TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

TAXATION II l Atty.
Kim Aranas l For the exclusive use of EH 404 2016-2017
Philacor is engaged in the business of retail financing. Through retail

DOCUMENTARY STAMP TAX
financing, a prospective buyer of home appliance may purchase an
PURPOSE AND NATURE appliance on installment by executing a unilateral promissory note in
favor of the appliance dealer, and the same promissory note is
Purpose assigned by the appliance dealer to Philacor.
The untaxed document will not be recorded, nor will it or any copy
thereof or any record of transfer of the same be admitted or used in Here, Philacor did not make, sign, issue, accept or transfer the
evidence in court until the requisite stamp or stamps have been affixed promissory notes. It is the buyer of the appliances who made, signed
thereto and cancelled. and issued the documents subject to tax while it is the appliance
dealer who transferred these documents to Philacor which likewise
No notary public or other officer authorized to administer oaths will indisputably received or accepted them.
add his Jurat or acknowledgment to any document subject to DST,
unless the proper documentary stamps are affixed thereto and Construction of acceptance
cancelled. Acceptance, however, is an act that is not even applicable to
promissory notes, but only to bills of exchange. Under the Negotiable
Two types of documentary stamp taxes Instruments Law, the act of acceptance refers solely to bills of
1. Loose Documentary Stamp Taxes exchange. In a ruling adopted by the Bureau of Internal Revenue as
2. Documentary stamp taxes through filing of a tax return early as 1995, acceptance has been defined as having reference to
incoming foreign bills of exchange which are accepted in the
Nature Philippines by the drawees thereof, and not as referring to the
common usage of the word as in receiving. Thus, a party to a taxable
Philippine Home Assurance Corporation v. CA transaction who accepts any documents or instruments in the plain
In general, DST are levied on the exercise by persons of certain and ordinary meaning does not become primarily liable for the tax.
privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific TN: Accepting here must be an essential element for the transfer of a
instruments. Examples of such privileges, the exercise of which, as right or an obligation, if it is not an essential element then not liable
effected through the issuance of particular documents are subject to for DST.
the payment of documentary stamp taxes are leases of lands,
mortgages, pledges and trusts, and conveyances of real property. Q: Where is DST Return filed?
A: Authorized Agent Bank (AAB) within the territorial jurisdiction of the
RDO which has jurisdiction over the residence or principal place of
PERSONS REQUIRED TO FILE DST DECLARATION business of the taxpayer or where the property is located in case of
Persons required to file DST declaration sale of real property or where the Collection Agent is assigned.
TN: This is not the loose documentary stamp tax as this type of DST is Q: What if there is no Authorized Agent Bank?
for notarized documents only. The examples below are for the 2nd type A: Revenue Collection Officer or Duly authorized City or Municipal
of DST. Treasurer.
a) In case of constructive affixture of documentary stamps, by the DST Rates

persons making, signing, issuing, accepting or transferring See separate file.
documents, instruments, loan agreements and papers,
acceptances, assignments, sales and conveyances of the M.J. Lhuillier Pawnshop vs. CIR
obligation, right or property incident thereto wherever the
document is made, signed, issued, accepted or transferred when Pawn tickets are subject to DST
the obligation or right arises from Philippine sources or the It is true that the law does not consider pawn tickets as an evidence of
property is situated in the Philippines at the same time such act is security or indebtedness. However, for purposes of taxation, a pawn
done or transaction had. ticket is a proof of an exercise of a taxable privilege of concluding a
contract of pledge. Thus, subject to DST.
TN: In short, you need DST when you transfer something, grant
an loan, a right you want to enforce and an obligation that you The law imposes DST on documents issued in respect of the specified
want to fulfil. transactions, such as pledge, and not only on papers evidencing
indebtedness. Therefore, a pawn ticket, being issued in respect of a
b) By using the web-based Electronic Documentary Stamp Tax pledge transaction, is subject to documentary stamp tax.
(eDST) System in the payment or remittance of his or her DST
liabilities and the affixture of the prescribed documentary stamp Not liable for surcharges and interest
on taxable documents; and Tambunting was in good faith in not paying documentary stamp taxes,
it having relied on the rulings of respondent CIR and the CTA that
c) By Revenue Collection Agent, for remittance of sold loose pawn tickets are not subject to documentary stamp taxes. Good faith
documentary stamps. and honest belief that one is not subject to tax on the basis of previous
interpretations of government agencies tasked to implement the tax
Philcor Credit Corporation v. CIR law are sufficient justification to delete the imposition of surcharges
and interest.
Philacor is not liable for DST on the issuance of the PN
Under Section 173 of the National Internal Revenue Code, the persons In tax exemptions, taxation is the rule and exemption is the
primarily liable for the payment of DST are the persons (1) making (2) exception
signing (3) issuing (4) accepting or (5) transferring the taxable One who claims an exemption from tax payments rests the burden of
documents, instruments or papers. justifying the exemption by words too plain to be mistaken and too
categorical to be misinterpreted.
1|U N I V E R S I T Y O F S A N C A R L O S
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
In the instant case, there is no law specifically and expressly 15. Derivatives: Provided, That for purposes of this exemption,
exempting pledges entered in to by pawnshops from the payment of repurchase agreements and reverse repurchase agreements shall
DST. Section 199 of the NIRC enumerated certain documents which be treated similarly as derivatives.
are not subject to stamp tax; but a pawnshop ticket is not one of
them. Hence, petitioners nebulous claim that is not subject to DST is 16. Inter-branch or interdepartmental advances within the
without merit. same legal entity.
17. All forbearances arising from sales or service contracts including
DST EXEMPT PAPERS OR DOCUMENTS credit card and trade receivables: Provided, that the
exemption be limited to those executed by the seller or service
Exempt papers/ documents from DST provider itself.
1. Policies of insurance or annuities made or granted by a 18. Bank deposit accounts without a fixed term or maturity.
fraternal or beneficiary society, order, association or cooperative
company, operated on the lodge system or local cooperation plan 19. All contracts, deeds, documents and transactions related to the
and organized and conducted solely by the members thereof for conduct of business of the Bangko Sentral ng Pilipinas.
the exclusive benefit of each member and not for profit.
20. Transfer of property pursuant to Section 40 (C) (2) of the
2. Certificates of oaths administered by any government official in National Internal Revenue code of 1997, as amended.
his official capacity or acknowledgment by any government
21. Interbank call loans with maturity of not more than seven (7)
official in performance of his official duty.
days to cover deficiency in reserves against deposit liabilities,
3. Written appearance in any court by any government official including those between or among banks and quasi-banks.
in his official capacity.
Q: What is Electronic Documentary Stamp Tax (eDST) System?
4. Certificates of the administration of oaths to any person as (sec. 5 (1), RR No. 7-2009)
to the authenticity of any paper required to be filed in court by
any person or party thereto, whether the proceedings be civil or A: The eDST is a web-based application created for taxpayers and the
criminal. BIR that is capable of affixing a secured documentary stamp on the
5. Papers and documents filed in court by or for the national, taxable documents as defined under the appropriate provisions under
provincial, city or municipal governments. Title VII of the NIRC of 1997, as amended, thru the use of a computer
unit, any laser printer with at least 1200 dpi resolution, and Internet
6. Affidavits of poor persons for the purpose of proving poverty. Explorer 7.0. It is also capable of providing a 3-layer watermark on
stamps for added security.
7. Statements and other compulsory information required of
persons or corporations by the rules and regulations of the Q: Is DST Law applicable on Electronic Documents? (sec. 10,
national, provincial, city or municipal government exclusively for RR No. 13-2004)
statistical purposes and which are wholly for the use of the
Bureau or office in which they are filed, and not at the instance or A: Yes. The DST rates as imposed under the Code, as amended by
for the use or benefit of the person filing them. R.A. 9243 shall be applicable on all documents not otherwise expressly
8. Certified copies and other certificates placed upon exempted by the said law, notwithstanding the fact that they are in
documents, instruments and papers for the national, provincial, electronic form. As provided for by R.A. 8792, otherwise known as the
city or municipal governments. Electronic Commerce Act, electronic documents are the functional
equivalent of a written document under existing laws, and the issuance
9. Certificates of the assessed value of lands, not exceeding thereof is therefore tantamount to the issuance of a written document,
P200 in value assessed, furnished by the provincial, city or and therefore subject to DST.
municipal Treasurer to applicants for registration of title to land.
Q: Is any document, transaction or arrangement entered into
10. Borrowing and lending of securities executed under the
under Financial Lease subject to Documentary Stamp Tax?
Securities Borrowing and Lending Program of a registered
(RMC No. 46-2014)
exchange, or in accordance with regulations prescribed by the
appropriate regulatory authority.
A: Yes. Financial Lease is akin to a debt rather than a lease. A nature
11. Loan agreements or promissory notes, the aggregate of of an obligation than a lease of personal property. The mere act of
which does not exceed Two hundred fifty thousand pesos extending credit is already a means of facilitating an obligation or
(P250,000), or any such amount as may be determined by the advancing in behalf of the lessee certain property in lieu of cash in
Secretary of Finance, executed by an individual for his purchase exchange for a definitive amortization to be paid to the lessor with
on installment for his personal use or that of his family and not profit margin included. Section 179 of the NIRC, as amended, covers
for business or resale, barter or hire of a house, lot, motor all debt instruments. Therefore, being a nature of an obligation, any
vehicle, appliance or furniture. document, transaction or arrangement entered into under financial
lease is subject to DST under such Section of the NIRC, as amended.
12. Sale, barter or exchange of shares of stock listed and traded
through the local exchange (R.A. 9648). In operating lease, there is no transfer of ownership. While a finance
13. Assignment or transfer of any mortgage, lease or policy of lease is an advance payment or an instalment to have ownership over
insurance, or the renewal or continuance of any agreement, the property.
contract, charter, or any evidence of obligation or indebtedness, if
there is no change in the maturity date or remaining period of Important: Here, if one party is liable to pay DST and the other is
coverage from that of the original instrument. exempted, such party liable will have to pay for DST unless the
transaction itself is exempted.
14. Fixed income and other securities traded in the secondary market
or through an exchange.
OTHER PERCENTAGE TAXES well as income from

finance lease on the
basis of remaining
Other percentage taxes
maturities of
Bank and non-bank instruments:
A. Percentage Tax on Domestic Carriers and Keepers of Garages
financing
B. Percentage Tax on International Carrier
intermediaries *Short term maturity
C. Franchise Taxes 5%
(5 years or less)
D. Tax on Overseas Communication
*Maturity period is
E. Tax on Banks and Non-bank Financial Intermediaries Performing 1%
more than 5 years
Quasi- Banking Functions
F. Tax on Life Insurance Premiums On Dividends and
G. Tax on Agents of Foreign Insurance Companies equity shares in net 0%
H. Amusement Taxes income of subsidiaries
I. Tax on Winnings On royalties, rentals of
J. Tax on Sale, Barter or exchange of Shares of Stock Listed and properties, real or
traded Through the Local Stock Exchange or Through Initial personal, profits from
7%
Public Offering exchange and all other
Coverage Basis Tax Rate items treated as gross

income under Section
Persons Exempt from Gross Sales or
3% 32 of the code
VAT under Sec. 116 Receipts
On Net Trading Gains
1. Domestic carriers
within the taxable year
and keepers of Gross Receipts 3%
on foreign currency,
garages
debt securities, 7%
2. International Carriers:
derivatives and other
International
similar financial
air/shipping carriers Gross Receipts 3%
instruments
doing business in the
On interest, discounts
Philippines
and other items of
3. Franchise Grantees:
gross income paid to
Electric, gas and
Gross Receipts 2% finance companies 5%
water utilities
and other financial
Radio and television
intermediaries not
broadcasting
performing quasi
companies whose
banking functions
annual gross receipts
Interest, commissions
of the preceding year Gross Receipts 3%
and discounts paid
do not exceed P
from their loan
10,000,000 and did not
Other non-bank transactions from
opt to register as VAT
Finance finance companies as
taxpayer
Intermediaries (Sec. well as income from
122) financial leasing shall
4. Tax on overseas
be taxed based on the
dispatch message or Amount paid for the
remaining maturities 5%
conversation service (paid by the
of instruments:
originating from the person availing the
1%
Philippines (Section service to the person 10%
*maturity period is 5
1201) rendering the
years or less
(by telephone, services)
telegraph, telewriter
*maturity period is
exchange, wireless and
more than 5 years
other communication
services)
6. Life Insurance
Companies (except
5. Tax on Banks and Non-bank Financial Intermediaries purely cooperative Total Premiums 2%
Performing Quasi- Banking Functions companies or collected
associations)
Interest, commissions (Sec 123)
and discounts from 7. Agents of foreign
lending activities as insurance Twice as the tax
companies Total Premiums imposed in Section
(Sec. 124) collected 123
1 Exemptions from Section 120 (except reinsurance
1. Government premium)
2. Diplomatic Services In all cases, where
3. International Organizations owners of property
4. News Services obtain insurance Premiums paid 5%
directly with foreign
companies (without Closely Held Corporations (Section 127)

use of any agent) Any corporation at least 50% in value of the outstanding capital stock
8. Amusement Taxes or at least 50% of the total combined voting power of all classes of
Proprietors, lessee stock entitled to vote is owned directly or indirectly by or for not more
or operator of the than twenty (20) individuals.
following:
Cockpits Gross Receipts 18% Q: When and where to file OPT return?
Cabarets, Night or Day
Gross Receipts 18% When: Within 25 days after the end of each taxable quarter.
Clubs
Boxing exhibitions
(Except world or Except: Cancellation of VAT registration OP Tax accrues from the
oriental championship date of cancellation.
is at stake AND one of
the contenders if Gross Receipts 10% Important: Persons retiring from business subject to business tax
Filipino citizen must notify the nearest RDO, file his return and pay the tax within 20
promoted by the days after closing the business. Commissioner by a revenue regulation
Filipino citizen of may prescribe manner and time for filing.
Philippine
Corporation.) Where: AABs, RDO, or duly authorized treasurer of the city or
Professional municipality.
Gross receipts 15%
Basketball games
Jai-alai and race track

(operators shall Gross receipts 30%
withheld tax on
winnings) irrespective
of whether or not any
amount is charged for
admission.
10. Tax on Sale, Barter or exchange of Shares of Stock Listed

and traded Through the Local Stock Exchange or Through
Initial Public Offering:
Every stock broker

who effected a sale,
barter, exchange or Gross selling price or
other disposition of gross value in money
shares of stock or shares of stocks of 1%
listed and traded sold, bartered,
through the Local exchanged or
Stock Exchange otherwise disposed
(LSE) other than the
sale by a dealer in
securities
GSP or gross value in

A corporate money shares of
issuer/stock broker, stocks sold, bartered,
whether domestic exchanged or
of foreign, engaged otherwise disposed in
in the sale, barter, accordance with the
exchange or other proportion of stocks
disposition through sold, bartered or
Initial Public exchanged or after
Offering (IPO)/ listing in the stock
secondary public exchange
offering of shares of
stock in closely held *Up to 25% 4%
corporations *Over 25% but not
2%
over 33 1/3%
*Over 33 1/3% 1%
TAX ENFORCEMENT AND ADMNISTRATION GENERAL POWERS OF THE CIR
AGENCIES, POWERS AND DUTIES OF BIR, OFFICIALS General Powers of the CIR
(Sec. 4 to 8, NIRC)
Agencies Involved in Tax Administration 1. Power to interpret the tax code and other tax laws (exclusive
1. Bureau of Internal Revenue (BIR) and original jurisdiction)
2. Bureau of Customs (BOC) 2. Power to decide disputed assessments, refunds, penalties &
3. Provincial, city, and municipal assessors and treasurers other matters under the NIRC or other laws administered by
the BIR.
Powers and Duties of the BIR (AGEE)
3. To obtain information, and to summon, examine and take
1. Assessment and collection of all national internal revenue taxes, testimony of persons;
fees, and charges 4. To make assessments and prescribe additional requirements
for tax administration and enforcement;
2. Give effect to and administer the supervisory and police power 5. To conduct inventory taking, surveillance and to prescribe
conferred to it by the Tax Code or other laws. presumptive gross sales and receipts;
6. To terminate taxable period;
3. Enforcement of all forfeitures, penalties and fines in connection 7. To prescribe real property values;
therewith. 8. To inquire into bank deposit accounts;
9. To accredit and register tax agents;
4. Execution of judgments in all cases decided in its favor by the
10. To prescribe additional procedural or documentary
Court of Tax Appeals and the ordinary courts
requirements; and
11. To delegate power to subordinates.
Officials of the BIR
1. CIR (1)
2. Deputy Commissioners (4) Power to interpret the Tax Code and other tax laws
3. Assistant Commissioners
4. Head Revenue Executive Assistants (HREA) Exclusive and original jurisdiction
5. Regional Directors (19) It cannot be delegated to the subordinate of the CIR, unless you
6. Revenue District Officers question the constitutionality you go now to the courts.
7. Revenue enforcement officers or examiners
Recommending power in the passage of RRs
New Offices created EO 366
Revenue Regulation Revenue Ruling or Opinion
Office of the planning and management More specific in nature;
General interpretations of the
Project and implementation management service addressing particular needs of a
tax laws seeking to explain the
Large Taxpayers service taxpayer but is applicable only to
provisions of the law
the requesting taxpayer
TN: Though these offices are new, no Deputy Commissioners were Issued by the Secretary of Issued by the CIR subject to
added. Finance with recommending review by the Secretary of
power from the CIR Finance
Important: Cebu is under Revenue Region 13. Under Revenue
Regions are the Revenue District Offices. In Cebu you have 4 revenue Q: How is it done?
region district offices. (RDO 80, 81, 82, and 83) A: When it comes to interpretation of the tax code, it maybe generic
interpretation or specific.
Carlos G. Dominguez III
Secretary of Finance Generic Interpretation
It usually comes in the form of a revenue regulation. When it comes to
Caesar R. Dulay revenue regulation, it is not the CIR who is authorized rather it is the
Commissioner of Internal Revenue Secretary of Finance. The CIR only has the recommending power or
recommending approval.
Nestor S. Valeroso
Operations Group Specific Interpretation
It usually comes in the form of revenue rulings or opinions but the
Jesus Clint O. Aranas revenue rulings or opinions, this is applicable only to a specific
Legal and Inspection Group situation and it is only applicable to specific taxpayer who requested
for the ruling or opinion.
Lilla C. Guillermo
Information Systems Group It doesnt mean to say that if Mr. A and B situated are situated having
the same operation of business and here comes a ruling stating that
Celia C. King Mr. A is exempt doesnt follow that Mr. B is automatically exempted
Resource Management Group because theres no such thing as stare decisis in Revenue rulings or
opinions. Only a guide.
Q: When it comes to revenue rulings or opinions, can it be Q: In relation to taking of testimony of persons, can the CIR
delegated by the CIR? issue summons as well as subpoenas?
A: Yes and it is in accordance with its power to obtain
YES, except: information and to summon, examine and take testimony of
persons.
1. If it pertains to rulings of first impressions (no previous ruling
exclusively, it must be signed and issued by the CIR) Summon v. Subpoena
2. If it involves reversion or modification of a previous opinion or
ruling by the BIR then it exclusively belongs to the CIR Summon Subpoena
Issued in order to compel the
TN: The rest may be delegated to regional directors or to the Deputy Issued in order to place the
recipient of the subpoena to
recipient thereof within the
or assistance commissioner. testify in ad testificandum or
jurisdiction of the issuing
submit documents if
authority.
Power to decide disputed assessments, refunds, penalties subpoena duces tecum.
and other matters under the NIRC or other laws
administered by the BIR (4) Examine any book, record, data which may be relevant
or material to the inquiry.
Kinds of remedies:
Prescriptive Period
(1) Appeal to the Secretary of Finance problems arising from There is a certain number of years when a taxpayer is required
interpretation of tax laws to keep his books of account. The number of year is 10 years.
(2) Appeal to the Court of Tax Appeals problems arising from Example: If BIR examines your book on accounts in year 2000
assessments, refunds, penalties or other matters regarding tax
and its now 2015, they cannot anymore do that since it is
liabilities under the Tax Code.
already beyond the 10-year period.
(3) Regular courts problems arising from constitutionality of tax
laws. (5) To issue summons
(4) BIR Administrative actions by taxpayers prior to judicial action Q: Is the BSP exempt from Internal Revenue taxes?
before the CTA A: No, only DST exemption.
Final assessment must be clear and unequivocal Q: May the CIR and/or his subordinate issue subpoena i.e.
There must be clear and unequivocal indication whenever the CIRs
subpoena duces tecum?
action on an assessment questioned by the taxpayer constitutes his
final decision/determination on the dispute. A: Yes pursuant to the CIRs power to obtain information and to
summon under Section 5, NIRC. However, this is NOT a
The assessment we are referring here pertains to deficiency requisite before resorting to best evidence obtainable.
assessment. You disputed the computation made by the BIR.
Important: It is not a requisite for the BIR to first issue a
Power of CIR to resolve administrative case subpoena to the taxpayer because the subpoena is only resorted
The CIR has the power to resolve administrative cases within a period into if there are no available documents.
of 120 days. The lapse of the 120 period without any action coming
from the CIR is considered a denial of the claim. Thus, within 30 days
Make assessments
therefrom, judicial action may be had with the Court of Appeals.
The power to make assessment include:
TN: The proper remedy of a taxpayer to any dispute is to go first to
the administrative level before going to the judicial level. 1. Examination of returns and determination of tax due based on
best-evidence obtainable.
Obtain information and to summon, examine
and take testimony of persons Best evidence obtainable means that the CIR is not just limited
on the returns filed by the taxpayer because when it involves
Extent of power
evasion which involves hiding of information, this may be taken
(1) Canvass from time to time the revenue region or district by the Bureau from the other party in the contract or from the
office. other government agency involved.
(2) Obtain information on a regular basis which 2. Assess the proper tax this involves issuance of deficiency notice
information may be sourced from the taxpayer (self- (errors in filing of returns which is through self-assessment)
assessment) or 3rd party information.
3. Conduct of inventory-taking, surveillance, and to prescribe
(3) Take testimony of persons (under oath) as may be presumptive gross sales and receipts.
relevant or material to the inquiry. The CIR has the
power to issue subpoena duces tecum and subpoena ad 4. Issue jeopardy assessments.
testificandum.
1. Examination of returns and determination of tax due based shall be done in a secure manner to ensure confidentiality thereof
on best-evidence obtainable under such rules and regulations as may be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.
GR: Confidentiality of Tax Returns
The Commissioner shall provide the tax information obtained from
Exceptions: [PA-EFEC] banks and financial institutions pursuant to a convention or
1. Upon written order of the President of the Philippines; agreement upon request of the foreign tax authority when such
2. In aid of legislation by Congressional Oversight Committee requesting foreign tax authority has provided the following
3. Material evidence in criminal case where the government is information to demonstrate the foreseeable relevance of the
interested in the result; information to the request:
4. Inspection is authorized under of Finance Regulation 33
5. Request for exchange of information by foreign tax authority (a) The identity of the person under examination or investigation.
(R.A. No. 10021, FATCA)
(b) A statement of the information being sought including its
6. Upon consent/authority of taxpayer.
nature and the form in which the said foreign tax authority
Finance Regulation 33 prefers to receive the information from the Commissioner.
Regulations Relating to Inspection of Income Tax Returns. This is an
old regulation which was passed in 1922 (c) The tax purpose for which the information is being sought.
GR: Tax returns are confidential. (d) Grounds for believing that the information requested is held in
the Philippines or is in the possession or control of a person
Important: An officer of the BIR becomes liable when there is within the jurisdiction of the Philippines.
unlawful divulgence of trade secrets2, which offense is punishable by
a fine in a sum of not more than P2,000 or an imprisonment for a (e) To the extent known, the name and address of any person
term of not less than six months nor more than five years, or both. believed to be in possession of the requested information.
EXCEPTION: When it is to be used in legal proceedings. (f) A Statement that the request is in conformity with the law and
administrative practices of the said foreign tax authority, such
Foreign Account Tax Compliance Act (FATCA) that if the requested information was within the jurisdiction of
It is a form of information exchange system among countries. This the said foreign tax authority then it would be able to obtain
law was enacted by the US in order to prevent their citizens in going the information under its law or in the normal course of
abroad and hide their income. It is a US law and applies only to US administrative practice and that it is conformity with a
citizens. convention or international agreement, and
Prior RA 10021, FATCA is implemented in the Philippines voluntarily (g) A statement that the requesting foreign tax authority has
but an issue came because of the penal provisions under the law. exhausted all means available in its own territory to obtain the
information, except those that would give rise to
Exchange of Information on Tax Matters Act of 2009 (RA disproportionate difficulties.
10021)
The Philippine version of the FATCA. This gives the BIR additional Other notes:
grounds to inquire into the bank deposits of their account holders
(in addition to 1 and 2 below): The Commissioner shall forward the information as promptly
as possible to the requesting foreign tax authority. To ensure
(1) Decedent to determine gross estate and a prompt response, the Commissioner shall confirm receipt of
a request in writing to the requesting tax authority and shall
(2) Any taxpayer who enters into compromise with the BIR for notify the latter of deficiencies in the request, if any, within
reason of financial incapacity to pay his tax liability sixty (60) days from the receipt of the request.
(3) A specific taxpayer or taxpayers subject of a request for the If the Commissioner is unable to obtain and provide the
supply of tax information from a foreign tax authority information within ninety (90) days from the receipt of the
pursuant to an international convention or agreement on tax request, due to obstacles encountered in furnishing the
matters to which the Philippines is a signatory or a party of: information or when the bank or financial institution refuses
Provided, That the information obtained from the banks and to furnish the information, he shall immediately inform the
other financial institutions may be used by the Bureau of requesting tax authority of the same, explaining the nature of
Internal Revenue for tax assessment, verification, audit and the obstacles encountered or the reasons of refusal.
enforcement purposes.
The term 'foreign tax authority', as used herein, shall refer to
TN: Foreign tax authority is an authority equivalent to the BIR such the tax authority or tax administration of the requesting State
as the Internal Revenue Services (IRS) in the US. under the tax treaty or convention to which the Philippines is
a signatory or a party of.
Manner of implementation
In case of request from a foreign tax authority for tax information Q. Does this violate the bank secrecy law and the Foreign
held by banks and financial institutions, the exchange of information Currency Deposits Act?
A: This is not a violation of the bank secrecy law and FCDA because
2
It is made an offense for any officer or employee of the Bureau of Internal Revenue to the information is still maintained confidential. It is also categorically
divulge to any person or to make known in any other manner than as may be provided by law provided in the law that it is an exception to the bank secrecy law
information regarding the business or income of any taxpayer, the secrets, operation, style of
work, or apparatus of any manufacturer or producer or confidential information regarding the and the FCDA. Moreover RA 10021 pertains to the BIR and not the
business of any taxpayer, knowledge of which was acquired by him in the discharge of his banks.
official duties.
Sources Asset (A) = Liabilities (L) + Equity (E)

1. Government offices/agencies
2. Corporations/employers Conditions (Use of the Net Worth Method)
3. Clients or patients 1. Either there are:
4. Tenants lessees, vendees and from all other sources (a) No books of accounts or
(b) The books do not reflect the correct income or
Q: May returns, statement, or declaration filed with the BIR (c) Refuses to produce the books or
be withdrawn? (d) Books were destroyed
GR: No. 2. There is evidence of possible sources of income causing an
XPNs: increase in net worth.
1. Done within 3 years from filing of the returns 3. There is fixed or opening net worth.
2. No notice of audit or investigation of such return has been
served upon the taxpayer. 4. The method reflects taxpayers income with accuracy and
certainty after various adjustment.
Right of BIR to issue deficiency assessment
Under Section 6 of the NIRC, the filing of an amended return during
NET WORTH METHOD (formula)
the examination does not preclude nor diminish the right of the BIR
to issue deficiency assessment base on the previous tax return. Net worth (end of taxable year) xx
Less: Net worth (beginning of taxable year) xx
When transacting with the BIR and you are just a representative,
you need to have a Special Power of Attorney (SPA), for the
Increase in Net worth xx
information to be transacted is deemed confidential. Add: Non-deductible disbursements xx
Correct Net income xx
2. Assess the proper tax Less: Exemptions xx
Assess
Taxable Income xx
Assess means to impose a tax; to charge with a tax; to declare a tax Income tax on Taxable Income xx
to be payable; to apportion a tax to be paid or contributed, to fix a Less: Amount already paid on reported taxable income xx
rate; to fix or settle a sum to be paid by way of tax; to set, fix or Deficiency income tax xx
charge a certain sum to each taxpayer; to settle determine or fix the
Add: Surcharge and interest xx
amount of tax to be paid.
Total amount due xx
TN: While tax is generally legislative, the BIR is granted the power
to make proper tax assessment. 3. Conduct of inventory-taking, surveillance, and to prescribe
presumptive gross sales and receipts
Assessment
Assessment is the notice to the effect that the amount therein Types of surveillance:
stated is due to the taxpayer with a demand for payment within a 1. Covert surveillance surreptitious and undercover watch on
stated period of time. business
2. Over surveillance comments from inventory taking of the
Important: The assessment we are referring here is not the business document, then actual business observation and
assessment made by the taxpayer rather, the assessment made by close monitoring of activities
the BIR. 3. Short duration surveillance (Tax Compliance Check)
Q: May the BIR also conduct Benchmarking aside from

As a general rule, we have self-assessment. However, when the BIR
surveillance?
ascertains that the assessment made by the person is erroneous, it
A: Yes.
will make its own assessment. If more than that declared, the BIR
will issue a deficiency assessment. That is why it is wise to have
proper substantiation to question the deficiency assessment.
Note: Benchmarking means evaluate or check (something) by
comparison with a standard.
Preliminary Assessment
It just informs the taxpayer that he is deficient so that he is given
Example: You are a same manufacturing firm located in the same
locality, having more or less the same customers. This
the chance to rebut the assessment.
manufacturing company A is reporting an income of 1M and here
you are manufacturing company B, only reporting a yearly income of
Final Assessment
100K. There might be something wrong there. You might be
If the disputed preliminary assessment is still unresolved
subjected to an audit.
Requisites for a valid assessment:
This is truly undertaken to determine the net VAT due and net
1. The taxpayer shall be informed in writing of the law and the
income tax due of a particular tax payer.
facts on which the assessment is made
2. An assessment contains not only a computation of tax liability
Benchmarking Guidelines
but also a demand for payment within a prescribed period
a) Shall be separate for corporations and individuals
3. An assessment must be served and received by the taxpayer
b) Per area, per line of industry and per tax type basis
How to assess the tax c) Done per RDO by preparing taxpayers profile per taxable year
1. Best evidence obtainable d) Based on tax returns and data from other sources within and
2. Use of the Net Worth Method (an extension of the basic outside the Bureau, RDOs shall determine the specific industry
accounting formula: coverage
e) If LOA was issued, it will only be closed upon consideration of Inquire into bank deposits
the prescribe benchmarks
General Rule: Bank Secrecy Law
General Rule, Exception
Exceptions:
GR: BIR assessment only upon full audit
XPN: Jeopardy Assessment 1. Power to inquire into bank deposits of a decedent for purpose of
determining his gross estate, determining the correct estate tax
Q. When will prescription of presumptive gross sales happen? due to the government.
2. In an application for tax compromise of tax liability due to
A: If the taxpayer does not maintain proper books of accounts. The financial incapacity to pay tax liability.
prescription of the presumptive gross sales and receipts is based
somehow on the benchmarking being done by the RDO with that 3. Exchange of information by the BIR on tax matters pursuant to
particular taxpayer. internationally agreed standards (RA10012 and FATCA)
TN: In short, wala kay books of accounts, pero here is another type Accredit and register tax agents
of business similar to yours, mao ni ang usual gross sales or
receipts, pwede mu ingon si BIR that should be your presumptive Tax agents
gross sales or receipts, Authorized representative of a particular taxpayer. They are usually the
independent CPAs. The BIR maintains a registration of them.
4. Issue jeopardy assessments
Can lawyers represent a particular tax payer?
Jeopardy assessment Yes. As a general rule, the lawyer does not have to be accredited
A tax assessment made by an authorized Revenue Officer without anymore by the BIR, provided, however that he is not disbarred or
the benefit of a complete or partial audit in light of the Revenue suffering from any suspension from practice. This is one of the
Officers belief that the assessment and collection of the deficiency advantages of a lawyer from a CPA.
tax will be jeopardized by delay to taxpayers failure tax.
Prescribe additional procedure or documentary
A. Comply with audit and investigation requirements to present
his books and/or pertinent records; or requirements
Q: Does the CIR have the power to prescribe penalties for
violation of the regulations?
B. Substantiate all or any of the deduction, exemption or credit
claimed in his return. A: No, it is the Secretary of Finance who issues the revenue
regulations, ergo, it is the Secretary of Finance who may prescribe
penalties. The CIR may only recommend.
Authority to terminate taxable periods
Instances when tax periods may be terminated: Authority of the Commissioner to delegate power
1. Intending to leave the Philippines
2. Retiring from business General rule: The Commissioner may delegate his power
3. Intends to remove/hide/conceal his properties in the Philippines
4. Taxpayer is performing an act tending to obstruct proceeding for Exceptions: Non-delegable Powers (RICA)
collection of the tax for past or current quarter or year or to
1. To recommend the promulgation of the rules and regulations to
render the same ineffective (total or partially)
the Secretary of Finance.
Important: In all these cases the period to assess and collect by the 2. To issue rulings of first impression or to reverse, revoke, modify
BIR, may be terminated or suspended. any existing ruling (Ruling of first impression: first of its kind or
landmark)
What do we mean by taxable periods?
These are the periods for the assessment to be done by the Bureau 3. To compromise or abate any tax liability (except assessment
and the period for the collection of the tax conducted by the Bureau. issued by the regional offices involving basic deficiency taxes of
There is a period when the BIR may collect and may assess. If that P500,000 or less, and minor criminal violations)
period lapses, the BIR cannot anymore collect liability from you.
TN: This may be delegated to subordinate officials with a rank
However, the BIR can say let us not follow the usual period to assess
equivalent to Division Chief or higher.
and collect if complies with the instances above.
4. Power to assign or reassign internal revenue officers to
Prescribe real property values (zonal valuation) establishment where articles subject to excise tax are produced or
kept.
Purpose of zonal valuation
To ascertain the fair market value of the property if you are trying to Authority to make arrest and seizure
sell or transfer. The zonal valuation of the BIR will be compared with
the assessed value by the assessors office of the LGU and/or the Responsible officers
appraised value by the independent appraisers; whichever is higher is 1. CIR
the FMV for taxation purposes. 2. Deputy commissioners
3. Regional directors
Zonal valuation the BIR keeps a book of the zonal valuation. But 4. Revenue District Officers
now, it is through online.
Reason: Violation of penal laws and rules or regulations administered
by the BIR
Proceedings: Powers and duties of the Regional Director (Section 10, NIRC)
Before a competent court to be dealt with according to law 1. Implements laws, policies, plans, programs, rules and regulations
of the department or agencies in the regional area
When does this happen? 2. Administer and enhance internal revenue laws and rules and
The arrest and seizures happens when the violation happens presence. regulations, including the assessment and collection of all internal
(i.e. Bribery) revenue taxes, charges and fees
3. Issues Letter of Authority (LOA) for the examination of taxpayers
Authority to assign internal revenue officers within the regions
4. Provide economical, efficient and effective service to the people in
A. Those involved in excise tax functions the area
5. Coordinate with the Local Government in the area
Limitation: Up to two (2) years. After 2 years they will be 6. Coordinate with other regional offices or other departments,
reassigned. bureaus and agencies in the area
7. Exercise control and supervision over the officers and employees
B. Assignment to other special duties within the region
8. Performs such other functions as may be provided under the law
Limitations: and as may be delegated by CIR
1. Internal revenue officers assigned to perform assessment or
collection function shall not remain assignment for more Revenue District Officers
than 3 years Implements programs, methods and procedure necessary for the
2. Assignment to special duties shall not exceed 1 year efficient, effective and economical assessment and collection of
internal revenue taxes in the revenue district
Authority to impose duties on certain officers Composition of the RDOs
Unless there is a certification (CAR) 1. Field men and examiners
2. Collection agents and clerks
A. Register of Deeds no registration of transfer in the Registry of
Property transferring real rights or any other mortgage. Duties and functions of RDOs
1. Examine taxpayers within the jurisdiction of the district in order to
B. Debtor of the decease shall not pay to the administrator, heirs, collect amount of tax
legatee, executor, and administrator. 2. Recommend the assessment of any deficiency tax
C. Bank shall not allow withdrawal. Pursuant to a LOA issued by the Regional Director.
D. Lawyer, notary public, or any government officer must furnish

copies with BIR.
Authority to suspend business operation of the taxpayer
RMO 3-2009: Oplan Kandado

The closure of the business shall last for a period of no less than 5
days and shall be in force until the violation is rectified.
RATE: Run Against Tax Evaders
4 Deputy Commissioners plus 2

1. Operations Group
2. Legal and Inspection Group
3. Resource Management Group
4. Information Systems Group
5. Tax Reform Administration Group (new)
6. Special Concerns Group (new)
Officials of the BIR

1. CIR
2. Deputy Commissioners
3. Assistant Commissioners
4. Head Revenue Executive Assistant
5. Regional Director
6. Revenue District Officers
7. Revenue Enforcement Officers or Examiners
Important:
Regional Offices offices headed by the Regional Director.
There are 19 regional offices.
Cebu is Region 13
Cebu Regional Office Director: Hermeno A. Palamine
Field Service Regional Offices as headed by the Regional Directors
10 | U N I V E R S I T Y O F S A N C A R L O S
NIRC REMEDIES Principles governing tax assessments

A. Presumed in favor of a tax assessment Because taxation is the
Remedies of the Government rule, and exemption is the exception.
We are referring to the acts that may be done by the government in
the collection of the tax which is the ultimate goal of the law. B. Must be based on actual facts not on presumptions There has
to be supporting evidence or substantiation. It must be based on
Two basic remedies: facts and not mere presumptions.
1. Assessment
2. Collection C. Discretionary upon the commissioner.
D. The authority to assess may be delegated There must be prior
TN: When assessment is made, remedies are available. authority to assess. The commissioner generally has the power to
assess but may delegate such to the appropriate BIR officer.
PRESCRIPTIVE PERIOD FOR ASSESSMENT
E. Must be directed to the right party It is very important to
Prescriptive period for assessment (Section 203, NIRC) ascertain who is statutorily liable. This is because the assessment
of the BIR will be directed to the person statutorily liable.
Relevant provision
Section 203. Period of Limitation Upon Assessment and Collection KINDS OF ASSESSMENT
Except as provided in Section 222, internal revenue taxes shall be
assessed within 3 years after the last day prescribed by law for the Kinds of assessment
filing of the return, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such 1. By the taxpayer
period:
Self-assessment done by the taxpayer himself.
Provided, that in a case where a return is filed beyond the period
prescribed by law, the 3-year period shall be counted from the day the 2. By the BIR, without authority
return was filed. For purposes of this Section, a return filed before the
last day prescribed by law for the filing thereof shall be considered as Illegal and void assessment done by a BIR official without any
filed on such last day. authority.
General rule: Prescriptive period is 3 years from either: 3. By the BIR, with authority
(a) Last day prescribed by law for the filing of return
(b) Date of actual filing of return (when return is filed beyond the (a) Deficiency assessment That which declared by the
period prescribed by law late filing) taxpayer in the return is deficient.
Illustration: If last day of filing under the law is April 15, and you filed (b) Erroneous assessment There is authority by the BIR
it on that day, the counting of the period will start on April 15. But if personnel to assess but there was an error in the officers
the taxpayer filed the return late beyond the last day as prescribed computation
under the law, then the counting of the 3 year period will start from
the actual date of filing. (c) Jeopardy assessment A tax assessment issued without the
benefit of a complete or partial audit in light of the Revenue
Exceptions: In these three cases, prescriptive period is 10 years from Officers belief that the assessment and collection of the
the time the false, fraudulent or omitted information is discovered. deficiency tax will be jeopardized by delay to taxpayers
1. False return failure tax.
2. Fraudulent return with intent to evade tax
3. Omission or failure to file a return (d) Disputed assessment That assessment issued by the BIR
which is disputed by the taxpayer.
Important: This is the period where the BIR may validly assess.
Upon the lapse of said period, the BIR cannot anymore make any Important: If the assessment is not effective because of our self-
assessment. The assessment done would be without authority. assessment, there is what we call deficiency assessment which usually
is being undertaken by the government.
Difference between a false return and false return
A. Fraudulent return intent to evade or defraud tax Eventually what follows there is the collection. Now in the usual mode
B. False return there is just an error or negligence of the taxpayer of collecting, the taxpayer goes to the BIR to remit the tax. When this
in the computation or filing of return does not happen, then administrative and judicial remedies may be
availed of by the Bureau of Internal Revenue. We identified already
SELF-ASSESSMENT, EXCEPTIONS several administrative remedies. If these are not effective, the
government may pursue civil or criminal action against the non-paying
General Rule: Taxes are self-assessing. Usually, BIR requires an taxpayer.
assessment, so it is discretionary on the part of the BIR
ASSESSMENT PROCESS
Exceptions: (When there is no need for assessment)
1. Tax period is terminated (Section 60) Assessment process
2. Deficiency tax liability arising from a tax audit by BIR (Sec. 56B) 1. Issuance of LOA
3. Tax lien (Section 219) 2. Audit or Tax Investigation
4. Dissolving corporations (Section 52C) 3. Taxpayer may or may not dispute
4. Review by the BIR/Regional Office
5. Response from the Taxpayer
6. Issuance of Final Letter of demand and Final assessment notice Because in the PAN, it is here where the BIR will have to indicate the
(FLD/FAN) legal as well as the factual basis of its assessment. So not only the
7. Protest computation aspect, but it has to have an explanation on how they
8. Motion for Reconsideration came up with the computation. The PAN must at least provide a period
9. Appeal to the CTA on when the taxpayer may question it or a period when it wants to
10. Appeal from the CTA demand payment. But this is not deemed as the final assessment.
Chart of assessment process CIR vs. Enron Subic Power Corp

See separate file. A taxpayer must be informed in writing of the legal and factual bases
of the tax assessment made against him. The legal and factual bases
1. Issuance of the Letter of Authority (LOA) of the assessment shall be stated in the formal letter of demand and
assessment notice. They cannot be presumed.
Issuance of the Letter of Authority
As we have discussed, it starts with the issuance of LOA. The LOA Here, the CIR merely issued a formal assessment and indicating the
authorizes the RDO or any officer of the BIR to conduct audit or tax supposed tax, surcharge, interest, etc. They did not prove the written
investigation on the records of the taxpayer. bases of the law and facts on which the assessment is based. They did
not even bother to explain how they arrived at such an assessment.
Who issues the LOA? Moreso, there was failure to mention the specific provision of the Tax
A. CIR if the one who conducts the investigation is the national Code or RR which were not complied with.
office
B. RDO if conducted by the RDOs Issuance of PAN is no longer mandatory as per recent RR
Issuance of PAN can now may be dispensed with. In the recent RR
2. Audit or Tax Investigation issued by the BIR, the issuance of the PAN is no longer mandatory.
However if there is issuance of PAN, then taxpayer may respond.
Audit or Tax Investigation
The examiner or assessor will now determine if there is tax deficiency. 5. Response from the taxpayer
Meaning, if the tax computation of the government is way higher than
the tax declared or paid by the taxpayer, there is what we call as Response from the Taxpayer
deficiency. After the issuance of the PAN, there might be a response from the
taxpayer.
If there is deficiency, the examiner will have to come up with a written
report on the basis of that computation as compared with the A. If there is no response automatically, BIR will issue the FAN but
assessment made by the taxpayer. actually to be complete, it is Final Letter of Demand/Final
Assessment Notice.
TN: If the taxpayer will not dispute such assessment, then he will just
have to pay. If he disputes, then move to number 3. B. If there is response the BIR will have to ascertain if the
response is meritorious. Response is a simple letter of response.
3. Taxpayer may or may not dispute
(a) If unmeritorious BIR will issue the FLD/FAN
Taxpayer may or may not dispute (b) If meritorious BIR will dismiss the assessment
The taxpayer has to be informed of the tax deficiency.
Example: I am not liable for this because the prescriptive period
A. If the taxpayer will not dispute the written report then there will has already lapsed. In case the BIR finds the assessment has
be no problem, it will be the end of the procedure. been done beyond the 3-year prescriptive period, then BIR will
dismiss it.
B. If the taxpayer disputes it will have to reviewed directly by the
assessment division of the Regional Office or by the Bureau of Q: Within how many days should the response be made?
Internal Revenue, as the case may be. A: 15 days from receipt of the PAN. If you respond beyond the 15-day
period, it is as if no response at all was filed by the taxpayer.
4. Review by the BIR or Regional Office
6. Issuance of FLD/FAN
Review by the BIR or Regional Office
In the review, they will have to ascertain the basis of the deficiency. Issuance of FLD/FAN
On the other hand, if it is not meritorious, same effect as when there is
A. If there is no basis it can be outrightly dismissed by the CIR. no response coming from the taxpayer. The BIR will issue the
B. If there is basis there will be issuance of a preliminary FLD/FAN.
assessment notice (PAN).
Important: This FLD came about because SC found that some FAN of
Q: Can the CIR outrightly dismiss it? the BIR are not deemed final assessment notice. For it to be deemed
as final assessment notice, there must to be a final demand of
A: Yes. Assessment is discretionary on the part of the Commissioner.
payment coming from the BIR so that the taxpayer will not be
So, if in the first place the Commissioner does not find any basis at all,
confused when to make the protest.
then he may forego with the process of assessment.
Why is there a need for a FLD/FAN?
Issuance of PAN
The SC said that it is not enough to detail the computations as to the
If there is basis there, the BIR will issue a PAN or Preliminary
final deficiencies. The demand letter serves as notice to the taxpayer
Assessment Notice.
as to the subsequent steps which must be taken by him. Otherwise, he
may have an impression that such assessment was merely preliminary.
Important: This is mandatory. If the BIR issued a FAN (Final
Assessment Notice) without a PAN, it is a questionable assessment.
7. Protest Q. What if reinvestigation, but there was no submission of

documents? When will you count the 180 day period?
Requirement of protest A: You should count it from the date of filing of the protest despite the
Upon receipt of the FLD/FAN, the taxpayer must protest the same. fact it is reinvestigation.
Otherwise, if he does not protest within 30 days after date of receipt, it
implies that he waives such right. It becomes final and executory and Q. Is it deemed denial of your protest if the 180-day period
can no longer be appealed to the CTA. lapsed without a resolution?
TN: Unlike the rules of court, when you fail to file an answer, you can CIR v. Isabela Cultural Corp.
still avail of other remedies such as motion for new trial, or newly A final demand from the BIR reiterating the immediate payment of a
discovered evidence. However, this is not available under the tax code tax deficiency previously made is tantamount to a denial of the
taxpayer's request for reconsideration. Such letter amounts to a final
Protest decision on a disputed assessment and is thus appealable to the Court
After the FLD/FAN, the taxpayer may make a protest. The subject of of Tax Appeals.
the protest is not the FAN. The subject of the protest should be the
FLD/FAN.
8. Motion for reconsideration
Q. Within how many days may a protest be filed? General rule: A Motion for Reconsideration will not toll the 30-day
A: 30 days from the receipt of the FLD/FAN. If no protest is filed, the period within which to appeal to the CTA.
FLD/FAN becomes final and executory and the taxpayer cannot appeal
the same to the CTA. The next step for the BIR is collection. Upon denial of the MR, the appeal must be done within the remaining
period. The Neypes doctrine does not apply. This means that the filing
Q. Can the taxpayer, instead of filing a protest within the of the motion for recon is not mandatory.
prescribed period, make an appeal with the CTA on the ground
that the assessment was done beyond the 3-year prescriptive Important: The rule that the MR will not toll the period to appeal
period? applies only if the MR filed with the CIR pertains to a decision of the
A: No. It must be made in the protest, otherwise, the defense will be CIR himself.
precluded. Unlike in the simple letter of response, the protest is formal.
You must specify the nature of your protest. Exception: If the adverse decision is made by an authorized
representative of the CIR (i.e. when the decision was rendered by the
Under the revenue regulations, there are only two available protests: Regional Director). In this case, the taxpayer is given a fresh period of
1. Request for reconsideration 30 days to appeal from the denial of the MR.
2. Request for reinvestigation
Important: It is imperative that the protest specifies whether it is a 9. Appeal to the CTA
request for reconsideration or reinvestigation. Appeal to the CTA
If CIR does not resolve your protest within 180 days, or it is beyond
Request for Request for the 180 day period:
Reconsideration Reinvestigation
A. You may appeal to the CTA within 30 days after the lapse of 180
Request the BIR to days OR
revisit or re-examine New and additional B. Wait for the BIR decision
As to its computation or evidence are presented
evidence assessment based on to support the merit of Important: Distinguish this from VAT where it is 120+30 period that
existing records. No your protest. is mandatory. Take note that the said period applies for REFUNDS and
additional evidence is CREDITS under VAT.
introduced.
CIR v. Lasconia
The Supreme Court allowed the taxpayer to wait for decision of the
Additional documents BIR. Subsequently, appeal to the CTA within 30 days from the receipt
are required since new of the adverse decision was allowed.
There is no need. The and additional evidence
Submission protest is based on will be admitted. The However if the decision of the CIR is made within the 180-day period,
of additional existing documents of law only gives the ascertain first if it is favorable or not.
documents the BIR. taxpayer 60 days to
submit these additional A. If favorable the end, but note that the SOF may still review the
documents. resolution of the BIR, motu proprio.
B. If not favorable, the taxpayer has two options:
10
Counting of 1. File a motion for reconsideration with the CIR. This is not
the 180-day From the date of the From the date of jurisdictional under the law but an option granted to the
period to filing of the protest submission of the taxpayer.; or
resolve the documents 2. File an appeal within 30 days from receipt of the decision.
protest
Final decision on the Disputed Assessment (FFDA)
The decision of the CIR here is called the Final Decision on the
Q. How many days are given to the CIR to resolve the protest? Disputed Assessment (FFDA). This decision however, is still reviewable
A: 180 days. The 180-day period is only directory and not mandatory. by the Secretary of Finance. There is a threshold for automatic review,
Upon the lapse thereof, appeal to the CTA may be had.
10. Appeal from decision of the CTA (Judicial action) REMEDIES OF THE BIR
Appeal from Decision of the CTA Remedies of the BIR

Ascertain the decision of the CTA if it is favorable to the taxpayer: If there is no payment still despite collection or demand of the BIR, the
BIR may avail of administrative or judicial remedies, or enforcement of
A. If favorable No problem on the taxpayer but the CIR may administrative fines.
appeal it either by MR with the CTA division or en banc, and
eventually to the SC. TN: These are how the government may collect the tax assessed.
B. If not favorable The taxpayer may appeal either by MR with the A. Administrative Remedies
CTA division or en banc. After, if it is still not favorable, by
petition for review on certiorari with the SC. (1) Tax lien
(2) Distraint (actual and constructive)
Questioning the Assessment v. Questioning Validity of a (3) Levy
Revenue Regulation (4) Sale of property of a delinquent taxpayer
(5) Forfeiture of property
A. Questioning assessment the proper action is a Petition for (6) Compromise and abatement
Review. (7) Penalties and fines
(8) Suspension of business operations
B. Question on the validity of a revenue regulation the proper
action is declaratory relief. It is not certiorari because in certiorari, Important: Levy and Distraint cannot be availed of when the
the issue is grave abuse of discretion of a judicial function. The amount of unpaid tax due is not more than P100.
issuance of a revenue regulation is a quasi-legislative function.
B. Judicial Remedies
Collection
After the assessment and the BIR wins, the collection for payment (1) Civil action
follows. (2) Criminal action
Additional Notes C. Enforcement of Administrative fine

You will notice that certain cases assigned to you involve the CIR as
being the appellant. This is because there was no formal demand ADMINISTRATIVE REMEDIES
coming from the BIR. The formal demand is essential in informing the
TAX LIEN
taxpayer that judicial action may be taken.
This is essential because the taxpayer usually raises the defense that it Tax lien
had not received any assessment. If this is the defense, the BIR has A legal claim or charge on property of the taxpayer as security for the
the burden of proof to show that assessment had been sent. This is payment of some debt or obligation.
especially true when it is sent by mail.
Q. When does it accrue?
If no personal service can be made, the BIR usually resorts to It accrues when the taxpayer neglects or refuses to pay his tax liability
substituted service by way of registered mail. The BIR usually obtains after demand with interests, penalties and costs that may accrue in
a return card signifying that such assessment has been sent. However addition thereto.
the SC noted that the return card is not enough. There must be proof
that the taxpayer actually received it. Important: There is no taking of property but only an indication that
the government has a lien over the property (ex. noted in the title of
In a 2016 case, a corporation was assessed with deficiency tax. The property)
assessment was received by a staff of SM who was in charge of the
distribution of the bills to the tenants. The corporation was not really Extent of lien
able to receive said assessment thus the CTA sided with the It may be upon all properties belonging to the taxpayer, from the time
corporation. This is the relevance of the FLD/FAN. that tax become due & demandable, not only from the time that
warrant of lien was served. It cover any and all properties, unless
Terms: otherwise exempted by law.
Notice of Informal Conference no longer applicable
Preliminary Assessment Notice no longer required Preference
FLD/FAN Formal letter of demand / Final Assessment Notice Liability with regard to taxes to the govt is superior over judgment
FDDA Final Decision on Disputed Assessment claim on private properties.
When valid
Upon annotation under the Memorandum of Encumbrances and filed in
the Register of Deeds in the province or city where the property is
located.
When effective against third persons

The tax lien is effective against third persons only when notice of such
lien is filed by the Commissioner in the Register of Deeds in the
province or city where the property is situated.
Relevant provision Relevant provision

Section 219, NIRC. The lien is not valid against any mortgagee, Section 208. Procedure for Distraint and Garnishment The officer
purchaser, or judgment creditor until notice of such lien shall have serving the warrant of distraint shall make or cause to be made an
been annotated under the Memorandum of Encumbrances and filed in account of the goods, chattels, effects or other personal property
the Register of Deeds of the province or city where the property is distrained, a copy of which, signed by himself, shall be left either with
located. But effective against third persons only when notice of such the owner or person from whose possession such goods, chattels, or
lien is filed by the Commissioner in the Register of Deeds in the effects or other personal property were taken, or at the dwelling or
province or city where the property is situated. place of business of such person and with someone of suitable age and
discretion, to which list shall be added a statement of the sum
If property is not titled with the RD yet demanded and note of the time and place of sale.
Annotate in the tax declaration in the Office of the City or Municipal
Assessor. Stocks and other securities shall be distrained by serving a copy of
the warrant of distraint upon the taxpayer and upon the president,
Q. Is there collection already being undertaken here? manager, treasurer or other responsible officer of the corporation,
No. This is more like the government reserving its right over the company or association, which issued the said stocks or securities.
taxpayers property. Consequently, the government will have a right to
collect such property later on. Debts and credits shall be distrained by leaving with the person
owing the debts or having in his possession or under his control such
DISTRAINT credits, or with his agent, a copy of the warrant of distraint. The
warrant of distraint shall be sufficient authority to the person owning
Distraint the debts or having in his possession or under his control any credits
The collection of taxes is enforced on the goods, chattels, or effects belonging to the taxpayer to pay to the Commissioner the amount of
and other personal property, including stocks and other securities, such debts or credits.
debts, credits and interest and rights to personal property.
Bank accounts shall be garnished by serving a warrant of
Important: This is already a manner of collecting, as opposed to tax garnishment upon the taxpayer and upon the president, manager,
lien. Distraint pertains to collection of taxes and covers only goods, treasurer or other responsible officer of the bank. Upon receipt of the
chattels, effects or other personal properties, not real properties. warrant of garnishment, the bank shall turn over to the Commissioner
Otherwise, when real properties are used to collect the tax, the proper so much of the bank accounts as may be sufficient to satisfy the claim
remedy is levy. of the Government.
Who may effect Important: Here, there is actual taking and possession of the
1. Commissioner or his duly authorized representative if the amount taxpayers property by the government. This is resorted to when at the
involved is more than 1M. time required for payment, a person fails to pay his delinquent tax
2. Revenue District Officer if the amount involved is 1M or less. obligation. The government will then sell the property and use the
proceeds to satisfy the tax liability.
Requisites:
Sec. 205, 206, 207, NIRC (D2 FN) Effected by:
1. Leaving a list of the distrained property OR
1. The taxpayer must be delinquent (except in constructive distraint) 2. By service of a warrant of distraint or garnishment
in the payment of tax
Presumption of actual distraint
Delinquent when already beyond the period to file & pay as If everything is silent, presumption is it is actual distraint. But I
prescribed by law or beyond the period as demanded by BIR. suggest you make qualifications.
2. There must be a subsequent demand for its payment A. In actual distraint there is actual taking of the personal
Assessment from the BIR specifying when you should settled your property.
deficiency/liability.
B. In constructive distraint the properties are just placed under the
3. The taxpayer fails to pay the tax at the time required. control of the BIR. The property cannot be sold or encumbered by
the taxpayer but is merely preserved.
4. The period within which to assess or collect the tax has not yet
prescribed. Distraining officer
Officer who serves the warrant of distraint or garnishment of bank
Two types of distraint account. He is mandated to submit a report from receipt of warrant to
1. Actual the RDO and the Regional Director.
2. Constructive
Q. Is garnishment of bank accounts a violation of Bank
Actual distraint Secrecy Law?
A: No, because in garnishment, there is no inquiry of the details of the
Actual distraint bank account. They are merely placed under the control of the
This is resorted to when the person fails to pay his delinquent tax government.
obligations. Effected by giving a list of distraint properties or by serving
a warrant of distraint or garnishment. Relevant provision
Section 207 Warrant may be lifted by the Commissioner or duly
Read NIRC, you have there the procedure how to effect distraint. authorized officer if collectible is satisfied.
(Section 208)
Within ten (10) days after receipt of the warrant, a report on any levy Lien v. Distraint
shall be submitted by the levying officer to the Commissioner or his
duly authorized representative: Provided, however, That a consolidated
Lien Distraint
report by the Revenue Regional Director may be required by the
Commissioner as often as necessary: Provided, further, That the
Directed against the property Need not be directed against the
Commissioner or his duly authorized representative, subject to rules
subject to the tax property subject to the tax
and regulations promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, shall have the authority to lift
warrants of levy issued in accordance with the provisions hereof. Regardless of the Property seized must be owned
owner of the property by the taxpayer
Constructive distraint
Constructive distraint Q. How is constructive distraint effected?

In constructive distraint, there is no actual taking. This is more on A: Service of a copy of the list of the properties placed under
preservation. The owner is merely prohibited from disposing his constructive distraint with an indication of the prohibition on the
property without the permission from the BIR. disposal and preservation.
Important: Issued even when there is no actual tax delinquency. Q. May the owner refuse to sign?
A: Yes, but refusal must be grounded on a valid reason.
Availed of when taxpayer is:
1. Retiring from any business subject to tax Q: If owner refused, is there no more distraint?
2. Intending to either: A: No. The distraining officer will leave a copy of the notice within the
(a) Leave the Philippines premises where the property is located or in the place where that
(b) Remove his property therefrom person is located in the presence of two witnesses who are not officers
(c) Hide or conceal his property of the BIR. He will just place this note that taxpayer refused to be
(d) Performs any act tending to obstruct the proceedings for distrained. There will still be considered constructive distraint.
collective the tax due
Relevant provision
Q. If there is a violation of the prohibition, may you be Section 206. Constructive Distraint of the Property of a Taxpayer. - To
punished under the law? safeguard the interest of the Government, the Commissioner may
A: Yes. place under constructive distraint the property of a delinquent taxpayer
or any taxpayer who, in his opinion, is retiring from any business
Relevant provision subject to tax, or is intending to leave the Philippines or to remove his
Section 276. Penalty for Selling, Transferring, Encumbering or in any property therefrom or to hide or conceal his property or to perform any
way disposing of Property Placed under Constructive Distraint. - Any act tending to obstruct the proceedings for collecting the tax due or
taxpayer, whose property has been placed under constructive distraint, which may be due from him.
who sells, transfers, encumbers or in any way disposes of said
property, or any part thereof, without the knowledge and consent of The constructive distraint of personal property shall be effected by
the Commissioner, shall, upon conviction for each act or omission, be requiring the taxpayer or any person having possession or control of
punished by a fine of not less than twice the value of the property so such property to sign a receipt covering the property distrained and
sold, encumbered or disposed of but not less than Five Thousand obligate himself to preserve the same intact and unaltered and not to
pesos (P5,000), or suffer imprisonment of not less than two (2) years dispose of the same in any manner whatever, without the express
and one (1) day but not more than four (4) years, or both. authority of the Commissioner.
Actual v. Constructive distraint In case the taxpayer or the person having the possession and control
of the property sought to be placed under constructive distraint refuses
or fails to sign the receipt herein referred to, the revenue officer
Actual distraint Constructive distraint
effecting the constructive distraint shall proceed to prepare a list of
Made on the property of
Made only on the property of such property and, in the presence of two (2) witnesses, leave a copy
any taxpayer whether
a delinquent taxpayer thereof in the premises where the property distrained is located, after
delinquent or not
which the said property shall be deemed to have been placed under
The taxpayer is merely prohibited
There is taking of possession constructive distraint.
from disposing of his property
Important: As long as property exists and as long as the tax
Effected by requiring the pertaining to that property exists, even if owner changes, the
Effected by leaving a list of taxpayer to sign a receipt of the annotated lien will be reflected in the title. In short, the lien will not be
distrained property or by property or by the revenue officer affected by change of ownership.
service of warrant of distraint preparing and leaving a list of
or garnishment such property Distraint is a summary procedure
There is no requirement to properly notify the parties.
*If TP refuses to sign, there has
to be a valid reason
An immediate step for
Not necessarily so
collection of taxes
and regulations promulgated by the Secretary of Finance, upon

LEVY
recommendation of the Commissioner, shall have the authority to lift
Levy of real properties warrants of levy issued in accordance with the provisions hereof.
It refers to the act of seizure of real property of the taxpayer in order
to enforce the payment of taxes. The requisites for the exercise of the Important: Since taking or physical possession is not possible, the
remedy of levy is the same as in the remedy of distraint. Register of Deeds is notified.
Requisites: How levy is effected

Sec. 205, 206, 207, NIRC (D2 FN)
1. Writing upon an authenticated certificate showing:
1. The taxpayer must be delinquent (except in constructive distraint)
in the payment of tax (a) Name of the taxpayer
(b) Amounts of the tax and penalty due
Delinquent when already beyond the period to file & pay as (c) Description of the property upon which levy is made
prescribed by law or beyond the period as demanded by BIR.
2. Written notice of the levy shall be mailed or served upon:
2. There must be a subsequent demand for its payment.
(a) The Register of Deeds of the province or city where the
Assessment from the BIR specifying when you should settled your property is located, and
deficiency/liability. (b) The delinquent taxpayer
3. The taxpayer fails to pay the tax at the time required.
If taxpayer is absent in the Philippines
4. The period within which to assess or collect the tax has not yet 1. To his agent or manager of the business in respect to
prescribed. which the liability arose
2. If none, to the occupant of the property in question.
Important: The requisites are the same with distraint. Both are
summary procedure. Procedure:
When? 1. Internal revenue officer shall prepare a duly authenticated

Before, simultaneously or after the distraint of personal property certificate showing the name of the taxpayer, amounts of tax and
belonging to the taxpayer. penalty due. Enforceable throughout the Philippines.
Q. Can you levy and distraint at the same time? 2. Officer shall write upon the certificate a description of the
A: Yes, so long as the distraint of personal properties is not enough to property upon which levy is made.
pay the tax liabilities.
3. Written notice of levy shall be mailed or served upon:
Relevant provision
(a) the Register of Deeds where the property is located and
Section 207. (B) Levy on Real Property. - After the expiration of the
(b) the taxpayer or agent/manager of the business in respect
time required to pay the delinquent tax or delinquent revenue as
to the tax liability or to the occupant of the property
prescribed in this Section, real property may be levied upon, before
simultaneously or after the distraint of personal property belonging to
4. If personal property of taxpayer is not sufficient to satisfy the tax
the delinquent. To this end, any internal revenue officer designated by
due, levy on real property shall proceed within 30 days after
the Commissioner or his duly authorized representative shall prepare a
distraint
duly authenticated certificate showing the name of the taxpayer and
the amounts of the tax and penalty due from him. Said certificate shall
5. Report on levy
operate with the force of a legal execution throughout the Philippines.
(a) By levying officer
Levy shall be affected by writing upon said certificate a description of
Submitted 10 days from receipt of warrant
the property upon which levy is made. At the same time, written notice
Submitted to the Commissioner or his representative
of the levy shall be mailed to or served upon the Register of Deeds for
the province or city where the property is located and upon the
(b) By the Revenue Regional Director consolidated report, as
delinquent taxpayer, or if he be absent from the Philippines, to his
may be required by the Commissioner
agent or the manager of the business in respect to which the liability
arose, or if there be none, to the occupant of the property in question.
Important: Warrant of levy may be lifted by the Commissioner
or his authorized representative, pursuant to rules & regulations
In case the warrant of levy on real property is not issued before or
issued by secretary of Finance.
simultaneously with the warrant of distraint on personal property, and
the personal property of the taxpayer is not sufficient to satisfy his tax
delinquency, the Commissioner or his duly authorized representative
shall, within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy
shall be submitted by the levying officer to the Commissioner or his
duly authorized representative: Provided, however, That a consolidated
report by the Revenue Regional Director may be required by the
Commissioner as often as necessary: Provided, further, That the
Commissioner or his duly authorized representative, subject to rules
SALE OF PROPERTY Pending redemption of the property sold

The owner shall:
Sale of real property 1. Not be deprived of the possession of the property
After levy or distraint comes sale of the property. 2. Be entitled to the rents and other income thereof
Two instances
Distraint Levy
1. Distraint of properties personal properties
2. Levy of properties real properties
Right of pre-emption
Procedure Prevent selling of Available Available
property by paying all
SALE OF DISTRAINED PROPERTIES liabilities before
date of sale
1. Notification specifying the time and place of sale & the articles
Right of redemption
distrained shall be exhibited: Available
Redeem property
In not less than 2 public places (one place shall be at the Not available *only for real
from registration of
office of the Mayor) properties
certificate of sale
In the municipality or city where the distraint is made
2. The time of sale shall not be less than 20 days after notice to the FORFEITURE
owner or possessor of the property and the publication or posting
of such notice Forfeiture
If there is forfeiture, the property is placed under ownership of the
3. Sale of the property at government. The excess of the value of the property, if any, cannot be
Public auction to the highest bidder for cash, or given to the taxpayer. Everything is given to the government.
Through duly licensed commodity or stock exchanges, with
the approval of the CIR. Important: If there is excess, it shall be turned over to the taxpayer.
This rule however presupposes that there is no forfeiture because
SALE OF LEVIED PROPERTIES there is a highest bidder.
1. Advertisement of the time and place of sale of the taxpayers Effected when:
property as may be necessary to satisfy the claim within 20 days 1. There is no bidder for the RP in the public sale, or
after the levy, and it shall cover a period of at least 30 days. 2. The amount of the highest bid is insufficient to pay the taxes,
penalties and costs
(a) Posting a notice at the main entrance of the municipal
building or city hall and in a public and conspicuous place in Enforced by
the barrio or district in which the real estate lies, and A. In case of personal property
(1) Seizure
(b) By publication once a week for 3 weeks in a newspaper of (2) Sale or destruction of the property
general circulation in the municipality or city where the
property is located B. In case of real property
(1) Judgment and condemnation, and
2. Sale at (2) Sale in a legal action or proceeding civil or criminal, as the
(a) The main entrance of the municipal building or city hall or case may be
(b) On the premises to be sold, as the officer conducting the Rules
proceedings shall determine and as the notice shall specify.
A. If there is a highest bidder there is seizure and issuance of the
3. Disposition of proceeds of sale certificate of sale and writ of possession. Thereafter there is
consolidation of ownership.
Important: In case the proceeds of the sale exceed the claims
(taxes, penalties and interest) and cost of the sale, the excess B. If there is no highest bidder or the highest bid is insufficient to
shall be turned over to the owner of the property. cover the tax liability of the taxpayer there is forfeiture in favor
of the government. Ownership is transferred to the government.
Sale of distraint Sale of levied
personal property real property Duty of the Register of Deeds
Upon registration of the Declaration of Forfeiture, the RD shall transfer
No need of publication Theres a need for publication the title of the property to the government without the necessity of an
order from a competent court.
Redemption by the taxpayer
Redemption by the taxpayer
Within 1 year from the date of sale, that is, from the date of the
Same as that of redemption in case of sale. The 1 year period starts
registration of the deed of sale, by the taxpayer or anyone for him by
from the date of registration of the Declaration of Forfeiture.
paying the full amount of:
a. Taxes
Important: This right of redemption cannot be exercised for distraint
b. Penalties
properties. This is only available for real properties levied.
c. Interests, and
d. Costs of Sale
Important: Redemption is applicable to sale of real properties only.
Posting of bond Illustration

P1M tax assessed
A. Pending redemption the owner is not deprived of possession Compromise due to financial incapacity so 10% minimum
and entitlement to the rent, unless the purchaser obtains a writ of Minimum P100,000
possession by posting a bond.
A. Taxpayer willing to compromise by paying P500,000 Allowable.
B. After redemption period writ of possession may be obtained by B. Taxpayer only willing to pay P50,000 Cannot be allowed without
the purchaser without need of posting a bond. approval of the Evaluation Board since the amount is less than
the minimum compromise rate of 10%.
COMPROMISE AND ABATEMENT C. If the compromise is for reasonable doubt, not on the ground of
financial capacity, the minimum compromise rate is 40%.
Compromise and abatement
This is a remedy of the government as well as the taxpayer. When approval of the Evaluation Board required
The approval of the Evaluation Board which is composed of the CIR
Compromise and the 4 deputy commissioners, is required if the basic tax involved:
1. Exceeds P1,000,000 or
Compromise
A contract whereby the parties, by making reciprocal concessions, 2. The settlement offered is less than the minimum compromise rate
avoid litigation or to put an end to one already commenced. It may be 10% or 40%.
entered into at any stage of the litigation so long as it is civil in nature.
COMPROMISE FOR CRIMINAL CASES
TN: It is usually the taxpayer who offers the compromise.
All criminal actions under the NIRC may be compromised, except:
When leave of court is required
Proper leave of court is necessary if compromise is made halfway 1. Those already filed in court or
through the civil case. 2. Those involving or tax evasion cases because if it involves fraud
this is a criminal violation of the penal code, not just a violation of
Requisites the tax code.
1. The taxpayer must have a tax liability.
2. There must be acceptance by the commissioner or the taxpayer Important: Criminal violations under the Revised Penal Code cannot
as the case may be. be compromised.
3. There must be an offer by the taxpayer of an amount to be paid
by him. Extent of Discretion
A. Civil cases compromise is encouraged
Important: To discourage corruption, the Tax Code provides for the B. Criminal cases it depends:
minimum compromise rate based on the reason or grounds of (1) Before filing of complaint in the Prosecutors office, there is
compromise. already assessment but no complaint in prosecutor:
Officers authorized to compromise A: The CIR has full discretion to compromise except those
1. Commissioner of Internal Revenue committed by fraud.
2. Subordinate officials may preliminarily enter into compromise (2) After filing of complaint in the Prosecutors office but before
(Preliminary compromise) the filing of information with the court:
TN: Subject however to final approval by the Commissioner
A: The CIR can still compromise provided the prosecutor
Acceptance v. Rejection of offer of compromise consents.
(3) After the information is filed with the court:

Acceptance Rejection
If made by a subordinate official Whether made by the
A: The CIR is no longer permitted with or without the
acceptance is not considered subordinate official rejection is
consent of the prosecutor. In this case, the State is a party
final as it is still subject to final and binding, unless the CIR
and it is the SolGen who will prosecute the case.
review by the CIR. sets the decision aside.
Remedies when taxpayer fails to abide to the compromise
Grounds for compromise
agreement
Enforce the compromise.
COMPROMISE FOR CIVIL CASES
A. If it is judicial compromise the CIR may enforce the
Two grounds:
compromise by mere execution.
1. Reasonable doubt as to the validity of the claim against the
taxpayer.
B. If it is extrajudicial then it can only be enforced by court action
2. Financial incapacity of the taxpayer demonstrates a clear inability
(Specific performance court action)
to pay the assessed tax.
Important: In either case, the CIR may regard it as rescinded and
Minimum compromise rate
insist upon the original demand. Art 2041 of the NCC.
This is the amount to be collected and not the amount to be deducted.
Minimum compromise rate depends on the reason:
Cases that can be compromised
(a) Financial incapacity 10% of the basic assessed tax
1. Delinquent accounts
(b) Other causes 40%
2. Cases under administrative protest after FAN which are still Can power to abate be delegated?
pending GR: Power to abate cannot be delegated by the CIR.
3. Civil tax cases in court XPN: Authorized representative may abate if the assessment by the
4. Collection cases in court regional office is P500,000 or less and involves minor criminal
5. Criminal violations other than those already filed in court or violations.
involving tax fraud
Important: If rejection, the decision of the authorized representative
Cases that cannot be compromised is final. If it granted the abatement, it is reviewable.
1. Withholding taxes
2. Criminal tax fraud confirmed by CIR PENALTIES AND FINES
3. Criminal violations filed in court
4. Delinquent accounts with approved schedule of installment Penalties and fines
payments 1. Surcharges
5. Final reports of reinvestigation or reconsideration resulting to 2. Deficiency
reduction in original amount and taxpayer consented by signing 3. Delinquency
agreement form 4. Compromise penalty
6. Final and executory after judgment of court on compromise on
ground of doubt on validity of assessment Surcharges
7. Estate tax cases where compromise is requested on ground of Civil and administrative sanction
financial incapacity
Purpose
Withholding tax not subject to compromise To protect state revenue, reimburse the government for expenses of
The CIR cannot compromise withholding tax even if it shows inability investigating resulting from the taxpayers fraud.
to pay because the withholding agent merely holds the money in trust
for the government. Thus, employer cannot compromise withholding If no fraud is involved, the surcharges amount to 25%.
tax on compensation, because in the first place, it is the burden of the If there is fraud, the surcharge goes up to as much as 50%.
employee and not the employer. It is the employee paying, not
employer. 1. Failure to file any return and pay tax in due time
2. Filing return with wrong agent of BIR
Compromise v. Compromise penalty 3. Failure to pay deficiency tax within time prescribed
4. Failure to pay the tax as shown on the return before due date
Compromise Compromise Penalty
Deficiency interest
Refers to amount taxpayer pays Interest collected if the amount paid is deficient. 20% per annum from
Amount paid to settle civil to compromise a tax violation in the date prescribed for its payment until its full payment.
liabilities for tax assessed order to avoid criminal
prosecution Delinquency Interest
Imposed for failure to pay on time
Basic tax assessed Based Gross sales/receipts during Deficiency = lacking payment
the year of the tax due Delinquency = late payment
TN: Taxpayer can be liable for both.

Minimum amount depends on Depends upon the tax violation.
the ground of compromise Minimum not less than P1,000.00 20% per annum depending on the payment to be made
1. On the amount due on the return
2. On the amount due for which a return is required
BIR already has a table of 3. On a deficiency tax, or any surcharge or interest thereon on the
Requires mutual agreement on
amounts. Automatically imposed. due date appearing in the notice and demand of the
amount between CIR and TP
Really just a penalty. Commissioner
Q. Can you be liable for the three at the same time?

Important: BIR cannot force taxpayer to pay compromise penalty. A: Yes. So interest is collected together with surcharges
But if he refuses, the BIR will institute a criminal action.
Compromise penalty
Cannot be imposed when
Abatement
a) There is no showing that the taxpayer consented to it.
Abatement b) The CIR has no power to impose and collect the compromise
This is cancellation of tax liability. Here, nothing is collected, unlike in penalty in absence of a valid compromise agreement validly
compromise where amount is merely decreased. entered thereto by the parties.
Grounds: SUSPENSION OF BUSINESS OPERATIONS

1. The tax or any portion thereof appears to be unjustly or
excessively assessed; or Suspension of business operations
2. The administration and collection costs involved do not justify the May be suspended for no less than 5 days.
collection of the amount due.
JUDICIAL REMEDIES OF THE GOVERNMENT thousand pesos (P10,000) and suffer imprisonment of not less than
one (1) year but not more than ten (10) years.
Judicial remedies of the government
1. Civil action Any person who attempts to make it appear for any reason that he or
2. Criminal action another has in fact filed a return or statement, or actually files a return
or statement and subsequently withdraws the same return or
CIVIL ACTION statement after securing the official receiving seal or stamp of receipt
of internal revenue office wherein the same was actually filed shall,
Two ways upon conviction therefor, be punished by a fine of not less than Ten
thousand pesos (P10,000) but not more than Twenty thousand pesos
1. Filing of a civil case for collection of sum of money. MTC or RTC (P20,000) and suffer imprisonment of not less than one (1) year but
depending on amount not more than three (3) years.
2. Filing an answer on the petition for review filed by the taxpayer
with the CTA Q. Who files?
The CIR. However, the CIR may delegate the OSG.
When resorted to
Ordinary civil actions are resorted to when the tax becomes delinquent Q. Is the approval of the CIR required in the filing of criminal
and if it becomes due and demandable. Otherwise, the civil action is a or civil cases?
premature case.
A: Yes. The CIR has the final say. At the end of the day, the decision
Q. When is it considered due and demandable? you appeal is the decision of the CIR.
1. If the self-assessed tax was not paid within the date prescribed
by law Important: But this is not jurisdictional. Lack of approval does not
2. If the final assessment is not protested administratively within 30 automatically result in dismissal of the case. It merely affects the cause
days from receipt of action or lack of capacity to sue which may be remedied by
3. Non-compliance on the conditions laid on the protest, or amendment.
4. Failure to file an appeal to the CTA on the decision of the CIR or
duly authorized representatives. Q. Is assessment required before a criminal case may be filed?
A: No. Criminal actions are filed when there is violation of criminal
Defenses precluded provisions of the tax code. No assessment is required provided there is
1. Invalidity or illegality of assessment a prima facie showing of a willful attempt to evade taxes.
2. Prescription of government right to assess
But for civil action, assessment is required as this is the basis.
Civil actions filed with the CTA
The fact that no action was filed with the RTC or MTC does not mean If you are acquitted in a criminal case, this does not bar the CIR from
that there is no more ground to file for civil claim by the BIR. The instituting a civil case following the lifeblood theory. In criminal, it is
answer filed by the Government in the CTA in response to an appeal is because you violated penal law, in civil it is for collection of tax.
tantamount to the filing of a civil action for collection in the regular
court and has the effect of tolling the prescriptive period. Presumption of evasion
Prima facie presumption for evasion arises if there is substantial under
CRIMINAL ACTIONS declaration of income or over declaration of expense.
Two common crimes TN: Substantial: More than 30%

1. Attempt to evade
2. Failure to file return CIR vs. Pascor Realty and Devt. Corp
Assessment is not necessary before criminal charges for tax evasion
Relevant provisions may be instituted. Where a false or fraudulent return is submitted or in
cases of failure to file a return such as this case, proceedings in court
Section 254. Attempt to Evade or Defeat Tax Any person who may be commenced without an assessment. The civil and criminal
willfully attempts in any manner to evade or defeat any tax imposed aspects of the case may be pursued simultaneously. In other words,
under this Code or the payment thereof shall, in addition to other the filing of a criminal complaint need not be preceded by an
penalties provided by law, upon conviction thereof, be punished by a assessment.
fine not less than Thirty thousand (P30,000) but not more than One
hundred thousand pesos (P100,000) and suffer imprisonment of not Prescriptive period for the filing of a criminal action is:
less than two (2) years but not more than four (4) years: Provided, A. 5 years from the day of the commission of the violation
That the conviction or acquittal obtained under this Section shall not B. If not known, 5 years from the discovery thereof
be a bar to the filing of a civil suit for the collection of taxes.
Section 255. Failure to File Return, Supply Correct and Accurate

Information, Pay Tax Withhold and Remit Tax and Refund Excess
Taxes Withheld on Compensation. - Any person required under this
Code or by rules and regulations promulgated thereunder to pay any
tax make a return, keep any record, or supply correct the accurate
information, who willfully fails to pay such tax, make such return, keep
such record, or supply correct and accurate information, or withhold or
remit taxes withheld, or refund excess taxes withheld on
compensation, at the time or times required by law or rules and
regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten
3. If protest for reinvestigation not acted within 180 days from

REMEDIES OF THE TAXPAYER
submission of documents
Remedies of the taxpayer
1. Administrative remedies Protest, Tax refund or credit Summary of rules:
2. Judicial remedies Appeal to CTA, etc.
3. Taxpayers suit 1. Taxpayer must protest within 30 days from receipt of
4. Prescription assessment.
5. Amendment
2. CIR must resolve the protest within 180 days from either:
ADMINISTRATIVE REMEDIES (a) Filing of protest in case of reconsideration
(b) Receipt of documents in case of reinvestigation
Administrative remedies:
3. Taxpayer can appeal to the CTA within 30 days from either::
A. Before payment (c) Receipt of denial of protest
(1) Protest for reinvestigation or reconsideration (d) Lapse of 180 days in case of inaction
(2) Compromise agreement
Important: This is different from the discussion on zero-rated VAT
B. After payment (120+30 day rule; prescriptive period of 2 years is only for
(1) Tax refund, or administrative claim). Here, this involves assessment of erroneously or
(2) Tax credit within 2 years from payment regardless of any illegally collected taxes. The relevant periods applicable are:
supervening cause. 1. 180+30 days
2. The 2 year prescriptive period is for both administrative and
Protest judicial claim.
Protest Relevant provisions
Must be made within 30 days from receipt of assessment.
(a) If reconsideration based on existing records Section. 228. Protesting of Assessment When the Commissioner or
(b) If reinvestigation there is need to file additional supporting his duly authorized representative finds that proper taxes should be
documents within 60 days. Otherwise assessment becomes final. assessed, he shall first notify the taxpayer of his findings: Provided,
however, that a pre-assessment notice shall not be required in the
Important: CIR has 180 days to decide on the protest. following cases:
(a) When the finding for any deficiency tax is the result of
Request for Request for mathematical error in the computation of the tax as appearing
Reconsideration Reinvestigation on the face of the return; or
A plea for re- A plea for re-evaluation (b) When a discrepancy has been determined between the tax
evaluation of the of an assessment on the withheld and the amount actually remitted by the withholding
As to assessment on the basis of newly- agent; or
evidence basis of existing discovered or additional
records without need evidence that a (c) When a taxpayer who opted to claim a refund or tax credit of
of additional taxpayer intends to excess creditable withholding tax for a taxable period was
evidence. present in the determined to have carried over and automatically applied the
reinvestigation. same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year;
or
Additional documents
are required since new (d) When the excise tax due on exciseable articles has not been
There is no need. The and additional evidence paid; or
Submission protest is based on will be admitted. The
of additional existing documents of law only gives the (e) When the article locally purchased or imported by an exempt
documents the BIR. taxpayer 60 days to person, such as, but not limited to, vehicles, capital equipment,
submit these additional machineries and spare parts, has been sold, traded or
documents. transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be
Counting of
void.
the 180-day From the date of the From the date of
period to filing of the protest submission of the
Within a period to be prescribed by implementing rules and
resolve the documents
regulations, the taxpayer shall be required to respond to said notice. If
protest
the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request
Taxpayer can then appeal to the CTA
for reconsideration or reinvestigation within thirty (30) days from
Grounds: receipt of the assessment in such form and manner as may be
1. Denied in whole or in part prescribed by implementing rules and regulations.
2. If protest for reconsideration not acted within 180 days from
filing of protest
Within sixty (60) days from filing of the protest, all relevant supporting Important: The CIR may grant a refund or credit even without
documents shall have been submitted; otherwise, the assessment shall written claim thereto if the taxpayer files a tax return which on its face
become final. shows overpayment. A return filed showing an overpayment is itself
considered a written claim for credit or refund. (Section 76 and 204,
If the protest is denied in whole or in part, or is not acted upon within NIRC)
one hundred eighty (180) days from submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to JUDICIAL REMEDIES
the Court of Tax Appeals within thirty (30) days from receipt of the
said decision, or from the lapse of one hundred eighty (180)-day Judicial remedies
period; otherwise, the decision shall become final, executory and 1. Civil action through appeal to the CTA for assessment, which
demandable. must be filed within 30 days from receipt of the decision or lapse
of the 180 days due to the inaction of the CIR.
Section 229. Recovery of Tax Erroneously or Illegally Collected no 2. Action to contest forfeiture of chattel
suit or proceeding shall be maintained in any court for the recovery of 3. Action for damages
any national internal revenue tax hereafter alleged to have been 4. Criminal action against the erring BIR employee or officer
erroneously or illegally assessed or collected, or of any penalty claimed 5. Injunction that the collection may jeopardize the taxpayer (should
to have been collected without authority, of any sum alleged to have involve public interest
been excessively or in any manner wrongfully collected without
authority, or of any sum alleged to have been excessively or in any Effect of failure to protest or appeal
manner wrongfully collected, until a claim for refund or credit has been The decision becomes final and demandable.
duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid Appeal of protest to the CTA (Section 228)
under protest or duress. Grounds:
1. Protest is denied in whole or in part
In any case, no such suit or proceeding shall be filed after the 2. If protest for reconsideration not acted within 180 days from
expiration of two (2) years from the date of payment of the tax or filing of protest
penalty regardless of any supervening cause that may arise after 3. If protest for reinvestigation not acted within 180 days from
payment: Provided, however, That the Commissioner may, even submission of documents
without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment Period to appeal
appears clearly to have been erroneously paid. Taxpayer can appeal to the CTA within 30 days from either::
(a) Receipt of denial of protest
Tax refund or tax credit (b) Lapse of 180 days in case of inaction
Grounds: Effect of failure to appeal
1. Tax is collected erroneously or illegally Decision shall be final, executory, and demandable.
2. Penalty is collected without authority
3. Sum collected is excessive
TAXPAYERS SUIT
Requisites: Taxpayers suit
1. Claim must be in writing Involves disposition of the general funds of the government. The tax
2. It must be filed with the commissioner within two years (2) after money is being spent in violation of constitutional protections and for
the payment of the tax or penalty, and improper purpose.
3. Show proof of payment
Important: The funds disbursed must come from taxation. Taxpayers
Tax Credit v. Tax Refund suit is not proper if the source of the fund is from donation. This is
A. Tax credit a tax credit certificate is issued and the same are filed directly to Supreme Court considering the requirements to file
credited to your taxes (e.g locus standi, and others)
B. Tax refund taxpayer will receive actual cash.
Important: These are alternative remedies. They mutually exclude PRESCRIPTION

each other. Prescription or statute of limitations
This is to prevent harassment of the taxpayers. This is beneficial as
Starting date for counting the 2-year period well to the government because the officers will act promptly.
GR: From the date of payment, regardless of any supervening cause
that may arise after payment: When imprescriptible
1. If prescription to tax is not provided under the law
XPNs: 2. If no return is filed
1. Corporate Income tax Where a corporation paid quarterly
income taxes in any of the first 3 quarters during the taxable year
but incurs a net loss during the taxable year:
The 2-year period for the filing of the claim for refund or credit
shall be counted from the date of filing of the annual corporate
ITR.
2. Income tax paid in installments The 2-year period shall be

counted from the date the last installment was paid.
Difference between prescriptions for refund of input VAT v. PRESCRIPTIVE PERIOD FOR COLLECTION OF TAXES
Assessment v. Collection
Relevant provision
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING Section 203. Period of Limitation Upon Assessment and Collection
REFUND OR CREDIT OF INPUT VAT (SECTION 112, NIRC) Except as provided in Section 222, internal revenue taxes shall be
assessed within 3 years after the last day prescribed by law for the
1. Two-year prescriptive period filing of the return, and no proceeding in court without assessment for
a. It is only the administrative claim that must be filed within the collection of such taxes shall be begun after the expiration of such
the two year period. period: Provided, That in a case where a return is filed beyond the
b. The proper reckoning date for the two-year prescriptive period prescribed by law, the 3-year period shall be counted from the
period is the close of the taxable quarter. day the return was filed. For purposes of this Section, a return filed
c. Exception to the rule are judicial claims filed within June 8, before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
2007 and September 12, 2008, where the proper reckoning
date is the date of filing the VAT return and payment of the Defective
tax because of the Atlas Ruling which was later abandoned The heading provides that it is for assessment and collection but the
by the Mirant Ruling. content does not provide for prescription for collection.
2. 120+30 day Rule No prescription for collection provided

Therefore, 2 views.
a. The taxpayer can file an appeal in one of two ways:
1. 5 years following previous provision before the amended NIRC.
i. File the judicial claim within 30 days after the
2. 3 years following Section 203.
Commissioner denies within the 120 day period
ii. Filed the judicial claim within 30 days from the Read 2015 case. The BIR was given 3 years to assess and collect.
expiration of the 120-day period if the Commissioner
does not act within the 120-day period. Important: Sirs opinion on prescription on collection
b. 30-day period always applies, whether there is a denial or A. 10 years if abnormal assessment
B. 3 years if normal assessment
inaction on the part of the CIR.
c. As a general rule, the 30-day period to appeal is both GR: 3 years, provided there is no assessment for false or fraudulent
mandatory and jurisdictional. return or no assessment which is subject to agreement between CIR
d. As an exception, premature filing is allowed only between and Taxpayer. (Standard charter bank case)
December 10, 2003 and October 5, 2010, when BIR Ruling
DA-489-03. XPNs:
e. Late filing is prohibited, even during the time when BIR 1. 5 years if there is already an assessment for false or fraudulent
return or an assessment which is subject to agreement between
Ruling No. DA-489-03 was in force.
CIR and Taxpayer.
2. 10 year prescriptive period for collection, when due to fraud.
PRESCRIPTIVE PERIOD FOR ASSESSMENT Abnormal assessment also included in the 10 year prescriptive
period.
GR: Prescriptive period is 3 years from either:
(a) Last day prescribed by law for the filing of return Relevant provision
(b) Date of actual filing of return (when return is filed beyond the
period prescribed by law late filing) Section. 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes.
XPNs: In these three cases, prescriptive period is 10 years from the
time the false, fraudulent or omitted information is discovered. (a) In the case of a false or fraudulent return with intent to evade
1. False return tax or of failure to file a return, the tax may be assessed, or a
2. Fraudulent return with intent to evade tax proceeding in court for the collection of such tax may be filed
3. Omission or failure to file a return without assessment, at any time within ten (10) years after
the discovery of the falsity, fraud or omission: Provided, That
Extension of 3-year prescriptive period in a fraud assessment which has become final and executory,
The prescriptive period of 3 years may be extended in writing between the fact of fraud shall be judicially taken cognizance of in the
the taxpayer and the CIR. This agreement must be entered within the civil or criminal action for the collection thereof.
3 year period. Conversely, the taxpayer can also have a waiver or
renunciation of the prescription. (b) If before the expiration of the time prescribed in Section 203
for the assessment of the tax, both the Commissioner and the
Requisites for Valid Waiver. taxpayer have agreed in writing to its assessment after such
1. Must be duly signed by the CIR or his duly authorized time, the tax may be assessed within the period agreed upon.
representative The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period
2. Must be duly signed by the taxpayer
previously agreed upon.
3. The waiver must indicate the period when it was accepted or
signed by the CIR to determine if the waiver was entered within (c) Any internal revenue tax which has been assessed within the
the 3 year period. period of limitation as prescribed in paragraph (a) hereof may
be collected by distraint or levy or by a proceeding in court
within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the
period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing
before the expiration of the five (5) -year period. The period
so agreed upon may be extended by subsequent written
agreements made before the expiration of the period
previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding

and paragraph (a) hereof shall be construed to authorize the
examination and investigation or inquiry into any tax return
filed in accordance with the provisions of any tax amnesty law
or decree
Grounds for suspension of 3-prescriptive period

1. The CIR is prohibited from making the assessment, or distraint
or levy, or proceeding in court.
2. The taxpayer requests for reconsideration AND it is granted by
the CIR.
3. When the taxpayer cannot be located or out of the Philippines.
AMENDMENT
Q. Can the taxpayer amend his return?
NO, unless:
1. The amendment made within 3 years from the filing of the

original return; or
2. No notice of audit of such return has in the meantime been

actually served upon the taxpayer
When prescription runs in an amended return
A. Substantial amendment from the date of the filing of the

amended return.
B. Minor amendment From the filing of the original return if the

same is sufficiently complete to enable the CIR to intelligently
determine the proper amount of tax to be assessed.
Important: Theres no really hard and fast rule as to when the

amendment is substantial or only minor [case to case basis]. But
generally, it is substantial if it alters or it changes tax liability of the
taxpayer specifically if it causes a reduction to the tax liability. In some
cases, a mere changing of the tax identification number is just a minor
change.
Grounds for the interruption of the period to assess and

collect:
A. When the proceedings has been instituted against guilty persons;
it begins to run again if the proceedings are dismissed for reasons
not constituting jeopardy; and
B. Offender is absent in the Philippines
Prospective application of BIR rulings
GR: BIR rulings are prospective.

XPNs:
1. The taxpayer deliberately misstates or omits material facts from
his return or any document required of him by the BIR
2. When the taxpayer acted in bad faith.
3. When the facts gathered by the BIR substantially differ from that
given by the taxpayer
Important: Why is it included under the topic on remedies of the

taxpayer? Because it may be that the taxpayer will use the prospective
application of the BIR rulings as a counterargument.

TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

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TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

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TAXATION II l Atty.

Kim Aranas l For the exclusive use of EH 404 2016-2017

Philacor is engaged in the business of retail financing. Through retail

a) In case of constructive affixture of documentary stamps, by the DST Rates

OTHER PERCENTAGE TAXES well as income from

Coverage Basis Tax Rate items treated as gross

companies (without Closely Held Corporations (Section 127)

Jai-alai and race track

10. Tax on Sale, Barter or exchange of Shares of Stock Listed

Every stock broker

GSP or gross value in

TAX ENFORCEMENT AND ADMNISTRATION GENERAL POWERS OF THE CIR

Sources Asset (A) = Liabilities (L) + Equity (E)

Q: May the BIR also conduct Benchmarking aside from

D. Lawyer, notary public, or any government officer must furnish

Authority to suspend business operation of the taxpayer

RMO 3-2009: Oplan Kandado

RATE: Run Against Tax Evaders

4 Deputy Commissioners plus 2

Officials of the BIR

NIRC REMEDIES Principles governing tax assessments

Chart of assessment process CIR vs. Enron Subic Power Corp

7. Protest Q. What if reinvestigation, but there was no submission of

Appeal from Decision of the CTA Remedies of the BIR

Additional Notes C. Enforcement of Administrative fine

When effective against third persons

Relevant provision Relevant provision

Constructive distraint Q. How is constructive distraint effected?

and regulations promulgated by the Secretary of Finance, upon

Requisites: How levy is effected

When? 1. Internal revenue officer shall prepare a duly authenticated

SALE OF PROPERTY Pending redemption of the property sold

Important: Redemption is applicable to sale of real properties only.

Posting of bond Illustration

(3) After the information is filed with the court:

TN: Taxpayer can be liable for both.

Q. Can you be liable for the three at the same time?

Grounds: SUSPENSION OF BUSINESS OPERATIONS

Two common crimes TN: Substantial: More than 30%

Section 255. Failure to File Return, Supply Correct and Accurate

3. If protest for reinvestigation not acted within 180 days from

Important: These are alternative remedies. They mutually exclude PRESCRIPTION

2. Income tax paid in installments The 2-year period shall be

2. 120+30 day Rule No prescription for collection provided

(e) Provided, however, That nothing in the immediately preceding

Grounds for suspension of 3-prescriptive period

1. The amendment made within 3 years from the filing of the

2. No notice of audit of such return has in the meantime been

When prescription runs in an amended return

A. Substantial amendment from the date of the filing of the

B. Minor amendment From the filing of the original return if the

Important: Theres no really hard and fast rule as to when the

Grounds for the interruption of the period to assess and

Prospective application of BIR rulings

GR: BIR rulings are prospective.

Important: Why is it included under the topic on remedies of the

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