Taxation - Aban Book

TAXATION SURVIVAL KIT Aban Book
Chapter 1
GENERAL PRINCIPLES
Taxation power by which the sovereign, through its law

making body, raises revenue to defray the necessary
expenses of government,
-
it is merely a way of apportioning the costs of

government among those who in some measure ar
privileged to enjoy its benefits and must bear its
burdens
Commissioner of Internal Revenue vs Algue :

- Symbiotic relationship
- Whereby in exchange for the protection that the
citizens get from the Government, taxes are paid
Rationale of Taxation
- taxes are what we pay for civilized society
- without taxs, the government would be paralyzed for
lack of motive power to activate and operate it
- despite the natural reluctance to surrender part of
ones hard earned income to the taxing authorities,
every person who is able must contribute his share in
the running of government
- the government for it is expected to respond in the
form of tangible and intangible benefits intended to
improve the lives of the people and enchance their
moral and material values
- THE SYMBIOTIC RELATIONSHIP IS THE RATIONALE of
Taxation and SHOULD DISPEL THE ERRONEOUS
NOTION THAT IT IS AN ARBITRARY METHOD OF
EXACTION BY THOSE IN THE SEAT OF POWER
Commissioner of Internal Revenue vs Tokyo Shipping Co
- tax payers owe honesty to government just as
government owes fairness to taxpayers
BPI Family Savings Bank vs CA
- If the State expects its taxpayers to observe fairness
and honesty in paying their taxes, so must it apply the
1 Miranda, Clarisse Ann
same standards against itself xxxx. No one, not even

the State, should enrich itself at expense of another
TAXES
- enforced proportional contributions from persons and
property levied by the law making body of the State by
virtue of its sovereignty for the support of government
and for public needs
Characteristics of taxes :
1. A tax is a forced charge, imposition or contribution and
as such it operates in invitum it is in no way
dependent on the will or contractual assent, express or
implied, of the person taxed
a. Not contracts, either expressed or implied but
positive acts of government
2. Pecuniary burden payable in money
a. Not necessarily confined to those payable in
money, as in the case, for instance, of backpay
certificates which under RA 304 could be usd as
payment of taxes
b. SC : Backpay certificates may be used to pay
real estate taxes
3. It is levied by the legislative body of the State because
the taxng power is peculiarly and exclusively
legislative in character
a. Taxes are obligations created by law
4. It is assessed in accordance with some reasonable rule
of apportionment, which means that conformably with
th constitutional mandate on progressivity of a taxing
system
a. Taxes must be based on ability to pay
Do regressive taxes go against the constitutional mandate in
Section 28 (1) Article VI of Constitution ?
PAL vs Sec of Finance
- Constitution does not really prohibit the imposition of
indirect taxes which, like VAT are regressive.
2
-
Congress shall evolve a progressive system of taxation

Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not
impossible, to avoid them by such taxes according to
the taxpayers ability to pay
5. It is imposed by the State on persons, property, or

services
6. A Tax is levied for public purpose as taxation in itself
involves a burden to provide revenue for public
purposes of a general nature
TAXES, PERSONAL TO TAXPAYER

-
A tax creates a civil liability on the part of the

delinquent taxpayer, although NON PAYMENT THEREOF
(Whether it be on account of the taxpayers failure or
refusal to pay it) creates criminal liability, which could
be the subject of a criminal prosecution under existing
laws
In taxation , it is ones civil liability to pay taxes that
gives rise to criminal liability
NOT THE other way around as in criminal cases where
criminal liability gives rise to a civil liability
IMPORTANCE OF TAXES
-
lifeblood of the Government and so should be

calculated without unnecessary hindrance
PRIMARY PURPOSE : generate funds for the State to
finance the needs of the citizenry and to advance the
common weal
DUE PROCESS of law under the Constitution does not
require judicial proceedings in tax cases
o Because it is upon taxation that the Government
chiefly relies to obtain the means to carry on its
operations and it is utmost importance that the
modes adopted to enforce the collection of
taxes levied should be summary and interfered
with as little as possible
A corporations tax delinquency cannot, for instance,

be enforced against its stockholders because not only
would this run counter to the principle that taxes are
personal
but it would also not be in accord with the rule that a
corporation is vested by law
with a personality that is separate and distinct from
those o the persons composing it,
as well as from that of any other legal entity to which it
may be related
STOCKHOLDERS MAY BE HELD LIABLE FOR UNPAID
TAXES OF A DISSOLVED CORPORATION IF IT APPEARS
THAT THE CORPORATE ASSETS HAVE PASSED INTO
THEIR HANDS
OR
WHEN
STOCKHOLDERS
HAVE
UNPAID
SUBSCRIPTIONS TO THE CAPITAL OF CORPORATION
Estate taxes accruing upon transmission of the
decedents estate to his heirs are not liabilities which
can be enforced against his heirs, for estate taxes are
supposed to be obligations that must be paid by the
executor/administrator out of the net estate, before
delivery to any beneficiary of his distributive share
HOWEVER, if prior to the payment of the estate tax
due on the transfer of decedents estate, the properties
of the deceased are distributed to any beneficiary,
then such beneficiary shall be subsidiarily liable for the
payment of such portion of the estate tax as his
distributive share bears to the total value of the net
estate
NATURE OF THE TAXING POWER

- power of tax is an attribute of sovereignty
- it is inherent in the State
- unlimited in its range, acknowledging in its very nature
no limits, so that security against its abuse is to be

-
found only in the responsibility of the legislature which

imposes the tax on constituency who are to pay it
Awesome power However, NO MATTER HOW
AWESOME IT MAYBE, IT MUST NOT BE EXRCISED
ARBITRARILY
Taxation is a power emanating from necessity
A necessary burden to preserve the States
sovereignty
Means to give citizenry an army to resist an aggression
A nacy to defend its shores from invasion
Corps of civil servants to serve
Public improvement designed for enjoyment of
citizenry and those which come within the States
territory and facilities
Protection which a government is supposed to provide
TAXATION
IS
A
HIGH
PREROGATIVE
OF
SOVEEREINGTY THE RELINQUISHMENT OF WHICH
IS NEVER PRESUMED, AND ANY REDUCTION OR
DIMUTION THEREOF WITH RESPECT TO ITS MODE
OR RATE MUST BE STRICTLY CONTRUED AND
THE SAME MUST BE COUCHED INC LEAR TERMS
GENERAL RULE : ANY CLAIM FOR EXEMPTION
FROM TAX STATUES SHOULD BE CONSTRUED
STRICTLY AGAINST TAXPAYER
PURPOSES AND OBJECTIVES OF TAXATION

1. Revenue to provide funds or property with which the
State promotes the general welfare and protection of
its citizens
2. Regulation imposed on tobacco and alcoholic
products, or amusement places like night clubs,
cabarets and cockpits
Taxation not merely power that is exercised in order to raise
revenue for the support of Government
Taxes may also be imposed for regulatory purpose as in the

rehabilitation and stabilization of a threatened industry which
is affected with public interest like oil industry
3. Promotion of General Welfare implement of police
power in order to promote general welfare of people
Lutz vs Araneta imposed tax on a milled sugar since the
purpose of law was to strengthen an industry that is
undeniably vital to economy the sugar industry
Oil Price Stabilization Fund A device desidnged to protect
the public from adverse effects of fluctuations in prices of
importe crude oil
Osmena vs Orbos
- while funds collected under OPSF may be referred to
as taxes, they are exacted in the exercise of the police
power of State
- 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 inequality
a. Made possible through progressive system of
taxation
b. Objective to prevent the undue concentration
of wealth in the hands of a few individuals
c. Progressivity bestowed on the principle that
those who are able to pay should shoulder the
bigger portion o tax burden
d. Present rates of income, estate and gift taxes
present a good example of progressivity
5. Encourage Economic Growth
a. Purpose : to grant incentives and exemptions in
order to encourage investment and thereby
promote the countrys economic growth
b. The power to exempt from tax is inherent in
state also
c. LOCAL GOVERNMENT CODE : local governments
may grant tax exemptions
4
d. Real property taxes no such power exists save
in the case of condonation of taxes which can be
granted only for certain justifiable reasons which
are expressly stated in the law
6. Protectionism provide protection to local industries
like protective tariffs and customs duties
Theory and basis of taxation
1. Necessity Theory existence of government is a
necessity
a. It cannot continue without the means to pay its
expenses
b. For those means it has the right to compel all
citizens and property within its limits to
contribute
c. Taxation is a power emanating from necessity
d. Necessary
burden
to
preserve
States
sovereignty and a means to give citizenry an
army to resist aggression
e. A navy to defend
f. Corps of civil servants to serve
g. Public improvement designed for the enjoyment
of citizenry and those which within States
territory and facilities, and protection which a
government is supposed to provide
2. Benefit Protection Theory
a. State demands and receives taxes from subjects
of taxation within its jurisdiction so that it may
be enabled to carry its mandate into effect and
perform the functions of government,
b. and the citizen pays from his property the
portion demanded in order that he may,
organized society
c. HOWEVER, the foundation of the obligation to
pay taxes IS NOT the privileges enjoyed or the
protection given to a citizen by the Government,
although the payment of taxes gives a right to

protection
d. Both are enjoyed as well by those members of a
State who do not pay taxes because they are
not able to do so.
e. Special benefits are not required
f. From contribution received, government renders
NO SPECIAL or COMMENSURATE benefit to any
particular person or property
g. A tax is not imposed on the basis of a special or
particular benefit accruing to each citizen in
proportion to the tax paid
h. A PERSON CANNOT OBJECT TO OR RESIST THE
PAYMENT OF TAXES SOLELY BECAUSE NO
PERSONAL BENEFIT TO HIM AN BE POINTED OUT
AS RISING FROM TAX
GOMZ VS PALOMAR
- Sc upheld validity of anti tb stamp law
- Which required the affixture of a semi postal stamp on
mail matter
- Although no special benefit accrues to mail users by
such stamp, it is not necessary, to constitute public
purpose, that special benefits accrue to a taxpayer
- Enough that he enjoys benefits of living in an
organized societ
SCOPE OF LEGISLATIVE TAXING POWER
Legislative
following :
taxing power or discretion
extends to the
1. the person, property, or occupation to be taxed

a. excises or privileges provided they are within
taxing jurisdiction are also included
b. taxing authority can selct subject of taxation
2. amount or rate of tax
3. purposes for which taxes shall be levied provided they
are public purposes
4. kind of tax to be collected

5. apportionment of tax whether tax shall be general or
limited to a particular locality or partly general and
partly local
6. situs of taxation
7. method of collection
PURPOSE OF LEVY : exclusively within the discretion of
legislature, but courts may determine whther the purpose is
a public or not
state or nation may outrun any human calculation, so

the power to meet thos needs by taxation must not be
limited even though taxes become burdensome or
confiscatory
CONSTITUTIONAL RESTRAINTS RE : Taxation is the
Power to destroy
-
Legislature has also full discretion as to the persons,

property, occupation or business to be taxed provided these
are all within the states territorial jurisdiction
IS THE POWER TO TAX POWER TO DESTROY ?
-
power to impose taxes is one so unlimited in force and

so searching in extent so that courts scarcely venture
to declare that it is subject to any restrictions
whatever, except such as rest in discretion of authority
which exercises it
no attribute sovereignty is more pervading
no point does the power of government affect more
constantly and intimately all relations of life than
through the exactions made under it
In the light of the foregoing description of the taxing power is

taxation therefore power to destroy?
Mc Culloch vs Maryland
- - power to tax involves power to destroy
- pertinent only when there is no power to tax a
particular subject and has no relation to a case where
such right to tax exists
- oft quoted maxim instead maxim instead of being
regarded as a blanket authorization of the unrestrained
us of taxing power for any and all purposes,
irrespective of revenue, is more reasonably construed
as an epigrammatic statement of the political and
economic axiom that since the financial needs of a
Not unlimited
When a legislative body having the power to tax a
certain subject matter actually imposes such a
burdensome tax as effectually to destroy the right to
perform the act or to use the property subject to the
tax
Validity of enactment depends upon the nature and
character of the right to destroy
If so great an abuse is manifested as to destroy natural
and fundamental rights which no free government
could consistently violate, it is the duty of the judiciary
to hold such an act unconstitutional
Power to tax is not the power to destroy because of
constitutional restraints placed on a taxing power that
violates fundamental rights
Taxpayer owes honesty to the Government

Government owes fairness to taxpayers
just
as
To maintain general publics trust and confidence in the

government this power must b used justly and not
treacherously
It should be exercised with caution to a minimize injury to the
proprietary rights of a taxpayer
POWER OF JUDICIAL REVIEW IN TAXATION
6
CIR vs Lingayen
- courts cannot inquire into the wisdom of a taxing act
- courts cannot review the wisdom or advisability or
expediency of a tax
- judicial tribunals of state have no concern with policy
of legislation
- judicial power cannot legitimately question or refuse to
sanction provisions of any law not inconsistent with
fundamental law of state
- nor can motives which have influenced the selection of
objects for taxation or determined the rate, be inquired
into
Non food agricultural product, the sale of which by primary

producers are exempt under VAT law
As long as legislature, in imposing a tax, does not violate

applicable constitutional limitations or restrictions, the courts
have no concern with wisdom or policy of exaction, the
political or other collateral motives behind it, the amount to
be raised or the persons property or other privileges to be
taxed
Levy legislative power

- includes determination of persons, property or excises
to be taxes , the sum or sums to be raised, the due
date thereof and the time and manner of levying and
collecting taxes
Collection (including assessment ) consists of manner of
enforcement of obligation on the part of those who are taxed
COURTS POWER IN TAXATION is LIMITED ONLY TO THE

APPLICATION AND INTERPRETATION OF LAW
- petitioners argument that affixture of documentary
stamp on freight receipts is impracticable should not
be entertained
- because according to court, impracticability and
absurd consequences of law should be addressed to
the legislature and administrative authorities
- It is not within its province to inquire into the wisdom
of law for indeed courts are bound by words in mouth
of lawmaker
- Verbo legis est recedndum
Principle of judicial non interference into questions of tax
policy could probably extend also into the administrative
realm
The question as to whether or not BIRs reclassification is

counterproductive
could
be
properly
addressed
to
respondents Sec of Finance and CIR or Congress
Aspects of Taxation
1. Levy or imposition of tax on persons, property or
excises
2. Collection of taxes already levied
Basic principles of sound tax system

1. fiscal adequacy sources of government must eb
sufficient to meet government expenditures and other
public needs
a. essential in order to avoid budgetary deficits
and to minimize foreign and local borrowings
2. Theoretical Justice
a. based on taxpayers ability to pay
b. taxation must be progressive conformably with
constitutional mandate that congress shall
evolve a progressive system of taxation
3. Administrative Feasibility taxes should be capable of
being effectively enforced
a. VAT example of administrative policy
b. VAT principally aimed to rationalize the system

of taxes on goods and services, simplify tax
administration and make system more equitable
to enable the country to attain economic
recovery
c. Taxation could be enhance by police power.
d. If under Local government can classify lands as
residential
and
commercial,
then
since
conversion of industrial lands is usually
assessed on a higher assessment level, tax
collection are increased
AS
TO
PERSONS
AFFECTED
Operate upon community

or a class of individuals
AS
TO
AUTHORITY
WHICH
EXERCISES
THE POWER
Exercised only by the

government or its political
subdivisions.
AS
TO
AMOUNT OF
EXACTION
Generally no
limit to the
amount
of
tax that may
be imposed
Limited
to
the cost of
regulation
AS TO THE
RELATIONSHI
P
TO
THE
CONSTITUTIO
N
Subject
to
certain
constitutiona
l limitations,
including the
prohibition
against
impairment
of
the
obligation of
contracts
Relatively
free
from
constitutiona
l limitations
and superior
to the nonimpairment
provisions
AS
TO
TRANSFER OF
PROPERTY
RIGHTS
Taxes
paid
become part
of the public
funds
No transfer,
but
only
restraint on
the exercise,
Taxation vs Police Power vs Eminent Domain

TAXATION DISTINGUISHED FROM POLICE
EMINENT DOMAIN
TAXATION
POLICE
POWER
AS
TO For
the To promote
PURPOSE
purpose
general
raising
welfare
revenue
through
regulations
AS
TO Protection
The
COMPENSATI
and benefits maintenance
ON
received
of a healthy
from
the economic
government. standard of
society
(damnum
absque
injuria)
POWER AND
EMINENT
DOMAIN
For
public
use
Just
compensatio
n,
not
to
exceed
the
market value
by the owner
or
administrator
or
anyone
having legal
interest
in
the property,
or
as
determined
by
the
assessor,
Issuance of
license
or
surveillance
whichever is
lower.
Operates on
the individual
property
owner
May
be
exercised by
public
services corp
or
public
utilities
if
granted
by
law
There is no
imposition;
rather, it is
the owner of
the property
taken who is
paid
just
compensatio
n.
Subject
to
certain
constitutional
limitations,
NOT
including the
prohibition
against
impairment
of
the
obligation of
contracts
AS
TO
BENEFITS
RECEIVED
AS TO NON
IMPAIRMENT
OF
CONTRACTS
No special or
direct
benefit
received by
taxpayer
other
than
the fact that
Government
only
SECURES to
the
citizen
that general
benefit
resulting
from
protection of
his person,
and property
and welfare
of all
This
rule
subsits
of property
right exists
No
direct
benefits
received. A
healthy
economic
standard of
society
known
as
DAMNUM
ABSQUE
INJURIA
Not applied
here
Taxing
act
cannot
impair
obligation of
contracts
TAXES DISTINGUISHED FROM OTHER IMPOSITIONS

1) toll amount charged for the cost and maintenance of
property used;
a. REASON : Tax is a demand of sovereignty for
the purpose of raising public revenue
b. Should be noted that LOCAL GOVERNMENT

CODE authorizes the collection of tolls by local
government units for the use of any public road,
pier or wharf, waterway, bridge, ferry or
telecommunication
system
funded
and
constructed by them
2) penalty punishment for the commission of a crime
a. civil liability
b. A person is only because he fals to satisfy his
civil obligation to pay taxes
National Development Company vs CIR
- if a withholding agent like NDC fails to withhold the requisite
withholding tax on the income received from PH sources by a
Japanese non resident foreign corporation, such withholding
agent is LIABLE TO PAY TAX that it did not withhold as a
penalty for its failure to withhold the tax of foreign
corporation
3) compromise penalty amount collected in lieu of
criminal prosecution in cases of tax violations;
a. neither imposition nor a penalty
b. cannot be imposed by the Commissioner
c. if taxpayer refuses to pay the compromise,
criminal action is the remedy
d. although cannot be legally imposed, they may
be collected if taxpayer has expressed his
willingness to pay the same
4) special assessment levied only on land based
wholly on the benefit accruing thereon as a result of
improvements of public works undertaken by
government within the vicinity.
a. Exceptional both as to time and locality
b. Not taxes within the constitutional or statutory
provisions on tax exemptions
c. Exemption under Section 28(((3) NOT APPLY TO
SPECIAL ASSESSMENTS
d. Constitutional
exemption
GRANTED
under
aforecited provision of Constitution covers :
i. CHARITABLE INSTITUTIONS
ii. CHURCHES
iii. PARSONAGES
iv. CONVENTS APPURTENANTS THERETO,
v. MOSQUES
vi. NON PROFIT CEMETARIES
vii. AND
ALL
LANDS
BUILDINGS
AND
IMPROVEMENTS ACTUALLY DIRECTLY AND
EXCLUSIVELY
USED
FOR
RELIGIOUS
CHARITABLE OR EDUCATIONAL PRUPOSES
e. SECTION 240 OF LGC NATURE OF SPECIAL
ASSESEMENTS
5) license fee regulatory imposition in the exercise of
the police power of the State;
a. emanates from police power
b. permit collected from alien job applicants is in
excess of the cost of regulation, the exaction is
a tax
c. exemption form tax does not include building
permit fee and special assessments as hese are
not taxes but regulatory fees in the case of
license fee and levy on account of benefits to
land for special assessment s
d. Motor vehicle registration fees are taxes
because of the legislative intent is mainly to
raise funds for construction and maintenance of
highways and to a much lesser degree to pay for
the expenses of LTO a regulatory agency of
Government
e. NON- USEFUL OCCUPATIONS because under
general welfare clause, municipal corporations
are authorized to enact ordinances to provide
for health and safety and to promote the
morality, peace, and general welfare of its
inhabitants
THREE LICENSES IN THE LAW :
1. licenses for regulation of useful occupations

2. licenses for regulation or restriction of non-useful
occupations or enterprises
3. licenses for revenue only
Non payment of a license fee for a business makes that
business ILLEGAL
Non payment of a tax for a business does not necessarily
make that business illegal although this might be a ground
for criminal prosecution against the person or persons
violating the law
NOT ONLY BUSINESSSES WHICH ARE LAWFULLY CONDUCTED
ARE TAXABLE EVEN THOSE WHICH ARE CARRIED ON
ILLEGALLY ARE SUBJECT TO TAX
EXAMPLE : VAT MAY BE ASSESED ON THE ILLICIT
PRODUCTION AND SALE OF CASETTE TAPES. TAX
ASSESSMENTS MAY EVEN EXTEND TO INCOME THAT IS
REALIZED FROM SALE OF THESE TAPES BECAUSE INCOME
FROM ILLEGAL SOURCES IS ALSO TAXABLE
LGC : authorized to impose regulatory fees, section 147
excepti in case of professional tax on practice of profession
Substantive Requirements for an ordinance to be
valid :
1.
2.
3.
4.
Must not contravene Constitution

Must not be partial or discriminatory
Must not prohibit but may regulate trade
Must be general and consistent with public
policy
5. Must not be unreasonable
6) margin fee exaction designed to stabilize the
currency
a. not tax but a currency measure designed to
stabilize currency such as exaction of certain fee
10
under RA on remittance of profits earned in this
country
7) debt a tax is not a debt but is an obligation imposed
by law.
a. Express or implied
b. Taxes are not debt. Two obligations are NOT
SUSCEPTIBLE TO SET OFF OR COMPENSATION
UNDER art 1279 of CC
c. Caltex vs COA Taxes and debts cannot be the
subject
of
compensation
because
the
Government and taxpayer are not mutually
creditors and debtor of each other and a claim
for taxes is not a debt, demand contract or
judgement as is allowable to be set off
Interest on taxes can be deducted?
- SHOULD BE QUALIFIED. As regards interest on taxes
that are not connected with taxpayers profession,
trade or businesses, it seems that deduction is NOT
ALLOWED
- REASON : Section 29(b)(1) speaks only on the
amount of interest paid or incurred within taxable year
on indebtedness incurred in connection with
taxpayers profession, trade or business
- Exception : In case of citizens, or resident aliens wo are
self employed (persons who are engaged in business
and those who practice their profession in Philippines)
the deductability of interest on indebtedness is limited
only to interest paid or incurred within a taxable year
on loans contracted from accredited financial
institutions which must be proven to have been
incurred in connection with conduct of a taxpayer;s
profession trade or business
- Individuals, deductibility of interest on taxes is NO
LONGER AUTHORIZED if those taxes are not in anyway
connected with profession rade or business
Corporations and taxable partnerships?
10
Section 34 B 1 NRC it would seem that deduction of

interest on taxes is LEGALLY justified provided that
taxes paid or incurred are in connection with
taxpayers trade or business.
A pending claim for refund may be set off against an existing

tax liability even though the refund has not yet been
approved by Commissioner
May an excess payment of quarterly corporate income tax for
the preceding taxable year be automatically credited or
applied against the corporations estimated quarterly income
tax liabilities for taxable quarters of the succeeding taxable
year ?
NO.
once a taxpayer opts for either a refund or the
automatic tax credit scheme and signified his potion in
accordance with the regulation, this does not IPSO FACTO
confer on him the right to avail of same immediately
Prior approval by the CIR of tax credit under Section 86 would
appear to be the more reasonable interpretation to be given
said section
An opportunity must be given to Internal Revenue branch of
the government to investigate and confirm the veracity of
claims of taxpayer
Right should be construed as an ABSOLUTE RIGHT which is
available to the axpayer at his sole option
Automatic credit IS NOT AVAILABLE, BUT THIS DOES NOT
MEAN THAT PETITIONER CANNOT GET A REFUND OR CREDIT
OF EXCESS QUARTERLY PAYMENT
Will the non automatic crediting ruling in the San Carls
Milling case, however, apply to individuals who, under
Section 67 are required to file quarterly returns of income tax

on a cumulative basis ?
NO. Revenue Regulations 7-93 : Any excess of the total
quarterly payments and taxes withheld over the income tax
computed in the final income tax return may be applied as a
credit against the quarterly income tax liabilities for the
taxable quarters of the immediately succeeding year.
Available : Individuals qho desire not to await anymore the
processing of any tax refund to which they are entitled
In case payment credited are not completely utilized or
applied in the axable quarters of the immediately succeeding
year : THE REMAINING AMOUNT SHALL BE CLAIMED AS
REFUND OR CREDIT BY THE TAXPAYER PURSUANT TO sec 205
of Tax Code
Section 76 : In case corporation is entitled to a tax credir or
refund of the excess estimated quarterly income taxes paid,
the EXCESS AMOUNT SHOWN ON ITS FINAL ADJUSTMENT
RETURN MAY BE CARRIED OVER AND CREDITED AGAINST THE
ESTIMATED QUARTERLY TAX LIABILITIES FOR THE TAXABLE
QUARTERS OF SUCCEEDING TAXABLE YEAR
Once the option to carry over and apply the excess quarterly
income tax against income teax due dor taxable quarters of
the succeeding taxable years has been made --- SUCH
OPTION SHALL BE CONSIDERED IRREVOCABLE FOR THAT
TAXABLE PERIOD AND NO APPLIATION FOR CASH REFUND OR
ISSUANCE OF A
TAX CREDIT CERTIFICATE SHALL BE
ALLOWED THEREFOR
8) regulatory fees exaction designed to regulate
industries
a. May an exaction be both a tax as well as a
regulatory fee?
b. Possible
c. PD 1987 regulates the cideogram industry

may validly impose tax of 30% on fross receipts
of videogram operators
d. Provisions of Section 26 of Constitution which
requires that every bill must contain only one
subject which must be expressed in the title
thereof is NOT VIOLATED
9) subsidy legislative grant of money in aid of a private
enterprise deemed to promote the public welfare.
a. Not a tax although it may be necessary to raise
the money to pay the subsidy by means of a tax
b. Given sometimes in lieu of tax exemptions
10)
custom duties and fees duties charged
upon commodities on their being imported into or
exported from a country;
a. customs duties are taxes, but a tax is a broader
term to include not only customs duties but
other taxes as well
b. customs fees are regulatory imposts on goods
11)
revenue broad term that includes not only
taxes but income from other sources as well.
12)
Tribute synonymous with tax
a. Taxation implies tribute from the governed to
some form of sovereignty
13)
Impost signifies any tax, tribute or duty.
a. Duty on imported goods and merchandise
TAXES CLASSIFIED
1. Personal Tax capitation or poll taxes
a. Taxes of a fixed amount upon all persons of a certain
class within the jurisdiction of taxing power without
regard to the amount of their property or
occupations or businesses in which they may be
engaged
b. Before : Community Tax (LGC)
12
2. Property Tax - assessed on all property or all property of a
certain class within the jurisdiction of taxing power
a. Example : Real property tax and additional levies on
real property except special assessments under LGC
3. Direct Tax taxes wherein both the incidence of or liability
for the payment of tax as well as the impact or buden of
tax falls on same person
a. EXAMPLE : income tax where person subject to tax
cannot shift the burden of the tax to another person
i. Estate and donors gift taxes
4. Indirect Tax taxes wherein the incidence of or the
liability for payment of tax falls on one person, but the
burden thereof can be shifted or passed on to another
person
a. . Example : VAT - payable to any person who in the
course of trade or buseinss, sells barters echanges or
elase goods properties, renders services and any
person who import goods
b. The burden of paying the amount of tax may be
shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services
c. When the seller passes on the tax to his customer, is
he going against the principle that taxes are
personal liabilities the payment of which cannot be
transferred to another person?
i. NO. he is not going against the rule. When the
seller passes on the tax to his buyer, he is only
shifting the tax burden (Not the liability to pay
it) to the purchaser as part of the cost of goods
sold or services rendered
ii. Nature of indirect tax ::::: Sales tax that is
passed on to the purchaser is the tax on the
purchaser not on the buyer
iii. If buyer happens to be tax exempt, seller is
nonetheless liable for pament of tax as same is
a tax not on the buyer himself but is actually a
tax on seller
12
iv. Where transaction in itself is a tax exempt and

buyer pays the tax part of purchase price, it is
the sellers obligation, incase he has obtained a
refund of disputed tax, to hold such refunded
tax in trust for the buyer
v. DESPITE THE RIGHT TO SHIFT, SELLER MAY
ELECT TO ABSORB TAX HIMSELF
vi. Tax exemptions are personal to the grantee is
not violated because the overriding intention of
the contracting parties is to exempt the
contractor for te benefit of contractee
d. How about if the buyer himself is the one exempt,
would be then be entitled to claim for refund of tax
that seller might have passed on to him
i. As an indirect tax, like sales tax or VAT goes on
to the buyer not as a atax, but only as a
component of the purchase price, it may be
assumed that the buyer has no right to obtain
any refund
ii. IF IT IS COVERED BY TAX EXEMPTION GRANT
ARE INDIRECT TAXES WHICH SELLERS OF
GOODS AND SERVICES USUALLY PASS ON TO
THEIR CUSTOMERS, --- then it may be said that
there is a valid reason for allowing the refund
e. Legislative intent is to grant immunity to NPC from
tax that oil companies invariably pass on to their
buyers
f. Liability of the indirect tax lies with seller of goofs or
services only, not the buyer thereof.
g. Important to find out if tax exmptin granted to a
taxpayer spevicifically includes the indirect tax which
is shifted to him as part of the purchase price
NOTEWORTHY (Indirect Taxes)
1. When consumer or end user of a manufactured
product is tax exempt, such exemption covers only
those taxes for which such consumer or end user is
directly liable
2. Indirect taxes are not included

3. Manufacturer CANNOT CLAIM EXEMPTION from
payment of sales tax
4. Neither consumer or buyer of product demand the
refund of tax tha manufacturer might have passed on
to him
5. When transaction itself is the one that is tax exempt,
but through error the seller pays the tax and shifts the
same to the buyer, the seller gets the refund, but must
hold it in trust for the buyer
6. Where the tax exemption from indirect tax is given to
the contractee, but the evident intention is to exempt
the contractor so that such contractor may no longer
shift or pass on any tax to the contractee, the
contractor may claim tax exemption on transaction
7. When the law granting tax exemption specifically
includes indirect taxes or when it is clarly manifest
therein that the legislative intention to exempt
embraces indirect taxes, then the buyer of product or
service sold has a right to be reimbursed the amount
of taxes tha the sellers passed on to him
Why this tax known as indirect tax? One who actually pays
the tax (as part of the purchase price of commodity or
service) is the purchaser. The purchaser is indirectly paying
the tax
5. Excise Tax laid upon the manufacture, sale, consumption
of commodities within the country
a. Upon licenses to pursue certain occupations and
upon corporate privilegs
6. General Tax taxes levied for the general or ordinary
pruposes of Government
a. Examples : internal revenue taxes, collection of
which is utilized for general expenditures of
government
7. Special Tax taxes levied for special purposes
a. Additional 1% real estate tax
b. Constitution : ALL MONEY COLLECTED ON ANY TAX
LEVIED FOR A SPECIAL PURPOSE SHALL BE TREATED
AS SPECIAL FUND AND PAID OUT FOR SUCH

PURPOSE ONLY.
8. Specific Tax tax which imposes a specific sum by the
head or number or by some standard of weight or
measurement and which requires no assessment beyond
a listing and classification of subject to be taxed
a. Alcohol, tobacco
9. Ad Valorem Tax a tax upon the value of the article or
thing subject to taxation
a. Real property tax
10.Custom Duties - duties charged upon commodities on
their being imported into or exported from a country
11.National Tax levied by national government
a. Local autonomy policy
12.Progressive Tax taxes iposed whereby rate or amount of
tax increases as the amount of income or earning to be
taxed increases
a. Example : Present income tax Table on Tax rates for
individual citizens
13.Regressive Tax taxes whereby tax rate decreases as
amount of income or earning to be taxed increases
14.Proportionate Tax based on a fixed proportion of the
value of the subject being taxed
a. Real estate tax which is a fixed proportion of value of
property assessed
Taxpayers Suit
-
taxpayer has right to file an action questioning the

validity or constitutionality of a statute or law
on the theory that the expenditure of public funds by
an officer of Government
for purpose of administering or implementing
in unconstitutional or invalid law constitutes
misapplication of such funds
Maceda vs Macaraig
14
-
a duly elected Senator of the Philippines and a

taxpayer thereof
has the legal capacity to file an action for certiorari,
prohibition and mandamus
to question legality of a claimed refund of indirect
taxes
like tax on oil products
since the refund itself, if found to be without legal
basis, constitutes an illegal expenditure of public funds
PUBLIC FUNDS SHOULD BE INVOLVED

REQUISITES FOR A TAXPAYERS PETITION
1) That money is being extracted and spent in violation
of specific constitutional protections against abuses of
legislative power
2) That public money is being deflected to any improper
purpose
3) That the petitioner seeks to restrain respondents from
wasting public funds through the enforcement of an
invalid or unconstitutional law.
TEST IN DETERMINING PUBLIC PURPOSE IN A TAX ?

1. Whether the thing to be furthered by the appropriation
of public revenue is something which is the duty of
State, as a government to provide
2. Whether proceeds of tax will directly promote the
welfare of community I equal measure
a. Right to tax depends on the ultimate use,
purpose and object for which the fund is raised
b. No power to tax an object which is not wihthin
its purposes for which government are
established
c. PUBLIC PURPOSE IS PRESUMED
Non delegability of Taxing Power
-
Chapter 2
Limitations on the taxing power
1.
2.
3.
4.
5.
Public purpose of taxes

Non delegability of taxing power
Territoriality or situs of taxation
Tax exemption of Government
International Comity
A public purpose of taxes :

-
14
all powers of government, that of taxation is said to be

the strongest
as it can be readily employed against one class of

individuals
in favor of another so as to ruin one class and give
unlimited wealth and property to another
if no implied limitation on the uses for which such
taxing power may be exercised
Distribution of the powers of government into three

departments, namely, legislative, executive, judicial,
the power of taxation is exclusively legislative
Axing power as a GENERAL RULE MAY NOT BE
DELEGATED
Exceptions to non delegability

1. Flexible Tariff Clause
a. Section 28(2) Article VI 1987 Constitution
b. CONGRESS MAY EXPRESSLY AUTHORIZE THE
PRESIDENT TO FIX WIHTIN SPECIFIED LIMITS,
AND SUBJECT TO SUCH LIMITATIONS AND
RESTRICTIONS AS IT MAY IMPOSE TARIFF RATES
c. IMPORT AND EXPORT QUOTAS, TONNAGE AND

WHARFAGE DUES AND OTHER DUTIES OR
IMPOSTS
WITHIN
FRAMEWORK
OF
THE
NATIONAL
DEVELOPMENT
PRORAM
OF
GOVERNMENT
d. Includes tariff rates even for revenue purposes
only
e. Custom duties which are asssed at the
prescribed tariff rates are very much like taxes
which are frequently imposed for both revenue
raising and regulatory purposes
2. Local taxing power
a. Section 5 Article 10 1987 Cosntitution
b. EACH LOCAL GOVERNMENT UNIT SHALL HAVE
THE POWER TO CREATE ITS OWN SOURCES OF
REVENUES AND TO LEVY TAXES
c. FEES, AND CHARGES SUBJECT TO SUCH
GUIDELINES AND LIMIATIONS AS THE CONGRESS
MAY PROVIDE, CONSISTENT WITH BASIC POLICY
OF LOCAL AUTONOMY
d. SUCH TAXES AND CHARGES SHALL ACCRUE
EXCLUSIVELY TO THE LOCAL GOVERNMENTS
e. Theory of non delegation of legislative power
DOES NOT APPLY in matters of local concern
f. The power of the city to impose a gross sales
tax of one hald percent of gross freight and
fares of cargo and passengers shipped or
transported out from Ozamis city by vessels
plying between city and other ports WAS
SUSTAINED
g. Justification of delegation of legislative taxing
power to local governments : Necessary
implication that power to create political
corporations for purposes of local self
government carries with it power to confer on
such local government agencies the authority to
tax
h. Authority to levy taxes, the state is NOT LIMITED
to exact measure of that which is exercised by
itself
i.
There may be delegated such measure of power

to impose and collect taxes as the legislature
may deem expedient
j. Municipalities may be permitted to tax subjects
which, for reasons of public policy, the State has
not deemed wise to tax for more general
purposes
k. Tax legislation vs tax administration why need
to know the difference? Because what is
delegated is tax tax legislation, the delegation is
INVALID. But if what involved is only tax
administration : Non delegability is NOT
VIOLATED
Two parts of system of Taxation
1. Elements that enter into imposition of the tax
2. Steps taken for its assessment and collection
One is legislation, one is tax administration
Powers that cannot be delegated to administrative agencies :
1. selection of property to be taxed
2. determination of purposes for which taxes shall be
levied
3. fixing of the rate of taxation
4. rules of taxation in general
Delegable powers which are not legislative
1. power to value property for taxaion in pursuance of
fixed rules
2. equalization of assessments by a central body (admin
matters)
3. collection of taxes (admin matters)
Territoriality or Situs of Taxation
-
place of taxation
limitation on taxing power
16
-
REASON : principle is well recognized that however

broad the power of taxation may be as to its character
and no matter how searching it is in its extent, such
power is necessarily limited only to persons, property
or businesses within its jurisdiction
ALL SUBJECTS OVER WHICH THE SOVEREIGN POWER
OF A STATE EXTENDS ARE OBJECTS OF TAXATION
BUT THOSE OVER WHICH IT DOES NOT EXTEND ARE,
UPON THE SOUNDEST PRINCIPLES EXEMPT FROM
TAXATION
Some Basic Considerations Affecting Situs of Taxation

1. Protection basic consideration that justifies the situs
of taxation
a. Citizenship and residence are factors that justify
the taxing suits even assuming that the
property is situated outside the taxing
jurisdiction like the Philippines
b. In case of fire insurance covering property
situated in Philippines, are the insurance
premiums paid thereon taxable as against the
insurer even though the fire insurance contract
was executed outside the Philippines and the
insurance policy is delivered to be insured
therein?
i. Premiums are taxable in the Philippines because
Philippine Government must get something in
return for protection it gives to the insured property
in the Philippines, and by reason of such protection,
the insurer is benefited thereby
2. Double Taxation and Situs Limitation NEVER INVALID
where it is imposed by different states
a. 1887 Tax Code : NON RESIDENT CITIZENS, LIKE
FILIPINO IMMIGRANTS ABROAD , AND NON
RESIDENT ALIENS ARE SUBJECT TO TAX ON
INCOME DERIVED FROM PHILIPPINE SOURCES
16
3. Maxim Mobilia Sequuntur Personam and Situs of

Taxation
a. Movables follow the person
b. Domicile of the owner
c. Not allowed to stand in the way of taxation of
personalty in the place where it has its actual
situs and the requisite legislative jurisdiction
exists
d. Applies to taxation of personal property
e. Shares of stock may have a situs for purposes of
taxation in a state in which they are
permanently kept regardless of the domicile of
the owner, or the state in which the corporation
was organized
f. Shares of stock may have situs for purposes of
taxation in a state in which they are
permanently kept regardless of domicile of
owner, or state in which the corporation was
organized
g. Shares of stock left behind by non resident alien
decedent
in
an
anonymous
partnership
(forerunner of corporations) in the Philippines
are subject to Philippine inheritance tax
nothwithstanding the mobilia rule
4. Legislative Power to Fix Situs if no constitutional
provisions are violated, the power of legislature to fix
situs is undoubted
Section 98 : the following intangible properties are
considered as properties with a situs in Philippines :
i. Franchise which must be exercised in Philippines
ii. Shares, obligations or bonds ssued by any
corporation or sociedad anonma organized or
constituted in the Philippines in accordance with its
laws
iii. Shares, obligations or bonds issued by any foreign
corporation eighty five percentum of business of
which is located in the Philippines
iv. Shares, obligations or bonds issued by any foreign

corporation if such shares, obligation have acquired
a business situs in Philippines
v. Shares or rights in any partnership, business or
industry established in Philiipines
NO TAX SHALL BE COLLECTED UNDER TITLE 3 OF

CODE IN RESPECT OF INTANGIBLE PERSONAL
PROPERTY :
1. IF THE DECEDENT AT THE TIME OF HIS DEATH
OR THE DONOR AT THE TIME OF DONATION
was a citizen and resident of a foreign country
which at the time of his death or donation DID
NOT impose a transfer tax of any character , in
respect of intangible personal property of
citizens in Philippines NOT RESIDING in that
foreign country
2. IF LAWS OF THE OF THE FOREIGN COUNTRY OF
WHICH DECEDENT OR DONOR WAS A CITIZEN
AND RESIDENT AT THE TIME OF HIS DEATH OR
ONATION allows a similar exemption from
transfer or death taxes of every character or
description in respect of intangible personal
property owned by citizens of Philippines not
residing that foreign country
Intangible assets are deemed assets of Philippine situs as
determined by domestic
Suppose there is an intangible asset of a decedent which is
not among those enumerated in the law, would it be justified
to maintain that it is an asset with a Philippine situs because
the mobilia rules does not apply? Or should such asset be
considered as being comprehended within mobilia principle?
A, a non resident alien decedent leaves behind after his
death an account or note payable of s100,000 pesos
collectible from B, an individual who resides in Philippines.
Where is the situs of the obligation? Is it not accurate to say
that under the above enumeration, ir has a Philippine situs

because the abovecited law speaks only of corporate
obligations?
-
Expressio unius est exclusion alterius

It may be said that the debt has no Philippine situs
May such obligation however, be deemed covered by mobilia

rule?
-
in those cases where the situs for certain in intangibles

are not categorically spelled out as in the above
situation, there is room for applying mobilia rule
The SItus or Territoriality Principle as applied in

Philippine Setting
The following may be the factors that could interplay
in a given legal situation where situs or territoriality is
the focal question:
1.
2.
3.
4.
5.
6.
Kind or classification of tax being levied

Situs of the thing or property taxed
Domicile or residence of the person taxed
Citizenship or nationality of person taxed
Source of income taxed
Situs of excise, privilege, business or occupation being
taxed
Situational Incidents :
1. Property Tax in considering the place at which
property is taxable and the governmental unit which
may rightfully levy and collect the property tax, the
basic factor is the situs of property in question
a. Applies both with respect to real property and
personal property
18
b. The authotiry of every state to tax all property,
real and personal within its limits is
unquestionable
c. Real estate is taxable in the state where it is
located regardless of the owners residence
d. A state has no power to tax real property
located outside its limits
2. Tax on persons a state may levy a personal tax upon
persons subject to jurisdiction of its sovereignty
a. Example : Community tax
3. Income Tax crucial factors:
a. Nationality or citizenship of taxpayer
b. His residence or domicile
c. Source of income
- SEC. 23. General Principles of Income Taxation in the
Philippines. - Except when otherwise provided in this Code:
- (A) A citizen of the Philippines residing therein is
taxable on all income derived from sources within and
without the Philippines;
-
18
(B) A nonresident citizen is taxable only on income

derived from sources within the Philippines;
(C) An individual citizen of the Philippines who is
working and deriving income from abroad as an
overseas contract worker is taxable only on income
derived from sources within the Philippines: Provided,
That a seaman who is a citizen of the Philippines and
who receives compensation for services rendered
abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be
treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of
the Philippines, is taxable only on income derived from
sources within the Philippines;
(E) A domestic corporation is taxable on all income

derived from sources within and without the
Philippines; and
(F) A foreign corporation, whether engaged or not in

trade or business in the Philippines, is taxable only on
income derived from sources within the Philippines.
Said airline is taxable on the income realized from the sale of

its tickets in Philippines through a sales office; but at the
same time, the Court observed that the airline would not be
subject to any businesss tax inasmuch as the absence of any
landing rights would mean that it is not engaged in the
exercise of any privilege which could be subject to the
business or privilege tax
An international carrier doing business in Philippines is
taxable at two and one half percent on grosss Philippine
billings derived from carriage of persons, excess baggage,
cargo and mail originating from Philippines in a conitnous and
uninterrupted flight, irrespective of place of sale or issue and
place of payment of ticket or passage document.
Provided :
1. tickets revalidated
2. echanged and or indrsed to another international
airline
3. Excise or Privilege Taxes where the tax that is being

imposed is a tax upon the performance of an act,
enjoyment of a privilege or engaging in an occupation,
or what is sometimes known as excise r privilege tax

a. Situs of taxation is the place in which the act is
performed or where the occupation is engaged
in
WHERE THE SALE IS EPRFECTED AND CONSUMMATED
DETERMINES THE SITUS OF TAXATION
Legislative power to fiz the situs of taxation includes the
power to fix the place of taxation between different places in
same state
The situs of sale for tax purposes is NOT THE PLACE where
the contract of sale is perfected but the place of its
consummation
Sales tax on the sale of fuels and oils, said tax may no be
applied to deliveries outside the municipality since the
consummation of sale is determined by delivery of the things
which are the subject matter of contract
The city can tax the sale of matches where shipments or
deliveries are made directly to customers outside the city
provided the sales are booked and paid for in the city to a
carrier for shipment to the buyer. GENERALLY DELIVERY TO
THE CARRIER IS DELIVERY TO BUYER.
A local broker is taxable in this country with respect to the
commissions
received
by
it
for
negotiating
and
consummating the sale in Japan of products BELONGING to
Philippine Corporation.
What is important is that brokers tax is NOT BEING LEVIED
on sale of goods in Japan but on the taxpayers brokerage
services in Philippines
4. Exemption of Government from Taxes Matter of

public policy
a. Property of the State and of its municipal
subdivisions devoted to government uses and
purose is generally deemed to be exempt from
taxation although no express provision in law is
made therefor
b. Constitution does not contain any provision
granting tax exemption to Government
c. REASON : Governments xemption from taxes is
INHERENT LIMITATION on the states taxing
power
d. NO CONSTITUTIONAL LIMITATION on the power
of Congress to Tax Armed Forces of Philippines if
it wishes to do so
e. A contractor who undertakes a job contract for
the Government is not justified in claiming that
is should be exempt from payment of
contractors tax simply by arguing that if
payment thereof were insisted upon, he would
just shift the tax over to the Government; and
that as a consequence, the Government paying
tax as part of purchase price of contractual
services rendered would be taxing itself
5. International Comity
a. Reciprocity lies at the root of this limitation for it
cannot be denied that with reciprocity located at
the bottom line, harmonius and productive
relationships among the various states can be
maintained
20
b. International obligations concominant with out
acceptance of the principles of international alw
as part of our law demand that certain
representatives of foreign states stationed and
property of such foreign states found within our
territory be exempted from taxation
c. SECTION 12 , Article II, 1987 Consstitution
i. PHILIPPINES
ADOPTS
GENERALLY
ACCEPTED
PRINCIPLES
ON
INTERNATIONAL ALW AS PART OF THE
LAW OF THE LAND AND ADHHERES TO
POLICY OF PEACE,EQUALITY, JUSTICE,
FREEDOM, COOPERATION AND AMITY
WITH ALL NATIONS
d. SECTION 159 DIPLOMATIC AND CONSULAR
REPRESENTATIVES
ARE
EXEMPT
FROM
COMMUNITY TAX
4. Non infringement of religious freedom and worship

(Section 5, Article III)
5. Non impairment of contracts (Section 10 Article III)
6. Non imprisonment for debt or non payment of poll
tax (Section 20, Article III)
7. Rule requiring that appropriations, revenue and tariff
bills shall originate exclusively from House of
Representatives (Section 24, Article VI)
8. Uniformity, equitability and progressivity of taxation
(Section 28, Article VI )
9. Limitations on the congressional power to delegate to
the President the authority to fix tariff rates, import
and export quotas, etc
10.Tax exemption of properties actually, directly and
exclusively used for religious, charitable and
educational purposes (Section 28,(3) Article VI)
11.Voting requirement in in connection with legislative
grant of tax exemption (Section 28(4), Article VI)
CONSTITUTIONAL LIMITATIONS ON TAXING POWER

1. Due process clause, whether it be substantive or
procedural (Section 1, Article III)
12.Non impairment of jurisdiction of Supreme Court in

tax cases (Section 2 and 5 Article VIII)
13.Exemption from taxes of the revenues and assets of
educational
institutions,
including
grants,
endowments, donations and contributions
2. Equal Protection of the laws (Section 1, Article III)

3. Freedom of speech and of the press (Section 4, Article
III)
20
Not actually limitations on taxing power BUT which

have bearing on taxation
1. Constitutional requirement on subject and title of bills

(Section 26, Article VI)
i. Petitioners failed to show that the VAT law

was issued capriciously and whimsically
or in an arbitrary or despotic manner by
passion or personal hostility since it
appears that a comprehensive study of
VAT was made before VAT law was issued
2. Power of President to veto any particular item or items

in an appropriation, revenue or tariff bil (Section 27(2),
Article VI)
ii. When
the
constitutionality
of
the
legislative taxing act is questioned on the
ground that there is denial of due
process, an actual case or controversy
must first exist before courts can be
called upon to rule on said issue
3. Provision which requires that no money shall be paid

out of treasury except in pursuance of an appropriation
made by law (Section 29(1) Article VI)
4. Provision against the appropriation of public money or
property for benefit of any church, sect or system of
religion etc (Section 29((2) Article VI)
5. Provision which mandates that money collected on a
tax levied for a public purpose shall be paid out for
such purpose only (Section 29(3) Article VI)
6. Provision regarding allotments to local governments
(Section 6, Article X)
Constitutional Limitations Explained
A. Due Process of Law Section 1, Article 3 of
Constitution : No person shall be deprived of life,
liberty, or property without due process of law.
a. There have been occasions when Supreme Court
ruled on the constitutionality of certain taxing
measures where due process of law was the
focal questions.
b. Kapatiran vs Tan : Due process was NOT
VIOLATED when the VAT law was promulgated
because there was no grave abuse of discretion
incident to its promulgation
c. The absence of threat of immediate harm makes

the need for judicial intervntions less evident
and underscores the essential nature of
petitioners attack on law on ground of denial of
due process as a mere academic discussion of
merits of law
d. There have been no notices of assessement
issued to petitioners and no determinations at
the administrative levels of their claims so as to
illuminate the actual operation of the law and
enable us to reach sound judgement regarding
so fundamental questions as those raised in
these suits
e. When tax turns out to be of a confiscatory
nature, such an imposition could very well be
considered as being violative of the due process
principle
f.
Due process clause in constitution may be

invoked where a tax statute is so arbitrary that
it finds no support in Constitution
22
g. Example : where the same can be shown to
amount to confiscation of property.
h. Classification for taxation must not be prompted
by a spirit of hostility or discrimination that finds
no support in reason
i.
j.
Modified scheduler income tax whereby

individual income was classified into three
different classes under different tax rates
((compensation, business/other income and
passive investment income) is NOT A DENIAL of
DUE PROCESS because there is no proof of
arbitrariness in imposition of tax rates
DUE PROCESS IS NOT VIOLATED IF A
GOVERNMENTAL BIDY LIKE FISCAL INCENTIVES
REVIEW BOARD WHICH WAS TASKED WITH DUTY
OF RECOMMENDING RESOTRIATION OF TAX
EXEMPTIONS PREVIOUSLY ABOLISHED UNDER
PRESIDENTIAL DECREES , IS HEADED BY THE
MINISTER OF FINANCE, WHO AT THE SAME TIME
IS VERY SAME PERSON WHO APPROVES OR
DISAPPROVES THE FIRBS RECOMMENDATION
PROVIDED NO TWO OPPOSING OR CONFLICTING
INTERESTS ARE INVOLVED LIKE THE CASE OF
RESTORED TAX EXEMPTION OF A PARTICULAR
TAXPAYER WHERE IT APPEARS THAT THERE IS
NO INTEREST THAT IS EXISTING WHICH IS IN
CONFLICT WITH INTERESTS OF SUCH TAXPAYER
k. There is denial of due process on account of

passafe of an ordinance in city of manila which
imposes a permit fee on aliens as a condition to
employment or engaging in any business or
occupation, where it appears that under said
oridnacne, the city of manila could withhold or
refuse issuance of such permit at will.
22
l.
The court pointed out that aliens, once admitted

in the Philippines, canot be deprived of life
without due process of law and this guarantee
includes the means of livelihood
m. Due process was not observed when trial court,

in an action for declaratory relief, declared that
certain property owned by Roman Catholic
Church is Bangued Abra was tax exempt under
1973 Constitution, it appearing that not court
hearing was conducted thereon
n. Importer of goods is deprived of procedural due
process when so called alert notices (valuation
of goods made by Finance Attaches abroad)
were not presented in the Customs protest
proceedings in the Bureau of Customs as well as
in the CTA when the case was on appeal therein.
o. The alert notces contained a higher valuation of
imported goods than valuation indicated in
Import Entries covering goods in question
B. The Equal Protection of Law does not only speak of
NON DEPRIVATION of DUE PROCESS but in Section 1,
Article III thereof, it also emphatically ordains that NOR
SHALL ANY PERSON BE DENIED EQUAL PROTECTION
OF LAWS
a. The power of the satte to mae reasonable and
natural classifications for the purposes of
taxation is unquestioned and such classification
may relate to the subject taxation, the kind of
property the rates to be levied or amounts to be
raised, and the methods of assessment,
valuation and collection.
b. Such power to classify in matters of taxation is

said to be broader than some other exercises of
legislative power, entitled to presumption of
validity and will not, as a rule be interfered with
by the judiciary with judiciary in the absence of
a
clear
showing
of
unreasonableness,
discrimination or arbitrariness
c. Classification must be based upon real and
substantial
differences
between
persons,
property or privileges and those not taxed must
bear some reasonable relation to the object or
purpose of legislation or to some permissible
governmental policy or legitimate and of
governmental action
d. Congress
can
make
distinctions
and
classifications. Thus it can classify taxpayers
into calendar year and fiscal year taxpayers for
income tax purposes
e. The equality of taxation rule, is NOT VIOLATED if
classifications r distinctions are made as long as
the same are based on reasonable and
substantial differences.
f.
There is a reasonable basis for imposing lower

rates on foreign sourced income of non
resident citizens as evidenced by preferential or
lower rates of 1% 2% 3% because these are the
people who earn foreign currency aborad which
are remitted here, as compared to the resident
citizens who have to pay the ordinary graduated
rates
g. The preferential tax rates are NO LONGER

APPLICABLE ON INCOME OF NON RESIDENT
CITIZENS ABROAD. Under the tax reform act of
1997, NON RESIDENT citizens are taxable only
on income
Philippines
derived
from
sources
within
h. Income of non resident citizens from foreign

sources are NOT SUBJECT to PHILIPPINE TAX
The Following cases held that
principle WAS NOT VIOLATED :
equal
protection
1. vat law does not discriminate unduly against customs

brokers who are subject to said tax
2. the exclusion of said brokers from exemption granted
to professionals under Tax Code is justified by the fact
that customs brokers differ from tax exempt
professionals considering that the activities of customs
brokers partake of the nature of a business rather than
a profession
3. the state has the inherent power to select the subjects
of taxation and inequalities which result from singling
ut of one particular class for taxation or tax
exemptions infringed no constitutional limitation
4. the scheduler income tax which imposes graduated
rates from 0% to 35% without deductions on
compensation income of individuals and a rate scheme
of rom 5% to 60% on business and other income with
deductions does not vilate the rule on equal protection
since there is no infirmity if classsifications are made
to rest on substantial disntinctions
5. the remission or condonation of taxes due and payable
to the exclusion of taxes already collected does not
constitute unfair discrimination
6. each set of taxes is a class by itself and the law would
be open to attack as class legislation only if all
24
taxpayers belonging to one class were not treated
alike
7. A tax on an installation manager is NOT
DISCRIMINATORY just because at the time said tax was
imposed, there was no other person in the locality who
exercised such occupation. The tax is and will be
applicable to any person or firm who exercises such
calling or occupation designated as installation
manager
8. A law which imposes a preferential franchise tax rate
of 2% on a particular franchise grantee while other
franchise grantees are subject to 5% is NOT VIOLATIVE
of the equal protection or equality of taxation rule in
Cosntitution
9. THE LEGISLATURE HAS THE INHERENT POWER NOT
ONLY TO SELCT THE SUBJECTS OF TAXATION BUT ALSO
GRANT TAXX EXEMPTIONS
10.The fact that the taxpayer is only sugar central or
refinery in the municipality where the tax ordinance is
enacted does not make said ordinance discriminatory.
REASON : since other refineries to be established in
the future would also be taxable, no singling out of
taxpayer to its disadvantage has ever taken place
11.There is no discrimination or class legislation if a
statute authorizes the City of Manila to levy occupation
taxes whereas that same authority is withheld from
other cities and municipalities should be so authorized
for that is a matter for legislature to decide
12.A tax levied on boarding stables for race horses is not
discriminatory where it appears that NO SUCH TAX is
imposed on boarding stables for other types of horses
24
Cases where
VIOLATED :
Equal
protection
rules
HAS
BEEN
1. a tax ordinance levied an export tax on centrifugal

sugarmilled by Ormoc Sugar Co, mentioning only this
company by name. The ordinance does not satisfy the
requisites of reasonable classification.
2. There is discrimination where local tax was imposed on
agents or cosignees of outside dealers in softdrinks
without said tax being levied also on local dealer. THE
CLASSIFICATION OF SUCH AGENTS AND COSIGNEES
WHO ARE TAXABLE AND LOCAL DELAERS WHO ARE
EXEMPT IS NOT BASED ON SUBSTANTIAL DISTINCTION
3. An employment permit fee imposed on alien job
applicants regardless of the nature of employment
(whether casual, permanent, part time or full time or
lowly paid emlooyee or highlugy paid executive is
constitutionally invalid because it FAILS TO CONSIDER
VVALID SUBSTANTIAL DIFFERENCES IN SITUATION
AMONG THE ALIENS REQUIRED TO PAY IT.
4. A CLASSIFICATION SHOULD BE BASED ON REAL AND
SUBSTANTIAL DIFFERENCES HAVING A REASOABLE
RELATION TO THE SUBJECT OF LEGISLATION
5. Loca oridnance which levies an ad valorem tax on
motor vehicles registered in Manila without also taxing
thos which are registered outside city but which enter
city use its streets occasionally violates on equality of
taxation
6. Where it appears that Seciton 109 tax code, which
required skimmed milk manufacturers to place a
warning sign on their products stating that skimmed

milk is NOT SUITABLE FOR FEEDING INFANTS, is
enforced only against manufacturers of evaporated
filled milk such action is DISCRIMINATORY and is a
denial of equal protection of law
May a business license be required for the sale or distribution

of printed materials like newspapers? NO
-
Judicial intervention is ALSO unnecessary in the absence of

factual setting or an actual controversy which is engendered
by the issuance of an assessment against taxpayer
to apply an ordinance requiring a business license to

be obtained before a person could sell newspapers in
streets would be to impose a prior restraint on press
freedom because a newspaper is NOT in the same
category as a pineapple or a soap powder, or a pair of
shoes whose sale may be conditioned on ossession of
a businesss license
C. Freedom of Speech and of the Press

Section 4, Article III of Constitution NO LAW SHALL BE
PASSED ABRIDGING THE FREEDOM OF SPEECH, OF
EXPRESSION, OR OF PRESS, OR RIGHT OF PEOPLE PEACEABLY
ASSEMBLE AND PETITION THE GOVERNMENT FOR REDRESS
OF GRIEVANCES
Will this fee NOT CONSTITUTE A RESTRAINT ON PRESS

FREEDOM OR FOR THAT MATTER, THE FREEDOM OF
WORSHIP?
NO. This fee is NOT imposed for the exercise of a

privilege but only for the purpose of defraying part of
the cost of registration
Mere admin fee one not imposed on exercise of a

privilege, much less a constitutional right
When is tax said to be violative of press freedom or freedom

of thought and expression?
-
There is curtailement of press freedom and freedom of

thought and expression if a tax is elvied in order to
suppress this basic right of people under Consitution
A newspaper publisher must pay equitable and non

discrimantory taxes on his business, the court pointed out
that in Grosjean case, the law imposed a license equivalent
to 2% of gross receipts derived from advertisements only on
newspapers with a circulation of more than 20k copies per
week
-
Tax was not based on the volume of advertisement

alone, but was measured by extent of its circulation as
well, the law applied only to the thirteen large
newspapers in Louisana, leaving untaxed four
newspapers with a circulation of only slightly less than
20k cpies.
D. Non infringement of Religious Freedom

Section 5, Article III Constitution NO LAW SHALL BE MADE
RESPECTING AN ESTABLISHMENT OF RELIGION OR
PROHIBTING THE FREE EXERCISE THEREOF. THE FREE
EXERCISE AND ENJOYMENT OF RELIGIOUS PROFESSION AND
WORSHIP WITHOUT DISCRIMINATION OR PREFERENCE SHALL
FOREVER BE ALLOWED. NO RELIGIOUS TEST SHALL BE
REQUIRED FOR EXERCISE OF CIVIL OR POLITICAL RIGHTS
- a municipal license tax on the sale of bibles and religious
articles by a non stock non rpoft missionary organization at a
26
little profit constitutes a curtailment of religious freedom and
worship which is guaranteed by the Constititution.
A license fee is fixed in amount and unrelated to the recepits
of taxpayer the license fee when applied to a religious sect
was actually being imposd as a condition for exercise of
sects right under Constitution
License fee restrains in advance those constitutional liberties
of press and religion, and inevitably tend to suppress their
exercise
Philippine Airlines Case
-
the application of a license tax to religious groups,

such as the Jehovahs witnesses, in connection with
the latters sale of religious books and pamphlets is
unconstitutional.
It is one thing to impose a tax on income or property of
a preacher
Statute as now amnede has restricted that tax exemption of

religious and other organizations therein specified only to the
extent of withdrawing the exemption with respect to the
income realized from :
1. productive use of their proeprties, real or personal
(rents, dividends or interest)
2. from profitable business pursuits, which properties or
businesses are NOT ESSENTIAL to or necessarily
connected with their religious charitable or educational
purposes
26
In an isolated sale of church lot being used for religious

purposes, the proceeds or net icome of which was used to
buy another lot, as new site to build a church, income from
transaction was CONSIDERED merely incidental to its
religious purposes.
The property was NOT acquired for speculation or as an
investement to be eventually sold primarily for monetary
gain
BIR has consistently ruled that passive invesement income
such as interest income from PH currency bank deposit and
yield or any other monetary benefit from deposit substitutes,
trust funds, and similar arrangements of religious
corporations and other organizations
E. Non impairment of Contracts
Section 10, Article III NO LAW IMPAIRING TH OBLIGATIONS
OF CONTRACTS SHALL BE PASSED
Where a mining concession was granted under a Royal

Decree and where it appears that under said decree no other
taxes except those mentioned therein shall be imposed on
mining and metallurgical industrie, the levy of a tax on said
mining claim plus ad valorem tax on mineral output under
subsequent law constitute an impairment of contract
because a mining concession is a contract
Non impairment rule DOES NOT APPLY to public utility

franchises.
Section 11, Article XII Constitution: No public utility franchise

or right shall be granted except under the condition that it
shall be subject to amendement, alteration or repeal by the
Congress when the common good so requires.
-
Non impairment may not be invoked in case of public

utility franchise grantee.
Legislature can impair a grantees franchise since a

franchise is subject to amendment, alteration, or
repeal by Congress when public interest so requires
The rule on non impairment is NOT DSREGARDED with

the imposition of a igher tax rate on an existing
franchise, it apperaiing that said franchise was granted
with express understanding and upon condition that it
shall be subject to amendmene,t alteration and repeal
F. Non imprisonment for Debt or Non payment of

Poll Tax
-
No person shall be imprisoned for debt or non payment

of a poll tax
Debt any liability to apy money arising out of a contract,

express or implied
The prohibition against imprisonment for debt was brought
about by the force of public opinion whch looked with
abhorrence on statutes permitting the cruel imprisonment of
debtor
Consttution seeks to prvent use of
coerce the payment of debts
Section 24 :Article VI of Constitution provides : all

appropriation, revenue, or tariff bills, bills authorizing the
increase of public debt, bills, of local application and private
bills shall oringiate exclusively in the HR but the Senate may
propose or concur with amendements
H. Uniformity,
Taxation
Equitability,
and
Progressivity
of
Section 28 Article VI of Cosntitution : Provides the rule of a

taxation shall be unform and equitable. The Congress shall
evolve a progressive system of taxation
Uniformity :: all taxable articles or kinds of property of same
class shall be taxed at same rate.
Does not mean that lands, chattels, securities, income,
occupations, franchises, privileges, necessities, and luxuries,
shall be assessed at same rate.
Different articles may be taxed at different amounts provided

that the rate is uniform on same class everywhere with all
people at all times
of power of state to
The control of creditor over the person of his debtor has been
abolished on humanitarian considerations
Government is NOT a proper party to private disputes
G. Origin of Appropriation, Revenue and Tariff Bills
A tax is uniform when it operates with same force and effect

in every place where the subject of it is found
28
A tax of 2pesos per square meter on all electric signboards all
throughout the Philippines satisifies the requirement of
uniformity
The petitioner: uniformity was violated because under SNITS
the law, for tax purposes singeld out business proprietors and
rpofessionals differently from corporations and partnerships.
The constitutional mandate has not been disregarded.
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated are to be treated alike both in
privileges and liabilities.
Local tax on tenement houses does not violate the rule of
uniformity and equality of taxation even if the tax in question
is NOT also levied on other classes of buildings in the locality
where such tax is imposed.
Uniformity s also not disregarded if a tax is levied on
admissions to cinema, theaters, vaudeville companies,
theatrical shows and boxing exhibitions but does not tax
other places of amusements such as a race tracks, cockpits,
carabets, and other places of amusement
Uniformity in taxation, which means geographical uniformity
only, is also underscored in realm of local taxation.
Progressivity of taxation is also mandated in the Constitution.
Our income tax system is one good example of such
progressivity because it is built on principle of taxpayers
ability to pay
Taxation is progressive when its rate goes up depending on
resources of person affected
28
I. Delegation of Legislative Authority to Fix Tariff

Rates, Import and Export Quotas
Section 28 (2) Article VI Cosntitution : Congress may, by law,
authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it amy impose,
tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts, within framework of
national development program of Government
The president may increase tariff rates as authorized by law

even for revenue purporses only
J. Tax Exemption of Properties Actually, Directly,

and Exclsuively used for religious, Charitable
and educational purposes
Section 28(3) Article VI : Charitable institutions, churches,
and parsonages or convents appurtenment thereto,
mosques, non profit cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for
religious, charitable or educational purposes shall be exempt
from taxation
To what kind of tax does this exemption apply?
-
Wherein petitioner assailed the donors and donees

gift taxes on the cash donation for the church building,
SC ruled that the abovementioned constitutional rpov
which grants tax exemption applies only to property or
realty taxes assessed on such properties used directly,
actually and exclusively for religious, charitable and
educational purposes
Under existing law, gifts made in favor of religious, charitable

or educational organizations, would nevertheless qualify for
donors gift tax exemption in light of provisions
1987 constitution also employs the terms actually, directly,

and exclusively to emphasize the importance of use of
property for tax exemption
EXEMPTION OF CERTAIN GIFT :
the test of exemption from taxation is the use of property for

the purposes mentioned in Constitution.
1. Case of gifts made by a resident

2. Gifts in favor of educational or charitable religious,
cultural or social welfare , institution, accredited
nongovernment org
a. Provided : not more than 30% of said gifts shall
be used by such dnee for administration
purposes
Same tax exemption privilege is also granted to donations

made by a nonresident who is not a citizen of Philippines
To be entitled to tax exemption under Constitution, is proof of
actual use for the tax exempt purpose necessary?
-
actual use is necessary.
Lands, buildings, and improvements of religious and

charitable institutions must not only be exclusively but
also actually and directly used for religious and
charitable purposes
It was not in accordance with constitution for the lower

court to declare in an action for declaratory relied that
the properties of Roman Catholic Church in bangued
Abra were tax exempt without first conducting a
hearing thereon to determine the factual question of
actual use and direct use
It is important to note that for purposes of tax exemption,

use overrides ownership such that if property although
actually owned by a religious, charitable, or educational
institution, is actually
for a non exempt purpose, the
exemption from tax of said property vanishes
The ruling that the lease by school of lower portion of its
school building to a commercial establishment known as the
Northern Marketing Corporation, which is not even incidental
to the educational functions of such schools, is outside scopr
of constitutional grant of tax exemption and is subject to real
estate tax on a pro rate basis
For tax exemption purposes : exclusively used: is not limited
to total or absolute use for religious, charitable or educational
purposes.
If a property is incidentally used for the aforementioned
purposes, it is clear from decided cases that ax exemption
may still subsist
Where the main building of an educational isnitutiton is used

both as classrooms for its highschoool and college students
as well as residentce of school director and his family, the tax
exempt character of such property remains despite the fact
that is is used as such as the same may be justified as being
only incidental or complementary to its main or primary
purpose of providing education to its students
30
Several parallel rulings may be cited on question of tax

exemption that it is granted under this constitutional
provision.
Tax exemption extends to a vegetable garden in an adjacent
lot and another lot formerly used as a cemetery
Section 2, Article VIII Congress shall have the power to

define, prescribe and apportion the jurisdiction of the various
courts but may not deprive SC of its jurisdiction over cases
enumerated in Section 5:
1. Review, revise, reverse, modify or affirm or appeal or
certiorari as the law or ROC may provide final
judgements and orders courts in
Exclusive use considers incidental use also
2. All cases involving the elgaltiy of any tax, impost,

assessement or toll, or any penalty imposed in relation
thereto
Exemption of the convent includes not only the land occupied

by the building but also the adjacent garden devoted to the
incidental use of parish priest as well as lodging place
incidental to religious functions
M. Tax Exemption of Revenues and Assets,

Including grants, endowments, donations or
contritbutions to educational institutions
Exclusively used for educational purposes was to include, as

in the case of hospital, a school for training nurses, home and
housing facilities for interns resident doctors, recreational
facilities.. etc
K. Voting Requirement In Connection
Legislative Grant of Tax Exemptions
with
the
Article VI Section 28(4) No law granting any tax exemption

shall be passed without the concurrence of a majority of all
members of Congress
Refunds partake of the nature of exemptions
Condonations of taxes already paid or yet unpaid are also in
the nature of tax exemptions
L. Non Impairment of SCs Jurisdiction in Tax
cases
30
Section 4(3)) and (4) Article XIV Constitution :

(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from
taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law.
Proprietary
educational
institutions,
including
those
cooperatively owned, may likewise be entitled to such
exemptions, subject to the limitations provided by law,
including restrictions on dividends and provisions for
reinvestment.
(4) Subject to conditions prescribed by law, all grants,
endowments, donations, or contributions used actually,
directly, and exclusively for educational purposes shall be
exempt from tax.

Secretary of Justice, the following legal points on the
aforequoted
constitutional
provisions
may
be
considered important :
1. the exemption from taxes and duties granted to non
stock, non profit educational institutions with respect
to their revenues and assets took effect upon the
ratification of Cosntitution because the rule that a
constitutional provision declaring certain proeprties as
exempt from taxation is self executing and proprio
vigore exempts the property specified and does not,
therefore need legislative enactment to put into effect
2. legislation is NOT essential in order to prescribe the
requrements from exemption such as who would
qualify as non stock, non profit. Institutions and
meaning of actually, directly, and exclusively used.
3. Tax exemptions, however of proprietary educational
institutions require prior legislative implementation
since the use of the permissive term may in the provs
goves congress discretion to deteremine whether or
not assets and revenues of properetayr educational
isntitutions should likewise enjoy exemptions from
taxes
4. All grants, endowments, donations or contributions
used actually, directly, and exclusively for educational
purposes are tax exempt where the done- school is
non stock or non profit
THIS
PARTICULAR
EXEMPTION
TO
PROPRIETARY
EDUCATIONAL INSTITUTIONS WILL APLY ONLY AFTER
CONGRES HAS LAID DOWN THE CONDITIONS FOR ITS
ENJOYMENT
TAX EXEMPTION HERE IS NOT SELF EXECUTORY
Chapter 3
Double Taxation and Tax Exemptions
Double Taxation taxing the same property twice when it
should be taxed but once.
-
taxing same person twice by the same jurisdiction over

same thing
same person twice by the same jurisdiction for same

thing or purpose
NO PRHOHIBITION AGAINST DOUBLE TAXATION

-
no constitutional prohibition against double taxation in

Philippines
something not favored, but is nevertheless permissible
NOT forbidden by our fundamental law
Philippines HAS NOT ADOPTED the injunction against

double taxation found in Constitution of US and in
some states of American Union
Therefore, NO PROHIBITION against double or multiple

taxation
Kinds of Double Taxation

-
duplicate taxation
may be direct or indirect
DIRECT DUPLICATE TAXATION / Double taxation in the

objectionable or prohibited sense (also known as
obnoxious)
32
o
Same property is taxed twice when it should be

taxed only once
Both taxes are imposed on same property or

subject matter for same purpose, same stat,
government, or taxing authority within same
jurisdiction or taxing district during same taxing
period, and covering same kind or character of
tax
NO OBJECTIONABLE DOUBLE TAXATION IF A

REAL ESTATE TAX AS WELL AS A TENEMENT TAX
ARE IMPOSED ON SAME PROEPRTY BECAUSE
THE TWO IMPOSITIONS ARE NOT OF SAME KIND
OR CHARACTER
INDIRECT DUPLICATE TAXATION - opposite of direct

double taxation is NOT LEGALLY OBJECTIONABLE.
ILLUSTRATION the point that in the absence of

elements of direct duplicate taxation, double
impositions levied on a particular subject of taxation
may be justified
1. The taxpayers warehousing business, although carried
on in relation to the operation of its sugar central, is a
distinct and separate taxable business.
a. There can be no double taxation where state
merely imposes a tax on every separate
disntinct business in which a person is engaged.
b. No prohibition against double
taxation in this jurisdiction
32
or
multiple
2. A license tax may be levied upon a business or

occupation although land or property used in
connection therewith is subject to property tax
a. The state may collect an advalorem tax on
property used in a calling and at the same time
impose a license tax on that calling
b. The impostition of the latter kind of tax being no
sense a double tax
c. NO OBJECTIONABLE DOUBLE (OR MULTIPLE)
TAXATION IF TENEMENTS IN A CITY ARE SUBJECT
TO REAL ESTATE TAX WHILE BUSINESS OF
LEASING SAID PROPERTY ARE ALSO SUBJECT TO
REAL ESTATE DEALERS TAX UNDER THE
ANTIONAL INTERNAL REVENUE CODE AS WELL
AS TENEMENT TAX LEVIED BY CITY
d. THERE IS NOTHING INHERENTLY OBNOXIOUS IN
EXACTION OF LICENSE FEES OR TAXES WITH
RESPECT TO SAME OCCUPATION, CALLING OR
ACTIVITY BY BOTH STATE AND A POLITICAL
SUBDIVISION THEREOF
3. Both a license fee and a tax may be imposed on same
business or occupation for selling same article and this
is not in violation of rules against double taxation
4. Where a local tax is levied on sale or disposal of every
bottle or container of liquor or intoxicating beverages
and at the same time the businesss of selling such
product is also subject to liquor license annually of 600
pesos , there is NO DOUBLE TAXATION SINCE THE
LIQUOR LICENSE CONSTITUTES A REGUALTORY
MEASURE WHICH IS IMPOSED IN THE EXERCISE OF
STATES POLICE POWER
5. A tax imposed both on occupation of fishing and on

fishpond itself does not constitute double taxation.
Subject of taxation are DIFFERENT FROM EACH OTHER
while others are imbedded in statutory provisions

found under existing laws
-
The burden of doule taxation on same dividend income

earned in Philippines by a non resident foreign
corporation )))(one tax in Philippines and another tax
in domicillary country_ is REDUCED BY IMPOSITION OF
LOWER RATE OF 15% SUBJECT TO CONDITION THAT
COUNTRY IN WHICH NON RESIDENT FOREIGN
CORPORATION IS DOMICILED SHALL ALLOW A CREDIT
AGAINST TAX DUE FROM NON RESIDENT FOREIGN
CORPORATION
Taxes deemed have been paid in Philippines equivalent

20% which represents difference between regular tax
on corporations and tax on dividends
Examples of tax reliefs : tax deductions and tax credits
Deductions (example) : vanished deduction in order

to mitigate the burdensome effects of double taxation
on same property that is subject of two or more
transfers pertaining to two or more decedents
Example of (tax credit set up, our present law contains

a number of tax relief schemes also) : for VAT
purposes, tax on inputs or items that go into
manufacture of finished products may be credited
against or deducted from output tax or tax on finished
product.
Example of (income taxation) : resident citizen or

domestic corporation whose income from sources
within foreign country is also TAXABLE under Philippine
law, the tax paid to such foreign country may, under
certain limitation, be claimed as a credit against the
Philippine tax on same income
6. NO DOUBLE TAXATION if a local ordinance imposes a

tax on storage of copra where it appears that the
finished products manufactured out of copra are
subject to sales tax (NOW VAT) under tax code
7. NO DOUBLE TAXATION involved in a case where a tax
of 1% is imposed under Section 249 tax code for bank
reserve deficiency while a penalty of 1/10 of 1% a day
is also imposed as a penalty as consequence of such
reserve deficiency under Central bank Act
8. Double taxation means taxing same property twice
when it should be taxed only once.
a. Pool machinery insurer was held to be a taxable
entity disntict from the individual corporate
entities of ceding companies
b. The tax on its income is different from tax on
dividends received by said companies, and
clearly NO DOUBLE TAXATION IS INVOVLED
MEANS EMPLOYED TO AVOID DOUBLE TAXATION

-
our tax system provides for certain schemes in order

to avoid or minimize the harsh or burdensome effects
of double taxation
These tax reliefs or schemes are sometimes embodied

in tax treaties or agreements with foreign countries
How is credit for foreign taxes paid arrived at?
34
-
assuming coming only one country
The amount of credit in respect to the tax paid or

incurred to any country shall not exceed same
proportion of tax against which such credit is taken,
which the taxpayers taxable income for same taxable
year and total amount of credit shall not exceed the
same proportion of tax against which such credit is
taken, which taxpayers taxable income from sources
without Philippines taxable under this Title bears to his
entire taxable income for same taxable year.
Supposing taxable income of X corp a domestic corporation,

from foreign country M is 2,000 pesos and its Philippines
sourced income is 8,000 pesos. The foreign income tax
actually paid is 800 pesos. Foreign tax credit is computed as
follows:
SEE BOOK. HAHA (page 116)
Alien individual whether a resident or not of Philippines, is

taxable only on income derived from sources within
Philippines.
A foreign corporation whether engaged or not in trade or
business in Philippines, is taxable only on income derived
from sources within Philippines
The benefit of credit against income tax for taxes of foreign
coutnries, SHALL BE ALLOWED TO A CITIZEN OF PHILIPPINES
AND A DOMESTIC CORPORATION IF TAXPAYER SO SIGNIFIES
IN HIS RETURN
BUT SUCH BENEFIT SHALL NOT BE ALLOWED TO AN ALIEN
INDIVIDUAL AND A FOREIGN CORPORATION
Among the examples of tax treaties for relief from or
avoidance of double taxation are the RP US Tax treaty and
RP-west Germany Tax treaty which were subject of
comparative review
TAX EXEMPTIONS
The foreign tax credit method, as MEANS OF MINIMIZING

DOUBLE TAXATION APPLIES TO RESIDENT ALIENS PROVIDED
THAT:
1. THE RECIPROCITY REQUIREMENT IN LAW IS SATISFIED
2. SUBJECT TO ALLOCATION RULE AS ESTABLISHED IN
TAX CODE
Non resident Filipinos, since their foreign sourced income is
subject tot wo taxes levied under two different jurisdictions,
TAX RELIEF COMES IN FORM OF A DEDUCTION OF FOREIGN
NATIONAL INCOME TAX FROM FOREIGN SOURCED INCOME
ITSELF. Tax credit scheme in this instance is NOT AVAILABLE
34
grant of immunity, express or implied to particular

persons or corporations from obligation to pay taxes
KINDS OF TAX EXEMPTIONS

1. Constitutional
Constitution
Exemptions-
originate
from
2. Statutory Exemptions emanate from legislation

3. Express exemptions whenever exemtptions are
expressly granted by organiz or statute law
4. Implied exemptions whenever particular persons,

properties, or excises are deemed exemptas they fall
outside the scope of taxing provision itself.
IF A TAX IS LEVIED ON TENEMENT HOUSES IN A PARTICULAR

LOCALITY BUT SUCH LAW IS SILENT AS TO THE TAXABILITY OF
OTHER TYPES OF DWELLING WHICH ARE EXISTING IN THAT
LOCALITY, IT IS IMPLIED THAT THE LATTER ARE EXEMPT FROM
SAID TAX
5. Total exemption - absolute immunity
6. Partial exemption one where collection of a part of
tax is dispensed with
4. Tax exemptions MUST BE STRICTLY CONSTRUED such

that the exemption will not be held to be conferred
UNLESS the terms under which it is granted clearly and
distinctly show that such was the intention of parties
5. Tax exemptions are not presumed
6. Constitutional grants of tax exemptions are self
executing
7. Constitutional provisions declaring certain proeprties
as tax exempt does not need legislative enactment to
put it into effect
8. Constitution are generally self executing
PRINCIPLES GOVERNING TAX EXEMPTION

1. Exemptions from taxation are highly disfavored in law,
and he who claims an exemption must be able to
justify his claim by the clearest grant of organize or
statute law
a. Exemption form common burden cannot be
permitted to exist upon vague implications
b. To epitomize the principle, it is well settled that
TAXATION IS THE RULE, TAX EXEMPTION IS THE
EXCEPTION
9. Otherwise, it will be within the power of legislature to

ignore or practically nullify the directions of
fundamental law
10.Tax exemptions PERSONAL
11.Non transferrable
12.Deductions for income tax purposes partake of nature
of tax exemptions hence if tax exemptions are to be
strictly construed
13.It follows
construed
that
deduction
must
also
be
strictly
2. He who claims an exemption from his share of

common burden in taxation must justify his claim by
showing that the legislature intended to exempt him
by words too plain to be mistaken.
14.Rule of strict construction of tax exemptions should not

for obvious reasons, be applied to organizations
performing
strictly
religious,
charitable
and
educational functions
3. He who claims exeption should prove by convincing

proof that he is exempted
15.THIS RULE ON STRICT INTERPRETATION ALSO DOES

NOT APPLY IN CASES OF EXEMPTIONS GRANTED IN
36
FAVOR OF GOVERNMENT POLITICAL SUBDIVISION OR
INSTRUMENTALITY
16.A claim of exemption from tax payments must be
clearly shown and based on language in law too plain
to be mistaken.
17.Since a partial refund is in nature of tax exemptionit
must be construed STRICTISSIMI JURIS against grantee
18.NO TAX EXEMPTION solely on ground of equity
19.Tax amnesty is never favored or presumed in law. If
granted by a statute, the terms of amnesty like that of
a tax exemption must be construed strictly against
taxpayer and liberally in favor of taxing authority
a. Resolved in favor of taxing authority
20.Finding petitioners claim of immunity from prosecution
under the shIeld untenable. HE DID NOT MEET TWIN
REQUIREMENT
21.MERE FILING OF TAX AMNESTY RETURN DOES NOT
IPSO FACTO SHIELD HIM FROM IMMUNITY AGAINST
PROSECUTION.
22.Tax amnesty is a general pardon to taxpayers without
having to go through tedious process of a tax case
23.To avail of a tax amnestly granted by Government and
to be immune from suit on its delinquencies, the
taxpayer must have voluntarily disclosed his
previously untaxed income and must have paid
corresponding tax on such previously untaxed income
ILLUSTRATIVE SITUATIONS ON TAX EXEMPTIONS
36
1. TAX ON PERSON - the residence (community tax)

which is a personal tax is not imposed on DIPLOMATIC
and CONSULAR representatives as well as transient
visitors when their stay in Philippines DOES NOT
EXCEED THREE MONTHS
2. TAX ON PROPERTY Real property owned by Republic
of Philippines or any of its political subdivisions
provided the beneficial use thereof is NOT
TRANSFERRED to a taxable person; charitable
institutions, churches, parsonages, or convents.
3. TAX IN EXCISES AND PRIVILEGES sale or importation
of agricultural and marine food products in their
original state are exempt from value added tax
A. Condonation of unpaid tax liabilities is in the nature of a
tax exemption
a. If there is NO CLEAR CUT provision in law condoning
such liabilities that taxes already paid are also
condoned then no refund of paid taxes is authorized
because exemptions must be sustained only when
expressed in explicit terms
B. Where a corporation engaged in a certain industry
obtained exemption from all taxes, the following taxes
may be within the cope of the tax exemption, tax on
products manufactured for industry, occupation or
business tax thereon, import or compensating tax on
machineries used therein, the tax on gasoline and oils
necessary to move or operate its machinery as well as
purchase of original site for its plant
a. BUT THE ACQUISITION by donation of lots,, contiguous
to the original lots, after operation has lasted a few
years, is NO LONGER exempt, since said acquisition is
not directly related to industry
C. In the case of a corporation that is engaged in

manufacture of plywood, its tax exemption extends only
to machinery and equipment to be used exclusively in the
new and necessary industry
G. A tax exemption in themanufacture and sale of

machineries for making cigarette paper does not include
the manufacture and sale of products produced by the
machine
a. With or without the taxpayers owning any

transportation facility, the tax exempt industry could
be operated
H. In the contract covering the construction of Mactan

Airport, it was provided that no tax of any kind or
description will be levied on any material, equipment or
supplies which may be purchased or otherwise acquired in
connection with project under the contract
D. Where taxpayer receives as part of purchase price of the

land expropriated by Government, tax exempt bonds
issued such tax exempt bonds should be included in total
purchase price in order to determine the correct taxable
profit therefrom
a. Does this exemption include the tax on petroleum

products used in project?
b. NO. the court said that the only items exempt are
those amterials or supplies which are incorporated in
the construction of the airfield such as mortar,
cement, sand bricks BUT NOR petroleum products
which are not mateirals or supplies since they do not
go into or are consumed in the construction of project
but are used in the machineries and equipment
a. Profit arising from expropriation sale

b. Tax exemptions are strictly construed
E. The slaaries of judicial officers are NOT tax exempt and
their taxability is NOT CONTRARY to the provisions
a. The clear intent of constitutional commission that
framed the constitution is to subject their salaries to
tax as in the case of all taxpayers
F. The exemption of contractee (WHO) from all indirect
taxes as provided in the host agreement between
REPUBLIC OF PH and WHO should be implemented to
mean that the entity or person EXEMPT is the contractor
itself who constructed the building owned by contractee
a. This does not violate rule that tax exemptions are
personal because the manifest intention of the
agreement, as stated earlier, is to exempt the
contractor so that no contractors tax may be shifted
to the contractee WHO
I.
The exemption from income tax on Base connected

income of NON RESIDENT AMERICAN BASE PEROSNNEL
UNDER US ABSES TREATY does not extend to the income
realized from sale by an American civilian base employee
of his car inside base to another American national
J.
Article XVIII of the bases treaty exempt from tax gross

receipts of a base concessionaire from business of hauling
and transporting of cargoes inside the base belonging to
the US ARMY
K. Where an electric light and power franchise holder is

exempt under its franchise from property tax on its poles,
wires, transformers and insulators, its exemption does not
extend to the compensating tax on its imporation of said
articles.
38
a. Said compensating tax is not a property tax but an
excise tax
b. Exemptions, being highly disfavored in law, must be
strictly construed
a. Only sale to US quartermaster are exempt it follows

that the sale of oxygen and acetylene gases to the
VOA is taxable
P. Tax exemptions are strictly construed
L. Where it appears that under a certain law, a racing club is

EXEMPT from payment of any municipal or national tax.
SUCH exemption does not include exemption form income
tax on rentals received from the lease of its race tracks to
Philippine charity sweepstakes.
Q. If what the law exempts from compensating under then

are passenger and or cargo vessels the tugboats are NOT
WIHTIN scope of exemption because tugboats are NOT
USED for carrying passengers or cargo but only for twogin
other vessels.
a. The statutory exemption covers only taxes in

connection with races like the municipal license fee of
600 pesos per day of racing and 500 pesos fixed tax
for each day racing under NIRC
TAX EXEMPT PERSONS REQUIRED TO KEEP BOOKS OF

ACCOUNTS
M. RA 1435 allows a partial refund of 25% specific tax paid

on fuel oil used in the operations of forest
concesssionaires.
a. Since tax exemptions are strictly cosntured, the
exemption refers only to the operations of forest
concessionaires, and not to oild used in operation of
sawmills
N. In the case of two electric power plants, which are
operating in same locality, it cannot be presumed that the
exemption of one should also be enjoyed by the other. Tax
exemptions ARE NEVER PRESUMED
O. In as much as under the bases treaty only sales of goods
for the exclusive use in construction, maintencance,
operation or defense of the base
A taxpayers exempt status does not justify the non

keeping of books of accounts and other accounting
record
TAX CODE : any provision of existing general or special

law to the contrary notwithstanding, t
he books of accounts and other pertinent records of

tax exempt organizations or grantees of tax incentives
shall be subject to examination by the bureau of

internal revenue for purposes of ascertaining
compliance
with conditions under which they have been granted

tax exemption or tax incentives, and their tax liability
if any
TAX AVOIDANCE ; TAX EVASION; TAX REFUND

Tax avoidance - is the minimization of tax liabilities through
legal means
38
Tax evasion when the means used to minimize taxes are

illegal
accomplishment and promotion of purposes

enumerated in article of incporation
o
Not more than 30% of the gift shall be used by

done for administrative purposes
Tax avoidance
JURISDICTION.
TAX AVOIDANCE ILLUSTRATION :
IS
NOT
FORBIDDEN
IN
OUR
suppose that As income from his property reaches the

maximum rate under the law
An attempt to minimize ones tax does not necessarily

constituted fraud
to avoid this, he donates one hald of his assets to an

educational institution that qualifies for tax exemption
under Article XIV Constitution
Taxpayer may diminish his liability by any means

which the law permits
TO AVOID IS LEGAL BUT TO EVADE IS ILLEGAL
the done being a non stock, non profit educational

institution whose income and assets are actually,
directly, and xclusivly used for educational purposes
Tax evasion may be exemplified by means of tax fraud,

or the use of deceit in order toe vade taxes
A therefore succeeds in avoiding payment of tax on

income derived therefrom
Fraud however, is a serious charge and to eb sustained

it must be supported by clear and convincing evidence
HOW ABOUT DONORS TAX? IS A LIABLE? No, a does

not need to apy any donors tax on donated property,
provided the fff requisites:
In whether fraud exists substance and not form should

control
When the purpose of a taxpayer, at least in part is to

EVADE taxes, the court should examine with particular
care the forms used by him for the accomplishment of
his purposes and if his ingenuity fails at any point,
such court should not lend him its aid by resolving
doubts in his favor
Our juridprudence includes cases where tax evasion or

graud was found to have been perpetrated
The failure of taxpayer to declare for taxation purposes

his true and actual income derived from his furniture
business at Clark airbase for two consecutive years is
Donee institution is a school, college or univ
Incorporates as non stock, non profit entity

paying no dividends
Governed by
compensation
All its income, whether students fees or gfts,

donations subsidies are devoted to the
trustees
who
receive
no
40
an indication of his
government of taxes
-
to
cheat
Affirmative and will attempt may be inferred

from any conduct the likely effect of which
would be to mislead or to conceal
Fraud was also found to have existed in following

case : The taxpayer declared for 1946 an income of
only 5k when his actual income for that year was
100lk. His act in submitting an income tax return of
1947 only for amount of 12k when he acutally had a
net taxable income of 43k, and lastly his act of
reporting an income ALL THESE CIRCUMSTANCES
JUSFITFY THE FINDING THAT THERE HAS BEEN FRAUD
Where it appears that the taxpayer, although on
accrual basis, had willfully underdeclared its 1951
income by trating copra outturn worth almost 100k as
stock still outstanding at end of 1951, when in fact
such copra had been shipped to a foreign buer SUCH
FRAUD IS AGGRAVATED IF TAXPAYER ICNLUDED SUCH
COPRA OUTTURN IN ITS BEGINNING INVENTORY FOR
1952 THUS EVENTUALLY DEDUCTING ITS VALUE AS
COST OF GOODS SLD FOR 1952 AND DIMINISHING ITS
NET INCOME FOR THAT YEAR
NO FRAUD IN THE FOLLOWING CASES :
40
intent
The net income undeclared in 1946 is more than 100%

of net income declared. In 1947 , undeclared income is
1, 0799% of net income declared. 1948, ndeclared net
income was 260% of net income declared. 1950,
uncdelcared was more than 1,000% of declared net
income. SUCH HUFE UNDERDECLARATION COULD NOT
HAVE BEEN THE RESULT OF HONEST MISTAKES.
o
fraudulent
1. the fact that the value of decendens shares of stock

differes from the book value thereof which appears in
books of corporation does not of itself indicate fraud
since shares of stock frequently fluctuate in vvalue.
MERE DIFFERENCE OF OPINION CANNOT SERVE AS A
PROPER BASIS FOR ASSESSING AN INTENTIN TO
DEFRAUD THE GOVERNMENT
2. where taxpayers valuation of certain rice and sugar
lands differs from valuation made by commissioner of
internal revenue there is NO BASIS to impute fraud
where the difference in valuation is only based on an
honest difference of opinion.
3. If taxpayer made a mistake In valuation the same is
only an honest misteake.
4. It should be noted that an onest intention on ones part
negates fraud
5. Where a man honestly believed that the method
employed by him in comuting his tax liability is correct,
he does not incur any fraud, in which case, NO FRAUD
PENALTY ATTACHES
6. Where it appears that the underdeclaration of taxable
property is only inconsequential and is the result of
taxpayers inadvertence, no fraud exists
7. A tax return which does not correctly reflect income
may only be false BUT NOT NECESSARILY FRAUDULENT
where it appears that the return WAS NOT RPEPARED
BY THE TAXPAYER HIMSELF BUT BY HIS ACCOUNTACNT
AND THAT AFTER THE ORIGINAL DEFICIENCY TAX
ASSESSMENT
WAS
MADE,
THE
SAME
WAS
SUBSEQUENTLY REDUCED BY BIR BY SUBSTANTIAL
AMOUNT.
8. NOTED : the abovementioned case, the taxpayers

deficiency income tax was assessd and determined
through the use of the so called net worth method ot
what is otherwise known as inventory method income
tax verification
9. In certain case deicded by tax court, ruling was to
effect that where a couple in PH received a dollar
remittance check from abroad, said amound being the
result of an error of remitting bank as sum that was
actually supposed to be remitted was only 1l dollars
10.NO FRAUD was imputed against them since income tax
return , the maount in question was DECLARED WITH
NOTATION : TAX PAYER WAS THE RECEPEITN FO SOME
MONEY FORM ABROAD WHICH HE PRESUMED TO BE A
GIFT BUT TURNED OUT TO BE AN ERROR AND IS NOW
THE SUBJECT OF LITIGATION
11.No fraud existed because taxpayer
his cards on the table
had literally laid
Chapter 4
TAX LAWS AND REGULATIONS
NATURE OF TAX LAWS
- CIVIL IN NATURE
- Not political
- Even during period of enemy occupation (such as for
instance, during Japanese occupation of Philippines in
World War II, which lasted from 1942 1945 , tax laws
are continually enforced as they are deemed to be
laws of ooccupied territory and not those of occupying
power
HILADO vs CIR
court did not allow the taxpayer to deduct from his

1951 tax return a casualty loss incurred during the was
loss from fire, storms, shipwreck etc including war
losses
although such loss was incurred during said war it was
not possible for him to make the deduction because,
according to him, internal revenue laws were at the
time unenforceable or in a state of suspension.
COURT : overruled this contention and held that during
Japanese occupation, internal revenue laws of
Philippines continued to be in force
NEITHER ARE TAX LAWS PENAL IN NATURE

- the rule on retroactive effect of penal alws under
article 222 of RPC which reads : penal law shall have
retroactive effect insofar as they favor the person
guilty of a felony, who is NOT a habitual criminal as
defined in rule 5 article 62 of this code.
- Although at the time of publication of such laws a final
sentence has been pronounced and convict is serving
the same
- Finds no application in tax cases
- Revenue laws which impose taxes collected by means
which are ordinarily resorted to for the collection of
taxes are NOT CLASSES as penal laws and therefore
CANNOT BE GIVEN retroactive effect
TAX LAWS NOT BEING PENAL IN CHARACTER, THE RULE IN
THE CONSTITUTION AGAINST THE PASSAGE OF EX PSOT
FACTO LAWS CANNOT BE INVOKED
- the constitutional prohibition against the passage of ex
post facto legislation, accdg to SC
- applies only to criminal or penal matters and not to
laws which conern civil mattes or proceedings
generally, or which affect or regulate civil or private
rights
- constitutional prohibition against ex post facto alws is
NOT APPLICABLE to the collection of interest on back
taxes, nor to laws which as stated concern civil
matters generally or regulate civil or private rights
42
-
Collection of interest in tax cases is NOT PENAL IN

NATURE
INCREASE TAX RATES MAY ALSO BE GIVEN RETROACTIVE

EFFECT SO AS TO APPLY INCOME EARNED BEFORE THE
PASSAGE OF THE LAW AUTHORIZING SUCH INCREASE
- in case of interest, no constitutional infringement
would exist anent the ex post facto prohibition
INTERPRETATION OF TAX LAWS
- a statute will not be construed as imposing a tax
unless
it
does
so
clearly,
expressly,
and
unambiguously
- a tax cannot be imposed without clear and express
words for that purpose
- provisions of a taxing act are not to be extended by
implication
TAX STATUTES ARE COSNTURED STRONGLY AGAINST
GOVERNMENT AND LIBERALLY IN FACOR OF CITIZEN
SINCE OUR INCOME TAX LAWS ARE OF AMERICAN ORIGIN,

INTERPETATION BY AMERICAN COURTS ON OUR PARALLEL
TAX LAWS HAVE PERSUASIVE EFFECT
SOURCES OF TAX LAWS
1. Constitution
2. Tax codes such as NIRC, Tariff and Custom Code, and
portions of Local Government Code
3. Statutes like RA 1125 and RA 8424 Tax Reform Act ;
An Act Creating the Court of Tax Appeals
4. Presidential decrees
5. Executive orders
6. Court Decisions
because burdens are not to be imposed beyond what

the statutes expressly and clearly import
7. Revenue regulations promulgates by Department of

Finance
Although tax burdens are not presumed, it is important to

consider, however tat tax laws are NOT PROMULGATED in
order to encourage tax evasion or tax avoidance
- SC said that propose of Tax Code is to impose taxes,
not to enhance tax avoidance
8. Administrative issuances of BIR like Revenuw

Memorandum Circulars, and those of Bureau of
Customs like Customs Memroandum Orders
LIKE OTHER STATUTES, TAX LAWS OPERATE PROSPECTVELY

whether they ENACT, AMEND OR REPEAL
- UNLESS the purpose of legislatre to give retroactive
effect is expressly declared OR
- May be implied from language used
10.Local Tax Ordinances
9. BIR Rulings
11.Tax Treaties and Conventions with foreign countries
Mandatory and Directory Provisions
42

-
there are provisions in existing tax laws which lay

down mandatory requirements for purposes of validity
of certain acts performed by those who are entrusted
with enforcement of revenue laws
Examples : Tax Code 1977 Section 207 : Distraint property
real property of the delinquent taxpayer in sufficient

quantity to satisfy the tax charge together with any
increment thereto incident to delinquency
Another example of a directory provision is Section 12 , RA
1125
the law then required that same should be employed

not earlier than three months nor later than six months
from receipt of demand. xxx
provides that cases brought before the court shall be

decided within thirty days after subsmission thereof for
decision
such action will not necessarily result in nullity of

collection
The CTA is NOT a mere superiror administrative agency

or tribunal rather it is a part of judicial system of
Philippines
No need for bureau of Internal Revenue to allow three

months from date of receipt of assessment to elapse
before summary remedies for collection are resorted to
if tax being collected is self assessed tax, as in the
case of income tax, which the taxpayer reflects in his
tax return,
It was created by Congress as a centralized court

specializing in tax cases
It is a regular court vested with exclusive appellate

jurisdiction over cases arising under the NIRC, Tariff,
and Customs Code and Assessment Law
As a matter of practice and principle, SC will not set

aside the conclusion reached by CTA which is by the
very nature of its function, dedicated exclusively to the
study and consideration of tax problems and has
necessarily developed an expertise in subject, UNLESS
THERE HAS BEEN AN ABUSED AND IMPROVIDEDNT
EXERCISES OF AUHTORITY ON ITS PARTY
BUT WHICH he failed to pay on the date for payment

prescribed by law
Three month period applied only when there was a
previous demand or assessment from BIR
Section 207 1997 NIRC

-
no longer provides for mandatory period of NOT

ERALIER THAN THREE MONTHS before the BIR could
use the summary remedy of collection of any
delinquent tax by disraint of personal property and/or
levy on real property
Commissioner or his duly authorized representative

shall seize and distrain personal property and/or levy
PUBLICATION REQUIREMENT
-
not all sources of tax laws as enumerated above

require publication in Official Faxette as provided in
Article 2 of CC, which states that LAWS SHALL TAKE
EFFECT AFTER FIFTEEN DAYS FOLLOWING THE
COMPLETION OF THEIR PUBLICATION IN OFFICIAL
GAZETTE UNLESS IT IS OTHERWISE PROVIDED
44
-
interpretative regulations and those which are merely

internal in nature. EXAMPLE : those which regulate
only the personnel of administrative agency and not
public , need not be published
In BIR instance, the following do not require publication
for purposes of effetivity: REVENUE MEMORANDUM
ORDERS,
REVENUE
MEMORANDUM
CIRCULARS,
REVENUE ADMINISTRATIVE ORDERS, BIR RULINGS
BIR memorandum Circular is only for internal
administration of BIR and not a regulation within the
contemplation of Section 245 of Tax Code
Therefore : needs no publication in Official Gazette
WHEN AND ADMINISTRATIVE RENDERS AN OPINION BY

MEANS OF A CIRCULAR OR MEMORANDUM IT EMRELY
INTERPRETS A PRE EXISTING LAW AND NO
PUBLICATION IS REQUIRED FOR ITS VALIDITY
44
publication as a condition for their effectivity; statutes,

including those of local application and private laws,
presidential decrees and executive orders promulgated
by President, and administrative rles and regulations if
their purpose is to enforce or implement existing law,
pursuant to a valid delegation
Customs Memorandum Orders issued by Commissioner

of Customs NEED NOT BE PUBLISHED IN OFFICIAL
GAZETTE
Construction by an executive branch of Government of
a particular law, although not binding on the courts,
must be given weight as the construction comes from
the branch of Government called upon to implement
the law
ARE TAX LAWS SPECIAL LAWS?

-
Tax laws are special laws
Tax code is an example of a tax law
Tax code is a special law and prevails over a general

law such as Civil Code ( REPUBLIC VS GANAYCO)
In case the provisions of a special law are found to be

deficient in a particular situation, the civil code shall
apply
RULING : to effect that although the Revised Charter

Manila speaks of ordinances in general, irrespective of
nature and scope thereof
Section 43 , Local Tax Code : on publication of tax

ordinances should apply because the local tax code
relates to ordinances levying or imposing taxes, feees,
or charges in particular
In action instituted by the Government for the recovery of an

erroneously refunded tax, which prescriptive period will apply
the six year prescriptive for a quasi contracts under Article
1145 of CC or three year prescriptive period for assessment
under Sec 233 of Tax Code which is a special law?
-
since an action to recover an erroneously refunded tax

is in effect an assessment of such tax and considering
that a special law like tax code prevails over CC, a
general law, then it is the three year period under the
Tax Code that should apply

TAX REGULATIONS
-
promulgates by Secretary of Finance in order the

implement the provisions of Tax Code
the Secretary of Finance, upon recommendation of

Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of provisions
of this Code
Regulations must not be contrary to law for a

regulation promulgated on a wrong interpretation of
the law or in contravention thereof cannot give rise to
a vested right that can be invoked either by taxpayer
or government
Gazette or in a newspaper of general circulation
They must be reasonable and must be within the

authority conferred since the power to make regulation
is NOT THE power to legislate
SC : ruled against the relaxation of certain revenue

regulations by Revenue Memorandum Circular No 7-85
as it disregarded the 2 year prescriptive period set by
law
BIR did not simply interpret the law, it legislated

guidelines contrary to the statute passed by congress
COURT UPHEL THE NULLIFICATION OF RMC 7-85 AS

AN ADMINISTRTIVE INTERPRETATION WHICH IS NOT IN
HARMONY WITH SECTION 230 OF 1988 NIRC, FOR
BEING CONTRARY TO THE EXPRESS PROVISION OF A
STATUTE, AND CONCLUDED THAT THE SAME COULD
NOT BE GIVEN WEIGHT FOR TO DO SO WOULD IN
EFFECT AMEND THE STATUTE
MOREOVER, the internal revenue commissioner

cannot, by administrative fiat, amend the law by
making compliance therewith more burdensome
TAX RULINGS
Under guise of regulation, legislation may not be

enacted
best guess of moment and incidentally often contain

such well considered and sound law
Administrative have the force and effect of law
COURTS : they do not prevent an entire change of front

at any time and are merely advisory sort of an
information service to taxpayer
Administrative regulations
provisions of the law
-
must
be
in
harmony
with
in case of discrepancy between basic law and

implementing rule or regulation the former prevails
Rules and regulations must not override but must

remain constant and in harmony with the law they
seek to apply
They must neither supplan nor modify the law
POWER OF COMMISSIONER TO INTERPRET TAX LAWS

AND TO DECIDE TAX CASES
-
Section 4, NIRC specifically provides that the power

to interpret the provisions of Tax Code and other tax
laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by
the Secretary Finance
46
-
The power to decide disputed assessments, refunds of

internal revenue taxes, fees or other charges, penalties
imposed in relation thereto or other matters arising
under this Code or other laws or portions theref
administered by BIR is vested in Commissioner subject
to the exclusive appellate jurisdiction of CTA
RULING OF CIR : agency tasked with enforcement of
tax laws, is accorded much weight and even finality
where there is NO SHOWING THAT IT IS PATENTLY
wrong, particularly in a case where the findings and
conclusions of internal revenue commissioner were
subsequently affirmed by the CTA , a specialized body
created for the exclusive purpose of reviewing tax
cases and CA
RULING WHICH MERELY EMBODIED ADMINISTRATIVE
OPINIONS ON QUERIES SUBMITTED DO NOT HAVE THE
FORCE AND EFFECT OF LAWS
NON RETORACTIVITY OF RULINGS
46
rulings are not retroactive if they are prejudicial to

taxpayer
Section 246 of 1997 NIRC any revocation,

modification or reversal of any of rules and regulations
promulgated in accordance with preceding Sections or
any of rulings or circulars promulgated by
Commissioner
shall not be given retroactive application if the

revocation, modification or reversal will be
prejudicial to the taxpayers, EXCEPT IN
FOLLOWING CASES:
1. where taxpayer deliberately misstates or omits

material facts from his return or any document
required of him by the BIR
2. where the facts subsequently gathered by BIR are
materially different from facts on which the ruling is
based
3. Where taxpayer acted in badfaith
COURT: retroactive effect of VAT RULING 8-92 WILL NOT BE

PREJUDICIAL TO THE TAXPAYER under the aforequoted
exception to the general rule
CASE #1
1. there was a BIR ruling issued on January 21, 1980
wherein it was ruled that the 15% branch profit
remittance tax under Section 25 (a) (5) of Tax Code
should be based on amount of profit actually remitted
by a philippine branch to its parent company abroad
2. HOWEVER, in 1982 under Revenue Memorandum
Circular No. 8-82, BIR revrsed the prior ruling and held
that the 15% branch profit remittance tax SHOULD BE
BASED NOT ON THE AMOUNT OF PROFITS ACTUALLY
REMITTED BUT ON THE AMOUNT APPLIED FOR
REMITTANCE THEREBY MAKING THE BASIS OF 15% tax
larger than that on which said tax was computed
under original 1980 ruling.
3. BIR in its subsequent ruling in 1982 reasoned that the
amount applied for remittance should be the tax base,
thus giving rise to a bigger amount to tax
SOME EXTENT CONFIRMATORY THAT THE RULING

CARRIES OUT THE LEGISLATIVE PURPOSE
WILL THE REVERSAL RULING IN 1982 RETROACT TO THE

BRANCH PROFIT REMITTANCES MADE BEFORE THAT YEAR OR
AS IN THE CASE OF BURROUGHS HEREIN, WILL SAID RULING
APPLY TO REMIRRANCES MADE BY IT IN 1979?
-
payment of branch profit remittance having been

made on 1979, it follows that BIR memorandum
circular no 8-82 issued on March 17, 1982 CANNOT
BE GIVEN RETROACTIVE EFFECT
THE REENACTMENT
of a statute substantially
unchanged is persuasive indication of the adoption by
Congress of prior executive construction
DOCTRINE OF IMPLICATIONS
-
the doctrine of implications means that which is plainly

implied in the language of a statue is as much a part of
it as that which is expressed
RA 5547 which imposes a 1% additional tax on Real

property, the total real property tax SHOULD NOT
EXCEED A MAXIMUM OF THREE PER CENTUM, THE
CITY OF MANILA UNDER ITS CHARTER, CAN INCREASE
THE EXISTING REGULAR RATE OF ONE AND ONE HALF
PERCENT TO TWO PERCENT
SO THAT 2% ADDED TO THE 1% EQUALS 3% OR

MAXIMUM RATE ALLOWED UNDER RA 5547
CASE #2
-
the administrative rulings of previous commissioners

are not conclusive and binding upon their successors
an incumbent commissioner may REVOKE, REVERSE,

OR ABROGATE THE ACTS OR RULING OF HIS
PREDECESSORS IN OFFICE IF HE BECOMES CONVICED
THAT
A
STATUTE
WARRANTS
A
DIFFERENT
CONSTRUCTION (HILADO VS CIIR)
the principle is, subject to the non retroativity rule

should it appear that the ruln reversing a previous
ruling of former commissioner is prejudicial to the
taxpayer pursuant to sec 246 of Tax Code
LEGISLATIVE ADOPTION OF TAX RULINGS

Principle of legislative approval
interpretation through enactment
-
of
an
administrative
WHERE A STATUTE IS SUSCEPTIBLE OF THE MEANING

PLACED UPON IT BY A RULING OF A GOVERNMENT
AGENCY CHARGED WITH ITS ENFORCEMENT AND THE
LEGISLATURE THEREAFTER REENACTS THE PROVS
WIHTOUT SUBSANTIAL CHANGE, SUCH ACTION IS TO
TAX TREATIES AND ITNERNATIONAL AGREEMENTS

-
also constitute an important source of tax law
tax teaties ordinarily comprehend two objectives :

o
to avoid double taxation (ESPECIALLY IN CASES

WHERE THE ICOME IS TAXED TWICE) one by
country where the income is earned and another
by country where subject of taxation is either a
citizen or resident (country of residence)
48
o
to eliminate or minimize tax evasion through

adoption of the exchange of information scheme
whereby the signatory countries to the treaty
undertake to furnish each other on a mutual
basis information on taxable income and/or
activities of any of their nationals or residents
THE PHILIPPINES HAS ENTERED INTO A NUMBER OF

TAX TREATIES, NTOABLE OF WHICH ARE THOSE WITH
EUROPEAN COUNTRIES, the US, ASEAN, or Southeast
Asian nations like INDONESIA< SINGapore, MAKAYSIA
and others
CIR vs Johnson and Son

-
48
the purpose of these international agreements is to

reconcile the national fiscal legislations of the
contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions
Tax conventions are drafted with a view towards the
elimination of international juridical double
taxation
INTERNATIONAL JURIDICAL DOUBLE TAXATION
imposition of comparable taxes in two or more states
on same taxpayer in respect of the same subject
matter and for identical periods
RATIONALE : encourage free flow of goods and

services
and
the
movement
of
capital,
technology and persons between countries,
conditions deemed vital in creating robust and
dynamic economies
Foreign investments WILL ONL THRIVE in a fairly

predictable and reasonable international investment
climate and protection against double taxation is

crucial in creating such a climate
-
Constitution requires the concurring vote of at least

2/3 of all members of Senate for validity and effectivity
SC : less formal types of international agreements may

eb entered into by the Chief executive and bcome
binding without the concurrecnce of legislative body
CASE :
Host agreement of July 22 1951, between the Philippines and
the WHO under which WHO is exempt from indirect taxes
relative to the onstruction of its regional headquarters
building in the Philippines comes within the latter category.
COURT : said agreement is VALID and INDING agreement
even without the concurrence of senate
Chapter 5
TAX ADMINISTRATION AND ENFORCEMENT
Agencies Involved in Tax Administration

-
agencies of Government which are involvd in tax law

enforcement or tax administration are the Bureau of
Interna Revenue and Bureau of Customs for internal
revenue and customs law enforcement
Provincial, city and municipal assessors and treasurers

for local and real property taxes

-
COURTS are not part of administrative process but in

the tax mileu they do play an important role since
sound tax administration must move along the correct
interpretation of tax laws
Bureau of Internal Revenue

-
occupying forefront tax law enforcement is the BIR,

which is tasked with collection of substantial amount of
revenue fro country and is under supervision and
control of Department of Finance
BIR shall have a chief to be known as Commissioner of
Internal Revenue, referred to as Commissioner and
four assistant chiefs to be known as Deputy
Commissioners
Each Deputy Commissioners respectively heads of :
13 Assistant Commissioners of different services
policy and planning service
enforcement service
large taxpayers service
information systems operations service
information planning and quality service
information systems development service
taxpayers assistance service
assessment service
collection service
legal service
inspection service
Information Systems Group
human resources development service
Operations Group
Legal and Inspection Group
financial and administrative service

Constitute the first/senior level of
administrative authority
Resource management Group
while Review and Evaluation Group is placed directly

under Office of Commissioner
Second/middle management level of administrative

officers is composed of :
o
Division chiefs heading each of various division

falling under major service to wit:
Together with :
Planning
50
Management
Systems development
Statistics
Systems maintenance and support
Corporate Communications
Taxpayer information and education
Tax Fraud
Taxpayer service program and monitoring
Policy Cases
Assessment program
Large Taxpayers Audit and Investigation
Audir information and tax exemption
Large taxpayers Audit and Investigation
Asset valuation
Large
Taxpayers
documentary
processing and quality assurance
Withholding tax
Revenue and accounting
Collection enforecement
Appellate
50
Large taxpayers field operations

Large
taxpayers
enforcement
collection
and
Large taxpayers assistance
Litigation
Large taxpayers programs
Prosecution
Systems operations
International tax affairs
Systems support
Internal security
Security management
Internal audit
Quality assurance
Personnel inquiry
Systems
standard
management
Personnel training management
and
technology
Training delivery
Medical/dental
Financial and administrative
Budget
General services
Accounting
Procurement
Accountable forms
Personnel management services
AGENTS AND DEPUTIES FOR COLLECTION OF NATIONAL

INTERNAL REVENUE TAXES
Section 12 of 1997 NIRC, the following are constituted as
agents of Commissioner :
1. Commissioner of Customs and his subordinates with
respect to the collection of national internal revenue
taxes on imported goods
2. The head of appropriate government office and his
subordinates with respect to the collection of energy
tax
BIR is largely decentralized in that great extent of tax

enforcement duties are delegated to the Tegional
Directors and Revenue Distrcit Officers
At PRESENT :
3. Banks duly accredited by Commisioner with respect to

receipt of payments of internal revenue taxes
authorized to be made through banks
Any officer or employee of an authorized agent bank
assigned to receive internal revenue tax payment and
transmit tax return or documents to BIR shall be subject to
same sanctions and penalties prescribed in Sections 269
270 of Tax Code
19 revenue regions all over country
each revenue region being headed by regional

director
115 revenue district offices

revenue district officer
each under a
1. Assessment and collection of all national internal

revenue taxes, fees and charges
FRONT LINERS OF BIR : rank and file revenue

enforcement officers, more commonly known as
examiners, investigators and agents and of
course the numerous clerks and other support
personnel
2. Enforcement of all forfeitures, penalties and fines

connected therewith
Powers and Duties of Bureau of Internal Revenue
The powers and duties of BIR comprehend the following :
3. Execution of judgement in all cases decided in its favor

by CTA and ordinary courts
52
4. Effecting and administering the supervisory and police
powers conferred to it by tax code or other laws
POWER AND DUTY OF COMMISSIONER TO INTERPRET

TAX LAWS AND TO DECIDE TAX CASES
SEC. 4. Power of the Commissioner to Interpret Tax
Laws and to Decide Tax Cases. - The power to interpret
the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under
this Code or other laws or portions thereof administered by
the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.
Disputed assessment a tax assessment that is
administratively protested within 30 days from date the
taxpayer received the assessment
-
includes
protested
assessments
wherein
the
administrative protest is denied in whole or in part or
is NOT ACTED upon by BIR within one hundred eighty
days from submission of all required documentary
evidence
taxpayer adversely affected by decision or inaction
appealed the same to CTA within 30 days from receipt
of decision, or from lapse of 180 day period
Pending appeal, such assessments shal continue to be
considered as a disputed assessment
APELLATE JURISDICTION OF COURT OF TAX APPEALS
52
CTA shall have exclusive appellate jurisdiction over

appeals made by taxpayers adversely affected by the
decision or inaction of Commissioner on administrative
protests against assessments, claims for refund or tax
credit of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters
arising under tax code or other laws or portions thereof
administered by BIR
The decisions of Commissioner on protests filed
against assessments issued to departments, bureaus,
offices , agencies and instrumentalities of National
Government,
including
government
owned
or
controlled corporations, the appeals, pursuant to Secs
666,67,68,69,70 of RAC of 1987.
Shall be submitted to and settled or adjudicated by
Solicitor General or Sec of Justice as case may be
Decision of Secretary of Justice as well as that of
Soliciot General, when approved by Sec of Justice ,
shall be final and binding upon parties
APPEALS, may however be taken to the President when
amount involved EXCEEDS ONE MILLION PESOS.
Decision of president SHALL BE FINAL.
RULES OF NO ESTOPPEL AGAINST THE GOVERNMENT

-
in performance of its governmental functions, the state

cannot be estopped by neglect of its agents and
officers
nowhere is this more true than in field of taxation
SC
in CIR vs ABAD : where a BIR denaturation
committee makes a favorable finding that alcohol has
been suitably denatured and, therefore is exempt from
specific tax, said finding may be dsregarded by a
subsequent BIR inspection team
If it appears that sch alcohol was improperly denatured
and, hence subject to tax
Estoppel does not apply to preclude the subsequent
findings on taxability

-
RULE OF ESTOPPEL CANNOT BE INVOKED BY A

TAXPAYER IN ORDER TO PRECLUDE COLLECTION OF
TAXES
THAT
ARE
RIGHFULLY
UNAUTHROIZED
PRONOUNCEMENTS ON A TAXPAYERS TAX LIABILITIES.
COURT : even if said agents were so authorized, their
reommendations are always subject to the review of
their superiors who may be countermand or affirm
them
GOVERNMENT IS NEVER STOPPED TO COLLECT
LEGITIMATE TAXES BECAUSE OF ERROR COMMITTED
BY ITS AGENTS
A FAVORABLE FINIDNG OR POSITION TAKEN BY BIR IN AN

INVESTIGATION INVOLVING A PARTICULAR TAXPAYER SHOULD
NOT BE A GROUND FOR ACCORDING THE SAME TREATMENT
TO A DIFFERENT TAXPAYER IN ANOTHER INVESTIGATION IF IN
THAT PREVIOUS INVESTIGATION ERROR WAS COMMITTED.
-
Government is NOT BOUND by errors committed by its

agents in previous investigations and assessments
PRINCIPLE IN TAX LAW ENFORCEMENT IS : Government is not

estopped by msitakes or errors of its agents
SC : BIR should not be allowed to defeat an otherwise valid

claim for refund by raising question of withholding agents
alleged incapacity to file claim for refund for first time on
appeal.
COURT : Government must follow same rules of procedure
which bind private parties
In case involving a claim fo refund of allegedly overpaid
taxes, the Government was bereft of any fatual basis to
oppose such claim and present evidence t dispute the same
-
erroneous application and enforcement of law by

public officers do not block subsequent
correct
application of statutes
ESTOPPEL DOES NOT APPLY TO DEPRIVE GOVERNMENT OF

ITS RIGHT TO RAISE DEFENSES
even if those defenses are being raised only for first

time on appeal
-
Procter and Gamble case : involving refund of alleged over

withheld final wihtolding tax on dividends paid out to a non
resident foreign cororation
BECAUSE of delay and inaction of a division in BIR to

submit the corresponding report on investigation
Government is NOT deprved of its right to file motion
for reconsideration against a decision of CTA allowing
refund in question
GOVERNMENT IS NOT ESTOPPED BY THE MISTAKES OR
NEGLIGENCE OF ITS OFFICIALS AND EMPLOYEEES
COURT : CIR VS CA
the defense of Government against the claim for

refund to effect a mere withholding agent is NOT
proper party that should claim such refund
WAS NOT NTERPOSED by government in lower court
but was raised only for first time on appeal
Government is NOT ESTOPPED from collecting taxes

legally due because of mistakes or errors of its agents
THIS ADMITS EXCEPTIONS IN INTEREST OF JUSTICE
AND FAIR PLAY , AS WHERE INJUSTCIE WILL RESULT TO
TAXPAYER
THIS COURT IS MINDFUL OF THE WELL ENTRENCHED
PRINCIPLE THAT THE GOVERNMENT IS NEVER
ESTOPPED FROM COLLECTING TAXES BECAUSE OF
MSITAKES OR ERRORS ON PART OF ITS AGENTS BUT
THIS RULE ADMITS OF EXCEPTIONS IN INTEREST OF
JSUTICE AND FAIR PLAY.
54
IS THERE ESTOPPEL AGAINST TAXPAYER?

-
not necessarily true in case of taxpayer

taxpayer made several requests for reinvestigation of
its tax liabilities such that the government, acceding to
taxpayers request, postponed the collection of its
liability
TAXPAYER CANNOT LATER ON BE PERMITTED TO RAISE
THE DEFENSE OF PRESCRIPTION INASMUCH AS HIS
PREVIOUS REQUESTS FOR REINVESTIGATION HAVE THE
EFFECT OF PLACING HIM IN ESTOPPEL
NATURE AND KINDS OF ASSESSMENTS

Assessement
-
official action of an administrative officer in

determining the amount of tax due from a taxpayer,
or it may be a notice to effect that the amount therein
stated
is due from taxpayer as a tax with a demand for
payment of tax
or deficiency stated therein
CLASSIFICATION OF ASSESSMENTS :
1. Self assessment assessed by taxpayer himself
a. Amount of tax assessed is reflected in tax return
that is filed by him
b. Tax assessed is paid at time he files return
c. This system of simultaneous filing fo return and
pament of tax is known as PAY AS YOU FILE
SYSTEM
54
2. Deficiency Assessment made by tax assessor

whereby correct amount of tax is determined after an
examination or investigation is conducted
a. Liability : determined and therefore assessed for
following reasons :
i. THE AMOUNT ASCERTAINED EXCEEDS
THAT WHICH IS SHOWN AS TAX BY THE
TAXPAYER IN HIS RETURN
ii. NO AMOUNT OF TAX IS SHOWN IN
RETURN
iii. TAXPAYER DID NOT FILE ANY RETURN AT
ALL
3. Illegal and Void Assessment assessment wherein tax
assessor has NO POWER to act at all
4. Erroneous Assessment assessment wherein assessor
has POWER TO ASSESSS BUT ERRS IN EXERCISE OF
THAT POWER
PRINCIPLES GOVERNING TAX ASSESSMENTS
1. Assessments are PRIMA FACIE PRESUMED CORRECT
AND MADE IN GOOD FAITH
a. Taxpayer has duty of providing otherwise
b. ABSENCE
OF
ANY
PROOOF
OF
ANY
IRREGULARITIES in performance of official
duties, an assessment will not be disturbed
c. ALL PRESUMPTIONS ARE IN FAVOR OF TAX
ASSESSMENTS
d. Failure to present proof of error in assessment
will justify judicial affirmation of said assessment
e. A party challenging an appraisers finding of
value is REQUIRED to prove not only that the
appraised value is erroneous B
f. BUT ALSO WHAT THE PORPER VALUE IS
2. Assessments should NOT BE BASE ON PRESUMPTION
NO MATER HOW LOGICAL THE PRESUMPTION MIGHT BE
a. Assessment must be absed on actual facts
b. PRESUMPTION OF CORRECTNESS OF AN
ASSESSMENT BEING A MERE PRESUMPTION, IT
CANNOT BE MADE TO REST ON AOTHER
PRESUMPTION THAT THE CIRCUMSTANCES
EXISTING IN A SUBSEQUENT INVESTIGATIVE
PERIOD ARE PRESUMED TO BE THOSE EXISTING
IN A PREVIOUS PERIOD
declarations made or to be made in a return required

to be filed under provisions of Tax Code:
o the commissioner, after taking into account the
sales, receipts, income, or other taxable base of
other persons engaged
o in similar businesses under similar situations or
circumstances or
o after considering other relevant information
o may prescribe a minimum amount of such gross
receipts, sales and taxable base and such
amount so prescribed
o
shall be prima facie correct for purposes
of determining correct internal revenue
tax liabilities of such person
Collector of Internal Revenue vs Benipayo

-
where taxpayer was investigated for amusement tax

purposes
the BIR examiner found that the ratio of adults
patronizing taxpayers theater was 3 adults to 1 child
ratio was in reverse 3 children to 1 adult. Concluding .
40 pesos ticket for adults was split into two .20 pesos
tax exempt tickers for children
examiner assessed the corresponding tax
COURT : assessment is faulty since it merely assumes
that the ratio of adults theatergoers in 1952 to 1953 is
same as that which obtained in 1949 to 1951
Surveillance method : taxpayers business operations may be

placed under observation or surveillance
-
if there is a reason to believe that the taxpayer is NOT

DECALRING HIS CORRET INCOME , SALES , OR
RECEIPTS FOR ITNERNAL REVENUE TAX PURPOSES
FINDINGS must be used as basis for assessing taxes
for other months or quarters of same or different
taxable years and such assessments shall be deemed
prima facie correct
PRESUMPTIVE GROSS SALES AND RECEIPTS METHOD

-
when it is found that a person has failed to issue

receipts and invoices in violation of law OR
when there is reason to believe that books of accounts
or other records do not correctly reflect the
3.
Assessment
COMMISSIONER
-
is
DISCRETIONARY
ON
PART
OF
Manadamus will not lie to compel him to assess a tax if

afer investigation he finds no ground to assess
MANDAMUS TO COMPEL THE COMMISSIONER TO
ASSESS WILL RESULT IN JUDICIAL ENCROACHMENT ON
EXECUTIVE FUNCTIONS
COURT : CIR may be compelled to assess by
mandamus if in the exercise of his discretion there is
evidence of arbitrariness and grave abuse of discretion
as to go beyond statutory authority
4.The authority vested in Commissioner to assess taxes

may be delegated
- an assessment signed by an employee for and in behald of
cir is VALID
56
- SETTELED : power to make final assessments cannot be
delegated cannot lawfully delegate that duty to another
5. Assessment must be directed to the right party
associations, joint ventures of consortia and registered

partnerships, and their members;
-
- IF TAXPAYER BEING ASSESSED IN AN ESTATE OF A

DECEDENT, the administrator should be the party to whom
assessment should be sent and not the heirs of decedent
INVESTIGATE POWERS OF COMMISSIONERL FACTUAL
BASIS OF ASSESSMENTS
-
56
SEC. 5. Power of the Commissioner to Obtain

Information, and to Summon, Examine, and Take
Testimony of Persons. - In ascertaining the
correctness of any return, or in making a return when
none has been made, or in determining the liability of
any person for any internal revenue tax, or in
collecting any such liability, or in evaluating tax
compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data

which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other
than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or
officer of the national and local governments,
government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and governmentowned or -controlled corporations, any information
such as, but not limited to, costs and volume of
production, receipts or sales and gross incomes of
taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies,
insurance companies, regional operating headquarters
of
multinational
companies,
joint
accounts,
(C) To summon the person liable for tax or required to

file a return, or any officer or employee of such person,
or any person having possession, custody, or care of
the books of accounts and other accounting records
containing entries relating to the business of the
person liable for tax, or any other person, to appear
before the Commissioner or his duly authorized
representative at a time and place specified in the
summons and to produce such books, papers, records,
or other data, and to give testimony;
(D) To take such testimony of the person concerned,
under oath, as may be relevant or material to such
inquiry; and
(E) To cause revenue officers and employees to make a
canvass from time to time of any revenue district or
region and inquire after and concerning all persons
therein who may be liable to pay any internal revenue
tax, and all persons owning or having the care,
management or possession of any object with respect
to which a tax is imposed.
The
provisions
of
the
foregoing
paragraphs
notwithstanding, nothing in this Section shall be
construed as granting the Commissioner the authority
to inquire into bank deposits other than as provided for
in Section 6(F) of this Code.
MEANS EMPLOYED IN ASSESSMENT OF TAXES

(A) Examination of returns and determination of tax due
(B) Failure to submit required returns, statements, reports
and
other documents
(C) Authority to conduct inventory-taking, surveillance and

to
prescribe presumptive
gross
and
receipts
(D) Authority
to
terminate
taxable
period
(E) Authority of the Commissioner to prescribe real
property
values
(F) Authority of the Commissioner to inquire into bank
deposit
account
(G) Authority to accredit and register tax agent
(H) Authority of the Commissioner to prescribe additional
procedural or documentary requirements
-
SEE TABLE MADE
NET WORTH METHOD : known as inventory method of

income tax verification
Very effective method of determining taxable income and
deficiency income tax due from a taxpayer
1. Basic concept and theory
a. Extension of basic accounting principle: ASSETS
MINUS LIABILITIES EQUALS NET WORTH
b. Taxpayers net worth is determined both at the
beginning and at end of same taxable year
c. Increase or decrease in net worth is adjusted by
adding all non deductible items and subtracting
therefrom non taxable receipts
d. GENERAL THEORY : taxpayers money and other
assets in excess of liabilities after accurate and
proper adjustment of non deductible and non
taxable items not accounted for in his tax return is
demed to be nreported income
2. The legal source of authority for its use
a. SEC. 43. General Rule. - The taxable income shall
be computed upon the basis of the taxpayer's
annual accounting period (fiscal year or calendar
year, as the case may be) in accordance with the
method of accounting regularly employed in
keeping the books of such taxpayer, but if no such
method of accounting has been so employed, or if
the method employed does not clearly reflect the
income, the computation shall be made in

accordance with such method as in the opinion of
the Commissioner clearly reflects the income
b. SECTION 6 PROVIDES FOR A BROAD AND GENERAL
INVESTIGATORY POWER TO ASSESS THE PROPER
TAX ON THE BEST EVIDENCE OBTAINEABLE
WHENEVER A REPORT REQUIRED BY LAW AS BASIS
FOR ASSESSMENT OF ANY NATIONAL INTERNAL
REVENUE TAX SHALL NOT BE FORTHCOMING
WIHTIN THE TIME FIXED BY LAW OR REGULATION,
OR WHEN THERE IS REASON TO BELIEVE THAT ANY
SUCH
REPOR
IS
FALSE,
INCOMPLETE
OR
ERRONEOUS
3. Conditions for the Us of the Net Worth Method
a. Taxpayers books of accoutns DO NOT CLEARLY
REFLECT HIS INCOME, OR THE TAXPAYER HAS NO
BOOKS, OR HE HAS BOOKS, HE REFUSES TO
PRODUCE THEM
b. That there is evidence of a possible source or
sources of income to account for increases in net
worth or exependitures
c. There is a fixed starting point or opening net worth
i. A date beginning with a taxable year or prior
to it, at which time the taxpayers financial
condition can be affirmatively established with
some definitnes
ii. Circumstances are such that : METHOD DOES
REFLECT THE TAXPAYERS INCOME
1. WITH REASONABLE ACCURACY AND
CERTAINTY
2. AND PROPER AND JUST ADDITIONS OF
PERSONAL EXPENSES
3. AND OTHER
4. NON
DEDUCTIBLE
EXPENDITURES
WERE MADE AND CORRECT, FAIR AND
5. EQUITABLE
CREDIT
ADJUSTMENTS
WERE GIVEN BY WAY OF ELIMINATING
NON TAXABLE ITEMS
CONDITIONS :
58
1. INADEQUATE RECORDS AS A PREREQUISITE
a. Whenever no method of accounting is employed
by taxpayer or
b. when the method does not clearly reflect true
income
c. the Commissioner is authorized to resort to any
method which in his opinion does reflect the
correct income.
i. This method of income determination
may be used when taxpayer has :
ii. no books of accounts, or
iii. when such books and record are not
available for examination, or where the
books are incomplete and inadequate
iv. GOVERNEMENT may be forced to resort to
the net worth method of proof where the
few records of taxpayer were destroyed.
v. To require more could be tantamount to
holding that skillful concealment is an
inevitable barrier to proof.
2. NEED FOR EVIDENCE OF THE SOURCE OF INCOME
a. In all leading cases on this matter, courts are
unanimous in holding that when tax cases in
civil in nature, direct proof of sources of income
is NOT ESSENTIAL
b. Government is NOT REQUIRED TO ENGATE all
possible non taxable sources of he alleged net
worth increases
c. Proofs of loans, gifts, bequest, inheritance and
the like need not be adduced in evidence by the
Government
d. Burden of proof is upon the taxpayer to show
that his net worth increase was derived from
non taxable sources.
e. SC : in civil cases , the assessor need not prove
specific source of income
f. BASIC ASSUMPTION : most assets are derived
from a taxable source and that when this is not
58
true, the taxpayer is in a position to explain the

discrepancy
g. HOWEVER, when a taxpayer is criminally
prosecuted for tax evasion, the need for
evidence of a likely source of income becomes a
prerequisite for a successful prosecution
h. BURDEN OF PROOF in criminal case : always
with Government
i. Incumbent upon revenue agents to negate all
possible sources of non-taxable receipts in
addition to adducing evidences to satisfy all
other three conditions
j. Conviction in such cases, as in any criminal
case, rests on proof beyond reasonable doubt.
3. A DEFINITE STARTING POINT OR OPENING NET WORTH
a. This is an essential condition, considered to eb
the cornerstone of a net worth case
b. IF starting point or opening net worth : PROVEN
TO BE WRONG, the whole superstructure usually
fails
c. The courts have uniformly stressed : validity of
result of any investigation under this method
will depend entirely upon a correct opening net
worth
d. Where the CIR used as part of the opening net
worth the small bank deposit of taxpayer at the
beginning of year 1964,
e. and taxpayer presents in court the income tax
return for 1946 of his wife to show that his wife
made a gain prior to that period,
f. and that therefore he had opening net worth
bigger than that used by the Commissioner,
g. But said return does not contain any detail to
indicate how alleged gain was used, invested or
deposited,
h. HELD : lower court was correct in
considering said return as self serving
statement and in giving no credence to the
alleged existence of a bigger opening net

worth corresponding to said supposed gain
of the wife
i. WHERE A TAXPAYER CLAIMS A BIG OPENING NET
WORTH, THE EVIDENCE SUPPORTING IT MUST
BOTH BE COMPETENT AND TRUSTWORTHY
4. PROPERADJUSTMENTS TO CONFORM WITH INCOME
TAX LAWS
a. Proper adjustments for non-deducctible items
must be made
b. Under this category are:
i. Personal
ii. Living or family expenses
iii. Premiums paid on any life insurance
policy
iv. Losses from sales or exchanges of
property between members of family
v. Income taxes paid
vi. Estate
vii. Inheritance
viii. Gift taxes
ix. Other non ductible taxs
x. Election expenses and other expenses
against public policy
xi. Non deductible contributions
xii. Gifts to others
xiii. Net capital loss
xiv. And the like
c. THERE MUST BE ADDED TO THE INCREASE OR
DECREASE IN NET WORTH as case may be
d. Non taxable items should be deducted
therefrom.
e. These items are necessary adjustments to avoid
the inclusion of what otherwise are non- taxable
receipts
f. They are :
i. Inheritance
ii. Gifts
iii. Bequests received
iv. Non taxable capital gains
v.
vi.
vii.
viii.
g.
h.
i.
j.
k.
l.
Compensation for injuries or sickness

Proceeds of life insurance policies
Sweepstakes winnings
Interest o government securities and the
like
CASE : ONE HALF OF THE LONG TERM CAPITAL
GAINS FROM THE SALE OF CAPITAL ASSETS AND
DEPRECIATION OF RENTAL PROEPRTIES WERE
DEDUCTED BY COURT FROM INCREASE IN NET
WORTH
As to loans, important to consider that oral
testimony of creditor to prove a debt, as a rule
is INSUFFICIENT FOR PURPOSES OF INCOME TAX
LAW
COURT: a loan was not proven to exist where the
books of taxpayer failed to show such loan and
where no receipts or other evidence were
advanced to prove the loan
Increases in net worth are not taxable if they are
shown not to be the result of unreported income
but to be merely the result of correction of
errors in taxpayers entries in books relating to
its
indebtedness
to
certain
creditors,
erroneously listed although already paid
COURT : the very nature of loan transactions
between individuals such transactions are easily
concoted especially between friends and
relatives, so that promissory notes vales checks
and other similar document, in the absence of
other
relevant
evidence
deserve
scant
consideration
In order : such transactions may be considered,
their existence must be proved by clear and
convincing evidence independent of promissory
notes, vales checks or similar documents
ENFORCEMENT OF FORFEITURES AND PENALTIES
60
The commissioners powers are not only limited to
assessment and collection of taxes but they also extend to
enforcement of forfeitures, penalties and fines.
In case of violations committed against the provisions of Title
VI of tax code on excise taxes,
- as in cases where products subject to excise taxes like
cigarettes and alcoholic products
- are removed from place of production
- without payment of such taxes, or
- where such articles are imported
BUT ARE REMOVED FROM CUSTOMS CUSTODY
WITHOUT THE PAMENT OF SUCH TAXES
- COMMISIONER IS AUHTORIZED TO INSTITUTE THE
NECESSARY ACTION FOR THE CONFISCATION AND
FORFEITURE OF PROCEEDS OF CRIME OR VALUE OF
GOODS, AND THE INSTRUMENTS OR TOOLS WITH
WHICH THE CRIME WAS COMMITTED NOW
As to enforcement of fines and penalties, Section 253 :
- authorizes Commissioner to recommend the filing of a
criminal action for the collection of internal revenue
taxes, fees and charges
Section 221:
- more penalties and forfeitures will be discussed in a
later portion of this chapter
ACTUAL PRACTICE : COMMISSIONER RECOMMENDS TO THE
STATE, CITY OR PROVINCIAL PROSECUTOR THE FILING OF
CRIMINAL ACTION AGIANST TAXPAYER
SUPERVISORY AND POLICE POWERS OF THE BIR
-
60
power of supervision to insure effective compliance

with statutory requirements
Section 152 : IR has authority to supervise
establishments where articles subject to excise tax like
alcohol and tobacco products are stored
POLICE
POWER
:
Tax
Code
empowers
the
Commissioner, his deputies, regional directors,
revenue district officers and other internal revenue
officers to make arrests and seizures for the violation
of any penal law or regulation administered by BIR
AUTHORITY OF COMMISSIONER TO DELEGATE POWER

Section 7, 1997 NIRC
SEC. 7.Authority of the Commissioner to Delegate
Power. - The Commissioner may delegate the powers vested
in him under the pertinent provisions of this Code to any or
such subordinate officials with the rank equivalent to a
division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations
to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner: Provided, however,
That the following powers of the Commissioner shall not be
delegated:
(a) The power to recommend the promulgation of rules and
regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to
reverse, revoke or modify any existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A)
and (B) of this Code, any tax liability: Provided, however, That
assessments issued by the regional offices involving basic
deficiency taxes of Five hundred thousand pesos (P500,000)
or less, and minor criminal violations, as may be determined
by rules and regulations to be promulgated by the Secretary
of finance, upon recommendation of the Commissioner,
discovered by regional and district officials, may be
compromised by a regional evaluation board which shall be
composed of the Regional Director as Chairman, the
Assistant Regional Director, the heads of the Legal,

Assessment and Collection Divisions and the Revenue District
Officer having jurisdiction over the taxpayer, as members;
and
(d) The power to assign or reassign internal revenue officers
to establishments where articles subject to excise tax are
produced or kept.
REPUBLIC vs HIZON :
- subject complaint for collection of a tax deficiency was
duly filed upon authority of Commissioner by the then
BIR Commissioner
- despite the fact that it was not signed by the then BIR
commissioner, in compliance with Section 21, which
was implemented by RAO 5-83
POWERS AND DUTIES OF THE REGIONAL DIRECTOR
1. Implement laws, policies, plans, programs, rules and
regulations of the department in regional area
2. Administer and enforce internal revenue laws and rules
and regulations, including the assessment and
collection of all internal revenue taxes, charges and
fees
3. Issue letters of authority for examination of taxpayers
within the region
4. Provide economical, efficient and effective service to
the people in the area
5. Coordinate with regional offices or other departments,
burearus and agencies in area
6. Coordinate with local government units in area
7. Exercise control and supervision over the officers and
employees within the region
8. Perform such other functions as may be provided by
law and as may be delegated by Commissioner
DUTIES OF REVENUE DISTRICT OFFICERS AND OTHER

INTERNAL REVENUE OFFICERS
SEC. 11. Duties of Revenue District Officers and Other
Internal Revenue Officers. - It shall be the duty of every
Revenue District Officer or other internal revenue officers and
employees to ensure that all laws, and rules and regulations
affecting national internal revenue are faithfully executed
and complied with, and to aid in the prevention, detection
and punishment of frauds of delinquencies in connection
therewith.
It shall be the duty of every Revenue District Officer to
examine the efficiency of all officers and employees of the
Bureau of Internal Revenue under his supervision, and to
report in writing to the Commissioner, through the Regional
Director, any neglect of duty, incompetency, delinquency, or
malfeasance in office of any internal revenue officer of which
he may obtain knowledge, with a statement of all the facts
and any evidence sustaining each case.
AUTHORITY OF A REVENUE OFFICER
SEC. 13. Authority of a Revenue Officer. - Subject to the
rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, a
Revenue Officer assigned to perform assessment functions in
any district may, pursuant to a Letter of Authority issued by
the Revenue Regional Director:
1. examine taxpayers within the jurisdiction of the district
in order to collect the correct amount of tax,
2. to recommend the assessment of any deficiency tax
due in the same manner that the said acts could have
been performed by the Revenue Regional Director
himself.
62
Letter of Authority
- refers to the letter informing a taxpayer
- that a certain revenue officer is authorities
to examine the books of accounts and other
accounting records of
- said taxpayer for purpose of verifying his tax liabilities
during taxable year
9. internal revenue officers and

10.any other employee of the Bureau thereunto
11.especially deputized by the Commissioner :
- shall have the power to administer oaths and to
take testimony in any official matter or
investigation conducted by them regarding
matters within the jurisdiction of the Bureau.
Service of the Letter of Authority

- the LA must be served to the taxpayer within 30 days
from its date of issue
- otherwise, it becomes NULL AND VOID
- and taxpayer has all the right to refuse its service
SEC. 15. Authority of Internal Revenue Officers to

Make Arrests and Seizures.
Revenue officer shall, within 120 days from date of issuance

and service of LA, conduct his audit and submit his report of
investigation.
- final report is NOT COMPELETED within 120 day period,
A PROGRESS REPORT MUST BE SUBMITTED TO THE
HEAD OF AUDIT OFFICE
- THE REVALIDATION SHALL BE LIMITED TO ONE
ISSUANCE ONLY AND IS ONE BY ISSUING A NEW LA
SECTION 14 : Authority of Officers to Administer Oaths

and Take Testimony
1.
2.
3.
4.
5.
The Commissioner,
the Deputy Commissioners,
the Revenue Regional Directors,
the Revenue District Officers
other internal revenue officers s:
a. Shall have authority to make arrests and seizures
for the violation of any penal law, rule or
regulation administered by the Bureau of Internal
Revenue. Any person so arrested shall be
forthwith brought before a court, there to be dealt
with according to law.
Assignment of Internal Revenue Officer Involved in

Excise Tax Functions
Section 16 of 1977 NIRC : The Commissioner shall :
The :
1.
2.
3.
4.
5.
6.
7.
8.
62
Commissioner Deputy Commissioners

Service Chiefs
Assistant Service Chiefs
Revenue Regional Directors
Assistant Revenue Regional Directors
Chiefs and Assistant Chiefs of Divisions
Revenue District Officers
Special deputies of the Commissioner
1. employ,
2. assign,
3. or reassign internal revenue officers
a. involved in excise tax functions, as often as the
exigencies of the revenue service may require, to
establishments or places where articles subject to
excise tax are produced or kept:
b. DURATION OF ASSIGNMENT : That an internal
revenue
officer
assigned
to
any
such
establishment shall in no case stay in his

assignment for more than two (2) years, subject to
rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the
Commissioner.
SEC. 17. Assignment of Internal Revenue Officers and

Other Employees to Other Duties. - The Commissioner
may, subject to the provisions of Section 16 and the laws on
civil service, as well as the rules and regulations to be
prescribed by the Secretary of Finance upon the
recommendation of the Commissioner, assign or reassign
internal revenue officers and employees of the Bureau to
other or special duties provided the following requisites are
complied with :
1. That the assignment would not change the official rank
and salary of personnel assigned
2. That the assignment involves duties connected with
enforcement and administration of the revenue law as
the exigencies of service may require
3. That the assignment shall NOT EXCEED ONE YEAR
Other or special duties refer not to a special or
extraordinary undertaking, but to functions or work other
than or not related to those regularly discharged by the
employee concerned
immediate superior, giving the name and address of the

offender and the names of the witnesses if possible:
Provided, That in urgent cases, the Revenue Regional director
or Revenue District Officer, as the case may be, may send
the report to the corresponding prosecuting officer in the
latter case, a copy of his report shall be sent to the
Commissioner.
URGENT CASES : covers a situation where the violator is an
alien or a citizen
- who is attempting to escape from country or
- one who intends to remove, hide or conceal his
property from the Philippines
- for the purpose of defeating taxation
SEC. 21. Sources of Revenue. - The following taxes, fees
and charges are deemed to be national internal revenue
taxes:
(a)
Income
tax;
(b)
Estate
and
donor's
taxes;
(c)
Value-added
tax;
(d)
Other
percentage
taxes;
(e)
Excise
taxes;
(f)
Documentary
stamp
taxes;
and
(g) Such other taxes as are or hereafter may be imposed and
collected by the Bureau of Internal Revenue.
An internal revenue officer assigned to perform assessment

or collection functions shall not remain in the same
assignment for more than three years
Statutory Offenses and Penalties
SEC. 18. Reports of Violation of Laws. - When an

internal revenue officer discovers evidence of a violation of
this Code or of any law, rule or regulations administered by
the Bureau of Internal Revenue of such character as to
warrant the institution of criminal proceedings, he shall
immediately report the facts to the Commissioner through his
1. Meaning of additions to the tax

a. Additions to the tax are increments to the basic tax
incident due to the taxpayers non compliance
with certain elgal requirements, like taxpayers
Addition to the Tax
64
refusal or failure to pay taxes on time and /or other
violations of taxing provisions in the law
b. Additions to the tax consists of the :
i. Civil penalty (surcharge) 25% or 50% of
tax depending upon nature of violation
ii. Interest either for a deficiency tax or
delinquency as to payment
iii. Other civil penalties or administrative fines
such as for failure to file certain information
returns
and
violations
committed
by
withholding agents
2. General Considerations on Additions to Tax
Chapter VI
Tax Remedies Remedies of Government
Importance of Tax Remedies
1. safeguards against arbitration
2. While taxes are lifeblood of government and should be
collected without unncecessary hindrance, such
collection must nevertheless be made in accordance
with law
3. Any arbitrariness will negate the very reason for the
Government itself
CASE :
1. The Government, in order to ensure tax collection,
may adopt or prescribe coercive measure as in a case
where the payment of a local tax is made as a
condition to the registration and transfer of motor
vehicles
64
2. Capital gain tax on sale , exchange, or other

disposition by individuals of real property which are
capital assets
3. With respect to the 6% capital gains tax, Section 56
provides that :
a. SEC. 56. Payment and Assessment of
Income
Tax
for
Individuals
and
Corporations. - (A) Payment of Tax.
b. NO registration of any document transferring
real property shall be effected by the Register of
Deeds, UNLESS the Commissioner of Internal
Revenue or his duly authorized representative
has certified that such transfer has been
reported and tat the capital gains or creditable
withholding tax, if any, has been paid
RULE ON NO INJUNCTION TO RESTRAIN TAX
COLLECTION
SEC. 218. Injunction not Available to Restrain
Collection of Tax. - No court shall have the authority to
grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by this Code.
What is the justification for this rule?
- COURT : a provision in an internal revenue law
prohibiting the courts from enjoining the collection of
an internal revenue tax is NOT INVALID as opposed to
the due process and equal protection clauses of the
Constitution
- COURT : its upon taxation that the Government chiefly
relies to obtain the means to carry on its operations
and it is the utmost importance that the means
adopted to enforce the collection of taxes levied
should be summary and interfered with as little as
possible
EXCEPTION TO NO INJUNCTION TO RESTRAIN TAX
COLLECTION :
1. when a decision of the commissioner on a tax protest

is APPEALED to CTA pursuant to
2. Section 11 RA 1125 ( law creating the CTA)
3. In relation to Section 228 of 1997 NIRC
4. Such appeal does not suspend the payment, levy,
distraint and/or sale of any of the taxpayers property
for the satisfication of his tax liability
HOWEVER, when in the opinion of the CTA the collection of

tax may jeopardize the interest of the Government and/or
taxpayer, THE COURT AT ANY STAGE OF PROCEEDINGS MAY
SUSPEND OR RESTRAIN THE COLLECTION AND REQUIRE
TAXPAYER EITHER TO DEPOSIT THE AMOUNT CLAIMED OR T
FILE A SURETY BOND FOR NOT MORE THAN DOUBLE THE
AMOUNT WITH COURT
Suppose the BIR, during pendency of appeal in Court of Tax

Appeals, files a civil action in RTC for the collection of tax
liability, what is the remedy of the taxpayer?
- TAXPAYER MAY FILE A MOTION IN RTC FOR THE
DISMISSAL OF CASE ON GROUND THAT THERE IS NO
BASIS FOR COLLECTING THE TAX WHERE THE
ASSESSMENT THEREOF IS STILL UNDER DISPUTE IN
CTA
COLLECTIBILITY OF TAX AS A BASIS FOR COLLECTION
ENFORCEMENT
-
where the unpaid tax is a tax due per return as in the

case of a self assessed income under the pay as
you - file system, collection may be instituted without
need of any assessment
SEC. 228. Protesting of Assessment. - When the

Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a pre-
assessment notice shall not be required in the following

cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the
tax withheld and the amount actually remitted by the
withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit
of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied
the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
(d) When the excise tax due on excisable articles has not
been paid; or
(e) When the article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and
66
manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest,
all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from submission
of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the said decision, or
from the lapse of one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and
demandable.
Basic consideration : whether the assessment is final and
unappealable, or decision of the Commissioner is final,
executor, and demandable, is WHETHER THE BIR HAS LEGAL
BASIS TO COLLECT THE TAX LIABILITY EITHER BY DISTRAINT
AND LEVY OR BY CIVIL ACTION
REMEDIES OF GOVERNMENT
1.
2.
3.
4.
5.
6.
7.
8.
66
Tax Lien
Compromise
Distraint and Levy
Civil Action
Criminal Action
Forfeiture
Suspension of business operations for violations of VAT
Enforcement of administrative fines
NOTE : remedies of distraint and levy as well as collection by

civil and criminal actions, may in the discretion of
Commissioner, be pursued
- SINGLY AND INDEPENDENTLY OF EACH OTHER
- Or all of them simultaneously
The remedies and levy SHALL NOT BE AVAILED OF WHERE
THE AMOUNT OF TAX INVOLVED IS NOT MORE THAN 100
pesos.
- The judgment in criminal case shall not only impose
the penalty
- BUT SHALL ALSO ORDER PAYMENT OF TAXES
- SUBJECT TO CRIMINAL CASE
- AS FINALLY DECIDED BY COMMISSIONER
TAX LIENS
- When a taxpayer neglects or refuses to pay his internal
revenue tax liability after deman, the AMOUNT so
demanded SHALL BE A LIEN
- In favor of the Government from the time assessment
was made by Commissioner
UNTIL PAID with interest, penalties, and costs that
may accrue in addition thereto upon all property and
rights to property belonging to taxpayer
WHEN DOES THE LIEN OF THE GOVERNMENT FOR UNPAID
INTERNAL REVENUE TAXES ARISE?
- COURT : TAX LIEN ATTACHED NOT ONLY FROM SERVICE
OF WARRANT OF DISTRATINT OF PERSONAL PROPERTY
- BUT FROM THE TIME TAX BECAME DUE AND PAYABLE
Section 219, HOWEVER
That this 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.

Other types of liens like : LIEN UNDER VAT LAW
107B, 1997 NIRC)
(1) A reasonable doubt as to the validity of the claim against

the taxpayer exists; or
( Section
CASE :
1. if goods are imported by eprsons, entitites or agencies
which are EXEMPT from tax but such goods are
subsequently sold, transferred or exchanged in
Philippines to non exempt persons or entities, the
pruchasers, transferees or recipients
2. SHALL BE CONSIDERED THE IMPORTERS THEREOF
WHO SHALL BE LIABLE FOR ANY INTERNAL REVENUE
TAX ON SUCH IMPORTATION
3. TAX DUE ON SUCH IMPORTATION SHALL CONSITUTE A
LIEN ON THE GOODS, SUPERIOR TO ALL CHARGES OR
LIENS ON GOODS, IRRESPECTIVE OF POSSESSOR
THEREOF
4. THIS IS CONSTRUCTIVE IMPORTATION TAX EXEMPT
CASE :
1. case of articles imported into country free from excise
tax ( tax on tobacco and alcoholic products,
petroleum)
2. By tax exempt persons and entities and subsequently
sold, exchanged, or transferred to non exempt
persons whereby a similar tax lien on articles exists
until tax thereon is paid
COMPROMISES
SEC. 204. Authority of the Commissioner
Compromise, Abate and Refund or Credit Taxes. -
to
The Commissioner may (A) Compromise the payment of any internal revenue tax,
when:
(2) The financial position of the taxpayer demonstrates a

clear inability to pay the assessed tax.
THE COMPROMISE SETTLEMENT OF ANY TAX LIABILITY BASED
ON FINANCIAL INCAPACITY TO PAY SHALL BE SUBJECT TO THE
MINIMUM COMPROMISE RATE EQUIVALENT TO 10% OF BASIC
ASSESSED TAX
-
taxpayers offer to compromise shall not be considered

UNLESS and until he waives in writing his privilege
under RA 1405 or under other general or special laws
such waiver shall constitute the authority of
Commissioner to inquire into his bank deposits
A minimum compromise rate equivalent to 40% of
basic tax assessed shall be imposed
COMPROMISE
Reduction
of
liability
taxpayers
ABATEMENT
Entire tax liability of taxpayer
is cancelled
GROUNDS :
(1) The tax or any portion
thereof
appears
to
be
unjustly
or
excessively
assessed; or
(2) The administration and
collection costs involved do
not justify the collection of
the amount due.
68
All criminal violations may be compromised except:

(a) those already filed in court, or
(b) those involving fraud
In general,, the taxpayers criminal liability arising from his
violatiof pertinent provision of code may be settled extrajudicially instead of BIR instituting against taxpayer a
criminal action in Court
A compromise in extrajudicial settlement of taxpayers
criminal liability for his violation is CONSENSUAL in character
- MAY NOT BE IMPOSED ON TAXPAYER WITHOUT HIS
CONSENT
- BIR MAY ONLY SUGGEST SETTLEMENT OF TAXPAYERS
LIABILITY THROUGH A COMPROMISE
Extrajudicial settlement of taxpayers criminal liability and
amount of suggested compromise penalty shall conform with
schedule of compromise penalties provided under relevant
BIR regulations or orders
DELEGATION OF POWER TO COMPROMISE
c) The power to compromise or abate, under Sec. 204 (A) and
(B) of this Code, any tax liability: Provided, however,
That assessments issued by the regional offices involving
basic deficiency taxes of Five hundred thousand pesos
(P500,000) or less, and minor criminal violations, as may be
determined by rules and regulations to be promulgated by
the Secretary of finance, upon recommendation of the
Commissioner, discovered by regional and district officials,
may be compromised by a regional evaluation board which
shall be composed of the Regional Director as Chairman, the
68
Assistant Regional Director, the heads of the Legal,

Assessment and Collection Divisions and the Revenue District
Officer having jurisdiction over the taxpayer, as members
If taxpayer fails to abide by compromise arrangement, the
Government could either INSIST ON COLLECTION OF
COMPROMISED SUM, or DISREGARD THE COMPROMISE AND
COLLECT THE ORIGINAL TAX DUE
POWER TO COMPROMISE NOT ABSOLUTE
May a case still be compromised even after final judgement?
- NO
CASE:
- the government won and a fine was imposed based on
original appraisement of certain jewelry
- however, later on, Commissioner of Customs, with
approval of Department of Finance, ordered a
reappraisal of article in question and entered into a
compromise
- SC: COMPROMISE WAS IMPROPER
o AS A MERE AGENT OF GOVERNMENT,
o THE COMMISSIONER OF CUSTOMS IS NOT
AUTHORIZED TO ACCEPT ANYTHING
o LESS THAN WHAT IT IS ADJUDICATED
o IN FAVOR OF GOVERNMENT
o BY VIRTUE OF FINAL JUDGEMENT : GOVERNMENT
HAD ALREADY ACQUIRED A VESTED RIGHT
NATURE OF COMPROMISE PENALTY
- a certain amount of money which the taxpayer pays to
compromise a tax violation
- paid in lieu of a criminal prosecution
A compromise implies mutual agreement
-
a compromise penalties cannot be imposed in absence

of a showing that the taxpayer consented thereto.

-
If commissioners offer of compromise is rejected by

taxpayer, the Commissioner CANNOT ENFORCE it but
he may file a criminal action against the taxpayer for
the tax violation
COMMISSIONER HAS NO POWER TO IMPOSE AND
COLLECT THE SO CALLED COMPROMISE PENALTIES IN
ABSENCE OF A COMPROMISE AGREEMENT VALIDLY
ENTERED INTO BETWEEN THE TAXPAYER AND
COMMISSIONER
Compromise penalties being voluntary in character, they may

be collected only if taxpayer is willing to pay them.
- where in an appeal to CTA, the taxpayer has expressed
his willingness to pay compromise penalties, said
amounts may be collected as part of judgement
Suppose the taxpayer reneges on his conformity to the
payment of the suggested compromise, may the
Commissioner collect the compromise pnalty thru an action
in court by disraint and levy?
-
A COLLECTION ACTION DOES NOT LIE BECAUSE A

COMPROMISE PENALTY IS NEITHER A TAX NOR AN
ADMINISTRATIVE PENALTY FOR TAX DELINQUENCY
COLLECTION BY DISTRAINT AND LEVY

-
remedies which run parallel, in point of importance to

remedies of collection by civil and criminal actions
known as summary, extrajudicial, or administrative
enforcement remedies
DISTRAINT vs LEVY
DISTRAINT
Remedy whereby collection
of taxes is enforced on
-
goods
chattels
effects
other
personal
property of
whatever character of
taxpayer including :
o stocks
o other securities
o debts
o credits
o bank accounts
o and interests in
and rights to
personal
property
- levy may be made before

simultaneously with or after
the distraint of personal
property
belonging
to
delinquent taxpayer
ACTUAL vs COSNTRUCTIVE DISTRAINT

ACTUAL
CONSTUCTIVE
As a collection remedy is
resorted to when delinquency
in payment sets in
One
where
no
actual
delinquency
is
necessary
before the same is resorted
to
In following isntances (where
EXAMPLE : when at a time
LEVY
The collection enforcement is
effected on real property and
interst in or rights to real
property
of
delinquent
taxpayer
70
required for payment, a
person fails to pay his tax
obligation
actual delinquency may not

be necessarily present) the
remedy
of
cosntuctive
distraint may be availed of:
1. The taxpayer is retiring
from
any
business
subject to tax
2. He intends to leave
Philippines
3. He
removes
his
property therefrom
4. He performs any act
tending to obstruct the
proceedings
for
collecting the tax due
or which may be due
from him
Consists of:
-
Actual
seizure
and
distraint of personal
property of taxpayer
Goods
Chattels
Effects
Stocks
In sufficient quantity to
satisfy the tax charge,
together
with
any
increment thereto incident
to
delinquency,
the
expenses of distraint and
cost of subsequent sale
70
POSSIBLE THAT : constructive distraint may be applied even

if an actual tax delinquency on part of taxpayer already
exists
- Constructive distraint is a preventive remedy the aime
of which is to forestall a possible dissipation of
taxpayers assets when delinquency takes place.
PROCEDURE Check handwritten notes
CIVIL ACTION resorted to when a tax liability becomes

collectible
Collectability of a tax arises in following instances :
1. When a tax is assessed and the the assessment
becomes final and unappealable because the taxpayer
fails to file an administrative protest with BIR within 30
days from receipt of assessment
2. When an administrative protest filed by taxpayer
against the assessment is DENIED, in whole or in part
a. Or is not acted upon within 180 days from
submission of documents
b. Taxpayer adversely affected by the decision or
inaction fails to file an appeal
c. With CTA within 30days from receipts of said
decision
d. Or from lapse of 180 day period
A civil action may also be field in order to collect the so
called self assessed tax
- which is computed by the taxpayer himself and
reflected in his return under the pay as you file
system
NO CIVIL OR CRIMINAL ACTION FOR RECOVERY OF TAXES

SHALL BE FILED IN COURT WIHTOUT APPROVAL OF
COMMISSIONER
NOTES :
1. Regional Directors amy also approve the filing of civil
action for tax collection if this power is expressly
delegated to them by Commissioner under appropriate
memorandum orders on the matter
2. Civil actions for collection are filed in regulat courts,
and NOT IN CTA
Complaints in civil actions for collection of delinquent taxes
are required to be approved by Solicitor General before they
are filed .
- However, BIR elgal officers deputized as Special
Attornerys and
- stationed outside Metro Manil
- may file verified complaints without the approval of
Solicitor General subject to following requirements:
o Solicitor General should be furnished a copy of
complaint
o Solicitor general files a notice of appearance in
court where action is filed..
o If complaint is FOUND TO BE IMPROPERLY
FILED : Motion to dismiss is likewise filed with
the court
o SEC. 220. Form and Mode of Proceeding in
Actions Arising under this Code. - Civil and
criminal actions and proceedings instituted in
behalf of the Government under the authority of
this Code or other law enforced by the Bureau of
Internal Revenue 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 but no civil or criminal action
for the recovery of taxes or the enforcement of
any fine, penalty or forfeiture under this Code
shall be filed in court without the approval of the

Commissioner.
COLLECTION IN CASES WHERE THE ASSESSMENT IS
FINAL
AND
UNAPPEALABLE
Case:
COLLECTIBILITY OF A TAX DUE TO TAXPAYERS
INABILITY OR FAILURE TO DISPUTE THE ASSESSMENT WITHIN
30 DAY REGLEMENTARY PERIOD
1. 1.6M
2. 1.5M
3. 1.7M
4. 1.5M
5. were asssed agains the estate of late spouses Teodoro
6. heirs then filed a request of reconsideration of the
assessments and at the same time asked that they be
given 30 days within which to submit their position
paper in support of their claim
-
When Government sought to collect the tax liabilities

in the settlement proceedings on the estate, the heirs
interposed the defense that the assessements have
not become final and executor
- SC : the request for recon cannot be considered as a
protest against the assessment.
o The failure of heirs to substantiate thir claim
against the assessment due to the nonsubmission of their position paper justified the
Commissioners action in collectint tax in
settlement proceedings
CASE :
1. COURT : taxpayers failure to dispute the assessment
effectively by complying with the conditions laid down
by BIR, such as specifying uner oath the grounds of his
protest, paying one-half of amount assessed and
putting up a bond for balance, provided a legal basis
for government to collect the taxpayers liability by
ordinary civil action
72
2. COURT : apart from failing to seasonably file the
required estate tax return, petitioner and the other
marcos heirs FAILED to question the assessments
served on them as heird of late president, thereby
allowing said assessment to lapse into finality.
a. Said deficiency tax assessments having become
final, executor and demandable same may be
already be collected by summary remedy of
distraint or levy
COLLECTION CASES WHERE THE BIRS DECISION IS
FINAL, EXECUTORY, AND DEMANDABLE
1. taxpayer filed with BIR a request for reinvestigation
after he was assessed the sum of 16k as deficiency
income tax for 1957 1960. Subsequently, a letter
decision demanding paymnt was issued. HOWEVER
SINCE TAXPAYER DID NOT APPEA, A CIVIL ACTION FOR
COLLECTION WAS FILED BY GOVERNMENT
a. SC : taxpayers failure to appeal the Commissioners
ecision to CTA deprived him of right to question the
Commissioners authority to collect the tax within the
prescriptive period provided by law
2. SC : where taxpayer failed to comply with a condidition
laid down by Commissioner for reinvestigation of case
and its failure to appeal to CTA made the assessment
final and executor, so that if an action to collect tax
assessed id filed by Government in court, this is akin to
an action to enforce a judgement such that NO
INQUIRY CAN BE MADE THREON AS TO MERITS OF THE
ORGINAL CASE OR THE JUSTNESS OF JUDGEMENT
RELIED UPON
Suppose there is a pending protest or a request for

reinvestigation in BIR, is the Commissioner required to rule
72
first on such pending request before he can go to court for

purpose of collecting tax assessed?
-
NOT NECESSARY
SC : nowhere in tax code is the commissioner required
to rule first on taxpayers rqust for rinvstigation befor
he can go to court for the purpose of collecting tax
assessed.
- THE LEGISLATIV POLICY IS TO GIVE COMMISSIONR
MUCH LATITUDE IN THE SPEEDY AND PROMPT
COLLECTION OF TAXS BECAUSE IT IS ON TAXATION
THAT THE GOVERNMENT DEPENDS TO OBTAIN THE
MEANS TO CARRY ITS OPERATIONS
WHEN COMMISSIONER DID NOT REPLY TO TAXPAYERS
REQUEST FOR RECONSIDERATION AND ISNTEAD REFFERED
THE CASE TO SG FOR JUDICIAL COLLECTION, THIS WAS
INDICATIVE OF HIS DECISION AGAINST REINVESTIGATION
-
SHOULD THE COMMISIONER DECIDE TO COLLECT TAX

ASSESSED without first deciding the taxpayers protest
or request for reinvestigation and/or reconsideration, =
THE EFFECT IS THAT THE COMMISSIONERS ACTION IS
A DECISION OF DENIAL IN WHICH EVENT THE
TAXPAYER MAY FILE AN APPEAL WITH CTA PRUSUANT
TO THE PROVS OF SECTION 11 RA 1125
Filing of cicil action in court to collect a tax which was the

subject matter of a pending protest in BIR was a justifiable
basis for taxpayer to appeal to CTA
- And to move for dismissal in C of Governments action
to collect the tax liability under dispute
DEFENSES PRECLUDED BY FINAL AND EECUTORY
ASSESSMENTS
1. VALIDITY OR LEGALITY OF ASSESSMENT a disputed
assessment for internal revenue taxes falls within the
exclusive jurisdiction of CTA
a. Where a taxpayer can ventilate the defenses as

against the assessment
b. ONCE A DECISION OF BIR ON A DISPUTED
ASSESSMENT BECOMES FINAL, EXECUTORY AND
DEMANDABLE FOR LACK OF AN ADMINISTRATIVE
PROTEST AGAINST THE ASSESSMENT OF HIS
FAILURE TO APPEAL TO THE CTA WITHIN THE
REGLEMENTARY 30 DAY PERIOD, DEFENSE
BEARING ON THE LEGALITY OR VALIDITY OF
ASSESSMENT
WOULD
NECESSARILY
FALL
OTUSIDE THE JURISDICTION OF REGULAR
COURTS
2. PRESCRIPTION OF GOVERNMENTS RIGHT TO ASSESS
a. Not availebl since same should be subject of
taxapayers appeal to the CTA
b. The right
of government to object to the
defense of prescription of governments right to
assess MAY BE WAIVED
c. IF IN ANCTION to collecti a final and executor
assessment, the government litigated on the
issue of prescription and submitted for the
resolution of court
d. BY ACTUATION :government waived its right to
object to the setting up of such defense
COLLECTION THRU FILING OF BIRS ANSWER IN CTA

-
can be collected by government thru filing an answer

to taxpayers petition for review in cases where the
taxpayer appeals to CTA
SC: the fact tha no civil action to collct the taxpayers
tax liability was filed by the Government is NO
GROUND for claiming that the right of Government to
collect said liability had already prescribed
COURT : PRESCRIPTION had not set in asmuch as
governments answer in the CTA was filed well within
the prescriptive period prescribed by law
Answer filed in tax court was tantamount to the filing
of a civil action for collection in regular court.
When an action for collection is filed in regular courts,

prescription is tolled
LIABILITY OF STOCKHOLDERS FOR UNPAID TAXES OF

DISSOLVED OR DEFUNCT CORPORATION
Section 52 ( C ) :
(C) Return of Corporation Contemplating Dissolution
or Reorganization. - Every corporation shall, within thirty
(30) days after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of
the whole or any part of its capital stock, including a
corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or
for its reorganization, render a correct return to the
Commissioner, verified under oath, setting forth the terms of
such resolution or plan and such other information as the
Secretary of Finance, upon recommendation of the
commissioner, shall, by rules and regulations, prescribe.
The dissolving or reorganizing corporation shall, prior to the
issuance by the Securities and Exchange Commission of the
Certificate of Dissolution or Reorganization, as may be
defined by rules and regulations prescribed by the Secretary
of Finance, upon recommendation of the Commissioner,
secure a certificate of tax clearance from the Bureau of
Internal Revenue which certificate shall be submitted to the
Securities and Exchange Commission.
PURPOSE : to insure payment of all tax liabilities of the
corporation to Government.
HOWEVER, IN THE EVENT THAT THIS REQUIREMENT IS NOT
COMPLIED WITH PRIOR TO CORPORATE DISSOLUTION, CAN
THE COMMISSIONER HOLD THE STOCKHOLDERS OF THE
74
DEFUNCT CORPORATION LIABLE FOR UPAID TAXES OF
DISSOLVED ENTITY?
- NO
- The obligations of the corporation are not those of
stockholders for it is a basic rule that a corporation is
vested by law with a personality separate and disntinct
from those of persons composing it as well as from
that of any other legal entity to which it may be
related
HOWEVER : possible for stockholders to held personally liable
for unpaid tax liabilities of a defunct corporation as when
assets of corporation have passed into hands of its
stockholders
CASE:
1. Corporation known as the central syndicate had
realized a net profit of 229k from its sale of surplus
goods.
a. After said sale had taken place, the corporation
immediately liquidated and distributed its assets
on august 15, 1948 immediately after sale of
said surplus goods
COURT : Stockholders were the beneficiaries of the defunct
corporation and as such should be held liable to pay taxes of
corporation in proportion to their shares I distribution of
assets of defunct corporation
COURT : A stockholder who has unpaid subscriptions is liable
for debts of corporation
JUSTIFICATION: unpaid debt of stockholder for the purchase
price of subscribed shares represents an asset of the
corporation in hands of stockholders
COLLECTION THRU APPLICATION OF A DISPUTED TAX
AGAINST A REFUNDABLE TAX
-
74
even if a tax being collected by the commissioner is

being contested by the taxpayer, the same can be
enforced by a set off or by applying it against the

refundable tax that may be due the taxpayer.
ASSUMED : both collection and right to the refund of
taxes has not yet prescribed and that refund claim has
already been approved
CASE :
1. THE SET OFF IS JUSTIFIED BECAUSE TAXES MUST BE
COLLECED IN AS MUCH AS THEY ARE LIFEBLOOD OF
GOVERNMENT AND THAT IT IS A SETTLED PRINCIPLE
THAT THE GOVT IS NOT DUTY BOUND TO RESOLVED A
PENDING TAX PROTEST BEFORE IT CAN COLLECT THE
UNPAID TAX LIABILITY
a. If payment of taxes could be postponed by
simply questioning their validity, government
functions would be paralyzed
2. Even on equitable grounds, the Government should
not apply a tax that has prescribed against a
refundable sum
a. EQUITABLE RECOUPMENT IS NOT RECOGNIZED
In the event of a setoff during the pendency of a tax protest
in BIR, what is the remedy of taxpayer assuming his refund
claim is already a settled matter?
-
the taxpayer could probably treat the set off as a

decision of Commissioner denying his protest in whicih
case he could file an appeal with CTA within the
reglementary period of 30 days pursuant to Section
228 in relation to sec 11
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings: Provided,
however, That a pre-assessment notice shall not be
required in the following cases:

-
(a) When the finding for any deficiency tax is the result
of mathematical error in the computation of the tax as
(b) When a discrepancy has been determined between
the tax withheld and the amount actually remitted by
the withholding agent; or
(c) When a taxpayer who opted to claim a refund or
tax credit of excess creditable withholding tax for a
taxable period was determined to have carried over
and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has
not been paid; or
(e) When the article locally purchased or imported by
an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to nonexempt persons.
The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made;
otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules
and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond,
the
Commissioner
or
his
duly
authorized
representative shall issue an assessment based on his
findings.
Such assessment may be protested administratively
by
filing
a
request
for
reconsideration
or
reinvestigation within thirty (30) days from receipt of
the assessment in such form and manner as may be
prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been
submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is not
acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the

Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of one
hundred eighty (180)-day period; otherwise, the
decision
shall
become
final,
executory
and
demandable.
Section 11 of RA 1125 . Who may appeal; effect

of appeal. - Any person association or corporation
adversely affected by a decision or ruling of the
Collector of Internal Revenue, the Collector of Customs
or any provincial or city Board of Assessment Appeals
may file an appeal in the Court of Tax Appeals within
thirty days after the receipt of such decision or ruling.
No appeal taken by the Court of Appeals from the
decision of the Collector of Internal Revenue or the
Collector of Customs shall suspend the payment, levy,
distraint, and or sale of any property of the taxpayer
for the satisfaction of his tax liability as provided by
existing law; Provided, however, That when in the
opinion of the Court the collection by the Bureau of
Internal Revenue or the Commissioner of Customs may
jeopardize the interest of the Government and/or the
taxpayer the Court at any stage of the proceeding may
suspend the said collection and require the taxpayer
either to deposit the amount claimed or to file a surety
bond for not more than double the amount with the
Court;
CRIMINAL ACTION
1. GENERAL criminal action as a collection remedy, is
authorized under Section 205
a. The judgment in the criminal case shall not only
impose the penalty but shall also order payment
76
of the taxes subject of the criminal case as
finally decided by the Commissioner.
Article 100 RPC provides that every person criminally liable

for a felony is also civilly liable
Criminal action is NOT RESORTED TO AS A COLLECTION

REMEDY ONLY
Taxation civil liability to pay taxes arises NOT BECAUSE OF

ANY FELONY but upon taxpayers failure to pay taxes
Cases not involving non payment of taxes where criminal

action is utilized
- Section 221 of 1977 NIRC
a. The remedy for enforcement of statutory penalties of all
sorts shall be by criminal or civil action, as the particular
situation may require, subject to the approval of the
Commissioner.
- Person who, being required to issue receipts or sales or
commercial invoices, fails or refuses to issue such
receipts or invoices
b. Upon conviction for each act or omission, a fine of not less
than 1k pesos BUT NOT MORE THAN 50k or imprisonment
for a term of not ess than 2 years but not more than 4
years, or both is imposed
2. IMPORTANT CONSIDERATIONS REGARDING CRIMINAL
ACTION
a. No crim action shall be begun without the approval of
Commissioner
b. Crim actions instituted on behalf of Govt under authority
of Tax Code or other laws, enforces by BIR shall be
brought in name of Govt of Philippines and shall be
conducted by legal officers of BIR
c. Acquittal of taxpayer in crim action does not necessarily
result in exoneration of said taxpayers from his civil
liability to pay taxes
Crim liability in taxation arises a a result of ones liability to

pay his taxes
In ordinary crim cases, CIVIL LIABILITY is incurred by reason

of offenders criminal act
76
Extinction of ones criminal liability DOES NOT NECESSARILY

result in extinguishment of his civil liability to pay taxes
RATIONALE: With regard to tax proper, the state correctly

points our in its brief that the acquittal in crim case could not
operate to discharge the petitioner from duty to pay tax
-
since that duty is imposed by statute prior to and

independent of any attempy on the part of taxpayer to
evade payment
OBLIGATIN TO PAY TAX : not a mere consequence of
felonious acts charged in information, nor is to a mere
civil liability derived from a crime that would be wiped
out by the judicial declaration that the criminal acts
charged did not exist
When civil action arising out of a tax delinquency is

extinguished by prescription (considering that under the law,
the Government has only three years form date of
assessment of tax within which to collect the tax),
-
it is till possible for such tax to be collected by criminal

action inasmuch as actions of this kind prescribe only
after lapse of 5 years

d. In cim action that was instituted against taxpayer for
having filed a false and fraudulent return and for failure to
apy taxes:
i. SC : subsequent satisfaction of tax liability by
payment or prescription will not operate to
extinguish the taxpayers criminal liability
ii. COURT : whether under tax code or revised penal
code, the satisfaction of civil liability is NOT ONE of
the grounds for extinction of criminal action
iii. NOTED : this is also provided in Tax code Se 253
1. payment of the tax due after
apprehension shall not constitute a
valid defense in any prosecution for
violation of any provision of this
Code or in any action for the
forfeiture of untaxed articles.
e. In crim action instituted against a taxpayer for latters
failure to pay income taxes,
i. subsidiary imprisonment cannot be imposed in case
of insolvency on part of taxpayer as regards the tax
which he is sentenced to pay
ii. NOTE : Section 280 :: SUBSIDIARY IMPRISONMENT
ONLY IN CASES OF FAILURE TO PAY FINE IMPOSED
AND IS SILENT ABOUT TAXPAYERS FAILURE TO PAY
THE TAXES ASSESSED
Suppose a taxpayer is assessed for taxes and assuming that

against that assessment, he files an administrative protest in
BIR.
a. May the Government, during pendency of that protest,
file a criminal action against the taxpayer for filing a
false ad fraudulent return?
b. Is not the filing of crim action premature and
precipitate?
SC: Crim action is legally proper.

- What is involved here in crim action is legally not the
collection of taxes where the assessment of CIR may
be reviewed by Court of Tax Appeals
- - but a criminal prosecution for violations of National
Internal Revenue Code which is within the cognizance
of Court of First Instance (RTC)
- there can be no civil action to enforce collection before
the assessment procedures in code have been
followedThere is no requirement for the precise
computation and assessment of tax before there can
be a criminal prosecution
- Protest of petitioner against assessment cannot stop
his prosecution for violation of National internal
Revenue Code
CIR vs pascor Realty
SC: reiterated the general rule that an assessment is not
nexessary before a criminal charge can be filed.
- the criminal charge need only be proved by a prima
facie showing of failure to file a required tax return and
such fact need not be proved by an assessment
- Section 222 : in cases where a false or fraudulent
return is submitted or in cases of failure to file a return
such as this case, proceedings in court may be
commenced without an assessment
- Section 205 : civil and crim aspects of case may be
pursued simultaneously
- UNGAB case : petitioner therein sought the dismissal
of crim complaints for being a premature, since his
protest to CTA had not yet been resolved.
- COURT : such protest could not stop or suspend the
crim action which was independent of the resolution of
protest in CTA
- REASON : cir had, in such tac evasion cases discretion
on whether to issue an assessment or to file a crim
case against taxpayer or to do both
78
f.
In case of vilations omitted by associations, partnerships

or corporations, the penalty shall be imposed on parner,
president, general manager, branch manager, treasurer ,
officer in charge and employees responsible for violation
i. The responsible corporate officers, partners or
employees of any corporation, association or genral
co-partnership liable for any of the acts or
ommissions penalized thereunder shall upon
conviction, be fined not less than 50k but not more
than 100k
WHERE A CORPORATION VIOLATES TAX LAW, CRIM LIABILITY

SETTLES UPON CORPORATE OFFICER AND /OR EMPLOYEE
RESPONSIBLE FOR VIOLATION
CASE : an infor was filed against the defendant alleging that
as manager of company, a corporation dealing in native
products, he filed a tax return which did not correctly and
truthfully reflect the correct sales of corporation for taxable
period
COURT : A corporation can act only through its officers and
agents and where the business itself involves a violation of
law
Correct rule : all who participate in it are liable
- as the filing of alse return constitutes a violation of
law, defendant as author of illegal act, must
necessarily answer for its consequences provided that
the allegations are proven
Chapter 7
Tax Remedies Remedies of the Government Statue of
Limitations
PRESCRIPTION OF GOVERNMENT RIGHT TO ASSESS
TAXES
78
SEC. 203. Period of Limitation Upon Assessment and

Collection. - Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after
the last day prescribed by law for the filing of the return, and
no proceeding in court without assessment for the collection
of such taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as
filed on such last day.
IMPORTANT BECAUSE : if such tax is assessed beyond the
three year prescipritve period as stated above, the taxpayer
is given the :
1. RIGHT TO PROTEST AGAINST THE ASSESSMENT AND
2. TO APPEAL TO THE CTA
3. should the govts decision on question of prescription
be advrse to his position
When an assessment is invalid because it was made after
lapse of the prescriptive period then the collection of tax,
which is covered by prescribed assessment, becomes
INEFFCTUAL
Madated by law : Governmnt must assess ON TIME
- not later than three years counted from and after the
period fixed by law for filing of the tax return or actual
date of filing
- WHICHEVER IS THE LATER DATE
THUS IF TAXPAYER for example filed his income tax return
for 1996 on Mar 5 1997, or one month before the last day
fixed by law for filing of income tax returns for 1996 on
april 15, 1997, then three year period is counted from
april 16, 1997
If the return is filed late, or on May 15, 1997, then the three
year period is COUNTED from date of actual filing or on May
15, 1997 also.
In case of self assessed taxes like income tax that the
taxpayer himself assess and reflects on his return:
- the collection thereof ay proceed without any further
assessment
- the prescriptive period of collection applies
- BIR must collect such tax
- Either by SUMMARY OR JUDICIAL remedied
- Within 3 years from date of filign of tax return
- REASON : date of assessment in case of self assessed
taxes would be the date of actual filing of return as it is
on such date when the tax is said to have been
assessed
SUBJECT ASSSESMSENTS WERE MADE BEYOND THE
PRESCRIPTIVE PERIOD UNDER THE TAX CODE
-
SC : for the purpose of safeguarding taxpayers from

unreasonable examination, investigation or
assessment, our tax law provides a statute of
limitations in collection of taxes
The law on prescription, being a remedial measure,
should be liberally construed in order to afford such
protection
EXCEPTIONS : should perforce be strictly construed
Negligence or oversight on part of the BIR cannot
prejudice taxpayers, considering that the prescriptive
period was preceisely intended to give them peace of
mind
WHEN IS A TAX ASSESSMENT DEEMED MADE?

- BIRs assessment is usually embodied in a demand
letter or in a BIR form known as an assessment notice
- Soemtimes, BIRs practice is to SEND OUT to taxpayer
both DEMAND LETTER and ASSESSMENT NOTICE
- These communications invariably bear SPECIFIC
DATES when they are PREPARED OR ISSUED.
ISSUE dates are necessesarily anterior to the date of

actual release or miling of the demand letter
ACTUAL RELEASE IS DONE BY MAILING THESE
DOCUMENTS, BUT SOMETIMES PERSONAL DELIVERY
OR SERVICE IS DONE
Case :
1. it is not the issue date of demand letter and/or notice
of assessment that is the RECKONING POINT IN
PRESCRIPTION
a. BUT the date when said demand letter or notice
is released , mailed or sent to taxpayer that
constitutes ACTUAL ASSESSMENT
2. An assessment contains NOT ONLY COMPUTATION OF
TAX LIABILITIES, BUT ALSO A DEMAND FOR PAYMENT
WIHTIN PRESCRIBED PERIOD
3. It signals time when penalties and interests begin to
accrue against the taxpayer
4. To enable the taxpayer to determine the remedies
thereon, due process requires that it must be served
and received by taxpayer
5. 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 CTA
Tupaz vs Ulep
- internal revenue taxes are self assessing
- no further assessment by the government is required
to create tax liability
- assessement is NOT ALTOGETHER INCONSEQUENTIAL
- it is relevant in proper pursuit of judicial and
extrajudicial remedies
- to enforce taxpayer liabilities and certain matters that
relate to it
- such as :
o imposition of surcharges and
o interest
80
o
o
in application of statutes of limitations and

establishement of tax liens
ULTIMATE PURPOSE OF ASSESSMENT : TO ASCERTAIN THE

AMOUNT THAT EACH TAXPAYER IS TO PAY
AN ASSESSMENT IS A NOTICE TO THE EFFECT THAT THE
AMOUNT THEREIN STATED IS DUE AS TAX AND A DEMAND
FOR PAYMENT THEREOF.
ASSESSMENTS MADE BEYND THE PRESCRIBED PERIOD
WOULD NOT BE BINDING ON TAXPAYER
UNLESS REBUTTED : ALL PRESUMPTIONS GENERALLY ARE
INDULGED IN FAVOR OF CORRECTNESS OF ASSESSMENT BY
THE COMMISSIONER OF INTERNAL REVENUE AGAINST
TAXPAYER
NOTE :
1. where the taxpayer-adressee makes a direct denial of
receipt of mailed emand letter, sch denial shifts the
burden to the government to prove that such letter
was indeed received by the taxpayer.
2. The party favored by presumption of receipt of
demand letter is the government
Rule 131 Section 3 ROC :
-
RELEASE OF ASSESSMENT NOTICE OR DEMAND

BEFORE THE LAPSE OF PRESCRIPTIVE PERIOD
COURT : as long as the release thereof is effected before
prescription sets in, the assessment is deemed made on time
even though the same is actually received by taxpayer after
expiration of prescriptive period
-
There is disputable presumption that a letter duly

directed and mailed was received in regular course of
mail
The correct address of taxpayer is indicated in demand
letter or notice of assessment
If the date on which the assessment is due to prescribe falls

on a Saturday, the following day being Sunday, it is
understood that the Government has until the next
succeeding business day or Monday within which to assess
the tax
law does not require that the demand or notice be

received within prescriptive period
When an assessment notice is sent by mail (ordinary mail

example):
- RULE : it is presumed that the taxpayer received
mailed notice within the period of time
- when mail of such kind are ordinarily received
80
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 cannot be
given credit
IMPORTANT CONSIDERATIONS RE PRESCRIPTION OF

GOVERNMENTS RIGHT TO ASSESS TAXES
A. Date of Filing of Tax Returns A Material Factor in

Resolving Questions on Prescription
a. Important for pusrposes of determining whether
or not the tax was assessed within the
prescriptive period.
b. COURT : where it appears that the taxpayer has
filed its income tax returns for 1950 on Mar 6
1951, while the assessment was made on Nov
27 1954 or three years and eight months after
the filing of return for said year, it follows that
deficiency assessment made by commissioner
was VALID
c. COURT : it is incumbent on the taxpayer to
prove that a return had been filed by him in
order that 5 year prescriptive period may apply
OTHERWISE , there is a basis for BIR to assess
the tax within the ten year period on ground
that NO RETURN WAS FILED BY TAXPAYER
ARE TRANSCRIPT SHEETS OR COMPANY RECORDS SHOWING
THE RAW MATERIALS ENTERING THE TAXPAYERS FACTORY OR
DISTILLERY AND THE FINISHED GOODS PRODUCED AND
REMOVED THEREFROM EVERYDAY DEEMED TAX RETURNS
FOR PURPOSES OF PRESCRIPTVE PERIOD FOR ASSESSMENT?
COURT : these transcript sheets are not returns
- they cannot be treated as returns because they do not
contain information necessary and required to permit the
computation and assessment of taxes like specific tax
B. Effect of Filing an Amended Return
In case the taxpayer files an amended return, should the
prescriptive period be counted from filing of such amended
return?
-
IMPORTANT QUESTION BECAUSE IF POINT OF

RECKNONING THREE YEAR PRESCRIPTIVE PERIOD IS
ORIGINAL OR EARLIER CONTAINED I AMENED RETURN
IS LIKELY TO PRESCRIBE OR MIGHT HAVE ALREADY

PRESCRIBED
COURT: if assessment is counted from filing of original return,
this would permit taxpayers to evade taxes by simply
reporting in their original return, heavy losses and amending
the same after the lapse of prescriptive period when the
Commissioner has already lost his authority to assess the tax
COURT : objective of Tax Code is to impose taxes, not to
enchace tax avoidance to prejudice Government
Prescriptive period for assessment starts to run from filing of
original return if the same is sufficiently complete to enable
the Commissioner to intelligently determine the porper
amount of tax to be assessed
Amenede returns were filed later neither starts a new the
running of statute of limitations nor extends the prescriptive
period
Filing of an amended return and claim for refund of
overpayment does not constitute any waiver of defense of
prescription
C. Effect of Filing a Wrong Return
What happens when the taxpayer files a wrong return? Is the
BIR justified in applying the ten year prescriptive period for
cases where no return is filed by the taxpayer, assuming that
the information embodied in wrong return could enable the
BIR to assess the tax could have been ascertained had the
taxpayer filed a correct return ?
COURT: since no percentage tax return was actually filed by
the taxpayer to reflect the sales of its logs to Japan, the ten
year prescriptive period for cases where returns are not filed
applies
82
-
even if an income tax return which happens to be the

wrong return had been filed and even considering that
the income from said sales were all reflected therein,
still, this would not take the place of correct return
which for purposes of tax in question should actually
be the percentage tax return
Percentage tax on sales has NOW BEEN replaced by 10% VAT

and return that is filed therefor is known as VAT return
D. period Applicable When the Law Does not require the
filing of any return
What prescriptive period applies in case the law does not
require the filig of any return?
Section 255 : imposes penalty upon conviction of a fine not
less thatn 10k and imprisonment of not less than 1 year but
not more than 10 years
Taxpayers refusal or failure to file requisite return does not
only establish a basis for criminal prosecution,
- but it also deprives the taxpayer of benefit of invoking
three year prescriptive period,
- as government is given the right to assess the tax
within a period of 10 years counted
- from date of discovery of taxpayers omission to file
such return
NOTE : when there is no provision in the law requiring the
filing of a return but the tax is such that its amount cannot be
ascertained without the data that is pertinent thereto, the
Commissioner of Internal Revenue amy, by appropriate
regulations, require the filing of necessary return
- WITH OR WITHOUT REGULATION, it is to the interest of
taxpayer to file said return if he wishes to avail himself of the
benefits of three year prescriptive period
82
He does not file a return at all, then an assessment may be

made at any time within the ten year prescriptive period
E. Applicable Prescriptive Period if Taxpayer Failes to File
a retrun
If no return is filed by taxpayer, the commissioner may
assess the tax anytime within ten years after discovery of
omission
SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes. (a) In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such
tax may be filed without assessment, at any time within ten
(10) years after the discovery of the falsity, fraud or omission
The decisions are unanimous in holding that : where taxpayer
failed to file any return, ten year prescriptive period applies
Since prescription of Governments right to assess taxes is an
affirmative defense : it is incumbent on taxpayer to prove
that tax return were actually filed so that the benefit of three
year prescriptive period may be availed of
Suppose a corporate taxpayer files a return but it failed to
include certain items in its return and non inclusion of those
items is not due to any willful omission or fraud, does this
circumstance constitute a failure to file a return with respect
to the omitted items within the meaning of Sec 222 of tax
code?
-
NO

-
Court : no omission to file a tax return on part of

taxpayer
shall be judicially taken cognizance of in the civil or

criminal action for the collection thereof.
How about the transcript sheets which a taxpayer submitted

to the municipal treasurer for specific tax purposes, are they
considered returns so as to justify the application of three
year prescriptive period?
CTA : these transcript sheets do not qualify as returns as

pointe out ealier
- filing thereof do not, qualify as reutrns
- said filing does not preclude assessment on basis of
10year period limitation
F. Prescriptive period of assessment when there is fraud

1. Fraud in General
a. NECESSITY of proof of fraud : when there is
fraudulent filing of tax returns, the ten year
period applies in lieu of three year prescriptive
limit
b. Prescriptive period in this instance is counted
from discovery of fraud, not from filing of
fraudulent return
c. NO PERIOD for discovery of fraud is fixed in the
law
Circumstances that miht negate fraud and thus preclude the

application of ten year prescriptive period
I.
II.
III.
Assessment and Collection of Taxes. (a) In the case of a false or fraudulent return with intent to
assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud
FRAUD MUST BE PROVED AS A FACT

So that ten year prescriptive period may apply
SC : FRAUD IS A QUESTION OF FACT AND
CIRCUMSTANCES COSNTITUTING FRAUD MUST BE
ALLEGED AND PROVED IN COURT BELOW
Finding of trial court as to its non existence is final and
cannot be reviewed unless clearly shown to be
erroneous
FRAUD IS NEVER LIGHTLY TO BE PRESUMED BECAUSE
IT IS A SERIOUS CHARGE
IV.
V.
when commissioner fals to impute fraud in assessment

notice or demand for payment, or failure to allege it in
his answer to the taxpayers petition for review when
case is appealed to CTA
non existence of fraud is further underscored by fact
the commissioner raised the question of fraud ONLY
FOR THE FIRST TIME IN HIS MEMORANDUM which was
filed with CTA after he had rested his case
commissioners failure to rpove fraud can, be fatal to
the assessment as when tax liability is assessed
beyond the usual three year prescriptive period
Tax COURT : the fact that the commissioner did not
include the fraud penalty in his deficiency assessment
which was issued after filing of taxpayers return is an
indication that the Commissioner himself does not
believe hat there was fraud
Where BIR appeared NOT TOO SURE as to the real
amount of taxpayer;s net income, as where the BIR
had on three different occasions arrived at three highly
different computation
84
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
XIV.
There was NO FRAUD IF COMMISSIONER MERELY

RELIED UPON AN ALLEGED SUBSTANTIAL UNDER
DECLARATION OF INCOME TAX RESULTING FROM HIS
OWN COMPUTATION OF COST BASIS OF LANDS AND
IMPROVEMENTS SOLD BY TAXPAYER TO GOVERNMENT
Mere understatement of income in itself does not
prove fraud
Mere understatement of gross earning does not itself
prove fraud
Allegations of fraud with intention to evade the
franchise tax has not been proved satisfactorily
Records showed : from first quarter of 1960, gross
receipts of petitioner taxpayer as a franchise grantee
amounted to 1M pesos
Out of said amount, only 16k represented the alleged
unrecorded and underreported receipts of petitioner
COURT:: a big portion of underecorded receipts of 16k
was not reflected in books of accounts of taxpayer
because it represented the cost of electric current used
free of charge by its officers and employees
COURT: it cannot charged that petitioner intended to
defraud the government of franchise tax
GRAUD BEING ABSENT I N THIS CASE, RIGHT OF
GOVERNMENT TO ASSESS THE FRANCHISE TAX HAD
ALREADY PRESCRIBED
2. Will Underdeclaration of property necessarily

constitute fraud?
a. FRAUD in order to justify a assessment based on
ten year prescriptive period, must be the
product of a deliberate intent to evasde taxes
b. Mere underdelcaration in tax returns of property
subject to estate tax will not necessarily imply
fraud
c. Jalandoni case : there was an allegation on part

of BIR to effect among others, there was an
omission of 7 lots of decedent from estate tax
return filed
d. COURT : seven ltos which were allegedly
excluded, three were actually included with
particularity in that they were the most valuable
to with : Lot 493 with market value of 21k
e. Being conjugal, one half thereof should be
deducted thus leaving a relatively small balance
of 1.7k
f. COURT L IF WE ADD THREE LOTS were already
declared by jalandoni as part of his property and
his wife for pruposes of income tax, there is
reason to believe that their omission from estate
and inheritance tax return is due to an honest
mistake or inadvertence
g. Only estate taxes are collected on MORTIS
CAUSE transfers under present law as
inheritance tax has already been abolished
CIR vs Goodrich
- SC disregarded petitioners claim of falsity in an
attempt to take the questioned assessment out of
ambit of statute of limitations
- Case : PR property was sold for a price less than its
declared fair market value and found that such fact
alone did not constitute a false return which contains
wrong information due to mistake, carelessness or
ignorance
- COURT : it is possible that real property may be sold
for less than adequate consideration for a bona fide
business purpose in such event, the sale remains an
arms length transaction
3. Specific Instances Manifesting Fraud
84
a. If there are circumstances that neate fraud,

situations also exist where the evidence of fraud
is manifest
b. Underdeclaration of income with evidence of
fraudulent intent is one instance of fraud
c. CASE: income which was reported by taxpayer
in his return was the income from rents
d. Sbstantial income derived from other sources
were not included
e. COUR: simple statement that the returns were
not fraudulent is not sufficient to overthrow the
findings of commissioner as to the reason for
omission
f. Tax may be assessed within ten years from
discovery of fraud
Commissioners determination based on circumstances of the
case that fraud is present stands if no evidence is presented
by taxpayer to show that the return filed by him was not
fraudulent
SC : commissioners findings of raud brought about by the
presence of fictitious expenses, which were claimed by
taxpayer as deductions from gross income
-
Commissioners findings on facts constituting fraud

which were proved in and found established by CTA
was not rebutted by taxpayer
SC : finding of falsity or fraud in taxpayers return
should not be disturbed
4. Effect of Fraud Assessments which are final and

executor
Section 222
in a fraud assessment which has become final and executory,
the fact of fraud shall be judicially taken cognizance of in the
civil or criminal action for the collection thereof.
EFFECT OF THIS PROVISION : to place within scope of judicial
notice under section 1 rule 129 of ROC thus dispense with
the need for proof therefor, those fraud assessments which

have become final and executor under the law
Section 228 : assessments become final if taxpayer does not

file an administrative protest against an assessment within
30 days from receipt thereof
-
when an adverse decision of Commissioner on an

administrative protest is NOT appealed to Court of tax
appeals within 30 days from receipt thereof, or from
lapse of 180 days from submission of relevant
supporting docs without said protest being acted upon,
decision shall become final, executor and demandable
Where, however, the cause of action in criminal case is willful

attempt in any manner to evade or defeat any tax levied
under said code, is proof of fraud also not necessary ?
-
proof of fraud cannot be dispensed with.

A possible situation is when a person, for instance with
clear intent to defraud the government of revenues,
submits a false and fraudulent income tax return
INTENTION OF THE LAW : to limit applicability of rule only to

cases involving non payment can be clearly seen in the
phrase THE FACT OF FRAUD SHALL BE JUDICIALLY TAKEN
COGNIZANCE OF IN CIVIL OR CRIMINAL ACTION FOR
COLLECTION THEREOF
5. Are the Tax Returns that are False but Not Fraudulent?
Aznar case :
86
-
Aznar died on Mary 15, 1958.

Hi income tax returns from 1945 1951 were
examined by BIR
Doubting truth of income that he had reported,
commissioner ordered investigation of case on basis of
NET WORTH METHOD
Substantial under declarations of income were
discovered
Nov 28 1952BIR notified Aznar of tax delinquency of
723k pesos which was later reduced to 380k pesos
upon reinvestigation
Feb 20 1953 aznars properties were placed under
distraint and levy
April 1, 1955 Aznar appealed to CTA
CTA found that Aznar made substantial under
declarations of his income
COURT : NO FRAUD
-
ISSUES IN THE CASE :

-
W/n right of commissioner to assess aznars deficiency

income taxes for 1946 1947 and 1948 had already
been prescribed at time of assessment was made on
ov 28 1952
w//n 50 surcharge for fraud can be imposed?
COURT : applied 10 year prescriptive period and rules that

prescription had not set in.
-
86
aznars retrurns were false because the under

declaration of income constituted a deviation from
truth
ordinary prescriptive period of 5 years now three years
would apply under normal circumstnces, but whenever
the government is placed at a disadvantage so as to
prevent its lawful agent from making a proper
assessment of tax liabilities due to false or fraudulent
returns intended to evade payment of taxes or failure
to file returns
the period of ten years provided for in the law from

discovery of falsity, fraud or omission even seens to be
inadequate and shold be the one enforced
no distinction has been made between false

returns(due to mistakes , carelessness sor ignorance)
and fraudlent returns (with intent to evade taxes)
LC based its conclusion on pets alleged fraudulent
intent to evade taxes on substantial difference
between amounts of net income on face of returns as
filed by him for year 1946-1951
LC based its conclusion on a presumption that fraud
can be deduced from substantial disparity f income as
reported and determined by inventory method and on
similarityof consecutive disparities xxxx
6. Are there imprescriptible assessments?

-
Where in a given situation (such as the assessment of

25% surtax on improperly accumulated surplus of
corporation under Sec 25 of tax code before its
elimination in 1986 by eo 37)
The law DOES NOT PROVIDE FOR ANY PARTICULAR
PRESCRIPTIVE PERIOD OF ASSESSMENT
THR RULE IS THAT THE TAX SOUGHT TO BE ASSESSSED
BECOMES IMPRESCRIPTIBLE
Section 25 Tax Code

-
imposed 25% surtax or additional tax on corporation

was still in force
the rule: surtax was not subject to any prescriptive
period
RULES : no definite prov on prescription of assessment
of such tax existed
PRESCRIPTION OF GOVERNMENT RIGHT TO COLLECT

TAXES
1. Law governing Prescription of Collection
Assessment and Collection of Taxes.
12 months under Statute of claims or should it be the three

year prescriptive period for assesement under 203 tax code
SC: Vera vs Fernandez case
-
c) Any internal revenue tax which has been assessed within

the period of limitation as prescribed in paragraph (a) hereof
may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the
tax.
SC : in collection of deficiency franchise taxes, the

provisions of Tax Code, and not those of CC should apply
NOTE : franchise tax, although originally collected by

municipal governmentes like City of Cebu, the collection
of such tax has already been transferred to BIR
-
Where the Governments action is on a bond which the

tazpayer executes in order to secure the payment of
his tax obligation, the applicable prescriptive period is
NO LONGER THREE YEARS BUT TEN YEARS UNDER
ARITCLE 1141 of CC
When government proceeds by court action to forfeit a bond,

the action is for enforcement of a contractual obligation, the
prescriptive period for which is ten years
With reference to the claim of commissioner against the
decedents estate for unpaid taxes of decdent, which period
for the presentment of claims will apply, the period of from 6
prescriptive period for filing claims against estate

under aforcited provs of ROC does not apply
a perusal of the ROC shows that it makes no mention
of claims for moentary obligation fo decedent created
by law such taxes, which is entirely of a different
character from the claims expressly enumerated in
Rules of Court
applying rule of statutory construction of expression
union est exclusion alterius
PINEDA CASE : property of estate already in hands of
an heir may be subject to payment of tax due from
estate
A fortiori , before inheritance has passed to the heirs,
the unpaid taxes due from the decdents estate may
be collected even without presentment under ROC
When does the 5 year prescriptive period for collection start

to run?
-
from the assessment of tax
When is a particular tax considered to have been assessed?

-
at the time the letter of demand or assessment noetic

has been sent, released or mailed to taxpayer
CASE: filed for collection of a tax liability which was
covered by a rubber check,
SC: the right to collect tax begins after the demand
has been sent to taxpayer
Actual sending or release tot axpayer of assessment
notice or demand letter is necessary in order to
determine the actual date when tax being collected
was assessed
88
GOVERNMENT FAILED TO PROVE THAT ASSESSMENT NOTEICE
COVERING TAX LIABILITY ASSESSED AS WELL AS THE OTHER
SUPPOSEDLY WRITTEN DEMAND LETTERS SUBSEQUENT
THERETO WERE IN FACT ISSUED OR SENT TO TAXPAYER,
THERE WAS :
-
no valid and effective issuance or release of said

assessment notice and other demand letters or notices
subsequent threto
the dates on which the assessment notice and
subsequent demand letters were supposedly sent or
released to taxpayer cannot be recknoned with in
computing the period of prescription within which a
court action to collect the tax liability may be brought
When tax is deemed collected for purposes of prescriptive

period
-
collection thru summary remedies is effectuated by

summary methods when the Government avails of a
distraint and levy procedure prescribed in Tax code
if collection is to be effected thru judicial remedies, the

collection of taz is begum by filing the ocmplaint with proper
court
If decision of commissioner on a protested assessment is

appealed to CTA, collection of tax is considered begun when
government files its answer to taxpayers petition for review
May there be a judicial action to collect a tax liability even if
there is NO PREVIOUS ASSESSMENT?
88
possible to collect tax liability in court without any

previous assessment
SEC. 222. Exceptions as to Period of Limitation
of Assessment and Collection of Taxes. -
(a) In the case of a false or fraudulent return with intent to

assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
Analyzing the above provision, there are TWO POSSIBILITIES
that could arise in particular legal situations:
1. taxpayer files a false or fraudulent return with intent to
evade taxes
2. taxpayer does not file any return a all
A. taxpayer files a false or fraudulent return with intent to

evade taxes
1. Suppose taxpayaer files a false or fraudlent return
and government, after discovering the falsity or
fraud, does not assess tax, can it then proceed to
collect tax liability by court action?
a. YES
b. Republic vs Patanao
c. Allowing judicial collection of a tax without
any previous assessment should apply
d. It appearing that fraud in filing of
taxpayers1951 income tax return was
discovered by BIR on feb 14 1958
e. Taxpayers liability was assessed on Feb 14,

1958 or beyond the 5 year prescriptive
period fixed by law
f. TEN YEAR PRESCRIPTIVE PERIOD FOR
COLLECTION THROUGH COURT ACTION
DOES NOT APLY IF IT APPEARS THAT THERE
WAS AN ASSESSMENT
g. THE ORIDNARY 5 YEAR PERIOD
NOW 3
YEAR PERIOD WOULD STILL APPLY
2. Taxpayer does not file any return at all
a. Jai Alai Corporation
b. In view of such failure to file a withholding
tax return on part of withholding agent, the
government had right to collect the
withholding tax within ten years couted
from discovery of omission to file the
requisite return
c. Will this procedure not be in conflict with
Sec 228, 1997 NIRC , which enables the
taxpayer to disute a tax assessment before
collection remedies are resorted to?
d. Allows taxpayer to administratively protest
the assessment
e. Issuance of an assessment notice seems to
be mandatory under the existing procedure
on tax protest
Prescription of Governments right to recover an erroneously

refunded tax
-
three year prescriptive period for making assessments

under Section 203
SC: case involved recovery of erroneously refunded
franchise tax, prescriptive period for tax assessments
should apply because the demand of government on
taxpayer to apy erroneously refunded tax is in effect
an assessment for deficiency franchise tax
Waiver of statute of limitations Extension of prescriptive

priod
-
necessary that waiver be executed by the parties

before the lapse of 5 year prescriptive period
waiver is ineffective if it is executed beyond the
original three year now 5 year period
the law does not authorize the extension of
prescriptive period one prescription has set in
Where taxpayers waiver was not just an extension of

prescriptive period but a renunciation of her right to invoke
defense of prescription which was then available to her, the
waiver made beyond such prescriptive period BINDING ON
TAXPAYER
-
noting unlawful or immoral about this kind of waiver

right to avail of defense of prescription is waivable
CIR vs CA
-
SC ruled against validity and binding effect of waivers

signed by provate respondent carnation Philippines
Which were not signed by BIR commissioner or any of
his agents
Waiver in questions reveal that they are IN NOW ISE
UNEQUIVOCAL
NECESSITATE
FOR
ITS
BINDING
EFFECT
THE
CONCURRENCE OF CIR
Tax waivers are supposed to extend, NOT REDUCE the

prescriptive periods provided by law
Commissioner cannot validly agree to reduce the prescriptive
period to less than that granted by law to the detriment of
Sate since it diminishes the Governments opportunities to
collect taxes due the Republic
90
4. When the warrant of distraint or levy is duly
served upon the taxpayer, his authorized
representative, or a member of his household
with sufficient discretion, and no property could
be located; and
5. When the taxpayer is out of the Philippines.
EQUITABLE RECOUPMENT AND PRESCRIPTION

In the event that collection of tax has already lapsed due to
prescription, an the Government invoke principle of equitable
recoupment by setting off the prescribed tax against a tax
refund to which taxpayer may be entitled?
-
NOT TO ALLOW THE SET OOD

For if that were so, this would ONLY ENCOURAGE
NEGLIGENCE ON PART OF OUR COLLECTING OFFICERS
Who would feel secure despite prescription in though
that they could always collect prescribed tax
Through the expedient of set off
INTERRUPTION OF THE PRESCRIPTIVE PERIOD

The running of the Statute of Limitations provided in Sec. 203
and 222 on the making of assessment and the beginning of
distraint or levy or a proceeding in court for collection, in
respect of any deficiency, shall be suspended under any of
the following circumstances:
1. When the from making the assessment or
beginning the distraint, levy, or proceeding in
court and for sixty days thereafter;
2. When
the
taxpayer
requests
for
a
reinvestigation which is granted by the
Commissioner;
3. When the taxpayer cannot be located in the
address given by him in the return filed upon
which tax is being assessed or collected, unless
the taxpayer has informed the Commissioner of
any change in address;
90
When the Commissioner is prohibited from assessing

or collecting the tax in what possible instances may
there be a prohibition on Commissioner to assess or
collect the tax?
SC : filing of a petition for review in CTA from decision of
Commissioner on a protested assessment interrupts running
of prescriptive period for collection
Interruption is from the time the appeal is filed in CTA until its
termination in SC should there be subsequently be an appeal
to a higher court
REASON : when a case is on appeal to CTA, the commissioner
is prevented from filing an ordinary action to collect tax in
regular courts
If this were not so, collection in regular courts would run
counter to the judicial policy of avoiding multiplicity of suits
and therule of lis pendens
judicial collection was brough in court after 9 years

from assessment, while appeal in CTA and eventually
SC lasted for 5 years which is period of time during
which commissioner was prohibited from collecting the

tax by judicial action
upon proof that its collection during the pendency of appeal

may jeopardize the interest of government and or the
taxpayer.
Suspension of collection may be granted by CTA upon this
ground but taxpayer must either deposit the amount of taxes
assessed or file a bond amounting to not more than twice the
value of tax being assessed.
No appeal taken to the CTA from the decision of CIR shall
suspend the payment, levy, distraint and/or sale of any
property of taxpayer for the satisfaction of his tax liability as
provided by existing law although, as already mentioned ,
collection may be suspended for the reasons already stated
above
Suppose a criminal case is filed against a taxpayer. The

offense charged consists of filing a false or fraudlent return in
vilation of section 254 of tax code which is penalized under
title X thereof. WILL PENDENCY OF CRIMINAL CASE SUSPEND
THE RUNNING OF PRESCRIPTIVE PERIOD FOR COLLECTION OF
TAX LIABILITY WHICH HAS BEEN ASSESSED?
-
NO
CASE : Repblic vs Ret
Ret filed two false and fraudulent returns for 1948 and
1949 fo which he was assessed by BIR the sums of 34l
and 68k including 50% surcharge for fraud. Demand :
January 3 1951 payment
- RET REFUSED TO PAY
assessment notice was issued but sill refused
ret was prosecuted in two crim cases for filing false or
fraudulent returns
he pleaded guilty thereto
after conviction, government filed a complaint for

collection of rets income taxes but LC dismissed the
case on ground that govts right to collect by judicial
action had prescribed as more than here years had
elapsed
Govt ::: prescription did not take place because the
prescriptive period for collection was suspended when
two informations were filed and began to run again
from receipt of courts decision
SC : PRESCRIPTIVE PERIOD FOR CIVIL ACTION IS
SUSPENDED DURING PENDENCY OF CRIMINA ACTION
ONLY WHEN CIVIL LIABILITY ARISES FROM OFFENSE
COMMITTED
However, such rules does not apply here because
criminal actions for violation are entirely separate and
distinct civil suit
COURT: there is nothing in law which would have
stoped the plaintiff appellant from filing civil suit
simultaneously with or during pendency criminal case
When taxpayer requests for reinvestigation which is granted

by Commissioner
-
when an assessment is revised and sma eis issued

beyond the statutory period of three years from date
of filing of return or after due date for filing whichever
is later, tax is still considered validly assessed
PROVIDED that the REVISION OF ASSESSMENT WAS
INDUCE BY TAXPAYERS POSITIVE ACTS
as where counsel twice asked the commissioner for
postponement of a conference on liability in questions
as well as his written request that the assessment be
cancelled or withdrawn for lack of legal basis
THERE ARE CASES WHEREI TAXPAYER MAY BE PREVENTED

FROM SETTING UP DEFENSE OF PRESCRIPTION EEVEN IF HE
HAS NOT PREVIOUSLY WAIVED I IN WIRTING
92
-
as when by his repeated or positive act, the

Govenrment has been, for good reasons, persuaded to
postpone collection to make him feel that the demand
was not unreasonable or that no harassment or
injustice is meant by Government
mere request for reinvestigation without any corresponding

action on part of the commissioner does not interrupt running
of prescriptive period
SC : taxpayers request for reinvestigation did not suspend

the running of prescriptive period for judicial collection in as
much as there is no evidence that this request was considred
or acted upon
Commissioner even issued a warrant of distraint and levy for
collection of full amount of assessment but there was no
follow up of his warrant
It is the Appellate Division in BIR that acts on administrative

protests filed by taxpayers against tax assessments before
the Commissioners decision thereon is appealed to CTA
Will a request by the taxpayer for a copy of detailed
computation by BIR of his tax liability during the pendency of
the reinvestigation of his case constitute another request for
reinvestigation and thus have the effect of interrupting the
prescriptive period for collection?
-
92
SC : such request may not be interpreted to authorize

or justify the continuance or suspension of period of
limitations
His previous request for reinvestigation already had

the effect of suspending the period of limitation on
Governments right to collect taxes that were accessed
against him
- The prescriptive period for collection is suspended when the

taxpayer requested for information on the titems of dedctions
which had been disallowed by BIR
- in taxpayers request, no mention was ever made of review
of reconsideration of the assessment
- there was a request for information, which was reiterated by
the taxpayer, followed up by a third request I which the
taxpayer explained the disallowed items and wherein he also
asked for reinvestigation thereof
- these period of suspension from five year now three years
for collection, it follows that when the Government sought to
collect the tax assessed when it filed its answer to the
taxpayers petition for review in CTA, same was timely
presented
Will a request for reconsideration which does not raise facts
and/or issues different from those which are comprehended
in the original investigation constitute a ground for
suspension of a prescriptive period?
Section 223 od NIRC mentions that suspension takes place
when the taxpayer requests for reinvestigation which is
granted by the Commissioner
-
interruption of prescriptive period for collection takes

place
when
the
taxpayer requests
for the
reinvestigation or reconsideration of the assessment

-
COURT :
o THE PRESCRIPTIVE PERIOD PROVIDED BY LAW
TO MAKE A COLLECTION BY DISTRAINT AND
LEVY OR BY A PROCEEDING IN COURT IS
INTERRUPTED ONCE A TAXPAYER REQUESTS FOR
REINVESTIGATION OR RECONSIDERATION OF
ASSESSMENT
in a civil case filed against the taxpayer defendant,

summons was not served because the defendant could
not be located
the case was dismissed without prejudice
the right of government to collect the tax had not
prescribed because the period during which the
appellants whereabout were unknown suspended the
running of the period of limitation
taxpayers
authorized
Palanca case
-
When the taxpayer cannot be located in the address given by

him in return
-
Service of warrant on
representataive is sufficient
here was effective service of warrant when same was

served upon Atty Snajose, the lawyer of estate and
heirs of decedent, or the lawyers secretary in
connection with the estate and inheritance taxes due
from decedents estate because according to court,
there is nothing in law that would prevent the service
of said warrant to be made upon the taxpayers
authorized representative
It is admitted Court said
That atty sanjose was duly authorized representative
of estate and heirs
When a civil case for collection of tax is filed in court, the

running of prescriptive period is likewise interrupted
Prescriptive period under Section 33 NIRC was tolled because
the taxpayer cannot be located at the address given in the
information return fileed and for which reason there was
delay in sending the assessment
In case of change of address of taxpayer, said person will be
suspended only if taxpayer informs the Commissioner of said
change address
When the warrant of distraint and levy is duly served
Will an extrajudicial
prescription?
-
a warrant of distraint and levy which is merely issued

does not suspend the running of prescriptive period for
collection unless said warrant is duly served on
taxpayer or his authorized representative or a member
of his household with sufficient discretion
demand
on
interrupt
an extrajudicial demand interrupts the running of the

prescriptive period IF IT IS WRITTEN (Article 1155
CC)))
BUT THIS RULE SIS NOT APPLICABLE TO THE
COLLECTION OF TAXES
REASON :
interruption of period of limitation in
taxation is governed by section 223 tax code, a special
law which prevails over general law like CC
When the taxpayer is out of Philippines
taxpayer
94
-
the taxpayers absence from Philippines is also one of

the instances when the running of prescriptive period
of assessment and collection is suspended
RULE OF PRESCRIPTION IN CRIMINAL CASES

SEC. 281. Prescription for Violations of any Provision
of this Code. - 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 the time, from the discovery thereof and the
institution of judicial proceedings for its investigation and
punishment.
The prescription shall be interrupted when proceedings are
instituted against the guilty persons and shall begin to run
again if the proceedings are dismissed for reasons not
constituting jeopardy.
- civil action for collection of taxes where the defense of

prescription, if not raised in lowercorut, is barred
permanently
- it is justified to fall back on the principle that issues or
defenses not raised in administrative proceeding and/or lowr
court cannot be raised for first time on appeal
PRESCRIPTIVE PERIOD IN CRIMINAL CASES WHN
DOES IT START TO RUN?
When does the prescriptive period for crim case
commence to run?
-
The term of prescription shall not run when the offender is

absent from the Philippines.
NOTE : lapse of just one day after the five year prescriptive
period had expired was enough statutory basis for holding
that the criminal action had already prescribed
WHEN DEFENSE OF PRESCRIPTION MAY BE RAISED

EVEN ON APPEAL
-in crim cases involving tax violation, the defense of

prescription can be raised or invoked by accused even if case
had already been decided by the lower court but pending
decision on appeal
94
the recknoning point for purposes of prescription will

depend on the nature of tax avoidance
a petition for review on certiorari was filed by
taxpayers in SC seeing revesal of decision of CA dated
September 1, 1977 which affirmed in toto the
judgement of then CFI of Manila, in four crim cases
instituted to compel defendants to pay deficiencies.
Petitioners contended that appellate court erred in
holding that OFFENSES CHARGED INC RIM CASE and
prescribed in ten years instead of 5 years, that
prescriptive period with respect to failure or refusal to
apy income tax commenced to run only
ISSUE : HAD THE CRIMINAL CASES ALREADY
PRESCRIBED WHEN THEY WERE FILED IN TRIAL
COURT?
It must be made clear that what we are dealing with
here are criminal prosecutions for filing fraudulent
income tax returns and for refusing tp pay deficiency
taxes
Chapter 8
TAXPAYERS REMEDIES
ADMINISTRATIVE PROTESTS
-
important remedy which can be availed by taxpayer

commonly referred to in BIR as a PROTEST AGAINST
ASSESSMENT
a remedy before payment, while a tax refund or tax
credit is a remedy of taxpayer after he has paid the tax
Section 228 of 1997 Tax Code
"SECTION 228. Protesting of Assessment. - When the

Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the following
cases:
"(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as
"(b) When a discrepancy has been determined between the
tax withheld and the amount actually remitted by the
withholding agent; or
"(c) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of
the succeeding taxable year; or
"(d) When the excise tax due on excisable articles has not
been paid; or
"(e) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
"The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the
assessment shall be void.
"Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an assessment
based on his findings.
"Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest,
96
all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
"If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from submission
of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the said decision, or
from the lapse of the one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and
demandable.
Revenue Regulation No 12 99 September 6 1999
Decisions rendered by Regional Director shall be appealable

to Office of Commissioner through the Appellate Division of
Bureaus Legal Service within 30 days from receipt of
decision.
OTHERWISE said decision shall become final, executor, and
demandable
In filing a request for reconsideration of decision rendered by
Regional Director to the Office of Commissioner, the
TAXPAYER MUST BE ABLE TO SHOW THAT HIS REQUEST FOR
RECONSIDERATION RAISES NEW ISSUES OR ARGUMENTS OR
NEW FACTUAL SITUATIONS OTHER THAN THOSE COVERED BY
HIS PREVIOUS PROTEST
SEE NOTES
When protesting an assessment, the taxpayer must see to it

that the protest is ATTACHED to or incorporated with the
BIRs docket of the assessment
Note : While the regional director may render decisions on

protests against assessments, a taxpayer adversely affected
by the decision to the Commissioner, through Appellate
Division, within reglementary period and it is the final
decision of Commissioner of Internal Revenue on protest that
is APPEALABLE TO CTA pursuant to RA 1125 Section 7.
The taxpayer protesting an assessment may file a written

request for reconsideration or reinvestigation with the
revenue regional office having jurisdiction over the case
In case of regional office cases, or with Office of the
Commissioner, for referral to and appropriate action by
division of BIR National Office concerned
If protest raises questions of fact, the case may be assigned
for reinvestigation
If protest raises pure questions of law, it will be endorsed for
study by legal division of Revenue Regional Offices or by
Legal Service in BIR National Office
96
Request for reconsideration
Request for reinvestigation
A plea for re- evaluatoion of

an assessment on the basis
of existing records without
need of additional evidence
Plea for reinvestigation of an

assessment on basis of newly
discovered
or
additional
evidence that a taxpayer
intends to present in the
reinvestigation

May involve question of fact
or law or BOTH
May involve a question of

fact or law or both
One case that illustrates the effect of taxpayers failure to file

a protest is the case of DAYRIT
-
EFFECTS OF TAXPAYERS
ADMINISTRATIVE PROTEST
DECISION TO THE CTA
FAILURE TO FILE AN
OR TO APPEAL BIRS
Section 228, Tax Code : If taxpayer fails to file an

administrative protest within the reglementary 30 day period
from receipt of assessment notice, the assessment BECOMES
FINAL
MEANING : after the lapse of said period, the assessment can
no longer be disputed either administratively or judicially
through an appeal in CTA
EFFECT : making the assessed tax collectible
NO APPEAL to CTA can be possibly taken as there is NO BIR
decision that may be appealed pursuant to Section 7 in
relation to Section 11 of RA 1125
Only final decisions (NOT MERE ASSESSMENTS)
Commissioner are appealable to the CTA
of
If a taxpayer or the Government is NOT SATISFIED with CTAs

decision, he /it may file a petition for review with CTA within
15 days from receipt of CTAs decision
If still dissatisfied with CAs decision, he/it may file a petition
for review on certiorari with the SC within 15 days from
receipt of appellate courts decision
an aspect of which has been discussed in a previous

chapter
the estate of the late Don Toribio Teodor, after being
assessed, filed a motion for reconsideration with a
promise to file a position paper or what actually should
have been the taxpayers protest containing the
estates argument against the assessment
The estate however, DID NOT FILE the position paper as

promised.
Government filed its corresponding proof of claim against the
estate
When this claim for tax xollection was contested by estate,
the settlement court sustained the action taken by BIR
SC on appeal that it is NOT incumbent on part of Government
that it must first rule on pending protest against an
assessment before it could collect the taxes that are due on it
MARCOS vs CA
-
omission to file an estate tax return, and the

subsequent failure to contest or appeal the
assessment made by BIR is fatal to petitioners cause,
as under the abovecited provision
In case of failure to file a return, the tax may be assessed at

any time wihin 10 years following the assessment tax
Since estate tax had been final and unappealable by
petitioners own default as regards protesting the validity of
said assessment, there is now no reason why the BIR cannot
continue with collection of said tax
98
Even if taxpayer files an administrative protest, once an
adverse decision thereon is rendered by Commissioner, the
same must be appealed to CTA within reglementary period of
30 days from receipt of Commissioners decision
OTHERWISE same becomes final and executor
REFUND OR RECOVERY OF ERRONEOUSLY OR ILLEGALY

COLLECTED TAXES
3. Any sum alleged to have been excessive or in any

manner wrongfully collected
Recovery may also be held with respect to the value of
internal revenue stamps when they are returned in a good
condition by the purchaser.
In his discretion, Commissioner may redeem or change
unused stamps that have been rendered unfit for use and
refund their value upon proof of destruction
Necessity of Proof for Refund Claims
1. Legal Basis of Tax Refunds tax refunds are based on

legal principle of quasi- contract or solution indebiti
a. Article 2142 and 2154 Civil Code
b.
Important : Government comes within the scopr of the

solution indebiti principle
No person shall unjustly enrich himself at the expense of
another. It goes without saying that the Govenrment is not
exempted from application of this doctrine
Rules in Tax recovery or refunds )Section 204 and 229
Emmanuel Zenaida Aguilar Case

-
SEE NOTES
Scope of Claims for Refund
-
Tax recovery or refunds may encompass the following

payments :
1. Erroneously or illegally assessed or collected internal
revenue taxes
2. Penalties imposed without authority
98
A claim for refund partakes of nature of an exemption

which cannot be allowed UNLESS granted in the most
explicit and categorical language
Being in the nature of an exemption from taxation, a
claim for refund is strictly construed against the
claimant and failure to discharge strictly construed
against the claimant and failure to discharge said
burden is FATAL to the claim
petitioners claim for refund of withholding taxes WAS

DENIED for failure of claimant to prove the fact of
actual withholding of taxes in question.
COURT : took note of taxpayers inability to produce
the receipts for income tax payments and the various
withholding tax certificatesissued to petitioners
Neither receipts nor certificates were introduced in
evidence during trial
CIR vs Li Yao

-
amounts sought to be recovered or credited should be

shown to be taxes which are erroneously or illegaly
collected
their payment was an independent single act of
voluntary payment of tax believed to be dure,
collectible and accepted by Government
which had therefore become part of State moneys
subject to expenditure and perhaps already spent or
appropriated
For evidentiary purposes in refund cases, are income tax

returns actionable documents under Section 8 Rule 8 of ROC?
-
where taxpayer contended that Governments failure

to make a denial under oath as required in aforecited
provision constituted an admission of allegation in
petition for review that there was payment of
withholding tax
COURT : the income tax return of petitioner are NOT
actionable documents because the petition for review
is NOT BASED on income tax returns which are merely
evidence of petitioners cause fo action
PROOF IN SUPPORT OF CLAIM FOR REFUND IS
NECESSARY
SC: it is bound by the findings of CTA which has clearly

established the propriety of taxpayers claim for tax refund of
excess 1983 quarterly payments
COURT :: BIR to refund without any unreasonable delay
Fair delaing the court is expected by our taxpayers from the
BIR and this duty demands that the BIR should refund
without any unreasonable delay what it has erroneously
collected
Nature of Erroneously Pad or illegally assessed or collected
Taxes
There is erroneous payment of taxes when taxpayer

pays under mistake of fact
Where he is NOT aware of an existing exemption in his
favor at the time payment was made
Such payment was held to be NOT VOLUNTARY AND CAN BE

RECVERED OR REFUNDED
When money is paid to another under influence of a mistake
of fact : Where it would NOT HAVE BEEN KNOWN THAT THE
FACT WAS OTHERWISE, IT MAY BE RECOVERED
GROUND : money paid thru misapprehencsion of facts
belongs in equity and in good conscience to person who paid
it
TAXES ARE ILLEGALLY COLLECTED WHEN PAYMENTS ARE
MADE UNDER DURESS
-
if during pendency of an administrative protest which

was filed on time under Section 228 of Tax Code, the
BIR proceeds to collect the liability by summary
remedies and payment by taxpayer is thereafter
made, it is justifiable for taxpayer to file his claim for
refund
Illegality of payment or question as to whether or not
there was legal and or factual basis for collecting tax is
SOMETHING which BIR or court will have to determine
after refund claim is FILED
DISTINCTION BETWEEN TAX REFUND AND TAX CREDIT

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TAXATION SURVIVAL KIT Aban Book

Taxation power by which the sovereign, through its law

it is merely a way of apportioning the costs of

Commissioner of Internal Revenue vs Algue :

1 Miranda, Clarisse Ann

same standards against itself xxxx. No one, not even

Congress shall evolve a progressive system of taxation

5. It is imposed by the State on persons, property, or

TAXES, PERSONAL TO TAXPAYER

A tax creates a civil liability on the part of the

lifeblood of the Government and so should be

A corporations tax delinquency cannot, for instance,

NATURE OF THE TAXING POWER

TAXATION SURVIVAL KIT Aban Book

found only in the responsibility of the legislature which

PURPOSES AND OBJECTIVES OF TAXATION

3 Miranda, Clarisse Ann

Taxes may also be imposed for regulatory purpose as in the

although the payment of taxes gives a right to

taxing power or discretion

1. the person, property, or occupation to be taxed

TAXATION SURVIVAL KIT Aban Book

4. kind of tax to be collected

state or nation may outrun any human calculation, so

Legislature has also full discretion as to the persons,

power to impose taxes is one so unlimited in force and

In the light of the foregoing description of the taxing power is

5 Miranda, Clarisse Ann

Taxpayer owes honesty to the Government

To maintain general publics trust and confidence in the

POWER OF JUDICIAL REVIEW IN TAXATION

Non food agricultural product, the sale of which by primary

As long as legislature, in imposing a tax, does not violate

Levy legislative power

COURTS POWER IN TAXATION is LIMITED ONLY TO THE

The question as to whether or not BIRs reclassification is

Basic principles of sound tax system

TAXATION SURVIVAL KIT Aban Book

b. VAT principally aimed to rationalize the system

Operate upon community

Exercised only by the

Taxation vs Police Power vs Eminent Domain

7 Miranda, Clarisse Ann

TAXES DISTINGUISHED FROM OTHER IMPOSITIONS

b. Should be noted that LOCAL GOVERNMENT

TAXATION SURVIVAL KIT Aban Book

9 Miranda, Clarisse Ann

1. licenses for regulation of useful occupations

Must not contravene Constitution

Section 34 B 1 NRC it would seem that deduction of

A pending claim for refund may be set off against an existing

TAXATION SURVIVAL KIT Aban Book

Section 67 are required to file quarterly returns of income tax

11 Miranda, Clarisse Ann

c. PD 1987 regulates the cideogram industry

iv. Where transaction in itself is a tax exempt and

TAXATION SURVIVAL KIT Aban Book

2. Indirect taxes are not included

13 Miranda, Clarisse Ann

AS SPECIAL FUND AND PAID OUT FOR SUCH

taxpayer has right to file an action questioning the

a duly elected Senator of the Philippines and a

PUBLIC FUNDS SHOULD BE INVOLVED

TEST IN DETERMINING PUBLIC PURPOSE IN A TAX ?