UST QUAMTO 2018

Q: Describe separately the procedures on the legal remedies under the Tax Code available to an
aggrieved taxpayer both at the administrative and judicial levels. (Bar)

A: The legal remedies of an aggrieved taxpayer under the Tax Code, both at the administrative and
judicial levels, may be classified into those for assessment, collection and refund.

The procedures for the administrative remedies for assessment are as follows:
a. After receipt of the Pre-Assessment Notice, he must within fifteen (15) days from receipt explain
why no additional taxes should be assessed against him.

b. If the Commissioner of Internal Revenue issues an assessment notice, the taxpayer must
administratively protest or dispute the assessment by filing a motion for reconsideration or
reinvestigation within thirty (30) days from receipt of the notice of assessment. (4th par., Sec.
228, NIRC of 1997)

a. Within sixty (60) days from filing of the protest, the taxpayer shall submit all relevant supporting
documents.

The judicial remedies of an aggrieved taxpayer relative to an assessment notice are as follows:
a. Where the Commissioner of Internal Revenue has not acted on the taxpayer’s protest within a
period of one hundred eighty (180) days from submission of all relevant documents, then the
taxpayer has a period of thirty (30) days from the lapse of said 180 days within which to
interpose a petition for review with the Court of Tax Appeals.
b. Should the Commissioner deny the taxpayer's protest, then he has a period of thirty (30) days
from receipt of said denial within which to interpose a petition for review with the Court of Tax
Appeals.

In both cases the taxpayer must apply with the Court of Tax Appeals for the issuance of an injunctive
writ to enjoin the Bureau of Internal Revenue from collecting the disputed tax during the pendency of
the proceedings.

The adverse decision of the Court of Tax Appeals is appealable to the Court of Appealsnby means of a
petition for certiorari within a period of fifteen (15) days from receipt of the adverse decision, extendible
for another period of fifteen (15) days for compelling reasons, but the extension is not to exceed a total
of thirty (30) days in all.

The adverse decision of the Court of Appeals is appealable to the Supreme Court by means of a petition
for review on certiorari within a period of fifteen (15) days from receipt of the adverse decision of the
Court of Appeals.

The employment by the Bureau of Internal Revenue of any of the administrative remedies for the
collection of the tax like distraint, levy, etc. may be administratively appealed by the taxpayer to the
Commissioner whose decision is appealable to the Court of Tax Appeals under other matter arising
under the provisions of the National Internal Revenue Code. The judicial appeals starts with the Court of
Tax Appeals, and continues in the same manner as shown above.

Should the Bureau of Internal Revenue decide to utilize Its judicial tax remedies for collecting the taxes
by means of an ordinary suit filed with the regular courts for the collection of a sum of money, the
taxpayer could oppose the same by going up the ladder of judicial processes from the Municipal Trial
Court (as
the case may be) to the Regional Trial Court, to the Court of Appeals, thence to the Supreme Court.

The remedies of an aggrieved taxpayer on a claim for refund is to appeal the adverse decision of the
Commissioner to the CTA in the same manner outlined above.

Requisites of a valid assessment (2008, 2013)

Q: After examining the books and records of EDS Corporation, the 2004 final assessment notice,
showing basic tax of P1,000,000., deficiency interest of P400,000, and due date for payment of April
30, 2007 but without the demand letter, was mailed and released by the BIR on April 15, 2007. The
registered letter, containing the tax assessment, was received by the EDS Corporation on April 25,
2007.
a. What is an assessment notice? What are the requisites of a valid assessment? Explain.

A: An assessment notice is a formal notice to the taxpayer stating that the amount thereon is due as a
tax and containing a demand for the payment thereof. To be valid, the taxpayer must be informed in
writing of the law and the facts on which the assessment is made. (Section 228, NIRC)

ANOTHER SUGGESTED ANSWER: An assessment is a written notice and demand made by the Bureau on
the taxpayer for the settlement of a tax liability that is due, definitely set and fixed therein. The
requisites of a valid assessment are:
1. It must be made within the prescriptive period to assess; (Section 203, NIRC)
2. There must be a preliminary assessment previously issued, except in those instances
allowed by law;
3. The taxpayer must be informed in writing about the law and facts on which the
assessment is based; (Section 228, NIRC)
4. It must be served upon the taxpayer or any of his authorized representatives.

b. As tax lawyer of EDS Corporation, what legal defense(s) would you raise against the assessment?
Explain. (2008 Bar)
A: I will question the validity of the assessment because of the failure to send the demand letter which
contains a statement of the law and the facts upon which the assessment is based. If an assessment
notice is sent without informing the taxpayer in writing about the law and facts on which the
assessment is made, the assessment is void.

Prescriptive Period for Assessment General Rule (1989, 1997, 1999, 2000, 2002, 2006)
Q: Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged exclusively in
international shipping. He and his wife, who manages their business, filed a joint income tax return for
1997 on March 15, 1998. After an audit of the return, the BIR issued on April 20, 2001 a deficiency
income tax assessment for the sum of P250, 000.00, inclusive of interest and penalty. For failure of Mr.
and Mrs. Sebastian to pay the tax within the period stated in the notice of assessment, the BIR issued on
August 19, 2001 warrants of distraint and levy to enforce collection of the tax.

a. If you are the lawyer of Mr. and Mrs. Sebastian, what possible defense or defenses will you raise in
behalf of your clients against the action of the BIR in enforcing collection of the tax by the summary
remedies of warrants of distraints and levy?
A: I will raise the defense of prescription. The right of the BIR to assess prescribes after three years
counted from the last day prescribed by law for the filing of the income tax returns when the said return
is filed on time. (Section 203, NIRC) The last day for filing the 1997 income tax return is April 15,1998.
Since the assessment was issued only on April 20, 2001, the BIR’s right to assess has already prescribed.

False or fraudulent returns and non-filing of returns

Q: Distinguish a false return from a fraudulent return.
A: The distinction between a false return and a fraudulent return is that the false return merely implies
a deviation from the truth or fact whether intentional or not, whereas a fraudulent return is intentional
and deceitful with the sole aim of evading the correct tax due.

A false return contains deviations from the truth which may be due to mistakes, carelessness or
ignorance
of the person preparing the return. A fraudulent return contains an intentional wrongdoing with the
sole object of avoiding the tax and it may consist in the intentional under declaration of income,
intentional over declaration of deductions or the recurrence of both. A false return is not necessarily
tainted with fraud because the fraud contemplated by law is actual and not constructive. Any deviation
from the truth on the other hand, whether intentional or not, constitutes falsity.

Q: Mr. Castro inherited from his father, who died on June 10, 1994, several pieces of real property in
Metro Manila. The estate tax return was filed and the estate tax due in the amount of P250, 000.00
was paid on December 06, 1994. The Tax Fraud Division of the BIR investigated the case on the basisof
confidential information given by Mr. Santos on January 06, 1998 that the return filed by Mr. Castro
was fraudulent and that he failed to declare all properties left by his father with intent to evade
payment of the correct tax. As a result, a deficiency estate tax assessment for P1, 250, 000.00,
inclusive of 50% surcharge for fraud, interest and penalty, was issued against him on January 10, 2001.
Mr. Castro protested the assessment on the ground of prescription. Decide Mr. Castro’s protest.
A: The protest should be resolved against Mr. Castro. What was filed is a fraudulent return
making the prescriptive period for assessment ten (10) years from discovery of the fraud.
(Section 222, NIRC) Accordingly, the assessment was issued within the prescriptive period to
make an assessment based on a fraudulent return.

Issuance of Preliminary Assessment

Q: Mr. Tiaga has been a law-abiding citizen diligently paying his income taxes. On May 5, 2014, he was
surprised to receive an assessment notice from the Bureau of Internal Revenue (BIR) informing him of
a deficiency tax assessment as a result of a mathematical error in the computation of his income tax,
as appearing on the face of his income tax return for the year 2011, which he filed on April 15, 2012.
Mr. Tiaga believes that there was no such error in the computation of his income tax for the year
2011.
Based on the assessment received by Mr. Tiaga, may he already file a protest thereon? (2014 Bar)
A: Yes. Mr. Tiaga may consider the assessment notice as a final assessment notice and his right
to protest within 30 days from receipt may now be exercised by him. When the finding of a
deficiency tax is the result of mathematical error in the computation of the tax appearing on the
face of the return, a pre-assessment notice shall not be required, hence the assessment notice is
a final assessment notice.

Prescriptive Periods
Q: A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer on
June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was initially given
due course, but was eventually denied by the Commissioner of Internal Revenue in a decision dated
June 15, 2005. The taxpayer then filed a petition for review with the Court of Tax Appeals (CTA), but
the CTA dismissed the same. Assume that the CTA’s decision dismissing the petition for review has
become final. May the Commissioner legally enforce collection of the delinquent tax?
A: No. The protest was filed out of time and, therefore, did not suspend the running of the
prescriptive period for the collection of the tax. Once the right to collect has prescribed, the
Commissioner can no longer enforce collection of the tax liability against the taxpayer.

Forms of Administrative Protest

Q: What are the differences between a request for reconsideration and a request for reinvestigation?
A:
1. A request for reinvestigation suspends the running of the prescriptive period for collection of
taxes while a motion for reconsideration does not.
2. A request for reinvestigation requires the presentation of newly discovered or additional
evidence while a motion for reconsideration does not.
3. The period of 60 days for submission of the relevant supporting documents finds application
only to a request for reinvestigation and not to a request for reconsideration.
4. The failure of the Commissioner of Internal Revenue to act on the request for reconsideration
after a period of 180 days from filing thereof authorizes the taxpayer to file a petition for review
with the CTA within a period of 30 days from the expiration of such 180 day period while for a
request for reinvestigation the period is the expiration of the 180 day period from the
submission of the complete supporting documents.

Effect of failure to file protes

Q: A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer on
June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was initially given
due course, but was eventually denied by the Commissioner of Internal Revenue in a decision dated
June 15, 2005. The taxpayer then filed a petition for review with the Court of Tax Appeals (CTA), but
the CTA dismissed the same.
a. Is the CTA correct in dismissing the petition for review? Explain your answer.
A: Yes. The protest was filed out of time, hence the CTA does not acquire jurisdiction over the
matter. [CIR v. Atlas Mining and Development Corp. (2000)]

Q: a. A taxpayer received, on 15 January 1996, an assessment for an internal revenue tax deficiency.
On 10 February 1996, the taxpayer forthwith filed a petition for review with the Court of Tax Appeals.
Could the Tax Court entertain the petition?
A: No. Before taxpayer can avail of judicial remedy he must first exhaust administrative
remedies by filing a protest within 30 days from receipt of the assessment. It is the
Commissioner's decision on the protest that give the Tax Court jurisdiction over the case
provided that the appeal is filed within 30 days from receipt of the Commissioner’s decision.

An assessment by the BIR is not the Commissioner's decision from which a petition for review
may be filed with the Court of Tax Appeals. Rather, it is the action taken by the Commissioner in
response to the taxpayer's protest on the assessment that would constitute the appealable
decision.

b. Under the above factual setting, the taxpayer, instead of questioning the assessment he received
on 15 January 1996, paid on 01 March 1996 the "deficiency tax" assessed. The taxpayer requested a
refund from the Commissioner by submitting a written claim on 01 March 1997. It was denied. The
taxpayer, on 15 March 1997, filed a petition for review with the Court of Appeals. Could the petition
still be entertained? (1997 Bar)
 A: No, the petition for review cannot be entertained by the Court of Appeals, since decisions of
the Commissioner on cases involving claim for tax refunds are within the exclusive and primary
jurisdiction of the Court of Tax Appeals.

Decision/Inaction of the Commissioner on the protest filed

Q: In the examination conducted by the revenue officials against the corporate taxpayer in 2010, the
BIR issued a final assessment notice and demand letter which states: “It is requested that the above
deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency.
This is our final decision based on investigation. If you disagree, you may appeal this final decision
within 30 days from receipt hereof, otherwise said deficiency tax assessment shall become final,
executory and demandable.” The assessment was immediately appealed by the taxpayer to the Court
of Tax Appeals, without filing its protest against the assessment and without a denial thereof by the
BIR. If you were the judge, would you deny the petition for review filed by the taxpayer and consider
the case as prematurely filed? Explain you answer. (2012 Bar)

A: No, the Petition for Review should not be denied. The case is an exception to the rule on
exhaustion of administrative remedies. The BIR is estopped from claiming that the filing of the
Petition for Review is premature because the taxpayer failed to exhaust all administrative
remedies. The statement of the BIR in its Final Assessment Notice and Demand Letter led the
taxpayer to conclude that only a final judicial ruling in his favor would be accepted by the BIR.
The taxpayer cannot be blamed for not filing a protest against the Formal Letter of Demand with
Assessment Notices since the language used and the tenor of the demand letter indicate that it
is the final decision of the respondent on the matter.

The CIR should indicate, in a clear and unequivocal language, whether his action on a disputed
assessment constitutes his final determination thereon in order for the taxpayer concerned to
determine when his or her right to appeal to the tax court accrues. Although there was no direct
reference for the taxpayer to bring the matter directly to the CTA, it cannot be denied that the
word “appeal” under prevailing tax laws refers to the filing of a Petition for Review with the CTA.
(Allied Bank vs CIR, GR No 175097, February 5, 2010)

Q: On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of assessment against
Blue Water Industries Inc. (BWI), a domestic corporation, informing the latter of its alleged deficiency
corporate income tax for the year 2009. On April 20, 2012, BWI filed a letter protest before the BIR
contesting said assessment and demanding that the same be cancelled or set aside. However, on May
19, 2013, that is after more than a year from the filing of the letter protest, the BIR informed BWI that
the latter’s letter protest was denied on the ground that the assessment had already become final,
executory and demandable. The BIR reasoned that its failure to decide the case within 180 days from
filing of the letter protest should have prompted BWI to seek recourse before the CTA by filing a
petition for review within 30 days after the expiration of the 180-day period as mandated by the
provisions of the last paragraph of Section 228 of the NIRC. Accordingly, BWI’s failure to file a petition
for review before the CTA rendered the assessment final, executory and demandable. Is the
contention of the BIR correct? Explain. (2014 Bar)

A: No, the contention of BIR is not correct. The right of BWI to consider the inaction of the
Commissioner on the protest within 180 days as an appealable decision is only optional and will
not make the assessment final, executory and demandable. (Sec 228, NIRC; Lacsona Land Co.,
Inc. v. CIR, GR No. 171251, March 5 2012)

COMPROMISE OF TAXES
Authority, Grounds and Conditions to Compromise taxes (1989, 1996, 2000, 2009)
Q: Under what conditions may the Commissioner of Internal Revenue be authorized to:
a. Compromise the payment of any internal revenue tax? (2000 Bar)
A: The Commissioner of Internal Revenue may be authorized to compromise the payment of any
internal revenue tax where:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

Tax cases which may be subject of compromise

Q: State and discuss briefly whether the following cases may be compromised or may not be
compromised:
a. Delinquent accounts;
a. Yes. Delinquent accounts may be compromised if either of the two conditions is present:
(1) the assessment is of doubtful validity, or (2) the financial position of the taxpayer
demonstrates a clear inability to pay the tax.
b. Cases under administrative protest, after issuance of the final assessment notice to the taxpayer,
which are still pending;
b. Yes. These may be compromised, provided that it is premised upon doubtful validity of the
assessment or financial incapacity to pay.

c. Criminal tax fraud cases;

c. No. These may not be compromised, so that the taxpayer may not profit from his fraud,
thereby discouraging its commission.

d. Criminal violations already filed in court;

d. No. These may not be compromised in order that the taxpayer will not profit from his
criminal acts. (ibid)

e. Cases where final reports of reinvestigation or reconsideration have been issued resulting in the
reduction of the original assessment agreed to by the taxpayer when he signed the required
agreement form. (2005 Bar)
e. No. Cases where final reports of reinvestigation or reconsideration have been issued resulting
in the reduction of the original assessment agreed to by the taxpayer when he signed the
required agreement form, cannot be compromised. By giving his conformity to the revised
assessment, the taxpayer admits the validity of the assessment and his capacity to pay the
same. (Sec. 2 of Revenue Regulations No. 30-2002)

ABATEMENT OF TAXES
Authority and Conditions to abate taxes (
Q: Under what conditions may the Commissioner of Internal Revenue be authorized to:
a. Abate or cancel a tax
A: The Commissioner of Internal Revenue may abate or cancel a tax liability when:
1. The tax or any portion thereof appears to be unjustly or excessively assessed; or
2. The administration and collection costs involved do not justify the collection of the
amount due. [Sec. 204 (B). NIRC of 1997]
RECOVERY OF TAX ERROUNEOUSLY OR
ILLEGALY COLLECTED
Conditions for the grant of a refund or credit (2002, 2005)
Q: State the conditions required by the Tax Code before the Commissioner of Internal Revenue could
authorize the refund or credit of taxes erroneously or illegally received. (2005 Bar)
 A: The conditions are:
1. A written claim for refund is filed by the taxpayer with the Commissioner of
Internal Revenue. (NIRC);
2. The claim for refund must be a categorical demand for reimbursement.
3. The claim for refund or tax credit must be filed with the Commissioner, or the suit or
proceeding therefore must be commenced in court within 2 years from date of payment
of the tax or penalty regardless of any supervening cause (NIRC).
OPTION TO CARRY OVER EXCESS
Q: In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax credits arising
from its overwithholding of income payments. It opted to carry over the excess tax credits to the
following year. Subsequently, ABC Corp. changed its mind and applied for a refund of the excess tax
credits. Will the claim for refund prosper? (2013 Bar)
A: No. The claim for refund will not prosper. While the law gives the taxpayer an option whether to
carry-over or claim as refund the excess tax credits shown on its final adjustment return, once the
option to carry over has been made, such option shall be considered irrevocable for that taxable period
and no application for cash refund or issuance of a tax credit certificate shall be allowed (Sec. 76, NIRC;)

Period for filing claim for refund or credit (1992, 1994, 1997, 2008)
Q: DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Starting December 15,
2004. DEF Corporation paid annual royalties to DEF, Inc., for the use of the latter's software, for which
the former, as withholding agent of the government, withheld and remitted to the BIR the 15% final
tax based on the gross royalty payments. The withholding tax return was filed and the tax remitted to
the
BIR on January 10 of the following year. On April 10, 2007, DEF Corporation filed a written claim for
tax credit with the BIR, arising from erroneously paid income taxes covering the years 2004 and 2005.
The
following day, DEF Corporation filed a petition for review with the Court of Tax Appeals involving the
tax credit claim for 2004 and 2005.
a. As a BIR lawyer handling the case, would you raise the defense of prescription in your answer to the
claim for tax credit? Explain. (2008 Bar)
A: Yes. The claim for refund for the 2004 erroneously paid income tax was filed out of time because the
claim was only filed after more than two years had elapsed from the payment thereof. [Section 204 (c)
and 229,
NIRC]

WITHHOLDING AAS A PROPER PARTY

Q: ABCD Corporation (ABCD) is a domestic corporation with individual and corporate shareholders
who are residents of the United States. For the 2nd quarter of 1983, these U.S.-based individual and
corporate stockholders received cash dividends from the corporation. The corresponding withholding
tax on dividend income — 30% for individual and 35% for corporate nonresident stockholders — was
deducted at source and remitted to the BIR.

On May 15,1984, ABCD filed with the Commissioner of Internal Revenue a formal claim for refund,
alleging that under the RPUS Tax Treaty, the deduction withheld at source as tax on dividends earned
was fixed at 25% of said income. Thus, ABCD asserted that it overpaid the withholding tax due on
the cash dividends given to its non-resident stockholders in the U.S. the Commissioner denied the
claim.
On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals (CTA) reiterating its demand
for refund.
a. Does ABCD Corporation have the legal personality to file the refund on behalf of its non-resident
stockholders? Why or why not? (2009 Bar)
A: Yes, withholding agents is not only an agent of the government but is also an agent of the
taxpayer/income earner. Hence, ABCD is also an agent of the beneficial owner of the dividends with
respect to the actual payment
of the tax to the government, such authority may reasonably be held to include the authority to file a
claim for refund and to bring an action for recovery of such for refund and to bring an action for
recovery of such claim [CIR v. Procter& Gamble, 204 SCRA 377, (1991)]

Q: On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment issued by the
Commissioner of Internal Revenue (CIR) dismissing the protest of CCC, Inc. and affirming the
assessment against said corporation. On June 10, 2013, CCC, Inc. filed a Petition for Review with the
Court of Tax Appeals (CTA) in division. On July 31, 2015, CCC, Inc. received a copy of
the Decision dated July 22, 2015 of the CTA division dismissing its Petition. CCC, Inc. immediately filed
a Petition for Review with the CT A en banc on August 6, 2015. Is the immediate appeal by CCC, Inc. to
the CTA en banc of the adverse Decision of the CTA division the proper remedy? (2015 Bar)

A: No. CCC, Inc. should first file a motion for reconsideration or motion for new trial with the CTA
Division. Before the CTA en banc could take cognizance of the petition for review concerning a case
falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior
reconsideration or moved for a new trial with the concerned CTA Division.

Q: GGG, Inc. offered to sell through competitive bidding its shares in HHH Corp., equivalent to 40% of
the total outstanding capital stock of the latter. JJJ, Inc. acquired the said shares in HHH Corp. as the
highest bidder. Before it could secure a certificate authorizing registration/tax clearance for the
transfer of the shares of stock to JJJ, Inc., GGG, Inc. had to request a ruling from the BIR confirming
that its sale of the said shares was at fair market value and was thus not subject to donor's tax.

In BIR Ruling No. 012-14, the CIR held that the selling price for the shares of stock of HHH Corp. was
lower than their book value, so the difference between the selling price and the book value of said
shares was a taxable donation. GGG, Inc. requested the Secretary of Finance to review BIR Ruling No.
012-14, but the Secretary affirmed said ruling. GGG, Inc. filed with the Court of Appeals a Petition for
Review under Rule 43 of the Revised Rules of Court. The Court of Appeals, however, dismissed the
Petition for lack of jurisdiction declaring that it is the CTA which has jurisdiction over the issues raised.
Before which Court should GGG, Inc. seek recourse from the adverse ruling of the Secretary of Finance
in the exercise of the latter's power of review? (2014)
A: GGG, Inc. should seek recourse with the Court of Tax Appeals (CTA) which has jurisdiction. There is no
provision in law that expressly provides where exactly the adverse ruling the Secretary of Finance under
Section 4 of the NIRC is appealable. However, RA No. 1125, as amended, addresses the seeming gap in
the law as it vests upon the CTA, albeit impliedly, with jurisdiction over the case as “other matters”
arising under the NIRC or other laws administered by the BIR. Furthermore, the Supreme Court held that
the jurisdiction to review the rulings of the Secretary of finance on the issues raised against a ruling of
the Commissioner of Internal Revenue, pertains to the Court of Tax Appeals in the exercise of its
appellate jurisdiction (Philamlife v. The Sec. of Finance and CIR, G.R. No. 210987, November 24, 2014).

Q: Mr. Abraham Eugenio, a pawnshop operator, after having been required by the Revenue District
Officer to pay value-added tax pursuant to a Revenue Memorandum Order (RMO) of the
Commissioner of Internal Revenue, filed with the Regional Trial Court an action questioning the
validity of the RMO. If you were the judge, will you dismiss the case? (2006 Bar)
A: Yes. A RMO is in reality a ruling or an opinion issued by the Commissioner in implementing the
provisions of the Tax Code dealing with the taxability of pawnshops. The power to review rulings issued
by the Commissioner is lodged with the Court of Tax Appeals (CTA) and not with the Regional Trial
Court. A ruling falls within the purview of “other matters arising under the Tax Code, ’’ appealable only
to the CTA. [CIR v. Leal, 392 SCRA 9 (2002)]

FROM MAMALATEO PDF

Q: State whether the following transactions are (a) VAT exempt; (b) subject to VAT at 10% (now 12%); or
(c) subject to VAT at 0%:
1. Sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez;
2. Services rendered by Jake’s Construction Company, a contractor to the World Health
Organization in the renovation of its offices in Manila;
3. Sale of tractors and other agricultural implements by Bungkal Incorporated to local farmers;
4. Sale of RTW by Cely’s Boutique, a Filipino dress designer, in her dress shop and other outlets;
5. Fees for lodging paid by students to Bahay-Bahayan dormitory (monthly fee P1,500).

A:
1. VAT exempt. Sale of agricultural products such as fresh vegetables in their original state, of a
kind generally used as, or producing foods for human consumption, is exempt from VAT (Sec.
109[c], NIRC).
2. VAT at 12%. Since Jake’s Construction Company has rendered services to the World Health
Organization, which is an entity exempted from taxation under international agreements to
which the Philippines is a signatory, the supply of services is subject to zero percent (0%) rate
(Sec. 108[B][3], NIRC).
3. VAT at 12%. Tractors and other agricultural implements fall under the definition of goods which
include all tangible objects which are capable of pecuniary estimation (Sec. 106[A][1], NIRC), the
sales of which are subject to VAT at 12%.
4. This is subject to VAT at 12%. This transaction also falls under the definition of goods, the sales
of which are subject to VAT at 12%.
5. VAT exempt. The monthly fee paid by each student falls under the lease of residential units with
a monthly rental per unit not exceeding P8,000 (now P10,000), which is exempt from VAT,
regardless of the amount of aggregate rentals received by the lessor during the year (Sec.
109[x], NIRC). The term “unit” shall mean per person in the case of dormitories, boarding
houses, and bed spaces (Sec. 4.103-1, Rev. Regs. No. 7-95).

Q: Your client, United Market Cooperative, is requesting the Commissioner of Internal Revenue to
exempt it from the payment of VAT on its purchases of prime commodities from food
suppliers/manufacturers on the ground that it is exempt from all taxes, including VAT, under R.A. No.
6938, the Cooperative Code of the Philippines.
Do you think our client can obtain the necessary exemption from the BIR? If your answer is in the
affirmative, explain the basis for the grant. If your answer is in the negative, state the basis for the
rejection of the request.

A: 1. An exemption is not necessary. The value added tax is not imposed on the purchaser but on the
seller, except in importation of goods.

No. The exemption to which the taxpayers are entitled to refers to those that are levied on the exempt
taxpayer or directly imposed on the exempted goods. The value added tax is imposed on the sellers of
goods and services, not on the purchasers.
Q: Royal Mining is a VAT-registered domestic mining entity. One of its products is silver being gold to the
Bangko Sentral ng Pilipinas. It filed a claim with the BIR for tax refund on the ground that under Section
106 of the Tax Code, sales of precious metals to the Bangko Sentral are considered export sales subject
to zero-rated VAT. Is Royal Mining’s claim meritorious? Explain.
A: No, Royal Mining’s claim is not meritorious because it is the sale of gold (and not silver) to the BSP
that is considered as export sale subject to zero-rated VAT.

Q: Emiliano Paupahan is engaged in the business of leasing out several residential apartment units he
owns. The monthly rental for each unit ranges from P8,000 to P10,000. His gross rental income for one
year is P1,650,000. He consults you on whether it is necessary for him to register as a VAT taxpayer.
What legal advice will you give him, and why?
A: Since the rental income per unit per month of his apartment units (which ranges from P8,000 to
P10,000) does not exceed the threshold provided for in the VAT law in the amount of P10,000, his rental
income is exempt from VAT under Section 109(Q) of the 1997 Tax Code. In view, thereof, it does not
matter whether or not he has exceeded the general threshold for the preceding twelve months of
P1,500,00 prescribed in Section 109(V) of the Tax Code. Thus, my advice is for him not to register as a
VAT person. He will be exempt from VAT under Section 109(Q) and for the 3% percentage tax under
Section 116 of the Tax Code.

Q: Mr. Abraham Eugenio, a pawnshop operator, after having been requested by the Revenue District
Officer to pay value added tax pursuant to a Revenue Memorandum Order (RMO) of the Commissioner
of Internal Revenue, filed with the Regional Trial Court an action questioning the validity of the RMO. If
you were the judge, will you dismiss the case?
A: Yes. An RMO is in reality a ruling or an opinion issued by the Commissioner in implementing the
provisions of the Tax Code dealing with the taxability of pawnshops. The power to review rulings issued
by the Commissioner is lodged with the CTA and not with the RTC. A ruling falls within the purview of
“other matters arising under the Tax Code,” appealable only to the CTA (CIR v. Leal, 392 SCRA 9 [2002]).

Q: In 2010, pursuant to a Letter of Authority (LA) issued by the Regional Director, Mr. Abcede was
assessed deficiency income taxes by the BIR for the year 2009. He paid the deficiency. In 2011, Mr.
Abcede received another LA for the same year 2009, this time from the National Investigation Division,
on the ground that Mr. Abcede;s 2009 return was fraudulent. Mr. Abcede contested the LA on the
ground that he can only be investigated once in a taxable year. Decide.

A: The contention of Mr. Abcede is not tenable. While the general rule is to the effect that for income
tax purposes, a taxpayer must be subject to examination and inspection by the internal revenue officers
only once in a taxable year, this will not apply if there is a fraud, irregularity, or mistakes as determined
by the Commissioner. In the instant case, what triggered the second examination is the findings by the
BIR that Mr. Abcede’s 2009 return was fraudulent. Accordingly, Mr. Abcede the examination is legally
justified. (Sec. 235, NIRC)

Q: “A” Co., a Philippine corporation, is a big manufacturer of consumer good and has several suppliers of
raw materials. The BIR suspects that some of the suppliers are not properly reporting their income on
the sales to “A” Co. The CIR therefore: (a) Issued an access letter to “A” Co. to furnish the BIR
information on sales and payment to its suppliers. (b) Issued an access letter to a bank (“X” Bank) to
furnish the BIR on deposits of some suppliers of “A” Co. on the alleged ground that the suppliers are
committing tax evasion. “A” Co., “X” Bank and the suppliers have not been issued by the BIR letter of
authority to examine. “A” Co. and “X” Bank believe that the BIR is on a “fishing expedition” and come to
you for counsel. What is your advice?
A: I will advise “A” Co. and “X” Bank that the BIR is justified only in getting information from the former
but not from the latter. The BIR is authorized to obtain information from the other persons than those
whose internal revenue tax liability is subject to audit or investigation. However, this power shall not be
constructed as granting the Commissioner the authority to inquire into bank deposits (Sec. 5, NIRC)

Q: Can the Commissioner of Internal Revenue inquire into the bank deposits of a taxpayer? If so does
this power of the Commissioner conflict with R.A. 1405, Secrecy of Bank Deposits Law?

A: The Commissioner of Internal Revenue is authorized to inquire into the bank deposit of: (1) A
decedent to determine his gross estate. (2) Any taxpayer who has filed an application for compromise of
his tax liability by means of financial incapacity to pay his tax liability (Sec. 6[F], NIRC).
The limited power of the Commissioner does not conflict with R.A. No. 1405 because of the provisions of
the Tax Code granting this power is an exception to Secrecy of Bank Deposits Law as embodied in a later
legislation.

Furthermore, in case a taxpayer applies for an application to compromise the payment of his tax
liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in writings his privilege under R.A. 1405,
and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of
the taxpayer.

Q: X dies in year 2000 leaving a bank deposit of P 2,000,000.00 under joint account with his associates in
a law firm. Learning of X’s death from the newspapers, the Commissioner wrote to every bank in the
country asking them to disclose to him the amount of deposits that might be outstanding in his name or
jointly with others at the date of his death. May the bank holding the deposit refuse to comply on the
ground of the Secrecy of Bank Deposit Law? Explain.
A: No. The commissioner has the authority to inquire into bank deposit accounts of a decedent
to determine his gross estate notwithstanding the provisions of the Bank Secrecy Law. Hence,
the banks holding the deposits in question may not refuse to disclose the amount of deposits on
the ground of secretary of bank deposits (Sec. 6 [F], NRC). The fact that the deposit is a joint
account will not preclude the Commissioner from inquiring thereon because the law mandates
that if a bank has knowledge of the death of a person, who maintained a bank deposit account
alone or jointly with another, it shall not allow any withdrawal from the said deposit account,
unless the Commissioner has certified that the taxes imposed thereon have been paid (Sec. 97,
NIRC0. Hence, to be able to give the required certification, the inclusion of the deposit is
imperative.

Q: A taxpayer is suspected not to have declared his correct gross income in his return filed for 1997. The
examiner requested the Commissioner to authorize him to inquire into the bank deposits of the
taxpayer so that he could proceed with the net worth method of investigation to establish fraud.
May the examiner be allowed to look into the taxpayer’s bank deposits? In what cases may the
Commissioner or his duly authorized representative be allowed to inquire or look into the bank deposits
of a taxpayer?

A: No, as this would be violative of R.A. 1405, the Bank Deposits Secrecy Law.
The Commissioner or his duty authorized representative may be allowed to inquire or look into the bank
deposits of a taxpayer in the following cases:
1. For the purpose of determining the gross estate of a decedent;
2. Where the taxpayer has filed an application for compromise of his tax liability by reason of
financial incapacity to pay such tax liability (Sec. 6[F], NIRC);
 3. Where the taxpayer has signed a waiver authorizing the Commissioner or his duly authorized
representatives to inquire into the bank deposits.

Topic: RATES OF VAT

 Royal Mining is a VAT-registered domestic mining entity. One of its products is silver being gold
to the Bangko Sentral ng Pilipinas. It filed a claim with the BIR for tax refund on the ground that
under Section 106 of the Tax Code, sales of precious metals to the Bangko Sentral are
considered export sales subject to zero-rated VAT. Is Royal Mining’s claim meritorious? Explain.

A: No, Royal Mining’s claim is not meritorious because it is the sale of gold (and not silver) to the BSP
that is considered as export sale subject to zero-rated VAT.

CHAPTER XXI: EXEMPT TRANSACTIONS

Q: Emiliano Paupahan is engaged in the business of leasing out several residential apartment units he
owns. The monthly rental for each unit ranges from P8,000 to P10,000. His gross rental income for one
year is P1,650,000. He consults you on whether it is necessary for him to register as a VAT taxpayer.
What legal advice will you give him, and why?
A: Since the rental income per unit per month of his apartment units (which ranges from P8,000 to
P10,000) does not exceed the threshold provided for in the VAT law in the amount of P10,000, his rental
income is exempt from VAT under Section 109(Q) of the 1997 Tax Code. In view, thereof, it does not
matter whether or not he has exceeded the general threshold for the preceding twelve months of
P1,500,00 prescribed in Section 109(V) of the Tax Code. Thus, my advice is for him not to register as a
VAT person. He will be exempt from VAT under Section 109(Q) and for the 3% percentage tax under
Section 116 of the Tax Code.

Q: Mr. Abraham Eugenio, a pawnshop operator, after having been requested by the Revenue District
Officer to pay value added tax pursuant to a Revenue Memorandum Order (RMO) of the Commissioner
of Internal Revenue, filed with the Regional Trial Court an action questioning the validity of the RMO. If
you were the judge, will you dismiss the case?
A: Yes. An RMO is in reality a ruling or an opinion issued by the Commissioner in implementing the
provisions of the Tax Code dealing with the taxability of pawnshops. The power to review rulings issued
by the Commissioner is lodged with the CTA and not with the RTC. A ruling falls within the purview of
“other matters arising under the Tax Code,” appealable only to the CTA (CIR v. Leal, 392 SCRA 9 [2002]).

CHAPTER XXIV: INTRODUCTION – TAX REMEDIES

Q: In 2010, pursuant to a Letter of Authority (LA) issued by the Regional Director, Mr. Abcede was
assessed deficiency income taxes by the BIR for the year 2009. He paid the deficiency. In 2011, Mr.
Abcede received another LA for the same year 2009, this time from the National Investigation Division,
on the ground that Mr. Abcede’s 2009 return was fraudulent. Mr. Abcede contested the LA on the
ground that he can only be investigated once in a taxable year. Decide.

A: The contention of Mr. Abcede is not tenable. While the general rule is to the effect that for income
tax purposes, a taxpayer must be subject to examination and inspection by the internal revenue officers
only once in a taxable year, this will not apply if there is a fraud, irregularity, or mistakes as determined
by the Commissioner. In the instant case, what triggered the second examination is the findings by the
BIR that Mr. Abcede’s 2009 return was fraudulent. Accordingly, Mr. Abcede the examination is legally
justified. (Sec. 235, NIRC)

Q: “A” Co., a Philippine corporation, is a big manufacturer of consumer good and has several suppliers of
raw materials. The BIR suspects that some of the suppliers are not properly reporting their income on
the sales to “A” Co. The CIR therefore: (a) Issued an access letter to “A” Co. to furnish the BIR
information on sales and payment to its suppliers. (b) Issued an access letter to a bank (“X” Bank) to
furnish the BIR on deposits of some suppliers of “A” Co. on the alleged ground that the suppliers are
committing tax evasion. “A” Co., “X” Bank and the suppliers have not been issued by the BIR letter of
authority to examine. “A” Co. and “X” Bank believe that the BIR is on a “fishing expedition” and come to
you for counsel. What is your advice?
A: I will advise “A” Co. and “X” Bank that the BIR is justified only in getting information from the former
but not from the latter. The BIR is authorized to obtain information from the other persons than those
whose internal revenue tax liability is subject to audit or investigation. However, this power shall not be
constructed as granting the Commissioner the authority to inquire into bank deposits (Sec. 5, NIRC)

Q: Can the Commissioner of Internal Revenue inquire into the bank deposits of a taxpayer? If so does
this power of the Commissioner conflict with R.A. 1405, Secrecy of Bank Deposits Law?
A: The Commissioner of Internal Revenue is authorized to inquire into the bank deposit of: (1) A
decedent to determine his gross estate. (2) Any taxpayer who has filed an application for compromise of
his tax liability by means of financial incapacity to pay his tax liability (Sec. 6[F], NIRC).

The limited power of the Commissioner does not conflict with R.A. No. 1405 because of the provisions of
the Tax Code granting this power is an exception to Secrecy of Bank Deposits Law as embodied in a later
legislation.

Furthermore, in case a taxpayer applies for an application to compromise the payment of his tax
liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in writings his privilege under R.A. 1405,
and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of
the taxpayer.

Q:X dies in year 2000 leaving a bank deposit of P 2,000,000.00 under joint account with his associates in
a law firm. Learning of X’s death from the newspapers, the Commissioner wrote to every bank in the
country asking them to disclose to him the amount of deposits that might be outstanding in his name or
jointly with others at the date of his death. May the bank holding the deposit refuse to comply on the
ground of the Secrecy of Bank Deposit Law? Explain.
A: No. The commissioner has the authority to inquire into bank deposit accounts of a decedent to
determine his gross estate notwithstanding the provisions of the Bank Secrecy Law. Hence, the banks
holding the deposits in question may not refuse to disclose the amount of deposits on the ground of
secretary of bank deposits (Sec. 6 [F], NRC). The fact that the deposit is a joint account will not preclude
the Commissioner from inquiring thereon because the law mandates that if a bank has knowledge of the
death of a person, who maintained a bank deposit account alone or jointly with another, it shall not
allow any withdrawal from the said deposit account, unless the Commissioner has certified that the
taxes imposed thereon have been paid (Sec. 97, NIRC0. Hence, to be able to give the required
certification, the inclusion of the deposit is imperative.

Q: A taxpayer is suspected not to have declared his correct gross income in his return filed for 1997. The
examiner requested the Commissioner to authorize him to inquire into the bank deposits of the
taxpayer so that he could proceed with the net worth method of investigation to establish fraud.
May the examiner be allowed to look into the taxpayer’s bank deposits? In what cases may the
Commissioner or his duly authorized representative be allowed to inquire or look into the bank deposits
of a taxpayer?

A: No, as this would be violative of R.A. 1405, the Bank Deposits Secrecy Law.
The Commissioner or his duty authorized representative may be allowed to inquire or look into the bank
deposits of a taxpayer in the following cases:
a) For the purpose of determining the gross estate of a decedent;
b) Where the taxpayer has filed an application for compromise of his tax liability by reason
of financial incapacity to pay such tax liability (Sec. 6[F], NIRC);
c) Where the taxpayer has signed a waiver authorizing the Commissioner or his duly
authorized representatives to inquire into the bank deposits.

CHAPTER XXV: ADMINISTRATIVE REMEDIES OF GOVERNMENT

Q: For failure of Oceanic Company, Inc.(OCEANIC) to pay deficiency taxes of Php20 Million, the
Commissioner of Internal Revenue issued warrants of distraint on OCEANIC's personal properties and
levy on its real properties. Meanwhile, the Department of Labor through the Labor Arbiter rendered a
decision ordering OCEANIC to pay unpaid wages and other benefits to its employees. Four barges
belonging to OCEANIC were levied upon by the sheriff and later sold at public auction.
The Commissioner of Internal Revenue filed a motion with the Labor Arbiter to annul the sale and enjoin
the sheriff from disposing the proceeds thereof. The employees of OCEANIC opposed the motion
contending that Article 110 of the Labor Code gives first preference to claims for unpaid wages. Resolve
the motion. Explain.
A: The motion filed by the Commissioner should be granted because the claim of the government for
unpaid taxes is generally preferred over the claims of laborers for unpaid wages. The provision of Article
110 of the Labor Code, which gives laborers' claims for preference, applies only in case of bankruptcy or
liquidation of the employer's business. In the instant case, OCEANIC is not under bankruptcy or
liquidation at the time the warrants of distraint and levy were issued; hence, the lien of the employees is
unwarranted (CIR v.NLRC,G.R. No.74965,November 9,1994).

Q: Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy upon and
sale of real properties of the decedent without first securing the authority of the court sitting in
probate court over the supposed will of the decedent?
A: Yes. The BIR is authorized to collect estate tax deficiency through the summary remedy of levying
upon and sale of real properties of a decedent, without the cognition and authority of the court sitting in
probate over the supposed will of the deceased, because the collection of estate tax is executive in
character. As such, the estate tax is exempted from the application of the statute of non-claims, and this
is justified by the necessity of government funding, immortalized in the maxim that taxes are the
lifeblood of the government (Marcos II v.CA and CIR,273 SCRA 47).

Q: Is the BIR authorized to issue a warrant of garnishment against the bank account of a taxpayer
despite the pendency of his protest against the assessment with the BIR or appeal with the Court of
Tax Appeals?
A: The BIR is authorized is issue a warrant of garnishment against the bank account of a taxpayer despite
the pendency of protest (Yabes v.Flojo,15 SCRA 278).Nowhere in the Code is the Commissioner required
to rule first on the protest before he can institute collection proceedings on the tax assessed. The
legislative policy is to give the Commissioner much latitude in the speedy and prompt collection of taxes
because it is in taxation that the Government depends to obtain the means to carry on its operations
(Republic v.Lim Tian Teng Sons,16 SCRA 584).

Q: State and discuss briefly whether the following cases may be compromised or may not be
compromised:
a. Delinquent accounts;
b. Cases under administrative protest, after issuance of the final assessment notice to the taxpayer,
which are still pending;
c. Criminal tax fraud cases;
d. Criminal violations already filed court;
e. Cases where final reports of reinvestigation or reconsideration have been issued resulting in the
reduction of the original assessment agreed to by the taxpayer when he signed the required
agreement form.

A:
a. Delinquent accounts may be compromised, if either of the two conditions is present:(1)
the assessment is of doubtful validity, or (2) the financial position of the taxpayer
demonstrates a clear inability to pay the tax (Sec.204[A],NIRC;Sec.2,Rev.Regs.No.30-
2002);
b. These may not be compromised, provided that it is premised upon doubtful validity of the
assessment or financial incapacity to pay;
c. These may not be compromised, so that the taxpayer may not profit from his fraud,
thereby discouraging its commission;
d. These may not be compromised in order that the taxpayer will not profit from his criminal
acts;
e. Cases where final reports of reinvestigation or reconsideration have been issued resulting
in the reduction of the original assessment agreed to by the taxpayer when he signed the
required agreement form, cannot be compromised. By giving his conformity to the revised
assessment, the taxpayer admits the validity of the assessment and his capacity to pay the
same (Sec.2,Rev.Regs.No.30-2002).

Q: After the tax assessment had become final and unappealable, the Commissioner of Internal
Revenue initiated the filing of a civil action to collect the tax due from NX. After several years, a
decision was tendered by the court ordering NX to pay the tax due plus penalties and surcharges. The
judgment became final and executory, but attempts to execute the judgment award were futile.
Subsequently, NX offered the Commissioner a compromise settlement of 50% of the judgment award,
representing that this amount is all he could really afford. Does the Commissioner have the power to
accept the compromise offer? Is it legal and ethical? Explain briefly.

A: Yes. The Commissioner has the power to accept the offer of compromise, if the financial position of
the taxpayer clearly demonstrates a clear inability to pay the tax (Sec.204, NIRC).

As represented by NX in his offer, only 50% of the judgment award is all he could really afford. This is an
offer for compromise based on financial incapacity which the Commissioner shall not accept, unless
accompanied by a waiver of the secrecy of bank deposits (Sec.6[F],NIRC).The waiver will enable the
Commissioner to ascertain the financial position of the taxpayer, although the inquiry need not be
limited only to the bank deposits of the taxpayer but also as to his financial position as reflected in his
financial statements or other records upon which his property holdings can be ascertained.

If indeed the financial position of NX as determined by the Commissioner demonstrates a clear inability
to pay the tax, the acceptance of the offer is legal and ethical because the ground upon which the
compromise was anchored is within the context of the law and the rate of compromise is well within
and far exceeds the minimum prescribed by law, which is only 10% of the basic tax assessed.

Q: Under what conditions may the Commissioner of Internal Revenue be authorized to:
a. Compromise the payment of any internal revenue tax?
A: The Commissioner of Internal Revenue maybe authorized to compromise the payment of any internal
revenue tax where:
1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

b. Abate or cancel a tax liability?

A: The Commissioner of Internal Revenue may abate or cancel a tax liability when:
1) The tax or any portion thereof appears to be unjustly or excessively assessed;or
2) The administration and collection costs involved do not justify the collection of the amount due
(Sec.204[B], NIRC).

Q: An Information was filed in court for willful non-payment of income tax, the assessment of which
has become final. The accused, through counsel, presented a motion that be allowed to compromise
his tax liability subject of the information. The prosecutor indicated his conformity to the motion. Is
this procedure correct?
A: No. Criminal violations, if already filed in court, may not be compromised (Sec.204[B], NIRC).
Furthermore, the payment of the tax due after apprehension shall not constitute a valid defense in any
prosecution for violation of any provisions of the Tax Code (Sec.247[a], NIRC). Finally, there is no
showing that the prosecutor in the problem is a legal officer of the Bureau of Internal Revenue to whom
the conduct of criminal actions is lodged by the Tax Code.

Q: May the Commissioner of the Internal Revenue compromise the payment of withholding tax (tax
deducted and withheld at source) where the financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax?
A: No. A taxpayer who is constituted as withholding agent who has deducted and withheld at source the
tax on the income payment made by him holds the taxes as trust funds for the government
(Sec.58[D],NIRC) and is obligated to remit them to the BIR. The subsequent inability of the withholding
agent to pay/remit the tax withheld is not a ground for compromise; because the withholding tax is not
a tax upon the withholding agent but it is only a procedure for the collection of a tax.

Q: Minolta Philippines, Inc. (Minolta) is an EPZA-registered enterprise enjoying preferential tax

treatment under a special law. After investigation of its withholding tax returns for the taxable year
1997,the BIR issued a deficiency withholding tax assessment in the amount of Php150,000.00.On May
15,1999,because of financial difficulty, the deficiency tax remained unpaid, as a result of which the
assessment became final and executory. The BIR also found that, in violation of the provisions of the
NIRC, Minolta did not file its final corporate income tax return for the taxable year 1998, because it
allegedly incurred net loss from its operations. On May 17, 2002 the BIR filed with the RTC an action
for collection of the deficiency withholding tax for 1997.
A. Will the BIR's action for collection prosper? As counsel of Minolta, what action will you take?
Explain.
B. May criminal violations of the Tax Code be compromised?

If Minolta makes voluntary offer to compromise the criminal violations for non-filing and non-
payment of taxes for the year 1998, may the Commissioner accept the offer? Explain.

A:
A. Yes. BIR’s action for collection will prosper because the assessment is already final and executor. It
can already be enforced through judicial action.
As counsel of Minolta, I will introduce evidence that the income payment was reported by the payee
and the income tax was paid thereon in 1997 so that my client may be allowed to pay only the civil
penalties for non-withholding pursuant to Revenue memorandum Order No. 38-83.

B. All criminal violations of the Tax code may be compromised except those already filed in court or
those involving fraud (Sec. 204, NIRC).

Accordingly, if Minolta makes a voluntary offer to compromise the criminal violations for non-filing and
non-payment of taxes for the year 1998, the Commissioner may accept the offer which is allowed by
law. However, if it can be established that a tax has not been paid as a consequence of non-filing of the
return, the civil liability for taxes may be dealt with independently of the criminal violations. The
compromise settlement of the criminal violations will not relieve the taxpayer from its civil liability. But
the civil liability for taxes may also be compromised if the financial position of the taxpayer
demonstrates a clear inability to pay the tax.

Q: A domestic corporation failed to withhold and remit the tax on income received from Philippine
sources by a non-resident foreign corporation. In addition to the civil penalties provided for under the
Tax Code, a compromise penalty was imposed for violation of the withholding tax provisions. May the
Commissioner of Internal Revenue legally enforce the collection of compromise penalty?
A: No. There is no showing that the compromise penalty was imposed by the Commissioner of Internal
Revenue with the agreement and conformity of the taxpayer (Wonder Mechanical Engineering
Corporation v. Court of Tax Appeals, et al.,64 SCRA 555).

CHAPTER XXVI: JUDICIAL REMEDIES OF GOVERNMENT

Q: When is an internal revenue tax considered delinquent?
A: An internal revenue tax is considered delinquent when it is unpaid after the lapse of the last day
prescribed by law for its payment. Likewise, it could also be considered as delinquent where an
assessment for deficiency tax has become final and the taxpayer has not paid it within the period given
in the notice of assessment.

Q: Antonio Cruz was appointed by the Regional Trial Court as administrator in the testate proceedings
for the settlement of the estate of his deceased father. On 12 February 1987 the Commissioner of
Internal Revenue issued a deficiency estate tax assessment for the estate. The notice of deficiency
assessment was received by the latter's office two (2) days later, the Administrator requested for a
reconsideration of the assessment on the ground that the same is contrary to law and is not
supported by sufficient evidence. He also requested for a period of fifteen (15) days within which to
submit the estate's position paper.

On 4 August 1988, not having received the promised position paper, the Commissioner filed with the
Court a motion for allowance of claim and for an order of payment of estate taxes, praying therein
that the administrator be required to pay the BIR the aforementioned deficiency tax. The
administrator opposed the motion alleging that by reason of the pendency of his request for
reconsideration the deficiency assessment has not become final and executory and, therefore, the
absence of a decision on the disputed assessment is a bar against collection of taxes. He further
argued that it is the Court of Tax Appeals, and not the Regional Trial Court, which has exclusive
jurisdiction over the claim.
Resolve the motion and issues raised.

A: Evidently, the request for reconsideration referred to did not express or specify the grounds therefor.
A request for reconsideration in the tenor stated in the problem is insufficient, not being substantiated,
to stop the running of the 30-day period within which the assessment may be disputed (Dayrit v.
Cruz,G.R. No.39919,September 26,1988).The failure of the taxpayer to submit the promised position
paper within the said 30-day period had the effect of rendering the assessment final and executory. In
addition, the pendency of a decision on a disputed assessment does not bar the collection of the taxes,
and no injunction may be issued by any court (except by the Court of Tax Appeals as an incident to a
timely petition for review).In the absence of a petition for review with the Court of Tax Appeals which
may be brought by a taxpayer within 30 days from the receipts of the final decision of the
Commissioner, the Court of Tax Appeals has no jurisdiction to take cognizance thereof (See Sec.11,R.A.
1125).Premises considered, the action taken by the Commissioner with the Regional Trial Court was
appropriate and in accordance with law.

The taxpayer's failure to dispute the assessment effectively by complying with the conditions laid down
by the BIR, such as specifying under oath the grounds of his protest, paying one-half of the amount
assessed and putting up a bond for the balance, provided a legal basis for the government to collect the
taxpayer's liability by ordinary civil action (Republic v. Ledesma, G.R. No.L-18759,February 28,1967).

CHAPTER XXVII: CIVIL PENALTIES

Q: Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his
income tax return and the payment of the tax due. The accountant filed a falsified tax return by
under-declaring the sales and overstating the expense deductions of Danilo. Is Danilo liable for the
deficiency tax and the penalties thereon? What is the liability, if any, of the accountant? Discuss.

A: Yes, Danilo is liable for the deficiency tax as well as for the deficiency interest. However, he is not
liable for the fraud penalty because the accountant acted beyond the limits of his authority. A tax return
which does not correctly reflect taxable income may only be false but not necessarily fraudulent, where
it appears that the return was not prepared by the taxpayer himself but by his accountant. Accordingly,
the 50% surcharge for fraud could not be imposed (Azanr v. CTA, 58 SCRA 719 [1974]).

Q: Businessman Stephen Yang filed an income tax return for 1993 showing business net income of
350,000.00 Pesos on which he paid an income tax of 61,000.00 Pesos. After filing the return, he
realised that he forgot to include an item of business income in 1993 for 50,000.00 Pesos. Being an
honest taxpayer, he included this income in his return for 1994 and paid the corresponding income tax
thereon.
In the examination of his 1993 rerun, the BIR examiner found that Stephen Yang failed to report this
item of 50,000.00 Pesos and assessed him a deficiency income tax on this item, plus 50% fraud
surcharge.
1. Is the examiner correct?
A1. The examiner is correct in assessing a deficiency income tax for table year 1993 but not in
imposing the 50% fraud surcharge. The amount of all items of gross income must be included in
gross income during the year in which received or realised (Sec. 38, NIRC). The 50% fraud
surcharge attaches only if a false or fraudulent return is wilfully made by Mr. Yang (Sec. 248,
NIRC). The fact that Mr. Yang included the income in his 1994 return belies any claim of
wilfulness but is rather indicative of an honest mistake which was sought to be rectified by a
subsequent act, that is the filing of the 1994 return.

2. If you were the lawyer of Stephen yang, what would you have advised your client before he
included in his 1994 return the amount of 50,000.00 Pesos as 1993 income to avoid the fraud
surcharge?
A2. Mr. Yang should have amended his 1993 income tax return to allow for the inclusion of the
50,000.00 income during the taxable period it was realised.
 3. Considering that Stephen yang had already been assessed a deficiency income tax for 1993 for
his failure to report the 50,000.00 Pesos income, what would you advise him to do to avoid the
penalties for tax delinquency?
A3. Mr. Yang should file a protest questioning the 50% surcharge and ask for abatement thereof

4. What would you advise Stephen to do with regard to the income tax he paid for the 50,000.00
Pesos in his 1994 return? In case your remedy falls, what is your other recourse?

a4. Mr. Yang should file a written claim for refund with the Commissioner of Internal revenue of the
taxes paid on the 50,000.00 income included in 1994 within two years from payment pursuant to
Section 204(3) of the Tax Code. Should this remedy fail in administrative level, a judicial claim for refund
can be instituted before the expiration of the two-year period.

 What is a “delinquency interest” for purposes of the income tax? illustrate

A: 1. Deficiency interest for purposes of the income tax is the interest due on any amount of tax due or
instalment thereof which is not paid on or before the date prescribed for its payment computed at the
rate of 20% per annum or the Manila reference rate, which is higher, from the date prescribed for its
payment until it is fully paid. If for example after the audit of the books of XYZ Corp. for taxable year
1993 there was found to be due a deficiency income tax of 125,000.00 Pesos inclusive of the 25%
surcharge imposed under Section 248 of the Tax Code, the interest will be computed on the 125,000.00
from April 15, 1994 up to its date of payment.

2. Delinquency interest is the interest of 20% or the Manila reference rate, whichever is higher, required
to be paid in case of failure to pay:
a. the amount of the tax due on any return required to be filed; or
b. the amount of tax due for which return is required; or
c. the deficiency tax or any surcharge or interest thereon, on the due date appearing in the notice
and demand of the Commissioner of Internal Revenue.

If in the above illustration the assessment notice was real eased on December 31, 1994 and the amount
of deficiency tax, incisive of surcharge and deficiency interest, was computed up to January 30, 1995
which is the due date for payment per assessment notice, failure to pay on this latter date will render
the tax delinquent and will require the payment of delinquency interest.

The imposition of 1% monthly [now 20% annual] interest is but a just compensation to the state for the
delay in paying the tax for the concomitant use by the taxpayer of funds that rightfully should be in the
government’s hands (U.S. v. Goldstein, 189 F[2d] 752). The fact that the interest charged is made
proportionate to the period of delay constitutes the best evidence that such interest is not penal but
compensatory (Aguinaldo Industries Corporation v. Commissioner and CTA, L-29790, February 25,1982).

CHAPTER XXVIII: REMEDIES OF TAXPAYERS

Q: Compare the taxpayers remedies under the national Internal Revenue Code and the Tariff and
Customs Code.
A: The taxpayers remedies under the National Internal Revenue Code may be categorised into remedies
before payment and remedies after payment. The remedy before payment consists of administrative
remedy which is the filing of protest within 30 days from receipt of assessment , and judicial remedy
which is the appeal of the adverse decision of the Commissioner on the protest with the Court of Tax
Appeals, thereafter to the Court of appeals and finally with the Supreme Court.

The remedy after payment is availed of by paying the assessed tax within 30 days from receipt of
assessment and the filing of a claim for refund or tax credit of these taxes on the ground that they are
erroneously paid within two years from date of payment. if there is a denial of the claim, appeals of the
CTA shall be made within 30 days from receipt of denial but within two years from date of payment. if
the Commissioner fails to act on the claim for refund or tax credit and the two years period is about to
expire, the taxpayer should consider the continuous inaction of the Commissioner as a denial and
elevate the case to the CTA before the expiration of the two year period.

Under the Tariff and Customs Code, taxpayer’s remedies arise only after payment of duties. The
administrative remedies consist of filing a claim for refund which may take the form of abatement or
drawback. The taxpayer can also file a protest within 15 days from payment if he disagrees with the
ruling or decision of the Collector of Customs regarding the legality or correctness of the assessment of
customs duties. if the decision of the Collector is adverse to the taxpayer, he can notify the Collector
within 15 days from receipt of said decision of his desire to have his case reviewed by the Commissioner
Government, is automatically elevated of the Commissioner, the same shall be automatically elevated to
and finally reviewed by the secretary of Finance.

Resort to judicial relief can be had by the taxpayer by appealing the decision of the Commissioner or of
the Secretary of Finance (for cases subject to automatic review) within 30 days from the promulgation of
the adverse decision to the CTA.

Q: On March 10, 2010, Continental, Inc. received a preliminary assessment notice (PAN) dated March
1, 2010 issue by the Commissioner of Internal Revenue (CIR) for deficiency income tax for 2008.It
failed to protest the PAN. The CIR thereupon issued final assessment notice (FAN) with letter of
demand on April 30, 2010. The FAN was received by the corporation on May 10, 2010, following which
or on May 25 2010,it filed its protest against it. The CIR denied the protest on the ground that the
assessment had already become final and executory, the corporation having failed to protest the PAN.
Is the CIR correct? Explain.
A: No. Failure to file a Reply of PAN makes the taxpayer in default and authorises the revenue official to
issue the FAN. However, no liability for additional or deficiency tax arises from such failure. Indeed,
Revenue Regulation No. 12-99 makes the filing of such Reply to PAN merely directory, i.e the taxpayer
may or may not reply to the PAN is for the CIR to issue a FAN, since the corporation timely filed the
protest against the FAN, it cannot be said that the final assessment notice had already become final and
executory.

CHAPTER XXIX: ASSESMENT AND PROTEST

Q: Describe separately the procedures on the legal remedies under the Tax Code available to an
aggrieved taxpayer both at the administrative and judicial levels.
A: The legal remedies of an aggrieved taxpayer under the tax Code, both at the administrative and
judicial levels, may be classified into those for assessment, collection and refund.
a. After receipt of the Pre- Assessment Notice (PAN), he must within 15 days from receipt explain why
no additional taxes should be assessed against him.

b. if the Commission of Internal revenue issues an assessment notice, the taxpayer must
administratively protest or dispute the assessment by filing a motion for reconsideration or
reinvestigation within 30 days from receipt of the notice of assessment (4th par, Sec. 228, NIRC).
Q: After examining the book and records of EDS Corporation, the 2004 final assessment notice,
showing basic tax of 1,000,000 Pesos, deficiency interest of 400,000 Pesos, and due for payment of
April 20, 2007, but without the demand letter, was mailed and released by the BIR on April 15, 2007.
The registered letter containing the tax assessment, was received by the EDS Corporation on April 25,
2007.
a. What is an assessment notice? What are the requisites of a valid assessment? Explain.
b. As tax lawyer of EDS Corporation, what legal defense(s) would you raise against the assessment?
Explain.

A: a. The assessment notice, without the demand letter, is void. Section 228 of the Tax Code expressly
provides that “the taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.” Since the assessment notice merely
contains the basic tax, interest and due date for payment, it does not comply with the requirements of
the law that it must state the factual and legal bases; hence, it is void.

b. The demand letter is important not only because in such letter does the BIR makes a demand for the
payment of the deficiency tax but more importantly, because of the findings of the facts and
computations of the deficiency taxes by the revenue officers as we'll as the legal basis for such
assessment are adequately explained therein.

Q: What are the requisites before a taxpayer’s request for reinvestigation may be granted by the BIR?
Discuss briefly.
A: A request for reinvestigation refers to a plea for re-evaluation of an assessment on the basis of newly
discovered evidence or additional evidence the taxpayer intends to present in the re-investigation.

Q: The BIR issued in 2010 a final assessment notice and demand letter against X Corporation covering
deficiency income tax deficiency for the year 2008 in the amount of PHP10 Million. X Corporation
earlier requested the advice of a lawyer on whether or not it should file a request for reconsideration
or a request for reinvestigation. The lawyer said it does not matter whether the protest filed against
the assessment is a request for reconsideration or a request for reinvestigation, because it has the
same consequences or implications. (a) What are the differences between a request for
reconsideration and a request for reinvestigation? (b) Do you agree with the advice of the lawyer?
A:
a. Request for reconsideration is a plea for evaluation of the assessment on the basis of existing
records without the need of presentation of additional evidence (Rev. Regs. No. 12-99). It does
not suspend the period to collect the deficiency tax (Sec. 223, NIRC). The 180-day period within
which the BIR shall act on the protest starts from the filing of the request for reconsideration
(Sec. 228, NIRC).

On the other hand, a request for reinvestigation is a plea for re-evaluation of the assessment on
the basis of additional or newly discovered evidence which are to be introduced for examination
for the first time. It suspends the running of the prescriptive period to collect. The 180-year
period within which the BIR shall act on the protest starts only from the date of submission of
the additional or newly discovered evidence (Sec. 228, NIRC; RCBC v. CIR, cited in Royal Bank of
Scotland [Phil.] v. CIR, CTA EB Case No. 446, October 23, 2009)

b. No, in view of the aforesaid differences between the request for reconsideration and the
request for reinvestigation.
Q: A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer on
June 15, 2000. The taxpayer protested on July 31, 2000. The protest was initially given due course, but
was eventually denied by the CIR in a decision dated June 15, 2005. The taxpayer then filed a petition
for review with the CTA, but the CTA dismissed the same. (a) is the CTA correct in dismissing the
petition for review (b) Assume that the CTA’s decision dismissing the petition for review has become
final. May the CIR legally enforce collection of the delinquent tax?
A:
a. Yes. The CTA is correct in dismissing the petition for review because the assessment had already
become final and executory by the time the protest was filed on July 31, 2000. The fact that the
petition for review was filed by the taxpayer before the CTA within 30 days from the date of
receipt of the CIR’s final decision in the disputed assessment, this is not, however, relevant in
this case because the taxpayer filed its protest against the assessment after the 30-day period
mandated by law.

b. Since the assessment had already become final and executory for failure of the taxpayer to file
a timely protest against the assessment, particularly where the decision of the CTA also
becomes final executory, the CIR can legally enforce the collection of the delinquent tax by
administrative remedies through the issuance of warrants of distraints/garnishments and levy
and/or by judicial remedies through the filing of civil actions or criminal actions within the time
prescribed by law.

Q: In the examination conducted by the revenue officials against the corporation taxpayer in 2010, the
BIR issued a final assessment notice and demand letter which states: “It is requested that the above
deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency.
This is our final decision based on investigation. If you disagree, you may appeal this decision within
30 days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory
and demandable.” The assessment was immediately appealed by the taxpayer to the court of Tax
appeals, without filing its protest against the assessment and without a denial thereof by the BIR. If
you were the judge, would you deny the petition for review filed by the taxpayer and consider the
case as prematurely filed?
A: No, the petition for review should not be denied. The case is an exception to the rule on exhaustion of
administrative remedies. The BIR is estopped from claiming that the filing of the petition for review is
premature because the taxpayer failed to exhaust all administrative remedies. The statement of the BIR
in its final assessment notice and demand letter led the taxpayer to conclude that only a final judgment
ruling in his favor would be accepted by the BIR. The taxpayer cannot be blamed for not filing a protest
against the assessment since the language used and the tenor of the demand letter indicate that it is the
final decision of the BIR on the matter. The CIR should indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Although
there was no direct reference for the taxpayer to bring the matter directly to the CTA, it cannot be
denied that the word “appeal” under prevailing tax laws refers to the filing of a petition for review with
the CTA (Allied Bank Corporation v. CIR, G.R. No. 175097, February 5, 2010).

Q: On June 1, 2003, Global Bank received a final notice of assessment from the BIR for deficiency
documentary stamp tax in the amount of 55 million. On June 20, 2003, Global Bank filed a request for
reconsideration with the Commissioner of Internal Revenue. The Commissioner denied the request
for reconsideration only on May 30, 2006, at the same time serving on Global Bank a warrant of
distraint to collect the deficiency tax. If you were the counsel, what will be your advice to the bank?
Explain.
A: The denial of the request for reconsideration is a final decision of the Commissioner of Internal
Revenue. I would advise Global Bank to appeal the Commissioner’s denial to the Court of Tax Appeals
(CTA) within 30 days from receipt, if the remedy of appeal is still available, I will further advise the bank
to file a motion for injunction with the CTA to enjoin the Commissioner from enforcing the assessment
pending resolution of the appeal. While n appeal to the CTA will not suspend the payment, levy,
distraint and/or sale of any property of the taxpayer for the satisfaction of its tax liability, the CTA is
authorized to give injunctive relief if the enforcement would jeopardize the interest of the taxpayer, as
in this case where the assessment has not become final.

Q: A taxpayer received a tax deficiency assessment of 51.2 million from the BIR demanding payment
within 180 days; otherwise, it would collect through summary remedies. The taxpayer requested for a
reconsideration stating the grounds therefor. Instead of resolving the request for reconsideration, the
BIR sent a Final Notice Before Seizure to the taxpayer.

May this action of the Commissioner of Internal Revenue be deemed a denial of the request for
reconsideration of the taxpayer to entitle him to appeal to the CTA? Decide with reasons.
A: Yes. The action of the CIR is deemed a denial of the request for reconsideration of the taxpayer, thus
entitling him to appeal to the CTA. The Notice was the only response received by the taxpayer and its
content and tenor supports the theory that it was the BIR final act regarding the request for
reconsideration. The very title of the Notice indicated that it was a “Final Notice Before Seizure” which
means that the taxpayer’s properties will be subjected to seizure to enforce the deficiency assessment.
Thus, in one decided case, the Supreme Court ruled that the Final Notice Before Seizure is a final
decision of the Commissioner on the disputed assessment (CIR v Isabela Cultural Corp., 361 SCRA 71
[2001]).

Q: RR disputed a deficiency tax assessment and upon receipt of an adverse decision by the
Commissioner of Internal revenue, filed an appeal with the Court of Tax Appeals. While the appeal is
pending, the BIR served a warrant of levy on the real properties of RR to enforce the collection of the
disputed tax. Granting arguendo that the BIR can legally levy on the properties, what could RR do to
stop the process? Explain briefly.
A: RR should file a motion for injunction with the CTA to stop the administrative collection process. An
appeal to the CTA shall not suspend the enforcement of the tax liability, unless a motion to that effect
shall have been presented in court and granted by it on the basis that such collection will jeopardize the
interest of the taxpayer or the Government (Pirovano v. CIR, 14 SCRA 832 [1965]).

The CTA is empowered to suspend the collection of internal revenue taxes and customs duties in cases
pending appeal only when: (1) in the opinion of the court the collection by the BIR will jeopardize the
interest of the government and/or the taxpayer; and (2) the taxpayer is willing to deposit the amount
being collected or to file a surety bond for not more than double the amount of the tax to be fixed by
the court (Sec. 11, R.A. 1125).

Q: On March 15, 2000, the BIR issued a deficiency income tax assessment for the taxable year 1997
against the Valera Group of Companies (Valera) in the amount of P10 million. Counsel for Valera
protested the assessment and requested a reinvestigation of the case. During the investigation, it was
shown that Valera had been transferring its properties to other persons. As no additional evidence to
dispute the assessment had been presented, the BIR issued on June 16, 2000 warrants of distraint and
levy on the properties and ordered the filing of an action in the RTC for the collection of the tax,
Counsel for Valera filed an injunctive suit in the RTC to compel the BIR to hold the collection of the tax
in abeyance until the decision on the protest was rendered.
 A. Can the BIR file the civil action for collection, pending decision on the administrative protest?
Explain.
B. As counsel for Valera, what action would you take in order to protect the interest of your
client? Explain your answer.

A:
A. Yes, because there is no prohibition for this procedure considering that the filing of the civil
action for collection during the pendency of an administrative protest constitutes the final
decision of the Commissioner on the protest (CIR v. Union Shipping Corp., 85 SCRA 548 [1990]).
B. I will wait for the filing of the civil action for collection and consider the same as an appealable
decision. I will not file an injunctive suit because it is not an available remedy. I would then
appeal the case to the Court of Appeals and move for the dismissal of the collection case with
the RTC. Once the appeal to the CTA is filed on time the CTA has exclusive jurisdiction over the
case. Hence, the collection case in the RTC should be dismissed (Yabes v. Flojo, 115 SCRA 278
[1982]).

Q: CFB Corporation, a domestic corporation engaged in food processing and other allied activities,
received a letter from the BIR assessing it delinquency income taxes. CFB filed a letter of protest. One
month after, a warrant of distraint and levy was served on CFB Corporation.
If you were the lawyer engaged by CFB Corporation to contest the assessment made by the BIR, what
steps will you take for your client?

A: I shall immediately file a motion for reconsideration of the issuance of the warrant of distraint and
levy and seek from the BIR Commissioner a denial of the protest “in clear and unequivocal language.”
This is so because the issuance of a warrant of distraint and levy is not considered as a denial by the BIR
of the protest filed by CFB Corporation (CIR v Union Shipping Corp., 185 SCRA 547).
Within 30 days from receipt of such denial “in clear and unequivocal language,” I shall then file a
petition for review with the CTA.

Q: Spanflex Intl, Inc. received a notice of assessment from the BIR. It seasonably filed a protest with all
the necessary supporting documents, but the BIR failed to act on the protest. Thirty days from the lapse
of 180 days from filing the protest, Spanflex still has not elevated the matter to the CTA. What remedy, if
any, can Spanflex take?
A: Spanflex may wait for the final decision on the disputed assessment of the BIR and appeal it to the
CTA within 30 days from receipt of such decision.

CHAPTER XXX: PRESCRIPTION

Q: Mia, a compensation income earner, filed her income tax return for the year 2007 on March 30,
2008. On May 20, 2011, Mia received an assessment notice and letter of demand covering the year
2007, but the postmark on the envelope shows April 10, 2011. Her return is not a false or fraudulent
return. Can she raise the defense of prescription?
A: No. the 3-year prescriptive period started to run only on April 15, 2008 (and not on March 30, 2008).
Internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for
the filing of the return (Sec. 203, NIRC). Accordingly, the period to assess the deficiency tax for 2007 has
not yet expired on April 10, 2011.

Q: DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Every December 15 of the
year, DEF Corporation paid annual royalties to DEF, Inc. for the use of the latter’s software, for which the
former, as withholding agent of the government, withheld and remitted to the BIR the 15% final tax
based on the gross royalty payments. The withholding tax return is filed and the tax remitted to the BIR
on January 10 of the following year. On April 10, 2007, DEF Corporation filed a written claim for tax
credit with the BIR, arising from erroneously paid income taxes covering the years 2004 and 2005. The
following day, DEF Corporation filed a petition for review with the CTA involving the tax credit claim for
2004 and 2005.
A. As a BIR lawyer handling the case, would you raise the defense of prescription in your Answer to
the claim for tax credit? Explain.
B. Can the BIR lawyer raise the defense that DEF Corporation is not the proper party to file such
claim for tax credit? Explain.

A:
a. No credit or refund of taxes shall be allowed, unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax. (Sec.
204, NIRC). No suit or proceeding shall be maintained in any court for the recovery of any tax
hereafter alleged to have been erroneously or illegally assessed or collected, until a claim for refund
or credit has been duly filed with the Commissioner. In any case, no such suit or proceeding shall be
filed after the expiration of two (2) years from the date of payment of the tax, regardless of any
supervening cause that may arise after the payment (Sec. 229, NIRC). Based on the foregoing, the
BIR lawyer can raise the defense of prescription for the year 2004, but not for 2005. Since the
withholding tax return for 2004 was filed on January 10, 2005, and considering that the claim for
refund or credit was filed only on April 10, 2007, more than two years have elapsed between the
date of payment and the date of filing the written claim for refund or credit.
b. The proper person to claim refund or tax credit is the person on whom the tax is imposed by the
statute. In one case, the Supreme Court ruled that the BIR should not be allowed to defeat an
otherwise valid claim for refund by raising the question of the withholding agent’s alleged incapacity
to file the claim for refund for the first time on appeal. The Government must follow the same rules
of procedure which bind private parties (Commissioner v Proctor & Gamble PMC, 204 SCRA 377).

Q: Taxes were generally imprescriptible; statutes, however, may provide otherwise. State the rules that
have been adopted on this score by:
(a) The National Internal Revenue Code
(b) The Tariff and Customs Code; and
(c) The Local Government Code.

A: The rules that have been adopted on prescription are as follows:

(a) National Internal Revenue Code—The Statute of Limitation for assessment of tax if a return is
filed within three (3) years from the last day prescribed by law for the filing of the return, or if
filed after the last day, within three years from the date of the actual filing. If no return is filed or
the return filed is false or fraudulent, the period to assess is within ten years from discovery of
the omission, fraud or falsity. The period to collect the tax is within three years from date of
assessment. In the case, however, of omission to file or if the return filed is false or fraudulent,
the period to collect is within ten years from discovery without need of assessment.

(b) Tariff and Customs Code—It does not express any general Statute of Limitation. It provided,
however, that “when articles have entered and passed free of duty or final adjustment of duties
made, with subsequent delivery, such entry and passage free of duty or settlement of duties
will, after the expiration of one (1) year, from the date of the final payment of duties, in the
absence of fraud or protest, be final and conclusive upon all parties, unless the liquidation of
import entry was merely tentative” (Sec. 1603, TCC).
 (c) Local Government Code—Local taxes, fees, or charges shall be assessed within five (5) years
from the date they became due. In case of fraud or intent to evade the payment of taxes, fees
or charges, the same may be assessed within ten years from discovery of the fraud or intent to
evade payment. They shall also be collected either by administrative or judicial action within five
(5) years from date of assessment (Sec. 194, LGC).

Q: the Commissioner of Internal Revenue issued an assessment for deficiency income tax for taxable
year 2000 last July 31, 2006 in the amount of P10 million, inclusive of surcharge and interests. If the
delinquent taxpayer is your client, what steps will you take? What is your defense?
A: Since my client has already lost the right to protest (the assessment having been issued on July 31,
2006, and that he is already categorized as a delinquent taxpayer), I will advise him to wait for a
collection action to be instituted by the Commissioner. Once collection is pursued, I will file a petition for
review with the CTA to question the validity of the Commissioner’s action. My defense would be
prescription. Since the assessment was issued beyond the prescriptive period to assess, the assessment
is invalid and any action to collect an invalid assessment is not warrant (Phil. Journalists, Inc. v. CIR, 447
SCRA 214 [2004]).

Q: Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged exclusively
in international shipping. He and his wife, who manage their business, filed a joint income tax return
for 1997 on March 15, 1998. After an audit of the return, the BIR issued on April 20, 2001 a deficiency
income tax assessment for the sum of P250,000 inclusive of interest and penalty. For failure of Mr.
and Mrs. Sebastian to pay the tax within the period stated in the notice of assessment, the BIR issued
on August 19, 2001 warrants of distraint and levy to enforce collection of the tax.

If you are the lawyer of Mr. and Mrs. Sebastian, what possible defense or defenses will you raise in
behalf of your clients against the action of the BIR in enforcing collection of the tax by the summary
remedies of warrants of distraint and levy? Explain your answer.
A: I will raise the defense of prescription. The right of the BIR to assess prescribes after three years
counted from the last day prescribed by law for the filing of the income tax returns when the said return
is filed on time (Sec. 203, NIRC). The last day for filing the 1997 income tax return is April 15, 1998. Since
the assessment was issued only on April 20, 2001, the BIR’s right to assess has already prescribed.

Q: Mr. Castro inherited from his father, who died on June 10, 1994, several pieces of real property in
Metro Manila. The estate tax return was filed and the estate tax due in the amount of P250,000.00
was paid on December 6, 1994. The Tax Fraud Division of the BIR investigated the case on the basis of
confidential information given by Mr. Santos on January 6, 1998 that the return filed by Mr. Castro
was fraudulent and that he failed to declare all properties left by his father with intent to evade
payment of the correct tax. As a result, a deficiency estate tax assessment for P1,250,000.00, inclusive
of 50% surcharge for fraud, interest and penalty, was issued against him on January 10, 2001. Mr.
Castro protested the assessment, on the ground of prescription. Decide Mr. Castro’s protest.

A: The protest should be resolved against Mr. Castro. What was filed is a fraudulent return making the
prescriptive period for assessment 10 years from discovery of the fraud (Sec. 222, NIRC). Accordingly,
the assessment was issued within the prescriptive period to make an assessment based on a fraudulent
return.

Q: On September 19, 1973, the BIR sent a notice of assessment to X to pay P300,000.00 as forest
charges for the years 1970-1973. X made a partial payment of P100,000.00 on September 28, 1973. X
died in November 1977. On July 29, 1979, the BIR filed in the Testate Estate Proceedings of X a claim
for P200,000.00, the unpaid forest charges left by X. The administrator of the estate opposed the
claim on the ground of prescription. Decide.
A: Where the assessment was made, the tax may be collected within five (5) years (now three [3] years)
from the date of assessment (Collector v. Pineda, 2 SCRA 401).

In the case at bar, X, on the basis of the notice of assessment, voluntarily made partial payment to the
BiR in the amount of P100,000.00. However, it took the BIR almost more than five (5) years to take the
necessary legal action to collect the remaining amount of taxes due.

This is clearly beyond the five (5) (now three [3] year) period for the collection of taxes. Hence, the claim
filed by the BIR against the Estate of X for the payment of P200,000.00 has prescribed.
(NOTE: Under R.A. 8424 [1998], the period to collect an assessed tax is five years from the date of the
assessment.)

Q: A Co., a Philippine Corporation, filed its 1995 income Tax Return (ITR) on April 15, 1996 showing a
net loss. On Nov. 10, 1996, it amended its 1995 ITR to show more losses. After a tax investigation, the
BIR disallowed certain deductions claimed by A Co., putting A co. in a net income position. As a result,
on august 5, 1999, the BIR issued a deficiency income assessment against A Co. A Co. protested the
assessment on the ground that it has prescribed. Decide.
A: The right of the BIR to assess the tax has not prescribed. The rule is that internal revenue taxes shall
be assessed within three years after the last day prescribed by law for the filing of the return (Sec. 203,
NIRC). However, if the return originally filed is amended substantially, the counting of the three-year
period starts from the date the amended return was filed (CIR v Phoenix Assurance Co., 14 SCRA 52).
There is a substantial amendment in this case because a new return was filed declaring more losses,
which can only be done either (1) in reducing gross income, or (2) in increasing the items of deductions
claimed.

Q:
(1)Distinguish a false return from a fraudulent return.
(2)Explain the extent of the authority of the Commissioner of internal Revenue to compromise and
abate taxes.
(1) The distinction between a false return and a fraudulent return is that the first merely implies a
deviation from the truth or fact whether intentional or not, whereas the second is intentional and
deceitful with the sole aim of evading the payment of the correct tax due.

(2) The authority of the Commissioner to compromise encompasses both civil and criminal liabilities of
the taxpayer. The civil compromise is allowed only in cases (a) where the tax assessment is of doubtful
validity, or (b) when the financial position of the taxpayer demonstrates a clear inability to pay the tax.

The compromise of the tax liability is possible at any stage of litigation and the amount of compromise is
left to the discretion of the Commissioner, except with respect to final assessments issued against large
taxpayers wherein the Commissioner cannot compromise for less than 50%. Any compromise involving
large taxpayers lower than 50% shall be subject to the approval of the Secretary of Finance.

[NOTE: this requirement had been deleted in R.A. 8424.] All criminal violations except those involving
fraud, can be compromised by the Commissioner but only prior to the filing of the information with the
Court.

Q: What constitutes prima facie evidence of a false or fraudulent return to justify the imposition of a
50% surcharge on the deficiency tax due from a taxpayer? Explain.
A: There is a prima facie evidence of false or fraudulent return when the taxpayer substantially under-
declared his taxable sales, receipts or income, or substantially overstated his deductions. The taxpayer’s
failure to report sales, receipts or income in an amount exceeding 30% of that declared per return, and a
claim of deduction in an amount exceeding 30% of actual deduction shall render the taxpayer liable for
substantial under-declaration and over-declaration, respectively, and will justify the imposition of the
50% surcharge on the deficiency tax due from the taxpayer (Sec. 248, NIRC).

Q: What constitutes prima facie evidence of a false or fraudulent return?

A: There is prima facie evidence of a false or fraudulent return when the taxpayer has willfully and
knowingly filed it with the intent to evade a part or all of the tax legally due from him (Ungab v. Cusi, 97
SCRA 877). There must appear a design to mislead or deceive on the part of the taxpayer, or at least
culpable negligence. A mistake, which is not culpable in respect of its value, would not constitute a false
return (Words and Phrases, Vol. 16, page 173).

Q: On August 5, 1997, Adamson co., Inc. (Adamson) filed a request for reconsideration of the
deficiency withholding tax assessment on July 10, 1997, covering the taxable year 1994. After
administrative hearings, the original assessment of P150,000.00 was reduced to P75,000.oo and a
modified assessment was thereafter issued on August 5, 1999. Despite repeated demands, Adamson
failed and refused to pay the modified assessment. Consequently, the BIR brought an action for
collection in the RTC on September 15, 2000. Adamson moved to dismiss the action on the ground
that the government’s right to collect the tax by judicial action has prescribed. Decide the case.
A: The right of the Government to collect by judicial action has not prescribed. The filing of the request
for reconsideration suspended the running of the prescriptive period and commenced to run again
when a decision on the protest was made on August 5, 1999. It must be noted that in all cases covered
by an assessment, the period to collect shall be five (5) years from the date of the assessment but this
period is suspended the filing of a request for reconsideration which was acted upon by the
Commissioner (Commissioner v. Wyeth Suaco Laboratories, 202 SCRA 125 [1991]).

Q: Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his 1994 income tax return on
March 20, 1995. On December 15, 1995, he left the Philippines as an immigrant to join his family in
Canada. After the investigation of said return, the BIR issued a notice of deficiency of income tax
assessment on April 15, 1998. Mr. Reyes returned to the Philippines as a balikbayan on December 8,
1998. Finding his name to be in the list of delinquent taxpayers, he filed a protest against the
assessment on the ground that he did not receive the notice of assessment and that the assessment
had prescribed. Will the protest prosper/ Explain.
A: No. Prescription has not set in because the period of limitations for the BIR to issue an assessment
was suspended during the time that Mr. Reyes was out of the Philippines or from the period December
15, 1995 up to December 8, 1998 (Sec. 223 in relation to Sec. 203, NIRC).

CHAPTER XXXI: TAX CREDIT OR REFUND

Q:Congress enacts a law granting grade school and high school students a 10% discount on all school-
prescribed textbooks purchased from any bookstore. The law allows bookstores to claim in full the
discount as a tax credit.
1. If in taxable year a bookstore has no tax due on which to enjoy the tax credit, can the
bookstore claim from the BIR a tax refund in lieu of tax credit? Explain
2. Can the BIR require the bookstore to deduct the amount of the discount from their gross
income? Explain.
3. If a bookstore closes its business due to losses without being able to recoup the discount,
can it claim reimbursement of the discount from the government on the ground that
 without such reimbursement, the law constitutes taking of private property for public use
without just compensation? Explain.

A:
1. No, the law is clear that bookstores can only claim the discount as a tax credit. The term “tax
credit” connotes that the amount, when claimed, shall only be treated as a reduction from any
tax liability, plain and simple. There is nothing in the law that grants a refund when the
bookstore has no tax liability against which the tax credit can be used. (CIR v Central Luzon Drug
Corp., 456 SCRA 414 [2005]).
2. No, tax credit which reduces the tax liability, is different from a tax deduction, which merely
reduces the income to arrive at the tax base. Since the law allowed the bookstores to claim in
the full discount as a tax credit, the BIR is not allowed to expand or contract the legislative
mandate (CIR v Central Luzon Drug Corp., ibid.).
3. No, the bookstore cannot claim reimbursement The tax credit privilege given to it is the
compensation for the subsidy taken by the government for the benefit of a class of taxpayers to
which the students belong. However, the privilege granted is limited only to the reduction of a
present or future tax liability, because by its nature, it is the existence of a lack of a tax liability
that determines whether the discount can be used as a tax credit. Accordingly, if the business
continues to operate at a loss and no other taxes are due, compelling the business to close shop,
the credit can never be applied and will be lost altogether. (CIR v Central Luzon Drug Corp.,
ibid.).

Q: On April 6, 2012, the corporation filed its annual corporate income tax return for 2011, showing an
overpayment of income tax of P1 million, which is to be carried over to the succeeding year(s). On
May 15, 2012, the corporate sought advice from you and said that it contemplates to files an
amendment return for 2011, which shows that instead of carryover of the excess income tax
payment, the same shall be considered as a claim for tax refund and the small box shown as “refund”
in the return will be filled up. Within the year, the corporation will file the formal request for refund
for the excess payment. (a) Will you recommend to the corporation such a course of action and justify
that the amendment return is the latest official act of the corporation as to how it may treat such
overpayment of tax or should you consider the option granted to taxpayers as irrevocable, once
previously exercised by it?

(b) Should the petition for review filed with the CTA on the basis of the amended tax return be denied by
the BIR and CTA, could the corporation still carry over such excess payment of income tax in the
succeeding years, considering that there is no prescriptive period provided for in the income tax law with
respect to carry over of excess income tax payments?

A:
a. No. Once the option to carry over and apply the excess quarterly income tax against the income tax
due for the taxable quarters of the succeeding taxable years has been made, such options shall be
considered irrevocable for the taxable year and no application for tax refund or issuance of tax credit
certificate shall be allowed therefor (Sec. 76, NIRC).

b. Yes. The carryover of excess income tax payments is no longer limited to the succeeding taxable year.
Unutilized excess income tax payments may now be carried over to the succeeding taxable years until
fully utilized. In addition, the option to carry over excess income tax payments is now irrevocable.
Hence, unutilized excess income tax payments may no longer be refunded.
Q: a. State the conditions required by the Tax Code before the Commissioner of Internal Revenue
could authorize the refund or credit of taxes erroneously or illegally received.

b. Does a withholding agent have the right to file an application for tax refund? Explain.

A:

a. The conditions are:

(1) a written claim for refund is filed by the taxpayer with the Commissioner of Internal Revenue (Sec.
24, NIRC); (2) the claim for refund must be a categorical demand for reimbursement (Bermejo v
Collector of Internal Revenue, 87 Phil 96 [1950]) ; (3) the claim for refund or tax credit must be filed with
the Commissioner, or the suit or proceeding therefor must be commenced in court within two years
from date of payment of the tax or penalty, regardless of any supervening cause, (Sec. 29, NIRC).

b. Yes. A withholding agent should be allowed to claim for tax refund, because under the law, said agent
is the one who is held liable for any violation of the withholding tax law should such violation occur
(Commissioner v Wander Philippines, 160 SCRA 570 [1988]). Furthermore, since the withholding agent is
made personally liable to deduct and withhold any tax under Section 53(c) of the Tax Code, it is
imperative that he be considered the taxpayer for all legal intents and purposes. Thus, by any
reasonable standard, such person should be regarded as a party-in-interest to bring suit for refund of
taxes (Commissioner v Procter & Gamble PMC and CTA, 204 SCRA 377 [1991]).

Q: On March 12, 2001, REN paid his taxes. Ten months later, he realized that he had overpaid and so
he immediately filed a claim for refund with the Commissioner of Internal Revenue. On February 27,
2003, he received the decision of the Commissioner, denying REN’s claim for refund. On March 24,
2003, REN filed an appeal with the CTA. Was his appeal on time or not? Reason.

A: The appeal was not filed on time. The two-year period of limitation for filing a claim for refund is not
only a limitation for pursuing the claim at the administrative level but also a limitation for appealing the
case to the CTA. The law provides that “no suit or proceeding shall be filed after the expiration of two
years from the date of payment of the tax or penalty, regardless of any supervening cause that may
arise after payment” (Sec. 29, NIRC). Since the appeal was only made on March 24, 2003, more than two
years had already elapsed from the time taxes were paid on March 12, 2003. Accordingly, REN had lost
his judicial remedy because of prescription.

Q: Apple Computer Corp. (ACC) is a foreign corporation doing business in the Philippines through a
local branch located at Makati, Metro Manila. In 1985, the local branch applied with the Central Bank
for authority to remit to ACC branch profits amounting to P8,000.00. After paying the 15% branch
remittance tax of P1,200,000.00, the branch office remitted to ACC the balance of P6,800,000.00. In
January 1986, the branch office was advised by its legal counsel that it overpaid the branch remittance
tax since the basis of the computation thereof should be the amount actually remitted and not the
amount applied for. Accordingly, the branch office applied for a refund in the amount of P180,000.00.
If you were the Commissioner of Internal Revenue, would you grant the claim for refund?

A: If I were the Commissioner of Internal Revenue, I would allow the claim for refund. The remittance
tax should be computed on the amount actually remitted (Marubeni Corporation v Commissioner, G.R.
No. 76573, September 14, 1989). In the refund of taxes, the claim therefor can be filed within two years
from the time of the payment so long as the tax payment was made before an assessment by the
Commissioner has become final (Sec. 230, NIRC).

Q: XCEL Corporation filed its quarterly income tax return for the first quarter of 1985 and paid an
income tax of P500,000.00 on May 15, 1985. In the subsequent quarters, SCEL suffered losses so that
on April 15, 1986, it declared a net loss of P1,000,000.00 in its annual income tax return. After failing
to get refund, XCEL filed on March 1, 1988 a case with the Court of Tax Appeal store cover the P500,
000.oo in taxes paid on May 15, 1985. Is the action to recover the taxes filed timely?

A: The action for refund was filed in the Court of Tax Appeals on time. In the case of Commissioner v
TMX Sales, Inc., 205 SCRA 184, which is similar to this case, the Supreme Court ruled that in the case of
overpaid quarterly corporate income tax, the two year period for filing claims for refund in the BIR as
well as in the institution of an action for refund in the CTA, the two year prescriptive period for tax
refunds (Sec 230, NRIC) is counted from the filing of the final, adjustment return under section 67 of the
Tax Code, and not from the filing of the quarterly return and payment of the quarterly tax. The CTA
action on March 1, 1988 was clearly within the reglementary two year period from the filing of the final
adjustment return of the corporation on April 15, 1986.

Q: A corporation files its income tax return on a calendar year basis.

For the first quarter of 1993, it paid on 30 May 1993 its quarterly income tax in the amount of P3.0
million. On 20 August 1993, it paid the second quarterly income tax of P0.5 million. The third quarter
resulted in a net loss, and no tax was paid. For the fourth and final return for 1993, the company
reported a net loss for the year, and the taxpayer indicated in the income tax return that it opted to
claim a refund of the quarterly income tax payments.

On 10 January 1994, the corporation filed with the Bureau of Internal Revenue a written claim for the
refund of P3.5 million.

BIR failed to act on the claim for refund; hence, on 2 March 1996, the corporation filed a petition for
review with the Court of Tax Appeals on its claim for refund of the overpayment of its 1993 quarterly
income tax. BIR, in its answer to the petition, alleged that the claim for refund was filed beyond the
reglementary period.

Did the claim for refund prescribe?

A: The claim for refund has prescribed. The counting of the two year prescriptive period for filing a claim
for refund is counted not from the date when the quarterly income taxes were paid but on the date
when the final adjustment return or annual income tax return was filed (CIR v TMX Sales, G.R. No.
83736, January 15, 1992; CIR v Philam Life Insurance Co., Inc., G.R. No. 105208, May 29,1995). It is
obvious that the annual income tax return was filed before January 10, 1994 because the written claim
for refund was filed with the BIR on January 10, 1994. Since the two-year prescriptive period is not only
a limitation of action for bringing the case to the judicial stage, the petition for review filed with the CTA
on March 2, 1996 is beyond the reglementary period.

Q:

A. What must a taxpayer do in order to claim refund of, or tax credit of, taxes and penalties which he
alleged to have been erroneously, illegally or excessively assessed or collected?

A: A. The taxpayer must comply with the following procedures in claiming a refund of, or tax credit for,
taxes and penalties which he alleges to have been erroneously, illegally or excessively assessed or
collected:

1. He should file a written claim for refund with the Commissioner within two years after the date of
payment of the tax or penalty (Sec. 204, NIRC);
2. The claim filed must state a categorical demand for reimbursement (Mermejo v Collector, 87 Phil. 96
[1950]);

3. The suit or proceeding for recovery must be commenced in court within two years from date of
payment of the tax or penalty regardless of any supervening event that will arise after payment (Sec.
229, NIRC).

[NOTE: If the answer given is only number 1, it is suggested that the same shall be given full credit,
considering that this is the only requirement for the Commissioner to acquire jurisdiction over the
claim.]

b. Can the Commissioner grant a refund or tax credit even without a written claim for it?

b. Yes. When the taxpayer files a return which on its face shows an overpayment of the tax and the
option to refund/claim a tax credit was chosen by the taxpayer, the Commissioner shall grant the refund
or tax credit without the need for a written claim. This is so, because a return filed showing an
overpayment shall be considered as a written claim for credit or refund (Secs. 76 and 204, NIRC).
Moreover, the law provides that the Commissioner may, even without a written claim therefore, refund
or credit any tax where on the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid (Sec. 229, NIRC).

Q: On June 16, 1997, the Bureau of Internal Revenue (BIR) issued against the estate of Jose de la Cruz
a notice of deficiency estate tax assessment, inclusive of surcharge, interest and compromise penalty.
The Executor of the estate of Jose de la Cruz (Executor) filed a timely protest against the assessment
and requested for waiver of the surcharge, interest and penalty. The protest was denied by the
Commissioner of Internal Revenue (Commissioner) with the finality on September 13, 1997.
Consequently, the Executor was made to pay the deficiency assessment on October 10, 1997. The
following day, the Executor filed a petition with the Court of Tax Appeals (CTA) praying for the refund
of the surcharge, interest and compromise penalty. The CTA took cognizance of the case and ordered
the Commissioner to make a refund. The Commissioner filed a petition for review with the Court of
Tax Appeals assailing the jurisdiction of the CTA and the Order to make refund to the Estate on the
ground that no claim for refund was filed with the BIR.

a) Is the stand of the Commissioner correct? Reason.

A: Yes. There was no claim for refund or credit that has been duly filed with the Commissioner of
Internal Revenue which is required before a suit or proceeding can be filed in any court (Sec. 229, NIRC).
The denial of the claim by the Commissioner is the one which will vest the Court of Tax Appeals
jurisdiction over the refund case should the taxpayer decide to appeal on time.

b) Why is the filing of an administrative claim with the BIR necessary?

B: The filing of an administrative claim for refund with the BIR is necessary in order:

1) To afford the Commissioner an opportunity to consider the claim and to have a chance to
correct the errors of subordinate officers (Gonzales v CTA, et al., 14 SCRA 79); and
2) To notify the Government that such taxes have been questioned and the notice should be borne
in mind in estimating the revenue available for expenditures (Bermejo v Collector; G.R.No. L-
3028, July 29, 1950)

Q: Is a protest at the time of payment of taxes/duties a requirement to preserve the taxpayer’s right
to claim a refund? Explain.
A: For taxes imposed under the NIRC, protest at the time of payment is not required to preserve the
taxpayers’ right to claim refund. This is clear under Section 230 of NIRC which provides that a suit or
proceeding may be maintained for the recovery of national internal revenue tax or penalty alleged to
have been erroneously assessed or collected, whether such tax or penalty has been paid under protest
or not.

For duties imposed under the Tariff and Customs Code, a protest at the time of payment is required to
preserve the taxpayers’ claim for refund. The procedure under the TCC is to the effect that when a ruling
or decision of the Collector of Customs is made whereby liability for duties is determined, the party
adversely affected may protest such ruling or decision by presenting to the Collector, at the time when
payment is made, or within fifteen days thereafter, a written protest setting forth his objections to the
ruling or decision in question (Sec. 2308, TCC).

Q: ABCD Corporation is a domestic corporation with individual and corporate shareholders who are
residents of the US. For the 2nd quarter of 1983, these US-based individual and corporate
shareholders received cash dividends from the corporation. The corresponding withholding tax on
dividend income – 30% for individual, and 35% for corporate nonresident stockholders – was
deducted at source and remitted to the BIR. On May 15, 1984, ABCD filed with the CIR a formal claim
for refund, alleging that under the RP-US Tax Treaty, the deduction of withholding tax on dividends
was fixed at 25% of said income. Thus, ABCD asserted that it overpaid the withholding tax due on the
cash dividends given to its non-resident stockholders in the US. The Commissioner denied the claim.

On January 17, 1985, ABCD filed a petition with the CTA, reiterating its demand for refund. (a) Does
ABCD Corporation have the legal personality to file the refund on behalf of its non-resident
stockholders? (b) Is the contention of ABCD Corporation correct?

A:

a. In Procter & Gamble PMC, supra, involving the refund of alleged over-withheld final withholding tax
on dividends paid out to a non-resident foreign corporation, the defense of the Government against the
claim to the effect that a mere withholding agent is not the proper party that should claim such refund,
was not interposed by the Government in the lower court but was raised only for the first time on
appeal. The Supreme Court sustained the Government’s position and ruled that estoppel does not
preclude the Government from its right to bring up such defense even for the first time on appeal.
However, the Supreme Court, in a subsequent resolution, ruled that the BIR should not be allowed to
defeat an otherwise valid claim for refund by raising the question of the withholding agent’s alleged
incapacity to file the claim for refund for the first time on appeal. The Government must follow the same
rules of procedure which bind private parties. (Commissioner v Procter & Gamble, PMC, 204 SCRA 377).

b. Yes, ABCD is correct. The applicable final withholding income tax rate on the cash dividends paid it to
non-resident shareholders is only 25% of the gross dividend, pursuant to the RP-US Tax Treaty.
Considering that the final withholding taxes deducted and remitted to BIR are 30% (for individuals) and
35% (for corporations), there was overpayment of income tax.

Q: Lily’s Fashion Inc. is a garment manufacturer located and registered as a Subic Bay Freeport
Enterprise under Republic Act No. 7227 and a non-VAT taxpayer. As such, it is exempt from payment
of all local and national internal revenue taxes. During its operations, it purchased various supplies
and materials necessary in the conduct of its manufacturing business. The suppliers of these goods
shifted to Lily’s Fashion, Inc. the 10% VAT on the purchased items amounting to P500,000.00. Lily’s
Fashion, Inc. filed with the BIR a claim for refund for the input tax shifted to it by the suppliers. If you
were the Commissioner of Internal Revenue, will you allow the refund?
A: No. The exemption of Lily’s Fashion, Inc. is only for taxes for which it is directly liable; hence, it cannot
claim exemption for a tax shifted to it, which is not at all considered a tax to the buyer but a part of the
purchase price. Lily’s Fashion, Inc. is not the taxpayer insofar as the passed-on tax is concerned and
therefore, it cannot claim a refund of a tax merely shifted to it. Only taxpayers are allowed to file a claim
for refund (Phil. Acetylene Co. v CIR, 20 SCRA 1056 [1987]).

Q: A Co. is the wholly owned subsidiary of B Co., a non-resident German company. A Co. has a
trademark licensing agreement with B Co. On February 10, 1995, A Co. remitted to B Co. royalties of
P10,000,000.00, which A Co. subjected to a WT of 25% or P2,500,000.00 with the BIR. Upon advice of
counsel, A Co. realized that the proper WT rate is 10%. On March 20, 1996, A Co. filed a claim for
refund of P2,500,000.00 with the BIR. The BIR denied the claim on November 15, 1996. On November
28, 1996 A Co. filed a petition for review with the CTA. The BIR attacked the capacity of A Co., as
agent, to bring the refund case. Decide the issue.

A: A Co., the withholding agent of the non-resident foreign corporation, is entitled to claim the refund of
excess withholding tax paid on the income of said corporation in the Philippines. Being a withholding
agent, it is the one held liable for any violation of the withholding tax law should such a violation occur.
In the same vein, it should be allowed to claim a refund in case of over-withholding. (CIR v Wander
Phils., Inc., GR No. 68378, April 15, 1988, 160 SCRA 573; CIR v Procter & Gamble PMC, 204 SCRA 377).

EARLIER BAR QS 2007-2013 (FROM USJR BAR Q COMPILATION)

Sale of Shares of Stock Traded through the Local Stock Exchange (2008)
 John McDonald, a U.S. citizen residing in Makati City, bought shares of stock of a domestic
corporation whose shares are listed and traded in the Philippine Stock Exchange at the price of
P2 million. Yesterday, he sold the shares of stock through his favorite Makati stockbroker at a
gain of P200,000. (A) Is John McDonald subject to Philippine income tax on the sale of his shares
through his stockbroker? Is he liable for any other tax? (3%)
ANSWER:
No. R.A. 7717, now incorporated in Sec. 127 of the NIRC, provides that the sale of shares of stock traded
in the local stock exchange is subject to a percentage tax on the sales of shares, in lieu of any kind of
income tax.

BIR: Assessment; Exemption to Examine Once a Year (2013)

 In 2010, pursuant to a Letter of Authority (LA) issued by the Regional Director, Mr. Abcede was
assessed deficiency income taxes by the BIR for the year 2009. He paid the deficiency. In 2011,
Mr. Abcede received another LA for the same year 2009, this time from the National
Investigation Division, on the ground that Mr. Abcede's 2009 return was fraudulent. Mr. Abcede
contested the LA on the ground that he can only be investigated once in a taxable year. Decide.
ANSWER:
The contention of Mr. Abcede is not tenable. While the general rule is to the effect that for income tax
purposes, a taxpayer must be subject to examination and inspection by the internal revenue officers
only once in a taxable year, this will not apply if there is fraud, irregularity or mistakes as determined by
the Commissioner. In the instant case, what triggered the second examination is the findings by the BIR
that Mr. Abcede’s 2009 return was fraudulent, accordingly, the examination is legally justified. (Sec 235,
NIRC)

BIR: Assessment; Requisites (2008)

 After examining the books and records of EDS Corporation, the 2004 final assessment notice,
showing basic tax of P1,000,000, deficiency interest of P400,000, and due date for payment of
 April 30, 2007, but without the demand letter, was mailed and released by the BIR on April 15,
2007. The registered letter, containing the tax assessment, was received by the EDS Corporation
on April 25, 2007. (A) What is an assessment notice? What are the requisites of a valid
assessment? Explain.

ANSWER:
An assessment notice is a computation prepared by the BIR of the alleged unpaid taxes, plus interests,
penalties or surcharges, if any. However, an assessment notice must be accompanied by a demand letter
from the BIR in order to result in valid assessment (RR No. 12-99).

(B) As tax lawyer of EDS Corporation, what legal defense(s) would you raise against the assessment?
Explain. (3%)

ANSWER: I would raise the defense that there is no valid assessment because EDS Corporation did not
receive a demand letter from the BIR.

BIR: Assessment; Sale of Real Properties (2008)

 Pedro Manalo, a Filipino citizen residing in Makati City, owns a vacation house and lot in San
Francisco, California, U.S.A. which he acquired in 2000 for P15 million. On January 10, 2006, he
sold said real property to Juan Mayaman, another Filipino citizen residing in Quezon City, for
P20 million. On February 9, 2006, Manalo filed the capital gains tax return and paid P1.2 million
representing 6% capital gains tax. Since Manalo did not derive any ordinary income, no income
tax return was filed by him for 2006. After the tax audit conducted in 2007, the BIR officer
assessed Manalo for deficiency income tax computed as follows: P5 million (P20 million less P15
million) x 35% = P1.75 million, without the capital gains tax paid being allowed as tax credit.
Manalo consulted a real estate broker who said that the P1.2 million capital gains tax should be
credited from the P1.75 million deficiency income tax. (A) Is the BIR officer‟s tax assessment
correct? Explain. (3%)

ANSWER:

The BIR officer correctly disallowed the credit of the final tax of P1.2 million against the net income tax,
which is subject to deductions. However, the assessment of 35% is incorrectly imposed. The correct rate
is based on the 5-32% tax scale which is applicable to individuals. *check rate updates*

(B) If you were hired by Manalo as his tax consultant, what advice would you give him to protect his
interest? Explain. (3%)

ANSWER: I would advise him to demand the application of the 5-32% tax scale instead of the fixed rate
of 35% which applies only to domestic corporations (Sec. 24[D1] NIRC).

BIR; Compromise; Financial Incapacity (2009)

 True or False. Explain your answer in not more than two (2) sentences. (5%) When the financial
position of the taxpayer demonstrates a clear inability to pay the tax, the Commissioner of
Internal Revenue may validly compromise the tax liability.

ANSWER: True. Financial incapacity is a ground allowed by law in order that the Commissioner of
Internal Revenue may validly compromise a tax liability. (Sec 204, NIRC) BIR: Criminal Prosecution; Duty
to Pay Tax despite Acquittal.

 Explain the following statements:

 The acquittal of the taxpayer in a criminal action under the Tax Code does not necessarily result
in exoneration of said taxpayer from his civil liability to pay taxes. (3%)

ANSWERS:
In taxation, the taxpayer becomes criminally liable because of a civil liability. While he may be acquitted
on the criminal case, his acquittal could not operate to discharge him from the duty to pay tax, since that
duty is imposed by statute prior to and independent of any attempt on the taxpayer to evade payment.
The obligation to pay the tax is not a mere consequence of the felonious acts charged in the
information, nor is a mere civil liability derived from crime that would be wiped out by the declaration
that the criminal acts charged did not exist (Castro v. Collector of Internal Revenue, L-12174, April 26,
1962).

BIR: Criminal Prosecution; Tax Evasion; Bribery (2013)

You are the retained tax counsel of ABC Corp. Your client informed you that they have been directly
approached with a proposal by a BIR insider (i.e., a middle rank BIR official) on the tax matter they have
referred to you for handling. The BIR insider's proposal is to settle the matter by significantly reducing
the assessment, but he will get 50% of the savings arising from the reduced assessment. What tax,
criminal and ethical considerations will you take into account in giving your advice? Explain the
relevance of each of these considerations.

ANSWER:
I will advise my client not to accept the settlement proposal but instead pay the entire amount of tax
that is legally due to the government.

On the tax aspect, I will tell my client that a proposed assessment covering deficiency taxes which are
legally due must be fully paid to exonerate the taxpayer from further liabilities. The unwarranted
reduction of the proposed assessment into half and the payment thereof will not close the case but can
be re-opened anytime within ten years from discovery so as to collect the correct amount of taxes from
ABC Corp.

The act of deliberately paying an amount of tax that is less than what is known by my client to be legally
due through a cause of action that is unlawful is considered as tax evasion. I will advise my client that
conniving with a BIR insider to reduce the proposed assessment for a fee us unlawful which can expose
the officers of the corporation to criminal liability. Likewise, the payment to be made to the BIR official
of 50% of the savings constitutes direct bribery punishable under the Revised Penal Code. Insofar as the
BIR officer is concerned he will also be a principal to direct bribery and to the criminal violation
penalized under Section 269 of the Tax Code. On ethical grounds, agreeing to the settlement scheme
being proposed by the BIR insider is agreeing to the perpetration of a dishonest act. Since taxation is
symbiotic relationship, fair dealing on both sides is of paramount importance. I will remind my client
that taxpayers owe honesty to government just as government owes fairness to taxpayers. (CIR v. Tokyo
Shipping Co. Ltd., G.R. No. 68252, May 26, 1996)

BIR: False Return v. Fraudulent Return (2009)

 True or False. Explain your answer in not more than two (2) sentences. A false return and a
fraudulent return are one and the same. (5%)

ANSWER: False. There is a different between a false return and a fraudulent return. The first merely
implies a deviation from the truth or fact whether intentional or not, whereas the second is intentional
and deceitful with the aim of evading the correct tax due.
BIR: Failure to File Return; Collection Without Assessment (2012)
 Explain the following statements: (B) Should the accused be found guilty beyond reasonable
doubt for violation of Section 255 of the Tax Code (for failure for file tax return or to supply
correct information), the imposition of the civil liability by the CTA should be automatic and no
assessment notice from the BIR is necessary?

ANSWER: Yes. If the failure to file tax return or to supply correct information resulted to unpaid taxes
the amount of which is proven during trial, the CTA shall not only impose the criminal penalty but must
likewise order the payment of the civil liability (Section 205(b), NIRC). As a matter of fact, it is well-
recognized that in the case of failure to file a return, a proceeding in court for the collection of the tax
may be filed without the need of an assessment, which recognizes that the civil liability of a taxpayer
maybe established without the need of an assessment (Section 222(a), NIRC).

BIR: Failure to File Return; Criminal Actions in RTC (2010)

 Based on the Affidavit of the Commissioner of Internal Revenue (CIR), an Information for failure
to file income tax return under Section 255 of the National Internal Revenue Code (NIRC) was
filed by the Department of Justice (DOJ) with the Manila Regional Trial Court (RTC) against XX, a
Manila resident. XX moved to quash the Information on the ground that the RTC has no
jurisdiction in view of the absence of a formal deficiency tax assessment issued by the CIR. Is a
prior assessment necessary before an Information for violation of Section 255 of the NIRC could
be filed in court? Explain.

ANSWER: No. In the case of failure to file a return, a proceeding in court for the collection of the tax
may be filed without an assessment (Sec 222 (a), NIRC). The tax can be collected by filing a criminal
action with the RTC because a criminal action is a mode of collecting the tax liability. (Sec. 205, NIRC).
Besides, the Commissioner is empowered to prepare a return on the basis of his own knowledge, and
upon such information as he can obtain from testimony or otherwise, which shall be prima facie correct
and sufficient for legal purposes (Sec 6 (B), NIRC; the issuance of a formal deficiency tax assessment,
therefore, is not required.

BIR: Prescription; Construction in Criminal Cases (2010) True or False.

 In criminal cases involving tax offenses punishable under the National Internal Revenue Code
(NIRC), prescription is construed strictly against the government. (1%)

ANSWER: False.

CTA: Jurisdiction; Power to Review Compromise Agreements (2010)

 Does the Court of Appeals have the power to review compromise agreements forged by the
Commissioner of Internal Revenue and a taxpayer? Explain. (5%)
ANSWER:
No, for either of two reasons (1) in instances in which the Commissioner of Internal Revenue is vested
with authority to compromise, such authority should be exercised in accordance with the
Commissioner’s discretion, and courts have no power, as a general rule, to compel him to exercise such
discretion one way or another (Koppel Phils., Inc. v. CIR, 87 Phil, 351 (1950); (2) If the Commissioner
abuses his discretion by not following the parameters set by law, the CTA, not the Court of Appeals, may
correct such abuse if the matter is appealed to it. In case of arbitrary or capricious exercise by the
Commissioner of the power to compromise, the compromise can be attacked and reversed through the
judicial process. It must be noted however, that a compromise is considered as other matters arising
under the NIRC which vests the CTA with jurisdiction, and since the decision of the CTA is appealable to
the Supreme Court, the Court of Appeals is devoid of any power of review a compromise settlement
forged by the Commissioner.

CTA: Proceedings in the CTA (2010)

 Proceedings before the CTA in the exercise of its exclusive original jurisdiction are in the nature
of trial de novo. (1%)

ANSWER: True.

 What are the conditions that must be complied with before the Court of Tax Appeals may
suspend the collection of national internal revenue taxes? (3%)

ANSWER: The CTA may suspend the collection of internal revenue taxes if the following conditions are
met:
1. the case is pending appeal with the CTA;
2. in the opinion of the Court the collection will jeopardize the interest of the
Government and/or the taxpayer; and
3. the taxpayer is willing to deposit in Court the amount being collected or to file a surety
bond for not more than double the amount of the tax

(Sec 11, RA 1125, as amended by RA 9282).

Taxpayer: Claim for Refund; Carry-Over Option is Irrevocable (2013)

 In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax credits arising
from its over-withholding of income payments. It opted to carry over the excess tax credits to
the following year. Subsequently, ABC Corp. changed its mind and applied for a refund of the
excess tax credits.
Will the claim for refund prosper?

ANSWER: No. The claim for refund will not prosper. While the law gives the taxpayer an option to
whether carry-over or claim as refund the excess tax credits shown on its final adjustment return, once
the option to carry-over has been made, such option shall be considered irrevocable for that taxable
period and no application for cash refund or issuance of a tax credit certificate shall be allowed. (Sec 76,
NIRC; CIR v. PL Management International Phils., Inc., April 4, 2011, 647 SCRA 72 (2011) G.R. No.
160949).

Taxpayer: Claim for Refund; Substantiation Requirement (2009)

 International Technologies, Inc. (ITI) filed a claim for refund for unutilized input VAT with the
Court of Tax Appeals (CTA). In the course of the trial, ITI engaged the services of an independent
Certified Public Accountant (CPA) who examined the voluminous invoices and receipts of ITI. ITI
offered in evidence only the summary prepared by the CPA, without the invoices and the
receipts, and then submitted the case for decision. Can the CTA grant ITI's claim for refund
based only on the CPA's summary? Explain.

ANSWER:
No. The summary prepared by the CPA does not prove anything unless the documents which were the
basis of the summary are submitted to the CTA and adduced in evidence. The invoices and receipts must
be presented because they are the only real and direct evidence that would enable the Court to
determine with particular certainty the basis of the refund (CIR v. Rio Tuba Nickel Mining Corp., 207
SCRA 549 (1992)). Taxpayer: Claim for Refund; Withholding Agent as a Proper Party (2009)
 ABCD Corporation (ABCD) is a domestic corporation with individual and corporate shareholders
who are residents of the United States. For the 2nd quarter of 1983, these U.S.-based individual
and corporate stockholders received cash dividends from the corporation. The corresponding
withholding tax on dividend income --- 30% for individual and 35% for corporate non-resident
stockholders --- was deducted at source and remitted to the BIR. On May 15, 1984, ABCD filed
with the Commissioner of Internal Revenue a formal claim for refund, alleging that under the
RP-US Tax Treaty, the deduction withheld at source as tax on dividends earned was fixed at 25%
of said income. Thus, ABCD asserted that it overpaid the withholding tax due on the cash
dividends given to its non-resident stockholders in the U.S. The Commissioner denied the claim.
On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals (CTA) reiterating its
demand for refund. Does ABCD Corporation have the legal personality to file the refund on
behalf of its non-resident stockholders? Why or why not? (3%)

ANSWER:
Yes. A withholding agent is not only an agent of the Government but is also an agent of the
taxpayer/income earner. Hence, ABCD is also an agent of the beneficial owner of the dividends with
respect to the actual payment of the tax to the Government, such authority may reasonably be held to
include the authority to file a claim for refund and to bring an action for recovery of such claim (CIR v.
Procter & Gamble, 204 SCRA 377, (1991)).

Taxpayer: Tax Credit; Off-Setting (2007)

 ABC Corporation won a tax refund case for P150 Million. Upon execution of the judgment and
when trying to get the Tax Credit Certificates (TCC) representing the refund, the Bureau of
Internal Revenue (BIR) refused to issue the TCC on the basis of the fact that the corporation is
under audit by the BIR and it has a potential tax liability. Is there a valid justification for the BIR
to withhold the issuance of the TCC? Explain your answer briefly? (5%)

ANSWER:
The BIR has no valid justification to withhold the TCC. Offsetting the amount of TCC against a potential
tax liability is not allowed, because both obligations are no yet fully-liquidated. While the amount of the
TCC has been determined; the amount of deficiency tax is yet to be determined through the completion
of the audit. (Philex Mining Corporation v. CIR, 294 SCRA 687 [1998]).

ALTERNATIVE ANSWER:
There is no valid justification to withhold the TCC. The requirement, that the claim for refund/TCC and
liability for deficiency taxes must be settled under one proceeding to avoid multiplicity of suits, will not
apply since the determination of the entitlement to the refund was already removed from the BIR. To
reopen the claim for refund in order to give way to the introduction of evidence of a deficiency
assessment will lead to an endless litigation, which is not allowed. (CIR v. Citytrust Banking Corporation,
499 SCRA 477 [2006]).

Taxpayer: Claim for Tax Credit; Prescription (2008)

 DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Starting December
15, 2004, DEF Corporation paid annual royalties to DEF, Inc., for the use the latter‟s software,
for which the former, as withholding agent of the government, withheld and remitted to the BIR
the 15% final tax based on the gross royalty payments. The withholding tax return was filed and
the tax remitted to the BIR on January 10 of the following year, On April 10, 2007, DEF
 Corporation filed a written claim for tax credit with the BIR, arising from erroneously paid
income taxes covering the years 2004 and 2005. The following day, DEF Corporation filed a
petition for review with the Court of Tax Appeals involving the tax credit claim for 2004 and
2005.
(A) As a BIR lawyer handling the case, would you raise the defense of prescription in your answer
to the claim for tax credit? Explain. (4%)

ANSWER: Yes. The defense of prescription is available as against the 2004 tax credit. Under Sec. 229
NIRC, the prescriptive period is 2 years reckoned from the filing of the annual return (CIR v. TMX Sales,
G.R. No. 83736, 15 January 1992; CIR v. PhilAm Life, G.R. No. 105208, 29 May 1995; CIR v. CTA, G.R. No.
117254, 21 January 1999). However, the 2005 claim has not yet prescribed since its prescriptive period
ends on January 11, 2008 while the claim was filed on April 10, 2007. The filing of the Petition for Review
with the Tax Appeals on the 2005 Claim is premature (Sec. 57[A] NIRC).

 (B) Can the BIR lawyer raise the defense that DEF Corporation is not the proper party to file such
claim for tax credit? Explain. (3%)

SUGGESTED ANSWER:
No. the BIR cannot raise the defense that DEF Corporation is not the proper party. In CIR v. Procter &
Gamble, G.R. No. 66838, 02 December 1991, the Court ruled that a final withholding agent is a proper
party “with sufficient legal interest” because it will be liable in the event that the final income tax
cannot be paid by the taxpayer (See also Philippine Guaranty Co. v. CIR and CTA, No. L-22074, 30 April
1965).

Taxpayer: Petition for Review; Tenor of Finality of Assessment (2012)

 In the examination conducted by the revenue officials against the corporate taxpayer in 2010,
the BIR issued a final assessment notice and demand letter which states: “It is requested that
the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident
to delinquency. This is our final decision based on investigation. If you disagree you may appeal
this time, decision within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable.” The assessment was immediately
appealed by the taxpayer to the Court of Tax Appeals, without filing its protest against the
assessment and without a denial thereof by the BIR. If you were the judge, would you deny the
petition for review filed by the taxpayer and consider the case as prematurely filed? Explain your
answer. (5%)

ANSWER:
NO. The Petition for Review should not be denied. The case is an exception to the rule on exhaustion of
administrative remedies. The BIR is estopped from claiming that the filing of the Petition for Review is
premature because the taxpayer failed to exhaust all administrative remedies. The statement of the BIR
in its Final Assessment Notice and Demand Letter led the taxpayer to conclude that only a final judicial
ruling in his favor would be accepted by the BIR. The taxpayer cannot be blamed for not filing a protest
against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of
the demand letter indicate that it is the final decision of the respondent on the matter. The CIR should
indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes
his final determination thereon in order for the taxpayer concerned to determine when his or her right
to appeal to the tax court accrues. Although there was no direct reference for the taxpayer to bring the
matter directly to the CTA, it cannot be denied that the word “appeal” under prevailing tax laws refers
to the filing of a Petition for Review with the CTA (Allied Bank vs. CIR, G.R. No. 175097, February 5,
2010).
Taxpayer: Prescription; Construction in Civil Cases (2010) True or False. In civil cases involving the
collection of internal revenue taxes, prescription is construed strictly against the government and
liberally in favor of the taxpayer. (1%)

ANSWER: True. (CIR v. BF Goodrich., Phils. Inc., G.R. No. 104171, Feb. 24, 1999; Phil. Journalists, Inc. v.
CIR, G.R. No. 162852, Dec. 16, 2004.)

Taxpayer: Prescription; Effect of Prescription to File Protest (2009)

 A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer
on June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was
initially given due course, but was eventually denied by the Commissioner of Internal Revenue in
a decision dated June 15, 2005. The taxpayer then filed a petition for review with the Court of
Tax Appeals (CTA), but the CTA dismissed the same.
a. Is the CTA correct in dismissing the petition for review? Explain your answer. (4%)

ANSWER: Yes. The protest was filed out of time, hence the CTA does not acquire jurisdiction over the
matter (CIR v. Atlas Mining and Development Corp. (2000)).

b. Assume that the CTA's decision dismissing the petition for review has become final. May the
Commissioner legally enforce collection of the delinquent tax? Explain. (4%)

ANSWER:
No. The protest was filed out of time and, therefore, did not suspend the running of the prescriptive
period for the collection of the tax. Once the right to collect has prescribed, the Commissioner can no
longer enforce collection of the tax liability against the taxpayer (CIR v. Atlas Mining and Development
Corp. (2000)).

Taxpayer; Prescription; Effect of Waiver of Statute of Limitations (2010)

 What is the effect of the execution by a taxpayer of a "waiver of the statute of limitations" on
his defense of prescription? (2%)

ANSWER:
The waiver of the statute of limitation executed by a taxpayer is not a waiver of the right to invoke the
defense of prescription. The waiver of the statute of limitation is merely an agreement in writing
between the taxpayer and the BIR that the period to assess and collect taxes due is extended to a date
certain. If prescription has already set in at the time of execution of the waiver or if the said waiver is
invalid, the taxpayer can still raise prescription as defense (Phil. Journalists Inc., v. CIR, G.R. No. 162852,
Dec. 16, 2004)

Taxpayer: Protest against Final Assessment Notice (2010)

 On March 10, 2010, Continental, Inc. received a preliminary assessment notice (PAN) dated
March 1, 2010 issued by the Commissioner of Internal Revenue (CIR) for deficiency income tax
for its taxable year 2008. It failed to protest the PAN. The CIR thereupon issued a final
assessment notice (FAN) with letter of demand on April 30, 2010. The FAN was received by the
corporation on May 10, 2010, following which or on May 25, 2010, it filed its protest against it.
The CIR denied the protest on the ground that the assessment had already become final and
executory, the corporation having failed to protest the PAN. Is the CIR correct? Explain. (5%)
ANSWER: No. The issuance of preliminary assessment notice (PAN) does not give rise to the right of the
taxpayer to protest. What can be protested by the taxpayer is the final assessment notice (FAN) or that
assessment issued following the PAN. Since the FAN was timely protested (within 30 days from receipt
thereof, the assessment did not become final and executory (Sec 228, NIRC; RR No. 12-99).

Taxpayer: Protest; Remedies Against BIR’s Inaction to a Protest (2009)

 A taxpayer received an assessment notice from the BIR on February 3, 2009. The following
day, he filed a protest, in the form of a request for reinvestigation, against the assessment and
submitted all relevant documents in support of the protest. On September 11, 2009, the
taxpayer, apprehensive because he had not yet received notice of a decision by the
Commissioner on his protest, sought your advice. What remedy or remedies are available to
the taxpayer? Explain. (4%)
ANSWER:
The remedy of a taxpayer is to avail of either of two options:
1. File a petition for review with the CTA within 30 days after the expiration of the 180-day period
from submission of all relevant documents; or
2. Await the final decision of the Commissioner on the disputed assessment and appeal such final
decision to the CTA within 30 days after receipt of a copy of such decision.

These options are mutually exclusive such that resort to one bars the application of the other (RCBC v.
CIR, 522 SCRA 144 (2007)).

Taxpayer: Request for Reconsideration vs. Request for Reinvestigation (2012)

 The BIR issued in 2010 a final assessment notice and demand letter against X Corporation
covering deficiency income tax for the year 2008 in the amount of P10 Million, X Corporation
earlier requested the advice of a lawyer on whether or not it should file a request for
reconsideration or a request for reinvestigation. The lawyer said it does not matter whether the
protest filed against the assessment is a request for reconsideration or a request for
reinvestigation, because it has the same consequences or implications.
(A) What are the differences between a request for reconsideration and a request for
reinvestigation? (5%)

ANSWER:
Request for Reconsideration – plea for evaluation of assessment on the basis of existing records
without need of presentation of additional evidence. It does not suspend the period to collect the
deficiency tax.
Request for Reinvestigation – plea for re-evaluation on the basis of newly discovered evidence which
are to be introduced for examination for the first time. It suspends the prescriptive period to collect.

(B) Do you agree with the advice of the lawyer? Explain your answer. (5%)

ANSWER: No, in view of the aforesaid difference between Request for Reconsideration & Request for
Reinvestigation.

OPT AND DST QUESTIONS

 Emiliano Paupahan is engaged in the business of leasing out several residential apartments
unit he owns. The monthly rental for each until ranges from P8,000 to P10,000. His gross
 rental income for one year is P1,650,000. He consults with you on whether it is necessary for
him to register as a VAT taxpayer. What legal advice will you give him, and why?

Answer:
Since the rental income per unit per month of his apartment units (which ranges from P8,000 to
P10,000) does not exceed the threshold provided for the VAT law in the amount of P10,000 (now
P15,000 beginning January 1, 2018) his rental income is exempt from VAT under Section 109(Q) of the
1997 Tax Code. In view thereof, it does not matter whether or not he has exceeded the general
threshold for the preceding 12 months of P1,500,000 (now P3,000,000) prescribed in Section 109 (V) of
the Tax Code. Thus, my advice is for him not to register as a VAT person. He will be exempt from VAT
under Section 109(Q) and from the three percent percentage tax under Section 116 of the Tax Code.

 What is the basis for the computation of business tax on contractors under the Local
Government Code?

Answer:

The business tax on contractors is a graduated annual fixed based on the gross receipts for the
preceding calendar year. If the gross receipts amount to more than P2.0 Million the business is subject
to a percentage tax at the rate of 50% of 1%.

 A pawnshop shall now be treated, for business tax purposes:

(a) As a lending investor liable to the 12% VAT on its gross receipts from interest income and from
gross selling price from sale of unclaimed properties.
(b) Not as a lending investor, but liable to the 5% gross receipts tax imposed on a non-bank
financial intermediary under Title VI (Other Percentage Taxes);
(c) As exempt from 12% VAT and 5% gross receipts tax;
(d) As liable ot the 12% VAT and 5% gross receipts tax.

 Under the VAT system, there is no cascading because the tax itself is not again being taxed.
However, in determining the tax base on sale of taxable goods under the VAT system:
(a) The professional tax paid by the professional is included in gross receipts;
(b) The other percentage tax (e.g., gross receipts tax) paid by the taxpayer is included ing ross
selling price;
(c) The excise tax paid by the taxpayer before withdrawal of the goods from the place of
production or from customs custody is included in the gross selling price;
(d) The documentary stamp tax paid by the taxpayer is included in the gross selling price or gross
receipts.

 During the audit conducted by the BIR official, it was found that the rental income claimed by
the corporation was not subject to expanded withholding tax. Accordingly, the claimed rental
expense:
(a) Is deductible from the gross income of the corporation, despite non-withholding of income tax
by the corporation;
(b) Is deductible from the gross income of the corporation, provided that the 5% expanded
withholding tax is paid by the corporation during the audit;
(c) Is not deductible from gross income of the corporation due to non-withholding of tax;
(d) Is deductible, if it can be shown that the lessor has correctly reported the rental income in his
tax return
BAR 2019 Question:

 KM Corporation, doing business in the City of Kalookan, has been distributor and retailer of
clothing and household materials It has been paying the City of Kalookan local taxes based on
Section 15 (Tax on Wholesalers, Distributors or Dealers) and 17 (Tax on RetailerS) of the
Revenue Code of Kalookan City (Code). Subsequently, Seciton2 1 which imposes a tax on
“Business Subject ot Excise, Value-Added and Percentage Taxes under the National Internal
Revenue Code (NIRC),” at the rate of 50% of 1% per annum on the gross sales and receipts on
persons “who sells goods and services in the course of trade or business.” KM Corporation
paid the taxes due under Section 21 under protest, claiming that (a) local government units
could not impose a tax on business already taxed under the NIRC and (b) this would amount
to double taxation, since its business was already taxed under Sections 15 and 17 of the Code.

May local government units impose a tax on business already subjected to tax under the NIRC?

(a) Yes. “Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively
to the local governments.” (Article 10, Section 5 of the 1987 Constitution).

Sec 133 of the LGC – Common limitations on the taxing power of LGC

Relate with Sec 143 (h) of the LGC – “Tax on Businesses: (h) On any business, not otherwise specified in
the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on
any business subject to the excise, value-added or percentage tax under the National Internal Revenue
Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the
preceding calendar year. The sanggunian concerned may prescribe a schedule of graduated tax rates but
in no case to exceed the rates prescribed herein.”

(b) Does this amount to double taxation? (2.5%)

(b) Yes, it will amount to indirect double taxation. Under the law, direct double taxation exists if the
following requisites exist:

i. Both taxes are imposed on the same property or subject matter;

1. ii. For the same purpose;
2. iii. Imposed by the same taxing authority;  Within the same jurisdiction;
3. iv. During the same taxing period;
4. v. Covering the same kind or character of tax.

If there is an element lacking, only indirect double taxation exists. The Constitution only prohibits
direct double taxation.

 On September 17, 2015, Data Realty, Inc., a real-estate corporation duly organized and
existing under Philippine law, sold to Jenny Vera a condominium unit at Freedom Residences
in Malabon City with an area of 32.31 square meters for a contract price of P4,213,000. The
condominium unit had a zonal value amounting to P2,877,000 and fair market value
amounting to P550,000.

(a) Is the transaction subject to value-added tax and documentary stamp tax?
Yes. As to VAT liability, the sale of real properties held primarily for sale to customer or held for lease in
the ordinary cou7rse of trade or business is subject to VAT. Further, the contract price, which is the
highest compared to the zonal value and the fair market value, is beyond the transactional threshold for
residential dwellings thereby making the sale transaction VATable. As to the DST liability, all
conveyances of real property for consideration are subject to DST.

(b) Would your answer be the same if the property was sold by a bank in a foreclosure sale?
Explain your answer?

No, the sale made by the bank is exempt from VAT. Banks are exempt from VAT because they are
subject to percentage tax under Title V of the NIRC. However, the sale will still be subject to DST because
conveyances of real property for a consideration are subject to DST.

 In a civil case for Annulment of Contract of Sale, plaintiff Ma. Reklamo presented in evidence
the Contract of Sale which she sought to be annulled. No documentary stamp on the Contract
of Sale was paid because according to plaintiff Ma. Reklamo, there was no need to pay the
same since the sale was not registered with the Register of Deeds. Plaintiff Ma. Reklamo is
now offering the Contract of Sale as her evidence. Is the Contract of Sale admissible?

Answer:

No. The Contract of Sale cannot be admitted in evidence. The document is clearly taxable because the
law imposes a documentary stamp tax (DST) on Sales and Agreements to Sell, and Memoranda of Sale.
Since the DST thereon ins not paid, the effect is that the instrument, document, or paper which require
by law to be stamped and which has been signed, issued, accepted and transferred without being duly
stamped shall not be recorded, nor shall it be used to in evidence in any court until the requisite stamp
or stamps shall have been affixed thereto and cancelled. In the case at bar, no documentary stamp was
paid on the Contract of Sale, hence, it cannot be used as her evidence in court.

Q: Company A entered into a Plan of Merge with Company B, C and D, with the former being the
surviving corporation. As a result of the merger, the assets and liabilities of the absorbed corporations
were transferred to Company B. The CIR imposed Documentary Stamp Tax upon the transfer of
assets, such as real properties, pursuant to Section 196 of the NIRC. However, Company B claims that
it is exempt from paying such taxes. Rule.

A: The contention of Company B will prevail over the claim of the CIR. In reference to Section 196 of the
NIRC, it does not include the transfer of real property from one corporation to another pursuant to a
merger. that Section 196 would clearly show it pertains only to sale transactions where real property is
conveyed to a purchaser for a consideration. The phrase "granted, assigned, transferred or otherwise
conveyed" is qualified by the word "sold" which means that DST under Section 196 is imposed on the
transfer of realty by way of sale and does not apply to all conveyances of real property.

Indeed, the fact that Section 196 refers to words "sold", "purchaser", and "consideration" undoubtedly
leads to the conclusion that only sales of real property are contemplated therein.