DEFINITIONS

1. BIR Ruling is an official position of the CIR on the inquiries of a taxpayer who requests
clarification or confirmation on certain provisions of the Tax Code, other tax laws, or their
implementing rules and regulations.

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and
applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by
the BIR and other agencies/offices.

Revenue Memorandum Orders (RMOs) are issuances that provide directives or

instructions; prescribe guidelines; and outline processes, operations, activities, workflows,
methods and procedures necessary in the implementation of stated policies, goals, objectives,
plans and programs of the Bureau in all areas of operations, except auditing.

2. Best evidence obtainable rule

3. Improperly Accumulated Earnings Tax - refers to profits of a corporation that are

permitted to accumulate instead of being distributed to its shareholders for the purpose of
avoiding the income tax with respect to its shareholders or the shareholders of another
corporation (RR No. 2-2001, Sec. 2).

Improperly Accumulated Earnings Tax is a penalty tax upon a corporate taxpayer for
accumulating so much net income after tax beyond the reasonable needs of the business

4. Net Operating Loss Carry-Over (NOLCO) - Excess of allowable deductions over gross
income of the business for any taxable year, which had not been previously offset as
deduction from gross income. (sec. 34 (D)(3), NIRC)

Rule: NOLCO shall be carried as a deduction for the next three (3) consecutive taxable years
immediately following the year of such loss. However, in cases of oil and gas well, losses incurred in
any of the first 10 years of operation may be carried as a deduction from the gross income for the
next 5 years. (RR No. 14-2001)

5. Letter of Authority (LA) - an official document that empowers a Revenue Officer (RO) to
examine and scrutinize a taxpayer’s books of accounts and other accounting records, in order
to determine the taxpayer’s correct internal revenue tax liabilities.

6. Transitional Input VAT

The transitional input tax shall be 8% of the value of the inventory or actual VAT paid,
whichever is higher, which amount may be allowed as tax credit against the output tax of the
VAT-registered person.

Under RR No. 16-2005, the following taxpayers may claim transitional input VAT under Sec.
111(A) of the NIRC:
Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of
P3,000,000.00 in any 12-month period, or (b) Taxpayers who voluntarily register even if their
turnover does not exceed P3,000,000.00 (except franchise grantees of radio and television
broadcasting whose threshold is P10,000,000.00).

7. CTA JURISDICTION

CIVIL TAX CASES

EXCLUSIVE ORIGINAL JURISDICTION
Tax collection cases involving final and executory assessments for taxes, fees,
charges and penalties, where the principal amount of taxes and fees, exclusive
of charges and penalties, claimed is one million pesos or more.
EXCLUSIVE APPELLATE JURISDICTION
CTA DIVISION
(1) Decisions and Inaction of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
Inaction of the Commissioner shall be deemed a denial in which the taxpayer
may appeal.
Inaction does not necessarily constitute a formal decision and the taxpayer
may opt to await the final decision of the Commissioner by constitute a formal
decision and the taxpayer may opt to await the final decision of the
Commissioner beyond the 180 days and may appeal such final decision.
For claim for refund, the taxpayer must file a petition for review with the CTA
prior to the expiration of the two year prescriptive period.
(2) Decisions, orders or resolutions of the RTC in local tax cases and in tax
collection cases originally decided or resolved by them in their original
jurisdiction.

(3) Decisions of the Commissioner of Customs in cases involving liability for

customs duties, fees or other money charges, seizure, detention or release of
property affected, fines, forfeitures or other penalties in relation thereto, or
other matters arising under the Customs Law or other laws administered by
the Bureau of Customs;
(4) Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which
are adverse to the Government under Section 2315 of the Tariff and Customs
Code;
(5) Decisions of the Secretary of Trade and Industry, in the case of non-
agricultural product, commodity or article, and the Secretary of Agriculture in
the case of agricultural product, commodity or article, involving dumping and
countervailing duties under Section 301 and 302, respectively, of the Tariff
and Customs Code, and safeguard measures under Republic Act No. 8800,
where either party may appeal the decision to impose or not to impose said
duties.
[Sec. 7, RA No. 1125 as amended]

CTA EN BANC
(1) Decisions or resolutions on motions for reconsideration or new trial of the
Court in Divisions in the exercise of its exclusive appellate jurisdiction over:
(2) Cases arising from administrative agencies – Bureau of Internal Revenue,
Bureau of Customs, Department of Finance, Department of Trade and
Industry, Department of Agriculture;
(3) Local tax cases decided by the Regional Trial Courts in the exercise of their
original jurisdiction; and
(4) Tax collection cases decided by the Regional Trial Courts in the exercise of
their original jurisdiction involving final and executory assessments for taxes,
fees, charges and penalties, where the principal amount of taxes and penalties
claimed is less than one million pesos;
(5) Decisions, resolutions or orders of the Regional Trial Courts in local tax
cases and in tax collection cases decided or resolved by them in the exercise
of their appellate jurisdiction;
(6) Decisions, resolutions or orders on motions for reconsideration or new trial
of the Court in Division in the exercise of its exclusive original jurisdiction over
tax collection cases;
(7) Decisions of the Central Board of Assessment Appeals (CBAA) in the
exercise of its appellate jurisdiction over cases involving the assessment and
 taxation of real property originally decided by the provincial or city board of
assessment appeals.

CRIMINAL CASES
[Sec. 7, RA 1125 as amended]
EXCLUSIVE ORIGINAL JURISDICTION
All criminal offenses arising from violations of the National Internal Revenue
Code or Tariff and Customs Code and other laws administered by the Bureau
of Internal Revenue or the Bureau of Customs. Principal amount of taxes and
fees, exclusive of charges and penalties, claimed is more than or equal to One
million pesos (P1,000,000.00).

The filing of the criminal action being deemed to necessarily carry with it the
filing of the civil action, and no right to reserve the filling of such civil action
separately from the criminal action will be recognized.

EXCLUSIVE APPELLATE JURISDICTION IN CRIMINAL CASES

CTA DIVISION
(1) Over appeals from the judgments, resolutions or orders of the Regional
Trial Courts in tax cases originally decided by them, in their respected
territorial jurisdiction.
(2) Over petitions for review of the judgments, resolutions or orders of the
Regional Trial Courts in the exercise of their appellate jurisdiction over tax
cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts in their respective jurisdiction.

CTA EN BANC
(1) Decisions, resolutions or orders on motions for reconsideration or new trial
of the Court in Division in the exercise of its exclusive original jurisdiction over
cases involving criminal offenses arising from violations of the National
Internal Revenue Code or the Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or Bureau of Customs;
(2) Decisions, resolutions or orders on motions for reconsideration or new trial
of the Court in Division in the exercise of its exclusive appellate jurisdiction
over criminal offenses mentioned in the preceding subparagraph; and
(3) Decisions, resolutions or orders of the Regional trial Courts in the exercise
of their appellate jurisdiction over criminal offenses mentioned in
subparagraph [f].

DISTINCTIONS
Tax Delinquency vs. Tax Deficiency

Delinquency Tax – a taxpayer is considered delinquent in the payment of taxes when: (a) Self-
assessed tax per return filed by the taxpayer on the prescribed date was not paid at all or only
partially paid; or (b) Deficiency tax assessed by the BIR becomes final and executory.
Deficiency Tax – (a) The amount by which the tax imposed by law as determined by the CIR or his
authorized representative exceeds the amount shown as tax by the taxpayer upon his return; or (b) If
no amount is shown as tax by the taxpayer upon his return is made by the taxpayer, then the amount
by which the tax as determined by the CIR or his authorized representative exceeds the amounts
previously assessed or collected without assessment as deficiency.

Indirect vs. Withholding Taxes

To distinguish, in indirect taxes, the incidence of taxation falls on one person but the burden thereof
can be shifted or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it.
On the other hand, in case of withholding taxes, the incidence and burden of taxation fall on the same
entity, the statutory taxpayer. The burden of taxation is not shifted to the withholding agent who
merely collects, by withholding, the tax due from income payments to entities arising from certain
transactions and remits the same to the government.
Due to this difference, the deficiency VAT and excise tax cannot be "deemed" as withholding taxes
merely because they constitute indirect taxes. (Asia Auctioneers, Inc. vs. CIR, GR No. 179115 dated
September 26, 2012)

Final Withholding Tax vs. Creditable Withholding tax

Final Withholding Tax
(a) The amount of income tax withheld by the withholding agent is constituted as a full and final
payment of the income tax due from the payee on the said income;
(b) The liability for payment of the tax rests primarily on the payor as a withholding agent; and
(c) The payee is not required to file an income tax return for the particular income.

Creditable Withholding tax

(a) Taxes withheld on certain income payments are intended to equal or at least approximate the
tax due of the payee on said income.
(b) Payee of income is required to report the income and/or pay the difference between the tax
withheld and the tax due on the income. The payee also has the right to ask for a refund if the
tax withheld is more than the tax due;
(c) The income recipient is still required to file an income tax return, as prescribed in Sec. 51 and
Sec. 52 of the NIRC, as amended. (CREBA vs. Romulo, GR No. 160756 dated March 9, 2010)

Avoidance vs. Evasion

“Tax avoidance” is the tax saving device within means sanctioned by law. This method should be used
by the taxpayer in good faith and at arm’s length.
“Tax evasion” on the other hand, is a scheme used outside of those lawful means and when availed
of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

Amnesty vs. Exemption, Condonation

Tax Amnesty is an act of Congress, thru crafting and passing a law specifically to forego tax liabilities
already incurred by a class of taxpayers.

Tax exemption is an existing statutory grant applying to specific persons, entities, or properties falling
within the definition of these exempted from tax, thus no incurred tax obligation to begin with unlike
in tax amnesties.

Tax Condonation is the way the CIR or the Secretary of Finance may exercise, in its discretion, and
considering the attendant facts of the particular case, to forgive a tax debt of a particular entity or
person or to let go of its tax liability.

Fringe Benefits vs. De Minimis

Fringe Benefits – any good, service, or other benefit furnished or granted by an employer, in cash or
in kind, in addition to basic salaries of an individual employee [Sec. 33, NIRC]
De Minimis – privileges of relatively small value as given by the employer to his employees.
Fringe Benefits and De Minimis are not considered compensation subject to income tax and
withholding tax.

Statutory Construction Rule

When the law is clear and free from any doubt or ambiguity, there is no room for construction or
interpretation. As has been our consistent ruling, where the law speaks in clear and categorical
language, there is no occasion for interpretation; there is only room for application.
(Bloomberry Resorts and Hotels, Inc. v. BIR, G.R. No. 212530, August 10, 2016)

Ordinary vs. Capital Asset

Capital Asset is defined by an exclusion of all ordinary assets.
- Capital Assets also refers to the profits or losses on the sale or exchange of which are treated as
capital gains or capital losses, including property held by the taxpayer whether related or not with his
trade or business.
- Ordinary assets are property held by the taxpayer used in connection with his trade or business

Capital Assets - property held by the taxpayer (whether or not connected

with his trade or business), but does not include stock in trade of the
taxpayer or other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary
course of his trade or business, or property used in the trade or business, of a
character which is subject to the allowance for depreciation provided in
Subsection (F) of Section 34; or real property used in trade or business of the
taxpayer. (NIRC, sec. 39 (A)(1)).

PAN vs. FAN

A pre-assessment notice "does not bear the gravity of a formal assessment notice." A pre-assessment
notice merely gives a tip regarding the Bureau of Internal Revenue's findings against a taxpayer for an
informal conference or a clarificatory meeting.

A final assessment is a notice "to the effect that the amount therein stated is due as tax and a
demand for payment thereof." This demand for payment signals the time "when penalties and
interests begin to accrue against the taxpayer and enabling the latter to determine his remedies[.]"
Thus, it must be "sent to and received by the taxpayer, and must demand payment of the taxes
described therein within a specific period."

ENUMERATION
Inherent Limitations
(a) Public Purpose
The proceeds of the tax must be used (a) for the support of the State or (b) for some recognized
objects of government or directly to promote the welfare of the community.
(b) It must adhere to international comity;
(c) The government agencies, entities, and instrumentalities are exempt from paying;
(d) Inherently legislative; and
(e) Territorial in application.

Constitutional Limitations

Prohibition against taxation of religious, charitable entities, and educational entities

Uniformity and equality of taxation
Grant by Congress of authority to the President to impose tariff rates
Majority vote of Congress for grant of tax exemption
Prohibition on use of tax levied for special purpose
President’s veto power on appropriation, revenue, tariff bills
Prohibition against imprisonment for non-payment of poll tax
Prohibition against taxation of non-stock, no-profit institutions
Requisites for deductibility

Requisites for the deductibility of claims against the estate

(a) The liability represents a personal obligation of the deceased existing at the time of his death
except unpaid obligation incurred incident to his death, such as unpaid funeral expenses (i.e. expenses
incurred up to the time of interment) and unpaid medical expenses which are classified under a
different category of deductions pursuant to these Regulations;
(b) The liability was contracted in good faith and for adequate and full consideration in money or
money’s worth;
(c) The claim must be a debt or claim which is valid in law andenforceable in courts; and
(d) The indebtedness must not have been condoned by the creditor or the action to collect from the
decedent must not have prescribed. (Sec. 6 (A)(3)(i), RR 2-2003)

Requisites for the deductibility of unpaid mortgages or indebtedness:

(1) Unpaid mortgages upon, or any indebtedness in respect to, property where the value of the
decedent’s interest therein, undiminished by such mortgage or indebtedness, should be included in the
value of the gross estate.
(2) The deduction herein allowed in the case of claims against the estate, unpaid mortgage s or any
indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they
were contracted bona fide and for an adequate and full consideration of money’s worth.
(3) In case unpaid mortgage payable is being claimed by the estate, verification must be made as to
who was the beneficiary of the loan proceeds. If the loan is found to be merely an accommodation of
loan where the loans proceeds went to another person, the value of the unpaid loan must be included
as a receivable of the estate. If there is a legal impediment to recognize the same as receivable of the
estate, said unpaid obligation/mortgage payable shall not be allowable as a deduction from the gross
estate.
(4) In all instances, the mortgaged property, to the extent of the decedent’s interest therein, should
always form part of the gross taxable estate.

Requisites for the deductibility of taxes from the gross estate:

1. said taxes must have been accrued as of the time of death of the decedent;
2. said taxes were unpaid as of the time of death;
3. these taxes will NOT include: (a) income tax upon income received after death; (b) property taxes
not accrued before his death; or (c) the estate tax due from the transmission of his estate. (De la Vina
vs. Collector of Internal Revenue, 65 Phil 520)

Requisites for the deductibility of losses from the gross estate:

1. losses must be incurred during the settlement of the estate;
2. losses arose from fires, storms, shipwreck, or other casualties, or from robbery, theft or
embezzlement;
3. said losses are not compensated for by insurance or otherwise;
4. losses claimed must not have been claimed as deduction from gross income for income tax
purposes under Section 34(D)(1)(c) of the Tax Code;
5. such losses were incurred not later than the last day for the payment of the estate tax. (Sec.
6(A)(5)(c), RR2-2003)

Property previously taxed (Vanishing deduction)

Requisites for Deductibility
(1) The present decedent died within 5 years from receipt of the property from the prior decedent or
donor; (2) The property on which vanishing deduction is being claimed is located within the
Philippines; (3) The property formed Part of the taxable estate of the prior decedent or of the taxable
gift of the donor; (4) The estate Tax on the prior succession or donor’s tax on the gift must have been
finally determined and paid; (5) The property on which the vanishing deduction is taken must be
Identified as the one received or acquired; and (6) No vanishing deduction was allowed on the same
property on the prior decedent’s estate.
Requisites for tax-free exchanges

Tax-free exchanges refer to those instances enumerated in Section 40(C)(2) of the National Internal
Revenue Code (NIRC) of 1997 that are not subject to Income Tax, Capital Gains Tax, Documentary
Stamp Tax and/or Value-added Tax, as the case may be.

In general, there are two kinds of tax-free exchange: (1) transfer to a controlled corporation; and, (2)
merger or consolidation.

In the first instance, no gain or loss shall be recognized if property is transferred to a corporation by a
person in exchange for stock or unit of participation in such corporation of which as a result of such
exchange said person, alone or together with others, not exceeding four persons, gains control of said
corporation.

In the second instance, no gain or loss shall be recognized if in pursuance of a plan of merger or
consolidation --- (a) a corporation, which is a party to a merger or consolidation, exchanges property
solely for stock in a corporation, which is a party to the merger or consolidation; or, (b) a shareholder
exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the stock
of another corporation also a party to the merger or consolidation; or, (c) a security holder of a
corporation, which is a party to the merger or consolidation, exchanges his securities in such
corporation, solely for stock or securities in another corporation, a party to the merger or
consolidation.

Requisites to avail of CGT exemption for principal residence

Disposition of principal residence (capital asset) is exempt from 6% Capital Gains Tax, provided:
(a) Sale or disposition of the old principal residence;
(b) By natural persons - citizens or aliens provided that they are residents taxable under Sec. 24 of
the Code (does not include an estate or a trust);
(c) The proceeds of which is fully utilized in (a) acquiring or (b) constructing a new principal residence
within eighteen (18) months from date of sale or disposition;
(d) Notify the Commissioner within thirty (30) days from the date of sale or disposition through a
prescribed return of his intention to avail the tax exemption;
(e) Can only be availed of onlyonce every ten (10) years;
(f) The historical cost or adjusted basis of his old principal residence shall be carried over to the cost
basis of his new principal residence
(g) If there is no full utilization, the portion of the gains presumed to have been realized shall be
subject to capital gains tax.
(h) Portion of presumed gains subject to CGT: (Unutilized/GSP) x (higher of GSP or FMV)

Requisites to claim input VAT

Input VAT Refund
Rules on Administrative claim for refund under Sec. 112(A) of the NIRC: The period to file a claim for
refund with the BIR for excess input VAT attributable to a zero-rated transaction is two (2) years
counted from the close of the taxable quarter when the zero-rated sales are made. As an exception to
the said rule, from June 8, 2007 up to September 12, 2008, the 2-year period to file the
administrative claim for refund may be reckoned from the filing of the quarterly VAT return.

What are the requirements for a claim for VAT refund/credit?

The cases of Intel Technology Philippines, Inc. v. CIR and San
Roque Power Corporation v CIR enumerated the requirements,
thus:
(1) the taxpayer is engaged in sales which are zero-rated or
effectively zero-rated;
(2) the taxpayer is VAT-registered;
(3) the claim must be filed within two years after the close of
the taxable quarter when such sales were made;
(4) the input taxes are due or paid;
(5) the input taxes are not transitional input taxes;
(6) the input taxes have not been applied against output taxes
during and in the succeeding quarters;
(7) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
(8) in certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with BSP rules and regulations [Sections 106(A)(2)(a)(1)
and (2); Section 106(B); Sections 108(B)(1) and (2)]; and
(9) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall
be proportionately allocated on the basis of sales volume. [Intel Technology Philippines, Inc. v. CIR,
GR No.
166732, 27 Apr. 2007; San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]

Instances where running of prescription is suspended

Suspension of running of statute of limitations
Grounds for suspension of the prescriptive periods:
1) When taxpayer cannot be located in the address given by him in the return, unless he informs the
CIR of any change in his address thru a written notice to the BIR;
2) When the taxpayer is out of the Philippines (Sec. 223, NIRC)
3) When the warrant of distraint and levy is duly served upon the taxpayer, his authorized
representative or a member of his household with sufficient discretion and no property is located
(proper only for suspension of the period to collect);
4) Where the CIR is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court for 60 days thereafter, such as where there is a pending petition for review in the
CTA from the decision on the protested assessment (Republic vs. Ker & Co., GR L-21609);
5) Where CIR and the taxpayer agreed in writing for the extension of the assessment, the tax may be
assessed within the period so agreed upon (Sec.222 [b], NIRC);
6) When the taxpayer requests for reinvestigation which is granted by the Commissioner (Collector vs.
Suyoc Consolidated Mining Co., GR L-11527, Nov. 25, 1958);

Instances When Running of Prescription Periods is Suspended (Local Taxation)

(1) When the treasurer is legally prevented from making the assessment or collection
(2) When taxpayer requests for reinvestigation and executes a waiver in writing before lapse of the
period for assessment or collection.
(3) When the taxpayer is out of the country or otherwise cannot be located [Sec. 194 (d), LGC]

CONCEPTS

DOCTRINE OF WILLFUL BLINDNESS?

Doctrine of Willful Blindness is when a person, given his experience in his business or industry,
commits an act or omission tantamount to gross negligence in attending to his or her tax obligations
which may lead to serious violation of tax laws like tax evasion. (People v. Kintanar, CTA E.B. Crim.
No. 006,December 3, 2010)

Relate the concept of pacta sunt servanda on taxation.

A: Observance of any treaty obligation binding upon the government of the Philippines is anchored
on the constitutional provision that the Philippines “adopts the generally accepted principles of
international law as part of the law of the land (Art. II, Sec. 2, 1987 Constitution).