WAIVER OF VAT EXEMPTION / ELECTION TO BE VAT-REGISTERED

Section 109(2) of the NIRC:

• A VAT-exempt person may opt to be VAT-registered

• Effect: Becomes liable for VAT and can claim input tax

• Irrevocable for 3 years from election quarter

INPUT AND OUTPUT TAX

Tax Type Definition Basis

Input Tax VAT paid on purchases, imports, or lease of goods/services used in business Sec. 110, NIRC

Output Tax VAT due on sales or leases of taxable goods/services Sec. 236, NIRC

Conditions for Input VAT Crediting (Sec. 110):

1. Must be evidenced by a VAT invoice (Sec. 113)

2. Spread of Input VAT over 60 months for capital goods > ₱1M

3. Direct and indirect attribution rules for mixed VAT and non-VAT activities

4. Non-resident digital providers cannot claim input VAT

VAT EXEMPT TRANSACTIONS

A. Based on Section 109(1) of the NIRC (Memorize!)

Commonly Tested Exempt Transactions:

1. Food and Agricultural Products:

o Marine and agricultural food products in their original state

o Fertilizers, seeds, seedlings, fingerlings

o Agricultural contract growers and palay milling

2. Importation-Related Exemptions:

o Personal/household effects of returning residents & NRCs

o Professional instruments, tools of trade

o Importation for international shipping/air operations

o Capital equipment and medical goods for COVID-19

3. Education and Health:

o Medical, dental, hospital, and veterinary services (not by professionals)

o Private educational services

 4. Government and Coops:

o Sales by agricultural, credit, multi-purpose cooperatives registered with CDA

o Transactions of RHQs (Regional Headquarters)

o Association dues and similar charges

5. Real Estate and Lease:

o Residential lot (≤ ₱1.5M) and dwellings (≤ ₱2.5M)

o Residential lease (≤ ₱15k/month)

6. Others:

o Services subject to percentage tax

o Books under UNESCO Agreement (non-advertising)

o Passenger transport by international carriers

o Sale of gold to BSP

o Prescription medicines for major illnesses

o Sales where gross annual sales do not exceed ₱3M (unless opted-in)

To avail of the VAT exemption and VAT zero-rating under RR No. 21-2021, the following conditions must be met:

1. The enterprise must be a registered export enterprise under the CREATE Act and the SIPP.

2. The goods or services must be directly and exclusively used in the registered project or activity.

3. For VAT zero-rating on local purchases, there must be:

o Endorsement from the concerned Investment Promotion Agency (IPA) (e.g., BOI, PEZA),

o Compliance with documentary requirements prescribed by the BIR.

4. The incentive period is limited to a maximum of 17 years from the date of registration, unless extended under
the SIPP.

Zero-Rated Sales of Goods or Properties (Sec. 4.106-5 of RR 16-2005 as amended)

✅ These sales by VAT-registered persons are zero-rated:

1. Export Sales:

o Goods shipped from PH to foreign countries

o Paid in foreign currency per BSP rules

o Includes sales of goods, supplies, fuel, and equipment to international shipping or air transport
operators for use in transporting passengers/cargo abroad

2. Sales to Tax-Exempt Entities:

o Buyers that are exempt from both direct and indirect taxes by special law or international agreement
 3. Sales to Registered Export Enterprises:

o Raw materials, inventories, supplies, equipment, packaging materials, and goods

o Must be used directly and exclusively in the registered project or activity

o VAT zero-rating is granted:

▪ For a maximum of 17 years

▪ With IPA endorsement

o Applies even to existing export enterprises in ecozones and freeports (until transitory period expires)

Who May Claim Input VAT Refund?

You can claim an input VAT refund if:

• You are a VAT-registered person;

• Your sales fall under the zero-rated categories under Sec. 106(A)(2);

• You incurred input VAT related to these zero-rated sales;

• You did not use the input VAT to offset output VAT.

Zero-Rated Sales Covered (Sec. 106[A][2])

(a) Export Sales:

1. Sale and shipment of goods from PH to a foreign country, paid in acceptable foreign currency (BSP-compliant);

2. Sale of raw/packaging materials to a non-resident buyer, delivered to a local export-oriented enterprise, paid in
foreign currency;

3. Sale of goods to an export-oriented enterprise whose exports are at least 70% of its total annual production (as
certified by the DTI’s Export Marketing Bureau);

4. Sale of goods, supplies, equipment, and fuel to persons engaged in international shipping or air transport, for
use in such operations;

5. Sales to bonded manufacturing warehouses of export-oriented enterprises.

(b) Sales to Tax-Exempt Entities:

• Sales to persons/entities exempt under special laws or international agreements, which subject the sale to
zero-rated VAT.

(c) Sales to Offshore Gaming Licensees:

• As long as they are subject to gaming tax under Sec. 125-A

Steps to Claim Input VAT Refund (Sec. 112, NIRC):

1. File an Application for Refund

• When? Within 2 years from the close of the taxable quarter when the zero-rated sales were made.

• Where? With the Bureau of Internal Revenue (BIR).

• Use BIR Form No. 1914 (Application for VAT Refund/Credit).

2. Attach Required Documents

Typical supporting documents include:

• VAT return for the period (BIR Form No. 2550Q),

• Summary Alphalist of Sales and Purchases (SLS/SPS),

• Invoices and official receipts (must show zero-rated sales),

• Proof of foreign currency inward remittance (e.g., bank credit memos),

• BSP certification or compliance with BSP rules (if required),

• Certificate of Registration (BIR Form 2303),

• Certificate from DTI/PEZA (for export-oriented companies),

• Other documents as required by BIR Revenue Regulations (RR No. 13-2018 and RMO 47-2020).

3. Wait for BIR Action

• BIR is mandated to act within 90 days from submission of complete documents.

• If no decision is made or the claim is denied, you may appeal to the Court of Tax Appeals (CTA) within 30 days.

Notes:

• Only input VAT attributable to zero-rated sales is refundable.

• Make sure all invoices and receipts are VAT-compliant.

• Claimants must not have passed on the VAT to another person (no double recovery).

Transaction Type Method Used VAT Due When?

Sale of Goods Accrual When the buyer is obligated to pay (usually invoice date or delivery)

Sale of Services Cash basis When you actually or constructively receive the money
Constructive Receipt Also Triggers VAT

"Constructive receipt" means the payment is under your control even if not physically received—for example:

• Funds deposited in your account without restrictions

• Offset of a receivable against a payable, with agreement

• A customer directs that a payment be made to your creditor on your behalf

Penalties for Late Payment – When Applicable

There are no penalties simply for a delay in payment from your customer under the cash method, because no VAT is
yet due.

However, penalties may apply if:

• VAT becomes due (e.g., payment is received), but the business fails to declare or remit it in the correct periodic
VAT return (e.g., quarterly).

• The business incorrectly uses the cash method for services that should be under the accrual method.

input VAT credit, amortization, and refund rules

Scenario:

Brilliant Electronics Corp. (BEC) is a VAT-registered domestic corporation engaged in the manufacture and sale of
electronic appliances. In January 2023, BEC imported capital equipment worth ₱5 million (exclusive of 12% VAT). It uses
the equipment in its VAT-taxable operations. In the same year, BEC’s output VAT was ₱1.2 million, while its total input
VAT (including amortized capital goods input tax) amounted to ₱1.6 million.

In addition, BEC also made zero-rated export sales worth ₱10 million and local sales worth ₱5 million.

(a) Is BEC allowed to fully claim the ₱600,000 input VAT on the capital equipment in 2023?

(b) What are BEC’s options with respect to the excess input VAT?

(c) When and how should BEC file a claim for a refund of unutilized input VAT?

SUGGESTED ANSWER:

(a) No, BEC is not allowed to fully claim the ₱600,000 input VAT on the capital equipment in 2023. Under Section
110(A)(2) of the Tax Code, input VAT on the importation or purchase of capital goods with an aggregate acquisition cost
exceeding ₱1 million must be amortized over the month of acquisition and the 59 succeeding months (i.e., over 5
years).
Thus, the ₱600,000 VAT (12% of ₱5 million) must be spread evenly over 60 months, resulting in a monthly amortization
of ₱10,000. Therefore, only ₱120,000 (₱10,000 x 12 months) can be claimed as input VAT in 2023.

(b) If the input VAT exceeds the output VAT at the end of the quarter, the excess input VAT may generally be carried
over to succeeding quarters. However, if the excess input VAT is attributable to zero-rated sales, BEC has three options
under Section 112(A) of the Tax Code:

1. Carry over the excess input VAT to succeeding quarters;

2. Apply for a refund of the unutilized input VAT; or

3. Apply for a tax credit certificate (TCC) to be used against other internal revenue taxes.

Since BEC made zero-rated export sales, the portion of input VAT attributable to such sales may be refunded or
credited, provided the attribution is properly documented.

(c) For the refund of unutilized input VAT attributable to zero-rated sales, BEC must file an administrative claim with
the Bureau of Internal Revenue (BIR) within 2 years from the close of the taxable quarter when the relevant sales were
made, as held in CIR v. Mirant Pagbilao Corp. (G.R. No. 172129, Sept. 12, 2008).

The Commissioner of Internal Revenue (CIR) is required to act within 120 days from the submission of complete
documents in support of the claim. If the claim is denied or if the 120-day period lapses without action, BEC must file a
judicial claim within 30 days from the denial or lapse, per CIR v. Aichi Forging and CIR v. San Roque Power Corp.

Transitional Input Tax (2%)

1. Who is entitled?

• Persons who become liable to VAT or elect to be VAT-registered (e.g., TPs exceeding P1.5M threshold or electing
VAT coverage even if turnover is less).

2. How much?

• 2% of the value of beginning inventory on hand as of VAT registration effectivity, or actual VAT paid, whichever
is higher.

E. Presumptive Input Tax (4%)

1. Who is entitled?

• Persons/firms engaged in processing sardines, mackerel, milk, manufacturing refined sugar, cooking oil, and
packed noodle-based instant meals.

2. How much?

• 4% of the gross monetary value of purchases of primary agricultural products used as production inputs.

F. Creditable Withholding VAT (5%)

1. When does it apply?

 • Applies to sales of goods/services to the government or GOCCs.

2. When does the obligation to withhold arise?

• Before payment, government/GOCC deducts and withholds 5% final VAT on gross payment.

3. What does 5% final withholding VAT represent?

• Represents the net VAT payable of the seller.

4. Effect on seller’s input tax?

• Limits input VAT credit against 12% output tax to only 7% (because 12% output tax minus 5% withheld = 7%
allowable input VAT credit).

G. Claims for Refund or Tax Credit

1. When can VAT-registered TP claim refund or tax credit for unutilized input VAT?

• Only in 2 instances:

o Zero-rated or effectively zero-rated sales (§112(A)) - unutilized input VAT must be attributable (directly
or allocable) to zero-rated sales.

o Cancellation of VAT registration (§112(B)) - due to retirement, cessation of business, or

change/cessation of VAT status (§106(C)).

2. Period within which CIR must act on claim:

• Within 120 days from submission of complete documents supporting the application.

3. Prescriptive period for filing claim:

• a. Zero-rated sales:

o Administrative claim: within 2 years from close of taxable quarter when sales were made (CIR v. Mirant
Pagbilao Corp.).

o Judicial claim: within 30 days from denial or lapse of 120 days without BIR action (§112(A)) (CIR v. Aichi
Forging, CIR v. San Roque Power Corp.).

• b. Cancellation of VAT registration:

o Administrative claim: within 2 years from date of cancellation.

o Judicial claim: same period applies.

Persons Who Can Avail of the Input Tax Credit

Section 4.110-2 (Rev. Regs. No. 16-2005)

Persons who can avail of the input tax credit:

• (a) Importer upon payment of VAT before goods are released from customs.

• (b) Purchaser of domestic goods or properties upon consummation of sale.

 • (c) Purchaser of services, lessee, or licensee upon payment of compensation, rental, royalty, or fee.

Additional Provisions:

• If goods purchased or imported in a calendar month for use in trade/business have an aggregate acquisition cost
(excluding VAT) exceeding ₱1,000,000, and are goods for which depreciation deduction is allowed, then:

o The input tax must be spread evenly over the month of acquisition plus the next 59 months.

o If the estimated useful life of the capital good is less than 5 years, the input VAT shall be amortized over
the shorter period.

o Amortization of input VAT allowed only until December 31, 2021; after which unutilized input VAT on
capital goods can be applied as scheduled until fully utilized.

• For purchase of services, lease, or use of properties, the input tax shall be creditable upon payment of
compensation, rental, royalty, or fee.

• Nonresident digital service providers are NOT allowed to claim creditable input tax.

Special Rules on Amortization of Input Tax on Depreciable Goods

(Sec. 110(A), Proviso, and Sec. 4.110-3, Rev. Regs. No. 16-2005, as amended by Rev. Regs. No. 4-2007)

Claim for Input Tax on Depreciable Capital Goods

• When a VAT-registered person purchases or imports capital goods (depreciable assets for income tax
purposes) with an aggregate acquisition cost (excluding VAT) in a calendar month exceeding ₱1,000,000, the
input tax credit shall be claimed as follows:

(a) For capital goods with estimated useful life of 5 years or more

• Input tax is spread evenly over 60 months (5 years).

• Claim for input tax credit starts in the month the capital good is acquired.

• Total input tax on these goods ÷ 60 = monthly claimable input tax.

(b) For capital goods with estimated useful life of less than 5 years

• Input tax is spread evenly over the actual number of months of the asset’s estimated useful life.

• Claim for input tax credit starts in the month the capital good is acquired.

If aggregate acquisition cost (excluding VAT) in a calendar month is ₱1,000,000 or less

• Entire input tax on capital goods can be claimed in the month of acquisition.

Additional Notes:
 • The aggregate acquisition cost is the total price agreed upon for all assets acquired during the calendar month,
NOT the amount actually paid in that month.

• If the asset is acquired in installments but total acquisition cost is more than ₱1,000,000, the input tax must still
be amortized over the prescribed period, even if monthly installment payments are less than ₱1,000,000.

Special Rules on Apportionment of Input Tax on Mixed Transactions

(Sec. 110(A)(3))

• A VAT-registered person engaged in both VAT-subject and non-VAT transactions may claim input tax credit as
follows:

1. Full credit for input tax directly attributable to VAT-subject transactions.

2. Ratable portion of input tax which cannot be directly attributed to either VAT or non-VAT transactions.

QUESTION:

A VAT-registered company purchased several capital goods in March 2025 with an aggregate acquisition cost (exclusive
of VAT) of ₱1,500,000. The estimated useful life of these capital goods is 6 years. How should the company claim the
input tax credit for these capital goods?

Answer:

Spread the input tax credit evenly over 60 months, starting March 2025. Since the aggregate acquisition cost exceeds
₱1,000,000 and the estimated useful life is 5 years or more, the input tax must be amortized evenly over 60 months (5
years) starting from the month of acquisition.

QUESTION:

A VAT-registered business purchased the following capital goods in August 2025:

• Machinery A costing ₱700,000 (exclusive of VAT) with an estimated useful life of 4 years.

• Equipment B costing ₱500,000 (exclusive of VAT) with an estimated useful life of 6 years.

Given that the aggregate acquisition cost exceeds ₱1,000,000, how should the business claim the input tax credit for
these capital goods?

Answer:

Amortize the input tax for Machinery A over 48 months and Equipment B over 60 months, starting August 2025.

since the aggregate cost exceeds ₱1,000,000, the input tax credit must be amortized.

• Machinery A has a useful life less than 5 years → amortize over 48 months (4 years).

• Equipment B has a useful life 5 years or more → amortize over 60 months (5 years).

The input tax on each asset is spread over its estimated useful life, starting the month of acquisition.
Substantiation of Input Tax Credits and Transitional/Presumptive Input Tax Credits

Question:

XYZ Corporation, a VAT-registered person, became liable to VAT on January 1, 2025. Their beginning inventory consists
of:

• Goods for resale valued at ₱1,000,000 (exclusive of VAT)

• Materials for further processing valued at ₱500,000

• Goods exempt from VAT valued at ₱200,000

In addition, XYZ processes sardines and purchases ₱3,000,000 worth of primary agricultural products used as inputs.

Regarding their input tax credits for 2025, which of the following statements is CORRECT?

Answer:

XYZ can claim transitional input tax credit equivalent to 2% of ₱1,500,000 and presumptive input tax credit equivalent to
4% of ₱3,000,000.

The value of beginning inventory excludes goods exempt under Sec. 109 → exclude ₱200,000.

Transitional input tax credit = 2% of (₱1,000,000 + ₱500,000) = 2% of ₱1,500,000.

Since XYZ processes sardines, it qualifies for presumptive input tax credit of 4% on ₱3,000,000 purchases of primary
agricultural products.

Thus, both transitional and presumptive input tax credits are allowable.

Substantiation of Input Tax Credits (Sec. 4.110-8, Rev. Regs. No. 16-2005)

Purpose:
To claim input tax credits (ITC) properly, taxpayers must substantiate the input taxes they paid on importation or
domestic purchases of goods, properties, or services related to their business operations.

(a) Documents Required for Substantiation

• Importation of goods:
Import entry or equivalent documents showing actual VAT payment on imports.

• Domestic purchase of goods and properties:

Invoices showing details required under Sections 113 and 237 of the Tax Code.

• Purchase of real property:

Public instrument (e.g., deed of sale, contract to sell) plus the VAT invoice from the seller.

• Purchase of services:
Official receipts containing the necessary Tax Code details.

• Cash register tape can be used only if it shows the required details.
Why important?
The Bureau of Internal Revenue (BIR) requires these documents to verify that VAT input credits claimed correspond to
actual, valid transactions.

(b) Transitional Input Tax

• Must be supported by a detailed inventory list submitted to the BIR.

(c) Input Tax on "Deemed Sale" Transactions

• Must be substantiated with invoices as required under Sec. 4.113-2.

(d) Input Tax from Payments to Non-Residents

• Must be supported by Monthly Remittance Return of VAT Withheld (BIR Form 1600) filed by the resident payor.

(e) Advance VAT on Sugar

• Must be supported by the Payment Order showing payment of advance VAT.

2. Transitional Input Tax Credits (Sec. 111(A) and Sec. 4.111-1(a))

• For taxpayers who become VAT-registered (exceeding turnover threshold or voluntarily).

• Entitled to input tax credit on beginning inventory of goods/materials/supplies.

• Credit is 2% of inventory value or actual VAT paid, whichever is higher.

• Applies to inventory on hand at VAT registration effective date including:

1. Goods for resale (present condition)

2. Materials for further processing (not yet processed)

3. Goods manufactured by taxpayer

4. Goods in process for sale

5. Goods and supplies for use in business

• The inventory value for income tax purposes is the basis, excluding VAT-exempt goods under Sec. 109.

• Threshold for VAT registration (₱1,500,000) is adjusted every three years with inflation.

3. Presumptive Input Tax Credits (Sec. 111(B) and Sec. 4.111-1(b))

• Certain industries get a presumptive input tax credit:

o Processing sardines, mackerel, milk

o Manufacturing refined sugar, cooking oil, and packed noodle-based instant meals
 • Allowed a credit equivalent to 4% of the gross value of their purchases of primary agricultural products used as
production inputs.

• Processing means pasteurization, canning, or any physical/chemical change preparing a product for special use it
could not have had in original form.

(1) Substantiation of Input Tax Credits (Sec. 4.110-8)

Example A: Importation of Goods

Scenario: ABC Corp. imports raw materials from Japan. Upon arrival, it pays ₱120,000 VAT on import.

Required Document:
Import Entry Document from Bureau of Customs showing the ₱120,000 VAT paid.

Why? This document proves the VAT was paid and can be claimed as input tax credit.

Example B: Domestic Purchase of Goods

Scenario: ABC Corp. buys office supplies from XYZ Supplies Inc.

Required Document:
VAT Invoice showing:

• Name, address, TIN of buyer & seller

• Date of transaction

• Description and quantity of goods

• VAT amount

Why? To comply with Sections 113 and 237 of the Tax Code.

Example C: Purchase of Real Property

Scenario: ABC Corp. buys a warehouse.

Required Documents:
Deed of Absolute Sale + VAT Invoice issued by the seller.

Example D: Purchase of Services

Scenario: ABC Corp. hires a cleaning service for its office.

Required Document:
Official Receipt showing the required info under Secs. 113 and 237.

Example E: Payment to a Non-Resident

Scenario: ABC Corp. pays ₱1M in royalties to a US company.

Required Document:
BIR Form 1600 (Monthly Remittance Return of VAT Withheld) showing remittance of VAT withheld.

✅ (2) Transitional Input Tax Credit (Sec. 111[A]; Sec. 4.111-1[a])

Example F: New VAT-registered Business

Scenario: Jane’s business exceeded ₱1.5M in sales and is now VAT-registered. On the day of registration, she has:

• ₱100,000 of goods for resale

• ₱50,000 of materials for processing

• ₱20,000 of supplies

Computation:

• Total Inventory = ₱170,000

• 2% Transitional Input Tax = ₱3,400

(If actual VAT paid was only ₱2,000, the 2% applies because it’s higher)

Required:
Detailed Inventory List submitted to BIR

Why? This allows her to claim ₱3,400 as an input tax credit in her next VAT return.

✅ (3) Presumptive Input Tax Credit (Sec. 111[B]; Sec. 4.111-1[b])

Example G: Processing of Sardines

Scenario: Ocean Canners, Inc. processes sardines. It buys ₱500,000 worth of fresh fish from local fishermen (primary agri
products).

Presumptive Input Tax:

4% of ₱500,000 = ₱20,000
This ₱20,000 is credited against their output VAT even if the fishermen didn’t issue VAT invoices (since raw agri products
are often VAT-exempt).

Creditable Withholding VAT (CWVAT)

[Section 114(C) of the NIRC, as amended]

KEY POINTS:

1. Who withholds?
➤ The Government and GOCCs (as buyers of goods/services)

2. What rate?
➤ 5% of gross payment for purchases subject to VAT (Sections 106 & 108)
 3. System change (2021):
➤ From FINAL to CREDITABLE withholding VAT system
➤ Sellers can now claim the 5% withheld as input VAT credit

4. Exception:
➤ ODA-funded purchases are not subject to CWVAT

5. Non-resident payments:
➤ 12% VAT withheld on:

o Lease/use of property

o Services by non-residents
➤ Creditable only if resident buyer is VAT-registered

CWVAT ILLUSTRATIONS

✅ Example 1: 5% Creditable VAT Withheld by Government

Scenario:
ABC Supplies (VAT-registered) sells ₱1,000,000 worth of goods to a government agency.

Withholding Agent: Government

What happens?

• Government withholds 5% = ₱50,000

• Pays ₱950,000 to ABC

• Files BIR Form 1600-VT

ABC’s VAT treatment:

• Output VAT: ₱120,000

• Input VAT: Claims ₱50,000 (creditable VAT withheld)

✅ Example 2: 12% Withholding on Non-Resident

Scenario:
DEF Corp. (PH-based) pays a non-resident ₱500,000 for the use of software (intangible property).

What happens?

• DEF must withhold 12% = ₱60,000

• Pays ₱440,000 to the non-resident

• Files BIR Form 1600

If DEF is VAT-registered:

• Can claim ₱60,000 as input VAT using BIR Form 1600 as proof
If DEF is NOT VAT-registered:

• ₱60,000 is treated as expense (cannot be claimed as input tax)

RULE ON INPUT VAT ALLOCATION (Sec. 4.110-4)

When a VAT-registered person:

• Sells to both Government and private buyers

• Or has both VATable and non-VATable sales

Then:

1. Direct attribution is required:

➤ Input tax directly related to government sales CANNOT be credited against output VAT on private sales.

2. Mixed-use input tax:

➤ If input tax can't be directly traced, it must be allocated proportionally based on sales.

❌ NOT SUBJECT TO CWVAT:

• Payments under Official Development Assistance (ODA) projects

• Payments to non-VAT taxpayers (since no output VAT is due)

Documentary Requirements

Scenario Required Form / Document Purpose

Govt. Withholding 5% VAT BIR Form 1600-VT Proof of VAT withheld

Payment to non-resident BIR Form 1600 Input VAT substantiation

Claiming input VAT from CWVAT Filed VAT Return + BIR Form 1600 Attach to VAT Return as credit

Memory Tips:

• "5 is Alive" — 5% CWVAT on gov’t purchases is now creditable

• “12 for non-residents” — Withhold 12% on cross-border use of property/services

• "ODA = Out of Scope" — ODA projects not covered by CWVAT

BAR-TYPE QUESTIONS – Creditable Withholding VAT (CWVAT)

The Government or a GOCC purchases goods from a VAT-registered supplier. What percentage of the gross payment
must be withheld as Creditable Withholding VAT?

✅ Answer: 5%
Question 2 –

As of January 1, 2021, the 5% VAT withheld by government agencies on purchases of goods and services from VAT-
registered suppliers is:

✅ Answer: Creditable against the supplier’s output VAT

Question 3 – True or False

The 5% creditable VAT withheld by the government is equivalent to the actual input VAT incurred by the supplier.

✅ Answer: ❌ False

→ The 5% is a standard input VAT in lieu of the actual input VAT. Any excess input VAT cannot be credited but may be
booked as an expense.

Question 4 –

DEF Corp., a resident company, pays a non-resident for use of property rights. How much VAT should it withhold?

✅ Answer: 12%

Question 5 – True or False

Payments made by government agencies for purchases funded by Official Development Assistance (ODA) are subject to
Creditable Withholding VAT.

✅ Answer: ❌ False

→ ODA-funded purchases are not subject to CWVAT.

Question 6 –

What BIR form is used to remit VAT withheld from payments to non-residents?

✅ Answer: BIR Form 1600

Question 7 –

A VAT-registered taxpayer sells goods to both government and private entities. Which of the following input VAT rules
apply?

✅ Answer: B. Input VAT from government sales cannot be credited against private output VAT.
Question 8 – True or False

If a non-VAT taxpayer withholds 12% VAT from a payment to a non-resident, that withheld VAT can be claimed as input
tax.

✅ Answer: ❌ False

→ A non-VAT taxpayer cannot claim input VAT; the VAT is treated as an expense.

Question 9 –

What is the due date for remitting VAT withheld under CWVAT rules?

✅ Answer: Within 10 days after the end of the month the VAT was withheld

Question 10 – True or False

The 5% VAT withheld by government agencies on VATable purchases serves as the final VAT liability of the seller.

✅ Answer: ❌ False

→ Since 2021, the 5% VAT withheld is now creditable, not final.

OTHER PERCENTAGE TAXES

SEC. 116 – Tax on Persons Exempt from VAT

Q1. What is the tax rate imposed on persons exempt from VAT under Section 109(CC) who are not VAT-registered?
A. 3%

Q2. Who are exempt from the 3% tax under Section 116?
A. Cooperatives

Q3. What was the reduced rate imposed from July 1, 2020 to June 30, 2023?
A. 1%

SEC. 117 – Domestic Carriers and Keepers of Garages

Q4. What is the percentage tax on domestic carriers transporting passengers by land?
A. 3%

Q5. Are owners of bancas and animal-drawn two-wheeled vehicles subject to this tax?
A. No

Q6. Are gross sales of common carriers from freight subject to local taxes under the Local Government Code?
A. No
 SEC. 118 – International Carriers

Q7. What is the tax rate for international air carriers on cargo transport from the Philippines to another country?
A. 3%

Q8. What is the tax rate for international shipping carriers on cargo transport from the Philippines to another country?
A. 3%

SEC. 119 – Tax on Franchises

Q9. What is the percentage tax for radio/TV broadcasting companies with gross sales not exceeding ₱10 million?
A. 3%

Q10. What is the percentage tax for gas and water utilities?
A. 2%

Q11. Can radio and TV companies opt to register as VAT taxpayers?

A. Yes

Q12. Once exercised, is the VAT option for broadcasting companies revocable?
A. No

SEC. 120 – Overseas Dispatch, Message or Conversation

Q13. What is the tax rate for overseas dispatches/messages from the Philippines?
A. 10%

Q14. Who is liable to pay the tax under Sec. 120?

A. The person paying for the service

Q15. Name one exempt entity under Sec. 120.

A. Government of the Republic of the Philippines

SEC. 121 – Banks and Non-Bank Financial Intermediaries

Q16. What is the tax rate on interest, commissions, discounts, and leasing income if the maturity period is 5 years or
less?
A. 5%

Q17. What is the tax rate if the maturity period is more than 5 years?
A. 1%

Q18. What is the tax rate on dividends, equity shares, and net income of subsidiaries?
A. 0%

Q19. What is the tax rate on royalties, rentals, profits from exchange, and other gross income items?
A. 7%

Q20. What is the tax rate on net trading gains on foreign currency, debt securities, derivatives, etc.?
A. 7%
Q21. In case of pre-termination, when is the maturity period deemed to end?
A. Date of pre-termination

A. Persons Exempt from VAT (Sec. 116)

Who are covered?

• Persons whose sales are VAT-exempt under Sec. 109(CC) and are not VAT-registered.

Rate:

• 3% of gross quarterly sales or receipts.

• Exemption: Cooperatives are exempt from this 3% tax.

• Temporarily reduced to 1% from July 1, 2020 to June 30, 2023 under the CREATE Law.

Note:

• The proposed exemption for persons with annual gross sales/receipts not exceeding ₱500,000 was vetoed by
the President. The 3% tax remains applicable to them as their “fair share.”

B. Domestic Carriers and Keepers of Garages (Sec. 117)

Who are covered?

• Cars for rent or hire (self-driven by lessee).

• Transportation contractors.

• Domestic land carriers transporting passengers.

• Keepers of garages.

Exclusions:

• Owners of bancas.

• Owners of animal-drawn two-wheeled vehicles.

Rate:

• 3% of gross quarterly sales.

Note:

• Their freight income (from incoming and outgoing transport) is exempt from local taxes under the Local
Government Code (RA 7160).

C. International Carriers (Sec. 118)

Who are covered?

• International air carriers and international shipping carriers doing business in the Philippines.
Tax Base:

• Gross sales from the transport of cargo from the Philippines to another country.

Rate:

• 3% of quarterly gross sales.

D. Franchises (Sec. 119)

Who are covered?

• Radio/TV broadcasting companies with gross sales not exceeding ₱10 million.

• Gas and water utilities.

Rates:

• Radio/TV: 3% of gross sales.

• Gas and water utilities: 2% of gross sales.

Option:

• Broadcasting companies may opt to register as VAT taxpayers, but once exercised, the option is irrevocable.

Note:

• Returns are filed with and audited by the BIR, notwithstanding any contrary law.

E. Overseas Dispatch, Message or Conversation (Sec. 120)

Who are covered?

• Users of overseas communication services (phone, telegraph, etc.) originating from the Philippines.

Rate:

• 10% of the amount billed.

Who pays?

• The user of the service (the one paying), but the provider collects and remits the tax.

Due Date:

• Within 20 days after the end of each quarter.

Exemptions:

1. Philippine Government and its subdivisions.

2. Foreign embassies and consulates.

3. International organizations with privileges under international law.

4. News services transmitting for the purpose of collecting/disseminating news.

F. Banks and Non-Bank Financial Intermediaries (Sec. 121)

Who are covered?

• Banks and non-bank financial intermediaries performing quasi-banking functions.

Tax Base:

• Gross receipts from Philippine sources.

Rates:

1. Interest, commissions, discounts (from lending/financial leasing):

o 5% if maturity is 5 years or less

o 1% if maturity is more than 5 years

o If pre-terminated, use actual maturity for correct rate.

2. Dividends/equity shares/net income from subsidiaries: 0%

3. Royalties, rentals, profits from exchange, and similar items: 7%

4. Net trading gains on forex, debt securities, derivatives, etc.: 7%

Note:

• Accounting for gross receipts must follow Bangko Sentral ng Pilipinas (BSP) guidelines.

• The BIR Commissioner may impose the same tax on entities performing similar activities.

SUMMARY TABLE

Section Category Taxpayer Rate Tax Base

Sec. Non-VAT persons under Sec. 3% (1% from Jul 2020 - Jun Gross quarterly
VAT-exempt persons
116 109(CC) 2023) sales

Sec. Gross quarterly

Domestic carriers Land transport for hire, garages 3%
117 sales

Sec. Gross quarterly

International carriers Air/Sea cargo outbound 3%
118 sales

Sec. Radio/TV (≤ ₱10M), gas/water

Franchises 3% (radio/TV), 2% (utilities) Gross sales
119 utilities

Sec. Overseas
Person paying for the dispatch 10% Amount billed
120 communications

Sec.
Banks/NBFIs Banks and quasi-banks 1%-7% Gross receipts
121

Here's a case digest of CIR v. Solidbank Corp., G.R. No. 148191, November 5, 2003 in a structured and student-friendly
format:
CASE DIGEST: CIR v. Solidbank Corp.

G.R. No. 148191, November 5, 2003

FACTS:

• Solidbank earned passive income (e.g., interest on deposits) subject to 20% final withholding tax (FWT).

• It also paid 5% gross receipts tax (GRT) on its reported gross receipts.

• It claimed a refund for alleged overpayment, arguing that the 20% FWT withheld should not be included in the
computation of the 5% GRT because it was not actually received.

• The Court of Tax Appeals (CTA) granted a partial refund.

• The Court of Appeals (CA) affirmed, agreeing that only actually received income should be taxed under GRT.

ISSUE:

Whether the 20% Final Withholding Tax (FWT) on a bank’s passive income should be included in its gross receipts for
purposes of computing the 5% Gross Receipts Tax (GRT).

HELD:

✅ YES. The Supreme Court reversed the CA and CTA. The 20% FWT must be included in the computation of the 5%
GRT.

RULING:

Doctrine of Constructive Receipt:

• Even though the bank did not physically receive the 20% FWT (as it was withheld and remitted to the
government), it is deemed constructively received.

• Constructive receipt means the income is placed under the control of the taxpayer without restriction—the
government’s withholding merely acts as a collection mechanism.

Distinction Between FWT and GRT:

• The 20% FWT is an income tax on passive income.

• The 5% GRT is a percentage tax on gross receipts from business operations.

• These are distinct taxes and their bases, while overlapping, serve different tax purposes—no double taxation
occurs.

Revenue Regulations:

• RR No. 12-80 required only actually received income to be included in gross receipts.

• RR No. 17-84, a later regulation, included interest income regardless of actual or constructive receipt.

• The Court held that RR 17-84 prevails, aligning with legislative intent and validly expanding the GRT base to
include constructively received income.
PRINCIPLES / DOCTRINES:

1. Constructive Receipt Doctrine – Income is taxed not only when physically received, but also when it is placed
within the taxpayer's control or disposition.

2. Literal Interpretation of Tax Laws – Courts must interpret tax statutes as written, and exemptions or refunds
must be explicitly provided.

3. No Double Taxation – Taxing both the FWT (income tax) and GRT (percentage tax on receipts) does not result in
double taxation due to their distinct nature.

4. Later Regulations Supersede Earlier Ones – In the absence of legislative conflict, the later and more specific
administrative rule (RR 17-84) applies.

5. Judicial Restraint in Taxation – Tax exemptions or claims for refunds must be based on clear statutory
authority, not merely equitable arguments.

KEY TAKEAWAY:

Withholding of tax does not prevent income from being considered received for tax purposes. For banks, even income
withheld as final tax must be included in gross receipts for purposes of computing gross receipts tax. The act of
withholding is an act of constructive receipt, making the amount taxable.

SECTION 122 – Tax on Other Non-Bank Financial Intermediaries

• Tax rate: 5% on gross receipts from interest, commissions, discounts, etc.

• Special rule for lending/leasing: Tax is based on maturity of the instruments:

o ≤ 5 years: 5%

o > 5 years: 1%

• Pre-termination: If maturity is shortened, the tax is adjusted accordingly.

• Basis of computation: Gross receipts must follow SEC-prescribed accounting standards.

• The Commissioner may tax similar financing activities.

SECTION 123 – Tax on Life Insurance Premiums

• Rate: 2% on total premiums collected (cash, notes, credits, etc.).

• Exclusions:

o Refunded premiums (within 6 months).

o Reinsurance where tax has been paid.

o Life insurance of non-residents where a foreign tax is imposed.

o Variable contract portion not for life coverage.

 • Exempt: Purely cooperative companies or associations.

SECTION 124 – Tax on Agents of Foreign Insurance Companies

• Rate: Twice the rate in Sec. 123 (i.e., 4%) on risks in the Philippines for unauthorized foreign insurers.

• Exceptions:

o Does not apply to reinsurance.

o Does not affect direct purchase by property owners (without local agents).

o In such direct cases, owners must report to BIR and Insurance Commission and pay 5% tax on
premiums.

SECTION 125 – Amusement Taxes

• Imposed on gross receipts of:

o Cockpits: 18%

o Cabarets/Nightclubs: 18%

o Boxing (regular): 10%

▪ Exempt: World/Oriental title matches with Filipino contender and promoter.

o Professional basketball: 15% (in lieu of other % taxes)

o Jai-Alai/Racetracks: 30%

• Includes income from media rights.

• Quarterly filing and payment: Tax due 20 days after end of each quarter.

SECTION 125-A – Gaming Tax on Offshore Gaming Licensees

• Gaming tax: 5% of gross gaming revenue or minimum monthly revenue, whichever is higher.

• Paid monthly to BIR by the 20th.

• Regulatory fees: Up to 2% may be charged by PAGCOR or relevant authorities.

• Gross gaming revenue = Gross wagers less payouts.

• Non-compliance (e.g., local wagers, non-cooperation) = license revocation.

• Requires third-party audit of revenues.

SECTION 126 – Tax on Winnings (Horse Races)

• Bettors:

o Regular winnings: 10%

 o Double/Forecast/Trifecta bets: 4%

• Horse owners: 10% of prize.

• Tax is withheld by race operators.

• Must be remitted within 20 days to the BIR with correct return.

SECTION 127 – Tax on Stock Transactions

(A) Listed and Traded Stocks

• Tax: 0.6% (6/10 of 1%) of gross selling price/value.

• Paid by: Seller/transferor.

• Excludes: Dealers in securities.

(B) (Repealed) – Tax on IPOs repealed by RA No. 11494.

(C) Capital Gains Reporting

• Broker duties:

o Collect tax and remit to BIR within 5 banking days.

o Submit weekly reports to the stock exchange, detailing transactions and taxes remitted.

BAR-TYPE QUESTIONS AND ANSWERS

Topic: Percentage Taxes – NIRC Sections 122 to 127

1. Section 122 – Tax on Other Non-Bank Financial Intermediaries

Q1: ABC Finance Corp., a non-bank financial intermediary, earned interest income from loans with a remaining maturity
of 6 years. At what rate shall the interest income be taxed?

A1: 1%, because the maturity period is more than 5 years.

Q2: What happens if a 6-year loan is pre-terminated after 2 years?

A2: The maturity period is reckoned as of the pre-termination date, thus considered as 5 years or less and taxed at 5%.

2. Section 123 – Tax on Life Insurance Premiums

Q3: An insurance company collected ₱1 million in life insurance premiums but refunded ₱200,000 within six months due
to policy cancellations. How much is subject to the 2% tax?

A3: Only ₱800,000 is subject to tax because premiums refunded within 6 months are excluded from the taxable
amount.
Q4: Are reinsurance premiums subject to tax under Section 123?

A4: No, reinsurance premiums are not subject to tax if the original insurance company already paid the tax.

3. Section 124 – Agents of Foreign Insurance Companies

Q5: Juan, an agent of a foreign insurance company, procures a policy for a client in the Philippines. What tax applies?

A5: The agent shall pay double the tax under Section 123, or 4% of premiums, unless it is reinsurance.

Q6: If the property owner applies for foreign insurance without an agent, is tax still due?

A6: Yes, the owner must report to the BIR and Insurance Commissioner and pay 5% tax on the premiums.

4. Section 125 – Amusement Taxes

Q7: How much amusement tax is imposed on gross receipts of a racetrack?

A7: 30% of gross receipts.

Q8: A Filipino promoter organizes a boxing match for a World Championship involving a Filipino boxer. Is this event
subject to amusement tax?

A8: No, such exhibitions are exempt if it involves a World or Oriental Championship and a Filipino citizen is a contender
and promoter.

5. Section 125-A – Gaming Tax on Offshore Gaming Licensees

Q9: What is the gaming tax imposed on offshore gaming licensees?

A9: 5% of the gross gaming revenue or minimum monthly guaranteed revenue, whichever is higher.

Q10: What is the effect of taking wagers from the Philippines by an offshore gaming licensee?

A10: It results in revocation of the license.

6. Section 126 – Tax on Winnings

Q11: Pedro won ₱10,000 from a horse race. How much tax is withheld?

A11: ₱1,000, which is 10% of the net winnings (₱10,000 less cost of ticket).

Q12: Maria won from a trifecta bet. What tax rate applies?

A12: 4% of her winnings.

7. Section 127 – Stock Transaction Tax

Q13: Juan sold ₱500,000 worth of shares listed and traded on the Philippine Stock Exchange. What tax applies?

A13: ₱3,000, which is 0.6% of the gross selling price.

Q14: Who is required to remit the stock transaction tax to the BIR?

A14: The stockbroker who effected the sale must collect and remit the tax to the BIR within 5 banking days.

Here are Bar-type Questions and Suggested Answers based on Section 128 (Returns and Payment of Percentage Taxes)
and Section 129 and Section 141 (Excise Tax on Distilled Spirits) of the National Internal Revenue Code (NIRC) of the
Philippines:

I. SECTION 128 – RETURNS AND PAYMENT OF PERCENTAGE TAXES

Question 1 (Multiple Choice)

Who is required to file a quarterly return and pay percentage tax under Section 128 of the NIRC?

Suggested Answer:
Every person subject to the percentage taxes under Title V

Question 2 (True or False)

A person retiring from a business subject to percentage tax must file a return and pay the tax due within 25 days after
closing the business.

Suggested Answer:
False. The correct period is within 20 days after closing the business.

Question 3 (Essay)

Explain the authority of the Commissioner in determining the correct amount of gross receipts or sales when a taxpayer
fails to file a return or issues no receipts.

Suggested Answer:
Under Section 128(A)(3) of the NIRC, if a person fails to issue receipts or does not file a return, or if the records are
believed to be inaccurate, the Commissioner may determine the correct amount of sales or receipts by considering the
taxable base of similar businesses or other relevant data. The Commissioner may prescribe a minimum amount of gross
receipts or sales, and this amount shall be prima facie correct for determining the taxpayer’s liability.

II. SECTION 129 – EXCISE TAX (GENERAL)

Question 4 (Multiple Choice)

What is the nature of excise taxes imposed under Section 129 of the NIRC?

Suggested Answer:
Taxes on selected goods, whether manufactured locally or imported

Question 5 (True or False)

Excise tax under Section 129 is imposed in lieu of VAT.

Suggested Answer:
False. Excise tax is in addition to the value-added tax imposed under Title IV.

III. SECTION 141 – EXCISE TAX ON DISTILLED SPIRITS

Question 6 (Multiple Choice)

As of January 1, 2024, what is the specific tax imposed per proof liter of distilled spirits, in addition to the 22% ad
valorem tax?

Suggested Answer:
C. P66.00

Question 7 (True or False)

Starting January 1, 2025, the specific tax on distilled spirits shall automatically increase by 6% every year.

Suggested Answer:
True.

Question 8 (Essay)

Differentiate between ad valorem tax and specific tax as applied to distilled spirits under Section 141.

Suggested Answer:
An ad valorem tax is based on a percentage of the net retail price of the product (excluding VAT and excise tax). For
distilled spirits, it is fixed at 22%. A specific tax, on the other hand, is imposed based on physical measurement—
specifically per proof liter. For example, in 2024, the specific tax is P66.00 per proof liter. Thus, ad valorem varies with
the price, while specific tax varies with the volume or quantity.

Question 9 (Problem Solving)

A manufacturer sells 1,000 proof liters of a new brand of gin in 2024 with a net retail price of P100 per proof liter.
Compute the total excise tax due.

Suggested Answer:
Ad valorem tax:
22% of P100 = P22.00
P22.00 × 1,000 = P22,000
Specific tax:
P66.00 × 1,000 = P66,000

Total excise tax:

P22,000 + P66,000 = P88,000

To what kinds of procedures does the 5% tax on invasive cosmetic procedures and body enhancements apply?

A: It applies to invasive cosmetic procedures, surgeries, and body enhancements directed solely towards improving,
altering, or enhancing the patient’s appearance and which do not meaningfully promote the proper function of the body
or prevent or treat illness or disease.

What are the exemptions to the 5% tax under SEC. 150-A?

A: The tax shall not apply to procedures necessary to ameliorate deformities arising from:

• Congenital or developmental defect or abnormality,

• Personal injury from accident or trauma,
• Disfiguring disease, tumor, virus, or infection.
Also, cases or treatments covered by the National Health Insurance Program are exempt.

Does the tax under SEC. 150-A apply to cosmetic procedures that prevent or treat illness or disease?
A: No, the tax does not apply to procedures that meaningfully promote proper function of the body or prevent or treat
illness or disease.

Here’s a Bar-style Q&A based on your detailed info about Refund and/or Tax Credit of Erroneously paid
Tax:

Bar Question 1

Q: What constitutes an erroneous or illegal tax under the law?

A: An erroneous or illegal tax is defined as one levied without statutory authority.

Bar Question 2

Q: What are the requisites to be entitled to a refund of erroneously or illegally collected tax?
A:

1. There must be an erroneous or illegal collection of tax, penalty collected without authority, or sum
excessively or wrongfully collected;
2. A claim for refund must be duly filed with the Commissioner within two (2) years after payment;
 3. A suit or proceeding must be instituted with the Court of Tax Appeals within two (2) years from the date
of payment.

Bar Question 3

Q: When must a taxpayer file a claim for refund or credit before instituting a court suit for recovery of
erroneously or illegally collected tax?
A: The taxpayer must file a claim for refund or credit with the Commissioner before filing a suit or proceeding
in court.

Bar Question 4

Q: Under SEC. 229, can a suit for refund be maintained if the Commissioner has not acted on the claim within
180 days?
A: Yes. If the Commissioner fails to act on the claim within 180 days, the taxpayer may file a suit with the
Court of Tax Appeals.

Bar Question 5

Q: What is the prescriptive period to file a written claim for refund or credit with the Commissioner under Sec.
204(C)?
A: The written claim must be filed within two (2) years after payment of the tax or penalty.

Bar Question 6

Q: Does a request for a ruling constitute a valid written claim for refund?
A: No. A request for a ruling is not considered a written claim for refund.

Bar Question 7

Q: What is the test to determine whether a tax was illegally or erroneously assessed or collected?
A: At the time the claimed tax was paid, no such tax was due and payable.

Bar Question 8

Q: When does the two-year prescriptive period to file a refund claim commence according to the current law?
A: It commences from the date of payment of the tax, irrespective of any supervening event.
Bar Question 9

Q: What happens if the Commissioner denies the claim for refund in whole or in part?
A: The taxpayer may appeal to the Court of Tax Appeals within 30 days from receipt of the denial decision.

Bar Question 10

Q: Can a Tax Credit Certificate be applied against any internal revenue tax?
A: Yes, except withholding taxes. Conversion into refund is subject to Section 230 provisions.

Bar Question
Q: What is the exception to the requirement of filing an administrative claim before filing a suit for tax refund,
and what remedies are available to the taxpayer?
A:
Under Sec. 229, if the Commissioner:
a) fully or partially denies the claim for tax refund, or
b) fails to act on the claim within the prescribed 180-day period,
then the taxpayer may, within thirty (30) days:
• appeal the decision with the Court of Tax Appeals, either
• from the receipt of the denial decision, or
• after the expiration of the 180-day period without action from the Commissioner.

Here’s a Bar-style Q&A based on Sec. 204(C) you provided:

Bar Question
Q: What are the conditions and procedures for the credit or refund of taxes or penalties under Sec. 204(C) of the
Tax Code?
A:
• Credit or refund is allowed only for taxes erroneously or illegally received or penalties imposed without
authority.
• Refund of value of internal revenue stamps is allowed when returned in good condition, and the
Commissioner may redeem or change unused stamps rendered unfit for use upon proof of destruction.
• A written claim for credit or refund must be filed with the Commissioner within two (2) years after
payment of the tax or penalty, as provided under Sec. 229.
• A filed return showing an overpayment is considered a written claim for refund or credit.
 • The Commissioner must process and decide on the refund claim within 180 days from submission of
complete documents.
• If the claim is denied in whole or in part, the Commissioner must state the legal and/or factual basis for
the denial.
• Failure of any BIR official, agent, or employee to act within 180 days is punishable under Sec. 269.

Here’s a clear summary and Q&A based on Francia v. IAC and the principles on taxes not being subject of set-
off:

Summary: Francia v. IAC (162 SCRA 753, 1988)

• Facts:
o Taxpayer’s (TP) property partly expropriated by government; government owed TP ₱4,116 as
compensation.
o Remaining property sold at auction for unpaid real property tax (RPT) of ₱2,400.
o TP claimed tax delinquency was extinguished by legal compensation (set-off) because
government owed him ₱4,116.
• Issue:
Can unpaid taxes be set-off (compensated) against government’s debt to taxpayer?
• Ruling:
o No, taxes cannot be set-off against government claims.
o Taxpayer cannot refuse tax payment because government owes him money.
o Tax collection does not wait for lawsuits or claims against government to be resolved.
o Supported by Cordero v. Gonda: Internal revenue taxes are not subject of compensation under
Article 1278 Civil Code.
o Taxes are public obligations, not contracts between debtor and creditor.
o Real property tax was due to local government unit (LGU); expropriation by national
government—different entities.
• Legal Basis:
o Article 1278 Civil Code defines compensation as mutual debts between parties.
o Articles 1279 lists requisites for compensation (mutual, liquidated, demandable debts, no
controversy, etc.).
o Taxes do not meet these requisites as they are public duties, not mutual debts.

Bar-Style Q&A
Q1: Can a taxpayer set off unpaid taxes against the government’s debt to him by reason of expropriation?
A1: No. Taxes are not subject to legal compensation or set-off against claims the taxpayer may have against the
government.
Q2: Why are taxes not subject to set-off under Article 1278 of the Civil Code?
A2: Because taxes are public obligations arising from the taxpayer’s duty to the government, not mutual debts
between parties. The government and taxpayer are not mutually creditors and debtors.
Q3: What are the requisites for legal compensation under Article 1279?
A3:
1. Both parties must be principal debtors and creditors of each other.
2. Debts must be in money or consumable things of same kind and quality.
3. Debts must be due, liquidated, and demandable.
4. No controversy or retention by third parties over debts.
Q4: How did the court justify the rejection of set-off in Francia v. IAC?
A4: The court ruled that tax collection cannot await resolution of claims against the government and that claims
for taxes are excluded from set-off by public policy.

Here’s a clear and organized summary plus Q&A for the BIR Ruling 415-93 and related cases on offsetting
and set-off in tax assessments:

Summary: BIR Ruling 415-93 and Related Cases on Offsetting

BIR Ruling 415-93

• Issue: Automatic offsetting of claims for excess input VAT against excise tax liability.
• Ruling: Denied.
• Reason: Claim must be verified and finally determined before issuance of a Tax Credit Certificate
(TCC). No automatic set-off allowed.

Offsetting Against Deficiency Tax Assessments

CIR v. Cebu Portland Cement Co., 156 SCRA 535 (1987)

• Sales tax assessment upheld despite protests and unfiled returns.
• Key Point: Tax payment cannot be postponed by questioning validity of assessment due to the
"urgency" of tax collection as government’s lifeblood.
• Anti-Injunction Rule: Prevents delaying tax collection by judicial challenges.
• Court held:
 o No requirement for CIR to refund amount first and then collect it again through distraint.
o Tax collection cannot be a "charade."

BPI Securities Corp. v. CIR

• A memorandum-report that has not matured into a formal assessment (FAN) cannot bar refund claims or
invoke set-off.
• Taxes and taxpayer’s claims must be fully liquidated, due, and demandable for set-off to apply.
• No assessment issued = no set-off.
• If a FAN exists and is protested, situation differs (question raised).

FNCB Finance v. CIR

• Taxpayer filed a refund claim.
• CIR submitted investigation report finding taxpayer liable for deficiency tax.
• Holding: Automatic set-off is capricious and violates due process.
• Without an assessment, no tax debt exists to set-off.

Summary of Principles
1. Government’s use of set-off (denying refund due to pending assessment):
o Government cannot deny refund solely based on a proposed or unfinalized assessment.
o Government must issue a final assessment notice (FAN) to invoke collection under Cebu
Portland.
o Refund claims and deficiency assessments are separate proceedings.
2. Taxpayer’s use of set-off (refusing to pay assessment because of refund claim):
o No set-off rule applies.
o Collection of taxes cannot be delayed awaiting the outcome of refund claims or lawsuits (RP v.
Mambulao).

Bar-Style Q&A
Q1: Can claims for excess input VAT be automatically offset against excise tax liabilities?
A1: No. Claims are subject to verification and final determination before any offset or issuance of Tax Credit
Certificate.
Q2: What is the anti-injunction rule as applied in CIR v. Cebu Portland Cement Co.?
A2: It prevents taxpayers from delaying tax collection by judicially questioning the validity of assessments,
emphasizing urgency of tax collection as the government’s lifeblood.
Q3: Can the government deny a refund claim on the basis of a proposed or tentative assessment?
A3: No. Only a formal, final assessment (FAN) allows the government to deny refund or collect taxes under the
Cebu Portland doctrine.
Q4: Is a taxpayer allowed to withhold payment of tax assessment pending resolution of a refund claim?
A4: No. Taxes cannot be subject to set-off; collection cannot await the result of lawsuits on refund claims.
Q5: Does an investigation report by the BIR constitute a valid assessment for set-off purposes?
A5: No. Without a formal assessment, no debt exists to allow set-off, and automatic set-off violates due
process.

Philex Mining Corp. v. CIR (1999) — Government Liability for Interest, Attorney’s Fees, Etc.

Facts:
• Philex Mining paid specific taxes on mineral oils and fuels (P2,492,677.22) from 1980–1981.
• Under Republic Act No. 1435, mining companies could claim a 25% partial refund of such taxes since
they did not directly benefit from the Highway Special Fund (the original tax purpose).
• Philex filed a refund claim (P623,169.30) in 1982 and simultaneously filed a tax refund case with the
Court of Tax Appeals (CTA).
• The CTA granted only a partial refund (P16,747.36), affirmed by the Court of Appeals.
• Philex contested the refund computation basis, arguing it should reflect increased tax rates from later
amendments, citing inconsistencies with earlier cases.

Issues:
1. Should the tax refund be computed based on the amounts deemed paid under Sections 1 and 2 of RA
1435, or on the later increased tax rates under the National Internal Revenue Code?
2. Is the government liable to pay 20% interest per annum on the refund?

Supreme Court Ruling:

• Refund computation must be based on the specific tax amounts deemed paid under Sections 1 and 2 of
RA 1435.
• No legal basis exists to compute refunds on increased rates imposed later by amendments.
• Reliance on the precedent from CIR vs. Rio Tuba Nickel Mining Corp. is proper and consistent with
the law.
• No interest awarded on the refund, since:
o No law authorizes interest on tax refunds.
 o Collection of tax was not arbitrary; the CIR acted in good faith with an honest interpretation of
law.
o Arbitrariness requires inexcusable or obstinate disregard of law, which was not present here.
• The claim for 20% interest per annum was properly denied.

Key Legal Principles:

• Interest on tax refunds is awarded only if authorized by law or if tax collection was marked by
arbitrariness or bad faith.
• Arbitrariness means an inexcusable or obstinate disregard of legal provisions, not just an erroneous
legal conclusion.
• Honest and reasonable interpretation by the tax authorities does not constitute arbitrariness.
• Refund computation follows the law as it stood at the time of the transaction, not later amendments
unless expressly provided.
• Attorney’s fees are generally not awarded against the government in tax refund cases unless
exceptional circumstances exist.

Brief Q&A:
Q1: Can a taxpayer claim interest on a tax refund from the government by default?
A1: No. Interest on tax refunds is not allowed unless there is a specific law or proof of arbitrariness in tax
collection.
Q2: What constitutes arbitrariness sufficient to award interest on tax refunds?
A2: Arbitrariness means an obstinate and inexcusable disregard of the law, not mere honest errors or reasonable
differences in opinion.
Q3: Should tax refunds be computed using subsequent increased tax rates or rates applicable at the time of tax
payment?
A3: Refunds are computed based on the tax amounts deemed paid under the law effective at the time of
payment unless legislation provides otherwise.
Q4: Did Philex Mining get awarded attorney’s fees or interest on the refund?
A4: No, the claim for interest (20%) was denied due to no legal basis or arbitrariness, and no mention of
attorney’s fees was made as awarded.

Here's a concise summary and explanation regarding Appeal in case of denial of refund/tax credit based on
the provisions you gave:

Appeal in Case of Denial of Refund / Tax Credit

1. Jurisdiction of the Commissioner of Internal Revenue (CIR) and the Court of Tax Appeals (CTA)
 • Section 4, 2nd paragraph (CTA Law):
The CIR has the power to decide on disputed assessments, tax refunds, fees, penalties, or related
matters.
But this power is subject to the exclusive appellate jurisdiction of the CTA.
• Section 7(a)(1), (2) of Republic Act No. 1125 (as amended by RA 9282):
The CTA exercises exclusive appellate jurisdiction to review by appeal:
o Decisions of the CIR on disputed assessments, refunds, fees, penalties, or other related matters.
o Inaction by the CIR when a specific period for action is fixed by law and such inaction is
deemed a denial.

2. Who May Appeal and How? (Section 11, RA 1125 as amended by RA 9282)
• Who may appeal:
Any party adversely affected by a decision, ruling, or inaction of:
o Commissioner of Internal Revenue
o Commissioner of Customs
o Secretary of Finance
o Secretary of Trade and Industry
o Secretary of Agriculture
o Central Board of Assessment Appeals
o Regional Trial Courts
• How to appeal:
o File a Petition for Review (PFR) with the CTA within 30 days after receiving the decision or
ruling or after expiration of the period fixed by law for action (in case of inaction).
o The procedure is analogous to Rule 42 of the 1997 Rules of Civil Procedure (which covers
petitions for review on certiorari).
o The CTA Division will hear the appeal, except:
▪ Decisions of the Central Board of Assessment Appeals and the Regional Trial Court in
appellate jurisdiction must be filed under Rule 43 of the Rules of Civil Procedure and
will be heard en banc by the CTA.
o Cases filed with the CTA under Section 7 are raffled to its Divisions.
• Motion for reconsideration or new trial:
o May be filed within 15 days from notice of the CTA Division's ruling, order, or decision.
o In criminal cases, the regular rules on prosecution and appeal apply.

3. Effect of Appeal
 • Filing an appeal with the CTA does NOT automatically suspend the payment, levy, distraint, or sale of
taxpayer property to satisfy the tax liability.
• However, the court may suspend collection if it believes that the government's or taxpayer's interest
may be jeopardized.
• In such cases, the court may require the taxpayer to:
o Deposit the amount claimed, or
o File a surety bond for not more than double the amount claimed.

Summary Table

Aspect Summary

Jurisdiction over
CIR has original; CTA has exclusive appellate.
disputes

Appealable decisions Disputed assessments, refunds, fees, penalties, and other BIR-related matters.

Inaction by CIR Deemed denial if time limit expired; appealable.

Adversely affected parties, including taxpayers and various government

Who may appeal
officials/agencies.

Appeal period 30 days from receipt of decision/ruling or expiration of action period.

Procedure Petition for Review under Rule 42 (or Rule 43 for certain appeals).

Effect on collection Appeal does not suspend collection unless court orders.

Court's discretion May require deposit or surety bond to suspend collection.

Appeals in cases of denial of refund/tax credit and related jurisdictional and review powers under the
Court of Tax Appeals (CTA), Supreme Court, and Department of Finance (DOF):

I. Appeal to the Court of Tax Appeals (CTA)

A. Jurisdiction and Appeals under Republic Act No. 1125 (as amended by RA 9282)
• Sec. 4 (2nd par.)
o The Commissioner of Internal Revenue (CIR) has power to decide on:
▪ Disputed assessments
▪ Refunds of internal revenue taxes, fees, or other charges
▪ Penalties related thereto
 ▪ Other related matters under the National Internal Revenue Code (NIRC) or other laws
administered by BIR
o The Court of Tax Appeals (CTA) has exclusive appellate jurisdiction over decisions of the
CIR.
• Sec. 7(a)(1) & (2)
o The CTA exercises exclusive appellate jurisdiction over:
1. Decisions of the CIR involving disputed assessments, refunds, fees, penalties, or related matters.
2. Inaction by the CIR where a specific period for action is provided by law, and such inaction is deemed a
denial.
• Sec. 11 (Mode of Appeal)
o Any party adversely affected by a decision, ruling, or inaction of the CIR may appeal to the CTA
within 30 days after receipt or expiration of the prescribed action period.
o The appeal is done by filing a Petition for Review (PFR) analogous to:
▪ Rule 42, Rules of Civil Procedure (original jurisdiction cases heard by a CTA Division)
▪ Rule 43, Rules of Civil Procedure (appellate jurisdiction cases heard by the CTA en
banc)
o Appeal to the CTA does not suspend payment or collection unless the CTA orders otherwise.

II. Appeal Beyond CTA

A. Appeal to the CTA En Banc
• Sec. 18
o No civil case involving NIRC, Tariff and Customs Code, or Local Government Code matters
shall proceed unless an appeal has been filed and disposed of by the CTA in accordance with the
law.
B. Supreme Court Review by Certiorari
• Sec. 19
o A party adversely affected by a decision or ruling of the CTA en banc may file a verified
petition for review on certiorari with the Supreme Court under Rule 45, Rules of Civil
Procedure.

III. Power of Review Over “Other Matters” and DOF Rulings

A. Commissioner’s Power & CTA Jurisdiction (Sec. 4, 2nd par.)
• The Commissioner of Internal Revenue decides on:
o Disputed assessments
 o Refunds of internal revenue taxes, fees, penalties, or related matters
• CTA has exclusive appellate jurisdiction over such decisions.
B. Example of Ruling Subject to DOF Review
• Certificate of exemption ruling (no assessment yet) is subject to DOF review.
C. Revenue Issuances under Revenue Administrative Order No. 2-2001 (Oct 22, 2001)
Classifications of BIR rulings and issuances:

Type Description

New interpretations or reversals/modifications of existing rulings in

a) Rulings of first impression
response to specific taxpayer requests

b) Rulings with established Reiteration of previous rulings, issued by authorized internal revenue
precedents officers

c) Revenue Memorandum Rulings

Commissioner’s rulings applied to specific facts, guiding taxpayers
(RMR)

d) Revenue Travel Assignment

Assignments of revenue personnel to specific functions
Orders (RTAO)

e) Revenue Special Orders (RSO) Instructions for special assignments, temporary in nature

f) Revenue Memorandum Circulars

Dissemination of laws, rules, precedents for guidance or compliance
(RMC)

g) Revenue Memorandum Orders

Instructions on procedures and methods to carry out programs
(RMO)

h) Revenue Audit Memorandum

Uniform audit procedures for revenue officers
Orders (RAMO)

i) Revenue Delegation of Authority

Delegations of Commissioner’s authority to revenue officers
Orders (RDAO)

j) Revenue Administrative Orders

Matters related to BIR’s organizational setup and administrative policies
(RAO)

“Other Matters” under the jurisdiction of the Commissioner of Internal Revenue and the Court of Tax
Appeals (CTA):

What is Covered by “Other Matters” in Tax Cases?

Legal Basis:
• Sec. 4, 2nd paragraph, NIRC (National Internal Revenue Code)
The Commissioner of Internal Revenue (CIR) has the power to decide on:
 o Disputed assessments
o Refunds of internal revenue taxes, fees, or other charges
o Penalties related to those taxes or fees
o Other matters arising under the NIRC or other laws administered by the Bureau of
Internal Revenue (BIR)
• Section 7(a)(1), RA 1125
The Court of Tax Appeals (CTA) has exclusive appellate jurisdiction to review, by appeal:
o Decisions of the CIR involving disputed assessments, refunds, fees, penalties, and other matters
under the NIRC or other tax laws administered by the BIR.

What may be appealed to the CTA under Sec. 4, par. 2 NIRC and Sec. 7(a)(1) RA 1125?
• Disputed assessments
• Disputed refunds
• Other matters arising under the NIRC and other tax laws

Case Example: Rodriguez v. Blaquera (109 SCRA 598, 1960)

Facts:
• A gun club manager challenged a revenue circular (General Circular No. V-148) which imposed firearm
license fees.
• The circular interpreted fee reductions for bona fide and accredited gun club members.
• Plaintiff sought to nullify the circular and recover excess fees paid by some members.
• The case was initially filed in the Court of First Instance (CFI) but was dismissed on jurisdictional
grounds.
• The case involved questions about whether the CFI or the Court of Tax Appeals had jurisdiction.
Issues:
• Is the case an appeal from a decision of the CIR, thus under the exclusive jurisdiction of the CTA?
• Can a declaratory relief action be entertained in this matter?
Ruling / Ratio:
• The 30-day period to appeal CIR decisions to the CTA is jurisdictional and non-extendible.
• Disputes involving tax enforcement, including administrative circulars issued by the CIR, fall under the
exclusive appellate jurisdiction of the CTA.
• The CIR’s issuance of circulars is an administrative decision on tax enforcement, hence reviewable only
by the CTA.
• The claim to nullify the circular and seek refunds is effectively an appeal from the CIR’s decision.
 • Declaratory relief actions regarding tax liability or administrative circulars are not proper, as they are
barred by existing tax laws.
• Lower courts (e.g., CFI) lack jurisdiction over such tax controversies once the CTA’s exclusive
jurisdiction is invoked.
Doctrine:
• Exclusive Jurisdiction of the CTA:
All disputes arising from interpretation or application of tax laws and related administrative decisions of
the CIR are exclusively for the CTA to review by appeal (RA 1125, Sec. 7).

Key Takeaways on “Other Matters”:

1. “Other matters” include any issues arising under the NIRC or other tax laws administered by the
BIR that do not neatly fall under just assessments, refunds, or penalties, but still involve tax
enforcement or administration.
2. The CIR has original jurisdiction to decide these matters.
3. The CTA has exclusive appellate jurisdiction over these matters — no other courts may intervene.
4. Actions that are effectively appeals from CIR rulings (even if disguised as declaratory relief) must be
brought before the CTA.
5. Failure to comply with appeal periods or proper forum rules results in dismissal or loss of jurisdiction.

Here's a clear summary of the key points from the cases and rules you mentioned, including remedies and
procedural rules for a Taxpayer (TP) contesting BIR decisions:

Basa v. RP
• Held: If a TP wants to contest an assessment, they must appeal to the Court of Tax Appeals (CTA).
• If the TP fails to do so, they cannot contest the assessment later in the Court of First Instance (CFI).
• Prescription (statute of limitations) defense must be raised in the CTA; it cannot be brought up later in
the CFI.

Mambulao Lumber Co. vs. CIR

• CFI ruled in favor of the CIR; TP appealed to the Court of Appeals (CA), which affirmed CFI.
• Held: The assessment was already final and executory because TP failed to appeal the letter of
assessment.
• A suit to collect internal revenue taxes after the assessment is final is like enforcing a judgment.
• The court cannot inquire into the merits or justness of the original assessment in collection suits.
• TP is precluded from raising prescription as a defense at this stage.
Taxpayer's Remedies if BIR Denies Protest or Fails to Act Within 180 Days
• TP must appeal to the CTA within 30 days from denial or lapse of 180-day period by filing a petition
for review (RA 1125, Section 11).
• The case will be heard by a division of the CTA.

Effect of the Appeal on the Disputed Assessment

• General rule: Appeal does not suspend payment, levy, distraint, or sale of the TP’s property for tax
satisfaction (RA 1125, Section 11).
• Exception: If collection would jeopardize government or TP’s interest, the court may issue an
injunction, provided the TP deposits the amount claimed or posts a surety bond (up to 2x the amount
claimed).

If CTA Division Issues an Adverse Decision Against TP

• TP may file a Motion for Reconsideration (MR) or New Trial within 15 days from notice of decision
(RA 1125 § 11, 3rd paragraph).
• If MR or New Trial is denied, TP may appeal the denial to the CTA En Banc within 15 days from
notice of resolution (RA 1125 § 18; Revised Rules of CTA Rule 8, Section 3(b)).

Appeals to CTA En Banc

• TP cannot appeal directly to CTA En Banc without first filing MR or New Trial with the CTA
division (Revised Rules of CTA Rule 8, Section 1; RA 1125 § 18).

Appeals from CTA Directly to Supreme Court (SC)

• TP cannot appeal directly to the SC under Rule 45 without first filing MR or Petition for Review with
CTA En Banc.
• Failure to do so renders the CTA division decision final and executory.
• Case: Commissioner of Customs v. Gelmart Industries Phil., Inc., G.R. No. 169352, February 13,
2009.

Note on Motion for Reconsideration (MR)

• An MR is a remedy for a party aggrieved by a court's decision or resolution.
• It asks the same court to review and possibly reverse or modify its decision based on presented grounds.
PNOC v. Court of Appeals
Citation: 457 SCRA 52 (1992)
Facts:
• Tirso B. Savellano submitted information to the Bureau of Internal Revenue (BIR) that led to
investigation of PNOC and PNB for failure to withhold the 15% final tax on PNOC’s money market
placements with PNB.
• BIR issued tax assessments against PNOC and PNB. PNOC proposed a compromise to pay 30% of the
basic tax.
• The BIR Commissioner approved the compromise agreement.
• Savellano claimed an additional informer's reward (15% of collected deficiency tax).
• PNOC and PNB challenged the BIR’s compromise agreement and the denial of Savellano’s claim.
• The Court of Tax Appeals (CTA) exercised jurisdiction over the matter, but the Court of Appeals and
Supreme Court reviewed jurisdiction, validity of the compromise, and reward claims.

Issues:
1. Jurisdiction: Does the CTA have jurisdiction to review the BIR Commissioner’s decisions involving
compromise agreements and informer's reward claims?
2. Validity of Compromise: Was PNOC’s tax liability compromise valid under E.O. No. 44, which covers
only disputed assessments or delinquent accounts pending as of December 31, 1985?
3. Authority of BIR Commissioner: Is the BIR Commissioner’s power to compromise or set aside a
compromise agreement absolute or subject to judicial review?
4. Finality of Assessment: Did the tax assessment against PNB become final and unappealable?
5. Informer’s Reward: Is Savellano entitled to an additional reward based on the amount actually
collected?

Ruling and Key Points:

• Jurisdiction of the CTA:
o Under Republic Act No. 1125 (Court of Tax Appeals Law), Section 7, CTA has exclusive
appellate jurisdiction to review BIR decisions involving disputed assessments and related
matters.
o Disputes arising under the NIRC and E.O. No. 44 concerning compromise agreements and
informer's rewards fall within CTA jurisdiction.
o The Court rejected DOJ’s claim that the matter should be settled administratively under
Presidential Decree No. 242 (P.D. 242), because:
▪ P.D. 242 governs disputes solely among government agencies;
 ▪ Savellano, a private citizen and informer, is a party, so the dispute does not fall under
P.D. 242;
▪ Jurisdictional rule: special law (RA 1125 on tax appeals) prevails over the general law
(P.D. 242).
o Hence, the CTA properly exercised jurisdiction over the case.
• Validity of the Compromise Agreement:
o The compromise under E.O. No. 44 is limited to delinquent accounts or disputed assessments
pending as of December 31, 1985.
o The Court examined whether PNOC’s tax liability qualified under this rule.
o The offers and mode of payment must comply with statutory requirements; some offers were
questioned on this ground.
• BIR Commissioner’s Authority:
o The BIR Commissioner’s power to compromise is subject to judicial review to prevent abuse of
discretion and non-compliance with law.
• Finality and Prescription:
o The tax assessment against PNB became final due to failure to timely protest.
o Collection efforts were within the statutory prescriptive period.
• Informer’s Reward:
o Savellano is entitled to the informer's reward of 15% of the amount actually collected by BIR.

Important Legal Principles:

• General vs. Special Law:
o Between two conflicting statutes, the special law (RA 1125 on CTA jurisdiction) prevails over
the general law (P.D. 242).
o “Generalia specialibus non derogant” — general laws do not derogate from special laws.
• Jurisdictional Exclusivity:
o CTA has exclusive appellate jurisdiction over tax-related disputes involving BIR assessments
and compromises, including those involving government-owned corporations and private
claimants.
• Judicial Review of Administrative Acts:
o Administrative decisions, such as tax compromises, though discretionary, are subject to judicial
scrutiny for abuse or violation of law.
Philippine Journalists, Inc. v. CIR (2004)
Facts:
• PJI filed its 1994 Annual Income Tax Return, declaring income and paying taxes.
• BIR conducted an audit and found deficiency taxes amounting to over P127 million.
• BIR invited PJI for an informal conference, during which PJI’s comptroller signed a Waiver of the
Statute of Limitations to allow assessment beyond the regular 3-year period.
• The waiver had procedural defects: no definite expiration date, no date of acceptance by BIR (required
by RMO No. 20-90), and PJI was not furnished a copy.
• Despite these defects, BIR issued deficiency tax assessments and collection notices.
• PJI disputed the assessments on grounds including invalid waiver, time-barred assessment, and
premature issuance of warrant of distraint and levy.
• The Court of Tax Appeals (CTA) ruled in favor of PJI, declaring the waiver invalid, the assessment
time-barred, and the warrant void.
• The Commissioner of Internal Revenue appealed to the Supreme Court.

Issues:
1. Jurisdiction: Does the CTA have jurisdiction to review the validity of a warrant of distraint and levy,
and to rule on the validity of the waiver of the statute of limitations, even if there was no denial of
reconsideration or reinvestigation by the BIR?
2. Validity of Waiver: Was the waiver of the statute of limitations validly executed?
3. Validity of Assessment and Warrant: Were the tax assessments and the warrant of distraint and levy
valid, considering the alleged defective waiver and prescriptive period?

Supreme Court Ruling:

• Waiver Invalid
The waiver was defective:
o It was unlimited without a definite expiration date.
o It lacked the required date of acceptance by the BIR (per RMO No. 20-90).
o PJI was not furnished a copy as required.
Therefore, the waiver did not validly toll the prescriptive period.
• Assessment Time-Barred and Invalid
Without a valid waiver, the 3-year prescriptive period was not tolled. The assessment issued on
December 9, 1998, was therefore beyond the period allowed by law and invalid.
• Warrant of Distraint and Levy Void
Since the assessment was invalid and time-barred, the warrant issued to enforce collection was also null
and void.
 • Jurisdiction of the CTA
The CTA has exclusive appellate jurisdiction under Section 7(1) of Republic Act No. 1125 to review:
o Decisions of the Commissioner of Internal Revenue involving disputed assessments, refunds,
penalties, or other matters arising under the NIRC.
o This jurisdiction is not limited to decisions denying reconsideration or reinvestigation, but
extends to other related matters, including the validity of warrants of distraint and levy and
validity of waivers.
The Court cited prior rulings (e.g., Pantoja v. David and Commissioner of Internal Revenue v. Court of
Appeals) confirming the CTA’s broad jurisdiction.

Key Takeaways:
• A waiver of the statute of limitations must comply with procedural requirements (definite expiration
date, acceptance date, copy furnished to taxpayer) to be valid.
• If the waiver is defective, the tax assessment is time-barred and invalid.
• Consequently, collection instruments such as warrants of distraint and levy issued on invalid
assessments are void.
• The Court of Tax Appeals has broad jurisdiction over tax disputes arising from the NIRC, including
the validity of collection warrants and waivers—not just decisions on assessments or refunds.

Short Legal Point on Jurisdiction:

Section 7(1) of RA 1125 gives the CTA exclusive appellate jurisdiction to review decisions of the
Commissioner of Internal Revenue involving disputed assessments, refunds, penalties, or other related matters
under the NIRC, including the validity of warrants of distraint and levy and waivers of the statute of limitations,
even if no denial of reconsideration or reinvestigation was issued by the BIR.

issuance of Warrant of Distraint and Levy (WDL), denial of administrative claims, and appeal remedies
on BIR issuances:

Case Assignment Notes:

• Focus:
o Issuance of Warrant of Distraint and Levy (WDL)
o Denial of administrative claims
o Other related matters

BIR Issuances and Taxpayer’s Appeal Remedy:

Question:
 • If the BIR issues a Revenue Regulation (Rev. Reg.), Revenue Memorandum Order (RMO), or Revenue
Memorandum Circular (RMC) perceived to be contrary to law, what is the proper appeal remedy for the
taxpayer?
• Note: There are conflicting decisions regarding the proper remedy.

Appeal Remedy vs. Challenged BIR Issuances

Appeal or
Relevant
Nature of BIR Power Review Notes
Law
Remedy

Quasi-legislative power: Power to interpret Review by the Power to make rules and
provisions of the Tax Code and other tax laws Sec. 4, par. Secretary of regulations. Appeals are made
(i.e., power to issue rules/regulations of general 1 Finance to the DOF since this is a
applicability) (DOF) legislative-type function.

Quasi-judicial power: Power to decide disputed Exercise of power results in a

Appeal to the
assessments, refunds, or other matters arising Sec. 4, par. decision/order affecting
Court of Tax
under the Tax Code and other tax laws (i.e., 2; Sec. 7, specific persons or cases,
Appeals
power to hear & decide factual/legal questions RA 9282 becoming final and executory
(CTA)
applying laws to specific persons or cases) after a period.

Key Distinction: Quasi-legislative vs. Quasi-judicial Powers

Aspect Quasi-legislative Power Quasi-judicial Power

Make rules and regulations of general Hear and determine questions of fact and apply laws to
Function
applicability specific persons or situations

Outcome Rules/regulations that apply generally Decision/order affecting a specific person or situation

Appeal Review by Secretary of Finance (DOF) Appeal to Court of Tax Appeals (CTA)

Practical Implication for Taxpayers:

• If BIR issues a regulation or memorandum interpreted as a rule of general application, taxpayers
should elevate the matter to the DOF for review.
• If the issue involves a specific assessment, refund, or a matter directly affecting the taxpayer (e.g.,
issuance of a WDL), appeal lies with the CTA.

1. Scope of the Secretary of Finance's (DOF) Review Power under Sec. 4

• The Secretary of Finance's review power is limited to reviewing the interpretations of the CIR
regarding provisions of the National Internal Revenue Code (NIRC) or other tax laws.
 • This is a review of interpretations only, not all decisions or issuances by the CIR.

2. Commissioner of Internal Revenue's (CIR) Power of Interpretation

• The CIR, as an administrative agency, has the quasi-legislative power to interpret and construe tax
statutes under their administration.
• This interpretation is different from their quasi-judicial power, which involves deciding cases.
• The CIR's interpretations include rulings, opinions, and circulars related to the Tax Code and other tax
laws.

3. Court of Tax Appeals (CTA) Jurisdiction

• The CTA has exclusive appellate jurisdiction over quasi-judicial decisions of the CIR on matters
arising under the Tax Code or other laws administered by the BIR (Sec. 4, 2nd paragraph).
• For the CTA to have jurisdiction, the CIR's decision must be quasi-judicial in nature.
• The Supreme Court in CIR v. Leal clarified that CTA also has jurisdiction over BIR rulings like
Revenue Memorandum Circulars (RMCs).

4. Types of BIR Issuances

• Rulings: Specific interpretations and opinions issued by the CIR upon request from taxpayers.
• Revenue Regulations (Rev. Regs.): Rules promulgated by the Secretary of Finance for enforcing the
NIRC.
• Revenue Memorandum Orders (RMO): Directives or instructions from the CIR regarding procedures
and policies.
• Revenue Memorandum Circulars (RMC): Amplifications and guidelines issued by the CIR for
revenue personnel.

5. CIR v. Leal (392 SCRA 9, 2002) — Case Highlights

• The CIR issued an RMO and RMC imposing taxes on pawnshops, classifying them as lending investors.
• The pawnshop owner (Leal) challenged these orders through the RTC.
• The RTC ruled in favor of the pawnshop owner, stating the new taxes imposed were not provided for in
the Tax Code.
• The CIR argued that such rulings were under its authority and appealable only to the CTA.
• The Supreme Court ruled:
o The CTA has exclusive jurisdiction to review rulings of the CIR on tax matters, including
RMOs and RMCs.
 o The RTC had no jurisdiction over the case.
o The filing of extraordinary writs in RTC or CA cannot bypass the CTA's exclusive jurisdiction.
o The proper forum for tax disputes involving CIR rulings is the Court of Tax Appeals.
o This maintains judicial hierarchy and prevents forum shopping.

6. Legal Doctrines Established

• Exclusive appellate jurisdiction of the CTA over decisions and rulings of the CIR on tax matters (per
RA 1125, Sec. 7).
• Proper venue rule: Disputes on CIR rulings must be resolved by the CTA, not lower courts (RTC or
CA).
• Extraordinary writs (certiorari, prohibition, mandamus) have limited application and do not override
the CTA's exclusive jurisdiction.
• Prevents forum shopping and respects the judicial hierarchy in tax cases.

Summary Table

Aspect Description

DOF review Limited to reviewing CIR's interpretations of tax laws (quasi-legislative interpretations
power only).

CIR's power Has quasi-legislative power to interpret tax laws; rulings/opinions enforce tax statutes.

CTA jurisdiction Exclusive appellate jurisdiction over quasi-judicial decisions/rulings of CIR on tax matters.

BIR issuances Rulings, Revenue Regulations (Sec. of Finance), RMOs, RMCs (CIR).

CIR v. Leal CTA, not RTC or CA, has jurisdiction over CIR rulings including RMOs/RMCs; prevents
ruling forum shopping.

Tax disputes involving CIR rulings must be appealed to CTA, extraordinary writs do not
Legal principle
override CTA jurisdiction.

Here's a clear and concise summary of the Asia Int’l Auctioneers, Inc. v. Parayno and British American
Tobacco v. Camacho cases focusing on jurisdiction and constitutionality of tax issuances and laws:

Asia Int’l Auctioneers, Inc. v. Parayno, 540 SCRA 536 (2007)

Facts
• Petitioners: Asia Int’l Auctioneers, Inc. and Subic Bay Motors Corp., operating in Subic Special
Economic Zone (SSEZ), import and auction secondhand vehicles.
 • Respondents: Commissioner of Internal Revenue (CIR), BIR officials, Solicitor General.
• Context: Petitioners challenged Revenue Memorandum Circulars (RMC Nos. 31-2003 and 32-2003)
that imposed tax treatment on vehicle sales in SSEZ as unconstitutional and ultra vires.
• Procedural: Petitioners filed before RTC Olongapo; RTC issued preliminary injunction; respondents
appealed to Court of Appeals (CA), which ruled RTC had no jurisdiction; case elevated to Supreme
Court (SC).
Issues
1. Does the RTC have jurisdiction to hear the petition challenging the constitutionality of RMCs issued by
the CIR?
2. Does the challenge to the CIR’s authority to impose taxes via RMCs fall within the exclusive
jurisdiction of the Court of Tax Appeals (CTA)?
3. Does failure to file a motion for reconsideration with the CIR bar judicial relief?
Ruling
• The CA and SC held RTC had no jurisdiction over the case.
• The Court of Tax Appeals (CTA) has exclusive jurisdiction to review rulings or opinions of the CIR
relating to tax assessments and collections, including tax treatment issued in RMCs.
• The RMCs were rulings/opinions of the CIR implementing RA 7227 (SSEZ tax incentives), thus under
CTA’s exclusive appellate jurisdiction per RA 1125.
• Petitioners’ failure to exhaust administrative remedies (i.e., no motion for reconsideration filed with
CIR) was fatal.
• Premature court intervention without exhausting administrative remedies is not allowed.
Legal Principle:
• Tax disputes involving CIR rulings must first be brought before the CTA.
• Regular courts (e.g., RTC) cannot entertain cases questioning tax assessments or the authority of the
CIR to impose taxes without going through administrative remedies.

British American Tobacco v. Camacho, 562 SCRA 571 (2008)

Facts
• BAT challenged the constitutionality of tax classifications under NIRC provisions and related Revenue
Regulations (RRs) and Revenue Memorandum Orders (RMOs) that increased excise taxes on its
products.
• BAT filed for injunction in RTC Makati, arguing the tax classification freeze provisions violated equal
protection and uniformity clauses of the Constitution.
Issues
1. Does the Court of Tax Appeals (CTA) have jurisdiction over constitutional challenges to tax laws or
regulations?
 2. Is the RTC the proper venue for such constitutional challenges?
3. Is the classification freeze provision constitutional?
Ruling
• Jurisdiction:
o The CTA has jurisdiction over tax disputes but does not have jurisdiction to pass on the
constitutionality of laws or regulations issued in the exercise of quasi-legislative functions.
o Regular courts (RTC and Supreme Court) have jurisdiction over constitutional challenges
to tax laws or rules.
• Constitutionality:
o The Supreme Court upheld the constitutionality of Section 145 of the NIRC (classification freeze
provision), applying the rational basis test.
o The provision did not violate the equal protection clause.
Legal Principle:
• Challenges to the constitutionality or validity of laws or administrative rules issued under
legislative/quasi-legislative powers must be filed in the regular courts.
• The CTA cannot rule on constitutional issues but only on tax assessment disputes.

Summary Table

British American Tobacco v.

Aspect Asia Int’l Auctioneers, Inc. v. Parayno
Camacho

Tax-related disputes, including CIR rulings Constitutional challenges to tax

Jurisdiction
(RMCs), belong to CTA laws/rules belong to RTC

Court of Tax Appeals Has exclusive appellate jurisdiction over CIR No jurisdiction over constitutionality of
(CTA) rulings and assessments laws or rules

Regular Courts No jurisdiction over tax disputes covered by Has jurisdiction over constitutional
(RTC/SC) CTA challenges

Requirement of Must exhaust administrative remedies before Not applicable for constitutional
Exhaustion judicial intervention challenges

Challenge to authority/rulings of CIR in tax Challenge to constitutionality of tax

Nature of Challenge
assessment context law or classification

Here's a clear summary of the key points and legal principles from the cases and rulings you shared, organized
by topic for easier review:
Sunlife of Canada v. CIR, CTA Case No. 7833 (Jan. 12, 2009)
• Issue: Whether a Revenue Memorandum Circular (RMC) issued by CIR is a "decision" appealable to
the Court of Tax Appeals (CTA) under Sec. 7 of RA 1125.
• Holding:
o The CIR’s issuance of an RMC clarifying taxability of insurance companies for MCIT, business
tax, and documentary stamp tax is not a "decision" appealable to the CTA.
o Since the principal relief sought was to declare RMC 30-2008 null and void, the CTA lacks
jurisdiction over this matter.
• Precedent: Cites British American Tobacco case holding similar jurisdictional limitations.

Gorospe v. Vinzons-Chato, G.R. No. 132228 (Jan. 21, 2003)

• Issue: Challenge to the validity of RMC No. 1-98 issued by the BIR, concerning the application of
adjusted tax rates under R.A. 8424.
• Facts:
o RMC No. 1-98 clarified that increased personal and additional exemptions would be applicable
only for income earned in taxable year 1998, not 1997.
o Petitioners argued exemptions should apply retroactively to 1997 income.
• Ruling:
o Petition dismissed for failure to exhaust administrative remedies.
o Petitioners should have first requested reconsideration from the Commissioner, and if denied,
appealed to the Secretary of Finance pursuant to Sec. 4 of R.A. 8424.
o Courts will not intervene when administrative remedies are available.
• Doctrine:
o Doctrine of Primary Jurisdiction: Courts defer to the specialized administrative agency (BIR)
for interpretation and enforcement of tax laws.
o RMCs are administrative rulings within BIR’s jurisdiction; courts give deference to their
expertise.

Philamlife v. Sec. of Finance, G.R. No. 210987 (Nov. 24, 2014)

• Facts:
o Philamlife sold shares below book value. BIR ruled the price difference is a "deemed donation"
subject to donor’s tax under NIRC Section 100 and Revenue Regulation 6-2008.
o Philamlife appealed to the Secretary of Finance, who affirmed the ruling.
o Philamlife then sought review from the Court of Appeals instead of the Court of Tax Appeals
(CTA).
 • Issue: Jurisdiction and validity of BIR ruling treating sale below fair market value as subject to donor’s
tax.
• Holding:
o The CTA has exclusive appellate jurisdiction over disputes involving tax assessments and
rulings of the BIR.
o The CA lacked jurisdiction; the petition was dismissed.
o The price difference between fair market value and selling price constitutes a gift by
operation of law, subject to 30% donor’s tax regardless of donative intent.
• Legal Basis:
o Section 4 of the NIRC vests power to interpret tax laws in the Commissioner, subject to review
by the Secretary of Finance.
o Section 7(a)(1) of RA 1125 gives CTA exclusive appellate jurisdiction over such disputes.
o CTA can rule on validity of revenue regulations and RMCs through certiorari.
• Implication:
o Courts respect the specialized jurisdiction of the CTA.
o The doctrine from City of Manila v. Grecia-Cuerdo supports CTA’s authority to rule on validity
of administrative rules or regulations.

General Legal Principles and Summary

Topic Principle Cases / Authorities

RMCs are administrative issuances, not "decisions"

Sunlife v. CIR, Gorospe
Appealability of RMCs appealable to the CTA; appeals must exhaust
v. Vinzons-Chato
administrative remedies first.

Must request reconsideration with CIR and appeal adverse Gorospe v. Vinzons-
Exhaustion of Remedies
action to Secretary of Finance before court intervention. Chato

Doctrine of Primary Courts defer to administrative agencies with specialized Gorospe v. Vinzons-
Jurisdiction competence in tax matters before judicial review. Chato

The CTA has exclusive appellate jurisdiction over

CTA Exclusive Philamlife v. Sec. of
disputed tax assessments and rulings of BIR
Jurisdiction Finance
Commissioners under RA 1125.

City of Manila v.
Validity of CTA can rule on the validity of revenue regulations and
Grecia-Cuerdo,
Administrative Rules RMCs via certiorari if within its appellate jurisdiction.
Philamlife

Deemed Donations Sale of shares below FMV is treated as a deemed gift Philamlife v. Sec. of
under NIRC Sec. 100 subject to donor’s tax regardless of donative intent. Finance
Banco de Oro v. Republic of the Philippines
G.R. No. 198756, January 13, 2015
Facts:
• The case concerns ₱35 billion worth of PEACe Bonds (Poverty Eradication and Alleviation
Certificates) issued in 2001 by the Bureau of Treasury.
• Initially, BIR rulings exempted the bonds from classification as "deposit substitutes," thus no 20% final
withholding tax (FWT) applied.
• In 2011, the BIR issued Ruling No. 370-2011, reversing earlier rulings, classifying PEACe Bonds as
deposit substitutes subject to 20% FWT.
• This triggered tax withholding upon maturity, despite prior BIR rulings and representations.
• Petitioners (banks and financial institutions holding PEACe Bonds) filed certiorari to annul BIR rulings
and stop the tax collection.
• The Supreme Court issued a TRO to halt tax withholding pending resolution.

Issues:
1. Are PEACe Bonds "deposit substitutes" subject to 20% final withholding tax under the 1997
NIRC?
2. How should “borrowing from twenty (20) or more individual or corporate lenders at any one
time” be interpreted?
3. Are the government/BIR estopped from imposing 20% FWT on the PEACe Bonds?
4. Does the 20% FWT violate constitutional clauses (non-impairment, due process) and statutory
non-retroactivity?

Rulings:
• BIR rulings imposing 20% FWT were declared null and void for grave abuse of discretion and
inconsistency with the 1997 NIRC.
• The PEACe Bonds were not properly classified as deposit substitutes because at issuance, they were
underwritten by fewer than 20 lenders, per statutory language.
• The phrase "at any one time" applies to simultaneous borrowing, not cumulative borrowing over
time or secondary market sales.
• Government/BIR estopped from changing tax treatment due to prior representations and contractual
expectations.
• The imposition of 20% FWT violates due process and the constitutional non-impairment clause by
altering material terms after issuance.
 • Exception to exhaustion of administrative remedies was allowed due to purely legal question and
urgency (maturity imminent, potential irreparable harm).
• The SC reaffirmed the Court of Tax Appeals (CTA) jurisdiction over tax rulings and constitutional
validity challenges.
• The British American Tobacco case was overruled; CTA has broad jurisdiction on tax ruling reviews.

Key Legal Doctrines and Principles:

1. Statutory Construction in Tax Law:
o Interpretation must give effect to all words.
o "Deposit substitutes" apply only if funds are borrowed simultaneously from 20+ lenders.
2. Non-Impairment Clause and Due Process:
o Material contractual terms (like tax exemptions) agreed at issuance cannot be unilaterally
changed.
o Retroactive tax impositions violating earlier representations violate due process.
3. Exception to Exhaustion of Administrative Remedies:
o Not absolute; excused for pure legal questions or urgency to prevent irreparable harm.
4. Judicial Review of Administrative Rulings:
o Courts may nullify administrative rulings that are inconsistent with statutory law.

Procedural Notes:
• Normally, tax rulings should be appealed first to the Secretary of Finance (Sec. 4 of NIRC).
• The exceptional circumstances (imminent bond maturity, irreparable injury) justified direct Supreme
Court intervention without exhausting remedies.
• Bureau of Treasury reprimanded for withholding funds despite TRO.

Outcome:
• Partial grant of petition:
o Halt on 20% FWT withholding.
o Release of withheld amounts to bondholders.
o Nullification of 2011 BIR rulings.

Important Citations:
• Sec. 4 of 1997 NIRC: Commissioner’s rulings reviewable by Secretary of Finance.
 • Leal and Asia Auctioneers cases: Affirm CTA jurisdiction over tax ruling validity challenges.
• Exception to exhaustion rule: For purely legal issues and urgency of judicial intervention.

Resolution on Motions for Reconsideration, Aug. 16, 2016 [En Banc Case] and the Burroughs Limited Case regarding
non-retroactivity of tax rulings:

1. Jurisdiction of the Court of Tax Appeals (CTA)

• The CTA has undoubted jurisdiction to decide on the constitutionality or validity of tax laws or regulations when
raised as a defense by taxpayers in disputes (e.g., assessment protests or refund claims).

• CTA may also take cognizance of direct challenges to tax laws, regulations, or administrative issuances (such as
revenue orders, rulings).

• The law intends CTA to have exclusive jurisdiction over all tax problems within the judicial system.

• Petitions for writs of certiorari against acts or omissions of quasi-judicial agencies (CIR, COC, SecFin, CBAA,
Secretary of Trade and Industry) should be filed with the CTA.

2. Types of Attacks on Tax Laws/Issuances

• Indirect (Collateral) Attack: Taxpayer disputes an assessment based on a tax ruling or circular (e.g., denial of
protest on deficiency tax assessment) — appeal denial to CTA.

• Direct Attack:

o Appeal a Revenue Memorandum Circular (RMC), Revenue Memorandum Order (RMO), or Revenue
Regulation to Secretary of Finance first (per Sec. 4, 1st paragraph).

o If denied by Secretary of Finance, appeal to CTA (cases under "other matters").

o Exceptions apply where administrative remedies may be bypassed, allowing direct appeal to CTA or
Supreme Court under special circumstances.

• Petron Case Exception: CTA has no jurisdiction over cases challenging Customs Memorandum Circulars imposing
excise taxes — remedy is administrative appeals to DOF, Office of the President, then regular courts.

3. Non-Retroactivity of Revocation of Rulings or Regulations (Sec. 246 / Sec. 327 of NIRC)

• General Rule: Revocation, modification, or reversal of tax rules/rulings cannot be applied retroactively if it
prejudices taxpayers.

• Exceptions (Retroactivity allowed only if):

o (a) Taxpayer deliberately misstated or omitted material facts.

o (b) Facts gathered later materially differ from those underlying the ruling.

o (c) Taxpayer acted in bad faith.

• Rationale: Justice and fair play; taxpayers should be able to rely on existing rulings in good faith.
 • Administrative agencies, including BIR, may revise their rulings but these changes cannot be applied
retroactively unless exceptions above are met.

4. Burroughs Limited Case (G.R. No. 66653, June 19, 1986) — Summary

• Facts:

o Burroughs Limited, a foreign corporation, paid a 15% branch profit remittance tax (BPRT) computed on
gross branch profits.

o A subsequent BIR ruling clarified that BPRT should be computed on the net amount actually remitted
abroad, not the gross amount.

o Burroughs filed a claim for refund/credit of the overpaid tax.

• Issue:

o Whether the tax base is the gross amount or the net amount actually remitted.

o Whether the subsequent BIR memorandum (revoking the earlier ruling) could be applied retroactively.

• Holding:

o Tax base is the net amount remitted, not gross amount.

o The BIR ruling of Jan 21, 1980 (favoring net amount) applies to payments made before a conflicting
memorandum was issued.

o The later memorandum (Memorandum Circular No. 8-82) cannot be applied retroactively under Sec.
327 of the NIRC as it prejudices taxpayers.

o Burroughs Limited is entitled to refund/credit for overpayment.

• Doctrine Established:

o Binding tax rulings have retroactive effect in favor of taxpayers, except in cases of misstatement,
material fact difference, or bad faith.

o Retroactive revocation of rulings prejudicial to taxpayers is prohibited.

o Tax authorities are bound by their rulings unless lawfully and justifiably overruled, respecting fairness.

5. Practical Implications

• Taxpayers may rely on existing BIR rulings when filing tax returns and making payments.

• The government cannot impose new interpretations retroactively if it results in taxpayer prejudice.

• Appeals on tax rulings and assessments follow a set administrative and judicial hierarchy.

• The CTA serves as the primary forum for resolving tax disputes and challenges on tax law validity.

Here's a concise summary of ABS-CBN Broadcasting Corporation v. Court of Tax Appeals, 108 SCRA 142 (1981) based
on your detailed notes:
ABS-CBN v. CTA, 108 SCRA 142 (1981)

Facts:

• ABS-CBN was engaged in telecasting films acquired from foreign corporations not engaged in business in the
Philippines.

• Under Section 24(b) of the National Internal Revenue Code (NIRC), a 30% withholding tax applied to income
received by these foreign corporations.

• Commissioner of Internal Revenue issued General Circular No. V-334 (1961), allowing withholding of 30% on
half of the film rentals, recognizing that half represented a return of capital, not taxable income.

• Republic Act No. 5431 (1968) amended Section 24(b) increasing tax rate to 35% and changing tax base to gross
income (no deductions).

• Commissioner issued Revenue Memorandum Circular No. 4-71 (1971), revoking Circular No. V-334 and
requiring withholding of 35% on the entire amount, no deductions for return of capital.

• ABS-CBN had withheld taxes according to old circular until 1968.

• In 1971, Commissioner assessed ABS-CBN for deficiency tax (P525,897.06) covering 1965-1968 based on new
rules.

• ABS-CBN filed for reconsideration; the assessment was ignored, leading to distraint and levy.

Issues:

1. Can Revenue Memorandum Circular No. 4-71 be applied retroactively to tax years 1965-1968?

2. Was the retroactive application prejudicial to ABS-CBN who acted in good faith under the earlier circular?

3. Whether the tax assessment for 1965 had prescribed.

Ruling:

• Supreme Court reversed the Court of Tax Appeals ruling affirming the assessment.

• The deficiency tax assessment was set aside.

• ABS-CBN was not liable for costs or additional interest/surcharge due to good faith compliance.

• Prescription issue became unnecessary to resolve.

Ratio / Doctrine:

1. Non-retroactivity (Sec. 338-A / now Sec. 327 of the NIRC):

Administrative rulings/circulars like Revenue Memorandum Circular No. 4-71 cannot be applied retroactively if
it prejudices taxpayers who relied in good faith on prior rulings.
 2. Good Faith Reliance:
ABS-CBN relied on a widely disseminated and valid circular (General Circular No. V-334), and imposing
retroactive liability violates the principle of good faith.

3. Legislative Approval of Administrative Interpretations:

Administrative interpretations must be consistent with legislative intent or be explicitly endorsed by Congress.
The earlier circular was effectively supported by successive legislative enactments.

4. Equity and Fairness:

Government power to assess taxes does not override fairness. Retroactive assessments are unjust when
taxpayers no longer control the amounts subject to withholding.

Important Points:

• The old circular was not a nullity because it was based on a reasonable interpretation of unclear statutory
language.

• The tax base change to gross income was only made explicit by a later statute (RA 5431, 1968), justifying the
new circular.

• Retroactive application after three years, without legislative approval or exceptional circumstances, is
disallowed.

• The government is generally not estopped from collecting taxes but must exercise caution; good faith
compliance is protected under the law.

• Interest and surcharge under Sec. 51(e) were waived due to taxpayer’s reliance on valid administrative rulings.

PBCom v. Commissioner of Internal Revenue (CIR)

G.R. No. 132050, 1999

Facts:

• PBCom, a Philippine commercial bank, filed quarterly income tax returns for 1985 and paid income tax based on
reported profits.

• Later, PBCom incurred losses in 1986 and reported no tax payable for the year.

• PBCom also earned rental income with withheld creditable taxes remitted by lessees.

• PBCom filed claims for refund and tax credit for overpayments in 1985 and 1986.

• The Bureau of Internal Revenue (BIR) denied the refund claims on the ground they were filed beyond the two-
year prescriptive period.

• PBCom relied on Revenue Memorandum Circular (RMC) No. 7-85, which extended the prescriptive period for
claiming overpaid quarterly income taxes from 2 to 10 years, citing Article 1144 of the Civil Code.

• The Court of Tax Appeals (CTA) and the Court of Appeals (CA) denied PBCom’s claims, ruling the claims were
barred by prescription.
Issue:

Whether PBCom’s claims for tax refund or tax credit filed beyond the two-year prescriptive period but within 10 years
under RMC 7-85 should be allowed.

Relevant Law:

• Section 230, National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC 1997):
No suit or proceeding for recovery of erroneously or illegally collected taxes shall be maintained after two years
from the date of payment of the tax.

• Article 1144, Civil Code:

General prescriptive period of 10 years for obligations arising from contracts.

• Revenue Memorandum Circular No. 7-85:

Extended the prescriptive period for refund claims for overpaid quarterly income taxes to 10 years, referencing
Article 1144.

Court's Ruling:

• RMC 7-85 is invalid and contrary to Sec. 230 of the NIRC.

The BIR cannot legislate or change the prescriptive period set by law; its circular, which extended the refund
claim period to 10 years, conflicts with the clear 2-year period mandated by the NIRC.

• Prescriptive period for tax refund claims is two years, computed from the date of payment of the tax or from
filing the final adjustment return.

• Taxes are the lifeblood of the nation.

The state’s power to tax must be enforced promptly and efficiently; claims for refund must comply strictly with
statutory time limits.

• Administrative issuances inconsistent with statutes have no binding effect on courts.

The courts will disregard administrative interpretations (like RMC 7-85) that override or contradict the law.

• Estoppel does not apply against the State on grounds of mistakes by its agents.
PBCom cannot rely on the mistaken interpretation in RMC 7-85 to extend the prescriptive period.

• Nullity of RMC 7-85 was declared by the courts, not the Commissioner of Internal Revenue; thus, non-
retroactivity of BIR rulings principle does not apply.

• Claims for tax refunds are construed strictly against the taxpayer.

Legal Principles from the Case:

1. Statutory prescriptive periods for tax refund claims must be strictly followed.

2. Administrative circulars cannot amend or override the law.

3. The State cannot be estopped by errors of its officials or agents.

4. Tax refund claims filed after the two-year prescriptive period are barred.

5. Judicial interpretation prevails over administrative rulings inconsistent with the law.
Conclusion:

The Supreme Court affirmed the denial of PBCom's refund claims on the ground of prescription. The two-year
prescriptive period under Sec. 230 of the NIRC controls, and the attempt by RMC 7-85 to extend this to 10 years was
void. PBCom's claims filed beyond the two-year period were therefore time-barred.

If you want, I can help prepare this into flashcards, a timeline, or a question-and-answer format for study. Just let me
know!
EVIDENCE

Got it! You’ll be acting as Krishna Delgado Castro, the live-in partner and witness for the defense in a murder
case.

Here’s a breakdown of likely questions from both sides and suggested answers you can give, based closely on
your affidavit, as if you are testifying in the Philippine RTC courtroom:

Possible Questions by the Prosecution (People of the Philippines)

1. About your relationship with the accused

• Q: What is your relationship to the accused, Kenneth Alajar Bautista?

• A: He is my live-in partner.

2. About your whereabouts on the incident date

• Q: Where were you on March 30, 2025?

• A: I was in Baras, Rizal in the morning and in the afternoon, around 3 PM, Kenneth and I went to
Antipolo to eat at Max’s.
•
• Q: How did you get to Antipolo?
• A: We used Kenneth’s Toyota Fortuner.

3. About the incident

• Q: What happened while you were on Marilaque Highway?

• A: A white Honda ADV motorcycle cut in front of our vehicle, almost hitting us, followed by a group of
four motorcycle riders surrounding us aggressively.
•
• Q: How did you and Kenneth react to this?
• A: We were shocked and afraid because they appeared angry and were acting aggressively by cutting
into our lane and surrounding our vehicle.
•
• Q: What happened when you stopped the vehicle?
• A: One of the riders, Peter Casena Guzon, got off his motorcycle and approached us shouting angrily
and pointing fingers.
•
• Q: Did Kenneth get out of the vehicle? Why?
• A: Yes. Peter was grabbing his shirt collar and trying to start a fight, so Kenneth got out to try to calm
things down.
•
• Q: What happened next?
• A: The group, including Peter and his son Patrick, became more aggressive and started throwing
punches at Kenneth.
•
 • Q: Were you injured during the altercation?
• A: Yes, but I only realized I was wounded after the gunshots fired.
• Q: Did you see who fired the gunshots?
• A: No, I only heard the shots while Kenneth was being punched and pinned down by Peter.

Possible Questions by the Defense (Accused’s Lawyer)

1. To establish your credibility and knowledge of the facts

• Q: How well do you know Kenneth Bautista?

• A: He is my live-in partner. We have been together for some time, and I know him well.
•
• Q: Were you with him on March 30, 2025?
• A: Yes, I was with him all throughout that day, including the time of the incident.
•
• Q: Did you see the events yourself?
• A: Yes, I witnessed everything that happened on Marilaque Highway.

2. To establish the accused acted in self-defense

• Q: When the motorcycle riders cut you off, what did Kenneth do?
• A: He tried to ignore them and continue driving.
•
• Q: Did Kenneth provoke the motorcycle riders in any way?
• A: No, Kenneth did not provoke them. We were the ones being threatened and attacked.
•
• Q: What did Kenneth do when Peter approached the vehicle?
• A: He tried to calm Peter down and even apologized to avoid conflict.
•
• Q: Why did Kenneth get out of the vehicle?
• A: Because Peter was grabbing him and trying to start a fight, Kenneth got out to try to stop the
aggression.
•
• Q: Did Kenneth try to avoid fighting?
• A: Yes, Kenneth tried to walk away, but he was pulled back and attacked by Patrick and the others.
•
• Q: What did Kenneth do when attacked?
• A: He tried to defend himself and escape the punches.
•
• Q: Did you hear any gunshots during the incident?
• A: Yes, I heard gunshots when Kenneth was being attacked and pinned down.
•
• Q: Do you believe Kenneth acted in self-defense?
• A: Yes, because he was being attacked by four men and was trying to protect himself and me.

Tips for Answering in Court

• Always answer truthfully and clearly.

• Use simple, direct language as in your affidavit.
• When unsure or if you don’t remember, say:
“I don’t recall,” or “I only know what I saw/heard.”
• Stay calm and composed, especially when recounting aggressive or violent moments.
• Avoid volunteering extra information unless asked.