and controlled corporations upon the

effectivity of the Code in 1992, the City

GENERAL PRINCIPLES
Government of Manila issued Final Notices of
Real Estate Tax Deficiency in the amount of
WHEN THE POWER TO TAX IS THE POWER P624,000,000.00 for the taxable years 2006 to
TO DESTROY AND WHEN THE POWER TO 2010. On the other hand, PNR, seeking refuge
TAX IS NOT THE POWER TO DESTROY under the principle that the government
cannot tax itself, insisted that the PNR lands
and buildings are owned by the Republic.
Congress passed a sin tax law that increased
the tax rates on cigarettes by 1,000%. The law Is the PNR exempt from real property tax?
was thought to be sufficient to drive many Explain your answer.(2016 Bar Examinations)
cigarette companies out of business, and was
questioned in court by a cigarette company SUGGESTED ANSWER:
that would go out of business because it would Yes, PNR is exempt from real property tax.
not be able to pay the increased tax. (2013) It has been held that PNR is considered a
The cigarette company is __________ government instrumentality and is not a
(A) wrong because taxes are the lifeblood government-owned or controlled corporation. Its
of the government real properties are owned by the Republic of the
(B) wrong because the law recognizes that Philippines declared exempt from real property
the power to tax is the power to tax under Sec. 234 of the LGC (Manila
destroy International Airport Authority v. CA)
(C) correct because no government can
deprive a person of his livelihood Thus, PNR is exempt from real property tax.
(D) correct because Congress, in this case,
exceeded its power to tax ───※ ·❆· ※───

SUGGESTED ANSWER:
(B) wrong because the law recognizes that the EQUAL PROTECTION CLAUSE
power to tax is the power to destroy
Heeding the pronouncement of the President
In the protection of general welfare, the power that the worsening traffic condition in the
to tax is the power to destroy. Preventing the metropolis was a sign of economic progress,
consummation of cigarettes by increasing its tax the Congress enacted Republic Act No. 10701
to lessen its consumers is an act for the (RA 10701), also known as An Act
protection of the general welfare Imposing a Transport Tax on the Purchase of
Private Vehicles.
───※ ·❆· ※───
Under RA 10701, buyers of private vehicles are
THE GOVERNMENT CANNOT TAX ITSELF required to pay a transport tax equivalent to
5 % of the total purchase price per vehicle
purchased. RA 10701 provides that the Land
Philippine National Railways (PNR) operates Transportation Office (LTO) shall not accept
the rail transport of passengers and goods by for registration any new vehicles without
providing train stations and freight customer proof of payment of the 5% transport tax. RA
facilities from Tutuban, Manila to the Bicol 10701 further provides that existing owners of
Province. As the operator of the railroad private vehicles shall be required to pay a tax
transit, PNR administers the land, equivalent to 5% of the current fair market
improvements and equipment within its main value of every vehicle registered with the LTO.
station in Tutuban, Manila. However, RA 10701 exempts owners of public
utility vehicles and the Government from the
Invoking Section 193 of the Local Government coverage of the 5% transport tax.
Code (LGC) expressly withdrawing the tax
exemption privileges of government-owned

1
A group of private vehicle owners sue on the developer which constructed a community mall
ground that the law is unconstitutional for over the property.
contravening the Equal Protection Clause of
the Constitution. (2017) Since the rental income from the lease of the
property was substantial, the KKI decided to
SUGGESTED ANSWER: use the amount to finance (1) the medical
R.A. 10701 is valid and constitutional. The expenses of the charity patients in the KKI
uniformity rule provided in Sec. 1 Art. III of the Hospital and (2) the purchase of books and
1987 Constitution does not prohibit classification other educational materials for the students of
for purposes of taxation. The Equal Protection KKI School.
Clause provides that a classification is allowed
provided the classification rests on substantial Is KKI liable for real property taxes on the
distinction, the classification is germane to the land? (2018)
purposes of the law, the classification applies to
the present and future conditions, and the law SUGGESTED ANSWER:
applies equally to those categorized in the same Yes, but only on the leased portion.
class.
Article VI, Section 28(3) of the 1987 Constitution
In this case, the classification between private provides that “charitable institutions, churches
vehicles and public utility vehicles and and personages or convents appurtenant thereto,
government owned vehicles is valid as there is a mosques, non-profit cemeteries, and all lands,
substantial distinction between them, the latter buildings, and improvements, actually, directly,
being owned or being highly regulated by the and exclusively used for religious, charitable, or
government and does not contribute much traffic educational purposes shall be exempt from
as compared to private vehicles, the taxation”.
classification is germane to the purpose of the
law as the purpose of taxing private vehicles is to The test of exemption from taxation is the use of
lessen the traffic and the amount of private the property for purposes mentioned in the
vehicles is no doubt bigger than public vehicles Constitution. The leased portion of the land may
and government vehicles. be subject to real property tax since such lease is
for commercial purposes, thereby, removing the
Thus, RA 10701 is constitutional and does not asset from the property tax exemption granted
violate the equal protection clause. under the Constitution (CIR v. De La Salle
University, Inc., G.R. Nos. 196596, 198841,
───※ ·❆· ※─── 198941, November 9, 2016).

The LAND DEVOTED for church with cemetery,

EXEMPTION OF CHARITABLE, EDUCATIONAL
school and a hospital is EXEMPT because such lots
AND RELIGIOUS INSTITUTIONS ON REAL
are actually, directly and exclusively used for
PROPERTY TAX
religious and educational purposes. The ½
PORTION LEASED TO A REAL ESTATE DEVELOPER as
Kilusang Krus, Inc. (KKI) is a non-stock, well as the IDLE AND UNOCCUPIED LAND are not
non-profit religious organization which owns a tax exempt, since the property is not exclusively
vast tract of land in Kalinga. or solely used for religious and educational
purposes.
KKI has devoted 1/2 of the land for various
uses: a church with a cemetery exclusive for ───※ ·❆· ※───
deceased priests and nuns, a school providing
K to 12 education, and a hospital which admits San Juan University is a non-stock, non-profit
both paying and charity patients. The educational institution. It owns a piece of land
remaining 1/2 portion has remained idle. in Caloocan City on which its three 2-storey
The KKI Board of Trustees decided to lease the school buildings stood. Two of the buildings
remaining 1/2 portion to a real estate are devoted to classrooms, laboratories, a
canteen, a bookstore and administrative
2
offices. The third building is reserved as
SITUS OF INCOME TAXATION
dormitory for student athletes who are
granted scholarships for a given academic
year. XYZ Air, a 100% foreign-owned airline
company based and registered in Netherlands,
In 2017, San Juan University earned income is engaged in the international airline business
from tuition fees and from leasing a portion of and is a member signatory of the International
its premises to various concessionaires of Air Transport Association. It’s commercial
food, books, and school supplies. airplanes neither operate within the Philippine
territory nor as its service passengers
(a) Can the City Treasurer of Caloocan City embarking from Philippine airports.
collect real property taxes on the land and Nevertheless, XYZ Air is able to sell its
building of San Juan University? Explain your airplane tickets in the Philippines through ABC
answer. Agency, it’s general agent in the Philippines. As
(b) Is the income earned by San Juan University XYZ Air’s ticket sales, sold through ABC Agency
for the year 2017 subject to income tax? for the year 2013, amounted to 5,000,000. 00,
Explain your answer. (2017 Bar Examinations) the Bureau of Internal Revenue (BIR) assessed
XYZ Air deficiency income taxes on the ground
SUGGESTED ANSWER that the income from the said sales
a) The City Treasurer can impose real property constituted income derived from sources
tax on the land and building of San Juan within the Philippines.
University, particularly on the leased portion.
Article VI, Section 28(3) of the 1987 Constitution Aggrieved, XYZ Air filed a protest, arguing
provides that “charitable institutions, churches that, as a non-resident foreign corporation, it
and personages or convents appurtenant thereto, should only be taxed for income derived from
mosques, non-profit cemeteries, and all lands, sources within the Philippines. However, since
buildings, and improvements, actually, directly, it only serviced passengers outside the
and exclusively used for religious, charitable, or Philippine territory, the situs of the income
educational purposes shall be exempt from from its ticket sales should be considered
taxation” outside the Philippines. Hence, no income tax
should be imposed on the same.
In this case, a portion of the school was leased
for commercial purposes, particularly for various Is XYZ Air’s protest meritorious? Explain.
concessionaires of food, books and school (2019)
supplies. Thus such portion, is not exempt from
Real Property Tax. SUGGESTED ANSWER
No, XYZ Air’s protest is not meritorious.
b) No, the income earned by San Juan University
in 2017 is not subject to income tax. Section 23 of the National Internal Revenue Code
of 1997, all income derived within and without
Article 14 Section 4 paragraph 3 of the 1987 the Philippine territory is taxable. In the present
Constitution provides that all revenue and assets case, XYZ Air derived income indirectly through
of non-stock, non-profit educational institutions its agent, ABC Agency, by selling airplane tickets
actually, directly and exclusively for educational making it realize a profit within the Philippine
purposes shall be exempt from taxes and duties territory. Therefore, an income tax should be
Here, there is no indication that the income was imposed on the income derived by XYZ Air
not for educational purposes. Thus, the income of through ABC Agency in the sale of the airplane
San Juan University could be exempt from income tickets.
provided that all of its income is actually, directly
and exclusively used for its educational purposes. ───※ ·❆· ※───

───※ ·❆· ※─── Kronge Konsult, Inc. (KKI) is a Philippine

corporation engaged in architectural design,
engineering, and construction work. Its
3
principal office is located in Makati City, but it foreigner, is liable for income tax for
has various infrastructure projects in the income within the Philippines as the
country and abroad. Thus, KKI employs both NIRC provides that the Philippines can
local and foreign workers. The company has impose internal revenue taxes for
adopted a policy that the employees’ salaries income of a foreigner which has situs
are paid in the currency of the country where in the Philippines. (Sec. 23 & 24(A),
they are assigned or detailed. Sec. 51(A)(2)(b), NIRC)

Below are some of the employees of KKI. C) Krisanto Konde is subject to income
Determine whether the compensation they tax. He should file a return unless he
received from KKI in 2017 is taxable under is subject to substituted filing.
Philippine laws and whether they are required BIR Ruling No. 512-2011 provides that
to file tax returns with the Bureau of Internal income of an employee from a
Revenue (BIR). (2018 Bar Examinations) domestic corporation for services
rendered here in the Philippines or
A) Kris Konejero, a Filipino accountant in KKI’s abroad, is still considered as income
Tax Department in the Makati office, and here in the Philippines.
married to a Filipino engineer also working in Thus, even if Krisanto is assigned
KKI abroad, his income is still considered
as income within the Philippines, as
B) Klaus Kloner, a German national who heads KKI is a domestic corporation.
KKI’s Design Department in its Makati office
C) Krisanto Konde, a Filipino engineer in KKI’s D) Kamilo Konde is subject to income tax.
Design Department who was hired to work at He should file a return unless he is
the principal office last January 2017. In April subject to substituted filing. BIR Ruling
2017, he was assigned and detailed in the No. 512-2011 provides that income of an
company’s project in Jakarta, Indonesia, which employee from a domestic corporation
project is expected to be completed in April for services rendered here in the
2019; Philippines or abroad, is still considered
as income here in the Philippines. Thus,
D) Kamilo Konde, Krisanto’s brother, also an even if Krisanto is assigned abroad, his
engineer assigned to KKI’s project in Taipei, income is still considered as income
Taiwan. Since KKI provides for housing and within the Philippines, as KKI is a
other basic needs, Kamilo requested that all domestic corporation.
his salaries paid in Taiwanese dollars, be paid
to his wife in Manila in its Philippine Peso E) Karen Karenina, is subject to income tax.
equivalent; She should file a return unless he is
subject to substituted filing. BIR Ruling
E) Karen Karenina, a Filipino architect in KKI’s No. 512-2011 provides that income of an
Design Department who reported back to KKI’s employee from a domestic corporation
Makati office in June 2017 after KKI’s project for services rendered here in the
in Kuala Lumpur, Malaysia was completed. Philippines or abroad, is still considered
as income here in the Philippines. Thus,
SUGGESTED ANSWER even if Krisanto is assigned abroad, his
A) As a resident citizen, Kris must file an income is still considered as income
income tax return with the BIR, within the Philippines, as KKI is a
unless she qualifies under the domestic corporation.
substituted filing of income tax
return as provided by the NIRC. (Sec. ───※ ·❆· ※───
23 & 24(A), Sec. 51(A)(2)(b), NIRC)
Sure Arrival Airways (SAA) is a foreign
B) Klaus Koner must also file an income corporation, organized under the laws of the
tax return, unless he is qualified for Republic of Nigeria. Its commercial airplanes
substituted filing. Klaus Koner, a do not operate within Philippine territory, or

4
service passengers embarking from Philippine violation of the principle of territoriality in
airports. The firm is represented in the taxation.
Philippines by its general agent, Narotel.
───※ ·❆· ※───
SAA sells airplane tickets through Narotel, and
these tickets are serviced by SAA airplanes
NATIONAL TAXATION
outside the Philippines. The total sales of
airplane tickets transacted by Narotel for SAA
in 2012 amounted to Pl0,000,000.00. The
INCOME TAX - DEFINITION, NATURE, AND
Commissioner of Internal Revenue (CIR)
GENERAL PRINCIPLES
assessed SAA deficiency income taxes at the
rate of 30% on its taxable income, finding that
SAA's airline ticket sales constituted income (a) Differentiate between a calendar year and
derived from sources within the Philippines. a fiscal year.

SAA filed a protest on the ground that the (b) When is the deadline for the filing of a
alleged deficiency income taxes should be corporation's final adjustment return for a
considered as income derived exclusively from calendar year? How about for a fiscal year?
sources outside the Philippines since SAA only (2019 Bar Examinations)
serviced passengers outside Philippine
territory. It, thus, asserted that the imposition SUGGESTED ANSWER:
of such income taxes violated the principle of (a) Calendar year refers to the accounting period
territoriality in taxation. of twelve (12) months ending on December 31.
On the other hand, fiscal year means an
Is the theory of SAA tenable? Explain. (2016 accounting period of twelve (12) months ending
Bar Examinations) on the last day of any month other than
December. (Section 22(Q), NIRC).
SUGGESTED ANSWER:
No, SAA’s theory is not tenable . In the case of, (b) The due date for the filing of the
Air Canada vs. CIR (CTA Case No. 6572),a foreign corporation’s final adjusted return for calendar
airline company selling tickets in the Philippines year is 15 April of the succeeding year. When a
through their local agents shall be considered as corporation uses fiscal year, the due date is the
a resident foreign corporation engaged in trade or 15th day of the fourth month following the close
business in the country. of the fiscal year. (Sec. 77, NIRC)
The absence of flight operations within the
Philippine territory cannot alter the fact that the ───※ ·❆· ※───
income received was derived from activities
within the Philippines.
DEDUCTIONS FROM GROSS INCOME
The test of taxability is the source, and the
source is that activity which produced the
income. Rakham operates the lending company that
made a loan to Alfonso in the amount of
ALTERNATIVE ANSWER: P120,000.00 subject of a promissory note
No. The activity which gives rise to the income is which is due within one (1) year from the
the sale of tickets in the Philippines. In Air note’s issuance. Three years after the loan
Canada v. CIR, the Court ruled that the income became due and upon information that Alfonso
derived from the sale of airline tickets by a is nowhere to be found, Rakham asks you for
foreign corporation should be considered as advice on how to treat the obligation as “bad
income derived from sources within the debt.” Discuss the requisites for deductibility
Philippines, hence, the income from sale of of a “bad debt?” (5%)
tickets is subject to the Philippine income tax.
(Air Canada v. CIR, G.R. No. 169507, January 11, SUGGESTED ANSWER:
2016, 778 SCRA 131).Therefore, there is no I will advise Rakham that the obligation of
Alfonso may now be considered as bad debts for
5
having met the yardstick of a debt which had (b) Is the reimbursement received by Calvin
become worthless. In order to be considered from SPRC subject to tax? Explain your answer.
worthless, the taxpayer should establish that (2017)
during the year from which a deduction is sought,
a situation developed as a result of which it SUGGESTED ANSWER:
became evident in the exercise of sound, a. SPRC cannot claim as a deduction, the amount
objective business judgment that there remained spent for lunch in the meeting with the Regional
no practical, but only vaguely theoretical, Director of HLURB. While the expense is business
prospect that the debt would ever be paid connected, the same is not allowed as deduction
(Collector of Internal Revenue v. Goodrich because it was incurred as an indirect payment to
International Rubber Co., G.R. No. L-22265, a government official which not only amounts to
December 22, 1967, 21 SCRA 1336). A bad debt is a violation of the Anti Graft and Corrupt Practices
deductible if it complies with the following Act, but also constitutes bribes, kickbacks and
requisites: similar payments. (See Sec 34 (a) (c) NIRC).

(a) There must be a valid and subsisting debt. However, with respect to the amount spent for
(b) The obligation is connected with the breakfast with a prospective client, the same is
taxpayer’s trade or business and is not between deductible from gross income of SPRC. The
related parties. expense complies with the requirements for
(C) There is an actual ascertainment that the deductibility, namely: (a) the expense must be
debt is worthless. ordinary and necessary; (b) it must have been
(d) The debt is charged-off during the taxable paid or incurred during the taxable year; (c) it
year. A partial write-off is not allowed.(PRC v. CA, must have been paid or incurred in carrying on
G.R. No. 118794, May 8, 1996, 256 SCRA 667). the trade or business of the taxpayer; and (d) it
must be supported by receipts, records or other
───※ ·❆· ※─── pertinent papers. (CIR v. General Foods (Phils.),
Inc., G.R. No. 143672, April 24, 2003). Section 34
Calvin Dela Pisa was a Permits and Licensing (A)(1)(b) of the 1997 NIRC, as amended, does not
Officer (rank-and-file) of Sta. Portia Realty require that the substantiation be in the form of
Corporation (SPRC). He invited the Regional official receipts or invoices issued in the name of
Director of the Housing and Land Use the taxpayer claiming the expense. It must only
Regulatory Board (HLURB) to lunch at the Sulo be proven that there is a “direct connection or
Hotel in Quezon City to discuss the approval of relation of the expense being deducted to the
SPRC's application for a development permit in development, management, operation and/or
connection with its subdivision development conduct of the trade, business or profession of
project in Pasig City. At breakfast the the taxpayer”.
following day, Calvin met a prospective client
interested to enter into a joint venture with b. No. Any amount paid as reimbursements for
SPRC for the construction of a residential representation incurred by the employee in the
condominium unit in Cainta, Rizal. Calvin performance of his duties is not compensation
incurred expenses for the lunch and breakfast subject to withholding, if the following conditions
meetings he had with the Regional Director of are satisfied: (i) It is for ordinary and necessary
HLURB and the prospective client, representation expense paid or incurred by the
respectively. The expenses were duly employee in the pursuit of the trade, business or
supported by official receipts issued in his profession; and (ii) The employee is required to
name. At month's end, he requested the account/liquidate for the such expense in
reimbursement of his expenses, and SPRC accordance with the specific requirements of
granted his request. substantiation pursuant to Sec. 34 of the 1997
NIRC, as amended. The amounts are actually
(a) Can SPRC claim an allowable deduction for spent by the employee for the benefit of his
the expenses incurred by Calvin? Explain your employer, so no income is considered to have
answer. flowed to the employee.

───※ ·❆· ※───

6
 tax (or withholding tax on compensation) at a
schedular rate. However, if the stipend
INCOME TAX ON INDIVIDUALS
allowance, if lumped-up with 13 th month pay
and other benefits, the aggregate amount do not
JKL-Philippines is a domestic corporation exceed the exclusion threshold of P90,000.00, the
affiliated with JKL-Japan, a Japan-based same shall be excluded from gross income and
information technology company with not subject to income tax. If the employee is not
affiliates across the world. Mr. F is a Filipino a rank and file employee (but a managerial or
engineer employed by JKL-Philippines. In 2018, supervisory), the same is subject to fringe
Mr. F was sent to the Tokyo branch of benefits tax or final tax at 35% based on the
JKL-Japan based on a contract entered into grossed-up monetary value of the special stipend.
between the two (2) companies. Under the said (Section 33, NIRC, as amended).
contract, Mr. F would be compensated by JKL-
Philippines for the months spent in the b.) No, the cash equivalent value of the housing
Philippines, and by JKL-Japan for months facilities inside the factory granted to the senior
spent in Japan. For the entirety of 2018, Mr. F engineers are not considered as fringe benefits
spent ten (10) months in the Tokyo branch. On subject to tax. The housing facility is furnished by
the other hand, Mr. J, a Japanese engineer the employer for his convenience or advantage
employed by JKL-Japan, was sent to Manila to because it is furnished to ensure that the senior
work with JKL-Philippines as a technical engineers are always available to attend to
consultant. Based on the contract between the possible breakdown of machineries and
two (2) companies, Mr. J's annual equipment. Benefits which are granted for the
compensation would still be paid by convenience or advantage of the employer are
JKL-Japan. However, he would be paid exempt from the fringe benefits tax. (Sec.
additional compensation by JKL-Philippines for 2.33(A), RR No. 3-98 implementing Sec. 33,
the months spent working as a consultant. For NIRC).
2018, Mr. J stayed in the Philippines for five
(5) months. In 2019, the Bureau of Internal ───※ ·❆· ※───
Revenue (BIR) assessed JKL-Philippines for
deficiency withholding taxes for both Mr. F and
INCOME TAX ON CORPORATIONS
Mr. J for the year 2018. As to Mr. F, the BIR
argued that he is a resident citizen; hence, his
income tax should be based on his worldwide Anchor Banking Corporation, which was
income. As to Mr. J, the BIR argued that he is a organized in 2000 and existing under the laws
resident alien; hence, his income tax should be of the Philippines and owned by the Sy Family
based on his income from sources within the of Makati City, set up in 2010 a branch office
Philippines at the schedular rate under Section in Shanghai City, China, to take advantage of
24 (A) (2) of the Tax Code, as amended by the presence of many Filipino workers in that
Republic Act No. 10963, or the "Tax Reform for area and its booming economy. During the
Acceleration and Inclusion" Law. year, the bank ,management decided not to
include the P20 Million net income of the
(a) Is the BIR correct in basing its income tax Shanghai Branch in the annual Philippine
assessment on Mr. F's worldwide income? income tax return filed with the BIR, which
Explain. showed a net taxable income of P30 Million ,
(b) Is the BIR correct in basing its income tax because the Shanghai Branch is treated as a
assessment on Mr. J's income within the foreign corporation and is taxed only on
Philippines at the schedular rate? Explain. income from sources within the Philippines,
(2019 Bar Examinations) and since the loan and other business
transactions were done in Shanghai, these
SUGGESTED ANSWER: incomes are not taxable in the Philippines.
a) The special stipend is a taxable income of an
employee. If the individual is a rank and file a) Is the bank correct in excluding the net
employee, the same forms part of his income of its Shanghai Branch in the
compensation income and it is subject to income

7
computation of its annual corporate income corporations do not actually render services
tax for 2010? Explain your answer. for a fee subject to VAT. Whose argument is
b) Should the Shanghai Branch of Anchor Bank correct? Decide. (2014 Bar Examinations)
remit profit to its Head Office in the
Philippines in 2011, is the branch liable to the SUGGESTED ANSWER:
15% branch profit remittance tax imposed The argument of the condominium corporation is
under Section 28 (A)(5) of the 1997 Tax Code? correct. The association dues should not be
Explain your answer (2012 Bar Examinations) subject to VAT because the condominium
corporation does not realize any gain or profit.
SUGGESTED ANSWER: They merely hold the fees in trust for
a. No. A Domestic Corporation is taxable on all administrative expenses. This, it does not form
income derived from sources within and without part of the gross income of the corporation, and
the Philippines. (Section 23, NIRC) The income of consequently, is not subject to VAT. (RTC
the foreign branch and that of the home office Resolution SCA No.12-1236 on RMC 65- 2012,
will be summed up for income tax purposes Petition for Declaratory Relief).
following the single entity concept and will all be
included in the gross income of the domestic ───※ ·❆· ※───
corporation in the annual Philippine income tax
return. SMZ, Inc. is a VAT-registered enterprise
engaged in the general construction business.
b. No. The branch profit remittance tax is HP International contracts the services of SMZ,
imposed only on remittances by branches of Inc. to construct HP lnternational's factory
Foreign Corporation in the Philippines to their building located in the Laguna Techno Park, a
Home Office Abroad. It is the outbound branch special economic zone. HP International is
profits that is subject to the tax not the inbound registered with the Philippine Economic Zone
profits (Section 28 (A) (5), NIRC) Authority (PEZA) as an ecozone export
───※ ·❆· ※─── enterprise, and, as such, enjoys income tax
holiday pursuant to the Special Economic Zone
Act of 1995.
VALUE-ADDED TAX (VAT)

SMZ, Inc. files an application with the Bureau

The Bureau of Internal Revenue (BIR) issued of Internal Revenue (BIR) for the VAT
Revenue Memorandum Circular (RMC) No. zero-rating of its sale of services to HP
65-2012 imposing Value-Added Tax (VAT) on International. However, the BIR denies SMZ,
association dues and membership fees lnc.'s application on the ground that HP
collected by condominium corporations from International already enjoys income tax
its member condominium-unit owners. The holiday.
RMC’s validity is challenged before the
Supreme Court (SC) by the condominium Is the BIR correct in denying SMZ, lnc.'s
corporations. The Solicitor General, counsel application? Explain your answer. (2017 Bar
for BIR, claims that association dues, Examinations)
membership fees, and other
assessment/charges collected by a SUGGESTED ANSWER:
condominium corporation are subject to VAT No. All sales of goods, properties, and services
since they constitute income payments or made by a VAT-registered supplier from the
compensation for the beneficial services it Customs Territory to an ecozone enterprise shall
provides to its members and tenants. On the be subject to VAT, at zero percent (0%) rate,
other hand, the lawyer of the condominium regardless of the latter‟s type or class of PEZA
corporations argues that such dues and fees registration (Coral Bay Nickel Corporation v. CIR,
are merely held in trust by the condominium G.R. No. 190506, June 13, 2016, citing
corporations exclusively for their members Commissioner of Internal Revenue v. Toshiba
and used solely for administrative expenses in Information Equipment (Phils.), Inc., G.R. No.
implementing the condominium corporations’ 150154, August 9, 2005). Moreover, under Section
purposes. Accordingly, the condominium 108 (B)(3), of the 1997 NIRC as amended, services
8
rendered to persons or entities whose exemption or for use in the course of trade or business (Sec.
under special laws effectively subjects the supply 105, NIRC; Sec. 4.106-8, RR No. 16-2005).
of such services to zero percent (0%) rate are b) No. The same is considered as tax-free
considered zero-rated. Considering the law doés exchange where no gain or loss shall be
not provide for any additional qualification or recognized in a transfer of property to a
disqualification, the BIR cannot deny the corporation by a person in exchange for stock or
application on the ground that HP International unit of participation in such corporation of which
already enjoys income tax holiday. An as a result of such exchange Karlito gained
administrative agency may not enlarge, alter or control of said corporation (Section 40(C)(2),
restrict a provision of law. It cannot add to the NIRC).
requirements provided by law. To do so
constitutes lawmaking, which is generally ───※ ·❆· ※───
reserved for Congress (Soriano v. Secretary of
Finance) Koko's primary source of income is his
employment with the government. He earns
───※ ·❆· ※─── extra from the land he inherited from his
parents, and which land he has been leasing to
Karlito, a Filipino businessman, is engaged in a private, non-stock, non-profit school since
the business of metal fabrication and repair of 2005.
LPG cylinder tanks. He conducts business under Last January, the school offered to buy the
the name and style of "Karlito's Enterprises," a land from Koko for an amount equivalent to its
single proprietorship. Started only five (5) zonal value plus 15% of such zonal value. Koko
years ago, the business has grown so agreed but required the school to pay, in
enormously that Karlito decided to addition to the purchase price, the 12% VAT.
incorporate it by transferring all the assets of The school refused Koko's proposal to pass on
the business, particularly the inventory of the VAT contending that it was an entity
goods on hand, machineries and equipment, exempt from such tax. Moreover, it said that
supplies, parts, raw materials, office furniture Koko was not regularly engaged in the real
and furnishings, delivery trucks and other estate business and, therefore, was not
vehicles, buildings, and tools to the new subject to VAT. Consequently, Koko should not
corporation, Karlito's Enterprises, Inc., in charge any VAT to the school.
exchange for 100% of the capital stock of the
new corporation, the stock subscription to (a) Is the contention of the school correct?
which shall be deemed fully paid in the form of (b) Will your answer be the same if Koko
the assets transferred to the corporation by signed up as a VAT-registered person only in
Karlito. 2017? (2018 Bar Examinations)

As a result, Karlito's Enterprises, the sole SUGGESTED ANSWER:

proprietorship, ceased to do business and a) No. The exemption of the buyer pertains only
applied for cancellation of its BIR Certificate to taxes for which it is legally liable but not to
of Registration. The BIR, however, assessed taxes passed-on to it. The VAT is not a tax on the
Karlito VAT on account of the cessation of buyer but merely considered as part of the
business based on the current market price of purchase price. Accordingly, if the sale is subject
the assets transferred to Karlito's Enterprises, to VAT, the tax-exempt buyer cannot invoke its
Inc. exemption in order to avoid the imposition of the
(a) Is the transfer subject to VAT? VAT on the transaction. Be that as it may, the
(b) Is the transfer subject to income tax? (2018 transaction will be subject to VAT only if Koko is
Bar Examinations) either (1) VATregistered or (2) VAT-registerable
person at the time of sale; otherwise, the sale of
SUGGESTED ANSWER: the rented property will not be subject to VAT.
a) Yes, the transfer of properties is subject to
VAT, but only if Karlito is VAT-registered or VAT b) Yes. All transactions involving real property for
registrable person. The transaction is a taxable sale or for lease in the course of trade or business
exchange involving properties which are for sale by a VAT-registered person will be subject to
9
VAT(Sec. 106(A)(1)(a). Since the sale will take exports are zero-rated while imports are subject
place at a time when the seller is already to the 12% VAT. (Coral Bay Nickel Corporation v.
VAT-registered, the sale is subject to VAT." CIR, June 13, 2016).”
───※ ·❆· ※───
───※ ·❆· ※───
All the homeowners belonging to ABC Village
For purposes of value-added tax, define, Homeowners' Association elected a new set of
explain or distinguish the following terms: members of the Board of Trustees for the
Association effective January 2019. The first
a) Input tax and output tax thing that the Board looked into is the need to
b) Zero-rated and effectively zero-rated increase the prevailing association dues. Mr. X,
transactions one of the trustees, proposed an increase of
c) Destination Principle (2019) 100% to account for the payment of the 12%
SUGGESTED ANSWER: value-added tax (VAT) on the association dues
a) Input tax means the VAT due on or paid by a which were being collected for services
VAT-registered person on importation of goods or allegedly rendered "in the course of trade or
local purchases of goods, properties, or services, business" by ABC Village Homeowners'
including lease or use of properties. It includes Association.
presumptive input tax and transitional input tax.
a) What constitutes transactions done "in the
Output tax refers to the VAT billed by a course of trade or business" for purposes of
VAT-registered or VAT-registrable seller on his sale applying VAT?
of goods, properties and services. b) Is Mr. X correct in stating that the
b) Zero-rated transactions are transactions that association dues are subject to VAT? Explain
are immuned from the imposition of the VAT and
the term includes export sales and effectively SUGGESTED ANSWER:
zero-rated sales. (Sec. 106(A)(2), NIRC). a) “In the course of trade or business” means the
regular conduct of pursuit of a commercial or an
A zero-rated sale of goods or properties (whether economic activity, including transactions
export sale or effectively zero-rated sale) is a incidental thereto, by any person regardless of
taxable transaction for VAT purposes, although whether or not the person engaged therein is a
the VAT rate applied is 0%. A sale by a nonstock, nonprofit private organization
VAT-registered taxpayer of goods and/or services (irrespective of the disposition of its net income
taxed at 0% shall not result in any output tax, and whether or not it sells exclusively to
while the input tax on its purchase of goods or members or their guests), or government entity.
services related to such zero-rated sale shall be (Section 105, NIRC)
available as tax credit or refund (Atlas
Consolidated v. CIR, June 8, 2007). b) No, association dues are not subject to VAT.
Under Section 109 (Y) of the NIRC, association
An effectively zero-rated transaction is limited in dues, membership fees, and other assessments
its context because it does not cover export and charges collected by homeowners
sales. More specifically, effectively zero-rated associations
transactions refer to the local sale of goods or and condominium corporations are VAT-exempt.
supply of services by a VAT-registered person to
persons or entities who were granted tax ───※ ·❆· ※───
exemption under special laws or international
agreement to which the Philippines is a signatory.
(CIR v. Seagate Technology Phils., Inc. G.R. No. TAX REMEDIES UNDER THE NATIONAL
153866, Feb. 11, 2005) INTERNAL REVENUE

c) The destination principle provides that “no VAT May the bank deposits – peso and foreign
shall be imposed to form part of the cost of goods currency of an individual taxpayer be
destined for consumption outside of the disclosed by a commercial bank to the
territorial border of the taxing authority”. Hence, Commissioner of Internal Revenue, in
10
connection with a tax investigation being a) A taxpayer does not have to do anything after
conducted by revenue officials, without the Bureau of Internal Revenue’s (BIR’s) rejection
violating the relevant bank secrecy laws? of the taxpayer’s reply to a PAN while the denial
Explain your answer. (2012) of a protest against a FAN should be appealed by
the taxpayer to the Court of Tax Appeals (CTA)
SUGGESTED ANSWER: Division. (RR No. 12-99; Sec. 228, NIRC).
No. As a general rule, bank deposits of an
individual taxpayer may not be disclosed by a b) No. Both the deficiency tax assessment and the
commercial bank to the Commissioner. As warrant issued are invalid. The deficiency tax
exceptions, the Commissioner is authorized to assessment issued against KLM Corp. is invalid
inquire into the bank deposits of: (1) a decedent due to the absence of a preliminary assessment
to determine his gross estate; and (2) any notice (PAN), which is required by law for the
taxpayer who has filed an application for validity of the assessment. (Sec. 228, NIRC).
compromise of his tax liability by reason of Sending a PAN to the taxpayer to inform him of
financial incapacity to pay his tax liability. the assessment made is but a part of the “due
In case a taxpayer files an application to process requirement in the issuance of a
compromise the payment of his tax liabilities on deficiency tax assessment,” the absence of which
his claim that his financial position demonstrates renders nugatory any assessment made by the tax
a clear inability to pay the tax assessed, his authorities. (CIR v. Metro Star Superama, Inc.
application shall not be considered unless and G.R. o. 185371, Dec. 8, 2010).
until he waives in writing his privilege under
Republic Act No. 1405 (Bank Secrecy Law) or The warrant of distraint and/or levy cannot be
under other general or special laws, and such issued to enforce an invalid assessment. An
waiver shall constitute the authority of the assessment is a preliminary step for the
Commissioner to inquire into the bank deposits of collection of taxes. If the preliminary step in the
the taxpayer (Section 6, NIRC). collection process is invalid, the entire collection
process is also invalid which includes the warrant
───※ ·❆· ※─── issued.

───※ ·❆· ※───

PROCEDURAL DUE PROCESS IN TAX
ASSESSMENTS
After a Bureau of Internal Revenue (BIR) audit,
T Corp., a domestic corporation engaged in
On October 5, 2016, the Bureau of Internal buying and selling of scrap metals, was found
Revenue (BIR) sent KLM Corp. a Final to have deficiency income tax of
Assessment Notice (FAN), stating that after its P25,000,000.00, including interests and
audit pursuant to a Letter of Authority duly penalties, for the year 2012. For 2012, T
issued therefor, KLM Corp. had deficiency Corp. filed its income tax return (lTR) on April
value-added and withholding taxes. 15,2013 because it used the calendar year for
Subsequently, a warrant of distraint and/or its accounting. The BIR sent the Preliminary
levy was issued against KLM Corp. KLM Corp. Assessment Notice (PAN) on December 23,
opposed the actions of the BIR on the ground 2015, and eventually, the Final Assessment
that it was not accorded due process because Notice (FAN) on April 11, 2016, which were
it did not even receive a Preliminary received by T Corp. on the same dates that
Assessment Notice (PAN) after the BIR's they were sent. Upon receipt of the FAN, T
investigation, which the BIR admitted. Corp. filed its protest letter on June 25, 2016.

a) Distinguish a PAN from a FAN. Thereafter, and without action from the
b) Are the deficiency tax assessment and Commissioner of Internal Revenue (CIR), T
warrant of distraint and/or levy issued against Corp. filed a petition for review before the
KLM Corp. valid? Explain (2019) Court of Tax Appeals, alleging that the
assessment has prescribed. For its part, the
SUGGESTED ANSWER: CIR moved to dismiss the case, pointing out
that the assessment had already become final
11
because the protest was filed beyond the assessment has prescribed. For its part, the
allowable period. CIR moved to dismiss the case, pointing out
that the assessment had already become final
a) Is T Corp.'s contention regarding the because the protest was filed beyond the
prescription of the assessment meritorious? allowable period.
Explain.
b) Should the CIR's motion to dismiss be A) Is T Corp.’s contention regarding the
granted? Explain. prescription of the assessment meritorious?
Explain.
SUGGESTED ANSWER:
a) No. The three-year prescriptive period for the SUGGESTED ANSWER:
assessment of tax shall start to run from the last No. T Corp.’s contention is without merit. Sec.
day prescribed by law for the filing of the return, 203, NIRC states, “except as provided in Section
or the day the return was filed, whichever comes 222, internal revenue taxes shall be assessed
later (Sec. 203, NIRC, as amended). In the within three (3) years after the last day
present case, since T. Corp. filed its annual prescribed by law for the filing of the return. A
income tax return on April 15, 2013, which is also return filed before the last days prescribed by
the last day to file the said return, the last day to law for the filing thereof shall be considered as
assess shall fall on April 15, 2016. By issuing the filed on such last day.” Applying in the above
FAN on April 11, 2016, the right to assess case, the BIR has until April 15, 2016, 3 years
deficiency income tax for 2012 has not yet been after the filing of the ITR on April 15, 2013 within
prescribed. which to assess internal revenue taxes. Thus, the
period to assess internal revenue taxes has not
b) Yes. Since the taxpayer failed to file a protest yet prescribed when the BIR sent the Final
against the FAN within 30 days from date of Assessment Notice (FAN) on April 11, 2016 and
receipt, the assessment had become final, received by T. Corp on the same date.
executory and demandable. (Sec. 228, NIRC, RR
No. 18-2013). B) Should the CIR’s motion to dismiss be
granted?
───※ ·❆· ※───
SUGGESTED ANSWER:
Yes. CIR’s motion to dismiss should be granted.
PRESCRIPTIVE PERIOD FOR ASSESSMENT
Section 3.1.4, Revenue Regulations No. 18-2013
provides that “the taxpayer or its authorized
After a Bureau of Internal Revenue (BIR) audit, representative or tax agent may protest
T. Corp., a domestic corporation engaged in administratively against the aforesaid Formal
buying and selling of scrap metals, was found Letter of Demand (FLD)/Final Assessment Notice
to have deficiency income tax of Php (FAN) within thirty (30) days from date of receipt
25,000,000.00, including interests and thereof. If the taxpayer fails to file a valid
penalties, for the year 2012. For 2012, T protest against the FLD/FAN within thirty (30)
Corp. filed its income return (ITR) on April 15, days from date of receipt thereof, the assessment
2013 because it used the calendar year for its shall become final, executory and demandable.
accounting. The BIR sent the Preliminary No request for reconsideration or reinvestigation
Assessment Notice (PAN) on December 23, shall be granted on tax assessments that have
2015, and eventually, the Final Assessment already become final, executory and
Notice (FAN) on April 11, 2016, which were demandable.” In the case at bar, T Corp. received
received by T Corp. on the same dates that the FAN on April 11, 2016 but filed its protest
they were sent. Upon receipt of the FAN, T letter only on June 25, 2006, beyond the 30-day
Corp. filed it protest letter on June 25, 2016. period prescribed by law to file a protest to the
FLD/FAN. Hence, the assessment already
Thereafter, and without action from the becomes final, executory and demandable and
Commissioner of Internal Revenue (CIR), T. bars the taxpayer from making any request for
Corp. filed a petition for review before the reconsideration and request for reinvestigation.
Court of Tax Appeals, alleging that the
12
 ───※ ·❆· ※─── executory and demandable. The BIR reasoned
that its failure to decide the case within 180
days from filing of the letter protest should
PROTESTING AN ASSESSMENT
have prompted BWI to seek recourse before
the Court of Tax Appeals (CTA) by filing a
The BIR Commissioner, in his relentless petition for review within thirty (30) days
enforcement of the Run After Tax Evaders after the expiration of the 180-day period as
(RATE) program, filed with the Department of mandated by the provisions of the last
Justice (DOJ) charges against a movie and paragraph of Section 228 of the National
television celebrity. The Commissioner alleged Internal Revenue Code (NIRC). Accordingly,
that the celebrity earned around PhP 50 BWI’s failure to file a petition for review
million in fees from product endorsements in before the CTA rendered the assessment final,
2016 which she failed to report in her income executory and demandable. Is the contention
tax and VAT returns for said year. of the BIR correct? Explain

The celebrity questioned the proceeding SUGGESTED ANSWER:

before the DOJ on the ground that she was No. The contention of BIR is not correct. In case
denied due process since the BIR never issued the BIR does not act on a taxpayer’s protest, the
any Preliminary Assessment Notice (PAN) or a taxpayer has two options: appeal to the CTA
Final Assessment Notice (FAN), both of which within 30 days from the end of the 180-day
are required under Section 228 of the NIRC period or wait for the final decision. Here, the
whenever the Commissioner finds that proper taxpayer can still wait for the final decision. The
taxes should be assessed. assessment is not yet final, executory, and
demandable.
Is the celebrity’s contention tenable? (2018)
───※ ·❆· ※───
SUGGESTED ANSWER:
No. The celebrity’s contention is not tenable. The Commissioner of Internal Revenue issued a
In cases where fraudulent return is filed with the BIR ruling to the effect that the transaction is
intent to evade a tax, a proceeding in court for liable to income tax and value added tax.
the collection of the said tax may be filed Upon receipt of the ruling, a taxpayer does not
without assessment pursuant to Section 222 of agree thereto. What is his proper remedy?
the NIRC as amended. Assessment is not
necessary before the filing of a criminal a) File a petition for review with the Court of
complaint for tax evasion. (CIR v. Pascor Realty Tax Appeals within thirty (30) days from
and Development Corp.) receipt thereof;
b) File a motion for reconsideration with the
───※ ·❆· ※─── Commissioner of Internal Revenue;
c) File an appeal to the Secretary of Finance
On March 27, 2012, the Bureau of Internal within thirty (30) days from receipt thereof;
Revenue (BIR) issued a notice of assessment d) File an appeal to the Secretary of Justice
against Blue Water Industries Inc. (BWI), a within thirty (30) days from receipt thereof.
domestic corporation, informing the latter of SUGGESTED ANSWER:
its alleged deficiency corporate income tax for C) File an appeal to the Secretary of Finance
the year 2009. On April 20, 2012, BWI filed a within thirty (30) days from receipt thereof
letter protest before the BIR contesting said
assessment and demanding that the same be ───※ ·❆· ※───
cancelled or set aside.
A preliminary Assessment Notice (PAN) is NOT
However, on May 19, 2013, that is, after more required to be issued by the BIR before issuing
than a year from the filing of the letter a Final Assessment Notice (FAN) on one of the
protest, the BIR informed BWI that the latter’s following cases:
letter protest was denied on the ground that
the assessment had already become final,
13
a) When a taxpayer does not pay the 2010 a) No, BIR’s contention of non-exhaustion of
deficiency income tax liability on or before remedies is not meritorious. Under Section 229 of
July 15 of the year; the NIRC, the judicial claim must be filed before
b) When the finding for any deficiency tax is the expiration of the 2-year prescriptive period,
the result of mathematical error in the without having to wait for the BIR’s decision on
computation of the tax as appearing on the the administrative claim for refund.
face of the return; In this case, W Corp. had only until May 10, 2013
c) When a discrepancy has been determined within which to file its judicial claim for refund.
between the value added tax paid and the Therefore, the BIR’s contention is not
amount due for the year; meritorious.
d) When the amount of discrepancy shown in
the Letter Notice is not paid within thirty (30) b) No, the answer would be different. Given that
days from date of receipt. the refund was filed prior to the effectivity of the
SUGGESTED ANSWER: TRAIN Law, the ruling in the case of CIR v. Aichi
b) When the finding for any deficiency tax is the Forging Company of Asia, Inc. (G.R. No. 184823.
result of mathematical error in the computation October 6, 2010) applies, that is, the observance
of the tax as appearing on the face of the return; of the “120 +30 days” period is mandatory and
jurisdictional.
───※ ·❆· ※─── In application to this case, the last day for the
CIR to act on the claim for refund, counting 120
days from May 3, 2013, fell on August 31, 2013.
FILING A CLAIM FOR TAX REFUND IN THE
Thus, T Corp. may appeal such inaction only after
BIR
the expiration of the 120-day period, and within
the 30-day period thereafter.
On May 10, 2011, the final withholding tax for
certain income payments to W Corp. was ───※ ·❆· ※───
withheld and remitted to the Bureau of
Internal Revenue (BIR), and the corresponding Krisp Kleen, Inc. (KKI) is a corporation engaged
return therefore was concomitantly filed on in the manufacturing and processing of steel
the same date. Upon discovering that the and its by-products. It is both registered with
amount withheld was excessive, W Corp. filed the Board of Investments, with a pioneer
with the BIR a claim for refund for erroneously status, and with the BIR as a VAT entity. On
withheld and collected final withholding October 10, 2010, it filed a claim for
income tax on May 3, 2013. A week after, and refund/credit of input VAT for the period
without waiting for any decision from the January 1 to March 31, 2009 before the
Commissioner of Internal Revenue (CIR), W Cor. Commissioner of Internal Revenue (CIR). On
Filed a petition for review before the Court of February 1, 2011, as the CIR had not yet made
Tax Appeals (CTA) to make sure that the any ruling on its claim for refund/credit, KKI,
petition was filed within the two (2)-year fearful that its period to appeal to the courts
period for claiming refunds. might prescribe, filed an appeal with the Court
of Tax Appeals (CTA).
In resisting the claim, the BIR contended that
the claim must be dismissed by the CTA on the (a) Can the CTA act on KKl's appeal? (2.5%)
ground of non-exhaustion of administrative (b) Will your answer be the same if KKI filed
remedies because it did not give the CIR the its appeal on March 20, 2011 and CIR had not
opportunity to act on the claim of refund.a) Is yet acted on its claim? (2.5%)
the BIR’s contention meritorious? Explain
b) Assuming that the claim for refund filed by SUGGESTED ANSWER:
W Corp. is for excess and/or unutilized input a. No, the CTA cannot act on KKI’s appeal. In the
VAT for the second quarter of 2011, and for case of CIR vs Aichi Forging Company, the
which the return was timely filed on July 25, Supreme Court explained that Section 112(D) of
2011, would your answer be the same? Explain the NIRC clearly provides that the CIR has 120
days, from the date of the submission of the
SUGGESTED ANSWER: complete documents in support of the application
14
[for tax refund/credit]," within which to grant or No, but only to the extent of the amount of
deny the claim. In case of full or partial denial by P750,000.00 which was carried over from 2015.
the CIR, the taxpayer’s recourse is to file an Section 76 of the NIRC of 1997 clearly states:
appeal before the CTA within 30 days from Once the option to carry-over and apply the
receipt of the decision of the CIR. However, if excess quarterly income tax” against income tax
after the 120-day period the CIR fails to act on due for the taxable quarters of the succeeding
the application for tax refund/credit, the remedy taxable years has been made, such option shall
of the taxpayer is to appeal the inaction of the be considered irrevocable for that taxable period
CIR to CTA within 30 days. In this case, there was and no application for cash refund or issuance of
a premature filing of an appeal because the a tax credit certificate shall be allowed therefor.
120-day from the filing of the claim for refund Section 76 expressly states that the option shall
has not yet lapsed. KKI should have waited for be considered irrevocable for that taxable period
the lapse of the 120 days or until February 7, referring to the period comprising the succeeding
2011 before filing for an appeal. Hence, the CTA taxable years. Section 76 further states that no
cannot act on KKi’s appeal. application for cash refund or issuance of a tax
b. Yes, my answer is still the same. Section credit certificate shall be allowed therefore
112(D) of the NIRC provides that after the referring to that taxable period..” comprising the
120-day period the CIR fails to act on the succeeding taxable years (Asiaworld Properties
application for tax refund/credit, the remedy of Philippine Corporation v. CIR, G.R. No. 171766,
the taxpayer is to appeal the inaction of the CIR July 29, 2010).
to CTA within 30 days. In this case, the filing of
Appeal on March 20, 2011 was belatedly done. ───※ ·❆· ※───
The CIR has until February 7, 2011 to decide on
the claim for refund/credit of input VAT and if
POWER OF COMMISSIONER TO COMPROMISE,
not acted upon, KKI has until March 9, 2011 to
ABATE AND REFUND OR CREDIT TAXES
file the appeal. Hence, the CTA still cannot act
on the appeal.
The Commissioner of Internal Revenue may
───※ ·❆· ※─── NOT inquire into the bank deposits of a
taxpayer, except:
Vanderful, lnc.'s income tax return for taxable
year 2015 showed an overpayment due to a) When the taxpayer files a fraudulent
excess creditable withholding taxes in the return;
amount of ₱750,000.00. The company opted to b) When the taxpayer offers to compromise
carry over the excess income tax credits as the assessed tax based on erroneous
tax credit against its quarterly income tax assessment;
liabilities for the next succeeding years. For c) When the taxpayer offers to compromise the
taxable year 2016, the company's income tax assessed tax based on financial incapacity to
return showed an overpayment due to excess pay and he authorizes the Commissioner in
creditable withholding taxes in the amount of writing to look into his bank records;
₱1,100,000.00, which included the carry-over d) When the taxpayer did not file his income
from year 2015 in the amount of ₱750,000.00 tax return for the year.
because its operations resulted in a net loss;
hence, there was no application for any tax SUGGESTED ANSWER:
liability. This time, the company opted and (C) When the taxpayer offers to compromise the
marked the box "To be refunded' in respect of assessed tax based on financial incapacity to pay
the total amount of ₱1,100,000.00. and he authorizes the Commissioner in writing to
look into his bank records;
Vanderful, Inc. now files in the BIR a claim for
refund of unutilized overpayments of ───※ ·❆· ※───
₱1,100,00.00. Is the claim meritorious?

LOCAL TAXATION
SUGGESTED ANSWER:

15
 on the gross sales and receipts on persons
REQUIREMENTS FOR A VALID TAX
“who sell goods and services in the course of
ORDINANCE
trade or business.” KM Corporation paid the
taxes due under Section 21 under protest,
Pheleco is a power generation and distribution claiming that (a) local government units could
company operating mainly from the City of not impose a tax on businesses already taxed
Taguig. It owns electric poles which it also under the NIRC and (b) this would amount to
rents out to other companies that use poles double taxation, since its business was already
such as telephone and cable companies. Taguig taxed under Sections 15 and 17 of the Code.
passed an ordinance imposing a fee equivalent
to 1% of the annual rental for these poles. May local government units impose a tax on
Pheleco questioned 'the legality of the businesses already subjected to tax under the
ordinance on the ground that it imposes an NIRC?(2018 Bar Examinations)
income tax which local government units
(LGUs) are prohibited from imposing. SUGGESTED ANSWER:
Yes, the LGU may validly impose tax on businesses
Rule on the validity of the ordinance. (2013 already subject to tax by the NIRC.
Bar Examinations)
(A) The ordinance is void; the fee is based on ───※ ·❆· ※───
rental income and is therefore a tax on
income.
(B) The ordinance is valid as a legitimate COMMON LIMITATIONS ON TAXING POWER
exercise of police power to regulate electric OF THE LGUs
poles.
(C) The ordinance is void; 1% of annual rental In accordance with the Local Government Code
is excessive and oppressive. (LGC), the Sangguniang Panglungsod (SP) of
(D) The ordinance is valid; an LGU may impose Baguio City enacted Tax Ordinance No. 19,
a tax on income. Series of 2014, imposing a P50.00 tax on all
the tourists and travellers going to Baguio
SUGGESTED ANSWER: City. In imposing the local tax, the SP reasoned
(B) The ordinance is valid as a legitimate exercise that the tax collected will be used to maintain
of police power to regulate electric poles. (Basis: the cleanliness of Baguio City and for the
Sec. 129, RA 7160) beautification of its tourist attractions. (D) is
punishable by administrative penalty only.
───※ ·❆· ※───
Claiming the tax to be unjust, Baguio
Travellers Association (BTA), an association of
SPECIFIC TAXING POWER OF LOCAL
travel agencies in Baguio City, filed a petition
GOVERNMENT UNITS
for declaratory relief before the Regional Trial
Court (RTC) because BTA was apprehensive
KM Corporation, doing business in the City of that tourists might cancel their bookings with
Kalookan, has been a distributor and retailer BTA’s member agencies. BTA also prayed for
of clothing and household materials. It has the issuance of a Temporary Restraining Order
been paying the City of Kalookan local taxes (TRO) to enjoin Baguio City from enforcing the
based on Sections 15 (Tax on Wholesalers, local tax on their customers and on all tourists
Distributors or Dealers) and 17 (Tax on going to Baguio City.
Retailers) of the Revenue Code of Kalookan
City (Code). Subsequently, the The RTC issued a TRO enjoining Baguio City
SangguniangPanglungsod enacted an ordinance from imposing the local tax. Aggrieved, Baguio
amending the Code by inserting Section 21 City filed a petition for certiorari before the
which imposes a tax on “Businesses Subject to Supreme Court (SC) seeking to set aside the
Excise, Value-Added and Percentage Taxes TRO issued by the RTC on the ground that
under the National Internal Revenue Code collection of taxes cannot be enjoined. Will
(NIRC),” at the rate of 50% of 1% per annum the petition prosper? (2014 Bar Examinations)
16
SUGGESTED ANSWER: SUGGESTED ANSWER:
No, the petition for certiorari filed by Baguio D) It may prohibit or regulate trade.
City will not prosper. As stated in Valley Trading In a long line of cases, the Supreme Court ruled
Co., Inc. v. CFI of Isabela (G.R. No. L-49529, that in order ​for an ordinance to be valid in
March 31, 1989) and Angeles City v. Angeles City substance, it (1) must not contravene the
Electric Corporation (G.R. No. 166134, June 29, Constitution or any statute; (2) must not be
2010), the prohibition on the issuance of an order unfair or oppressive; (3) must not be partial or
or writ enjoining the collection of taxes applies discriminatory; (4) must not prohibit, but may
only to national internal revenue taxes, and not regulate trade; (5) must be general and
to local taxes. Unlike the NIRC, there is no consistent with public policy; and (6) must not be
express provision in the Local Government Code unreasonable.
which prohibits courts from enjoining the
collection of such taxes. Therefore, the RTC was ───※ ·❆· ※───
properly vested with authority to issue the
assailed TRO enjoining Baguio City from imposing
REAL PROPERTY TAXATION AND EXEMPTION
the local tax.
FROM REAL PROPERTY TAXATION

───※ ·❆· ※───

1) The appraisal, assessment, levy and
collection of real property tax shall be guided
REQUIREMENTS OF A VALID TAX ORDINANCE
by the following principles. Which statement
does NOT belong here? (2012 Bar
Which statement is correct? (2012 Bar Examinations)
Examinations)
a) Real property shall be appraised at its
a) Legislative acts passed by the municipal current and fair market value;
council in the exercise of its lawmaking b) Real property shall be classified for
authority are denominated as resolutions and assessment purposes on the basis of its actual
ordinances; use;
b) Legislative acts passed by the municipal c) Real property shall be assessed on the basis
council in the exercise of its lawmaking of a uniform classification within each local
authority are denominated as resolutions; political subdivision;
c) Legislative acts passed by the municipal d) The appraisal and assessment of real
council in the exercise of its lawmaking property shall be based on audited financial
authority are denominated as ordinances; statements of the owner.
d) Both ordinances and resolutions are solemn
and formal acts. SUGGESTED ANSWER:
D) The appraisal and assessment of real property
SUGGESTED ANSWER: shall be based on audited financial statements of
C) Legislative acts passed by the municipal the owner.
council in the exercise of its lawmaking authority The audited financial statement of the owner, is
are denominated as ordinances; not the basis for the assessment of the amount of
the real property tax
───※ ·❆· ※───
───※ ·❆· ※───
Which of the following statements is NOT a
test of a valid ordinance? (2012) 2) The Manila International Airport Authority
(MIAA) is exempt from real property tax.
a) It must not contravene the Constitution or Which statement below is NOT correct? (2012
any statute; Bar Examinations)
b) It must not be unfair or oppressive;
c) It must not be partial or discriminatory;
d) It may prohibit or regulate trade.
17
a) MIAA is not a government-owned or d) To file an appeal with the Provincial Board
controlled corporation because it is not of Assessment Appeals within sixty (60) days
organized as a stock or non-stock corporation; from receipt of the assessment and playing the
b) MIAA is a government instrumentality assessed tax under protest.
vested with corporate powers and performing
essential public services; SUGGESTED ANSWER:
c) MIAA is not a taxable entity because the C) To file an appeal with the Provincial Board of
real property is owned by the Republic of the Assessment Appeals within sixty (60) days from
Philippines and the beneficial use of such receipt of the assessment;
property has not been granted to a private
entity; ───※ ·❆· ※───
d) MIAA is a government-owned or controlled
corporation because it is required to meet the 6) The City Government of Manila may NOT
test of economic viability. impose:

SUGGESTED ANSWER: a) Basic real property tax at 2% of the

D) MIAA is a government-owned or controlled assessed value of real property;
corporation because it is required to meet the b) Additional levy on real property for the
test of economic viability. special education fund at 1% of the assessed
Jurisprudence provides that MIAA is not a value of real property;
government-owned or controlled corporation but c) Additional ad valorem tax on idle lands at a
a government instrumentality. rate not exceeding 5% of the assessed value;
d) Special levy on lands within its territory
───※ ·❆· ※─── specially benefited by public works projects or
improvements funded by it at 80% of the
3) For purposes of real property taxes, the tax actual cost of the projects or improvements.
rates are applied on:
SUGGESTED ANSWER:
a) Zonal values; (D) Specially benefited by public works projects
b) Fair market value; or improvements funded by it at 80% of the
c) Assessed values; actual cost of the projects or improvements.
d) Reproduction values. The amount for special levy on lands for public
works must not be more than 60% of the actual
SUGGESTED ANSWER: cost of the projects or improvements
C) Assessed values;
Assessed values, real property tax is based on ───※ ·❆· ※───
assessment made by the LGU itself through its
treasurer (Local Government Code)
LOCAL TAX AND REAL PROPERTY TAX
REMEDIES
───※ ·❆· ※───

5) Where the real property tax assessment is In 2015, Kerwin bought a three-story house
erroneous, the remedy of the property owner and lot in Kidapawan, North Cotabato. The
is: property has a floor area of 600 sq.m. and is
located inside a gated subdivision. Kerwin
a) To file a claim for refund in the Court of Tax initially declared the property as residential
Appeals if he has paid the tax, within thirty for real property tax purposes.
(30) days from date of payment;
b) To file an appeal with the Provincial Board In 2016, Kerwin started using the property in
of Assessment Appeals within thirty (30) days his business of manufacturing garments for
from receipt of the assessment; export. The entire ground floor is now
c) To file an appeal with the Provincial Board occupied by state-of-the-art sewing machines
of Assessment Appeals within sixty (60) days and other equipment, while the second floor is
from receipt of the assessment; used as offices. The third floor is retained by
18
Kerwin as his family’s residence. Kerwin’s Assuming that ABC, Inc. decides to appeal the
neighbors became suspicious of the activities dismissal, where should the appeal be filed?
going on inside the house, and they decided
to report it to the Kidapawan City Hall. Upon SUGGESTED ANSWER:
inspection, the local government discovered According to Sec 226 of the Local Government
that the property was being utilized for Code, an appeal may be made to the Local Board
commercial use. Immediately, the Kidapawan of Assessment within 60 days from the receipt of
Assessor reclassified the property as the written notice of assessment.
commercial with an assessment level of 50%
effective January 2017, and assessed Kerwin ───※ ·❆· ※───
back taxes and interest. Kerwin claims that
only 2/3 of the building was used for
THE COURT OF TAX APPEALS
commercial purposes since the third floor
remained as family residence. He argues that
the property should have been classified as The City of Liwliwa assessed local business
partly commercial and partly residential. taxes against Talin Company. Claiming that
Is the Kidapawan assessor correct in assessing there is double taxation, Talin Company filed a
back taxes and interest? Complaint for Refund or Recovery of Illegally
and/or Erroneously-collected Local Business
SUGGESTED ANSWER: Tax; Prohibition with Prayer to Issue
No, the assessor is not correct in assessing back Temporary Restraining Order and Writ of
taxes and interest. According to Sec 221 of the Preliminary Injunction with the Regional Trial
Local Government Code, the reassessment of a Court (RTC). The RTC denied the application
real property due to a major change in its actual for a Writ of Preliminary Injunction. Since its
use shall take effect at the beginning of the next motion for reconsideration was denied, Talin
quarter following the reassessment. Company filed a special civil action for
certiorari with the Court of Appeals (CA). The
───※ ·❆· ※─── government lawyer representing the City of
Liwliwa prayed for the dismissal of the
ABC, Inc. owns a 950-square meter commercial petition on the ground that the same should
lot in Quezon City. It received a notice of have been filed with the Court of Tax Appeals
assessment from the City Assessor, subjecting (CTA). Talin Company, through its lawyer, Atty.
the property to real property taxes (RPT). Frank, countered that the CTA cannot
Believing that the assessment was erroneous, entertain a petition for certiorari since it is
ABC, Inc. filed a protest with the City not one of its powers and authorities under
Treasurer. However, for failure to pay the RPT, existing laws and rules. Decide.
the City Treasurer dismissed the protest.
SUGGESTED ANSWER:
Was the City Treasurer correct in dismissing Atty. Frank is not correct.
ABC, Inc.’s protest. Explain. It is more in consonance with logic and legal
soundness to conclude that the grant of appellate
SUGGESTED ANSWER: jurisdiction to the CTA over tax cases filed and
Yes, the City Treasurer is correct in dismissing decided by the RTC carries with it the power to
ABC’s protest. According to Sec 252 of the Local issue a writ of certiorari when necessary in aid of
Government Code, no protest shall be such appellate jurisdiction. (City of Manila v.
entertained unless the taxpayer first pay the tax. Grecia-Cuerdo, 715 SCRA 182). It is now settled
He shall then be issued a receipt duly annotated that the CTA by constitutional mandate is vested
with “paid under protest”. After which a protest with jurisdiction to issue writs of certiorari in
in writing must be filed with the City Treasurer cases falling within its exclusive appellate
within 30 days from payment of the tax. jurisdiction.

───※ ·❆· ※─── ───※ ·❆· ※───

19
State at least five (5) cases under the
exclusive appellate jurisdiction of the Court of
Tax Appeals (CTA) (2016 Bar Examinations)

SUGGESTED ANSWER:
a. Decisions of the CIR involving: (DRO) i.
Disputed assessments; ii. Refunds of
internal revenue taxes, fees or other
charges, penalties in relation thereto; or
iii. Other matters arising under the NIRC,
or other laws administered by the BIR
b. Inaction by the CIR involving (DROW) i.
Disputed assessments; ii. Refunds of
internal revenue taxes, fees or other
charges and penalties imposed thereto;
iii. Other matters arising under NIRC or
other laws administered by the BIR,
Where the NIRC provides a specific period
for action.
c. Decisions, Resolutions or Orders of the
RTC in Local Tax Cases decided or
resolved by them in the exercise of their
Original Jurisdiction (RRCTA, Rule 4, Sec.
3(a)(3)).
d. Decisions of the Commissioner of Customs
involving (DuSe-FO) : i. Liability for
customs Duties, fees or other money
charges; ii. Seizures, detention or release
of other property affected; iii. Fines,
forfeitures, or other penalties in relation
thereto; or iv. Other matters arising
under the customs law or other laws
administered by the BOC (RRCTA, Rule 4,
Sec. 3(a)(4)).
e. Decisions of the Secretary of Finance On
Customs cases elevated for automatic
review from decisions of the
Commissioner of Customs which are
adverse to the Government under the
CMTA; (RRCTA, Rule 4, Sec. 3(a)(5)).

───※ ·❆· ※───

20
 fraudulent return implies intentional or
deceitful entry with intent to evade the
GENERAL PRINCIPLES
taxes due.

THEORIES ON TAXATION, CONCEPTS OF ───※ ·❆· ※───

TAXATION, TAXATION DISTINGUISHED FROM
POLICE POWER AND EMINENT DOMAIN QUESTION. Explain the principles of a sound tax
system. (3%)

QUESTION. TRUE or FALSE. Answer TRUE if the

SUGGESTED ANSWER:
statement is true, or FALSE if the statement is
The principles of a sound tax system are as follows:
false. Explain your answer in not more than two
1) Fiscal Adequacy – The sources of revenue
(2) sentences. (5%)
must be sufficient to meet government
a. A law that allows taxes to be paid either
expenditures and other public needs
in cash or in kind is valid.
(Chavez v. Ongpin 186 SCRA 331)
b. When the financial position of the
2) Administrative Feasibility - The tax law
taxpayer demonstrates a clear inability
must be capable of effective, efficient, just
to pay the tax, the Commissioner of
and convenient administration
Internal Revenue may validly compromise
3) Theoretical justice or equality – The taxes
the tax liability.
must be based upon the ability of the
c. The doctrine of equitable
citizens to pay
recoupment allows a taxpayer whose
claim for refund has prescribed to offset
───※ ·❆· ※───
tax liabilities with his claim of
overpayment.
d. A law imposing a tax on income of ESCAPE FROM TAXATION, TAX REFUND
religious institutions derived from the
sale of religious articles is valid.
QUESTION. The BIR Commissioner, in his
e. A false return and a fraudulent return
relentless enforcement of the Run After Tax
are one and the same.
Evaders (RATE) program, filed with the
Department of Justice (DOJ) charges against a
SUGGESTED ANSWERS:
movie and television celebrity. The
a) TRUE. There is no constitutional or inherent
Commissioner alleged that the celebrity earned
limitation which provides that taxes shall
around PhP 50 million in fees from product
strictly be paid in cash.
endorsements in 2016 which she failed to report
b) TRUE. The NIRC provides that one of the
in her income tax and VAT returns for said year.
grounds for compromise is financial
incapacity of the taxpayer to pay the tax
The celebrity questioned the proceeding before
liability. (Sec. 204, NIRC)
the DOJ on the ground that she was denied due
c) TRUE. The doctrine allows offsetting of a
process since the BIR never issued any
prescribed claim against a tax liability
Preliminary Assessment Notice (PAN) or a Final
arising from the same transaction (CIR vs
Assessment Notice (FAN), both of which are
UST)
required under Section 228 of the NIRC whenever
d) FALSE. The law constitutes an infringement
the Commissioner finds that proper taxes should
of religious freedom which is not allowed
be assessed.
under Art 3 Section 6 of the 1987
Constitution (American Bible Society vs City
Is the celebrity’s contention tenable?
of Manila)
e) FALSE. False return implies deviation from
SUGGESTED ANSWER:
the truth, whether intentional or not, while

20
No. The celebrity’s contention is not tenable. In CIR vs Procter and Gamble, the Supreme Court
Assessment is not necessary before the filing of a ruled that a withholding agent is not only an agent
criminal complaint for tax evasion. In cases where of the government but also an agent of the
fraudulent return is filed with the intent to evade a taxpayer in reporting an income. It is properly
tax, a proceeding in court for the collection of the regarded to as the taxpayer under Section 22 (N) of
said tax may be filed without assessment pursuant the NIRC.
to Section 222 of the NIRC as amended.
In this case, ABCD Corporation, a domestic
───※ ·❆· ※─── corporation, withholds the income tax due for
dividends in behalf of its non-resident stockholders,
as a withholding agent, it has the capacity to ask
KINDS OF TAXES
for any tax refund in behalf of the stockholders who
earned income.
QUESTION. ABCD Corporation (ABCD) is a
domestic corporation with individual and Thus, ABCD Corporation’s contention is correct.
corporate shareholders who are residents of the
United States. For the 2nd quarter of 1983, b) Yes, the contention of ABCD Corporation is
these U.S.-based individual and corporate correct.
stockholders received cash dividends from the
corporation. The corresponding withholding tax The principle of international comity dictates that
on dividend income --- 30% for individual and a tax treaty must prevail over the local taxing
35% for corporate non-resident stockholders --- statute.
was deducted at source and remitted to the BIR.
Thus, the RP-US Tax Treaty must be applied thereby
On May 15, 1984, ABCD filed with the resulting in a claim for refund representing the
Commissioner of Internal Revenue a formal claim difference between the amount actually withheld
for refund, alleging that under the RP-US Tax and paid to the BIR and the amount due and
Treaty, the deduction withheld at source as tax payable under the said treaty.
on dividends earned was fixed at 25% of said
income. Thus, ABCD asserted that it overpaid ───※ ·❆· ※───
the withholding tax due on the cash dividends
given to its non-resident stockholders in the U.S.
SITUS OF TAXATION
The Commissioner denied the claim.

On January 17, 1985, ABCD filed a petition with QUESTION. ABC, a domestic corporation, entered
the Court of Tax Appeals (CTA) reiterating its into a software license agreement with XYZ, a
demand for refund. non-resident foreign corporation based in the
a. Does ABCD Corporation have the legal U.S. Under the agreement which the parties
personality to file the refund on behalf forged in the U.S., XYZ granted ABC the right to
of its non-resident stockholders? Why or use a computer system program and to avail of
why not? (3%) technical know-how relative to such program. In
b. Is the contention of ABCD Corporation consideration for such rights, ABC agreed to pay
correct? Why or why not? 5% of the revenues it receives from customers
who will use and apply the program in the
SUGGESTED ANSWER: Philippines.
a. YES. The ABCD Corporation has the personality to Discuss the tax implication of the transaction.
file for refund on behalf of its non-resident
stockholders. SUGGESTED ANSWER:
The revenue generated by ABC from the use of the
software license agreement is subject to income

21
tax. Thereafter, the amount that ABC will give to QUESTION. The Sangguniang Bayan of the
XYZ a non-resident foreign corporation is also Municipality of Sampaloc, Quezon, passed an
subject to income tax as the same has situs as it is ordinance imposing a storage fee of ten centavos
income within the Philippines. (P0.10) for every 100 kilos of copra deposited in
any bodega within the Municipality's
SUGGESTED ANSWER #2: jurisdiction. The Metropolitan Manufacturing
The amount payable under the agreement is in the Corporation (MMC), with principal office in
nature of royalties. The royalties paid to the Makati, is engaged in the manufacture of soap,
non-resident U.S. Corporation, equivalent to 5% of edible oil, margarine, and other coconut
the revenues derived by ABC, a domestic oil-based products. It has a warehouse in
corporation, for the use of the program in the Sampaloc, Quezon, used as storage space for the
Philippines, is subject to a 30% final withholding copra purchased in Sampaloc and nearby towns
tax, unless a lower tax rate is prescribed under an before the same is shipped to Makati. MMC goes
existing tax treaty. to court to challenge the validity of the
ordinance, demanding the refund of the storage
───※ ·❆· ※─── fees it paid under protest.

QUESTION. Patrick is a successful businessman in Is the ordinance valid? Explain your answer.
the United States and he is a sole proprietor of a
supermarket which has a gross sales of $10 SUGGESTED ANSWER:
million and an annual income of $3 million. He YES. The ordinance is valid.
went to the Philippines on a visit and, in a party,
he saw Atty. Agaton who boasts of being a tax Section 147 of the LGC provides that municipalities
expert. Patrick asks Atty. Agaton: if he (Patrick) may impose a reasonable storage fee as a
decides to reacquire his Philippine citizenship regulatory measure. Furthermore, under the
under RA 9225, establish residence in this “general welfare clause”, the LGU can enact
country, and open a supermarket in Makati City, ordinances for the betterment of the general
will the BIR tax him on the income he earns from welfare, in the exercise of its police power.
his U.S. business? If you were Atty. Agaton, what
advice will you give Patrick? In this case, the Municipality of Quezon passed an
ordinance which imposes a 10 centavos storage fee,
SUGGESTED ANSWER: such is valid as it is allowed under Section 147 of
I will advise Patrick that his status for purposes of the LGC and the general welfare clause. Thus, the
income tax would be a resident citizen once he ordinance is valid.
reacquires his Philippine citizenship. A resident
citizen is taxable on his income derived from ───※ ·❆· ※───
sources within and without the Philippines.
Therefore, Patrick’s income that may be derived QUESTION. The City of Manila enacted
from his business abroad will be subject to Ordinance No. 55-66 which imposes a municipal
Philippine Income tax (section 23, NIRC) occupation tax on persons practicing various
professions in the city. Among those subjected to
───※ ·❆· ※─── the occupation tax were lawyers. Atty. Mariano
Batas, who has a law office in Manila, pays the
ordinance-imposed occupation tax under
LOCAL TAXES AND RPT
protest. He goes to court to assail the validity of
the ordinance for being discriminatory. Decide
with reasons.
LOCAL TAXATION

SUGGESTED ANSWER:

22
The ordinance is valid. Jurisprudence provides that
an occupational tax for professionals is valid and QUESTION. The Philippine-British Association,
not discriminatory provided it applies to all Inc. (Association) is a non-stock, non-profit
professionals exercising within the territory of the organization which owns the St. Michael's
LGU who made such ordinance. Hospital (Hospital). Sec. 216 in relation to Sec.
In this case, the City of Manila enacted Ordinance 215 of the LGC classifies all lands, buildings and
No. 55-66, an occupational tax that applies to those other improvements thereon actually, directly,
exercising a profession within the said City. The and exclusively used for hospitals as "special." A
same is not discriminatory as it applies to all special classification prescribes a lower
professionals. Thus, Ordinance No. 55-66 is valid assessment than a commercial classification.
and is not discriminatory. (Punsalanet. al. v. City of Within the premises of the Hospital, the
Manila) Association constructed the St. Michael's Medical
Arts Center (Center) which will house medical
───※ ·❆· ※─── practitioners who will lease the spaces therein
for their clinics at prescribed rental rates. The
QUESTION. Ferremaro, Inc., a manufacturer of doctors who treat the patients confined in the
handcrafted shoes, maintains its principal office Hospital are accredited by the Association.
in Cubao, Quezon City. It has branches/sales
offices in Cebu and Davao. Its factory is located The City Assessor classified the Center as
in Marikina City where most of its workers live. "commercial" instead of "special" on the ground
Its principal office in Quezon City is also a sales that the Hospital owner gets income from the
office. lease of its spaces to doctors who also entertain
Sales of finished products for calendar year out-patients. Is the City Assessor correct in
2009 in the amount of P10 million were made at classifying the Center as "commercial?" Explain.
the following locations:
i) Cebu branch 25% SUGGESTED ANSWER:
ii) Davao branch 15% No. The City Assessor is not correct in classifying
Quezon City the Medical Arts Center as commercial. The Medical
iii) 60%
branch Arts Center is an integral part of the hospital and
100 should be classified for assessment purposes as
Total
% special. As a tertiary hospital, St Michael’s is
Where should the applicable local taxes on the required by law to have a pool of physicians who
shoes be paid? Explain comprise the required medical department in
various medical fields. (City Assessor or Cebu City
SUGGESTED ANSWER: vs Association of Benevola de Cebu)
25% of the total sales or 2.5 Million should be taxed
in Cebu. 15% of the total sales should be taxed in ───※ ·❆· ※───
Davao. As regards to the remaining 60% it shall be
allocated as follows:
TAX REMEDIES
(a) 30% of the total sales or 1.8 million is
taxable in Quezon City where its principal
office is located
POWER OF THE CIR AND NIRC TAX REMEDIES
(b) 70% of the total sales of 4.2 million is
taxable in Marikina where the factory is
located (Section 150 LGC) QUESTION. In 2010, pursuant to a Letter of
Authority (LA) issued by the Regional Director,
───※ ·❆· ※─── Mr. Abcede was assessed deficiency income taxes
by the BIR for the year 2009. He paid the
deficiency. In 2011, Mr. Abcede received another
REAL PROPERTY TAXATION LA for the same year 2009, this time from the

23
National Investigation Division, on the ground a. TRUE (CIR vs BF Goodrich Phils 303 SCRA
that Mr. Abcede's 2009 return was fraudulent. 546)
Mr. Abcede contested the LA on the ground that b. FALSE (Lim vs CA 190 SCRA 616)
he can only be investigated once in a taxable c. FALSE (Sec 11, Rule 9, 2005 Revised Rules
year. Decide. of the Court of Tax Appeals)
d. TRUE (CIR vs Manila Mining Corp, 468 SCRA
SUGGESTED ANSWER: 571)
The contention of Mr. Abcede is untenable. The e. FALSE (Sec. 3(b) (2), Rule 4, 2005 Revised
rule that a taxpayer may be subjected to Rules of Court of Tax Appeals)
examination and inspection by an internal revenue
officer only once in a taxable year admits of ───※ ·❆· ※───
exception, particularly, if there is fraud,
irregularity or mistake as determined by the QUESTION. Globesmart Services, Inc. received a
Commission. In the instant case, the investigation is final assessment notice with formal letter of
legally justified in light of the finding that Mr. demand from the BIR for deficiency income tax,
Abcede’s 2009 return was fraudulent. value-added tax and withholding tax for the
taxable year 2016 amounting to P48 million.
───※ ·❆· ※─── Globesmart Services, Inc. filed a protest against
the assessment, but the Commissioner of
Internal Revenue denied the protest. Hence,
JURISDICTION OF THE CTA
Globesmart Services, Inc. filed a petition for
review in the CTA with an urgent motion to
QUESTION. True or False. suspend the collection of tax.
a. In civil cases involving the collection of
internal revenue taxes, prescription is After hearing, the CTA Division issued a
construed strictly against the resolution granting the motion to suspend but
government and liberally in favor of the required Globesmart Services, Inc. to post a
taxpayer. (1%) surety bond equivalent to the deficiency
b. In criminal cases involving tax offenses assessment within 15 days from notice of the
punishable under the National Internal resolution. Globesmart Services, Inc. moved for
Revenue Code (NIRC), prescription is the partial reconsideration of the resolution and
construed strictly against the for the reduction of the bond to an amount it
government. (1%) could obtain. The CTA Division issued another
c. In criminal cases where the Court of Tax resolution reducing the amount of the surety
Appeals (CTA) has exclusive original bond to Jl24 million.
jurisdiction, the right to file a separate
civil action for the recovery of taxes may The latter amount was still more than the net
be reserved. (1%) worth of Globesmart Services, Inc. as reported in
d. Proceedings before the CTA in the its audited financial statements.
exercise of its exclusive original a. May the collection of taxes be
jurisdiction are in the nature of trial de suspended? Explain your answer.
novo. (1%) b. Is the CTA Division justified in requiring
e. Judgments, resolutions or orders of the Globesmart Services, Inc. to post a
Regional Trial Court in the exercise of surety bond as a condition for the
its original jurisdiction involving criminal suspension of the deficiency tax
offenses arising from violations of the collection? Explain your answer.
NIRC are appealable to the CTA, which
shall hear the cases en banc. SUGGESTED ANSWER:
a) Yes, the collection of taxes may be suspended.
SUGGESTED ANSWER:

24
RA 1125 as amended by RA 9282 provided that
when in the opinion of the Court of Tax Appeals,
the collection of taxes may jeopardize the interest
of the government and/or the taxpayer, the CTA at
any stage of the proceedings may suspend the
collection and require the taxpayer either to
deposit the amount claimed of or to file a surety
bond for not more than double the amount with the
Court.

b) No. The CTA Division is not justified. It has been

held that the CTA should first conduct a preliminary
hearing for the proper determination of the
necessity of a surety bond or the reduction thereof
(Pacquiao v. CTA). This is necessary to give the
taxpayer an opportunity to prove its inability to
raise such amount. In this case, the CTA failed to
consider that the amount of the surety bond is
more than the net worth of Globesmart Services
resulting in violation of the due process clause and
the equal protection clause under the Constitution.

───※ ·❆· ※───

25