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ARELLANO

BAR REVIEW
PROGRAM

2007 PRE-WEEK GUIDE IN TAXATION

By: Prof. Edwin R. Abella

1. Theory and basis of Taxation

a. Necessity theory the existence of the government is a necessity; that it cannot continue
without the means to pay its expenses; and that for those means it has the right to compel all
citizens and property within its limits to contribute (51 Am. Jur. 42)
b. Benefits-protection theory the State demands and receives taxes from the subjects of
taxation within its jurisdiction so that it may be enable to acrry its mandate into effect and perform
the functions of government, and the citizens pay from his property the portion demanded in
order that he may, by means thereof, be secured in the enjoyment of the benefits of organized
society. (51 Am. Jur. 43)

2. Purposes and objectives of Taxation

1. Revenue to provide funds with which the State delivers the basic service to the people.
2. Regulation Taxation has a regulatory purpose as in the case of taxes levied on excises
or privileges like those imposed on tobacco and alcoholic products, or amusement places like
night clubs, cabarets, cockpits, etc.
3. Promotion of General Welfare Taxation can be used as an implement of police power
in order to promote the general welfare of the people.

Lutz v. Araneta (98 Phil 148) The SC upheld the validity of the Sugar Adjustment Act, which
imposed a tax on milled sugar since the purpose of the law was to strengthen an industry that is
undeniably vital to the economy the sugar industry.

Osmea v. Orbos (G.R. No. 99886, March 31, 1993) While the funds collected under the OPSF
are referred to as taxes, they are extracted in the exercise of the police power of the State. From
such fund, amounts are drawn to reimburse oil companies when appropriate situations arise for
increases in, as well as under-recovery of, the cost of crude oil importation.

4. Reduction of Social inequity This is made possible through the progressive system of
taxation where the objective is to prevent the undue concentration of wealth in the hands of few
individuals. Progressivity is keystoned on the principle that those who are able to pay should
shoulder the bigger portion of the tax burden. Examples income tax, donors tax and estate tax.

5. Encourage Economic Growth The law, at times, grants incentives or exemptions in order to
encourage investments and thereby promote the countrys economic growth.

6. Protectionism It protects local industries from foreign competition i.e. protective tariffs and
customs duties.

Southern Cross Cement Corp., v. Secretary of Finance et.al. (G.R. No. 158540, July 8, 2004)
The Safeguard Measures Act (SMA [RA No. 8800]) allows the imposition of emergency
measures, including tariffs, to protect domestic industries and producers from increased imports
which inflict or could inflict serious injury on them. The power to impose general safeguard
measure is vested with the DTI Secretary upon compliance with two conditions, viz:
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1.there must be a positive final determination by the Tariff Commission that a product is being
imported into the country in increased quantities, as to be substantial cause of serious
injury or threat to the domestic injury, and;
2. the Secretary must establish that the application of such safeguard measures is
in the public interest.
Note: in the case of imported agricultural products, it is the Secretary of Agriculture who may
impose the protective tariff
.
3. What are the basic principles of a sound tax system?
a. Fiscal adequacy
b. Theoretical justice or the ability-to-pay principle
c. Administrative feasibility

4. The ability-to-pay principle

a. Progressive v. regressive taxes
b. Does the Constitution prohibit the imposition of regressive taxes? NO. Abakada Guro Party List
v. Ermita
c. Does the VAT, which is a consumption type of tax, violate the policy of progressive system of
taxation? No. Abakada
d. How does the VAT minimize the regressive effects of a tax on consumption. Exemption of basic
commodities or poor mans consumption goods.

5. The rule in origination of revenue bills Section 24, Article VI of the Constitution. Tolentino
case & Abakada case.

6. The rule on non-delegability of the power to tax.

Is there an undue delegation of legislative power when the tax law gave the President a stand-by
authority to increase the VAT rate (from 10%) to 12% upon recommendation of the Secretary of
Finance based on compliance with certain economic conditions?

Suggested Answer: No. Congress have not unduly delegated its power when it describes what job
must be done, who must do it, and what is the scope of his authority. What is granted to the President
is merely the discretion as to the execution of the law. (Abakada case)

Alternative Answer: No. Congress did not delegate any power to tax to the President. She is not given
the power to fix the rate of VAT but rather to implement a pre-determined rate if any of the economic
conditions are present. This is purely an act of executing the will of Congress.

7. What is embraced within the term power to tax for purposes of non-delegation?
1. person, property or privilege to be taxed;
2. amount or rate of the tax;
3. the purpose for which tax is to be levied (public purpose only)
4. the kind of tax to be collected;
5. the apportionment of the tax (general or local);
6. the situs of taxation; and
7. the method of collection.

8. The Concept of Double Taxation When two taxes are imposed on the same property or
subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction or
taxing district, during the same taxable period, and for the same kind or character of a tax. This is a
direct duplicate taxation which violates the principle of uniformity. All other types of double imposition
are merely indirect double taxation which is not prohibited.

9. Tax Evasion CIR v. Estate of Benigno P. Toda, Jr., 2004 Tax evasion connotes the
integration of three factors: (1) the end to be achieved, i.e. the payment of less than that known by the

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taxpayer to be legally due; (2) an accompanying state of mind which is described as being evil, in
bad faith, willful, or deliberate and not merely accidental; and (3) a course of action or failure of
action which is unlawful.
10. Distinguish between Tax Avoidance and Tax Evasion. Give example of each.
Tax avoidance refers to the use by the taxpayer of legally permissible methods in order to reduce
his tax liability. Example: termination of deposits subjects to 20% final tax and re-investing it in tax-
exempt government bonds.

Tax evasion is the use by the taxpayer of illegal means to defeat or lessen the payment of taxes.
Example: deliberate non-reporting or under-reporting of an income.

11. Power of the commissioner to issue an assessment based on best evidence obtainable:

CIR v. Hantex Trading Co., Inc., G.R. No. 136975, Match 31, 2005 The best evidence must be
admissible in evidence. Mere photocopies of records or documents will not suffice. The reason for
this is that such copies are mere scraps of papers and are of no probative value.

12. Authority to inquire into bank deposit accounts

Only on 2 grounds:
a. determine the gross estate of decedent
b. offer for compromise based on financial incapacity

13. Distinguish between specific and ad valorem taxes?

Specific one imposed and based on a physical unit of measurement, as by head or number,
weight, or length or volume. Example tax on distilled spirits, fermented liquors, cigars and
cigarettes, wines, etc.
Ad valorem- imposed on a fixed portion of the value of property with respect to which the tax
is assessed. Needs an independent appraiser to determine its value. Example real estate
tax, certain customs duties, excise tax on quarry resources, etc.

14. Distinguish between direct and indirect taxes?

Direct taxes are demanded from the very person who, as intended, should pay the tax which
he cannot shift to another; while an indirect tax is demanded in the first instance from one
person with the expectation that he can shift the burden to someone else, not as a tax but as
part of the purchase price. (Maceda v. Macaraig, 223 SCRA 217).

Is the notion that indirect taxes are regressive correct? Explain. (PAL v. Sec. Of Finance,
1995)

15. What is an income? Distinction of income from capital?

Income is a gain derived from capital, from labor or from both combined provided it is
understood to include gains from sales or dealings in capital assets. Income is the flow of
wealth other than a mere return of capital.
Capital is a fund or property existing at an instant of time, while income is a flow of services
rendered by a fund or capital in relation to that fund through a period of time. Capital is wealth
while income is the service of wealth. (Madrigal v. Rafferty, 38 Phil. 414).

16. Certain Rules On Inclusion And Exclusion Of Income

Return of Premiums
Leo took out a life insurance policy for P100,000 naming his wife as beneficiary. Under
the terms of the policy, the insurer will pay Leo the amount of P100,000 after the 20th year of
the policy or, his wife, should he die before that date. Leo outlived the policy and received
P100,000. The premiums paid on the policy was P85,000. Is the P100,000 received by Leo
subject to (income) tax?

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To the extent of P85,000 there was a mere return of premium and, therefore, the
recovery thereof is not taxable. The excess, however, of P15,000 would be subject to income
tax. Had the insured not outlived the policy, the P100,000 receiv ed by the wife would have
been exempt from income tax since the proceeds from life insurance are excluded from
taxable income. (Sec. 32 of the NIRC).

Retirement benefits, etc.

The conditions to be met in order that retirement benefits received by officials and employees of
private firms are excluded from gross income and therefore exempt from taxation are as follows:
a. Under Republic Act No. 4917 (those received under a reasonable private benefit plan):
1. The retiring official or employee must have been in service of the same
employer for at least ten (10) years.
2. That he is not less than fifty (50) years of age at the time of retirement.
3. That the benefit is availed of only once. arellano law

b. Under Republic Act No. 7641 (those received from employers without any retirement
plan):
1. Those received under existing collective bargaining agreement and other
agreements are exempt; and
2. In the absence of retirement plan or agreement providing for retirement
benefits, the benefits are excluded from gross income and exempt from income tax if:
i. Retiring employee have served for at least five years; and
ii. He/she is not less than sixty (60) years of age but not more than sixty five (65).

Benefits given on account of involuntary separation

Recovery of damages
Amounts received as moral damages, whether under agreement of the parties or pursuant to
a judgment of a court, in certain personal actions, like personal injuries which are non-
physical in character, for example, alienation of affections, injury to personal reputation,
breach of promise to marry, libel or slander, do not constitute taxable income. The theory is
that a recovery in those actions is compensatory, the damage being in payment of
injuries sustained.
Is an amount paid for possible future injuries to the taxpayers reputation resulting from an
invasion to his right to privacy includable in gross income? Yes. (Meyer v. U.S. 173 F. Supp.
920) But it would be different if the taxpayer had sustained damage through invasion of his
right of privacy and monies had been received in compensation for the injury.
Are damages resulting from a breach of contract taxable income? Yes, but only to the extent
that those damages constitute a loss of anticipated profits and nontaxable to the extent that
the damages represent a return of capital or investment.
Exemplary or punitive damages? Taxable income (Commissioner v. Jacobson, 336 U.S. 28).
They do not represent return of capital but designed to punish the wrongdoing.
Are damages for loss of profits and injury to business and goodwill taxable as income? It has
long been established that, since profits from business are taxable, damages recovered for
the loss of profits by reason of some act of the defendant are also taxable. It is equally well
established that damages for the destruction of property or for an injury to the goodwill of a
business are a return of capital and taxable only to the extent that the damages exceed the
basis of the property.(Mathey, 10 TC 1099).

Gains on sale, exchange or retirement of bonds, etc. Only gains are exempt, interest
income is taxable.

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Nippon Life Insurance Co. v. CIR, CTA Case No. 6142 There is a clear distinction between
interest from bonds and gain from the sale of bonds. It is only the gains realized from the sale
or exchange or retirement of bonds, debentures or other certificates of indebtedness with a
maturity of more than five (5) years that is excluded from gross income and thus exempt from
income tax under Section 32(B)(7)(g) of the Tax Code. Such gains fall within the general
category of gains derived from dealings in property, as distinguished from interest from bonds,
debentures or other certificates of indebtedness, which falls within the general category of
Interests under Section 32(A) of the Tax Code. arellano law

17. Define Taxable Income. Taxable Income means the pertinent items of gross income specified in
the Tax Code, less the deductions and/or personal and additional exemptions, if any, authorized for
such types of income. (Sec. 31, NIRC).

18. Taxation of individual taxpayers

Compensation income and business income are taxed at the same rates.

What is the reason for the separate determination of the taxable income in case a taxpayer earns
mixed income?

The reason for the separate determination of taxable income for individuals earning mixed
income, is to ensure that business losses will not be off-set against compensation income.
Otherwise, business losses will have the effect of being claimed as a deduction against
compensation income which is not allowed by law. Section 34 is very clear on the matter that no
deductions shall be allowed from gross compensation income other than under Subsection (M)
pertaining to premium payments on health and/or hospitalization insurance. (Section 34, first
par.).

Taxation of married individuals Separate computation of tax liabilities of husband and wife
designed to avoid the marriage penalty tax. arellano law

Attribution of income to spouses [Sec. 24 (A)]

Personal and additional exemptions

An illegitimate child is allowed as a dependent and will make an unmarried taxpayer a
head of the family.
To be considered as head of the family and also entitled to the benefit of additional
personal exemption, the child must be living with and is dependent upon the taxpayer for
chief support.
Change in status of the taxpayer and dependents
1. Taxpayer marries during the year full personal exemption for married individual for that
year.
2. Dependent born during the year full claim of additional exemption
3. Taxpayer dies full claim, as if he died at the end of the taxable year
4. Spouse or dependent dies, marries, becomes 21 years old, becomes gainfully employed
full claim of exemption, as if the event happen at year-end.

What is the nature of personal exemptions? Personal exemptions are the theoretical
personal, living and family expenses of an individual taxpayer. These are arbitrary amounts
which have been calculated by our lawmakers to be roughly equivalent to the minimum of
subsistence, taking into account the personal status and additional qualified dependents of
the taxpayer. (Pansacola v. CIR, G.R. No. 159991, November 16, 2006).

Rules on Passive Income

a. Tax on Dividend/improperly earning tax.

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Rationale for IAET: it is being imposed as a penalty to the corporation for the improper
accumulation of its earning and as a form of deterrent to the avoidance of tax upon
shareholders who are supposed to pay dividends tax on the earnings distributed to them by
the corporation (RR No. 2-2001)
b. Interest on long term investments (with maturity period of not less than 5 years) tax
exempt subject to rule on pre-termination.
Rule on Capital Gains

1. Capital gains on sale of Shares of Stocks- Based on net capital gain as defined under Section
39. Only shares of a domestic corporation are subject to the CGT. The shares must be a
capital asset.

Wash Sale of Stocks on Securities applicable to sale of shares of stocks not traded in
the stock exchange and held as capital asset (where the tax is imposed on net capital
gain). Loss on a wash sale is not allowed to offset capital gains (not deductible).

a. The shares must be Capital Asset- this means that the seller is not a dealer in
securities.
b. Acquisition by the seller within 30 days before or 30 days after the sale makes the
sale a wash.
c. Acquired shares should be identical or substantially identical shares.

Explain and discuss the objective and philosophy behind a wash sale.

The objective of Section 38 of the National Internal Revenue Code of 1997 is to prevent
taxpayers from claiming pretended losses.

The law is designed to prevent a situation where the alleged seller may try to give the
impression of a loss in such wash sale when the loss is actually negated by the effects
of his having bought or acquired substantially identical stocks or securities within a
period very close to the occurrence of his sale of stocks.

2. Capital gains on Real property

a. 6% of the Selling Price of FMV whichever is higher.

b. Sale by individuals and domestic corporation of real property situated in the
Philippines which are held as capital assets.
c. Sale of principal residence by an individual exempt from capital gains tax
subject to certain conditions (intended to promote urban renewal).

19. Tax Equalizer between Aliens and Filipinos employed by RAHQs, ROHQs, OBUs and foreign
petroleum service contractors and subcontractors in the Philippines.

For RAHQs, ROHQs, and OBUs the equal tax treatment cover only employees occupying
managerial and technical positions. No need for an alien counterpart of a Filipino employee.
(RR No. 6-2001).
For Foreign Petroleum Service Contractors and Subcontractors the equal tax treatment
covers all employees. No need for an alien counterpart. (RR No. 6-200).

20. Taxation of Members of a General Professional Partnership (GPP)

A GPP is a partnership formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any trade or
business.
The net income (distributable net income) of the GPP is computed in the same manner as a
corporation, i.e. Gross income less deductions.

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Each partners/member is taxable in his individual capacity and each must report as gross
income his distributive share, actually or constructively received, in the net income of the
GPP.
Salaries of a managing partner are taxed as part of his business income to be added to
his share in the net income of the GPP. Said salaries are not subject to the withholding tax
on compensation income.

21. Taxation of Corporations

Definition of a corporation.

Test employed in determinating whether an association is taxable as a Corporation Profit

motive test or business motive test

Liability of co-ownership each co-owner is taxable in his individual capacity, unless the co-
ownership is organized to pursue a business motive.

a. Obillos v. Commissioner, L-68118, 29 October 1985

Where the children contributed to buy two parcels of land from their father for residential
purposes and one year after, sold the lots at profit, there is not taxable partnership; there
must be an unmistakable intention to form a partnership for mere sharing of gross returns
does not result in a taxable partnership.

b. Pascual and Dragon vs. Commissioner, G.R. No. 78133, 18 October 1988
There must be a clear intent to form a partnership, the existence of a juridical personality
different from the individual partners. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them partners. The
sharing of profits was at most only incidental.

c. Reyes vs. Commissioner, 24 SCRA 198

Father and son purchased a building including the lot. At the time of the purchase, the
building was leased to a number of tenants. The purchasers appointed an administrator to
collect the rents, make repairs, negotiate for lease contracts and perform functions on the
preservation of the property. The father and son divided the income derived from the building
after deducting the operational expenses. It was held that there was a partnership (not a
mere co-ownership) taxable as a corporation under the Tax Code.

Liability of an estate not under judicial settlement taxable as a corporation if there is business
motive behind the continued association among the heirs.
1. Evangelista v. Collector, 102 Phil. 140
The three Evangelista sisters bought four pieces of real property which they leased to various
tenants and derived rentals therefrom.

2. Oa v. Commissioner, 45 SCRA 74
After the project of the partition was approved by the Court, no attempt was made to divide
the properties therein listed. Instead, the properties remained under the management of
Lorenzo Oa (the husband) who used said properties in business by leasing or selling them
and investing the income therefrom and the proceeds from the sales thereof in real properties
and securities.

Two organizations for profit not taxable as a corporation

1.General Professional Partnership
2.Joint Venture for Construction etc.

22. Kinds of Corporation and the specific tax rules applicable to each.

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Domestic Corporation taxable on worldwide income based on net income.

Resident Foreign Corporation taxable on income derived from within based on net
income.
Branch Profit Remittance Tax
Tax base Doctrine of Constructive Receipt of income. (RA 8424).
Non-Resident Foreign Corporation taxable on its gross income
derived from within.
Tax Sparing Rule
Procter & Gamble PMC v. CIR
Wander Phils., Inc. v. CIR
23. Deductions from Gross Income (Section 34). The following are deductions from Gross Income:

1.Ordinary and necessary expenses

For an expense to be deductible from gross income, the same must comply with the
following requirements as set firth under Section 34 (A)(1) of the Tax Code, viz:

a.the expense must be ordinary and necessary;

b.It must have been paid or incurred during the taxable year;
c. It must have been paid or incurred in carrying on the trade or business of the taxpayer; and
d.It must be supported by receipts, records or other pertinent papers.

In determining whether an advertising expense is ordinary and necessary, two

conditions must be met: first, reasonableness of the amount incurred and second,
the amount incurred must not be a capital outlay to create goodwill for the product
and/or taxpayers business.
In a case decided by the Supreme Court, the advertising expense in the amount of
P9,461,246.00 for the promotion of a single product was declared unreasonable. The
expense which is almost one-half of the taxpayers entire claim for marketing expenses
for the year under review, is doubtlessly unreasonable. Moreover, the expense was
incurred to protect the taxpayers brand franchise, which is analogous to the
maintenance of goodwill or title to ones property which is in the nature of a capital
expense. (Commissioner of Internal Revenue vs. General Foods (Phils.), Inc. G.R. No.
143672 dated 24 April 2003).

Examples of ordinary and necessary expenses:

a.Compensation for personal services including the grossed-up value of Fringe Benefit;
b.Travel expenses, here and abroad, while away from home in the pursuit of trade business or
profession;
c. Business rentals;
d.Entertainment, amusement and recreation expenses

Bribes, Kickbacks and other similar payments are not allowed as deduction.
Option is given to education institution to deduct outright capital outlays of depreciable
assets for the expansion of school facilities.

2.Business connected Interest

The tax arbitrage rule the interest expense shall be reduced by 42% of the interest
income subjected to final tax.
Optional treatment of interest expense Interest incurred for the acquisition of a
property used in business can either be claimed as a deduction or capitalized as part of
the acquisition cost of the asset subject to depreciation.
Requisites for Deductibility:
a.There must be an indebtedness;

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b.There should be an interest expense paid or incurred upon such indebtedness during the
taxable year;
c. The indebtedness must be that of the taxpayer;
d.The indebtedness must be connected with the taxpayers trade, business or exercise of
profession; and
e.The interest must be legally due.

Interests paid by an employer on unclaimed salary, the interest not being legally due,
would be non-deductible (Kuenzle & Streiff, Inc. v. Collector, 106 Phil. 355)
Interest on delinquent taxes are deductible (Palanca v. Commissioner, 18 SCRA 496). But this
should now be limited to interest on delinquent taxes which are business related because of
the legal requirement that the expense must be necessary (business connected). arellano law
Interests paid by an employer on unclaimed salary, the interest not being legally due,
would be non-deductible (Kuenzle & Streiff, Inc. v. Collector, 106 Phil. 355)
Interest on delinquent taxes are deductible (Palanca v. Commissioner, 18 SCRA 496).
But this should now be limited to interest on delinquent taxes which are business related
because of the legal requirement that the expense must be necessary (business
connected).
Interest expense not allowed as deduction:
1.Individual taxpayer on the cash basis paying interest in advance through discount or
otherwise. But interest is allowed as deduction in the year the indebtedness is paid; if
payable in amortization then an aliquot portion of the interest corresponding to the ratio of
principal paid is allowed as deduction.
2.Interests on loans between related parties referred in Sec. 36 (B).
3. Interest on indebtedness incurred to finance petroleum exploration.

3.Taxes in connection with taxpayers business or trade, except the following:

a. Income taxes;
b. Income taxes imposed by authority of a foreign country if the taxpayer signifies in his
return his intention of availing of it as tax credit (otherwise, deductible; no double
benefit);
c. Estate and donors taxes; and
d. Taxes assessed against local benefits of a kind tending to increase the value of the
property assessed.

Tax Refunds: Taxes allowed as a deduction, when refunded or credited, shall be

included as part f gross income to the extent of the income tax benefit of said deduction.

4. Losses incurred in trade or involve property connected with trade, etc.

Requisites for the deductibility of losses:
a. The loss must be actual;
b. The loss must be sustained in a close and completed transaction;
c. The loss must not be compensated for by insurance or otherwise;
d. The loss must be liquidated and charged-off during the taxable year.
There can be no partial write-off of a loss during the year, in order to defer its deduction
from gross income. The deduction shall be in full or not at all (Fernandez Hermanos, Inc.
vs. Commissioner, 29 SCRA 552);
e. Not claimed as a deduction for estate tax purposes; and
f. If due to casualty, robbery, theft or embezzlement, must be reported to the BIR within 45
days from date of discovery.

Net Operating Loss Carry-Over (NOLCO)

a. NOLCO means the excess of allowable deductions over gross income.

b. Can be carried over to the next 3 years after the year the net operating loss was
sustained.

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c. No substantial; change in ownership of the business or enterprise (75% interest

retention rule) to avoid peddling of losses purely for tax benefit purposes.

NOLCO shall be allowed as a deduction from the gross income of the same taxpayer
who sustained and accumulated the net operating losses regardless of the change in
its ownership. This rule shall also apply in the case of merger where the taxpayer,
which incurred the losses, is the surviving entity.

Capital loss is deductive only to the extent of capital gains.

5. Bad debts
Requisites for deductibility:
a. There is a valid ad subsisting debt;
b. The obligation is connected with the taxpayers trade or business, and it is not between
related parties;
c. There is an actual ascertainment that the debt is worthless; and
d. The debt is charged-off within the taxable year. A partial writing off a bad debt is not
allowed (PRC vs. CA, G.R. No. 118794, May 8, 1996.

Tax treatment of securities becoming worthless

Chinabank vs. Commissioner, July 19, 2000 An equity investment is a capital, not an
ordinary asset. When the investment becomes worthless, the loss is deemed to be a loss
from the sale or exchange of capital asset. Hence, it is deductible only if there is a capital
gain and only to the extent of such gain.

The tax benefit rule, just like in taxes, equally applies to bad debts. Hence, the recovery
of bad debts, charged-off and deducted in previous years, becomes taxable income in
the year of recovery, to the extent of the tax benefit on the bad debt deduction.

6. Depreciation It refers to the gradual diminution in the value of an asset due to its use in trade
or business resulting in ordinary wear and tear or normal obsolescence. The term is also applied to
amortizations of the value of intangible assets, the use of which in the trade or business is definitely
limited in duration (Basilan Estate Inc. vs. Commissioner, 21 SCRA 17). Accordingly, intangibles with
definite life, like copyrights and patents (but not goodwill) may be allowances for obsolescene.

Methods of Depreciation:
a. Straight line method;
b. Declining-balance method;
c. Sum-of-years-digit method;
d. Any other method which may be prescribed by the Secretary of Finance upon
recommendation of the Commissioner.

7. Depletion

It is reasonable allowance for the exhaustion of wasting assets like mines, oil and gas
wells. When the depletion allowance shall have equaled the invested capital, no further
allowance is permitted (Fernandez Hermanos, Inc. vs. CIR, 29 SCRA 552).

8. Charitable Contributions
Requisites for deductibility:
a. The contribution or gift must be actually paid;
b. It must be given to the organizations specified in the Code; and
c. The net income of the donee-institution must not inure to the benefit of any private
individual.

Contributions deductible in full:

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a. Donations to the government or political subdivisions including fully owned government

corporations to be used exclusively in undertaking priority activities in education, health,
youth and sports development, human settlement, science and culture, and economic
development.

Note: Any donation to the government not in accordance with said priority plan shall e
subject to limitation.

b. Donations to foreign institutions or international organizations in compliance with

agreements, treaties or commitments.
c. Donations to accredited NGOs subject to the following conditions:
i. Organized exclusively for scientific, research, educational, character building,
youth and sports development, health, social welfare, cultural, charitable, and
combination thereof.
ii. The donation must be utilized not later than the 15th day of the 3rd month
following the close of its taxable year.
iii. The administrative expense must not exceed 30% of total expenses.
iv. Upon dissolution, assets must be distributed to another non-profit domestic
corporation or to the state.

Note: If the above conditions are not complied with, the contribution may be
deducted, but subject to limitation.

Other contributions to government or accredited corporations or associations will be

subject to the limitation of 1% for individuals and 5% for corporation of the taxable
income from trade, business or profession before contribution.

Valuation rule Contribution of porperty (other than money) shall be valued at

acquisition cost.

9. Research and development

Revenue expenditure:
a. Paid or incurred during the taxable year;
b. Ordinary and necessary expense;
c. Not chargeable to capital account.

Capital expenditure/deferred expense:

a. Paid or incurred in connection with trade, business or profession;
b. Not treated as expense or current deduction;
c. Chargeable to capital account but not chargeable to property subject to depreciation
or depletion.

Note: Such deferred expense may be allowed as a deduction ratably distributed over a
period of not less than sixty (6) months at the option of the taxpayer.

10. Pension Trusts

Nature It is a deduction applicable only to the employer on account of its contribution

to a private pension plan for the benefit of its employee.

Contributions to meet employers current liability are deductible as ordinary business

expense.

Reasonable amount transferred to the trust, in excess of contributions to meet current

liability to employees (i.e. past service cost), will be deductible over a period of ten (10)
years.

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11. The Optional Standard Deduction

An individual taxpayer engaged in trade, business or practice of profession (except a

non-resident alien engaged in trade) may elect to claim as deduction 10% of its gross
income instead to the itemized deductions.
Unless the taxpayer signifies in his return his intention to elect the Optional Standard
Deduction, he is deemed to have availed of the itemized deductions.
Once OSD is elected, it is irrevocable for the taxable year for which the return is made.

12. Premium Payments on Health and/or Hospitalization insurance of an Individual.

Maybe claimed by a purely compensation income earner or a business income earner,

or a mixed income earner.
Available to single, married or head of the family
P2, 7400 per family or P200 per month
Family gross income is not more than P250, 000
In the case of married individuals, the spouse claiming additional personal exemption
must claim this deduction

Note: The 20% discount given to senior citizens by business establishments is a deduction
from gross income. RA No. 7432 (Senior Citizens Act) was repealed by RA No. 9257 which
was approved into law on February 26, 2004, changing the treatment of the discount from tax
credit to tax deduction.

24. Minimum Corporate Income Tax (2% of gross income

Corporations covered:
a. Domestic Corporation if subject to normal corporate income tax on its net income
b. Resident Foreign Corporation (same as domestic corporation)
Excess MCIT allowed as credit against normal corporate income tax for the next three
(3) years.
Grounds for suspension of MCIT imposition;
a. Prolonged labor dispute strike lasting more than 6 months
b. Force Majeure irresistible force like lightning, earthquake, storm, flood and the like. It
includes armed conflicts like war or insurgency.
c. Legitimate business reverses losses sustained due to fire, robbery, theft or
embezzlement or due to ther economic reasons as maybe determined by the
Secretary of Finance.

25. Fringe Benefits Tax

Fringe benefit defined any good, service or other benefit furnished or granted in cash or in
kind y an employer to a managerial or supervisory employee, which benefit does not form
part of the employees regular compensation package.

Covered Employees
a.Managerial
b.Supervisory

Exempt from Fringe Benefits Tax:

a. Given to rank and file

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b. Required by the nature of, or necessary to the trade, business or profession of

the employer
c. Given for the convenience of the employer
d. De Minimis Benefits Other tax implications?

26. Installment Sales

In case a real property is sold in installment (initial payment not exceeding 25% of the contract
price) wherein the initial payment was paid in cash and the balance in the form of interest bearing
promissory notes and the seller discounted the promissory notes in the year of sale, the entire gain
on the sale must be reported in the year of sale (Baas vs. Court of Appeals, GR No. 102967,
February 10, 2000).

Thus, where an installment obligation is discounted at a bank or finance company, a taxable

disposition results, even if the seller guarantees its payment, continues to collect on the installment
obligation, or handles repossession of the property in case of default. Although the proceeds of a
promissory note is not considered initial payment, still it must be included as taxable income in the
year it was converted into cash.

27. Income from Long Term Contracts. Taxpayers whose gross income is derived from long term
contracts shall report such income upon the basis of percentage of completion. The turn key or
completed contract basis is no longer allowed as an alternative method for reporting income.

28. What is Estate Tax?

It is tax on the privilege of transmitting properties upon death and to the special privilege that a
person is given controlling to a certain extent the disposition of his properties to take effect upon
death.

29. What compromises the gross estate of a decedent?

.
(Code Sec. 85 and 104) Filipino Citizens and Resident Aliens All properties wherever
situated.
Non-Resident Aliens Only properties situated in the Philippines, provided that, with
respect to intangible personal property, we apply the rule of reciprocity.
The rule on reciprocity Re: Collector vs. Campos Rueda, G.R. No. L13250, Oct. 29, 1971
(Estate of Maria de la Estrella Soriano Vda. De Cerdeira). This rule applies only to
intangible personal properties situated in the Philippines.
Specific rules on inclusions and exclusions. (Code Sec. 85)
a. Decedents Interest
b. TICOD
c. Revocable Transfer
d. Property passing under General Power of Appointment correlation with Section 87 on
exempt transfers.
e. Proceeds of life insurance
f. Transfer for Insufficient Consideration

Exempt transfers (Code Sec. 87) The first three are exempted because of want of control over
the disposition at the time of transferors death; while the last is exempted to encourage such
kind of transfer.
Rules of Valuation: valuation date is date of death (Code Sec. 88)
a. In the case of real property, it is the higher value between the FMV determined by
the CIR and the FMV as shown in the schedule of values fixed by the Provincial and
City Assessors.
b. In case of personal property recently acquired by the decedent, the purchase price may
indicate the FMV.

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c. In case of shares of stocks, the FMV will depend on whether or not the shares are traded
in the stock exchange. If traded, the FMV shall be the arithmetic mean between the highest
and lowest quotation of the share on the valuation date, or on a date nearest the valuation
date. If the shares are not traded the following rules shall apply: (I) Common Shares the
FMV is the Book Value; (ii) Preferred Shares the FMV is the par value.

30. Deduction from the Gross Estate (Code Sec. 86)

a. ELIT Expenses, Losses, Indebtedness and Taxes.
b. Property previously taxed or alternating vanishing deduction
Location of property
Identification with substitution
Interval of transfer
Previous payment of estate tax or donors tax
No vanishing deduction in previous estate involving the same property or property in
exchange therefore.
c. Transfer for public use mode of transfer (by death)
d. Family Home
Current FMV but not exceeding P1 million
Certificate of Barangay Captain in the locality
Only one Family Home can be claimed
e. Standard Deduction P1 million allowed to all classes of decedent
f. Medical Expenses incurred within 1 year from death in an amount not exceeding P500,000.
g. Benefits under RA 4917 but only if the benefit is declared as part of the gross estate.

31. Administrative Provisions of the Estate Tax

a. Notice of Death All case of transfers subject to tax or although exempt the value of gross estate
exceeds P20,000
b. Time of giving Notice within 2 months from death or within like period or within period after
qualifying as such executor or administrator.
c. Filing of Estate Tax Return
Who will file Executor, administrator or anyone of the heirs
Time of Filing & Payment Within 6 months from death, Pay-as-you-file; Extension of time to
pay due to financial difficulties - 5 years if settled judicially and 2 years if settled extra-
judicially.
d. Effects of non-payment of estate tax. No property can be transferred to an heir except upon
showing that the estate tax is paid on the property.

32. Purpose of the Donors Tax Law:

The donors tax law was enacted not only to prevent tax avoidance, but also to prevent income tax
avoidance through reducing yearly income and thereby escaping the effect of the progressive rates of
the income tax. (Smith v. Shaughnessy, 318 U.S. 176).

33. Donation defined

It is a valid transfer of property from one person to another without compensation or consideration
therefore. (Prentice-Hall Federal Tax Course).

34. What constitutes a gift for gift tax purposes?

a. Transfer of property without consideration with donative intent (Direct Gift).

b. It also include sales, exchanges or other disposition of property for a consideration to the
extent that the value of the property transferred by the donor exceeds the value in money or
moneys worth of the consideration given therefore. (Indirect or Deemed Gift).

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35. Meaning of consideration

The word consideration means that, when the transferor gives something away and does not at the
same time replace it with money of equal value or some goods or services capable of being valuable
in money, he is deemed to have made a gift within the taxing law. (Commissioner v. Bristol, 121 F
(2d) 129).

36. Concept of Consideration

a. Consideration must be measurable in money or moneys worth. Mere legal consideration is most
sufficient.
b. The consideration must flow to the donor; mere detriment to the donee does not satisfy the
purpose of the statute .
37. Commissioner v. Wemyss (324 U.S. 303)-

Marriage is not a consideration reducible to money value. If a person transfers a property to a trust in
consideration of consideration of marriage, a gift is made because no money consideration flows to
the transferor/donor.

38. Requirement of Donative Intent:

Section 98(b) provides that that gift tax shall apply whether the gift is direct of indirect. In a direct gift,
the element of donative intent must be present in the transfer of the property donated following the
common law concept and the provisions of Art. 125 of the Civil Code declaring that a gift or donation
is an act of liberality whereby a person disposed of a thing or right in favor of another, who accepts it.
However, the provisions of Section 100 of the NIRC, treating the transfer of property for less than an
adequate and full consideration as a gift are very broad and comprehensive so as to exclude the
element of donative intent in taxable gift. The insufficiency of the consideration received gives rise to
a deemed gift. (Perez vs. CIR, CTA Case No. 1707, Feb 10, 1969)

39. The rule for gratuitous transfers is that a transfer inter-vivos is generally subject to a gift tax while a
transfer mortis causa is subject to an estate tax. Any transfer, therefore, which reduces the potential
estate of a transferor shall be subject to the gift tax.

40. When does a gift occur?

A gift occurs when the donor surrenders CONTROL over the property. If the donor retains an
unlimited power to revoke a gift. If the donor is a non-resident alien, only properties situated in the
Philippines subject to the rule on reciprocity on intangible personal properties. (Same rule for estate
taxation)

41. Composition of Gross Gift IF the donor is a citizen or resident alien, all properties donated
wherever situated is included. If the donor is a non-resident alien, only properties situated in the
Philippines subject to the rule on reciprocity on intangible personal properties. (Same rule for estate
taxation).

42. Valuation of Gross Gift Same as for estate taxes.

43. Who is a stranger? A stranger is a person who is not a brother or sister (whether by whole or half-
blood), spouses, ancestor and lineal descendants; or a relative by consanguinity in the collateral line
within the fourth degree of relationship.

44. Rate of Donors tax on donation to stranger is 30%. (Code Sec. 99(A)); Tax planning device (Gift-
splitting) to reduce donors tax burden will apply only to a donation to a relative because it is this type
of donation which is subject to the graduated marginal tax rates based on cumulative donations for
the entire calendar year.

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CENTER FOR LEGAL EDUCATION AND RESEARCH

45. Rule on donation by husband and wife: Considered as separate donors unless the husband alone
signed the deed of donation. What is the rule on dowry exclusion for husband and wife? Tang Ho et
a., vs. Board of Tax Appeals, 97 Phil. 890.

46. Exempt donations (Code Sec. 101)

a. Dowries; Requisites of a dowry
b. Gifts made to or for use of National Government or any entity created by any of its agencies
which is not conducted for profit, or to any political subdivision of the said Government; and
c. Gifts in favor of and educational and / or charitable, religious, cultural or social welfare
corporation, institution, accredited NGO, trust or philanthropic or organization or research
institution or organization: Provided, however, that not more than 30 % if said gifts shall be used
by such donee for administration purposes.
47. Concept of gross gift v. net gift
Net gift refers to the economic benefit that accrues to the donee. If a donee will be given a
property but he will be required to assume the mortgage thereon, the net gift would be the
difference between the fair market value of the property donated minus the mortgage assumed.

48. Effects of non-payment of the donors tax on the property donated.

Payment of the donors tax is a condition sine quanon for the transfer of the property to the donee.

49. What is an Assessment?

Alhambra Cigar & Cigarette Mfg. Co. vs. Collector, 1959

An assessment is formal notice to the taxpayer stating that the amount thereon is due as a tax and
containing a demand for the payment thereof. An assessment contains not only a computation of tax
liabilities but also a demand for payment within a prescribed period. arellano law

CIR vs. Pascoe Realty & Dev. Corp., June 1999

An affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and
attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be
questioned before the CTA

Azucena T. Reyes vs. CIR, G.R. No. 163581, January 27, 2006
What is the status of an assessment which failed to inform the taxpayer in writing of the facts and law
upon which the assessment is made? It is void ab initio. Can the assessed tax be compromised? No.
A void assessment cannot be compromised.

50. Statute of Limitation on Assessment of Internal Revenue Taxes

Internal Revenue taxes shall be assessed within three years after the last day prescribed by law for
the filing of the return. Where the return is filed beyond the period prescribed by law, the three year
period shall be counted from the day the return was filed (Section 203, NIRC).

However, if no return was filed or a return was filed but said return is false or fraudulent, assessment
shall be made within ten years from discovery of the omission to file, or discovery of the falsity or
fraud (Section 222, NIRC).

51. When is an assessment deemed made?

It is not the issue date of the demand and/or notice that is the reckoning point in prescription but
rather it is the date when the demand letter or notice of assessment is released, mailed, or sent to
the taxpayer that constitutes an actual assessment (Republic v. Limaco de Guzman, 5 SCRA 990;
Gonzalo P. Nava v. Commissioner, L-19470, January 30, 1965; Basilan Estates Inc. v.
Commissioner, 21 SCRA 17).
Where an assessment notice is sent by mail (for example be ordinary mail) the rule is, it is
presumed that the taxpayer received the mailed notice within the period of time when mail of such

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kind are ordinarily received so that if such presumed receipt is still within the prescriptive period,
the taxpayers contention that the governments right to assess the tax has already prescribed can
not be given due credit (Republic v. Tan Kim En, CA-G.R. 28743-R, Feb. 29, 1964).
If the date which the assessment is due to prescribe falls on a Saturday, the following day being a
Sunday, it is understood that the Government has until the next succeeding business day or
Monday within which to assess the tax (Commissioner v. Western Pacific Corp., L-18804, May 27,
1965).
An assessment notice which is not served upon the taxpayer or any of his authorized rep
resentatives is not valid and the failure to protest the same within the period provided by law (30
days from receipt of the assessment) will not make the assessment final, executory and
incontestable.

When the business affairs of a person is managed by another, their relationship is that of an
agency which is severed upon the death of either party. The preparation and filing of the income
tax return of the principal, after his death, by the designated business agent does not revive the
agency, Accordingly, the service of the assessment notice to the person filing the return does
not constitute valid service. The assessment to be binding should have been issued to the
administrator of the estate within the prescriptive period to make an assessment. (Estate of the
late Juliane Diez vda. De Gabriel v. CIR, G.R. No. 155541, January 1, 2004).

52. Prescriptive periods for collection of taxes.

1. If there is an assessment, the period shall be five (5) years from the date of assessment (Section
222c, NIRC).This rule is believed to cover by implication regular assessment issued under normal
circumstances will be imprescriptible.

Thus , it was held that where the assessment of any internal revenue tax has been made within
the time allowed by law, the tax must be collected within three years (now five years) after the
assessment of the tax (Collector vs. Clement, L-12101, January 24, 1959)

2. In the absence of assessment, and a return was filed as long as it is not false or fraudulent, the
period is five (5) years from the date the tax is due.
3. If not return was filed, the period to collect is within ten(10) years from the date of discovery of the
omission to file without need for an assessment (Evangelista vs. Collector, October 15, 1957;
See also Sec. 222(a) NIRC).
4. If the return filed was false or fraudulent, collection maybe resorted to without need of assessment
within ten years from discovery of the fraud or falsity (Ungab vs. Cusi, 97 SCRA 877; See also
Sec 222(a) NIRC)

53. Exceptions from three-year prescriptive period for assessment and five-year prescriptive
period for collection.

1. False or fraudulent return or omission to file a return.

2. If there is an agreement in writing to extend the period to assess or to collect.

A waiver of the prescriptive period by the taxpayer is ineffective if not accepted by the
Commissioner of Internal Revenue. (CIR vs. Carnation Phils. Inc. February 25, 2000).

What is the nature of a waiver? A waiver of the statute of limitation under the NIRC, to a certain
extent, is a derogation of the taxpayers right to security against prolonged and unscrupulous
investigations and must therefore be carefully and strictly construed. The waiver is not a unilateral
relinquishment of the right by the taxpayer. It is an agreement in writing between the taxpayer and
the BIR that the period, either to assess or to collect, is extended to a date certain. (Phil.
Journalist, Inc. vs. CIR, G.R. No. 162852, December 16, 2004) arellano law

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CENTER FOR LEGAL EDUCATION AND RESEARCH

Assessment is issued beyond the prescriptive period because the BIR believes that the
prescription is tolled by the taxpayers execution of a waiver but said waiver is legally
infirm. The taxpayer failed to protest the assessment. What remedy is available to the
taxpayer to protect his rights against the assessments? The tax payer shall wait for the
enforcement of the assessment. The taxpayer aggrieved by the action for collection can file a
petition for review with the CTA to question the validity of the enforcement action by the BIR
invoking the basic flaws on the waiver upon which the validity of the assessment rests.

The waiver of prescription to be valid must comply strictly with the following requirements, viz:
(Phil. Journalist case citing RMO No. 20-90).

1. It must not be an indefinite waiver. There should be an agreed date between the BIR and the
taxpayer within which the former may assess and/or collect revenue taxes.
2. IT must be signed by the taxpayer and accepted by the Commissioner before the expiration
of the original period to assess or collect.
3. A copy of the accepted waiver must be duly served upon the taxpayer. The requirement to
furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of the agreement.

54. Instances where the running of the prescriptive period is suspended (Sec. 223, NIRC)

1. For the period where the Commissioner is prohibited from making the assessment of
beginning distraint or levy or a proceeding in court and for sixty days thereafter (Republic vs. Ker
& Co., 25 SCRA 208).
2. When the taxpayer requests for a reinvestigation which is granted by the Commissioner.

In CIR vs. Wyeth Suaco Laboratories, Inc., 202 SCRA 125, the SC ruled that the prescriptive
period to collect is suspended when the taxpayer filed a request for reconsideration on time and
was granted by the Commissioner.

A request for the reconsideration of an assessment by the taxpayer which was not considered or
acted upon by the Commissioner will not suspend the period for filing of an action for collection
(Republic vs. Acebedo, 22 SCRA 135)

What kind of protest will suspend the prescriptive period to collect? A request for
reinvestigation and not a request for reconsideration will suspend the running of the period to
collect. This is the new ruling laid down by the SC in 2005 in the case of BPI vs. CIR, G.R. NO.
139736, October 17, 2005 and was reiterated in 2006 in the case of CIR vs. Philippine Global
Communications, Inc., G.R. No. 167146, October 31, 2006. This means that not all protest will
suspend the prescriptive period. If the protest is in the nature of a request for reconsideration, the
prescriptive period to collect is not suspended. This reverses the Wyeth Suaco decision
aligning the subsequent two rulings with the provisions of Section 223 of the Tax Code
and reverting back to the doctrine laid down in the Itugon-Suyoc case.

What is the distinction between a request for reinvestigation and a request for
reconsideration? A request for reinvestigation is made when there are newly discovered or
additional evidence to be introduced by the taxpayer; while a request for reconsideration is made
for the re-evaluation of existing records which are already in the hands of the BIR (RR No. 12-
85).

3. When the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected.
4. When warrant of distraint or levy is duly served and no property could be located. Republic
v. Salud, G.R. No. 130430, December 13, 1999
5. When the taxpayer is out of the Philippines.

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55. CIR vs. Atlas Consolidated Mining & Development Corp., Feb. 14, 2000 What is the effect of a
protest filed beyond the 30 day period in so far as the running of the prescriptive period to
collect is concerned?

A protest file out of time will not suspend the running of the prescriptive period for the collection
of the tax.

56. Remedies of the taxpayer against the enforcement of an assessment.

A. Remedies before payment.

1. Administrative Stage: Protest which may raise questions of fact or law or both.

The new procedures for protesting an assessment is outlined in Section 228 of the Tax Code
of 1997. (Read very carefully).

2. Judicial stage CTA directly to Supreme Court (RA No. 9282, promulgated on March 30,
2004)

Decisions of the Commissioner of Internal Revenue involving 1) disputed assessments, 2)

refunds of internal revenue taxes, fees and other charges, 3) penalties imposed in relation
thereto; and 4) other matters arising under the NIRC or other laws administered by the
BIR are appealable to the Court of Tax Appeals (CTA) within 30 days from receipt of the
Commissioners decision.
In determining what decisions should be appealed to the CTA, the rule of ejusdem generic
should be applied. Hence, an issue of unfair competition in the use of the simplified set of
bookkeeping records is not within the jurisdiction of the CTA because the issue has no
relation to any protested assessment or tax refund. (Ollada vs. CTA, 99 Phil 6604)
CIR vs. Josefina Leal, G.R. No. 113459, November 18, 2002 The power to review
rulings issued by the Commissioner is lodged with the Court of Tax Appeals and not with
the Regional Trial Court. The Revenue Memorandum Order and Revenue Memorandum
Order are in reality a ruling or an opinion issued by the Commissioner in implementing the
provisions of the Tax Code on the taxability of pawnshops.
What constitutes an appealable decision? Compare the decision laid down in CIR vs.
Union Shipping Corp. (185 SCRA 548) and CIR vs. Isabela Cultural Corporation, (G.R.
No. 135210, July 11, 2001).
Republic vs. Lim Tian Teng, 16 SCRA 585 The institution of a civil action for the
collection of a tax liability which is the subject matter of a matter of a pending
administration protest is tantamount to a decision of denial which should be appealed
within the reglementary period to the Court of Tax Appeals.
Primary responsibility to appeal in appellate proceedings.

CIR vs. La Suerte Cigar & Cigarrette Factory, G.R. No. 144942, July 4, 2002 The Tax
Code of 1997 has placed the power to institute or commence a civil or criminal action to the
legal officers of the BIR, but is must be understood that the right to appeal is another matter.
The power given by the Tax Code cannot be used to overturn the long established procedure
before the Supreme Court in requiring the Solicitor General to represent the interest of the
Republic. Hence, it is the Solicitor General who has the primary responsibility to appear for
the government in appellate proceedings. arellano law

B. Remedies after payment.

57. Claim for refund of taxes erroneously paid (Sec. 204 & 229, NIRC). All refunds uncashed or
unclaimed within 5 years shall be forfeited in favor of the government and must revert to the
general fund.

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CENTER FOR LEGAL EDUCATION AND RESEARCH

a. Zialcita case
b. CIR vs. Procter & Gamble The withholding agent representing a non-resident principal
is proper party to file a claim for refund.
c. ACCRA Investments Corp. vs. CIR Period of limitation for recovery of tax erroneously
or illegally withheld. The SC ruled that for corporate taxpayer paying its income tax through the
withholding tax system and which is on a calendar basis, the date of payment of the tax coincides
not with the end of the tax year but on April 15 th following the tax year when the corporate
taxpayer is required by law to file its final adjustment return, because it is only upon the filing
thereof would the corporate taxpayer pay the tax shown on the return.
d. CIR vs. Philippine American Life Insurance Co. Inc., G.R. No. 105208, May 29 1995
Refund of overpaid income taxes per quarterly income tax returns shall be filed within two years
from the last day of filing of the final adjustment return.
e. If the return is filed on time, the two-year prescriptive period must be counted from actual
date of filing (CIR vs. Paramount Acceptance Corp., (G.R. No. 117254, 1999). Otherwise, it
should be counted from the last day prescribed by law for the filing of the return. (BPI vs. CIR,
G.R. No. 144653, 2001)
f. Under the Tax Reform Act of 1997 (Sec. 76, NIRC), when after filing the Annual Income
Tax Return for a particular taxable year, there appears to be an excess in the amount of withheld
taxes vis--vis income taxes actually paid, the corporate taxpayer may either ask for a cash
refund or a claim the excess as a tax credit to be applied to the succeeding taxable quarters of
the succeeding taxable years. IN such a case, however, the taxpayer may only avail of one of
those remedies, as they are only alternative, not cumulative remedies. (CIR vs. Honda
Philippines, Inc. CA-G.R. No. 68141, October 25, 2002)

Once the taxpayer has exercised the option to carry-over and to apply the excess quarterly
income tax against the income tax due for the taxable quarters of the succeeding taxable years,
such option is irrevocable for that period and no application for cash refund or issuance of a
tax credit certificate shall be allowed. (Sec. 76, NIRC, PAseo Realty & Development Corp. vs.
CIR, G.R. No. 119286, October 13, 2004)

Legal Requirements for a Claim for Refund:

1. A written claim for refund filed by the taxpayer with the Commissioner (Sec. 204(3) and 229,
NIRC)
2. The claim for refund must be a categorical demand for reimbursement (Bermejo vs.
Collector, L-3029, July 25, 1950).
3. The claim for refund or tax credit must be filed with the Commissioner, or the suit or
proceedings therefore must be commenced in court within two years from date of payment of
the tax or penalty regardless of any supervening cause.

Why is a written claim for refund with the BIR required?

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

See: Section 204 & 229, NIRC When written claim can be dispensed with. A return
filed showing an overpayment shall be considered as a written claim for credit or refund.
The Commissioner may, even without written claim therefore, refund or credit any tax,
where the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid.

58. Remedies of the Government in Tax Collection and Tax Enforcement:

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Finality of the Assessment as a basis for enforcement.

The basic consideration here is whether the assessment is final and unappealable or the decision
of the Commissioner is final, executory, and demandable, the BIR has legal basis to collect the
tax liability either by distraint and levy or civil action.

a. If an assessment is not protested administratively within 30 days from receipt thereof,

it becomes final and unappealable.
b. If protested but taxpayer fails to submit the relevant documents to support his/its
protest, the assessment becomes final (Section 228, NIRC).
c. If protested (with relevant documents submitted) but the protest is denied in while or
in part, appeal should be made with the CTA within 30 days from denial, otherwise, the
decision shall become final, executory, and demandable.
d. If protested (with all relevant supporting documents) but the BIR did not act on the
protest within 180 days from submission of documents, the case should be elevated to the
CTA within 30 days from lapse of the 180-day period, otherwise the assessment becomes
final executory and demandable.

Note: In Lascona Realty Corp. v. CIR, (a CTA case), the Court ruled that it is optional for the
taxpayer whether to treat the inaction of the Commissioner on the protest within 180 days as an
adverse decision.

Recent developments tend to go against the Lascona decision, and would weigh heavily in
making the lapse of the 180-day period a deemed adverse decision on the protest which needs to
be timely appealed to the CTA and the failure to appeal on time will make the assessment final.
This position will find support as follows:

1. In the case of RCBC v. CIR, G.R. No. 168498, June 16, 2006, the SC held that the failure of
the TP to appeal from an assessment within 30 days from the lapse of the 180-day period
makes the assessment final, executory and demandable. Can the Commissioner still decide
on an assessment which has become final? Obviously, the answer should be in the negative,
otherwise the Commissioner becomes superman.
2. Under the new CTA Act (R.A. No. 9282), the tax court is given an exclusive appellate
jurisdiction in cases of inaction by the CIR, where the inaction s deemed by law as a denial.
3. There is nothing in Section 228 which gives the taxpayer the right to treat the inaction not as
an adverse decision so as to allow him to wait for the actual decision to be rendered by the
CIR on the protest in order to be able to appeal to the CTA.
4. To hold otherwise, would make the assessment never reach finality once it was timely
protested and no action was made on the protest. arellano law

The following are the remedies of the government in tax collection as well as tax
enforcement in general, viz:
o Tax Liens.- When a taxpayer neglects or refuses to pay his internal revenue tax liability
after demand, the amount so demanded shall be a lien in favor of the government from the
time the assessment was made by the Commissioner until paid with interest, penalties, and
costs that may accrue in addition thereto upon all property and rights to property belonging to
the taxpayer (Sec. 219, NIRC). It is however recognized that the lien shall not be valid against
any mortgagee, purchaser, or judgment creditor until notice of such lien shall be filed by the
Commissioner in the Office of the Register of Deeds of the province or city where the
property of the taxpayer is situated or located.

o Compromise and Abatement (Section 204, NIRC). The Commissioner can compromise a
tax liability based on either of the following grounds:
a. Reasonable doubt on the validity of the assessment, and
b. Financial incapacity on the part of the taxpayer.

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The Commissioner may abate or cancel tax liability when:

a. The tax or any portion thereof appears to be unjustly or excessively assessed; or
b. The administration and collection costs involved do not justify the collection of the amount
due.

o Distraint and Levy. These are remedies in tax collection which run parallel, in point of
importance, to the remedies of collection by civil and criminal action. Distraint and levy are
also known as summary, extrajudicial r administrative enforcement remedies.

Distinction Between Distraint and Levy: Distraint is a remedy whereby the collection of taxes
is enforced on the goods, chattels, or effects of the taxpayer including other personal property of
whatever character as well as stocks and other securities, debts, credits, bank accounts and
interest in and rights to personal property (Section 207(A), NIRC). On the other hand, levy means
that collection enforcement is effected on the real property of the delinquent taxpayer. The levy
may be made before, simultaneously with, or after the distraint of personal property (Section
207(B).

oConstructive Distraint (Section 206)- Read very carefully. Is the freezing of the Velarde
Account (also the Pidal Account), by placing it under constructive distraint, legally justified?
Yes. Maintaining a fictitious account is an act of hiding or concealing property which can be a
ground for the remedy of constructive distraint.
Note: To safeguard the interest of the Government, the Commissioner may place under
constructive distraint the property of:
1. A delinquent taxpayer, or
2. Any taxpayer who-
a. is retiring form any business subject to tax
b. intending to leave the Philippines
c. intending to remove his property therefrom
d. hides or conceals his property, or
e. performs any act tending to obstruct the proceedings for collecting the tax due or
which may be due from him.

o Civil Action. This mode of collection can be resorted to by filing a collection case in the
regular courts where the assessment is already final and demandable. It should be noted that
n civil action for the recovery of taxes shall be begun without the approval of the
Commissioner of Internal Revenue. It must be noted that under the expanded jurisdiction of
the CTA (RA No. 9282) collection case can be filed directly with it if the amount of tax,
exclusive of penalties, is at least P1 million.

o Criminal Action. The criminal action as a collection remedy is authorized under Section
205(b) of the Tax Code. The aforesaid section in pertinent part provides that the judgment in
the criminal case shall not only impose the penalty but shall also order payment of the taxes
subject f the criminal case as finally decided by the Commissioner.

Important Considerations Regarding Criminal Action:

a. No criminal action shall be begun without the approval of the Commissioner.

b. Criminal actions instituted on behalf of the Government under the authority of the Tax
Code or other law enforced by the BIR shall be brought in the name of the Government of
the Philippines and shall be conducted by legal officers of the Bureau of Internal
Revenue.
c. The acquittal of the taxpayer in a criminal action does not necessarily result in the
exoneration of said taxpayer from his civil liability to pay taxes (Republic v. Patanao, 20
SCRA 712). arellano law

The rule on prescription in Criminal Cases: (Section 281)

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All violations of any provision of this Code shall prescribe after five (5) years.
Prescription shall begin to run from the day of the commission of the violation of
the law and if the same be not known at that time, from the discovery thereof and the
institution of judicial proceedings for its investigation and punishment.
The prescription shall be interrupted when the proceedings are instituted against
the guilty persons and shall be begin to run again if the proceedings are dismissed for
reasons not constituting jeopardy.
The term of prescription shall not run when offender is absent from the
Philippines.

When Defense of Prescription May be Raised Even on Appeal:

In criminal cases involving tax violations, the defense of prescription can be raised or
invoked by the accused even if the case had already been decided by the lower court but
pending decision on appeal (People v. Balagtas, L-10210, July 29, 1959). This is not,
however, true in civil actions for collection of taxes where the defense of
prescription if not raised in the lower Court is barred permanently.

o Forfeiture. In case there is no bidder for the real property in the public sale (levy on real
property) or if the amount of the highest bid is insufficient to pay the taxes, penalties, and
costs, the property shall be declared forfeited to the Government. Furthermore, the Register
of Deeds concerned shall upon registration of the declaration without the necessity of an
order from a competent court (Section 215, NIRC).

However, within one year from forfeiture property may be redeemed but if the
property is not thus redeemed, the forfeiture shall become absolute.

o Suspension of business operations of a VAT taxpayer. The Commissioner is empowered

to suspend the business operations and temporarily close the business establishment of any
person for a duration of not less than five (5) days for any of the following violations:

(a) In the case of VAT-registered person-

Failure to issue receipts or invoices
Failure to file VAT return; and
Understatement of taxable sales or receipts by 30% or more.
(b) Failure of a VAT-registerable person to register.

o Enforcement of administrative fine. See RMO No. 1-90

59. Jurisdiction of the Tax Court (as amended and broadened under RA No. 9282):

A. Exclusive appellate jurisdiction over:

1. Decisions of the CIR in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
NIRC or other laws administered by the BIR;
2. Inaction by the CIR on the above-mentioned cases, where the NIRC provides a specific
period for action, in which case the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the RTC in local tax cases originally decided or resolved
by them in the exercise of their original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees
or other money charges, seizure, detention or release of property affected, fines, forfeitures
or other penalties in relation thereto, or other matters arising under the Customs Law or other
laws administered by the Bureau of Customs;

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5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs which adverse to the Government
under Section 2315 of the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and counteravailing duties, and safeguard measures
under RA No. 8800 (Safeguard Measures Act), where either party may appeal the decision to
impose or not to impose said duties.

B. Jurisdiction over Criminal Cases:

1. Exclusive Original Jurisdiction- criminal offenses arising from violations of the NIRC or TCC
and other laws administered by the BIR or the BOC. However, where the principal amount
of taxes and fees, exclusive of charges and penalties, is less than P1 million or not
specified amount claimed, the case shall be tried by regular courts whose decisions
are appealable to CTA.

The criminal action and the corresponding civil action for the recovery of civil
liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CTA, the filing of the criminal action
being deemed to necessarily carry with it the filing of the civil action, and no right to
reserve the filing of such civil action separately from the criminal action will be
recognized. arellano law

2. Exclusive Appellate Jurisdiction-

o Over appeals from the judgments, resolutions or orders of the RTC in tax cases originally
decided by them.
o Over petitions for review of the judgments, resolutions or orders of the RTC in the
exercise of their appellate jurisdiction over tax cases originally decided by the lower
courts.
C. Jurisdiction over Tax Collection cases:
Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties if the principal amount is P1 million or
more.
Exclusive appellate jurisdiction- over appeals from judgments, resolutions or
orders of the RTCs in tax collection cases originally cognizable by them and those appealed
to them.

60. Procedural Matters before the CTA:

1. Appeal shall be madder to the CTA by any party adversely affected by an appealable decision,
within 30 days after the receipt of the decision or ruling or after the expiration of the period fixed
by law (deemed denial). The appeal shall be taken cognizance by a Division.
2. A party adversely affected by the decision of a Division of the CTA may file a motion for
reconsideration or new trial before the same Division within 15 days from notice thereof.
3. The appeal shall not suspend the payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability. (The CTA is empowered to give injunctive relief).
4. A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
5. A party adversely affected by a decision or ruling of the CTA en banc may file with the SCA a
verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.

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61. Protectors Service, Inc. v. CA & CIR, February 12, 2000- Is the CTA vested with jurisdiction to act
on a petition for review filed by a taxpayer whose protest was earlier dismissed for having been filed
out of time?

-The CTA gas no jurisdiction. If an assessment is not protested within 30 days from receipt, the
taxpayer is no longer allowed to contest the correctness of the assessment by elevating the case to
the CTA.

62. Classification of importation: (1) Articles subject to duty; (2) prohibited importations; and (3)
conditionally-free importations.

63. Classification of Customs Duties: Regular duties- Ad valorem duty and Specific duty; Special
duties- Dumping duty, Countervailing duty, Marking duty and Discriminatory or Retaliatory duty.

64. Valuation of Goods- Valuation under the TCC is based either on dutiable value for ad valorem
duties, and dutiable weight for specific duties (See Sec. 201 and 202, TCC).
65. Dutiable Value

-Caltex v. Commission of Customs, July 1998-

The dutiable value of imported value of imported article subject to an ad valorem rate of duty is its
HCV, which is the value of price declared in the consular, commercial, trade or sales invoices.
However, in case of discrepancy between the Import Entry Permit and the Sales Invoice, the former
will prevail.

66. Procedural Aspect of Tariff and Customs Laws

Nature of Customs Protest; Seizure and Forfeiture Cases, Procedure-wise, customs laws
comprehend two kinds of proceedings in the Bureau of Customs. One is known as Customs protest,
and the other is called Customs seizure and forfeiture case.

Customs protest cases deal solely with liability for customs duties, fees and other charges,
Seizure and forfeiture cases, however, refer to matters involving smuggling or the acct of any
person who fraudulently imports or brings into the Philippines, or assists in so doing, any article
contrary to law, or shall receive, conceal, buy, sell or in any manner facilitate the importation,
concealment, or sale of such article after importation, knowing the same to gave been imported
contrary to la. Smuggling includes the exportation of articles in a manner contrary to law (Sec.
3154, TCC).

Tariff and customs law subjects to forfeiture any article which is removed contrary to law from any
public or private warehouse under Customs supervision or released irregularly from Customs
custody. Before forfeiture proceedings are instituted, the law requires the presence of probable
cause. Once established, the burden of proof is shifted to the claimant. (Carrara Marble Philippines,
Inc. v. Commissioner of Costums, G.R. No. 129680, Sept. 1, 1999)

As explained in a certain case, a Customs seizure and forfeiture case is administrative and civil in
nature, is directed against the res or imported article and entails a determination of the legality of their
importation (Commissioner v. Makasiar, G.R. No. 79307, August 29, 1989)

67. Primary jurisdiction of Collector of Customs in Seizure proceedings to the exclusion of regular
courts.

The Collector of Customs has the primary and exclusive jurisdiction in seizure proceedings which
includes abandonment. The RTC is devoid of any jurisdiction to pass upon the validity or regularity of
seizure and forfeiture proceedings conducted by the BOC, and to enjoin or otherwise interfere with
the said proceedings even of the seizure was illegal. (R.V. Marzan Freight, Inc. v. CA, G.R. No.
128064, March 4, 2004).

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68. Automatic Review in Customs Proceedings- Whenever the decision of the Collector is adverse to
the Government, said decision is automatically elevated t the Commissioner for review; and if such
decision is AFFIRMED by the Commissioner, the same shall be automatically elevated to and finally
reviewed by the Secretary of Finance.

69. Basis for Automatic Review- (Yaokasin v. Commissioner, 1989)- Automatic review is intended to
protect the interest of the Government in the collection Of taxes and customs duties in seizure and
protest cases, which without such review, neither the Commissioner of Customs not the Secretary of
Finance would probably ever know about. This is so because, a taxpayer will not appeal a decision
favorable to him and certainly the Collector will not appeal his own decision. arellano law

70. Warrantless Search The only exception is a dwelling house.

71. TRANSGLOBE INTERNATIONAL, INC. Petitioner, -versus- COURT OF APPEALS and

COMMISSIONER OF CUSTOMS, Respondents, G.R. no. 126634. SECOND DIVISION,
promulgated January 25, 1999, BELLOSILLO, J.

Right of Redemption on Forfeited Importations:

Redemption of forfeited property is unavailing in three (3) instances, namely, (1) when there is fraud,
(2) where the importation is absolutely prohibited, or (3) where the release of the property would be
contrary to law. The SC stressed that any ruling against redemption based on fraud, the fraud
contemplated by law must be actual and not constructive. It must be intentional, consisting of
deception willfully and deliberately done or resorted to in order to induce another to give up some
right. While the shipment was misdeclared in the rider and the manifest (It appearing that what was
contained in shipment were textiles and not hand tolls), the consignee is innocent of the facts therein
stated as it had no hand in their preparation or issuance. Hence, the consignee should be allowed to
redeem the articles forfeited upon payment of their domestic market value.

72. HARRISON MOTORS CORP., vs. RACHEL A. NAVARRO, April 27, 2000 Is the release of the
goods from customs custody a proof of payment of the taxes and duties on importation? No. A
taxpayer who claims that the customs duties and taxes on importation has been paid, must be able to
show proof of their actual payment. The fact that the importer was able to secure the release of the
imported truck parts from customs and to register the assembled trucks with the LTO does not
necessarily mean that all taxes and customs duties were legally paid.

73. If a payment under protest is not acted upon for a long time, will the taxpayer loss his right to
the refund if no judicial action is filed? No. The claim for refund of customs duties may be
foreclosed only when the interested party claiming the refund fails to file a written protest before the
Collector of Customs. (Nestle, Phils., Inc. vs. Commissioner of Customs, G.R. No. 134114, 2001)

74. Will the inaction of the Collector be considered as a denial of the claim for refund? No. The
Tariff and Customs Code is silent on this. However, the continued inaction of the Collector or
Commissioner should not be allowed to prejudice the right of the taxpayer. Accordingly, if a taxpayer
after waiting for almost sic years had decided to appeal the case to the CTA, the CTA acquires
jurisdiction over the refund case. (Nestle, Phils., Inc. vs. Commissioner of Customs, G.R. No. 134114,
2001)

75. Rule of Preemptive/Exclusionary Rule

Province of Bulacan vs. Republic Cement Corp., November 1998

A province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry
resources, as the same are already taxed under the NIRC. However, if they are extracted from public
lands, the rule on preemptive will not apply.

Firm Phil. Industrial Corp. vs. CA, Dec. 1998

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The term common carrier include a pipe line concessionaire and therefore subject to common
carriers tax under the NIRC. This precludes the City government from imposing a business tax on the
concessionare.

76. Community Tax Persons liable:

Individuals at least 18 years of age, regularly employed for at least 30 consecutive working
days in a calendar year, or who is engaged in business or occupation, or who owns a real
property with an assessed value of P1,000 or more, or who is required to file an income tax
return.
Juridical persons all corporations engaged in or doing business in the Philippines.
Exempt persons Diplomatic consular representatives; and transient visitors whose stay in the
Phil. Does not exceed (3) months. (Sec. 159, LGC) arellano law

77. Real Property Tax

-Callanta et al. vs. City Cebu, January 1998-

Officials and employees of the Office of the City Assessor cannot reduce the assessed valued of real
properties issued by said Office upon request of the affected owners. The remedy of the taxpayer is
to appeal the local Board of assessment Appeals.

The rationale for the procedure was very well explained by the Court when it said: To forestall the
practice of initially setting unreasonably high reassessment valued only to eventually change them to
unreasonably lowe values upon request of property owners, the law gives no such authority to the
city assessor or his subalterns. Seemingly innocuous occasions for mischief and veiled opportunities
for graft should be excised from the public system. Built-in checks should be zealously observed so
that the ingenious and shrewd cannot circumvent them and the audacious cannot violate them with
impunity.

78. What constitutes an assessment for real property tax purposes?

Manila Electric Company vs. Nelia A. Barlis, Acting Municipal Treasurer of Muntinlupa, G.R. No.
114231, February 01, 2002-

When the taxpayer received a notice informing it of a tax liability with a stern warning that if the name
is not paid, the government will auction the same, what is received is a collection notice and not a tax
assessment. It being not a tax assessment, the taxpayer cannot avail of the proper administrative
remedies in protesting an erroneous tax assessment before the Local Board of Assessment Appeals.

A notice of assessment as provided for in the Real Property Tax Code should effectively inform the
taxpayer of the value of the specific property or portion thereof subject to tax, including the discovery,
listing, classification, and appraisal of properties.

In Meralco v. Barlis, G.R. No. 114231, June 29, 2004, the SC has described an assessment in this
wise:
An assessment notice fixes and determines the tax liability of the taxpayer. It is a notice stating
that the amount stated therein is due as a tax and a demand for payment thereof. The assessor
is mandated by law to give said notice within 30 days of such assessment, to the person in
whose name the property is declared. The assessment notice should indicate the following: kind
of property being assessed; actual use; market value; assessment level, and; assessed
value.

79. Bayantel is granted a franchise by Congress which provides- The grantee, its successors or assigns
shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive of
the franchise, as other corporations are now or hereafter may be required by law to pay. Is bayantel
subject to the real property tax on its real properties? Or those real properties actually, directly and

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exclusively used in its radio and telecommunications business, it is exempt from the real property
tax. (Quezon City v. Bayantel, G.R. No. 162015, March 6, 2006).

80. BELEN FIGUERRES, Petitioner, -versus- COURT OF APPEALS, et.al., Respondents, G.R.No. 119172,
SECOND DIVISION, promulgated Match 25, 1999, MENDOZA, J:

Presumption of validity of tax ordinance cannot be overcome by bare assertions of procedural defects
on its enactment.

The SC recognized the petitioners claim that public hearings are required to be conducted prior
to the enactment of an ordinance imposing real property taxes. When there are conflicting claims
between the taxpayer and the government regarding the observance of public hearings but both were
not able to present evidence to establish their respective allegations, the doubt shall be resolved in
favor of the government. The tax ordinance shall be presumed valid, hence their constitutionality or
legality should be upheld in the absence of evidence showing that the procedure prescribed by law
was not observed in their enactment. arellano law

81. The time to appeal a tax ordinance with the Secretary of Justice

-Hagonoy Market Vendor Association v. Municipality ;of Hagonoy, Bulacan, G.R. No. 137621,
February 06, 2002-

Section 187 of the Local Government Code requires that an appeal of a tax ordinance or
revenue measure should be made to the Secretary of Justice within thirty (30) days from the
effectivity of the ordinance and even during its pendency, the effectivity of the assailed
ordinance shall not be suspended.

When the appeal was only filed more than one year from the effectivity of the ordinance, the same is
already time-barred. At this point, it is improper to state that the time frame fixed by law for parties
to avail of their legal remedies before competent courts is not a mere technicality that can be easily
brushed aide.

82. Remedies available to a taxpayer or real property owner who is not satisfied with the
assessment for reasonableness of the real property tax sought to be collected:

1. Remedy before payment:

i. Appeal to LBAA within 60 days from receipt of the written notice of assessment;
ii. Appeal the decision of LBAA to the CBAA within 30 days from receipt;
iii. From CBAA to the CTA within 15 days from receipt of the decision. (R.A. 9282)

2. Remedy after payment:

1. Payment under protest. The protest shall be in writing and filed within 30 days from
payment of the tax assessed. The Treasurer has a period of 60 days to act on the protest.
2. In the event of denial or inaction, the proper appellate procedure is to file a verified
petition with the LBAA within 60 days from denial of protest or receipt of the notice of
assessment (in case of inaction).
3. In the event of denial, an appeal may be taken to the CBAA by filing a notice of appeal
within 30 days from receipt thereof.
4. From the CBAA, the dispute may then be taken to the CTA (R.A. 9282)
Tax Refund or Credit Another remedy after payment, is for the taxpayer to file a written
claim for refund or credit for taxes and interests with the provincial or city treasurer within
2 years from the date the taxpayer is entitled to such reduction or adjustment. The claim
has to be decided within 60 days from receipt thereof. Any adverse decision or inaction
within the prescribed period is appealable within 30 days to the Regular Courts.

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