We humbly ask for peace

in our hearts, our bodies, our minds, and our

souls, as we wait patiently and confidently.

Not once did you leave us despite our failures and sins.
We recognize and accept the death of your Son, Jesus on the
cross, as a symbol of your unconditional love for us. We thank
you for the assurance of eternal life upon acceptance of Jesus
as our Savior.

Father, we humbly come before you as one family to ask that for your
Divine providence we implore the help of the Holy Spirit to work in
the hearts of those who are preparing for the 2021 Bar
Examination, especially members of our Bedan family.
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 TAXATION LAW

I. GENERAL PRINCIPLES ....................................................................................................1

A. POWER OF TAXATION AS DISTINGUISHED
FROM POLICE POWER AND EMINENT DOMAIN ..................................................1
B. INHERENT AND CONSTITUTIONAL LIMITATIONS OF TAXATION ......................1
C. REQUISITES OF A VALID TAX.....................................................................................2
D. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS .......................2
E. KINDS OF TAXES ..........................................................................................................3
F. DOCTRINES IN TAXATION .........................................................................................3
II. NATIONAL TAXATION .....................................................................................................5
A. TAXING AUTHORITY....................................................................................................5
B. INCOME TAX ................................................................................................................5
C. VALUE-ADDED TAX (VAT) ........................................................................................ 10
D. TAX REMEDIES UNDER THE NATIONAL INTERNAL REVENUE ........................... 12
III. LOCAL TAXATION ......................................................................................................... 16
A. LOCAL GOVERNMENT TAXATION ........................................................................ 16
B. REAL PROPERTY TAXATION ................................................................................... 19
IV. JUDICIAL REMEDIES..................................................................................................... 22
A. COURT OF TAX APPEALS (CTA) ............................................................................ 22
B. PROCEDURES ............................................................................................................ 23
 1

TAXATION LAW
I. GENERAL PRINCIPLES
(1) What is taxation?
The term “taxation” is defined as the power by which the sovereign raises revenue to defray the necessary
expenses of government. Taxation is merely a way of apportioning the cost of government among those who
in some measure are privileged to enjoy its benefits and must bear its burdens (51 Am. Jur. 341; 1 Cooley 72-
93).

(2) Distinguish the power of taxation from eminent domain and police power.
They are distinguished as follows:
Taxation Eminent Domain Police Power
As to May be exercised only by the May be: May be exercised only by the
authority government or its political (1) Exercised by the government government or its political
who subdivisions. or its political subdivisions; or subdivisions.
exercises (2) Granted to public service
power companies or utilities.

As to To raise revenue; the property The property is “taken” for public The use of the property is
purpose (generally in the form of money) is use; it must be compensated. “regulated” for the purpose of
taken for the support of the promoting the general welfare; it is
government. not compensable.
As to Operates upon a community or Operates on an individual as the Operates upon a community or
persons class of individuals. owner of a particular property. class of individuals.
affected
As to effect The money contributed becomes There is transfer of the right to There is no transfer of title, but only
part of the public funds. property to the government. restraint on the exercise of property
rights.
As to Indirect benefit; it is assumed that Direct benefit; he receives the Indirect benefit; the person affected
benefits the individual receives the market value of the property taken receives indirect benefits as may
received equivalent of the tax in the form of from him. arise from the maintenance of a
protection and benefits he receives healthy economic standard of
from the government. society.

As to Generally, there is no limit on the No amount imposed, but rather, the Amount imposed should not be
amount of amount of tax that may be owner is paid the market value of more than sufficient to cover the
imposition imposed. the property taken. cost of the license and necessary
expenses.

In relation to Is subject to certain constitutional Inferior to the impairment Relatively free from constitutional
the limitations, including the prohibition prohibition; the government cannot limitations; superior to the
Constitution against impairment of the expropriate private property, which impairment of contract provision.
obligation of contracts under a contract, it had previously
bound itself to purchase from the
other contracting party.

(MAMALATEO, Reviewer on Taxation (2019), p. 18-19), [hereinafter, MAMALATEO, Reviewer].

(3) What are the inherent limitations of taxation? (PINES)

The inherent limitations on taxation are:
1. Taxes must be exacted for a Public purpose. This does not only pertain to those purposes which are
traditionally viewed as essentially government functions, such as building roads and delivery of basic
services, but also includes those purposes designed to promote social justice (Planters Products, Inc. v.
Fertiphil Corp., G.R. No. 166006, March 14, 2008);
2. International comity. Under this principle, a State must recognize the generally accepted tenets of
international law, among which are the principles of sovereign equality among States and of their freedom
from suit without their consent, that limit the authority of a government to effectively impose taxes on a
sovereign state and its instrumentalities, as well as on its property held, and activities undertaken in that
capacity (VITUG & ACOSTA, Tax Law and Jurisprudence (2014), p. 11 [hereinafter VITUG & ACOSTA,
Tax Law and Jurisprudence]);
3. Non-delegability of the taxing power. The State's inherent power to tax is exclusively vested in
Congress (Saint Wealth Ltd. v. Bureau of Internal Revenue, G.R. Nos. 252965 & 254102, December 7,
2021). One of the settled maxims in constitutional law is that the power conferred upon the legislature to
 2

make laws cannot be delegated by that department to any other body or authority. Where the sovereign
power of the State has located the authority, there it must remain; and by the constitutional agency alone,
the laws must be made until the Constitution itself is changed (Abakada Guro Party List v. Ermita, G.R.
No. 168056, September 1, 2005).
4. Government entities, agencies, and instrumentalities are generally Exempt from taxation.
Otherwise, it will result in the absurd situation of the government taking money from one pocket and
putting it in another (Board of Assessment Appeals of Laguna v. Court of Tax Appeals, G.R. No. L-18125,
May 31, 1963); and
5. Territoriality or Situs. The situs of taxation is the place or authority that has the right to impose and
collect taxes. Taxation may be exercised only within the territorial jurisdiction of the taxing authority
(Commissioner of Internal Revenue v. Marubeni Corp., G.R. No. 137377, December 18, 2001).

(4) In 2016, PAGCOR issued the rules and regulations for Philippine Offshore Gaming Operations
(POGOs). Offshore-based POGO licensees are not taxed under the PAGCOR Charter. Thereafter, the
BIR issued a Revenue Memorandum Circular (RMC) and classified POGOs into two: licensees or other
entities, which are subject to franchise tax, income tax, VAT, and other applicable taxes. Thereafter, the
BIR issued another RMC which reiterated that online activity is sufficient to do business in the
Philippines and considered POGOs as "resident foreign corporations engaged in business in the
Philippines." As such, the BIR required all offshore-based and Philippine-based POGO licensees to
register with the BIR. Thereafter, several petitions were filed questioning the validity of the said RMCs
on the ground that the BIR arrogated upon itself the power to determine the classification and taxability
of POGOs, notwithstanding the absence of any tax law passed by Congress, and that it violates the
principle of situs of taxation. Are the RMCs valid?

No. The State's inherent power to tax is exclusively vested in Congress. Without such imprimatur from
Congress, the BIR cannot arrogate upon itself the authority to impose taxes, especially because the rule is that
a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a
person, article, or activity is taxable is resolved against taxation. The BIR encroached upon the authority
reserved exclusively for Congress when it issued the RMCs and imposed franchise tax upon POGOs when
the PAGCOR Charter itself does not tax POGOs. Thus, the RMCs, insofar as they imposed franchise taxes on
POGOS, are invalid and unconstitutional for being issued without any statutory basis and for encroaching upon
legislative power to enact tax laws.

Further, POGOs, particularly offshore-based POGO licensees, are not doing, engaging in, nor transacting
business in the Philippines. They only have a limited presence in the Philippines and the transactions are not
performed in the Philippines, which are beyond our jurisdiction. Thus, the RMCs should be struck down, insofar
as they imposed income tax and other applicable taxes upon offshore-based POGO licensees, notwithstanding
the fact that these licensees do not derive any Philippine income (Saint Wealth Ltd. v. Bureau of Internal
Revenue, G.R. Nos. 252965 & 254102, December 7, 2021).

(5) What are the requisites of a valid tax? (JAPUL)

The requisites of a valid tax are the following:
1. Either the person or property taxed must be within the Jurisdiction of the taxing authority (Reagan v. CIR,
G.R. No. L-26379, December 27, 1969);
2. The Assessment and collection of certain kinds of taxes must guarantee against injustice to individuals,
especially by providing notice and opportunity for hearing (compliance with due process) (VITUG &
ACOSTA, Tax Law and Jurisprudence, supra at 12);
3. It should be for a Public purpose (Pascual v. Secretary of Public Works and Communications, G.R. No.
L-10405, December 29, 1960);
4. It should be Uniform and equitable (CONST. Art. VI, Sec. 28, Par. 1); and
5. The tax must not impinge on the inherent and constitutional Limitations on the power of taxation (Basco
v. Philippine Amusements and Gaming Corp., G.R. No. 91649, May 14, 1991).

(6) The Municipality of San Mateo, Isabela enacted an Ordinance imposing an annual fee for the operation
of antenna cell sites/relay stations to ensure the safety of their operations. As a result, SCI was required
to pay the tower fee. However, SCI filed a petition for certiorari and applied for the issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction before the RTC. SCI maintains that
the imposition of tower fees, being a regulatory measure, is legally infirm as it involves excessive fees.
Are the tower fees imposed by Ordinance considered as taxes or regulatory fees under the Local
Government Code?

The tower fees are to be treated as regulatory fees. If the purpose of the imposition is primarily revenue, or if
revenue is at least one of the substantial purposes, then the exaction is properly classified as an exercise of
the power to tax. On the other hand, if the purpose is primarily to regulate, then it is deemed an exercise of
police power in the form of a fee. Here, the main purpose of the assailed ordinance is clearly to regulate the
 3

installation and maintenance of the enumerated communication facilities erected within the Municipality of San
Mateo, Isabela. Thus, the fees imposed in the Ordinance are primarily regulatory in nature (Municipality of San
Mateo, Isabela v. Smart Communications, Inc., G.R. No. 219506, June 23, 2021).

(7) What are the kinds of taxes?

Taxes may be classified according to the following:
1. As to Subject Matter or Object
a. Personal, Capitation, or Poll Tax – a tax of a fixed amount imposed upon all persons of a certain
class within the jurisdiction of the taxing power without regard to the amount of their property, or the
occupations or businesses in which they may be engaged (e.g., community tax).
b. Property Tax – a tax imposed on all properties or all properties of a certain class within the
jurisdiction of the taxing power (e.g., real property tax).
c. Excise or Privilege Tax – a charge imposed upon the performance of an act, the enjoyment of a
privilege, or engaging in an occupation, profession, or business (e.g., donor’s tax) (ABAN, Law of
Basic Taxation, supra at 23-24).

2. As to who bears the Burden or Incidence

a. Direct tax – one which is demanded from the very person intended to be the payor, although it may
ultimately be shifted to another (e.g., income tax)
b. Indirect tax – a tax which is demanded from one person, with the expectation and intention that he
shall indemnify himself at the expense of another (e.g., VAT) (Maceda v. Macaraig, G.R. No. 88291,
May 31, 1991).

3. As to Determination of Amount or Tax Rates

a. Specific tax – a tax of a fixed amount imposed by the head or number, or by some standard of
weight or measurement; it requires no valuation other than a listing or classification of the objects to
be taxed (e.g., excise taxes on wines and fermented liquors).
b. Ad Valorem tax – a tax of a fixed portion of the value of the property with respect to which the tax is
assessed; it requires the intervention of assessors or appraisers to estimate the value of such
property before the amount due from each taxpayer can be determined (e.g., real property tax,
customs duties).
c. Mixed tax – a tax having both the characteristics of specific tax and ad valorem tax (ABAN, Law of
Basic Taxation, supra at 27).

4. As to Purpose
a. General or Fiscal – a tax imposed for the general or ordinary purposes of the government, or to
raise revenue for governmental needs (e.g., income tax).
b. Special, Regulatory, or Sumptuary – a tax imposed for a special purpose, to achieve some social
or economic ends irrespective of whether revenue is actually raised or not (ABAN, Law of Basic
Taxation, supra at 26-27).

5. As to Scope or Authority Imposing the tax

a. National (Internal Revenue Taxes) – a tax levied by the National Government through Congress
and administered by the BIR or the Bureau of Customs (BOC).
b. Local or Municipal (Real Property Tax, Municipal Tax) – a tax levied by the local government,
through their respective Sanggunians, and administered by the local executive government through
the local treasurer (Id.).

6. As to Rate
a. Progressive tax – one where the tax rate increases as the tax base or bracket increases (e.g.,
income tax on individuals).
b. Regressive tax – one where the tax rate decreases as the tax base increases (e.g., VAT).
c. Proportionate tax – one where the tax rate is based on a fixed percentage of the amount of the
property, receipts, or other bases to be taxed (Id. at 27-28) (e.g., real property tax).

(8) What is the “Lifeblood Theory”?

The “lifeblood theory” considers taxes as the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for the welfare of its constituents
(Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 106611, July 21, 1994). Taxes, being the
lifeblood of the government, should be collected promptly, without unnecessary hindrance or delay
(Commissioner of Internal Revenue v. Standard Insurance Co., Inc., G.R. No. 219340 (Resolution), April 28,
2021, Hernando Case)
 4

(9) How are tax laws construed?

Tax laws must be construed strictly against the government and in favor of the taxpayer. This is because taxes
are burdens on the taxpayer, and should not be unduly imposed or presumed beyond what the statutes expressly
and clearly import (CIR v. Philippine American Accident Insurance Co., Inc., G.R. No. 141658, March 18, 2005)

(10) What is double taxation?

Double taxation is defined as taxing the same person twice by the same jurisdiction for the same thing (Victorias
Milling v. Municipality of Victoria, Negros Occidental, G.R. No. L-21183, September 27, 1968). There is no
constitutional prohibition against double taxation in the Philippines. It is something not favored, but is
permissible, provided that some other constitutional requirement is not thereby violated, such as the
requirement that taxes must be uniform (Villanueva v. City of Iloilo, G.R. No. L-26521, December 28, 1968).

(11) What kind of double taxation is prohibited?

Direct double taxation (strict sense) is prohibited. To constitute direct double taxation:
1. The same property must be taxed twice when it should be taxed but once; and
2. Both taxes must be imposed: (SPuG-JTK)
a. On the same property or Subject matter;
b. For the same Purpose;
c. By the same State, Government, or taxing authority;
d. Within the same Jurisdiction or taxing district;
e. During the same Taxing period; and
f. They must be the same Kind or character of tax (Villanueva v. City of Iloilo, G.R No. L-26521,
December 28, 1968).

(12) In 2007, the City of Manila assessed CBC for a tax on manufacturers and local business taxes in
accordance with Sections 14 and 21 of the Revenue Code of Manila. CBC protested the assessment
and argued that the collection of business tax under Section 21 in addition to Section 14 constitutes
double taxation. Does the collection by the City under both Sections 14 and 21 of the Revenue Code
of Manila constitute direct double taxation?
Yes. While the City of Manila could impose against CBC a manufacturer's tax under Section 14 of the Revenue
Code of Manila, it cannot at the same time impose the tax under Section 21 of the same Code. Otherwise, an
obnoxious double taxation would set in. When a municipality or city has already imposed a business tax on
manufacturers, it can no longer subject the same manufacturer to a business tax (City of Manila v. Cosmos
Bottling Corp., G.R. No. 196681, June 27, 2018). Thus, the additional imposition of a tax under Section 21
constitutes direct double taxation.

(13) Distinguish tax avoidance from tax evasion.

Tax avoidance (or tax minimization) is distinguished from tax evasion (or tax dodging) as follows:
Tax Avoidance Tax Evasion
As to A tax saving device within the means sanctioned by Tax evasion is a term that connotes fraud through the use
nature law. This method should be used by the taxpayer in of pretenses and forbidden devices to lessen or defeat
good faith and at arm’s length. taxes.
As to Legal and not subject to criminal penalty. Illegal and subject to civil and/or criminal liabilities.
legality
As to Minimization of taxes. Almost always results in the absence of tax payments.
effect
(CIR v. The Estate of Benigno Toda, Jr., G.R. No. 147188, September 14, 2004).

(14) HS Corp. incorporated GPI, wherein GPI’s shares of stocks were issued to HS Corp. in exchange for
HS Corp.’s shares in MAB. Thereafter, HS Corp. received an assessment from the BIR for deficiency
income taxes from its gain on the sale of the MAB shares. The CIR found the methodology employed
by HS Corp. as a form of a tax evasion scheme to escape income tax liability. According to the CIR, the
formation of GPI was to circumvent the law by classifying the subject transaction as a sale of shares
of stock instead of a sale of asset and goodwill, which is subject to regular corporate income tax. Did
HS Corp commit tax evasion?
No. A taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether
avoid them by means which the law permits. This is called tax avoidance, which is the use of legal means to
reduce tax liability. However, this method should be used by the taxpayer in good faith and at arms-length.
When HS Corp. transferred its shares in MAB to GPI in exchange for GPI shares, this was made pursuant to
Section 40(C)(2) of the NIRC. It simply availed of tax saving devices within the means sanctioned by law
(Commissioner of Internal Revenue v. The Hongkong Shanghai Banking Corp. Limited-Philippine Branch, G.R.
No. 227121, December 9, 2020)
 5

(15) What is tax amnesty and how is it construed?

Tax amnesty refers to the absolute waiver by a sovereign of its right to collect taxes and power to impose
penalties on persons or entities guilty of violating a tax law. It partakes of an absolute relinquishment by the
government of its right to collect what is due it and to give tax evaders, who wish to relent, a chance to start
with a clean slate. A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant
of a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in
favor of the taxing authority (Bureau of Internal Revenue v. Samuel Cagang, G.R. No. 230104, March 16,
2022, Hernando Case).

II. NATIONAL TAXATION

A. TAXING AUTHORITY
(1) What are the powers of the Commissioner of Internal Revenue (CIR)? (IDOMS)
The CIR shall have the power:
1. To Interpret tax laws and to Decide cases (NIRC, Sec. 4);
2. To Obtain information, and to summon, examine, and take testimony of persons (NIRC, Sec. 5);
3. To Make assessments and prescribe additional requirements for tax administration and enforcement
(NIRC, Sec. 6); and
4. To Suspend the business operations of a taxpayer (NIRC, Sec. 115).

(2) What is the rule-making power of the Secretary of Finance?

The Secretary of Finance, upon recommendation of the CIR, shall promulgate all needful rules and regulations
for the effective enforcement of the provisions of the NIRC (NIRC, Sec. 244).

B. INCOME TAX
(1) What criteria are used in imposing Philippine income tax?
The three principles being used as criteria are the following:
1. Citizenship Principle – where a citizen taxpayer is subject to income tax on his worldwide income (from
sources within and without the Philippines) if he resides in the Philippines, or only on his income from
sources within the Philippines if he qualifies as a non-resident citizen;
2. Residence Principle – where an alien is subject to Philippine income tax because of his residence in the
Philippines, but only on his income from sources within the Philippines; and
3. Source Principle – where an alien is subject to Philippine income tax because he derives income from
sources within the Philippines (MAMALATEO, Income Tax, supra at 89-90).

(2) What type of income taxes does the Philippines impose?

The Philippines imposes the following types of income taxes:
1. Graduated income tax on individuals (NIRC, Sec. 24 (A));
2. Optional 8% income tax on individuals (Sec. 24 (A)(2)(b) and (c));
3. Regular/Normal Corporate Income Tax on corporations (R/NCIT) (NIRC, Sec 27 (A));
4. Minimum Corporate Income Tax on corporations (MCIT) (NIRC, Sec. 27 (E));
5. Special income tax on certain corporations (i.e., private educational institutions, foreign currency deposit
units, and international carriers);
6. Capital Gains Tax (CGT) on the sale or exchange of unlisted shares of stock of a domestic corporation
classified as a capital asset (NIRC, Sec. 24 (C));
7. CGT on the sale or exchange of real property located in the Philippines classified as capital asset (NIRC,
Sec. 24 (D));
8. Final Withholding Tax (FWT) on certain passive investment income (NIRC, Sec. 28 (B)(5)(b));
9. Fringe Benefit Tax (FBT) (NIRC, Sec. 33); and
10. Branch Profit Remittance Tax (BPRT) (NIRC, Sec. 28).

(3) What taxable periods are taxpayers permitted to use?

The following are the permissible taxable periods under the NIRC:
1. Calendar year – an accounting period which starts from January 1 to December 31;
2. Fiscal year – an accounting period of twelve (12) months ending on the last day of any month other than
December; and
3. Short period – a fractional part of a year (NIRC, Sec. 22 (P) and (Q)).

(4) What is income?

 6

Income refers to all wealth which flows into the taxpayer, other than a mere return of capital. It includes the
forms of income specifically described as gains and profits, including gains derived from the sale or other
disposition of capital assets (R.R. No. 02-40, Sec. 36).

(5) Distinguish capital and income.

The essential difference between capital and income is that capital is a fund; income is a flow. A fund of
property is called capital. A flow of services rendered by that capital by the payment of money from it or any
other benefit rendered by a fund of capital in relation to such fund through a period of time is called income.
Capital is wealth, while income is the service of wealth. Income tax law, as the name implies, refers to taxes
upon income and not upon capital and property (Madrigal v. Rafferty, G.R. No. L-12287, August 7, 1918).

(6) What are the tests in determining whether the income is earned for taxation purposes?
The following are the tests in determining whether income is earned for taxation purposes:
1. Flow of Wealth Test — the test of taxability is the "source", i.e., the property, activity or service that
produced the income determines whether any gain was derived from the transaction (Commissioner of
Internal Revenue v. British Overseas Airways Corp., G.R. No. L-65773-7, April 30, 1987).
2. Control Test — the power to dispose of income is the equivalent of ownership of it. The exercise of that
power to procure the payment of income to another is the enjoyment, and hence the realization, of the
income by him who exercises it (Helvering v. Horst, 311 U.S. 112, November 25, 1940).
3. Claim of Right Doctrine — a taxable gain is conditioned upon the presence of a claim of right to the
alleged gain and the absence of a definite unconditional obligation to return or repay that which would
otherwise constitute a gain. This is also called the Doctrine of Ownership, Command, or Control
(Commissioner of Internal Revenue v. Wilcox, 327 U.S. 404, February 25, 1946).
4. All-Events Test — for income or expense to accrue, this test requires: (a) The fixing of a right to income
or liability to pay; and (b) The availability of the reasonable accurate determination of such income or
liability (Commissioner of Internal Revenue v. Isabela Cultural Corp., G.R. No. 172231, February 12,
2007). The amount of liability does not have to be determined exactly; it must be determined with
"reasonable accuracy." Accordingly, the term "reasonable accuracy" implies something less than an exact
or completely accurate amount.
5. Realization/Severance Test — also known as the Macomber test. There is no taxable income until there
is a separation from capital of something of exchangeable value, thereby supplying the realization or
transmutation which would result in the receipt of income. The essence of the test is that for income to be
taxed, it is to be severed from the property from which it was derived. The Court analogized "capital" as
being separate from "income" in the way that a tree is separate from its fruit. It requires the presence of a
“tax event”, which is one that triggers a transfer of ownership of property (Eisner v. Macomber, 252 U.S.
189, March 8, 1920).
6. Economic Benefit Test or Doctrine of Proprietary Interest — any economic benefit to the employee
that increases his net worth, whatever may have been the mode by which it is effected, is taxable
(MAMALATEO, Reviewer on Taxation, p. 169). The important factor which determines the sources of
income of personal services is the place where the services were actually rendered. Non-resident aliens,
whether engaged in trade or business, are subject to Philippine income tax on income within the
Philippines.

(7) What are tax-free exchanges?

Tax-free exchanges are exchanges in which no gain or loss is recognized. This applies if one is a party to a
reorganization and exchanges property in pursuance of a plan of reorganization solely for stock or securities
in another corporation that is a party to the reorganization (NIRC, as amended by the CREATE Law, Sec. 40
(C)(2)).

(8) What are transfers for control?

It occurs when ownership of stocks in a corporation, after the transfer of property, is at least 51% of the total
voting power of all classes of stocks entitled to vote: Provided, that the collective and not the individual
ownership of all classes of stocks entitled to vote of the transferor or transferors shall be used in determining
the presence of control (NIRC, as amended by the CREATE Law, Sec. 40 (C)(6)(c)).
(9) D Corp. owns 67.42% of L Corp. D Corp. and A Corp. entered into a Deed of Exchange with L Corp.
whereby D Corp. and A Corp. both transferred in favor of L Corp. parcels of land in exchange for L
Corp. shares. As a result, D Corp.’s ownership over L Corp. decreased to 61.03%. Meanwhile, A Corp.
held 9.96% of L Corp. after the exchange. Thereafter, D Corp. received an assessment from the BIR for
deficiency taxes based on the gain it supposedly realized from the exchange. The BIR argued that the
transfer of property in question should not be considered tax-free since with the resultant diminution
of its shares in L Corp., D Corp. did not gain further control of the said corporation. Did the BIR properly
assess D Corp. for deficiency taxes as a result of the exchange?
No. Section 40(C)(2) of the NIRC, as amended, provides that a gain or loss will not be recognized in case the
exchange of property for stocks results in the gaining or maintaining of control of the transferee by the
transferor, alone or with other transferors not exceeding four (4) persons. Rather than isolating D Corp.’s
 7

resulting ownership over L Corp., the 61.03% control should be appreciated in combination with the 9.96%
new ownership held by A Corp. Together, the control clearly adds up to 70.99% of L Corp.’s shares. Therefore,
D Corp. maintained control over L Corp., together with the new shares issued to A Corp and as such, the
exchange of property for stocks clearly qualify as a tax-free transaction under Section 40(C)(2) of the NIRC
(Commissioner of Internal Revenue v. Filinvest Development Corp., G.R. Nos. 163653 & 167689, July 19,
2011).

(10) What are the guidelines in determining if an income is sourced from within or without the Philippines?
If the income is from labor, the place where the labor is done should be decisive; if it is done in the Philippines,
the income should be from sources within the Philippines. If the income is from capital, the place where the
capital is employed should be decisive; if it is employed in the Philippines, the income should be from sources
within the Philippines. If the income is from the sale of capital assets, the place where the sale is made should
be likewise decisive (Commissioner of Internal Revenue v. Juliane Baier-Nickel, G.R. No. 153793, August 29,
2006). However, the gain from the sale of shares in a domestic corporation shall be treated as derived entirely
from sources within the Philippines, regardless of where the said shares are sold (NIRC, Sec. 42 (E)).

(11) Define gross income.

Gross income means all income derived from whatever source (NIRC, Sec. 32 (A)). It means income (in the
broad sense) less income which is, by statutory provision or otherwise, exempt from the tax imposed by law
(R.R. No. 02-40, Sec. 36).

(12) Is gross income the same as net and taxable income?

No. Gross income refers all income, gain, or profit subject to income tax under Sec. 32(A) of the NIRC. Net
income, on the other hand, is gross income less statutory deductions (R.R. No. 02-04, Sec. 36). Meanwhile,
taxable income refer to pertinent items of gross income specified in the NIRC, less deductions, if any,
authorized for such types of income by the NIRC or other special laws (NIRC, Sec. 31).

(13) How are assets classified for taxation purposes?

For taxation purposes, assets are classified as:
1. Ordinary assets, which include: (SIS-DR)
a. Stock in trade of the taxpayer;
b. Other property of a kind which would properly be included in the Inventory of the taxpayer, if on hand
at the close of the taxable year;
c. Property held by the taxpayer primarily for Sale to customers in the ordinary course of his trade or
business;
d. Property used in the trade or business of a character which is subject to the allowance for
Depreciation; and
e. Real property used in trade or business of the taxpayer.
2. Capital assets, which are properties held by the taxpayer, whether or not connected with his trade or
business, and which are not ordinary assets (NIRC, Sec. 39 (A)(1)).

(14) What is the yardstick for determining whether a property is an ordinary asset or capital asset?
The yardstick for determining whether the property is capital asset or ordinary asset is the actual use of the
said property. Thus, if the property is not actually used in trade or business of the taxpayer, whether or not
connected with his trade or business, or not held for lease or sale to customers, it will be classified as a capital
asset. Also, if the property is merely held for capital appreciation and investment purposes and remains vacant
and idle, it is deemed a capital asset (BIR Ruling No. OT-032-2023, April 20, 2023).

(15) When may an “ordinary asset” be converted into a “capital asset” and vice versa?

Property purchased for future use in the business, even though this purpose is later thwarted by circumstances
beyond the taxpayer’s control, does not lose its character as an ordinary asset. Nor does a mere
discontinuance of the active use of the property change its character previously established as a business
property (R.R. No. 07-03, Sec. 3(a)(4)). However, properties classified as ordinary assets for being used in
business other than a real estate business are automatically converted into capital assets upon showing of
proof that the same have not been used in business for more than two (2) years prior to the consummation of
the taxable transactions involving the properties (R.R. No. 07-03, Sec. 3(e)).

Property initially classified as a capital asset may thereafter be treated as an ordinary asset if a combination of
the factors indubitably tends to show that the activity was in furtherance of or in the course of the taxpayer’s
trade or business. Thus, a sale of inherited real property usually gives capital gain or loss even though the
property has to be subdivided or improved, or both, to make it salable. However, if the inherited property is
substantially improved or very actively sold or both it may be treated as held primarily for sale to customers in
the ordinary course of the heir’s business (Calasanz v. Commissioner of Internal Revenue, G.R. No. L-26284,
October 8, 1986).
 8

(16) What are the rates of CGT imposed on taxpayers?

The following rates of CGT are imposed on different kinds of taxpayers:
Taxpayer On sale of shares in domestic corporations
On sale of real property
NOT traded in the stock exchange

Individuals, 15% of net capital gain (NIRC, Sec. 24 (C)). 6% of gross selling price or fair market value (FMV),
Estates and whichever is higher (NIRC, Sec. 24 (D)).
Trusts

Domestic 15% of net capital gain (NIRC, Sec. 27 (D)(2)). 6% of gross selling price or FMV, whichever is higher
corporations (NIRC, Sec. 27 (D)(5)).

Resident 15% of net capital gain (NIRC as amended, Sec. No provision for capital gains for sale of realty. Hence,
foreign 28 (A)(6)(c)). subject to regular corporate income tax rate (INGLES,
corporation Tax Made Less Taxing: A Reviewer with Codals and
Cases (2021), p. 103 [hereinafter, INGLES, Reviewer]).

Nonresident 15% of net capital gain (NIRC as amended, Sec. No provision for capital gains for sale of realty. Hence,
foreign 28 (B)(5)(c)). subject to regular corporate income tax rate (INGLES,
corporation Reviewer, supra at 112).

(17) What are the requisites for deductibility of expenses in general? (OTC)
To be deductible as a business expense, three conditions are imposed, namely:
1. The expense must be Ordinary and necessary;
2. It must be paid or incurred within the Taxable year; and
3. It must be paid or incurred in Carrying on a trade or business.

In addition, not only must the taxpayer meet the business test, but he must also substantially prove by evidence
or records the deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation
of the taxpayer that an item of expense is ordinary and necessary does not justify its deduction (Atlas
Consolidated Mining & Development Corp. v. Commissioner of Internal Revenue, G.R. No. L-26911, January
27, 1981).

(18) GFI is a corporation engaged in manufacturing several beverages. On July 1985, it filed its income tax
return for the fiscal year ending February 28, 1985, wherein it claimed as deduction an amount for
media advertising for one of its beverages. The said amount constituted almost one-half (1/2) of GFI’s
total marketing expenses. The CIR disallowed the amount and assessed GFI for deficiency income
taxes, on the ground that it is not an ordinary and necessary expense which is deductible under the
NIRC. Did the CIR properly disallow the deduction for the media advertising?

Yes. Although there is no clear-cut criteria or fixed test for determining the reasonableness of an advertising
expense, it is notable that the media advertising expense for a single product is unusually large. When the
advertising expense is designed to stimulate the future sale of merchandise or use of services, it is considered
as some form of goodwill for the taxpayer’s business and is considered as akin to capital assets. These
expenses should not be deductible outright but should instead be spread out over a reasonable period of time
(Commissioner of Internal Revenue v. General Food Phils., Inc., G.R. No. 143672, April 24, 2003). Thus, the
media advertising expense claimed by GFI as a deduction was properly disallowed since the same is a capital
expenditure, which should be spread out over a reasonable period of time.

(19) May a taxpayer deduct payment to certain public officials to "facilitate" a bidding process and ensure
that the project will be awarded to them?
No. Sec. 34 (A)(1)(c) of the NIRC prohibits any deduction from gross income for any payment made, directly
or indirectly, to an official or employee of the national government or to an official or employee of any local
government unit, or to an official or employee of a government-owned or controlled corporation, or to an official
or employee or representative of a foreign government, or to a private corporation, general professional
partnership, or a similar entity, if the payment constitutes a bribe or kickback. Here, the “facilitation fee”
constitutes a bribe and cannot therefore be claimed as an allowable deduction against the gross income.
(20) As a general rule, are stock dividends considered taxable income?
No. Generally, stock dividends are not taxable income. It represents the transfer of surplus to a capital account
and, thus, is not subject to income tax (NIRC, Sec. 73 (B)). They are used to show the increased interest or
proportional shares in the capital of each stockholder. Mere issuance of stock dividends is not yet subject to
income tax as they are nothing but an enrichment through an increase in the value of capital investment. As
capital, the stock dividends postpone the realization of profits because the "fund represented by the new stock
has been transferred from surplus to capital and no longer available for actual distribution." (Commissioner of
Internal Revenue v. Court of Appeals, G.R. No. 108576, January 20, 1999).
 9

(21) Is the receipt by the stockholder of a corporation of real property by way of liquidating dividends
taxable income?
Yes. Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized by
the stockholder, whether corporate or individual, is a taxable income (NIRC, Sec. 73 (A)).

(22) How are prizes and winnings taxed under the NIRC?
Prizes and winnings are taxed according to the following rules:
Type of Prize or Winning Individuals Corporation

Prizes derived from sources ₱10,000 or less – subject to regular tax; Subject to regular tax
within the Philippines More than ₱10,000 – subject to 20% FWT

Except: NRA-NETB – fully taxable at 25%

FWT

Winnings derived from sources Subject to 20% FWT

within the Philippines (other than
PCSO and lotto winnings) Except: NRA-NETB – fully taxable at 25%
FWT

PCSO and lotto winnings ₱10,000 or less – exempt;

More than ₱10,000 – subject to 20% FWT

Except: NRA-NETB – fully taxable at 25%

FWT

Prizes and winnings Subject to regular tax

derived from sources without the
Philippines NRA-NETB is exempt
(R.R. No. 02-98, as amended by R.R. Nos. 11-18 and 02-21, incorporating the changes in CREATE Law).

(23) What types of income taxes may be imposed on domestic corporations?

Domestic corporations may be subject to the following income taxes:
1. Normal or regular corporate income tax (NCIT/RCIT) (NIRC, Sec. 27(A), Par. 1);
2. Minimum corporate income tax (MCIT) (NIRC, Sec. 27(E));
3. Final income tax on passive income (NIRC, Sec. 27(D)(1) and (3)); or
4. Capital gains tax (NIRC, Sec. 27(D)(2) and (5)).

(24) What are the distinctions between regular corporate income tax and minimum corporate income tax?
The distinctions are as follows:
RCIT MCIT
As to taxpayer Applies to all corporate taxpayers Applies to domestic corporations and resident
foreign corporations
As to tax rate 25% or 20%, as the case may be 2%
As to tax base Based on the net taxable income Based on gross income, excluding income exempt
from income tax and income subject to final
withholding tax
As to period of Applicable beginning first year of operations Applicable beginning on the fourth taxable year
applicability immediately following the year in which such
corporation commence its business operation
As to Imposed if there is a net taxable income Imposed whenever it is greater than the regular
imposition corporate income tax of the corporation
(NIRC, as amended by CREATE Law, Secs. 27(A) and (E), R.R. No. 9-98).

(25) What is the tax-sparing rule?

Under the tax-sparing rule, a final withholding tax at the rate of 15% (instead of 25%) is imposed on the amount
of cash and/or property dividends received by a nonresident foreign corporation (NRFC) from a domestic
corporation, subject to the condition that the country in which such NRFC is domiciled shall allow a credit
against the tax due from the NRFC taxes deemed to have been paid in the Philippines, which is equivalent to
the difference between the regular income tax rate of 25% and the 15% tax on dividends (NIRC, as amended
by CREATE Law, Sec. 28 (B)(5)(b)).

(26) For domestic corporations, when are foreign-sourced dividends exempt from income tax?
For foreign-sourced dividends to be exempt, the funds from such dividends actually received or remitted into
the Philippines are reinvested in the business operations of the domestic corporation in the Philippines within
the next taxable year from the time the foreign-sourced dividends were received, Provided, further, that the
domestic corporation holds directly at least 20% of the outstanding shares of the foreign corporation and has
 10

held the shareholdings for a minimum of two (2) years at the time of the dividends distribution (NIRC, as
amended by CREATE Law, Sec. 27 (D)(4)).

(27) How should the dividends received by a domestic corporation from a foreign corporation be used in
order for the same to be exempt from tax? (WoCDI2)

The dividends received shall be limited to funding the following:

1. Working capital requirements;
2. Capital expenditures;
3. Dividend payments;
4. Investment in domestic subsidiaries; and
5. Infrastructure project. (Id.)

C. VALUE-ADDED TAX
(1) What is value-added tax (VAT)?
VAT is a tax on consumption levied on the sale, barter, exchange, or lease of goods or properties and services
in the Philippines and on importation of goods into the Philippines (Revenue Regulations (R.R.) No. 16-05,
Sec. 4.105-2).

(2) How is VAT computed?

VAT is computed by multiplying the VAT rate of 12% to the appropriate tax base for the particular transaction:
Transaction Rate Tax Base

Sale of goods 12% Gross selling price or gross value in money of the goods or properties sold, bartered, or
exchanged (NIRC, Sec. 106 (A)).

Importation of 12% 1. The total value used by the BOC in determining tariff and customs duties, plus
goods customs duties, excise taxes, if any, and other charges, such as postage,
commission, and similar charges, prior to the release of goods from customs
custody; or
2. In case the valuation used by the BOC in computing customs duties is based on
volume or quantity of the imported goods, the landed cost shall be the basis for
computing VAT. Landed cost consists of the invoice amount, customs duties,
freight, insurance, and other charges. If the goods imported are subject to excise
tax, the excise tax shall form part of the tax base (R.R. No. 16-05, Sec. 4.107-1(a)).

Sale of service 12% Gross receipts derived from the sale or exchange of services, including the use or lease
of properties (NIRC, Sec. 108).

(3) When is a person characterized as a taxable person for VAT purposes?

Generally, a person is characterized as a taxable person for VAT purposes, if:
1. He undertakes taxable transactions in goods, properties, or services consumed or destined for
consumption within the Philippines;
2. Such transactions are entered into in the course of his trade or business; and
3. The amount of his gross sales or receipts is over the threshold fixed by law or regulation (MAMALATEO,
Reviewer, supra at 496).

(4) What does the phrase “in the course of trade or business” mean?
“In the course of his trade or business” means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person regardless of whether or not the person
engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income
and whether or not it sells exclusively to members or their guests), or government entity (NIRC, Sec. 105; R.R.
No. 16-05, Sec. 4.105-3).

(5) What transactions are subject to VAT even if not made in the course of trade or business?
As exceptions to the rule of regularity, the following transactions shall be subject to VAT, although not made
in the course of trade or business:
1. Services rendered in the Philippines by non-resident foreign persons shall be considered as being
rendered in the course of trade or business (NIRC, Sec. 105); and
2. Importation of goods (NIRC, Sec. 105). There shall be levied, assessed and collected on every importation
of goods a VAT equivalent to 12% (NIRC, Sec. 107 (A)).

(6) Who are VAT-registered persons?

These are the taxpayers that are either:
 11

1. Registered in accordance with law who, in the course of trade or business, sells, barters, or exchanges
goods or properties, or engages in the sale or exchange of services, and:
a. His gross sales or receipts for the past twelve (12) months, other than those that are exempt, have
exceeded Php3 Million; or
b. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt, will exceed Php3 Million (NIRC, Sec. 236 (G)).
2. Not required to register but opted to register as a VAT person. This option shall be irrevocable for the next
three (3) years (NIRC, Sec. 107 (H)).

(7) What is the concept of “impact” and “incidence” of taxation in relation to indirect taxation?
In indirect taxation, the liability for the tax is the impact of taxation, and the burden of the tax is the incidence.
The amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such
instances is not the liability for the tax, but the tax burden (incidence). In adding or including the VAT due to
the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is
shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. (Contex v.
Commissioner of Internal Revenue, G.R. No. 151135, July 2, 2004).

(8) What is Destination Principle/Cross-Border Doctrine in relation to VAT?

The Destination Principle or Cross-Border Doctrine provides that goods and services are taxed only in the
country where these are consumed (Atlas Consolidated Mining and Development Corp. v. Commissioner of
Internal Revenue, G.R. Nos. 141104 & 148763, June 8, 2007). The Philippine VAT system adheres to the
Cross-Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined
for consumption outside of the territorial border of the taxing authority (Commissioner of Internal Revenue v.
Toshiba Information Equipment (PHL) Inc., G.R. No. 150154, August 9, 2005). However, this doctrine is
rendered ineffectual and inoperative for VAT purposes to Ecozones or Freeport zones (R.M.C. No. 24-2022).

(9) What are transactions deemed sale subject to VAT? (TDCR)

The following transactions are deemed as sale subject to VAT:
1. Transfer, use, or consumption not in the course of business of goods or properties originally intended for
sale or for use in the course of business;
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered person; or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were
consigned; and
4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation (NIRC, Sec. 106 (B); R.R. No. 16-05, Sec. 4.106-7).

(10) What is the effect of failure to write the words “zero-rated” in a VAT Official Receipt or Invoice?
The imprinting of "zero-rated" is necessary to distinguish sales subject to 12% VAT, those that are subject to
0% VAT (zero-rated) and exempt sales, to enable the BIR to properly implement and enforce the other
provisions of the NIRC on VAT. The appearance of the word "zero-rated" on the face of invoices covering zero-
rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually
paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding
money it did not collect. For failure to substantiate its effectively zero-rated sales, the claim of input VAT cannot
be refunded. The Court has consistently held that failure to print the word "zero-rated" on the invoices or
receipts is fatal to a claim for refund or credit of input VAT on zero-rated sales (KEPCO Philippines Corp. v.
Commissioner of Internal Revenue, G.R. No. 179961, January 31, 2011).

(11) What are VAT exempt transactions and their consequences?

“VAT-exempt transactions” refer to the sale of goods or properties and/or services and the use or lease of
properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax)
on purchases (R.R. No. 16-05, Sec. 4.109-1 (A)).

The following are the tax consequences of VAT-Exempt Transactions: (ECNI)

1. Seller is Exempt from VAT;
2. Seller Cannot separately bill output tax to his customers;
3. Seller is Not entitled to input tax credit (R.R. No. 16-05, Sec. 4.109-1 (A)); and
4. Seller shall be liable to VAT if he issues a VAT Invoice or receipt, but without the benefit of input tax credit
(R.R. No. 16-05, Sec. 4.113-4 (A)).

(12) What is an input tax and an output tax?

The term "output tax" means the VAT due on the sale or lease of taxable goods or properties or services by
any person registered or required to register for VAT (NIRC, Sec. 110 (A)(3)).
 12

The term "input tax" means the VAT due from or paid by a VAT-registered person in the course of his trade or
business on importation of goods or local purchase of goods or services, including lease or use of property
from a VAT-registered person. It shall also include the transitional input tax determined in accordance with
Section 111 of this Code (Id.).

(13) Who may claim for a refund or apply for the issuance of tax credit certificate (TCC) for unutilized input
VAT?
The following may claim for refund or apply for issuance of TCC for unutilized input VAT:
1. A VAT-registered person, with respect to input tax attributable to sales of goods, properties, or services
which are zero-rated or effectively zero-rated; and
2. A VAT-registered person whose registration has been cancelled due to retirement from or cessation of
business, or due to changes in or cessation of status under Sec. 106 (C) of the NIRC (NIRC, Sec. 112 (A)
and (B)).

(14) Is the presentation of the subsidiary sales journal and subsidiary purchase journal indispensable for
a taxpayer to be entitled to a refund or the issuance of a TCC?
No. Section 112(A) of the NIRC, which enumerates the requisites for a taxpayer to be entitled to a tax refund
or credit, does not require subsidiary journals as part of the substantiation requirements. The subsidiary
journals are not required, but they may be utilized by the CIR as vital sources of information for other purposes
such as making assessments (Commissioner of Internal Revenue v. Philex Mining Corp., G.R. No. 218057,
January 18, 2021, Hernando Case)

(15) What is the period within which the BIR should decide on the application for refund or TCC?
The Commissioner shall grant a TCC or refund for creditable input taxes within ninety (90) days from the date
of submission of the official receipts or invoices and other documents in support of the application filed. If the
CIR finds that the grant of refund is not proper, the CIR must state in writing the legal and factual basis for the
denial. The failure on the part of any official, agent, or employee of the BIR to act on the application within the
90-day period shall be punishable under Section 269 of the NIRC (NIRC, Sec. 112 (C)).

D. TAX REMEDIES UNDER THE NATIONAL INTERNAL REVENUE CODE

(1) What is an assessment?
In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR
on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed (Adamson v. Court
of Appeals, G.R. Nos. 120935 & 124557, May 21, 2009).

(2) What are the procedural due process requirements in the issuance of a deficiency tax assessment?
Due process is satisfied when the following modes of procedure are followed in the issuance of a deficiency
tax assessment:
1. Issuance and proper service to the subject taxpayer of a Letter of Authority (LOA);
2. Tax Audit or Investigation;
3. Issuance and proper service to the subject taxpayer of a Notice of Discrepancy;
4. Issuance and proper service to the subject taxpayer of Preliminary Assessment Notice (PAN);
5. Issuance and proper service to the subject taxpayer of Formal Letter of Demand/ Final Assessment Notice
(FLD/FAN); and
6. Administrative Action/Inaction on Disputed Assessment (R.R. No. 12-99, as amended by R.R. No. 22-20).

(3) What are the essential requisites of a valid assessment (FLD/FAN)? (WCF-LOS)
The following are the requisites for a valid assessment:
1. The assessment must be in Writing and signed by the CIR or his duly authorized representative (NIRC,
Sec. 228, Par. 2);
2. It must Contain not only a computation of tax liabilities, but also a demand for payment within a prescribed
period (Commissioner of Internal Revenue v. Fitness by Design Inc., G.R. No. 215957, November 9,
2016);
3. It must state the Factual and legal bases of the assessment on which it is based (NIRC, Sec. 228, Par.
2);
4. It must be issued on account of or covered by a validly issued Letter of Authority (Commissioner of Internal
Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010);
5. It must be issued within the Original prescriptive period prescribed by law or within the extended
prescriptive period as validly agreed between the BIR and the taxpayer (NIRC, Secs. 203 and 222); and
6. It must be Served on and received by the taxpayer (Commissioner of Internal Revenue v. Pascor Realty
& Development Corp., G.R. No. 128315, June 29, 1999).
 13

(4) Will the failure of the BIR to comply with the requirements of a valid assessment render an assessment
void?
Yes. Tax collection must be preceded by a valid assessment to allow the taxpayer to protest the assessment,
present their case and adduce supporting evidence. Without complying with the unequivocal mandate of first
informing the taxpayer of the government's claim, there can be no deprivation of property, because no effective
protest can be made (Commissioner of Internal Revenue v. Unioil Corp., G.R. No. 204405, August 04, 2021,
Hernando Case).

(5) What is the rule on prescription for the assessment of taxes?

Generally, 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. In a case where a return is filed beyond the period prescribed by
law, the 3-year period shall be counted from the day the return was filed. For purposes of Section 203 of the
NIRC, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on
such last day (NIRC, Sec. 203).

(6) What are the exceptions to the general rule on prescription for assessment of taxes? (FFW)
In the following cases, the general prescriptive period of three (3) years does not apply:
1. 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: 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; and
2. If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed upon (Waiver of the Statute
of Limitations) (NIRC, Sec. 222).

(7) What is the rule on prescription for the collection of taxes?

The prescriptive periods and corresponding methods of collection of taxes allowed to the government are as
follows:
1. In case of internal revenue taxes assessed within the 3-year period under Section 203 – Within another
three (3) years by distraint, levy, or court proceeding (Commissioner of Internal Revenue v. CTA, G.R. No.
258947, March 29, 2022, citing CIR v. United Salvage and Towage Phils., Inc., G.R. No. 197515, July 2,
2014).
2. In case of false or fraudulent returns with intent to evade the tax or failure to file a return:
a. Within five (5) years from assessment by distraint, levy, or by a proceeding in court (NIRC, Sec. 222
(c)); or
b. Within ten (10) years from discovery of the falsity, fraud, or omission, if without assessment, by a
proceeding in court (NIRC, Sec. 222 (a)).
3. In case of internal revenue taxes assessed within the extended period in a duly executed Waiver of Statute
of Limitations – Within the period agreed upon in writing before the expiration of the 5-year period by
distraint, levy, or by a proceeding in court. The period so agreed upon may be extended by subsequent
written agreements made before the expiration of the period previously agreed upon (NIRC, Sec. 222 (d)).

(8) When is the Statute of Limitations suspended? (PRe-AWO)

The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment shall
be suspended in the following instances:
1. For the period during which the CIR is Prohibited from making the assessment or beginning distraint or
levy or a proceeding in court, and for sixty (60) days thereafter;
2. When the taxpayer requests for a Reinvestigation which is granted by the CIR;
3. When the taxpayer cannot be located in the Address given by him in the return filed upon which a tax is
being assessed or collected. If the taxpayer informs the CIR of any change in address, the running of the
Statute of Limitations will not be suspended;
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 (NIRC, Sec. 223).

(9) What are the requisites for a valid waiver of the Statute of Limitations? (WEx-SES)
For waiver of the Statute of Limitations on the period of assessment to be valid, the following requisites must
concur:
1. The waiver must be in Writing;
2. It must be Executed before the expiration of the period to assess or to collect taxes. The date of execution
shall be specifically indicated in the waiver;
 14

3. It must be Signed by the taxpayer himself or his duly authorized representative. ln the case of a
corporation, the waiver must be signed by any of its responsible officials;
4. The Expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription should be indicated; and
5. Except for waiver of collection of taxes which shall indicate the particular taxes assessed, the waiver need
not Specify the particular taxes to be assessed nor the amount thereof, and it may simply state "all internal
revenue taxes (R.M.O. No. 14-16).

(10) On September 6, 2000, the CIR examined LF’s books of account for the taxable year 1999. In connection
thereto, LF executed five (5) waivers of the statute of limitations to extend the CIR's period to assess
and collect the deficiency taxes. The first and fourth waivers failed to specify the date of acceptance
by the CIR or his duly authorized representative. The fourth waiver was dated January 6, 2004, which
was beyond the effectivity of the third waiver (i.e., until December 31, 2003), and it failed to indicate the
date of acceptance. All five waivers were signed by Mr. M but there was no notarized written authority
authorizing him to sign on behalf of LF. Despite these waivers, LF received a Formal Letter of Demand
(FLD) on March 14, 2005 and the CIR's Final Decision on Disputed Assessments (FDDA) dated June 1,
2007. On November 23, 2007, the company received an undated Warrant of Distraint and/or Levy (WDL)
issued by the CIR. Did the waivers validly extend the periods for the CIR to assess deficiency taxes?

No. The waivers have notable defects, such as the failure to specify the date of acceptance and the lack of
authority of Mr. M to execute the waivers on behalf of LF. Further, the requirement that the waiver must be
executed before the expiration of the period to assess is not met by the fourth waiver as it was only executed
beyond the expiry of the third waiver. Thus, the fourth waiver is void and the execution of the fifth waiver was
not valid since there was no more period to extend for which the CIR could assess (La Flor Dela Isabela, Inc.
v. Commissioner of Internal Revenue, G.R. No. 202105, April 28, 2021, Hernando Case).

(11) What is the period within which the taxpayer may file a protest on the assessment?
The taxpayer or its authorized representative or tax agent may protest administratively against the FLD/FAN
within thirty (30) days from date of receipt thereof (R.R. No. 12-99, as amended by R.R. No. 18-13, Sec.
3.1.3).
(12) What is the effect of failure to file protest?
If the taxpayer fails to file a valid protest against the FLD/FAN within thirty (30) days from date of receipt thereof,
the assessment shall become final, executory, and demandable. No request for reconsideration or
reinvestigation shall be granted (R.R. No. 12-99, Sec. 3.1.4, as amended by R.R. No. 18-13).

(13) When should the taxpayer submit supporting documents in a request for reinvestigation?
In requests for reinvestigation, the taxpayer shall submit all relevant supporting documents within sixty (60)
days from the date of filing of his letter of protest (R.R. No. 18-2013, Sec. 3.1.4).

(14) Pursuant to the finding of deficiency taxes due from ABC Corp., the BIR issued an FLD. After being
served with a Warrant of Distraint and/or Levy to enforce the collection of taxes, ABC Corp. appealed
to the CIR. ABC Corp. opted to wait for the decision of the CIR, and hence, failed to appeal to the CTA
within 30 days from the lapse of the 180-day period. If the CIR fails to act on the appeal by ABC Corp.
within 180 days, will the assessment become final and executory?
No. In case of the inaction of the CIR on the protested assessment, the taxpayer has two options, either: (a)
file a petition for review with the CTA within thirty (30) days after the expiration of the 180-day period; or (b)
await the final decision of the CIR on the disputed assessment and appeal such final decision to the CTA within
thirty (30) days after the receipt of a copy of such decision. The second option is available even if the 180-day
period for the CIR to act had already expired. These options are mutually exclusive and resort to one bars the
application of the other. Considering that ABC Corp. opted to await the final decision of the CIR on the protested
assessment, it then has the right to appeal such final decision to the CTA by filing a petition for review within
thirty (30) days even after the expiration of the 180-day period fixed by law for the CIR to act (Light Rail Transit
Authority v. Bureau of Internal Revenue, G.R. No. 231238, June 20, 2022).

(15) When may the CIR compromise the payment or abate/cancel a tax liability?
The Commissioner may –
1. Compromise the payment of any internal revenue tax, when: (DF)
a. A Doubtful validity of the claim against the taxpayer exists (minimum compromise rate: 40% of the
basic tax assessed); or
b. The Financial position of the taxpayer demonstrates a clear inability to pay the assessed tax (minimum
compromise rate: 10%, 20%, or 40% of the basic tax assessed, depending on the condition of the
taxpayer).
NOTE: All criminal violations may be compromised except: (a) those already filed in court, or (b) those
involving fraud.
2. Abate or cancel a tax liability, when: (UC)
 15

a. The tax or any portion thereof appears to be Unjustly or excessively assessed; or

b. The administration and collection Costs involved do not justify the collection of the amount due (NIRC,
Sec 204).

(16) Distinguish tax refund from tax credit.

Formally, a tax refund requires a physical return of the sum erroneously paid by the taxpayer, while a tax credit
involves the application of the reimbursable amount against any sum that may be due and collectible from the
taxpayer (Commissioner of Customs v. Philippine Phosphate Fertilizer Corp., G.R. No. 144440, September 1,
2004).

(17) What is a Tax Credit Certificate (TCC)?

It is a certification duly issued to the taxpayer named therein by the CIR or his duly authorized representative,
acknowledging that the grantee-taxpayer named therein is legally entitled to a tax credit. The money value of
the TCC may be used in payment or in satisfaction of any of his internal revenue tax liability (except those
excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in
accordance with the limitations, if any, as may be prescribed (R.R. No. 5-00, Sec. 1.B).

(18) What is the period within which a taxpayer may file an application for a claim for refund or credit?
The taxpayer has two (2) years from the date of payment of the tax or penalty, regardless of any supervening
cause, to file a claim for refund or tax credit (NIRC, Sec. 229).

(19) How does the 2-year prescriptive period under Section 112 (Refunds or Tax Credits of Input Tax) differ
from that of Section 229 (Recovery of Tax Erroneously or Illegally Collected)?
Under Sec. 112, the 2-year prescriptive period applies only to the administrative claim before the CIR, and not
to judicial claim before the CTA because the taxpayer always has thirty (30) days from the decision of the CIR
or from the lapse of the 90-day period even after the lapse of two (2) years from the taxable quarter where the
sales were made. Thus, it is only the administrative claim that must be filed within the 2-year prescriptive
period. The judicial claim need not fall within the 2-year prescriptive period (CIR v. Mindanao Geothermal II
Partnership, G.R. No. 191498, January 15, 2014).

Under Sec. 229, both the administrative claim for refund and the judicial claim before CTA must be done within
the 2-year period. Hence, if the period is about to expire, and the CIR has not acted upon the claim, the
taxpayer may file and appeal with the CTA, without waiting for the CIR. The suit or proceeding must be filed in
the CTA before the end of the 2-year period without awaiting the decision of the CIR.

(20) Is the taxpayer required to first file an administrative claim for refund or tax credit with the CIR before
filing its judicial claim?

Yes. For tax credit or refund of erroneously or illegally collected taxes, it is clear in Sections 204 and 229 of
the NIRC that within two (2) years from the date of payment of tax, the claimant must first file an administrative
claim with the CIR before filing its judicial claim with the courts of law. Both claims must be filed within a 2-year
reglementary period. Timeliness of the filing of the claim is mandatory and jurisdictional, and the Court cannot
take cognizance of a judicial claim for refund filed either prematurely or out of time. As for the judicial claim,
tax law even explicitly provides that it be filed within two (2) years from payment of the tax, regardless of any
supervening cause that may arise after payment (Commissioner of Internal Revenue v. San Miguel Corp., G.R.
No. 180740, November 11, 2019, Hernando Case).

(21) What are the remedies available to the government for the collection of delinquent taxes?
The Government has the following civil remedies for the collection of internal revenue taxes, fees, or
charges, and any increment thereto resulting from delinquency:
1. Administrative Remedies:
a. Tax lien (NIRC, Sec. 219);
b. Distraint and levy (NIRC, Sec. 205);
c. Forfeiture of real property (NIRC, Sec. 224);
d. Further distraint and levy (NIRC, Sec. 217); and
e. Suspension of business operations (NIRC, Sec. 115).
2. Judicial Remedies
a. Civil; and
b. Criminal (NIRC, Sec. 205).

(22) GL and PM, clients of TIC, took a fire insurance policy over several properties and attached the
condominium units to cover their claim for the balance of their insurance proceeds. After a fire broke
out and TIC failed to pay the full amount of the insurance proceeds, GL and PM filed a complaint for
collection against TIC. On December 22, 2000, the corresponding notice of levy on attachment was
issued on TIC's condominium units. On January 31, 2001, the BIR assessed TIC for deficiency taxes.
 16

Meanwhile, the corresponding writ of execution on the civil case was issued on June 3, 2002, and the
notices of levy on execution were subsequently annotated on the titles. On April 14, 2004, the
condominium units were sold to GL and PM as the highest bidders.

As to the assessment, the BIR caused the annotation of the notice of tax lien on February 15, 2005.
TIC then filed a complaint for interpleader to determine who between GL and PM on one hand, and BIR
on the other, has a superior right over the condominium units. The BIR argued that its annotation of
the notice of tax lien before the Register of Deeds on February 15, 2005 retroacts to the date when BIR
assessed TIC of its tax liabilities in January 31, 2000. Is the BIR’s tax lien annotated on a title superior
to the prior annotation of a notice of levy on execution?

No. It is only after the notice of tax lien is annotated on the pertinent title that a judgment creditor's rights can
be affected and the tax lien may be considered to retroact to the date of assessment. When the condominium
units were sold on execution to GL and PM in April 2004, the sale and the rights acquired retroacted to the
date of inscription of their notice of levy on December 22, 2000. The BIR's tax lien could only have been
enforceable against GL and PM when it annotated its tax lien on February 15, 2005. At this point. GL and PM
already had rights over the condominium units, and thus, the condominium units may no longer be considered
TIC's property when the BIR annotated its tax lien in February 2005. Therefore, GL and PM could no longer
be bound by the BIR's tax lien (Bureau of Internal Revenue v. Tico Insurance Co., Inc., G.R. No. 204226, April
8, 2022, Hernando Case).

(23) Distinguish deficiency interest from delinquency interest.

Deficiency interest is distinguished from delinquency interest as follows:
Deficiency Interest Delinquency Interest
That imposed on any deficiency tax due, which interest shall That imposed on the failure to pay:
be assessed and collected from the date prescribed for its 1. The amount of the tax due on any return to be filed;
payment until: 2. The amount of the tax due for which no return is required;
1. Full payment thereof; or or
2. Upon issuance of a notice and demand by the 3. A deficiency tax, or any surcharge or interest thereon on
Commissioner or his authorized representative, the due date appearing in the notice and demand of the
whichever comes first (R.R. No. 21-18, Sec. 3). Commissioner or his authorized representative until the
amount is fully paid, which interest shall form part of the
tax (R.R. No. 21-18, Sec. 4).
In no case shall the deficiency and the delinquency interest be imposed simultaneously (NIRC, Sec. 249 (A)); R.R. No. 21-
18, Sec. 5).

(24) What are the 2 categories of surcharge?

The two categories of surcharge are:
1. Surcharge at 25% penalty, which is imposed in case of: (RID2)
a. Failure to file any Return and pay the tax due thereon as required by the NIRC or the rules;
b. Filing a return with an Internal revenue officer other than those with whom the return is required to
be filed;
c. Failure to pay the Deficiency tax within the time prescribed for the payment of the same in the notice
of assessment; or
d. Failure to pay the full or part of the amount of tax shown on any return, or the full amount of the tax
due for which no return is required to be filed, on or before the prescribed Date for its payment (NIRC,
Sec. 248 (A)).
2. Surcharge at 50% penalty (otherwise termed as “fraud penalty”), which is imposed in case of: (FiFa)
a. Willful neglect to File the return within the period prescribed by the NIRC or the rules; or
b. Willful filing of a False or fraudulent return (NIRC, Sec. 248 (B)).

III. LOCAL TAXATION

A. LOCAL GOVERNMENT TAXATION

(1) What are the fundamental principles of local government taxation? (UEPN2-LIP)
The following are the fundamental principles that shall govern the exercise of the taxing and other revenue-
raising powers of local government units (LGUs):
1. Taxation shall be Uniform in each LGU;
2. Taxes, fees, charges, and other impositions shall:
(a) be Equitable and based as far as practicable on the taxpayer’s ability to pay;
(b) be levied and collected only for Public purposes;
(c) Not be unjust, excessive, oppressive, or confiscatory;
(d) Not to be contrary to law, public policy, national economic policy, or in restraint of trade;
 17

3. The collection of local taxes, fees, charges, and other impositions shall in no case be Let to any private
person;
4. The revenue collected shall Inure solely to the benefit of, and be subject to disposition by, the LGU levying
the tax, fee, charge, or other imposition, unless otherwise specifically provided; and,
5. Each LGU shall, as far as practicable, evolve a Progressive system of taxation (LGC, Sec. 130).

(2) Who exercises the power to tax under the Local Government Code?
The power to impose a tax, fee, or charge or to generate revenue shall be exercised by the Sanggunian of the
LGU concerned through an appropriate ordinance (LGC, Sec. 132).

(3) What is the source of local taxing power under the Local Government Code?
Each LGU shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges
subject to the provisions of the LGC, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the LGUs (LGC, Sec. 129).

(4) Who has the authority to grant local tax exemptions?

LGUs may, through ordinances duly approved, grant tax exemptions, incentives, or reliefs under such terms
and conditions as they may deem necessary (LGC, Sec. 192). However, this is not applicable to regulatory
fees which are levied under the police power of the LGU (A.O. No. 270, Art. 282 (a)).

(5) May the LGU grant an exemption to a previously withdrawn exemption?

Yes. Tax exemptions or incentives enjoyed by all persons, except those expressly mentioned, have been
withdrawn upon the effectivity of the LGC (LGC, Sec. 193). However, the taxing powers granted to LGUs under
the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy (Philippine Long Distance Telephone Co. v. City of Davao, G.R.
No.143867, August 22, 2001).

(6) What is the scope of the local taxing power of each LGU?
1. Province – the province may levy only the following taxes, fees, and charges: (TBF-SPAF)
a. Tax on Transfer of Real Property Ownership (LGC, Sec 135);
b. Tax on Business of Printing and Publication (LGC, Sec 136);
c. Franchise Tax (LGC, Sec 137);
d. Tax on Sand, Gravel and Other Quarry Resources (LGC, Sec 138);
e. Professional Tax (LGC, Sec 139);
f. Amusement Tax (LGC, Sec 140); and
g. Annual Fixed Tax for Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of,
Dealers, or Retailers in, Certain Products (LGC, Sec 141).
2. City – except as otherwise provided in the LGC, the city may levy the taxes, fees, and charges which the
province or municipality may impose: Provided, that the taxes, fees, and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and distributed in accordance
with the provisions of the LGC (LGC, Sec. 151).
3. Municipality – municipalities may levy the following: (BOSe-Fish)
a. Tax on Business (LGC, Sec. 143);
b. Reasonable fees and charges on business and Occupation, except professional taxes which are
reserved for provinces (LGC, Sec. 147);
c. Fees for Sealing and licensing weights and measures (LGC, Sec. 148); and
d. Fishery rentals, fees, and charges (LGC, Sec. 149).
4. Barangay – the barangays may levy the following taxes, fees, and charges, which shall exclusively accrue
to them: (BuSCO)
a. Taxes on small Business establishments;
b. Service fees or charges;
c. Barangay Clearance; and
d. Other fees and charges (LGC, Sec. 152).

(7) M Corp. is a public utility corporation and has a franchise to operate a system for the conveyance of
electricity in the NCR. The City of Muntinlupa is an LGU that has been converted from a municipality
to a highly urbanized city through RA 7926. At the time when Muntinlupa was still a municipality, it
issued Memorandum Order (MO) 93-95 which imposed a franchise tax on private persons and
corporations operating public utilities within its territorial jurisdiction. Thereafter, the City Treasurer of
Muntinlupa assessed M Corp. to pay a franchise tax. M Corp. refused to pay the franchise tax on the
ground that the City of Muntinlupa was a municipality then and thus, it did not have the power and
authority to collect franchise tax. Did the conversion of Muntinlupa into a highly urbanized city cure
the invalidity of MO 93-95?
 18

No. The power to levy a franchise tax is bestowed only to provinces and cities under Sections 134, 137, and
151 of the LGC. Since provinces have been vested with the power to levy a franchise tax, it follows that
municipalities, pursuant to Section 142, could no longer levy it. In City of Pasig v. Manila Electric Company,
the City of Pasig demanded payment from Meralco of a franchise tax based on an ordinance it enacted when
it was still a municipality. The Court explained therein that the conversion into a highly urbanized city does not
cure the infirmities of an invalid ordinance. A void ordinance or a provision thereof is a nullity that gives no legal
effect, cannot be enforced, and no right may come from it (Manila Electric Company v. City of Muntinlupa and
Nelia Barlis, G.R. No. 198529, February 9, 2021, Hernando Case).

(8) What are the common revenue raising powers of LGUs? (SePT)
The common revenue raising powers of LGUs are as follows:
1. Reasonable fees and charges for Services rendered (LGC, Sec. 153);
2. Public utility charges for the operation of public utilities owned, operated, and maintained by LGUs within
their jurisdiction (LGC, Sec. 154); and
3. Toll, fees, or charges for the use of any public road, pier or wharf, waterway, bridge, ferry, or
telecommunication system funded and constructed by the LGU concerned (LGC, Sec. 155).

(9) Who are liable to community tax?

The following are liable for community tax:
1. Individuals who are inhabitants of the Philippines and are eighteen (18) years of age or over who: (RBOF)
a. Has been Regularly employed on a wage or salary basis for at least thirty (30) consecutive days;
b. Is engaged in a Business or occupation;
c. Owns a real property with an aggregate value of Php1,000.00 or more;
d. Is required by law to File an income tax return (LGC, Sec. 158);
2. Corporations, whether domestic or resident foreign, engaged in or doing business in the Philippines (LGC,
Sec. 158).

(10) What are the common limitations on the taxing powers of LGUs? (ICEDGEM-CoCo-RATE-BPN)
Unless provided in the LGC, LGUs cannot levy on the following:
1. Income tax except when levied on banks and other financial institutions;
2. Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues and all other kinds
of customs fees, charges, and dues except wharfage on wharves constructed and maintained by the local
government unit concerned;
3. Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees, and charges on
petroleum products;
4. Documentary stamp tax;
5. Taxes, fees, charges, and other impositions upon Goods carried into, out of or passing through the
territorial jurisdictions of LGUs in the guise of charges for wharfage, tolls for bridges or otherwise;
6. Taxes on Estate, inheritance, gifts, legacies, and other acquisitions mortis causa except as otherwise
provided herein;
7. Taxes, fees, and charges for the registration of Motor vehicles, and issuance of all kinds of licenses or
permits for the driving thereof except tricycles;
8. Taxes, fees, or charges on:
a. Countryside and barangay business enterprise registered under R.A. No. 6810 (Magna Carta for
Countryside and Barangay Business Enterprises); and
b. Cooperatives duly registered under R.A. No. 6938 (Cooperative Code of the Philippines)
9. Taxes on premiums paid by way of Reinsurance or retrocession;
10. Taxes, fees, or charges on Agricultural and aquatic products when sold by the marginal farmers or
fishermen;
11. Taxes on the gross receipts of Transportation contractors, persons engaged in the transportation of
passengers or freight for hire, and common carriers by air, land, or water;
12. Taxes, fees, and other charges on Philippine products actually Exported except as otherwise provided
herein;
13. Taxes on Business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from the date of registration;
14. Percentage or VAT on sales, barter or exchanges or similar transactions on goods and services except as
otherwise provided herein; and
15. Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities and
local government units (LGC, Sec. 133).

(11) What are the requisites of a tax valid ordinance? (CUP2-GUP)

The requisites of a valid tax ordinance are as follows:
1. It must not Contravene the Constitution or any statute;
2. It must not be Unfair or oppressive;
3. It must not be Partial or discriminatory;
 19

4. It must not Prohibit but may regulate trade;

5. It must be General and consistent with public policy;
6. It must not be Unreasonable (Magtajas v. Pryce Properties Corp., Inc., G.R. No. 111097, July 20, 1994);
and
7. It must not be enacted without any prior Public hearing conducted for the purpose (LGC, Sec. 186).

(12) What is the procedure to be followed in questioning the constitutionality of an ordinance?

Any question on the constitutionality or legality of tax ordinances or revenue measures may be appealed within
thirty (30) days from the effectivity thereof to the Secretary of Justice, who shall render a decision within sixty
(60) days from the date of receipt. However, the appeal shall not have the effect of suspending the effectivity
of the ordinance and the accrual and payment of the tax, fee, or charge levied therein. Within thirty (30) days
after receipt of the decision or the lapse of the 60-day period without the Secretary of Justice acting upon the
appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction (LGC, Sec.
187).

(13) For the first quarter of 2007, the City of Manila assessed S.I. of local business taxes and regulatory
fees in the total amount of Php1,000,000.00, which S.I. paid in protest but the same was denied. Thus,
S.I. filed a written claim for refund with the Office of the City Treasurer. Thereafter, S.I. filed its complaint
with the RTC of Manila praying for the refund or issuance of a tax credit certificate in the amount of
Php900,000.00. Is S.I. required to pay under protest?

No. When a taxpayer is assessed a deficiency local tax, fee or charge, he may protest it under Section 195
even without making payment of such assessed tax, fee, or charge. The local government taxation, save in
the case of real property tax, does not expressly require “payment under protest” as a procedure prior to
instituting the appropriate proceeding in court. This implies that the success of a judicial action questioning the
validity or correctness of the assessment is not necessarily hinged on the previous payment of the tax under
protest. However, there is nothing to prevent the taxpayer from paying the tax under protest or simultaneous
to a protest (City of Manila and Office of The City Treasurer of Manila v. Cosmos Bottling Corporation, G.R.
No. 196681, June 27, 2018).

(14) Can a taxpayer who had initially paid in protest the assessed business taxes subsequently file a claim
for refund with the RTC?
Yes. A taxpayer facing an assessment may protest it and alternatively: (a) appeal the assessment in court; or
(b) pay the tax and thereafter seek a refund. Where payment under protest was made, the taxpayer may
thereafter maintain an action in court questioning the validity and correctness of the assessment (LGC, Sec.
195), and at the same time seeking a refund of the taxes. In truth, it would be illogical for the taxpayer to only
seek a reversal of the assessment without praying for the refund of taxes. Once the assessment is set aside
by the court, it follows as a matter of course that all taxes paid under the erroneous or invalid assessment are
refunded to the taxpayer (City of Manila and Office of The City Treasurer of Manila v. Cosmos Bottling
Corporation, G.R. No. 196681, June 27, 2018).

B. REAL PROPERTY TAXATION

(1) When may the local treasurer seize personal property?
Upon failure of the person owing any local tax, fee, or charge to pay the same at the time required, the local
treasurer or his deputy may, upon written notice, seize or confiscate any personal property belonging to that
person or any personal property subject to the lien in sufficient quantity to satisfy the tax. In such case, the
local treasurer or his deputy shall issue a duly authenticated certificate (Warrant of Distraint) showing the fact
of delinquency and the amount of the tax, fee, or charges and penalty due (LGC, Sec. 175(a)).

(2) When may the LGU exercise levy on real property?

After the expiration of the time required to pay the delinquent tax, fee, or charge, real property may be levied
on before, simultaneously, or after the distraint of personal property belonging to the delinquent taxpayer (LGC,
Sec. 176).

(3) What is the prescriptive period for assessment and collection of local taxes, fees, or charges?
Local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. No action
for the collection of such, whether administrative or judicial, shall be instituted after the expiration of such
period. In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be assessed
within ten (10) years from discovery of the fraud or intent to evade payment. Local taxes, fees, or charges may
be collected within five (5) years from the date of assessment by administrative or judicial action. No such
action shall be instituted after the expiration of such period (LGC, Sec. 194).
 20

(4) Distinguish real property taxes and local government taxes as to protest.
Payment under protest is necessary so that the protest on real property taxes would be entertained; while
payment under protest is not necessary in local taxes (LGC, Sec. 252, in relation to Sec. 195).

(5) The LRTA is an agency attached to the Department of Transportation and one which performs public
service. From 1985 to 2001, it was assessed real estate taxes on its properties. Because of LRTA’s
failure to settle its outstanding obligations despite repeated demands, the City issued a notice of
delinquency with warrants of levy. Aggrieved, LRTA filed a petition questioning its assessments, and
arguing that it is a government instrumentality exempt from local taxation and that it is operating the
light rail transit system for the Republic of the Philippines, which is the true owner of the subject real
properties. Is the LRTA considered a government instrumentality which is exempt from real estate tax?

Yes. LRTA is a government instrumentality like MIAA. Under Section 133(o) of the LGC, the National
Government, its agencies and instrumentalities, and LGUs cannot be taxed by LGUs. This recognizes the
basic principle that local governments cannot tax the national government, as the former’ s power to tax is,
historically, merely delegated by the latter. Also, Section 234(a) of the LGC exempts from real property tax any
real property owned by the Republic of the Philippines. If the Republic grants the beneficial use of its real
property to an agency or instrumentality of the national government, the arrangement does not result in the
loss of the tax exemption privilege except if the beneficial use thereof has been granted to a taxable person.
LRTA, as a government instrumentality, is not a taxable person under Section 133(o) of the LGC. Thus, even
if we assume that the Republic has granted to LRTA the beneficial use of the LRT properties, such fact does
not make these real properties subject to real estate tax. (Light Rail Transit Authority v. City of Pasay, G.R.
No. 211299, June 28, 2022, Hernando Case).

(6) LPHI is a hotel property in Tacloban City. It is co-owned by APT, the Province of Leyte, and the PTA.
APT, representing the other owners of LPHI, and UCI entered into a Contract of Lease over LPHI.
Initially, UCI was faithfully paying its monthly rentals and real property taxes, but it eventually stopped
paying its obligations. Thus, several letters of demand were sent to UCI. Even so, the agreement
expired without UCI settling its obligations and UCI has retained possession and enjoyment of the
premises without paying any rentals and taxes due. Meanwhile, the City Treasurer of Tacloban sent
several demand letters to collect the unpaid real property taxes of LPHI for the years 1989 to 2012 but
the same remained unpaid. Hence, the City Treasurer of Tacloban instituted a collection case against
LPHI, UCI, APT, PTA, and the Province of Leyte before the CTA. UCI argues that the payment of realty
taxes over LPHI should rest on the Republic in case the beneficial user failed to pay the required taxes,
especially in this case that the Republic has waived its tax exemption when it contractually assumed
the payment of real property taxes in the lease contract. Is UCI liable for real property taxes considering
that it has the beneficial use of the property?

Yes. Government instrumentalities are exempt from real property tax, but the exemption shall not extend to
taxable private entities to whom the beneficial use of the government instrumentality's properties has been
vested. Certainly, the hotel, which is the subject matter of this case, is owned in common by the Province of
Leyte, which is a political subdivision, and by PMO and PTA, both government instrumentalities that are exempt
from payment of real property taxes. The subsequent execution of a Contract of Lease between the co-owners
of LPHI and UCI, a private entity, did not divest the former of their exemption from realty taxes, only that the
hotel lost the exemption from being taxed and the burden to pay the taxes due thereon, passed on to UCI as
the beneficial user thereof. Thus, UCI having the beneficial use of the property should be held liable for real
property taxes over the same (Unimasters Conglomeration Inc. v. Tacloban City Government, G.R. No.
214195, March 23, 2022).

(7) How are real properties classified under the Local Government Code? (CAR-MITS)
For purposes of assessment, real property shall be classified as:
1. Commercial;
2. Agricultural;
3. Residential;
4. Mineral;
5. Industrial;
6. Timberland; or
7. Special (IRR of the LGC of 1991, Art. 306).

NOTE: The city or municipality within the Metropolitan Manila Area, through their respective Sanggunian, have
the power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or special in
accordance with their zoning ordinances (LGC, Sec. 215).
 21

(8) How are real properties assessed?

Real property shall be classified, valued, and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it (LGC, Sec. 217).

(9) When does real property tax accrue?

The real property tax for any year shall accrue on the first day of January, and from that date, it shall constitute
a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind
whatsoever, and shall be extinguished only upon payment of the delinquent tax (LGC, Sec. 246).

(10) What is the prescriptive period for collection of real property tax?
The basic real property tax shall be collected within five (5) years from the date it becomes due. No action for
the collection of the tax, whether administrative or judicial, shall be instituted after the expiration of such period.
In case of fraud or intent to evade payment of the tax, such action may be instituted for the collection of the
same within ten (10) years from the discovery of such fraud or intent to evade payment (LGC, Sec. 270).

(11) What are the remedies of the LGUs in the collection of Real Property Tax?
The LGU concerned may avail of the remedies by administrative action through levy on real property or by
judicial action (LGC, Sec. 256).

(12) How is protest made under the Local Government Code?

The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer,
or municipal treasurer, in the case of a municipality within Metro Manila Area, who shall decide the protest
within sixty (60) days from receipt. No protest shall be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under protest" (LGC, Sec. 252).

(13) What is the exception to the rule on payment under protest?

In the event that the taxpayer questions the very authority and power of the assessor to impose the
assessment, and of the treasurer to collect the real property tax, payment under protest is not required. These
are not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase
(Ty v. Trampe, G.R. No. 117577, December 1, 1995).

(14) The City Assessor of Baguio City assessed CJH Corp. for real property tax covering various buildings
which CJH Corp. admitted that it owns. As a result, CJH Corp. filed with the Board of Tax Assessment
Appeals (BTAA) an appeal and challenged the validity of the assessment. The BTAA dismissed the
appeal for failure to comply with the requirement of paying under protest under Section 252 of the LGC.
CJH Corp. argues that the said Section does not apply where the person assessed is a tax-exempt
entity. Is CJH Corp. required to pay under protest first?

Yes. Section 252 emphatically directs that the taxpayer/real property owner questioning the assessment should
first pay the tax due before his protest can be entertained. Consequently, only after such payment has been
made by the taxpayer may he file a protest in writing. It is clear that the requirement of "payment under protest"
is a condition sine qua non before a protest or an appeal questioning the correctness of an assessment of real
property tax may be entertained. The language of the law is clear. No interpretation is needed. Since CJH
Corp. is the declared owner of the subject buildings, it is therefore presumed to be the person obliged to pay
the subject tax; and accordingly, in questioning the reasonableness or correctness of the assessment of real
property tax, CJH Corp. is mandated by law to comply with the requirement of payment under protest of the
tax assessed (Camp John Hay Development Corp. v. Central Board of Assessment Appeals, G.R. No. 169234,
October 2, 2013).

(15) How may a taxpayer assail the validity of the valuation made by the local assessor?
Any owner or person having legal interest in the property who is not satisfied with the action of the provincial,
city, or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt
of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing
a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal (LGC, Sec. 226). The owner of the property
or the person having legal interest therein or the assessor who is not satisfied with the decision of the Board,
may, within thirty (30) days after receipt of the decision of said Board, appeal to the CBAA. The decision of the
Central Board shall be final and executory (LGC, Sec. 229).

(16) What is the effect of appeal on the payment of realty taxes?

Appeal on assessments of real property shall, in no case, suspend the collection of the corresponding realty
taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal (LGC, Sec. 231).
 22

(17) The Sangguniang Panlungsod of Tagum City passed an ordinance approving the new schedule of
market values, its classification, and assessment level of real properties in the City of Tagum. The
citizens of the city filed a complaint questioning the validity of the ordinance. They claim that the
ordinance imposes exorbitant real estate taxes because of the Sangguniang Panlungsod’s erroneous
classification and valuation of real properties. The City argues that the citizens should have paid first
the real property taxes under protest. On the other hand, the citizens believe that upon receipt of an
assessment, they would be precluded from questioning the excessiveness of the real property tax
imposed by way of protest. Moreover, they contend that the taxpayers of Tagum City would not be able
to comply with this rule due to lack of money. If you were the judge, to whose contention would you
subscribe?
If I were the judge, I would rule in favor of the citizens. In cases where the validity or legality of a tax ordinance
is questioned, the rule that real property taxes must first be paid before a protest is lodged does not apply.
Prior payment under protest is not required when the taxpayer is questioning the very authority of the assessor
to impose taxes. In this case, the citizens are questioning the very authority and power of the assessor, acting
solely and independently, to impose the assessment, and of the treasurer to collect the tax (Aala v. Uy, G.R.
No. 202781, January 10, 2017). They are not questioning merely the amounts of the increase in the tax but
the very validity of any increase. Thus, prior payment of the payment under protest is not necessary.

IV. JUDICIAL REMEDIES

Jurisdiction CTA En Banc
Exclusive The Court shall sit En Banc in the exercise of its administrative, ceremonial, and non-adjudicative functions.
Original
Exclusive Civil Cases (ALCEC)
Appellate 1. Decisions or resolutions on motions for reconsideration or new trial of the Court in Division in the
exercise of their Appellate jurisdiction over: (ALT)
a. Cases arising from Administrative agencies – BIR, BOC, DOF, DTI, DA;
b. Local tax cases decided by the RTCs in the exercise of their original jurisdiction; and
c. Tax collection cases decided by the RTCs in the exercise of their original jurisdiction involving final
and executory assessments for taxes, fees, charges and penalties, where the principal amount of
taxes and penalties claimed is less than Php1 Million
2. Decisions, resolutions or orders of the RTCs:
a. in Local tax cases decided or resolved by them in the exercise of their appellate jurisdiction;
b. in tax Collection cases decided or resolved by them in the exercise of their appellate jurisdiction;
3. Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in
the exercise of its Exclusive original jurisdiction over tax collection cases; and
4. Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals (RRCTA, Rule 4, Sec. 2(a) to (e)).

Criminal Cases (OAR)

1. Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division:
a. in the exercise of its exclusive Original jurisdiction over cases involving criminal offenses arising
from violations of the NIRC or CMTA and other laws administered by the BIR or BOC (RRCTA,
Rule 4, Sec. 2(f));
b. in the exercise of its exclusive Appellate jurisdiction over criminal offenses arising from violations
of the NIRC or CMTA and other laws administered by the BIR or BOC (RRCTA, Rule 4, Sec. 2(g));
and
2. Decisions, resolutions or orders of the RTCs in the exercise of their appellate jurisdiction over criminal
offenses mentioned in paragraph A (RRCTA, Rule 4, Sec. 2(h)).
Jurisdiction CTA in Division
Exclusive Civil Case
Original Tax collection cases involving final and executory assessments for taxes, fees, charges and penalties,
where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is Php1 Million
or more (RRCTA, Rule 4, Sec. 3(c)(1)).

Criminal Case
Criminal offenses arising from violations of the NIRC or CMTA and other laws administered by the BIR or
BOC, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is Php1
Million or more (RRCTA, Rule 4, Sec. 3(b)(1)).
 23

Exclusive Civil Case (DIReCS2A)

Appellate 1. Decisions of or Inaction by the CIR involving:
a. Disputed assessments;
b. Refunds of internal revenue taxes, fees or other charges, in relation thereto; or
c. Other matters arising under the NIRC or other laws administered by the BIR, where the NIRC
provides a specific period for action (RRCTA, Rule 4, Sec. 3(c)(1-2)).
2. Decisions, resolutions or orders of the RTCs in Local Tax Cases decided or resolved by them in the
exercise of their original jurisdiction (RRCTA, Rule 4, Sec. 3(a)(3))
3. Decisions of the Commissioner of Customs involving:
a. Liability for customs duties, fees or other money charges;
b. Seizures, detention or release of other property affected;
c. Fines, forfeitures or other penalties in relation thereto; or
d. Other matters arising under the customs law or other laws administered by the BOC (RRCTA, Rule
4, Sec. 3(a)(4))
4. Decisions of the Secretary of Finance on Customs cases elevated for automatic review from decisions
of the Commissioner of Customs which are adverse to the Government under the CMTA (RRCTA, Rule
4, Sec. 3(a)(5));
5. Decisions of the Secretary of Trade and Industry in the case of non-agricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties and safeguard measures under RA 8800 (Safeguard
Measures Act) (RRCTA, Rule 4, Sec. 3(a)(6)).
6. Over Appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection
cases originally decided by them within their respective territorial jurisdiction (RRCTA, Rule 4, Sec.
3(c)).

Criminal Case
Appeals from the judgments, resolutions or orders of the RTCs in their original jurisdiction in criminal
offenses where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less
than Php1 Million or where there is no specified amount claim (RRCTA, Rule 4, Sec. 3(b)(2)).

Jurisdiction Regular Courts

Exclusive Civil Case
Original (MTC 1. Tax collection cases where the principal amount of taxes and fees, exclusive of charges and penalties,
or RTC claimed is less than Php1 Million (RRCTA, Rule 4, Sec. 2(a)); and
depending on 2. Local tax cases (RRCTA, Rule 4, Sec. 2(b)).
jurisdictional
amount) Criminal Case
Criminal offenses arising from violations of the NIRC or CMTA and other laws administered by the BIR or
or BOC, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than
Php1 Million or where there is no specified amount claimed (RRCTA, Rule 4, Sec. 3(b)(2)).
Exclusive
Appellate
(RTC, over tax
cases
originally
decided by the
MTC)

(1) On September 2009, the CIR assessed LFI for deficiency taxes for the taxable year 1999. LFI executed
five (5) waivers of the statute of limitations to extend the CIR's period to assess and collect the
deficiency taxes. Despite these waivers, LFI received a Formal Letter of Demand and the CIR’s Final
Decision on Disputed Assessments. Thereafter, LFI received an undated Warrant of Distraint and/or
Levy issued by the CIR. Does the CTA have jurisdiction to rule on the validity of the waivers and the
WDL?
Yes. Section 7 of RA 9282 provides for the exclusive appellate jurisdiction of the CTA on matters arising under
the NIRC or other law administered by the BIR. Its appellate jurisdiction is not limited to cases involving
decisions of the CIR on matters relating to assessments or refunds. Section 7(a)(2) of RA 9282 also covers
"other matters arising under the NIRC or other laws administered by the BIR." Clearly, the CTA has jurisdiction
to determine whether the WDL issued by the BIR is valid and to rule on the validity of the five waivers of the
statute of limitations and La Flor's application for tax amnesty under RA 9480 (La Flor Dela Isabela, Inc. v.
Commissioner of Internal Revenue, G.R. No. 202105, April 28, 2021, Hernando Case).

(2) How may the Government enforce collection of internal revenue taxes through judicial action?
The Government may enforce collection of internal revenue taxes by filing: a civil case for collection of a sum
of money with the proper regular court (NIRC, Secs. 203 and 222); an answer to the petition for review filed by
taxpayer with CTA (Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551, September 30, 1969); or through a
criminal action.

(3) How may LGUs enforce the collection of local taxes through judicial action?
The LGU concerned, through the local treasurer, may enforce the collection of delinquent taxes, fees, charges
 24

or other revenues by filing a civil action in any court of competent jurisdiction (LGC, Sec. 183).

(4) When should the action for collection of national taxes be filed?
The action for collection should be filed in court within the following periods:
1. General rule – If no assessment is issued, three (3) years from the filing of the return. However, when the
BIR validly issues an assessment within the 3-year period to assess, it has another three (3) years within
which to collect the tax due by court proceeding (CIR v. United Salvage and Towage Phils., Inc., G.R. No.
197515, July 2, 2014).
2. Exception – If no assessment in cases of false return, fraudulent return with intent to evade tax, and
failure to file a return, anytime within (ten) 10 years after the discovery of the falsity, fraud or omission
(NIRC, Sec. 222 (a)). However, if the BIR validly issues an assessment within the 10-year period, it has
another five (5) years following the assessment of tax to institute a proceeding in court for the collection
(NIRC, Sec 222 (c)).

(5) When should the civil action for collection of local taxes be filed?
The civil action for the collection of taxes, fees, or charges shall be instituted within five (5) years from the
date of assessment (LGC, Sec. 194 (c)).

(6) On April 16, 2007, PBC filed with the BIR its Annual Income Tax Return (ITR) for the year 2006.
Subsequently, on May 2, 2007, PBC filed an Amended Annual ITR for the same year, reflecting a net
loss and indicated in the said income tax return its intention to apply for the issuance of a TCC. On
April 3, 2009, PBC filed with the BIR its letter requesting the issuance of a TCC covering the year 2006.
Due to the inaction of the CIR, PBC filed a petition for review with the CTA on April 17, 2009. The CIR
argues that the two-year period in case of the CIR’s inaction on the claim for the issuance of a TCC is
counted from the date of payment of tax (i.e., April 16, 2007) and hence, PBC’s judicial claim for refund
on April 17, 2009 is already filed beyond the 2-year period. Did PBC timely file its judicial claim for the
issuance of a TCC with the CTA?

Yes. While the law provides that the 2-year period is counted from the date of payment of the tax, jurisprudence,
however, clarified that the 2-year prescriptive period to claim a refund actually commences to run, at the
earliest, on the date of the filing of the adjusted final tax return because this is where the figures of the gross
receipts and deductions have been audited and adjusted, reflective of the results of the operations of a
business enterprise. Thus, it is only when the Adjustment Return covering the whole year is filed that the
taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited
figures (Commissioner of Internal Revenue v. Philippine Bank of Communications G.R. No. 211348, February
23, 2022, Hernando Case). PBC has two (2) years from the filing of its amended ITR or until May 2, 2009 to
file its judicial claim with the CTA, and thus, its petition for review filed on April 17, 2009 was filed within two
years.

(7) SIC received from the BIR an assessment for several taxes. Thereafter, SIC commenced a Petition for
Declaratory Relief with the RTC and prayed for the issuance of a TRO and/or WPI for the judicial
determination of the constitutionality of Sections 108 and 184 of the NIRC with respect to the taxes
charged against the non-life insurance companies. The RTC granted injunctive relief in favor of SIC.
The CIR argued that the RTC erred in taking cognizance of the case because a Petition for Declaratory
Relief is not applicable in contesting tax assessments from the BIR. Did the RTC correctly issue the
injunctive relief to restrain the BIR from collecting taxes against SIC?

No. Taxes, being the lifeblood of the government, should be collected promptly, without unnecessary hindrance
or delay. Section 218 of the NIRC expressly provides that 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 the code. SIC’s Petition
for Declaratory Relief is utilized as a vehicle to assail and prevent the enforcement of the tax assessments by
alleging the supposed unconstitutionality of Sections 108 and 184 of the NIRC. On this basis, the RTC should
have dismissed SIC’s petition for lack of jurisdiction (Commissioner of Internal Revenue v. Standard Insurance
Co., Inc. (Resolution), G.R. No. 219340, April 28, 2021, Hernando Case).

(8) Q Corp. received an assessment for deficiency taxes covering the taxable year 2010 from the BIR.
Thereafter, the CIR sent out the Formal Assessment Notice (FAN) or Formal Letter of Demand (FLD).
Subsequently, the CIR issued a Final Decision on Disputed Assessment (FDDA. In 2020, the CIR
ordered Q Corp. to pay the deficiency taxes and the compromise penalty. Thus, Q Corp. filed a Petition
for Review before the CTA Division, which ruled that the period for the CIR to collect had already lapsed.
Upon denial by the CTA Division of its Motion for Reconsideration, the CIR filed a Petition for Certiorari
with the Supreme Court. Q Corp. argues that the proper remedy is to file an appeal with the CTA En
Banc. Did the BIR properly file a petition for review with the Supreme Court?
 25

No. There is no doubt that the CTA Resolutions which cancelled the assessment against Q Corp. are final
judgments or orders. The CTA En Banc has jurisdiction over a final judgment or order, but not over an
interlocutory order issued by the CTA Division. Thus, the CIR's proper remedy on the adverse Resolutions of
the CTA Division was to file an appeal by way of a petition for review with the CTA En Banc. Further, the CTA
has jurisdiction over the issue of prescription of the CIR's right to collect taxes since it is covered by the term
"other matters" in Section 7(a)(1) of RA 1125, as amended by RA 9282, over which the CTA has appellate
jurisdiction (Commissioner of Internal Revenue v. CTA Second Division and QL Development, Inc., G.R. No.
258947, March 29, 2022).