended, categorically provides that a VATregistered entity, like petitioner, shall issue a
duly registered VAT invoice or official
receipt, which must contain a statement that
the seller is a VAT-registered person. Noncompliance is fatal to the claim. (Miramar
Fish Company Inc. v. CIR, G.R. No. 185432,

June 4, 2014)
Note: In claims for refund of unutilized input
VAT, it is required that the taxpayer prove
that it is first and foremost a VAT-registered
entity. If the taxpayer is not VAT-registered,
then the claim for refund will fail.
To recall, a claim for refund or tax credit for
unutilized input VAT may be allowed only if
the following requisites concur, namely:
1. The taxpayer is VAT-registered;

2. The taxpayer is engaged in zero-rated or
effectively zero-rated sales;
3. The input taxes are due or paid;
4. The input taxes are not transitional input
taxes;
5. The input taxes have not been applied
against output taxes during and in the
succeeding quarters;
6. The input taxes claimed are attributable
to zero-rated or effectively zero-rated
sales;
7. For zero-rated sales under Section
106(A)(2)(1) and (2); 106(B); and
108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been
duly accounted for in accordance with
the rules and regulations of the Bangko
Sentral ng Pilipinas;
8. Where there are both zero-rated or
effectively zero- rated sales and taxable or
exempt sales, and the input taxes cannot
be directly and entirely attributable to any
of these sales, the input taxes shall be
proportionately allocated on the basis of
sales volume; and
Page 12 of 27
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9. The claim is filed within two years after

the close of the taxable quarter when
such sales were made
Q. What is the effect of the absence and nonprinting of the word zero-rated in the
taxpayers invoices to the claim for refund or
tax credit of unutilized input VAT?
A. The absence or non-printing of the word
zero-rated in the taxpayers invoices is fatal
to its claim for the refund and/or tax credit
representing its unutilized input VAT
attributable to its zero-rated sales. (Miramar
Fish Company Inc. v. CIR, G.R. No. 185432,

June 4, 2014; Eastern Telecommunications
Philippines v. CIR, G.R. No. 183531, March
25, 2015)
Q. Is there a difference between an invoice and

official
receipt
for
purposes
of
substantiation?
A. A VAT invoice is necessary for every sale,
barter or exchange o f goods or properties
while a VAT official receipt properly pertains
to ever; lease of goods or properties, and
every sale, barter or exchange of services. In
other words, the VAT invoice is the seller's
best proof of the sale of the goods or services
to the buyer while the VAT receipt is the
buyer's best evidence of the payment of
goods or services received from the seller.
(Nippon Express (Philippines) Corporation
v. CIR, G.R. No. 185666, February 4, 2015;

Northern Mindanao Power Corporation v.
CIR, G.R. No. 185115, February 18, 2015)
Q. ABC Mining Corporation purchased and

imported dump trucks. ABC filed a claim for
refund of the full input VAT relating to its
importation of said dump trucks, treated as
capital goods. Will ABCs claim prosper?
A. No. The claim will not prosper because the
law requires that the related input VAT be
properly amortized over the estimated useful
life of the capital goods in the taxpayers
subsidiary ledger. Here, the claim for refund

is for the full amount of the input VAT on the
importation, rather than for an amortized
amount, thus the claim must fail. (Taganito
Mining Corporation v. CIR, G.R. No.

201195, November 26, 2014)
Note: Capital goods or properties refers to
goods or properties with estimated useful life
greater than 1 year and which are treated as
depreciable assets under Sec. 34(F) of the tax
Code, used directly or indirectly in the
production or sale of taxable goods or
services.
Q. ABC Corporation purchased from the
government in 1995 portion of the Fort
Bonifacio reservation, now known as the
Fort Bonifacio Global City. No VAT on the
sale of the land was passed on by the
government to ABC. On January 1, 1996,
Republic Act 7716 took effect, which
extended the coverage of the VAT to sale of
real properties held primarily for sale to
customers or held for lease in the ordinary
course of business. In September 1996, ABC
submitted to the BIR an inventory of all its
real properties, claiming that it is entitled to
the transitional input tax credit on said
inventories. ABC started selling Global City
lots in October 2006. For the 1st quarter of
1997, ABC paid output taxes on the sale of
lots after deducting input taxes. Realizing
that the transitional input taxes were not
applied against the output VAT, which would
have resulted to no net output VAT liability
(the transitional input taxes being higher),
FBDC filed a claim for refund for the VAT
payment.
The BIR argues that (1)
transitional input tax is limited to
improvements to real properties; and (2)
there should have been prior payment of
taxes. Is the BIR correct?
A. No. There is nothing in the law that prohibits
the inclusion of real properties, together with
the improvements thereon, in the beginning
Page 13 of 27
NOTICE
TAXATION LAW
inventory of goods, materials and supplies,

based on which inventory the transitional
input tax credit is computed. Further, there
is nothing in the law that indicates that prior
payment of taxes is necessary for the
availment of the transitional input tax credit.
All that is required is for the taxpayer to file
a beginning inventory with the BIR. (Fort
Bonifacio Development Corporation v CIR,

G.R. Nos. 175707, 180035, and 181092,
November 19, 2014)
Note: The same issues have been passed

upon in Fort Bonifacio Development
Corporation v CIR, G.R. No. 173425,
January 22, 2013; Fort Bonifacio
Development Corporation v CIR, G.R. No.
173425, September 4, 2012; Fort Bonifacio
Development Corporation v CIR, G.R. Nos.
158885 and 170680, October 2, 2009; Fort
Bonifacio Development Corporation v CIR,
G.R. Nos. 158885 and 170680, April 2,
2009.
Q. What is the value-added tax treatment of the
sale or importation of livestock and poultry
feeds or ingredients?
A. Only livestock and poultry feeds or
ingredients used in the manufacture of
finished feeds are exempted from VAT. The
sale or importation of ingredients which may
also be used for the production of food for
human consumption shall be subject to VAT.
Thus, for the sale or importation of any of the
following feed ingredients:
1.
2.
3.
4.
5.
6.
Whey powder
Skimmed milk powder
Lactose
Buttermilk powder
Whole milk powder
Palm Olein
and such other feed ingredients used in the

manufacture of finished feeds which may
hereinafter be determined by competent
authority to have possible utilization for
human consumption, there must be a

showing the same is unfit for human
consumption or that the ingredient cannot be
used for the production of food for human
consumption as certified by the Food and
Drug Administration. (RMC 55-2014 as
amended by RMC No. 66-2014)
Note: The list of specific feed ingredients is
exclusive as of the date of issuance of RMC
No. 66-2014. The BIR is not precluded from
adding to the list which would necessitate the
issuance of another RMC. (RMC No. 782014)
TAX REMEDIES
Q. The BIR issued a Final Assessment Notice
against a taxpayer for deficiency expanded
withholding tax for the taxable year 1994. It
merely contained a tabulation of the alleged
deficiency taxes due. Only the resulting
interest, surcharge and penalty were
provided with legal basis. Is the assessment
valid?
A. No. Section 228 of the Tax Code provides that
the taxpayer shall be informed in writing of
the law and the facts on which the assessment
is made. Otherwise, the assessment is void.
(CIR v. United Salvage and Towage (Phils.),
Inc., G.R. No. 197515, July 2, 2014)
Q. The BIR issued a Letter of Authority to
examine the books of account and other
accounting records of the taxpayer for
income and withholding taxes for the period
1997 to 1999. BIR then sent a Notice of
Informal Conference. Attached thereto is a
Summary Report containing an explanation
of the legal and factual bases for the
deficiency assessment. The taxpayer
requested for copies of working papers
indicating how the deficiency withholding
taxes were computed. The BIR promptly
responded in a letter-reply. Thereafter, the
taxpayer received a PAN which contained the
Page 14 of 27
NOTICE
TAXATION LAW
computations of its deficiency income and

withholding taxes. Attached to the PAN was
the detailed explanation of the particular
provision of law and revenue regulation
violated. The taxpayer replied to the PAN.
The BIR replied in a letter explaining the
factual and legal bases of the deficiency
assessment and denying the reply. A FAN
and demand letter were then issued,
unaccompanied by any written explanation
of the legal and factual bases of the deficiency
taxes assessed against the taxpayer. Is the
assessment valid?
A. Although the FAN and demand letter issued
to the taxpayer were not accompanied by a
written explanation of the legal and factual
bases of the deficiency taxes assessed against
the petitioner, the records showed that the
BIR in its letter responded to the taxpayers
reply to the PAN, explaining at length the
factual and legal bases of the deficiency tax
assessments. Considering the foregoing
exchange of correspondence and documents
between the parties, the requirement of
Section 228 was substantially complied with.
The BIR had fully informed the taxpayer in
writing of the factual and legal bases of the
deficiency taxes assessment, which enabled
the latter to file an "effective" protest.
Petitioner's right to due process was thus not
violated. (Samar-I Electric Cooperative v.
CIR, G.R. No. 193100, December 10, 2014)
Q. On January 9, 1996, the BIR issued a Final
Assessment Notice against the taxpayer for
deficiency expanded withholding tax for the
taxable year 1992, 1994, and 1998. The BIR
issued a Preliminary Collection Letter for the
deficiency EWT for the taxable year 1992 on
February 21, 2002. The BIR argues that its
right to collect the EWT for taxable year
1992 has not yet prescribed. Is the BIR
correct?
A. No. The statute of limitations on assessment
and collection of national internal revenue
taxes was shortened from five (5) years to
three (3) years by virtue of Batas Pambansa

Blg. 700. Thus, the BIR has three (3) years
from the date of actual filing of the tax return
to assess a national internal revenue tax or to
commence court proceedings for the
collection thereof without an assessment.
However, when it validly issues an
assessment within the three (3)-year period,
it has another three (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 three (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.
In this case, the Preliminary Collection Letter
was issued only on February 21, 2002,
despite the fact that the FAN was issued as
early as January 9, 1996. Clearly, five (5) long
years had already lapsed, beyond the three
(3)-year prescriptive period, before collection
was pursued by the BIR. (CIR v. United
Salvage and Towage (Phils.), Inc., G.R. No.

197515, July 2, 2014)
Note: It must be noted that in this case, no

evidence was formally offered to prove when
the taxpayer filed its returns and paid the
corresponding EWT for taxable year 1992.
Further, it must be emphasized that there are
conflicting views on the proper prescriptive
period for the collection of national internal
revenue taxes in case a regular return is filed.
Some hold the view that the prescriptive
period is five (5) years while others opine that
it is three (3) years.
Q. On June 16, 1989, the taxpayer received a
final assessment notice issued by the BIR,
finding the taxpayer liable for deficiency
documentary stamp tax for the taxable year
1985. The taxpayer filed a protest on June
23, 1989 requesting for reinvestigation
and/or reconsideration. The BIR denied the
request for reconsideration on August 4,
1998. On January 4, 1998, the taxpayer filed
its petition for review before the CTA. The
taxpayer argued that the assessment may be
Page 15 of 27
NOTICE
TAXATION LAW
invalidated because the statute of limitations

on collection had already expired. The CIR
contended that the issue of prescription
cannot be raised for the first time on appeal.
Further, the CIR alleged that even assuming
that the issue of prescription can be raised,
the protest letter interrupted the prescriptive
period to collect. Is the CIR correct?
A. No. If the pleadings or the evidence on
record show that the claim is barred by
prescription, the court is mandated to
dismiss the claim even if prescription is not
raised as a defense. Under the then
applicable Section 319(c) [now, 222(c)] of
the National Internal Revenue Code (NIRC)
of 1977, as amended, any internal revenue
tax which has been assessed within the
period of limitation may be collected by
distraint or levy, and/or court proceeding
within three years following the assessment
of the tax. The assessment of the tax is
deemed made and the three-year period for
collection of the assessed tax begins to run on
the date the assessment notice had been
released, mailed or sent by the BIR to the
taxpayer. In this case, although there was no
allegation as to when the assessment notice
had been released, mailed or sent to BPI, still,
the latest date that the BIR could have
released, mailed or sent the assessment
notice was on the date BPI received the same
on 16 June 1989. Counting the three- year
prescriptive period from 16 June 1989, the
BIR had until 15 June 1992 to collect the
assessed DST. (BPI v. CIR, G.R. No.
181836, July 9, 2014)
Q. On April 19, 1989, the BIR issued a FAN
finding the taxpayer liable for deficiency DST
for the taxable years 1982 to 1986. On May
8, 1989, the taxpayer filed its protest. On
December 6, 2001, the BIR rendered a
decision denying the protest. The taxpayer
elevated the same to the CTA arguing that
the right of the BIR to collect the assessed
DST is already barred by prescription. The
taxpayer contends that the government had
three years from 19 April 1989, the date the

former received the assessment of the CIR, to
collect the tax. Within that time frame,
however, neither a warrant of distraint or
levy was issued, nor a collection case filed in
court. Is the taxpayer correct?
A. Yes. The Bureau of Internal Revenue (BIR)
issued the assessment for deficiency DST on
19 April 1989, when the applicable rule was
Section 319(c) of the National Internal
Revenue Code of 1977, as amended. In that
provision, the time limit for the government
to collect the assessed tax is set at three years,
to be reckoned from the date when the BIR
mails/releases/sends the assessment notice
to the taxpayer. Further, Section 319(c)
states that the assessed tax must be collected
by distraint or levy and/or court proceeding
within the three-year period. In this case, the
records do not show when the assessment
notice was mailed, released or sent to the
taxpayer. Nevertheless, the latest possible
date that the BIR could have released, mailed
or sent the assessment notice was on the
same date that the taxpayer received it, 19
April 1989. Assuming therefore that 19 April
1989 is the reckoning date, the BIR had three
years to collect the assessed DST. However,
the records show that there was neither a
warrant of distraint or levy served on the
taxpayers properties nor a collection case
filed in court by the BIR within the three-year
period. (China Banking Corporation v. CIR,
G.R. No. 172509, February 4, 2015)
Q. Does a request for reinvestigation suspend
the running of the prescriptive period to
collect?
A. No. A request for reinvestigation alone will
not suspend the statute of limitations. Two
things must concur: there must be a request
for reinvestigation and the CIR must have
granted it. (China Banking Corporation v.
CIR, G.R. No. 172509, February 4, 2015)
Page 16 of 27
NOTICE
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Q. In tax assessment cases, can the defense of

prescription be raised for the first time on
appeal before the Supreme Court?
A. Yes. Though the established rule in remedial
law that the defense of prescription must be
raised at the trial court has also been applied
for tax cases, and thus,, as a rule, the failure
to raise the defense of prescription at the
administrative level prevents the taxpayer
from raising it at the appeal stage, itis not
absolute. When the pleadings or the evidence
on record show that the claim is barred by
prescription, the court must dismiss the claim
even if prescription is not raised as a defense.
(China Banking Corporation v. CIR, G.R.
No. 172509, February 4, 2015)
Q. ABC Corporation was dissolved by
shortening its corporate term. As a result
thereof, ABC moved out of its address in Las
Pinas City and transferred to Calamba
Laguna. ABC sent a notice of dissolution to
the BIR as well as an update of information
contained in its BIR Certificate of
Registration. ABC was assessed for
deficiency income taxes. The Final
Assessment Notice was sent via registered
mail to ABCs former address in Las Pinas
City. Is the assessment valid?
A. No. The taxpayers right to due process is
violated when there is no valid notice of
assessment sent to it. Here, the CIR was
aware of the new address and yet sent the
assessment to the taxpayers former address.
As a consequence thereof, the running of the
three-year period was not suspended and had
already prescribed. (Commissioner of
Internal Revenue v BASF Coating + Inks

Phils., Inc., G.R. No. 198677, November 26,
2014)
Q. What are the requirements of a valid waiver

of defense of prescription or the statute of
limitations?
A. RMO No. 20-90 provides the following

requirements:
(1) The waiver must be in the prescribed
form. There should be no deviation from
this form. The phrase but not after
which indicates the expiry date of the
period agreed upon to assess/collect
should be filled up;
(2) The waiver shall 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;
(3) The waiver should be duly notarized;
(4) The waiver shall be signed by the
Commissioner of Internal Revenue or his
duly authorized representative, and the
date of acceptance of the BIR should be
indicated;
(5) Both the date of execution by the
taxpayer and the date of acceptance by
the BIR 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
(6) 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 taxpayer
must be furnished a copy of the waiver as
accepted by the BIR. The fact of receipt
by the taxpayer of his 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 v. Stanley Works
Sales (Phils.), Inc., G.R. No. 187589,

December 3, 2014, citing Philippine
Journalist v. CIR, G.R. No. 162852,
December 16, 2004)
Q. What is the expenditure method in proving

tax fraud?
Page 17 of 27
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A. The expenditure method is a method of

reconstructing a taxpayers income by
deducting the aggregate yearly expenditures
from the declared yearly income. The theory
of this method is that when the amount of the
money that a taxpayer spends during a given
year exceeds his reported or declared income
and the source of such money is unexplained,
it may be inferred that such expenditures
represent unreported or undeclared income.
(BIR v. Court of Appeals & Spouses Manly,
G.R. No. 197590, November 24, 2014)
Q. Can the date of issuance of a BIR Ruling
confirming the tax-exemption status of a
taxpayer be used as the reckoning point of
the prescriptive period for recovery of
erroneously or illegally assessed or collected
internal revenue taxes?
A. No. The claim for refund must be filed within
two (2) years from the date of payment of the
tax regardless of any supervening cause that
may arise after payment. While the
prescriptive period of two (2) years
commences to run from the time that the
refund is ascertained, the propriety thereof is
determined by law (in this case, from the date
of payment of tax), and not upon the
discovery by the taxpayer of the erroneous or
excessive payment of taxes. The issuance of
the BIR of a Ruling declaring the tax-exempt
status of a taxpayer, if at all, is merely
confirmatory in nature. Such ruling is not the
operative act from which an entitlement of
refund is determined. (CIR v. Meralco, G.R.
No. 181459, June 9, 2014)
Q. May the Court of Tax Appeals determine, in
a claim for refund of taxes allegedly
erroneously paid, whether there are taxes
that should have been paid in lieu of the taxes
paid?
A. Yes. In an action for the refund of taxes
allegedly erroneously paid, the Court of Tax
Appeals may determine whether there are
taxes that should have been paid in lieu of the

taxes paid. Determining the proper category
of tax that should have been paid is not an
assessment. It is an incidental matter
necessary for the resolution of the principal
issue, which is whether the taxpayer is
entitled to the refund. (SMI-ED Philippines
v. Commissioner of Internal Revenue, G.R.

No. 175410, November 12, 2014)
Q. What are the three essential conditions for

the grant of a claim for refund of creditable
withholding income tax?
A. The three essential conditions are:
1. The claim is filed with the Commissioner
of Internal Revenue within the two-year
period from the date of payment of the
tax;
2. It is shown on the return of the recipient
that the income payment received was
declared as part of the gross income; and
3. The fact of withholding is established by
a copy of a statement duly issued by the
payor to the payee showing the amount
paid and the amount of the tax withheld
therefrom. (CIR v. Team (Philippines)
Operations Corporation,
179260, April 2, 2014)
G.R.
No.
Q. What is the competent proof to establish the

fact that the creditable taxes were withheld?
A. The certificate of creditable tax withheld at
source is the competent proof to establish the
fact that taxes are withheld. It is not
necessary for the person who executed and
prepared the certificate of creditable tax
withheld at source to be presented and to
testify personally to prove the authenticity of
the certificates. It must be noted that upon
presentation of a withholding tax certificate
complete in its relevant details and with a
written statement that it was made under the
penalties of perjury, the burden of evidence
then shifts to the Commissioner of Internal
Revenue to prove that (1) the certificate is
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not complete; (2) it is false; or (3) it was not

issued regularly. (CIR v. PNB, G.R. No.
180290, September 29, 2014)
competent, relevant and part of the records.

(Winebrenner & Inigo Insurance Brokers,
Inc., G.R. No. 206526, January 28, 2015)
Q. Is proof of actual remittance of the withheld

taxes required before the taxpayer may claim
for a refund of creditable withholding tax?
The taxpayer need not submit the quarterly

returns to show that it did not carry-over the
excess withholding tax to the succeeding
quarter. When the taxpayer is able to
establish prima facie its right to the refund by
testimonial and object evidence, it is the BIR
that should present rebuttal evidence to shift
the burden of evidence back to the taxpayer.
Indeed, the BIR ought to have its own copies
of the taxpayers quarterly returns on file, on
the basis of which it could rebut the
taxpayers claim that it did not carry over its
unutilized and excess creditable withholding
taxes for the immediately succeeding
quarters. The BIR's failure to present such
vital document during the trial in order to
bolster its contention against the taxpayers
claim for the tax refund is fatal. (CIR v. Team
A. No. Proof of actual remittance of the

withheld taxes is not required before the
taxpayer may claim for a tax refund/tax
credit certificates. It is not a requirement for
claiming a tax refund of creditable
withholding taxes. (CIR v. Team
(Philippines) Operations Corporation, G.R.

No. 179260, April 2, 2014; CIR v. PNB,
G.R. No. 180290, September 29, 2014)
Q. The BIR contends that, in a refund of excess

creditable withholding taxes, the taxpayer
must present its quarterly returns because
such quarterly returns would show that it did
not carry-over the excess withholding tax to
the succeeding quarter. Is the BIR correct?
A. No. Proving that no carry-over has been
made does not absolutely require the
presentation of the quarterly ITRs. Requiring
that the ITR or the FAR of the succeeding
year be presented to the BIR in requesting a
tax refund has no basis in law and
jurisprudence. First, Section 76 of the Tax
Code does not mandate it. Second, Section 5
of RR 12-94, amending Section 10(a) of RR
6-85, merely provides that claims for refund
of income taxes deducted and withheld from
income payments shall be given due course
only (1) when it is shown on the ITR that the
income payment received is being declared
part of the taxpayers gross income; and (2)
when the fact of withholding is established by
a copy of the withholding tax statement, duly
issued by the payor to the payee, showing the
amount paid and the income tax withheld
from that amount. Any document, other than
quarterly ITRs may be used to establish that
indeed the non-carry over clause has been
complied with, provided that such is
(Philippines) Energy Corporation, G.R. No.

188016, January 14, 2015)
Q. Gotesco, a corporation engaged in the real

estate business, secured a loan from PNB
with a six-hectare property as collateral.
Gotesco defaulted on its loan obligations.
Thus, PNB foreclosed the mortgaged
property. A certificate of sale was issued in
favor of PNB. As it prepared for the
consolidation of its ownership over the
property, PNB withheld and remitted to the
BIR withholding taxes equivalent to 6% of
the bid price. Thereafter, PNB filed an
administrative claim for the refund of excess
withholding taxes. PNB explained that it it
should have applied the five percent (5%)
creditable withholding tax rate on the sale of
ordinary asset, considering that Gotesco is
primarily engaged in the real estate business.
While PNB was able to establish the fact of
tax withholding and the remittance thereof to
the BIR, the CTA found that PNB failed to
present evidence to prove that Gotesco did
not utilize the withheld taxes to settle its tax
Page 19 of 27
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liabilities. On Motion for Reconsideration,

PNB eventually offered as evidence the
Income Tax Return of Gotesco to show that
the excess withholding tax payments were
not used by Gotesco to settle its tax liabilities.
The CTA denied the Motion for
Reconsideration and insisted that, to
sufficiently prove that Gotesco did not utilize
the creditable taxes withheld, the PNB
should have likewise presented the
Certificate of Creditable Tax Withheld at
Source (BIR Forms No. 2307) issued to
Gotesco in relation to the creditable taxes
withheld reported in its tax returns. Is the
BIR Form 2307 necessary?
A. The submission of BIR Forms 2307 is to
prove the fact of withholding of the excess
creditable withholding tax being claimed for
refund. This is clear in the provision of
Section 58.3, RR 2-98, as amended, and in
various rulings of the Court. In the words of
Section 2.58.3, RR 2-98, That the fact of
withholding is established by a copy of a
statement duly issued by the payor
(withholding agent) to the payee showing the
amount paid and the amount of tax withheld
therefrom.
Hence, the probative value of BIR Form
2307, which is basically a statement showing
the amount paid for the subject transaction
and the amount of tax withheld therefrom, is
to establish only the fact of withholding of the
claimed creditable withholding tax. There is
nothing in BIR Form No. 2307, which would
establish either utilization or non-utilization,
as the case may be, of the creditable
withholding tax. While perhaps it may be
necessary to prove that the taxpayer did not
use the claimed creditable withholding tax to
pay for his/its tax liabilities, there is no basis
in law or jurisprudence to say that BIR Form
No. 2307 is the only evidence that may be
adduced to prove such non-use. (Philippine
National Bank v. CIR, G.R. No. 206019,

March 18, 2015)
Q. What is the irrevocability rule?

A. Once the option to carry-over and apply the
excess quarterly income tax against income
tax due for the taxable quarters of the
succeeding taxable years has been made,
such option shall be considered irrevocable
for that taxable period and no application for
cash refund or issuance of a tax credit
certificate shall be allowed therefor. (CIR v.
Team (Philippines) Operations Corporation,

G.R. No. 179260, April 2, 2014, citing
Section 76, Tax Code)
LOCAL GOVERNMENT TAXATION
Q. In 1993, the City Council of Manila enacted

the Manila Revenue Code. Section 21(B) of
said Code imposed a local business tax on
the gross receipts of keepers of garages, cars
for rent or hire driven by the lessee,
transportation contractors, persons who
transport passenger or freight for hire, and
common carriers by land, air, or water.
Common carriers assailed the validity of
Section 21(B) of the Manila Revenue Code.
Is Section 21(B) valid?
A. No. Section 21(B) of the Manila Revenue
Code is null and void. Although the power to
tax is inherent in the State, the same is not
true for the LGUs to whom power must be
delegated by Congress and must be exercise
within the guidelines and limitation that
Congress may provide. And among the
common limitations on the taxing power of
LGUs is Section 133(j) of the LGC, which
clearly and unambiguously proscribes LGUs
from imposing a tax on the gross receipts of
transportation contractors and common
carriers. The contention of the City of Manila
that Section 143(h) of the LGC has
empowered it to impose local business tax on
any business subject to excise, value-added,
or percentage tax under the Tax Code), such
as common carriers, must fail. First, Section
133(j) of the LGC prevails over Section
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143(h) of the LGC as the former is a specific

provision that explicitly limits the LGUs
power to tax while Section 143(h) defines a
general power. Specific provisions prevail
over general ones. Second, such construction
gives effect to both Section 133(j) and
Section 143(h) of the LGC. Third, Section
5(b) of the LGC provides that any tax
ordinance or revenue measure shall be
strictly construed against the local
government unit enacting it. Fourth,
exemption of transportation contractors and
common carriers from local business tax is
consistent with the intent of our laws, which
is to prevent the duplication of the so-called
common carriers tax. (City of Manila v Hon.
Colet and Malaysian Air System, G.R. No.

120051, December 10, 2014)
Q. The National Power Corporation (NPC)
received a notice of franchise tax delinquency
from the Provincial Government of Bataan.
The assessment is based on NPCs sale of
electricity that it generated from two power
plants in Bataan. The province once again
sent notices of tax due. NPC replied that it
had ceased to be liable after the enactment of
Electric Power Industry Act (EPIRA), which
relieved NPC of its functions of generating
and supplying electricity. The province
proceeded to levy on the properties that NPC
used to own. Is NPC liable for the franchise
tax?
A. No. The EPIRA transferred to the National
Transmission Corporation (TRANSCO) the
NPCs electric transmission function. Thus,
the NPC ceased to operate said business in
Bataan. Since the local franchise tax is
imposed on the privilege of operating a
franchise, such tax is not the liability of NPC,
but instead of TRANSCO. The province
cannot likewise levy on the transmission
facilities to satisfy the assessment against
NPC because the same is now owned by
TRANSCO.
The EPIRA also created the Power Sector

Assets
and
Liabilities
Management
Corporation (PSALM) and transferred to it
all of the NPCs generation assets, which
includes the plants in Bataan. Clearly, NPC
had ceased running said business. Further,
the EPIRA transferred all existing liabilities
of NPC to PSALM, which would include its
unpaid liabilities for local franchise tax.
Consequently, such tax is collectible from
PSALM. (National Power Corporation v.
Provincial Government of Bataan, G.R. No.

180654, April 21, 2014)
Q. Must a writ of execution be issued before a

taxpayer may be allowed to avail of its tax
refund or tax credit of local taxes as affirmed
by a court judgment which has become final
and executory?
A. No. It is not the intention of the law to
burden the taxpayer with going through the
process of execution under the Rules of Civil
Procedure before it may be allowed to avail
its tax credit as affirmed by a court judgment.
The issuance of a Writ of Execution is
superfluous, because the court judgment can
neither be considered a judgment for a
specific sum of money susceptible of
execution by levy or garnishment under
Section 9, Rule 39 of the Rules of Court nor
a special judgment under Section 11, Rule 39
thereof. Instead of moving for the issuance
of a writ of execution, the taxpayer should
merely request for the approval of the local
government unit in implementing the tax
refund or tax credit, whichever is
appropriate. The local government unit has
two options: (1) to pay the taxpayer the
amount as tax refund; or (2) to issue a tax
credit certificate in the same amount which
may be credited by the taxpayer from its
future tax liabilities due to the local
government unit. (Coca-Cola Bottlers
Philippines v. City of Manila, G.R. No.

197561, April 7, 2014)
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Q. In the imposition of the surcharge on local

taxes due and unpaid, should the 25%
surcharge be computed yearly based on the
unpaid tax due for each particular year?
A. No. Section 168 of the Local Government
Code categorically provides that the local
government unit may impose a surcharge not
exceeding 25% of the amount of taxes, fees,
or charges not paid on time. The surcharge is
a civil penalty imposed once for late payment
of a Contrast this with the succeeding
provisions on interest, which was imposable
at the rate not exceeding 2% per month of the
unpaid taxes until fully paid. The fact that the
interest charge is made proportionate to the
period of delay, whereas the surcharge is not,
clearly reveals the legislative intent for the
different modes in their application. If the
legislative intent was to make the 25%
surcharge proportionate to the period of
delay, the law should have provided for the
same in clear terms. (NPC v. City of
Cabanatuan, G.R. No. 177332, October 1,

2014)
REAL PROPERTY TAXATION
Q. Is the Philippine Economic Zone Authority

(PEZA) exempt from the payment of real
property taxes?
A. Yes. The PEZA is exempt from the payment
of real property taxes. The general rule is that
real properties are subject to real property
taxes. This is true especially since the Local
Government
Code
has
withdrawn
exemptions from real property taxes of all
persons, whether natural or juridical.
Exceptions to the rule are however also
provided in the Local Government Code.
Under Section 133(o), local government
units have no power to levy taxes of any kind
on the national government, its agencies and
instrumentalities and local government units.
Specifically on real property taxes, Section
234 enumerates the persons and real
property exempt from real property taxes,
which includes 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. The PEZA is an instrumentality of
the national government. Being an
instrumentality of the national government,
the PEZA cannot be taxed by local
government units. Further, the real
properties under the PEZAs title are owned
by the Republic of the Philippines. Properties
of public dominion, even if titled in the name
of an instrumentality as in this case, remain
owned by the Republic of the Philippines.
(City of Lapu-Lapu v. PEZA, G.R. No.
184203 & 187583, November 26, 2014)
Note: Even the PEZAs lands and buildings
whose beneficial use have been granted to
other persons may not be taxed with real
property taxes. The PEZA may only lease its
lands and buildings to PEZA-registered
economic zone enterprises and entities.
These PEZA-registered enterprises and
entities, which operate within economic
zones, are not subject to real property taxes.
Under Section 24 of the Special Economic
Zone Act of 1995, no taxes, whether local or
national, shall be imposed on all business
establishments operating within the
economic zones.
Q. Distinguish between an illegal assessment
and an erroneous assessment of real property
taxes in terms of remedies to be taken?
A. An erroneous assessment is different from an
illegal assessment, and the proper remedy of
a taxpayer issued an assessment 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
Page 22 of 27
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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. The taxpayer must first pay
the real property tax under protest. Should
the taxpayer find the action on the protest
unsatisfactory, the taxpayer may appeal with
the Local Board of Assessment Appeals
within 60 days from receipt of the decision
on the protest. If the taxpayer is still
unsatisfied after appealing with the Local
Board of Assessment Appeals, the taxpayer
may appeal with the Central Board of
Assessment Appeals within 30 days from
receipt of the Local Boards decision. The
decision of the Central Board of Assessment
Appeals is appealable before the Court of
Tax Appeals En Banc. The Court of Tax
Appeals decision may then be appealed
before the Supreme Court through a petition
for review on certiorari under Rule 45 of the
Rules of Court raising pure questions of law.
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. The taxpayer
shall file a complaint for injunction before the
Regional Trial Court to enjoin the local
government unit from collecting real
property taxes. The party unsatisfied with the
decision of the Regional Trial Court shall file
an appeal, not a petition for certiorari, before
the Court of Tax Appeals, the complaint
being a local tax case decided by the Regional
Trial Court. The appeal shall be filed within
fifteen (15) days from notice of the trial
courts decision. The Court of Tax Appeals
decision may then be appealed before the
Supreme Court through a petition for review
on certiorari under Rule 45 of the Rules of

Court raising pure questions of law. (City of
Lapu-Lapu v. PEZA, G.R. No. 184203 &

187583, November 26, 2014)
Q. May a municipality within the Metropolitan

Manila Area, a city, or a province have an
additional levy on real property for the
special education fund at the rate of less than
1%.?
A. Yes. Section 235 of the Local Government
Code provides that a province or city, or a
municipality within the Metropolitan Manila
Area, may levy and collect an annual tax of
one percent (1%) on the assessed value of
real property which shall be in addition to the
basic real property tax. The proceeds thereof
shall exclusively accrue to the Special
Education Fund (SEF). The operative
phrase in Section 235s grant to
municipalities in Metro Manila, cities, and
provinces of the power to impose an
additional levy for the special education fund
is prefixed with may, thus, may levy and
collect an annual tax of one percent (1%).
There is no limiting qualifier to the
articulated rate of 1% which unequivocally
indicates that any and all special education
fund collections must be at such rate. Setting
the rate of the additional levy for the special
education fund at less than 1% is within the
taxing power of local government units.
(Demaala v. COA, G.R. No. 199752,
February 17, 2015)
Q. From 1994 to 1996, a taxpayer was not able
to pay its real property taxes. As a result, a
warrant was issued by the City Treasurer
subjecting the property to levy. A public
auction sale was conducted. The taxpayer
now questions the validity of the auction sale
in that it violated the procedural
requirements under the Local Government
Code. The buyer argues that there is a
presumption of regularity of an official act in
a tax delinquency sale. The taxpayer argues
that no presumption of regularity is enjoyed
Page 23 of 27
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by any administrative action which results in

depriving a taxpayer of his property. Is the
taxpayer correct?
A. Yes. There is no presumption of the regularity
of any administrative action which resulted in
depriving a taxpayer of his property through
a tax sale. This is an exception to the rule that
administrative proceedings are presumed to
be regular. It is incumbent upon the buyer at
an auction sale to prove the regularity of all
proceedings leading to the sale for the buyer
could not rely on the presumption of
regularity
accorded
to
ordinary
administrative proceedings.
The burden to prove compliance with the
validity of the proceedings leading up to the
tax delinquency sale is incumbent upon the
buyer or the winning bidder. This is premised
on the rule that a sale of land for tax
delinquency is in derogation of property and
due process rights of the registered owner. In
order to be valid, the steps required by law
must be strictly followed. The burden to
show that such steps were taken lies on the
person claiming its validity, for the Court
cannot allow mere presumption of regularity
to take precedence over the right of a
property owner to due process accorded no
less than by the Constitution.
It is, thus, necessary to determine whether
respondent has fulfilled his burden of
proving compliance with the requirements
for a valid tax delinquency sale. Under
Section 254 of the LGC, it is required that
the notice of delinquency must be posted at
the main hall and in a publicly accessible and
conspicuous place in each barangay of the
local government unit concerned. It shall also
be published once a week for two (2)
consecutive weeks, in a newspaper of general
circulation in the province, city, or
municipality.
Section 258 of the LGC further requires that
should the treasurer issue a warrant of levy,
the same shall be mailed to or served upon

the delinquent owner of the real property or
person having legal interest therein, or in
case he is out of the country or cannot be
located, the administrator or occupant of the
property. At the same time, the written notice
of the levy with the attached warrant shall be
mailed to or served upon the assessor and the
Registrar of Deeds of the province, city or
municipality within the Metropolitan Manila
Area where the property is located, who shall
annotate the levy on the tax declaration and
certificate of title of the property,
respectively.
Section 260 of the LGC also mandates that
within thirty (30) days after service of the
warrant of 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 tax
delinquency and expenses of sale. Such
advertisement shall be effected by posting a
notice at the main entrance of the provincial,
city or municipal building, and in a publicly
accessible and conspicuous place in the
barangay where the real property is located,
and by publication once a week for two (2)
weeks in a newspaper of general circulation
in the province, city or municipality where
the property is located. (Strategies
Development Corporation & Prieto v. Agojo,

G.R. No. 208740, November 19, 2014)
TARIFF AND CUSTOMS TAXATION
Q. Does the Commissioner of Customs have the

power to accredit customs brokers?
A. No. The BOC Commissioners power under
Section 608 of the Tariff and Customs Code
(TCCP) is a general grant of power to
promulgate rules and regulations necessary
to enforce the provisions of the TCCP. Under
the rules of statutory construction, this
general rule-making power gives way to the
specific grant of power to promulgate rules
and regulations on the practice of customs
Page 24 of 27
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brokers profession to the CSC Commissioner

under Section 3409 of the TCCP. Indeed, in
the exercise of this specific power, the Board
of Examiners (of which the BOC
Commissioner serves as ex-officio chairman)
was to perform only a recommendatory role.
With the repeal of Section 3409 of the TCCP
by RA 9280, this specific rule-making power
was transferred to the Professional
Regulatory Board for Customs Brokers
(PRBCB) to complement its supervisory and
regulatory powers over customs brokers.
The similarity in the functions and concerns
of the BOC and the BIR does not support a
grant of power to accredit customs brokers
to the BOC Commissioner. Unlike the BOC
Commissioner whose power over customs
brokers was at the very least implied and
indirect, the BIR Commissioner was given
express and specific powers to accredit and
register tax agents under Section 6(G) of the
National Internal Revenue Code (NIRC).
(Airlift Asia Customs Brokerage, Inc. v.
Court of Appeals, G.R. No. 183664, July 28,

2014)
Q. New Frontier Sugar Corporation imported
raw cane sugar from Thailand. The Bureau
of Customs found that there was a violation
of Joint Order No. 1-91, in relation to
paragraph (f), Section 2530 of the Tariff and
Customs Code (TCCP) for failure to subject
the shipment to pre-shipment inspection and
for lack of a Clean Report of Findings (CRF).
The BOC asserts that pursuant to Joint
Order No. 1-91, the shipment shall be
subject to automatic seizure. Is the BOC
correct?
A. No. A Warrant of Seizure and Detention

(WSD) is a condition precedent, before any
seizure proceeding can be formally initiated.
The following mandatory procedures must
be observed in a seizure case: (1) that a WSD
must first be issued upon making any seizure;
and (2) that a written notice of such seizure
must be served upon the owner or importer
or his agent. Failure to comply with the

foregoing procedural requirements would
negate the propriety of having the subject
shipment of the importer seized and forfeited
in favor of the Government in all cases.
Further, the shipment could not be deemed
liable for seizure or even forfeiture on the
ground of violation of Section 2530(f) of the
TCCP, as amended, for it must be proven
first that fraud has been committed by or
there was bad faith on the part of the
importer/consignee to evade payment of the
duties due and demandable. (COC v. New
Frontier Sugar Corporation, G.R. No.

163055, June 11, 2014)
Q. Who has jurisdiction to hear and determine

questions involving the seizure and forfeiture
of dutiable goods?
A.
The Collector of Customs has exclusive

jurisdiction over seizure and forfeiture
proceedings, and regular courts cannot
interfere with his exercise thereof or stifle or
put it at naught. 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.
Regional trial courts are devoid of any
competence to pass upon the validity or
regularity of seizure and forfeiture
proceedings conducted by the BOC and to
enjoin or otherwise interfere with these
proceedings. Regional trial courts are
precluded from assuming cognizance over
such matters even through petitions for
certiorari, prohibition or mandamus. (Agriex
Co. Ltd. v. Commissioner of Customs, G.R.

No. 158150, September 10, 2014)
JUDICIAL REMEDIES
(COURT OF TAX APPEALS)
Q. Is an adverse ruling of the Secretary of

Finance in the exercise of its power of review
Page 25 of 27
NOTICE
TAXATION LAW
under Section 4 of the NIRC appealable to

the Court of Tax Appeals?
A. Yes. Review by the Secretary of Finance
pursuant to Section 4 of the NIRC, as
amended, of a BIR Ruling is appealable to
the Court of Tax Appeals. The Court opined
that Section 7(a)(1) of RA 1125, as
amended by RA 9282, addresses the
seeming gap in the law as it vests in the
Court of Tax Appeals, albeit impliedly, with
jurisdiction over the appeal from the
Secretary of Finances review of rulings of
the Commissioner of Internal Revenue as
other matters arising under the NIRC or
other laws administered by the BIR.
(Philippine American Life and General
Insurance Company v. The Secretary of

Finance and Commissioner of Internal
Revenue, G.R. No. 210987, November 24,
2014; Banco de Oro v. Republic, G.R. No.
G.R. No. 198756, January 13, 2015)
Q. Does the CTA have jurisdiction relative to

matters involving the validity of a rule or
regulation issued by the Bureau of Internal
Revenue?
A. Yes. The Court of Tax Appeals 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 assessment is based. It is now within the
power of the Court of Tax Appeals, through
its power of certioriari, to rule on the validity
of a particular administrative rule or
regulation so long as it is within its appellate
jurisdiction. (Philippine American Life and
General Insurance Company v. The

Secretary of Finance and Commissioner of
Internal Revenue, G.R. No. 210987,
November 24, 2014)
Q. Union Refinery Corporation (URC) and

Oilink International Corporation (Oilink)
are engaged in the importation of oil
products. URC and Oilink had interlocking
directors and the latter was 100% owned by

the former. The District Collector assessed
URC for taxes due on its oil imports between
1991 and 1995. On November 25, 1998, the
Commissioner of Customs (COC) issued a
final assessment. On December 21, 1998,
the COC wrote URC to pay the deficiency
taxes but in a reduced amount. Upon
assumption of the new COC, another
demand letter was sent to URC. URC
proposed to pay a lesser amount, of which
the initial payment was to be taken from
collectibles of Oilink from the National
Power Corporation. The COC rejected the
same and, on July 2, 1999, made a final
demand upon URC and Oilink. Oilink
formally protested the assessment arguing
that it is not a party liable for the assessed
taxes. The COC denied the protest on July
12, 1999. On July 30, 1999, Oilink appealed
to the CTA, seeking nullification of the
assessment. The COC argues that the CTA
does not have jurisdiction as the 30-day
period within which to appeal has already
lapsed. Is the COC correct?
A. No. The reckoning date for Oilinks appeal
was July 12, 1999, not July 2, 1999, because
it was on the former date that the
Commissioner of Customs denied the protest
of Oilink. Clearly, the filing of the petition on
July 30, 1999 by Oilink was well within its
reglementary period to appeal. The
insistence by the Commissioner of Customs
on reckoning the reglementary period to
appeal from November 25, 1998, the date
when URC received the final demand letter,
is unwarranted. The November 25, 1998
final demand letter of the BoC was addressed
to URC, not to Oilink. As such, the final
demand sent to URC did not bind Oilink
unless the separate identities of the
corporations were disregarded in order to
consider them as one. (COC v. Oilink
International Corporation,
161759, July 2, 2014)
G.R.
No.
Page 26 of 27
NOTICE
TAXATION LAW
Note: The Court also stated in the case that

the doctrine of piercing the corporate veil has
no application here because the COC did not
establish that Oilink had been set up to avoid
the payment of taxes or duties, or for
purposes that would defeat public
convenience, justify wrong, protect fraud,
defend crime, confuse legitimate legal or
judicial issues, perpetrate deception or
otherwise circumvent the law.
Q. The BIR issued several assessment notices to
the taxpayer for deficiency income tax and
VAT for the taxable years 1999 to 2002. The
taxpayer filed protests, but they were denied
by the BIR. The taxpayer then filed a Petition
for Review with the CTA in Division. The
CTA Division denied the Petition. The CTA
Division likewise denied the Motion for
Reconsideration. The taxpayer then appealed
directly to the Supreme Court. Does the
Supreme Court have jurisdiction?
A. No. The Court is without jurisdiction to
review decisions rendered by a division of the
CTA, exclusive appellate jurisdiction over
which is vested in the CTA en banc. RA
1125, as amended by RA 9282, provides that
the CTA en banc shall have exclusive
jurisdiction over appeals from the decision of
its divisions. A party adversely affected by the
resolution of the CTA division may, on
motion for reconsideration, file a petition for
review with the CTA en banc. Thereafter, the
decision or ruling of the CTA en banc may be
elevated to this Court. Simply stated, no
decision of the CTA division may be elevated
to this Court under Rule 45 of the 1997
Rules of Civil Procedure without passing
through the CTA en banc. (Duty Free
Philippines v. BIR, G.R. No. 197228,

October 8, 2014)
*** Nothing else follows ***
Page 27 of 27
NOTICE

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TAXATION LAW

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT

This covers the significant and relevant Supreme

Electronics Philippines v. CIR, G.R. No.

Q. Can a claimant have personality to file a tax

taxes pursuant to Section 21 of the Revenue

Corporation v. Treasurer of Manila, G.R. No.

Q. What are deemed de minimis benefits?

a) Monetized unused vacation leave credits

Q. What is now the threshold amount of the 13th

substitutes, investment management

For the interest income derived by

well as the requirements mentioned

of the grantor itself, at a specific price to be

the exercise price to the grantor and

2. Sale or transfer of option

If the option was granted by an

If the option was granted to a

b. In a cash-settlement option, the same

foreign governments. (CIR v. Meralco, G.R.

Internal Revenue, G.R. No. 175410,

Q. The Republic, through the Department of

and not the Republic. Is the Republic

NGO represented that all income derived

However, a reading of the underwriting

withholding agents. (Banco de Oro v.

Republic, G.R. No. G.R. No. 198756,

1. Actual receipt by the accredited nonstock, non-profit corporation/NGO of

RMC 86-2014 now provides a Certificate of

Donation (BIR Form 2322) which consists of

taxpayer can avail of the preferential tax rates

Q. What are considered inurements prohibited

1. The payment of compensation, salaries,

Income tax is the tax on all yearly profits

Philippines v. CIR, G.R. No. 165451,

A. Concerned withholding agents shall require

professional partnerships. RMC No. 3-2012

A. No. The absence of donative intent, if that be

American Life and General Insurance

Q. Fort Bonifacio Development Corporation

(RMC No. 3-2014)

Commissioner of Internal Revenue, and

1. An administrative claim must be filed with

185432, June 4, 2014; Visayas Geothermal

Taganito Mining Corporation v. CIR, G.R. No.

Semiconductor Philippines v Commissioner

Note: The shift from inaction deemed a

RMC 54-2014 also provides that in case the

taxpayer has already filed a petition for

Power Company v. CIR, G.R. No. 197525,

quarter where the relevant sales were made.

v. Team Sual Corporation, G.R. No. 205055,

Q. What is the effect of the absence of the

unutilized input VAT?

Fish Company Inc. v. CIR, G.R. No. 185432,

1. The taxpayer is VAT-registered;

9. The claim is filed within two years after

Fish Company Inc. v. CIR, G.R. No. 185432,

Q. Is there a difference between an invoice and

v. CIR, G.R. No. 185666, February 4, 2015;

Q. ABC Mining Corporation purchased and

subsidiary ledger. Here, the claim for refund

Mining Corporation v. CIR, G.R. No.

inventory of goods, materials and supplies,