PM Reyes 2015 Bar Supplement

7/25/2019 PM Reyes 2015 Bar Supplement

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TAXATION LAW

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT

JURISPRUDENCE AND BIR ISSUANCES FOR THE 2015 BARATTY.PIERRE MARTIN D.REYES

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NOTICE

This material supplements the authors 2013 Bar Reviewer, 2014 Bar Supplement, and Tax Audit Primer.

No portion of the supplement may be copied or reproduced without the written permission of the author.

Possessors may reproduce and distribute this supplement provided the name of the author remains clearly

associated with my work and no alterations in the form and content of this supplement are made. No

stamping is allowed.

This covers the significant and relevant Supreme

Court jurisprudence on taxation law and BIRissuances from March 31, 2014 to March 31,

2015.

GENERAL PRINCIPLES

Q. What is a tax amnesty?

A. A tax amnesty is a general pardon or the

intentional overlooking by the State of its

authority to impose penalties on persons

otherwise guilty of violation of a tax law. Itpartakes of an absolute waiver 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. (LG

Electronics Philippines v. CIR, G.R. No.

165451, December 3, 2015)

Q. Can a claimant have personality to file a tax

refund even if it only bears the economic

burden of the tax?

A. Yes. The Supreme Court has held that the

propriety of a tax refund claim is hinged on

the kind of tax exemption upon which the

refund calim is based. If the law confers an

exemption from both direct or indirect taxes,a claimant is entitled to a tax refund even if it

only bears the economic burden of the

applicable tax. On the other hand, if the

exemption conferred only applies to direct

taxes, then the statutory taxpayer is regarded

as the proper party to file the refund claim.

(CIR v. PAL, G.R. Nos. 212536-37, August

27, 2014)

Q. The City of Manila assessed and collected

taxes from certain taxpayers pursuant toeither Section 15 (Tax on Wholesalers,

Distributors, or Dealers) or Section 17 (Tax

on Retailers). The City imposed additional

taxes pursuant to Section 21 of the Revenue

Code. Section 21 imposes a tax on a personwho sold goods and services in the course of

trade or business based on a certain

percentage of his gross sales or receipts in the

preceding calendar year. The taxpayers

contend the imposition of the tax under

Section 21 constituted double taxation

because they were already paying local

business taxes pursuant to Section 15 or

Section 17. Is there double taxation?

A. Yes. Firstly, because Section 21 of theRevenue Code of Manila imposed the tax on

a person who sold goods and services in the

course of trade or business based on a certain

percentage of his gross sales or receipts in the

preceding calendar year, while Section 15

and Section 17 likewise imposed the tax on a

person who sold goods and services in the

course of trade or business but only identified

such person with particularity, namely, the

wholesaler, distributor or dealer (Section

15), and the retailer (Section 17), all thetaxes being imposed on the privilege of

doing business in the City of Manila in order

to make the taxpayers contribute to the citys

revenues were imposed on the same

subject matter and for the same purpose.

Secondly, the taxes were imposed by the

same taxing authority (the City of Manila)

and within the same jurisdiction in the same

taxing period (i.e., per calendar year).

Thirdly, the taxes were all in the nature of

local business taxes. (Nursery Care

Corporation v. Treasurer of Manila, G.R. No.

180651, July 30, 2014).

INCOME TAX

Q. What are deemed de minimisbenefits?

A. As provided in RR No. 3-98, as last amended

by RR No. 1-2015, the following are

considered as de minimisbenefits granted toeach employee:


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a) Monetized unused vacation leave credits

of private employees not exceeding ten(10) days during the year;

b) Monetized value of vacation and sick

leave credits paid to government officials

and employees;

c) Medical cash allowance to dependents of

employees, not exceeding Seven

Hundred Fifty Pesos (P750) per

employee per semester or One Hundred

Twenty Five (P125) per month;

d) Rice subsidy of One Thousand Five

Hundred (P1,500) or one (1) sack of 50kg. rice per month amounting to not

more than P1,500;

e) Uniform and clothing allowance not

exceeding Five Thousand Pesos (P5,000)

per annum;

f) Actual medical assistance, e.g. medical

allowance to cover medical and

healthcare needs, annual medical check-

up, maternity assistance, and routine

consultations, not exceeding Ten

Thousand Pesos (P10,000) per annum;g) Laundry allowance not exceeding Three

Hundred Pesos (P300) per month;

h) Employees achievement awards, e.g. for

length of service or safety achievement,

with an annual monetary value not

exceeding Ten Thousand Pesos

(P10,000);

i) Gifts given during Christmas and major

anniversary celebrations not exceeding

Five Thousand Pesos (P5,000) per

employee per annum;j) Daily meal allowance for overtime work

and night/graveyard shift not exceeding

Twenty-Five Percent (25%) of the basic

minimum wage per region basis.

k) Benefits received by an employee by

virtue of a collective of a collective

bargaining agreement (CBA) and

productivity incentive schemes provided

that the total annual monetary value

received from both CBA and productivity

incentive schemes combined do not

exceed ten thousand pesos (P10,000) per

employee per taxable year.

Q. What is now the threshold amount of the 13th

month pay and other benefits excluded fromgross income pursuant to Section 32(B) of

the Tax Code?

A. RA No. 10653 increased the ceiling from

Thirty Thousand Pesos (P30,000) to Eighty

Two Thousand Pesos (P82,000).

RR 3-2015, which implements RA 10653,

clarifies that the threshold amount of

P82,000 shall only apply to the following;

1. Thirteenth-month pay equivalent to the

mandatory one month basic salary of

officials and employees of the

government, (whether national or local),

including government-owned or -

controlled corporations, and or private

offices received after the 12th-month pay;

and

2. Other benefits, such as Christmas bonus,

productivity-incentive bonus, loyalty

award, gifts in cash or in kind and otherbenefits of similar nature actually

received by officials and employees of

both government and private offices.

Q. What are the conditions that must be met in

order to exempt interest income from long-

term deposit or investments from income

taxes?

A. The following conditions must be met:

1. The depositor or investor is an individual

citizen (resident or non-resident) or

resident alien or non-resident alien

engaged in the trade or business in the

Philippines;

2. The long-term deposits or investment

certificates should be under the name of

the individual and not under the name of

the corporation or the bank or the trust

department/unit of the bank;

3.

The long-term deposits or investments

must be in the form of savings, common

or individual trust funds, deposit


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substitutes, investment management

accounts and other investmentsevidenced by certificates in such form

prescribed by the Bangko Sentral ng

Pilipinas (BSP);

4. The long-term deposit or investments

must be issued by banks only and not by

other entities or individuals;

5. The long-term deposits or investments

must have a maturity period of not less

than five (5) years;


must be in denominations of TenThousand Pesos (P10,000) and other

denominations as may be prescribed by

the BSP;


should not be terminated by the original

investor before the fifth (5th) year,

otherwise they shall be subjected to the

graduated rates of 5%, 12% or 20% on

interest income earnings; and

8. Except those specifically exempted by law

or regulations, any other income such asgains from trading, foreign exchange gain

shall not be covered by income tax

exemption.

For the interest income derived by

individuals investing in common or

individual trust funds or investment

management accounts to be exempt from

income tax, the following additional

characteristics/conditions must all be

present:

1. The investment of the individual investor

in the common or individual trust fund or

investment management account must be

actually held/managed by the bank for

the named individual at least five (5)

years without interruption.

2. The underlying investments of the

common or individual trust account or

investment management accounts must

comply with the requirements of Section

22(FF) of the Tax Code, as amended, as

well as the requirements mentioned

above;3. The common or individual trust account

or investment management account must

hold on to such underlying investment in

continuous and uninterrupted period for

at least five (5) years. (RMC No. 7-2015)

Q. Fort Bonifacio Development Corporation

(FBDC) transferred some of its real

properties to the Bases Conversion and

Development Authority (BCDA), in

redemption of its preferred shares held byBCDA. What is the income tax treatment on

the said redemption?

A. When preferred shares are redeemed for

retirement in accordance with its nature, the

capital gain or capital loss derived upon

redemption shall be recognized on the basis

of the difference between the amount/value

received at the time of redemption and the

cost of the preferred shares. The capital gain

or capital loss shall be subject to the regularincome tax rate under the Tax Code, as

amended, on individual taxpayers or to the

corporate income tax rate under the Tax

Code, in case of corporations.

Here, on the part of BCDA, any gain realized

by it on the redemption of shares by FBDC

shall be subject to corporate income tax and

consequently, to creditable withholding tax.

On the part of FBDC, the transaction is not

subject to income tax considering that the

redeeming corporation does not realize any

gain or loss on the redemption of its shares.

(RMC No. 3-2014 citing Section 9, RR 6-

2008)

Q. What is the income tax treatment of stock

option plans?

A. A stock option is an option granted by a

person, natural or juridical, to a person orentity entitling said person or entity to

purchase shares of stock of a corporation,

which may or may not be the shares of stock


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iv. If the option was granted to a

person, natural or juridical,who is not an employee, or a

supplier of goods or services to

the grantor, the difference of

the book value/fair market

value of the shares, whichever is

higher, at the time of the

exercise of the stock option and

the price fixed on the grant

date, shall be considered a

donation subject to donors tax.

b. In a cash-settlement option, the same

rules apply. The only difference is that

cash-settled options do not require

actual delivery of the stocks. Instead,

the market value, at exercise date, of

the stock is compared to the exercise

price, and the difference if in a

favorable direction is paid by the

grantor to the holder of the option.

(RMC 79-2014)

Q. MERALCO obtained a loan from

Norddeutsche Landesbank Girozentrale

(NORD/LB) Singapore Branch, which is a

foreign government-owned financing

institution of Germany. Under the loan

agreement, the income received by

NORD/LB, by way of MERALCOs interest

payments, shall be paid in full without

deductions, as MERALCO shall bear the

obligation of paying and remitting to the BIR

the final withholding tax. MERALCO paid

and remitted to the BIR the corresponding

final withholding taxes. Is the income derived

by NORD/LB subject to income tax?

A. No. NORD/LB is owned, controlled or

enjoying refinancing from the Federal

Republic of Germany, a foreign government.

Section 32(B)(7)(a) of the Tax Code, as

amended, exempts from income tax income

derived from investments in the Philippinesin loans by financing institutions owned,

controlled, or enjoying refinancing from

foreign governments. (CIR v. Meralco, G.R.

No. 181459, June 9, 2014)

Q. Differentiate between the tax treatment of

capital gains of individuals and corporations

from the sale of real properties.

A. Capital gains of individuals and corporations

from the sale of real properties are taxed

differently. Individuals are taxed on capital

gains from sale of all real properties located

in the Philippines and classified as capital

assets. For corporations, the NationalInternal Revenue Code of 1997 treats the

sale of land and buildings, and the sale of

machineries and equipment, differently.

Domestic corporations are imposed a 6%

capital gains tax only on the presumed gain

realized from the sale of lands and/or

buildings. The National Internal Revenue

Code of 1997 does not impose the 6% capital

gains tax on the gains realized from the sale

of machineries and equipment. Therefore,

only the presumed gain from the sale ofpetitioners land and/or building may be

subjected to the 6% capital gains tax. The

income from the sale of petitioners

machineries and equipment is subject to the

provisions on normal corporate income tax.

(SMI-ED Philippines v. Commissioner of

Internal Revenue, G.R. No. 175410,

November 12, 2014)

Q. The Republic, through the Department of

Public Works and Highways (DPWH), filed

a complaint for expropriation against a

property owner before the RTC. In addition

to the order to pay just compensation, the

RTC likewise ordered DPWH to pay the

property owner consequential damages,

which shall include the value of the transfer

tax necessary for the transfer of the subject

property from the name of the owner to that

of the Republic. The Republic contends that

the transfer taxes, in the nature of CapitalGains Tax and Documentary Stamp Tax,

necessary for the transfer of the subject

property are liabilities of the property owner


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and not the Republic. Is the Republic

correct?

A.Yes. Pursuant to Sections 24(D) and 56(A)(3)

of the 1997 National Internal Revenue Code,

capital gains tax due on the sale of real

property is a liability for the account of the

seller. It has been held that since capital gains

tax is a tax on passive income, it is the seller,

not the buyer, who generally would shoulder

the tax. As far as the government is

concerned, therefore, the capital gains tax

remains a liability of the seller since it is a taxon the seller's gain from the sale of the real

estate. (Republic v. Soriano, G.R. No.

211666, February 25, 2015)

Q. In 2001, the Caucus of Development NGO

Networks (CODE-NGO) with the assistance

of its financial advisors, requested an

approval from the Department of Finance for

the issuance by the Bureau of Treasury of 10-

year zero-coupon treasury bonds. The said

bonds would initially be purchased by aspecial purpose vehicle on behalf of CODE-

NGO and then repackaged and sold at a

premium to investors as Poverty Eradication

and Alleviation Certificates or PEACe

Bonds. The net proceeds from the sale will be

used to endow a permanent fund to finance

meritorious activities and projects of

accredited non-government organizations

(NGOs) throughout the country. The BIR

issued BIR Ruling No. 020-2001 whichconfirmed that the PEACe Bonds would not

be classified as deposit substitutes and would

not be subject to the corresponding

withholding tax. This was reiterated in

subsequent rulings. During the auction,

RBCB which participated on behalf of

CODE-NGO was declared the winning

bidder having tendered the lowest bids.

RCBC entered into an underwriting

agreement with CODE-NGO whereby RBCB

was appointed as the Issue Manager andLead Underwriter for the offering of the

PEACe Bonds. In the agreement, CODE-

NGO represented that all income derived

from the Bonds, inclusive of premium onredemption and gains on the trading of the

same, are exempt from all forms of taxation

as confirmed by BIR Rulings. RCBC then

sold the government bonds in the secondary

market. However, in 2011, the BIR issued

BIR Ruling No. 370-2011 declaring that the

PEACe Bonds being deposit substitutes are

subject to the 20% final withholding tax.

Pursuant to this ruling, the Secretary of

Finance directed the Bureau of Treasury to

withhold a 20% final tax from the face valueof the PEACe Bonds upon their payment at

maturity on October 18, 2011. Is the

discount or interest income arising from the

PEAce bonds subject to the 20% final

withholding tax?

A. No. The term deposit substitutes shall mean

an alternative form of obtaining funds from

the public other than deposits, through the

issuance, endorsement, or acceptance of debt

instruments for the borrowersown account,

for the purpose of relending or purchasing of

receivables and other obligations, or

financing their own needs or the needs of

their agent or dealer. The term 'public' means

borrowing from twenty (20) or more

individual or corporate lenders at any one

time). Based on this definition, the number of

lenders is determinative of whether a debt

instrument should be considered a deposit

substitute and consequently subject to the

20% final withholding tax.

BIR Ruling No. 370-2011 is void because it

completely disregarded the 20 or more

lender rule. The transactions executed for the

sale of the PEACe Bonds are: (1) the issuance

of the Bonds by the Bureau of Treasury to

RCBC/CODE-NGO; and (2) the sale and

distribution by RCBC (underwriter) on

behalfof CODE-NGO of the PEACe Bonds to

undisclosed investors. It may seem that therewas only one lender RCBC on behalf of

CODE-NGO to whom the PEACe Bonds

were issued at the time of origination.


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However, a reading of the underwritingagreement and RCBC term sheet reveals that

the settlement dates for the sale and

distribution by RCBC Capital (as underwriter

for CODE-NGO) of the PEACe Bonds to

various undisclosed investors would fall on

the same day, October 18, 2001, when the

PEACe Bonds were supposedly issued to

CODE-NGO/RCBC. In reality, therefore, the

entire borrowing received by the Bureau of

Treasury in exchange for the PEACe Bonds

was sourced directly from the undisclosednumber of investors to whom RCBC

Capital/CODE-NGO distributed the PEACe

Bonds all at the time of origination or

issuance. However, the number of investors

to which the PEACe Bonds were sold to by

RCBC is not known. Should there have been

a simultaneous sale to 20 or more

lenders/investors, the PEACe Bonds are

deemed deposit substitutes and RCBC

Capital/CODE-NGO would have been

obliged to pay the 20% final withholding taxon the interest or discount from the PEACe

Bonds. Further, the obligation to withhold

the 20% final tax on the corresponding

interest from the PEACe Bonds would

likewise be required of any lender/investor

had the latter turned around and sold said

PEACe Bonds, whether in whole or part,

simultaneously to 20 or more lenders or

investors.

It must be noted, however, that interestincome received by individuals from long-

term deposits or investments with a holding

period of not less than five (5) years is

exempt from the final tax. Thus, should the

PEACe Bonds be found to be within the

coverage of deposit substitutes, the proper

procedure was for the Bureau of Treasury to

pay the face value of the PEACe Bonds to the

bondholders and for the Bureau of Internal

Revenue to collect the unpaid final

withholding tax directly from RCBC

Capital/CODE-NGO, or any lender or

investor if such be the case, as the

withholding agents. (Banco de Oro v.

Republic, G.R. No. G.R. No. 198756,January 13, 2015)

Q. What are the substantiation requirements of

donors claiming donations and contributions

to accredited non-stock, non-profit

corporation/NGO as deductions from their

taxable business income?

A. The donors must submit Certificate/s of

Donation indicating the following:

1. Actual receipt by the accredited non-

stock, non-profit corporation/NGO of

the donation or contribution and date of

receipt thereof; and

2. The amount of the charitable donation or

contribution, if in cash; if property,

whether real or personal, the acquisition

cost of the said property. (RMC No. 86-

2014 citing Section 8, RR No. 13-98)

RMC 86-2014now provides a Certificate ofDonation (BIR Form 2322) which consists of

two parts a donee certification and a

donors statement of values. The first part is

a certification by the donee that it has

received on the date indicated the subject

matter of the donation. The second part

requires the donor to execute a statement

which provides descriptions, acquisition

costs, and net book values of the properties

donated as reflected in the financial

statements of the donor. The statement must

be accompanied by deed of sale/bill of sale to

prove the acquisition cost of the properties.

Q. RMO No. 1-2000 provides that any availment

of the tax treaty relief shall be preceded by an

application by filing BIR Form No. 0901

(Application for Relief from Double

Taxation) with ITAD at least 15 days before

the transaction i.e. payment of dividends,

royalties, etc., accompanied by supportingdocuments justifying the relief. Is the prior

application for an ITAD ruling pursuant to

RMO No. 1-2000 necessary before a


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taxpayer can avail of the preferential tax rates

under income tax treaties entered into by thePhilippines with other countries?

A. No. The Philippine Constitution provides for

adherence to the general principles of

international law as part of the law of the

land. The time-honored international

principle ofpacta sunt servanda demands the

performance in good faith of treaty

obligations on the part of the states that enter

into the agreement. In this jurisdiction,

treaties have the force and effect of law. Theobligation to comply with a tax treaty must

take precedence over the objective of RMO

No. 1-2000. Not only is the requirement

illogical, but it is also an imposition that is not

found at all in the applicable tax treaties. The

BIR should not impose additional

requirements that would negate the

availment of the reliefs provided for under

international agreements, especially since

said tax treaties do not provide for any

prerequisite at all for the availment of thebenefits under said agreements. It bears

reiterating that the application for a tax treaty

relief from the BIR should merely operate to

confirm the entitlement of the taxpayer to the

relief. So long as the taxpayer requests for

confirmation before it filed its administrative

claim for refund, the same should be deemed

substantial compliance with RMO No. 1-

2000. (CBK Power Company Limited v. CIR,

G.R. No. 193383-84 and G.R. No. 193407-

08, January 15, 2015)

Q. What are considered inurements prohibited

under Section 30 of the NIRC?

A. In order for an entity to qualify as a non-stock

and/or non-profit corporation/ association/

organization exempt from income tax under

Section 30 of the Tax Code, as amended, its

earnings or assets shall not inure to the

benefit of any of its trustees, organizers,officers, members, or any specific person.

The following are considered inurements

of such nature:

1.

The payment of compensation, salaries,or honorarium to its trustees or

organizers;

2. The payment of exorbitant or

unreasonable compensation to its

employees;

3. The provision of welfare aid and financial

assistance to its members. An

organization is not exempt from income

tax if its principal activity is to receive and

manage funds associated with savings

and investment programs, includingpension or retirement programs. This

does not cover a society, order,

association, or non-stock corporation

under Section 30(C) of the Tax Code

providing for the payment of life,

sickness, accident, and other benefits

exclusively to its members or their

dependents;

4. Donation to any person or entity

(exception donations made to other

entities formed for the purpose/purposessimilar to its own;

5. The purchase of goods or services for

amounts in excess of the fair market

value of such goods or value of such

services from an entity in which one or

more of its trustees, officers, or

fiduciaries has an interest; and

6. When upon dissolution and satisfaction

of all liabilities, its remaining assets are

distributed to its trustees, organizers,

officers or members. Its assets must bededicated to its exempt purpose.

Accordingly, its constitute documents

must expressly provide that in the event

of dissolution, its assets shall be

distributed to one or more entities

formed for the purpose/purposes similar

to its own, or to the Philippine

government for public purpose (RMC 51-

2014)

Q. Distinguish income tax from withholding tax.

A. Income tax is different from withholding tax.


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Income tax is the tax on all yearly profits

arising from property, professions, trades oroffices, or as a tax on a persons income,

emoluments, profits and the like. On the

other hand, withholding tax is a method of

collecting income tax in advance. In the

operation of the withholding tax system, the

payee is the taxpayer, the person on whom

the tax is imposed, while the payor, a

separate entity, acts no more than an agent of

the government for the collection of the tax

in order to ensure its payment. Obviously,

the amount thereby used to settle the taxliability is deemed sourced from the proceeds

constitutive of the tax base. (LG Electronics

Philippines v. CIR, G.R. No. 165451,

December 3, 2015)

Q. What document shall withholding agents

require from all individuals and entities

claiming exemption from income taxes and

consequently withholding taxes?

A. Concerned withholding agents shall requireall individuals and entities claiming such

exemption to provide a copy of a valid,

current, and subsisting tax exemption

certificate or ruling. The tax exemption

certificate or ruling must explicitly recognize

the grant of tax exemption, as well as the

corresponding exemption from imposition of

withholding tax. Failure on the part of the

taxpayer to present said tax exemption

certificate or ruling shall subject him to the

payment of the appropriate taxes. On the

other hand, the withholding agents failure to

withhold notwithstanding the lack of tax

exemption certificate or ruling shall cause the

imposition of penalties. (RMC No. 8-2014)

Q. Does the requirement to present tax

exemption certificate or ruling pursuant to

RMC No. 8-2014 apply to general

professional partnerships?

A. No. The requirement to present tax

exemption certificate or ruling pursuant to

RMC No. 8-2014 does not apply to general

professional partnerships. RMC No. 3-2012

sufficiently discussed that income paymentsmade to a GPP in consideration of its

professional services are not subject to

income tax and consequently to withholding

taxes. (RMC No. 60-2014)

Q. Is the Special Allowance for the Judiciary

(SAJ) of court officials and employees

subject to income tax?

A. Yes. In fact, the Supreme Court issuedA.M.

No. 12-4-6-SC which approves thewithholding and remittance of the correct

amount of tax as required to be deducted and

withheld from the Special Allowance for the

Judiciary (SAJ) of officials and employees, as

well as the withholding tax of the

corresponding taxes from the following:

1. The monthly SAJ of incumbent justices,

judges, and judiciary officials with the

equivalent rank of a Court of Appeals

justice or Regional Trial Court judge;2. The monthly special allowance in an

amount equivalent to the SAJ being

received by judiciary officials not

included in item no. 1; and

3. The additional allowance from the

surplus of the SAJ Fund that may be

authorized to be given to judiciary

officials and employees who are not

direct beneficiaries under RA 9227

(RMC 58-2014)

DONORS TAX

Q. Philamlife owns 498,590 shares in Philam

Care Health Systems. To divest itself of

interests in the health maintenance

organization industry, Philamlife sold the

said shares to STI Investments at a price

lower than their book value. The BIR

contends that donors tax became imposable

on the price difference. Philamlife arguesthat the same is not subject to donors tax as

there was no donative intent. Is the

Philamlife correct?


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A. No. The absence of donative intent, if that bethe case, does not exempt the sales of stock

transaction from donor's tax since Sec. 100

of the Tax Code categorically states that the

amount by which the fair market value of the

property exceeded the value of the

consideration shall be deemed a gift. Thus,

even if there is no actual donation, the

difference in price is considered a donation

by fiction of law. Pursuant to RR 6-2008,

fair market value shall be, in the case of

shares of stock not listed and traded in thelocal stock exchanges, the book value of the

shares of stock as shown in the financial

statements duly certified by an independent

certified public accountant nearest to the

date of sale shall be the fair market value. The

difference between the book value and the

selling price in the sales transaction is taxable

donation subject to donors tax. (Philippine

American Life and General Insurance

Company v. The Secretary of Finance and

Commissioner of Internal Revenue, G.R. No.210987, November 24, 2014)

VALUE-ADDED TAX

Q. Fort Bonifacio Development Corporation

(FBDC) transferred some of its real

properties to the Bases Conversion and

Development Authority (BCDA), in

redemption of its preferred shares held by

BCDA. Is the transfer of the subject real

properties subject to VAT?

A. Yes. In general, the sale of real properties

held primarily for sale to customers or held

for lease in the ordinary course of trade or

business of the seller shall be subject to VAT.

The transfer of the real properties of FBDC

to BCDA to redeem its shares although not

occurring in the regular conduct or in the

course of FBDCs trade or business and is a

transaction which is not done with regularity,is nevertheless subject to VAT the same being

considered a transaction deemed sale

under Section 106(B)(1) of the Tax Code

(RMC No. 3-2014)

Q.

What are the rules on the determination of the

prescriptive period for filing a tax refund or

credit of unutilized input VAT as provided in

Section 112 of the 1997 Tax Code?

A. In Mindanao II Geothermal Partnership v.

Commissioner of Internal Revenue, and

Mindanao I Geothermal Partnership v.

Commissioner of Internal Revenue, G.R. Nos.

193301 and 194637, March 11, 2013, the

Supreme Court provided the following ruleson prescriptive periods involving VAT:

1. An administrative claim must be filed with

the CIR within two years after the close of

the taxable quarter when the zero-rated or

effectively zero-rated sales were made.

2. The CIR has 120 days from the date of

submission of complete documents in

support of the administrative claim within

which to decide whether to grant a refund

or issue a tax credit certificate. The 120-day period may extend beyond the two-year

period from the filing of the administrative

claim if the claim is filed in the later part of

the two-year period. If the 120-day period

expires without any decision from the CIR,

then the administrative claim may be

considered to be denied by inaction.

3. A judicial claim must be filed with the CTA

within 30 days from the receipt of the

CIRs decision denying the administrative

claim or from the expiration of the 120-day

period without any action from the CIR.

4. All taxpayers, however, can rely on BIR

Ruling No. DA-489- 03 from the time of its

issuance on 10 December 2003 up to its

reversal by this Court inAichi on 6 October

2010, as an exception to the mandatory

and jurisdictional 120+30 day periods.

(Miramar Fish Company Inc. v. CIR, G.R. No.

185432, June 4, 2014; Visayas GeothermalPower Company v. CIR, G.R. No. 197525,

June 4, 2014; CIR v. Mindanao II Geothermal

Partnership, G.R. No. 189440, June 18, 2014;


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Taganito Mining Corporation v. CIR, G.R. No.

197591, June 18, 2014; San Roque PowerCorporation v. CIR, G.R. No. 205543, June

30, 2014; CIR v. CE Luzon Geothermal

Power Company, G.R. No. 190198,

September 17, 2014; CNK Power Company

Limited v. CIR, G.R. No. 202066 and G.R.

No. 205353, September 30, 2014; CIR v.

Aichi, G.R. No. 183421, October 22, 2015;

CIR v. Burmeistor, G.R. No. 190021, October

22, 2014; Taganito Mining Corporation v.

CIR, G.R. No. 198076, November 19, 2014;

AT&T Communications Services Phils., Inc. v.CIR, G.R. No. 185969, November 19, 2014;

Taganito Mining Corporation v. CIR, G.R. No.

201195, November 26, 2014; CBK Power

Company Limited v. CIR, G.R. No. 198928,

December 3, 2014; Mindanao II Geothermal

Partnership v. CIR, G.R. No. 204745,

December 8, 2014; Panay Power Corporation

v. CIR, G.R. No. 203351, January 21, 2015;

Nippon Express (Philippines) Corporation v.

CIR, G.R. No. 185666, February 4, 2015;

Northern Mindanao Power Corporation v.

CIR, G.R. No. 185115, February 18, 2015;

Cargill Philippines, Inc. v. CIR, G.R. No.

203774, March 11, 2015)

Q. In a refund of unutilized input taxes, is the

inaction of the Commissioner deemed a

denial or a decision denying the claim?

A. Previously, it was held as an inaction is

deemed a denial. However, the SupremeCourt has unequivocally stated that the CIRs

inaction within the 120-day period is a

decision in itself. When the 120-day period

lapses and there is inaction on the part of the

CIR, the taxpayer must no longer wait for the

CIR to decide. The inaction is already a

decision denying the refund claim.

Consequently, the taxpayer must file his

appeal within 30 days from the lapse of the

120-day period. (Rohm Apollo

Semiconductor Philippines v Commissionerof Internal Revenue, G.R. No. 168950,

January 14, 2015)

Note: The shift from inaction deemed adenial to inaction as a decision of denial in

itself is significant. This means that the

taxpayer can no longer expect a decision

from the BIR after the lapse of the 120-day

period. Since the CIRs inaction is a decision

in itself, the BIR is barred from further

processing the claim.

RMC 54-2014also provides that in case the

taxpayer has already filed a petition for

review with the CTA, the CIR losesjurisdiction over the administrative claim.

The CIR can still evaluate internally the claim

but only for the purpose of intelligently

opposing the taxpayers judicial claim.

Q. What is the exception to the rule that the two-

year prescriptive period within which the

administrative claim must be filed should be

counted from the close of the taxable quarter

when the relevant sales were made?

A. Reckoningthe two-year period from the date

of payment of the output tax is allowed if the

claim is filed between 8 June 2007 and 12

September 2008, when the Atlas Doctrine

was still in effect. (Visayas Geothermal

Power Company v. CIR, G.R. No. 197525,

June 4, 2014; AT&T Communications

Services Phils., Inc. v. CIR, G.R. No.

185969, November 19, 2014)

Note: Previously, in Atlas Consolidated

Mining v Commissioner of Internal Revenue,

G.R. Nos. 141104 & 148763, June 8, 2007,

the Supreme Court held that the two-year

prescriptive period should be reckoned from

the date of the return and payment of the tax

due, which should be made within twenty

(20) days from the end of each quarter. The

Atlas doctrine was abandoned inCommissioner of Internal Revenue v Mirant

Pagbilao Corporation, G.R. No. 172129,September 12, 2008, where the Supreme

Court held that the two-year period should be

reckoned from the close of the taxable


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quarter where the relevant sales were made.

The Mirant ruling adopted the verbal legisrule, thus applying Section 112(A) in

computing the two-year prescriptive period

in claiming refund or credit of input VAT.

Q. A taxpayer filed a claim for refund or tax

credit of unutilized input VAT. The CIR

argued that the 120-day period for her to

decide has not yet commenced as the

taxpayer failed to submit the complete

documents as enumerated in RMO 53-98. Is

the CIRs contention correct?

A. No. The CIRs reliance on RMO 53-98 is

misplaced. There is nothing in Section 112 of

the NIRC, RR 3-88 or RMO 53-98 itself that

requires submission of the complete

documents enumerated in RMO 53-98 for a

grant of a refund or credit of input VAT. The

subject of RMO 53-98 states that it is a

Checklist of Documents to be Submitted by

a Taxpayer upon Audit of his Tax Liabilities

x x x. Even assuming that RMO 53-98applies, it specifically states that some

documents are required to be submitted by

the taxpayer if applicable. If the taxpayer

indeed failed to submit the complete

documents in support of its application, the

CIR could have informed the taxpayer of its

failure. In this case, the CIR did not inform

the taxpayer of the document it failed to

submit, even up to the present petition. (CIR

v. Team Sual Corporation, G.R. No. 205055,

July 18, 2014)

Note: RMC 54-2014 states that an

application for VAT refund/tax credit must

be accompanied by complete supporting

documents as enumerated in Annex A

provided in said circular. The taxpayer will

now also have to execute a statement under

oath attesting to the completeness of the

submitted documents.

Q.

What is the effect of the absence of the

statement that the seller is a VAT-registered

person to the claim for refund or tax credit of

unutilized input VAT?

A. Section 113 of the NIRC of 1997, as

amended, categorically provides that a VAT-

registered entity, like petitioner, shall issue a

duly registered VAT invoice or official

receipt, which must contain a statement that

the seller is a VAT-registered person. Non-

compliance is fatal to the claim. (Miramar

Fish Company Inc. v. CIR, G.R. No. 185432,

June 4, 2014)

Note: In claims for refund of unutilized inputVAT, it is required that the taxpayer prove

that it is first and foremost a VAT-registered

entity. If the taxpayer is not VAT-registered,

then the claim for refund will fail.

To recall, a claim for refund or tax credit for

unutilized input VAT may be allowed only if

the following requisites concur, namely:

1. The taxpayer is VAT-registered;

2.

The taxpayer is engaged in zero-rated oreffectively zero-rated sales;

3. The input taxes are due or paid;

4. The input taxes are not transitional input

taxes;

5. The input taxes have not been applied

against output taxes during and in the

succeeding quarters;

6. The input taxes claimed are attributable

to zero-rated or effectively zero-rated

sales;

7.

For zero-rated sales under Section106(A)(2)(1) and (2); 106(B); and

108(B)(1) and (2), the acceptable foreign

currency exchange proceeds have been

duly accounted for in accordance with

the rules and regulations of the Bangko

Sentral ng Pilipinas;

8. Where there are both zero-rated or

effectively zero- rated sales and taxable or

exempt sales, and the input taxes cannot

be directly and entirely attributable to any

of these sales, the input taxes shall be

proportionately allocated on the basis of

sales volume; and


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9. The claim is filed within two years after

the close of the taxable quarter whensuch sales were made

Q.

What is the effect of the absence and non-

printing of the word zero-rated in the

taxpayers invoices to the claim for refund or

tax credit of unutilized input VAT?

A. The absence or non-printing of the word

zero-rated in the taxpayers invoicesis fatal

to its claim for the refund and/or tax credit

representing its unutilized input VATattributable to its zero-rated sales. (Miramar

Fish Company Inc. v. CIR, G.R. No. 185432,

June 4, 2014; Eastern Telecommunications

Philippines v. CIR, G.R. No. 183531, March

25, 2015)

Q. Is there a difference between an invoice and

official receipt for purposes of

substantiation?

A. A VAT invoice is necessary for every sale,barter or exchange o f goods or properties

while a VAT official receipt properly pertains

to ever; lease of goods or properties, and

every sale, barter or exchange of services. In

other words, the VAT invoice is the seller's

best proof of the sale of the goods or services

to the buyer while the VAT receipt is the

buyer's best evidence of the payment of

goods or services received from the seller.

(Nippon Express (Philippines) Corporation

v. CIR, G.R. No. 185666, February 4, 2015;

Northern Mindanao Power Corporation v.

CIR, G.R. No. 185115, February 18, 2015)

Q. ABC Mining Corporation purchased and

imported dump trucks. ABC filed a claim for

refund of the full input VAT relating to its

importation of said dump trucks, treated as

capital goods. Will ABCs claim prosper?

A. No. The claim will not prosper because thelaw requires that the related input VAT be

properly amortized over the estimated useful

life of the capital goods in the taxpayers

subsidiary ledger. Here, the claim for refund

is for the full amount of the input VAT on theimportation, rather than for an amortized

amount, thus the claim must fail. (Taganito

Mining Corporation v. CIR, G.R. No.

201195, November 26, 2014)

Note: Capital goods or properties refers to

goods or properties with estimated useful life

greater than 1 year and which are treated as

depreciable assets under Sec. 34(F) of the tax

Code, used directly or indirectly in the

production or sale of taxable goods orservices.

Q. ABC Corporation purchased from the

government in 1995 portion of the Fort

Bonifacio reservation, now known as the

Fort Bonifacio Global City. No VAT on the

sale of the land was passed on by the

government to ABC. On January 1, 1996,

Republic Act 7716 took effect, which

extended the coverage of the VAT to sale of

real properties held primarily for sale tocustomers or held for lease in the ordinary

course of business. In September 1996, ABC

submitted to the BIR an inventory of all its

real properties, claiming that it is entitled to

the transitional input tax credit on said

inventories. ABC started selling Global City

lots in October 2006. For the 1st quarter of

1997, ABC paid output taxes on the sale of

lots after deducting input taxes. Realizing

that the transitional input taxes were notapplied against the output VAT, which would

have resulted to no net output VAT liability

(the transitional input taxes being higher),

FBDC filed a claim for refund for the VAT

payment. The BIR argues that (1)

transitional input tax is limited to

improvements to real properties; and (2)

there should have been prior payment of

taxes. Is the BIR correct?

A. No. There is nothing in the law that prohibitsthe inclusion of real properties, together with

the improvements thereon, in the beginning


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inventory of goods, materials and supplies,

based on which inventory the transitionalinput tax credit is computed. Further, there

is nothing in the law that indicates that prior

payment of taxes is necessary for the

availment of the transitional input tax credit.

All that is required is for the taxpayer to file

a beginning inventory with the BIR. (Fort

Bonifacio Development Corporation v CIR,

G.R. Nos. 175707, 180035, and 181092,

November 19, 2014)

Note: The same issues have been passedupon in Fort Bonifacio DevelopmentCorporation v CIR, G.R. No. 173425,

January 22, 2013; Fort BonifacioDevelopment Corporation v CIR, G.R. No.

173425, September 4, 2012; Fort Bonifacio

Development Corporation v CIR, G.R. Nos.158885 and 170680, October 2, 2009; Fort

Bonifacio Development Corporation v CIR,G.R. Nos. 158885 and 170680, April 2,

2009.

Q. What is the value-added tax treatment of the

sale or importation of livestock and poultry

feeds or ingredients?

A. Only livestock and poultry feeds or

ingredients used in the manufacture of

finished feeds are exempted from VAT. The

sale or importation of ingredients which may

also be used for the production of food for

human consumption shall be subject to VAT.

Thus, for the sale or importation of any of thefollowing feed ingredients:

1. Whey powder

2. Skimmed milk powder

3. Lactose

4. Buttermilk powder

5. Whole milk powder

6. Palm Olein

and such other feed ingredients used in the

manufacture of finished feeds which may

hereinafter be determined by competent

authority to have possible utilization for

human consumption, there must be a

showing the same is unfit for humanconsumption or that the ingredient cannot be

used for the production of food for human

consumption as certified by the Food and

Drug Administration. (RMC 55-2014 as

amended byRMC No. 66-2014)

Note: The list of specific feed ingredients is

exclusive as of the date of issuance of RMC

No. 66-2014. The BIR is not precluded from

adding to the list which would necessitate the

issuance of another RMC. (RMC No. 78-2014)

TAX REMEDIES

Q. The BIR issued a Final Assessment Notice

against a taxpayer for deficiency expanded

withholding tax for the taxable year 1994. It

merely contained a tabulation of the alleged

deficiency taxes due. Only the resulting

interest, surcharge and penalty were

provided with legal basis. Is the assessment

valid?

A.No. Section 228 of the Tax Code provides that

the taxpayer shall be informed in writing of

the law and the facts on which the assessment

is made. Otherwise, the assessment is void.

(CIR v. United Salvage and Towage (Phils.),

Inc., G.R. No. 197515, July 2, 2014)

Q. The BIR issued a Letter of Authority toexamine the books of account and other

accounting records of the taxpayer for

income and withholding taxes for the period

1997 to 1999. BIR then sent a Notice of

Informal Conference. Attached thereto is a

Summary Report containing an explanation

of the legal and factual bases for the

deficiency assessment. The taxpayer

requested for copies of working papers

indicating how the deficiency withholding

taxes were computed. The BIR promptlyresponded in a letter-reply. Thereafter, the

taxpayer received a PAN which contained the


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computations of its deficiency income and

withholding taxes. Attached to the PAN wasthe detailed explanation of the particular

provision of law and revenue regulation

violated. The taxpayer replied to the PAN.

The BIR replied in a letter explaining the

factual and legal bases of the deficiency

assessment and denying the reply. A FAN

and demand letter were then issued,

unaccompanied by any written explanation

of the legal and factual bases of the deficiency

taxes assessed against the taxpayer. Is the

assessment valid?

A. Although the FAN and demand letter issued

to the taxpayer were not accompanied by a

written explanation of the legal and factual

bases of the deficiency taxes assessed against

the petitioner, the records showed that the

BIR in its letter responded to the taxpayers

reply to the PAN, explaining at length the

factual and legal bases of the deficiency tax

assessments. Considering the foregoing

exchange of correspondence and documentsbetween the parties, the requirement of

Section 228 was substantially complied with.

The BIR had fully informed the taxpayer in

writingof the factual and legal bases of the

deficiency taxes assessment, which enabled

the latter to file an "effective" protest.

Petitioner's right to due process was thus not

violated. (Samar-I Electric Cooperative v.

CIR, G.R. No. 193100, December 10, 2014)

Q. On January 9, 1996, the BIR issued a Final

Assessment Notice against the taxpayer for

deficiency expanded withholding tax for the

taxable year 1992, 1994, and 1998. The BIR

issued a Preliminary Collection Letter for the

deficiency EWT for the taxable year 1992 on

February 21, 2002. The BIR argues that its

right to collect the EWT for taxable year

1992 has not yet prescribed. Is the BIR

correct?

A. No. The statute of limitations on assessment

and collection of national internal revenue

taxes was shortened from five (5) years to

three (3) years by virtue of Batas Pambansa

Blg. 700.

Thus, the BIR has three (3) yearsfrom the date of actual filing of the tax return

to assess a national internal revenue tax or to

commence court proceedings for the

collection thereof without an assessment.

However, when it validly issues an

assessment within the three (3)-year period,

it has another three (3) years within which to

collect the tax due by distraint, levy, or court

proceeding.

The assessment of the tax is

deemed made and the three (3)-year period

for collection of the assessed tax begins torun on the date the assessment notice had

been released, mailed or sent to the taxpayer.

In this case, the Preliminary Collection Letter

was issued only on February 21, 2002,

despite the fact that the FAN was issued as

early as January 9, 1996. Clearly, five (5) long

years had already lapsed, beyond the three

(3)-year prescriptive period, before collection

was pursued by the BIR. (CIR v. United

Salvage and Towage (Phils.), Inc., G.R. No.

197515, July 2, 2014)

Note: It must be noted that in this case, no

evidence was formally offered to prove when

the taxpayer filed its returns and paid the

corresponding EWT for taxable year 1992.

Further, it must be emphasized that there are

conflicting views on the proper prescriptive

period for the collection of national internal

revenue taxes in case a regular return is filed.

Some hold the view that the prescriptive

period is five (5) years while others opine thatit is three (3) years.

Q. On June 16, 1989, the taxpayer received a

final assessment notice issued by the BIR,

finding the taxpayer liable for deficiency

documentary stamp tax for the taxable year

1985. The taxpayer filed a protest on June

23, 1989 requesting for reinvestigation

and/or reconsideration. The BIR denied the

request for reconsideration on August 4,1998. On January 4, 1998, the taxpayer filed

its petition for review before the CTA. The

taxpayer argued that the assessment may be


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invalidated because the statute of limitations

on collection had already expired. The CIRcontended that the issue of prescription

cannot be raised for the first time on appeal.

Further, the CIR alleged that even assuming

that the issue of prescription can be raised,

the protest letter interrupted the prescriptive

period to collect. Is the CIR correct?

A. No. If the pleadings or the evidence on

record show that the claim is barred by

prescription, the court is mandated to

dismiss the claim even if prescription is notraised as a defense. Under the then

applicable Section 319(c) [now, 222(c)] of

the National Internal Revenue Code (NIRC)

of 1977, as amended, any internal revenue

tax which has been assessed within the

period of limitation may be collected by

distraint or levy, and/or court proceeding

within three yearsfollowing the assessment

of the tax. The assessment of the tax is

deemed made and the three-year period for

collection of the assessed tax begins to run onthe date the assessment notice had been

released, mailed or sent by the BIR to the

taxpayer. In this case, although there was no

allegation as to when the assessment notice

had been released, mailed or sent to BPI, still,

the latest date that the BIR could have

released, mailed or sent the assessment

notice was on the date BPI received the same

on 16 June 1989. Counting the three- year

prescriptive period from 16 June 1989, the

BIR had until 15 June 1992 to collect the

assessed DST. (BPI v. CIR, G.R. No.

181836, July 9, 2014)

Q. On April 19, 1989, the BIR issued a FAN

finding the taxpayer liable for deficiency DST

for the taxable years 1982 to 1986. On May

8, 1989, the taxpayer filed its protest. On

December 6, 2001, the BIR rendered a

decision denying the protest. The taxpayer

elevated the same to the CTA arguing thatthe right of the BIR to collect the assessed

DST is already barred by prescription. The

taxpayer contends that the government had

three years from 19 April 1989, the date the

former received the assessment of the CIR, tocollect the tax. Within that time frame,

however, neither a warrant of distraint or

levy was issued, nor a collection case filed in

court. Is the taxpayer correct?

A.Yes. The Bureau of Internal Revenue (BIR)

issued the assessment for deficiency DST on

19 April 1989, when the applicable rule was

Section 319(c) of the National Internal

Revenue Code of 1977, as amended.In that

provision, the time limit for the governmentto collect the assessed tax is set at three years,

to be reckoned from the date when the BIR

mails/releases/sends the assessment notice

to the taxpayer. Further, Section 319(c)

states that the assessed tax must be collected

by distraint or levy and/or court proceeding

within the three-year period. In this case, the

records do not show when the assessment

notice was mailed, released or sent to the

taxpayer. Nevertheless, the latest possible

date that the BIR could have released, mailedor sent the assessment notice was on the

same date that the taxpayer received it, 19

April 1989. Assuming therefore that 19 April

1989 is the reckoning date, the BIR had three

years to collect the assessed DST. However,

the records show that there was neither a

warrant of distraint or levy served on the

taxpayers properties nor a collection case

filed in court by the BIR within the three-year

period. (China Banking Corporation v. CIR,

G.R. No. 172509, February 4, 2015)

Q. Does a request for reinvestigation suspend

the running of the prescriptive period to

collect?

A.No. A request for reinvestigation alone will

not suspend the statute of limitations. Two

things must concur: there must be a request

for reinvestigation and the CIR must have

granted it. (China Banking Corporation v.CIR, G.R. No. 172509, February 4, 2015)


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Q. In tax assessment cases, can the defense of

prescription be raised for the first time onappeal before the Supreme Court?

A. Yes. Though the established rule in remedial

law that the defense of prescription must be

raised at the trial court has also been applied

for tax cases, and thus,, as a rule, the failure

to raise the defense of prescription at the

administrative level prevents the taxpayer

from raising it at the appeal stage, itis not

absolute. When the pleadings or the evidence

on record show that the claim is barred byprescription, the court must dismiss the claim

even if prescription is not raised as a defense.

(China Banking Corporation v. CIR, G.R.

No. 172509, February 4, 2015)

Q. ABC Corporation was dissolved by

shortening its corporate term. As a result

thereof, ABC moved out of its address in Las

Pinas City and transferred to Calamba

Laguna. ABC sent a notice of dissolution to

the BIR as well as an update of informationcontained in its BIR Certificate of

Registration. ABC was assessed for

deficiency income taxes. The Final

Assessment Notice was sent via registered

mail to ABCs former address in Las Pinas

City. Is the assessment valid?

A. No. The taxpayers right to due process is

violated when there is no valid notice of

assessment sent to it. Here, the CIR was

aware of the new address and yet sent the

assessment to the taxpayers former address.

As a consequence thereof, the running of the

three-year period was not suspended and had

already prescribed. (Commissioner of

Internal Revenue v BASF Coating + Inks

Phils., Inc., G.R. No. 198677, November 26,

2014)

Q. What are the requirements of a valid waiver

of defense of prescription or the statute oflimitations?

A. RMO No. 20-90 provides the following

requirements:

(1)The waiver must be in the prescribed

form. There should be no deviation from

this form. The phrase but not after

which indicates the expiry date of the

period agreed upon to assess/collect

should be filled up;

(2)The waiver shall be signed by the

taxpayer himself or his duly authorized

representative. In the case of a

corporation, the waiver must be signed byany of its responsible officials. In case the

authority is delegated by the taxpayer to a

representative, such delegation should be

in writing and duly notarized;

(3)The waiver should be duly notarized;

(4)The waiver shall be signed by the

Commissioner of Internal Revenue or his

duly authorized representative, and the

date of acceptance of the BIR should be

indicated;

(5)

Both the date of execution by thetaxpayer and the date of acceptance by

the BIR should be before the expiration

of the period of prescription or before the

lapse of the period agreed upon in case a

subsequent agreement is executed; and

(6)The waiver must be executed in three

copies, the original copy to be attached to

the docket of the case, the second copy

for the taxpayer and the third copy for the

Office accepting the waiver. The taxpayer

must be furnished a copy of the waiver asaccepted by the BIR. The fact of receipt

by the taxpayer of his copy must be

indicated in the original copy to show that

the taxpayer was notified of the

acceptance of the BIR and the perfection

of the agreement. (CIR v. Stanley Works

Sales (Phils.), Inc., G.R. No. 187589,

December 3, 2014, citing Philippine

Journalist v. CIR, G.R. No. 162852,

December 16, 2004)

Q. What is the expenditure method in proving

tax fraud?


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A. The expenditure method is a method ofreconstructing a taxpayers income by

deducting the aggregate yearly expenditures

from the declared yearly income.The theory

of this method is that when the amount of the

money that a taxpayer spends during a given

year exceeds his reported or declared income

and the source of such money is unexplained,

it may be inferred that such expenditures

represent unreported or undeclared income.

(BIR v. Court of Appeals & Spouses Manly,

G.R. No. 197590, November 24, 2014)

Q. Can the date of issuance of a BIR Ruling

confirming the tax-exemption status of a

taxpayer be used as the reckoning point of

the prescriptive period for recovery of

erroneously or illegally assessed or collected

internal revenue taxes?

A. No.The claim for refund must be filed within

two (2) years from the date of payment of the

tax regardless of any supervening cause thatmay arise after payment. While the

prescriptive period of two (2) years

commences to run from the time that the

refund is ascertained, the propriety thereof is

determined by law (in this case, from the date

of payment of tax), and not upon the

discovery by the taxpayer of the erroneous or

excessive payment of taxes. The issuance of

the BIR of a Ruling declaring the tax-exempt

status of a taxpayer, if at all, is merely

confirmatory in nature. Such ruling is not the

operative act from which an entitlement of

refund is determined. (CIR v. Meralco, G.R.

No. 181459, June 9, 2014)

Q. May the Court of Tax Appeals determine, in

a claim for refund of taxes allegedly

erroneously paid, whether there are taxes

that should have been paid in lieu of the taxes

paid?

A. Yes. In an action for the refund of taxes

allegedly erroneously paid, the Court of Tax

Appeals may determine whether there are

taxes that should have been paid in lieu of the

taxes paid. Determining the proper categoryof tax that should have been paid is not an

assessment. It is an incidental matter

necessary for the resolution of the principal

issue, which is whether the taxpayer is

entitled to the refund. (SMI-ED Philippines

v. Commissioner of Internal Revenue, G.R.

No. 175410, November 12, 2014)

Q. What are the three essential conditions for

the grant of a claim for refund of creditable

withholding income tax?

A. The three essential conditions are:

1. The claim is filed with the Commissioner

of Internal Revenue within the two-year

period from the date of payment of the

tax;

2. It is shown on the return of the recipient

that the income payment received was

declared as part of the gross income; and

3.

The fact of withholding is established bya copy of a statement duly issued by the

payor to the payee showing the amount

paid and the amount of the tax withheld

therefrom. (CIR v. Team (Philippines)

Operations Corporation, G.R. No.

179260, April 2, 2014)

Q. What is the competent proof to establish the

fact that the creditable taxes were withheld?

A. The certificate of creditable tax withheld at

sourceis the competent proof to establish the

fact that taxes are withheld.

It is not

necessary for the person who executed and

prepared the certificate of creditable tax

withheld at source to be presented and to

testify personally to prove the authenticity of

the certificates. It must be noted that upon

presentation of a withholding tax certificate

complete in its relevant details and with a

written statement that it was made under thepenalties of perjury, the burden of evidence

then shifts to the Commissioner of Internal

Revenue to prove that (1) the certificate is


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not complete; (2) it is false; or (3) it was not

issued regularly. (CIR v. PNB, G.R. No.180290, September 29, 2014)

Q. Is proof of actual remittance of the withheld

taxes required before the taxpayer may claim

for a refund of creditable withholding tax?

A. No. Proof of actual remittance of the

withheld taxes is not required before the

taxpayer may claim for a tax refund/tax

credit certificates. It is not a requirement for

claiming a tax refund of creditablewithholding taxes. (CIR v. Team

(Philippines) Operations Corporation, G.R.

No. 179260, April 2, 2014; CIR v. PNB,

G.R. No. 180290, September 29, 2014)

Q. The BIR contends that, in a refund of excess

creditable withholding taxes, the taxpayer

must present its quarterly returns because

such quarterly returns would show that it did

not carry-over the excess withholding tax to

the succeeding quarter. Is the BIR correct?

A. No. Proving that no carry-over has been

made does not absolutely require the

presentation of the quarterly ITRs. Requiring

that the ITR or the FAR of the succeeding

year be presented to the BIR in requesting a

tax refund has no basis in law and

jurisprudence. First, Section 76 of the Tax

Code does not mandate it. Second, Section 5

of RR 12-94, amending Section 10(a) of RR6-85, merely provides that claims for refund

of income taxes deducted and withheld from

income payments shall be given due course

only (1) when it is shown on the ITR that the

income payment received is being declared

part of the taxpayers gross income; and (2)

when the fact of withholding is established by

a copy of the withholding tax statement, duly

issued by the payor to the payee, showing the

amount paid and the income tax withheld

from that amount. Any document, other thanquarterly ITRs may be used to establish that

indeed the non-carry over clause has been

complied with, provided that such is

competent, relevant and part of the records.

(Winebrenner & Inigo Insurance Brokers,Inc., G.R. No. 206526, January 28, 2015)

The taxpayer need not submit the quarterly

returns to show that it did not carry-over the

excess withholding tax to the succeeding

quarter. When the taxpayer is able to

establish prima facie its right to the refund by

testimonial and object evidence, it is the BIR

that should present rebuttal evidence to shift

the burden of evidence back to the taxpayer.

Indeed, the BIR ought to have its own copiesof the taxpayers quarterly returns on file, on

the basis of which it could rebut the

taxpayers claim that it did not carry over its

unutilized and excess creditable withholding

taxes for the immediately succeeding

quarters. The BIR's failure to present such

vital document during the trial in order to

bolster its contention against the taxpayers

claim for the tax refund is fatal. (CIR v. Team

(Philippines) Energy Corporation, G.R. No.

188016, January 14, 2015)

Q. Gotesco, a corporation engaged in the real

estate business, secured a loan from PNB

with a six-hectare property as collateral.

Gotesco defaulted on its loan obligations.

Thus, PNB foreclosed the mortgaged

property. A certificate of sale was issued in

favor of PNB. As it prepared for the

consolidation of its ownership over the

property, PNB withheld and remitted to the

BIR withholding taxes equivalent to 6% of

the bid price. Thereafter, PNB filed an

administrative claim for the refund of excess

withholding taxes. PNB explained that it it

should have applied the five percent (5%)

creditable withholding tax rate on the sale of

ordinary asset, considering that Gotesco is

primarily engaged in the real estate business.

While PNB was able to establish the fact of

tax withholding and the remittance thereof to

the BIR, the CTA found that PNB failed topresent evidence to prove that Gotesco did

not utilize the withheld taxes to settle its tax


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liabilities. On Motion for Reconsideration,

PNB eventually offered as evidence theIncome Tax Return of Gotesco to show that

the excess withholding tax payments were

not used by Gotesco to settle its tax liabilities.

The CTA denied the Motion for

Reconsideration and insisted that, to

sufficiently prove that Gotesco did not utilize

the creditable taxes withheld, the PNB

should have likewise presented the

Certificate of Creditable Tax Withheld at

Source (BIR Forms No. 2307) issued to

Gotesco in relation to the creditable taxeswithheld reported in its tax returns. Is the

BIR Form 2307 necessary?

A. The submission of BIR Forms 2307 is to

prove the fact of withholding of the excess

creditable withholding tax being claimed for

refund. This is clear in the provision of

Section 58.3, RR 2-98, as amended, and in

various rulings of the Court.In the words of

Section 2.58.3, RR 2-98, That the fact of

withholding is established by a copy of astatement duly issued by the payor

(withholding agent) to the payee showing the

amount paid and the amount of tax withheld

therefrom.

Hence, the probative value of BIR Form

2307, which is basically a statement showing

the amount paid for the subject transaction

and the amount of tax withheld therefrom, is

to establish only the fact of withholding of the

claimed creditable withholding tax. There is

nothing in BIR Form No. 2307, which would

establish either utilization or non-utilization,

as the case may be, of the creditable

withholding tax. While perhaps it may be

necessary to prove that the taxpayer did not

use the claimed creditable withholding tax to

pay for his/its tax liabilities, there is no basis

in law or jurisprudence to say that BIR Form

No. 2307 is the only evidence that may be

adduced to prove such non-use. (Philippine

National Bank v. CIR, G.R. No. 206019,

March 18, 2015)

Q. What is the irrevocability rule?

A. Once the option to carry-over and apply the

excess quarterly income tax against income

tax due for the taxable quarters of the

succeeding taxable years has been made,

such option shall be considered irrevocable

for that taxable period and no application for

cash refund or issuance of a tax credit

certificate shall be allowed therefor. (CIR v.

Team (Philippines) Operations Corporation,

G.R. No. 179260, April 2, 2014, citingSection 76, Tax Code)

LOCAL GOVERNMENT TAXATION

Q. In 1993, the City Council of Manila enacted

the Manila Revenue Code. Section 21(B) of

said Code imposed a local business tax on

the gross receipts of keepers of garages, cars

for rent or hire driven by the lessee,

transportation contractors, persons who

transport passenger or freight for hire, and

common carriers by land, air, or water.

Common carriers assailed the validity of

Section 21(B) of the Manila Revenue Code.

Is Section 21(B) valid?

A. No. Section 21(B) of the Manila Revenue

Code is null and void. Although the power to

tax is inherent in the State, the same is not

true for the LGUs to whom power must be

delegated by Congress and must be exercisewithin the guidelines and limitation that

Congress may provide. And among the

common limitations on the taxing power of

LGUs is Section 133(j) of the LGC, which

clearly and unambiguously proscribes LGUs

from imposing a tax on the gross receipts of

transportation contractors and common

carriers. The contention of the City of Manila

that Section 143(h) of the LGC has

empowered it to impose local business tax on

any business subject to excise, value-added,or percentage tax under the Tax Code), such

as common carriers, must fail. First, Section

133(j) of the LGC prevails over Section


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This material supplements the authors 2013 Bar Revi