Court Update For Reading 2017

PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
(PICPA)
TAX COMMITTEE
Seminar on Tax Updates

February 15, 2017
EDSA, Mandaluyong City
Shangri-la Hotel
UPDATES on NEW COURT DECISIONS

(June 2016 – January 2017)
Atty. Luis Jose P. Ferrer, CPA

Partner, SGV & Co.
OUTLINE
I. Income Tax
II. Withholding Tax
III. Value-Added Tax
IV. Remedies
V. Others:
I. Real Property Tax
II. Ownership Requirements
Page 2
Income Tax
Page 3
Income Tax –
Taxable Persons and Entities
Page 4
The entire earnings of an employee who earns additional
compensation exceeding P30K (now P82K) are not
exempt from income tax
Mt. Blanc Motors, Inc. vs. CIR
CTA (Third Division) Case No. 8588, January 4, 2017
Facts:
► BIR assessed Mt. Blanc Motors, Inc. (MBMI) for deficiency income
tax, VAT, and withholding tax on compensation (WTC) for taxable year
2008. It alleged, among others, that several of MBMI’s employees
should not have been classified Minimum Wage Earners (MWE) and
should have been subjected to WTC.
► In the Alphalist of MWEs submitted by MBMI under Schedules 7.1 and
7.2, the amounts of 13th Month Pay and Other Benefits, Deductions
(SSS, GSIS, PHIC, Pag-Ibig and Union Dues), and Salaries and
Other Forms of Compensation were shown. However, details of the
“Salaries and Other Forms of Compensation” were not provided.
Page 5
Facts:
► The BIR thus posited that since the details on the salaries and other
compensation of the alleged MWEs were unclear, said income must
be subjected to income tax and subsequently, to withholding tax. The
BIR raised the principle that tax exemptions are to be construed
strictly against the entity claiming the same.
► MBMI protested, arguing that its employees listed under Schedules

7.1 and 7.2 were MWEs whose de minimis benefits did not exceed
the threshold amount P30,000 pursuant to RR 10-08 and as such,
MBMI did not rightfully withhold taxes from its salary payments to
MWEs.
Page 6
Facts:
► Notwithstanding the protest, the CIR issued a Final Decision on

Disputed Assessment (FDDA) denying the protest.
► MBMI filed a Petition for Review with the CTA.
Page 7
Issue 1:
► Can an employee who earns additional compensation in excess of the
P30,000 (now P82,000) threshold still be considered a MWE exempt
from income tax and consequently, from withholding tax?
Page 8
Held:
► No. Section 2.78.1 (B) (13) of RR 2-98, as amended by RR 10-08,
provides that an employee who receives/earns additional
compensation such as commissions, honoraria, fringe benefits,
benefits in excess of the allowable statutory amount of P30,000 (now
P82,000), taxable allowances and other taxable income other than
statutory minimum wage (SMW), holiday pay, overtime pay, hazard
pay, and night differential pay shall not enjoy the privilege of being a
MWE and therefore, his entire earnings are not exempt from income
tax and consequently, from withholding tax.
Page 9
Documentation is required to prove that an employee is
a MWE

Issue 2:
► Is documentation required to prove that an employee is a MWE?
Held:
► Yes. Without showing the details of the “Salaries and Other Forms of
Compensation” earned by MBMI’s employees, the court cannot
ascertain whether the same includes other forms of compensation
which may affect the enjoyment of the privilege of being a MWE as far
as the exemption from withholding tax is concerned.
Page 10
Income Tax –
Exempt Transactions
Page 11
To be exempt from tax, a non-stock, non-profit educational
institution must prove that its income is used actually,
directly, and exclusively for educational purposes
The Abba’s Orchard School, Inc. vs. CIR
CTA (En Banc) Case No. 1298, September 20, 2016
Facts:
► CIR assessed Abbas’ Orchard School (the School), a non-stock, non-
profit educational institution, for deficiency income tax for taxable year
2008.
► The School argued that as a non-stock, non-profit educational

institution, it is exempt from tax on income derived from its school-
related activities pursuant to Section 30 (H) of the Tax Code.
► The CIR denied the School’s protest.

Page 12
Facts:
► CIR’s arguments:
► The School is not exempt from income tax but is subject to the
10% tax under Section 27 (B) of the Tax Code as a proprietary
educational institution.
► The School failed to:
► present a Certificate of Tax Exemption as provided in RMC No.

14-2001 and Revenue Memorandum Order (RMO) No. 20-
2013, and
► prove that its income was actually, directly, exclusively used
for educational purposes (CONST. Sec. 4 (3), Art. XIV)
Page 13
Issue:
► Is the School exempt from income tax?
Held:
► No. For the School to be exempt from income tax, it must show that:
► it is a non-stock, non-profit educational institution, and
► its income is used actually, directly, and exclusively for educational purposes.
Page 14
Held:
► While the school is correct that a Certificate of Tax Exemption is not a

condition precedent for the enjoyment or entitlement of the income tax
exemption, the School’s Audited FS, Annual ITR, as well as the
affidavits of the School’s chief accountant and independent CPA,
cannot adequately verify that the school’s income was utilized
actually, directly, and exclusively for educational purposes or that such
income has been derived from non-profit activities.
Page 15
Held:
► The School should have provided the Court with copies of its books of
accounts and source documents (i.e., official receipts, invoices, and
disbursement vouchers), upon which figures shown in the said AFS
were based.
► Due to its failure to discharge the burden of proving that the income it
seeks to be exempted from tax was used actually, directly, and
exclusively for educational purposes, the School’s income as a
proprietary educational institution, is subject to 10% income tax as
provided under Section 27 (B) of the Tax Code.
Page 16
Tax exemption of income of registered cooperatives from
transactions with members and non-members under RA
6938
Kilusang Magkaibigan Multi-Purpose Cooperative vs. CIR

CTA (Third Division) Case No. 8751, November 17, 2016
Facts:
► CIR assessed Kilusang Magkaibigan Multi-Purpose Cooperative
(KMMC) for, among others, deficiency income tax, for alleged failure
to pay tax on income derived from its construction business,
equipment rental, and buy-and-sell of hardware materials and basic
commodities to members and non-members for taxable year 2006.
► KMMC protested the assessment, arguing that it is exempt from tax
under RA 6938 or the Cooperative Code of the Philippines since the
projects were undertaken by its members, who supervise and
implement them. In return, the cooperative gets only 4% to 6% of the
projects it implements. No outsiders are implementing the projects.
Page 17
6938

Facts:
► CIR denied the protest and revoked KMMC’s tax exemption privileges
as a cooperative. It countered that KMMC has no adequate
construction equipment, hence, the cost of construction is done by a
sub-contractor. KMMC lacks self-reliance which is a core aspect
defining a cooperative under RA 6938.
► CIR subsequently issued a Preliminary Collection Letter and a Final

Notice before Seizure. KMMC filed a Petition for Review with the CTA.
Page 18
6938

Issue 1:
► Is KMMC sub-contracting its projects to non-members?
Held:
► No. KMMC has sufficiently established that it has prohibited the
subcontracting of its projects. It has been dealing or transacting with
its members to implement its projects, and has not engaged
subcontractors for the project’s implementation.
► Under RA 6938, a registered cooperative is tax–exempt when it deals
or transacts with its members. Here, KMMC’s projects were
established to be undertaken by its members and are thus tax-
exempt.
Page 19
6938

Issue 2:
► Assuming, for the sake of argument, that KMMC is subcontracting its
projects (i.e., transacted with non-members), would its tax-exempt
privilege be nullified?
Held:
► No. Under RA 6938, if a registered cooperative has transacted
business with non-members, it is still tax exempt when the said
cooperative has accumulated reserves and undivided net savings of
not more than ten (10) Million pesos.
Page 20
6938

Held:
► Thus, assuming that KMMC is subcontracting its projects, it is still not

liable to pay income tax derived from non-members because it only
has P293,421.12 reserves, which is less than the required P10 Million
of accumulated reserves and undivided net savings pursuant to RA
6938 and its implementing rules and regulations.
Page 21
ABS issued by a special purpose entity pursuant to a SEC-
approved securitization plan is not considered as deposit
substitutes under the Tax Code
Bahay Bonds 2 Special Purpose Trust vs. CIR
CTA (First Division) Case No. 8944, November 5, 2016
Facts:
► The National Home Mortgage Finance Corporation (NHMFC) filed a
claim for refund with the BIR for erroneously paid final withholding tax
(FWT) on the interest income derived from asset-backed securities
(ABS) or the so-called Bahay Bonds issued pursuant to Republic Act
9627 or the Securitization Act of 2004.
► NHMFC securitized receivables worth P600 Million from long-term

secured low-cost and socialized housing loans by transferring on a
“true sale” and without recourse basis these loans at book value to
Bahay Bond 2 Special Purpose Trust (SPT).
Page 22
Facts:
► All loans did not exceed P400,000 and were within the loan ceiling for
low-cost and socialized housing packages.
► July 2012 – NHMFC filed a request for ruling with the BIR seeking
confirmation that the interest earned by SPT from note holders,
including NHMFC, is exempt from income and withholding tax under
Section 33 of RA 9267 being income from low-cost and socialized
housing-related ABS.
► CIR issued BIR Ruling No. 516-2012 and held that the ABS are
“deposit substitutes” subject to, among others, the 20% FWT.
Page 23
Facts:
► NHMFC filed a Request for Reconsideration but pending the decision,
SPT reported and paid the quarterly FWT from November 2012 to
May 2014.
► In October 2014, NHMFC requested for a refund of the FWT paid.
► SPT filed a Petition for Review with the CTA arguing that the ABS is
exempt from income and withholding taxes pursuant to Section 33 of
RA 9267 and Section 19 of RA 8763 or the Home Guaranty
Corporation Act of 2000.
Page 24
Issue 1:
► Are Bahay Bonds issued pursuant to RA 9267 considered deposit
substitutes?
Held:
► No. The Bahay Bonds are not deposit substitutes covered by Section
22 (Y) of the Tax Code, as amended.
► Section 31 of RA 9267 (a more recent law than the Tax Code)

expressly declared that ABS issued by a special purpose entity
pursuant to a SEC-approved securitization plan is not considered as
deposit substitutes under the Tax Code.
Page 25
Income derived by investors and bondholders from low-
cost or socialized housing-related ABS is exempt from
income tax and FWT
Issue 2:
► Is the income derived from Bahay Bonds exempt from income and
withholding tax?
Held:
► Yes. Under Sec. 27 of RA 9267, a special purpose entity like SPT is
generally subject to income tax in accordance with Sec. 61 of the Tax
Code, as amended.
► However, to promote the securitization of the mortgage and housing-
related receivables of the government housing agencies, Sec. 33 of
RA 9267 exempts from income tax the yield or income of the holders
of ABS from any low-cost or socialized housing-related ABS.
Page 26
Income Tax –
Others
Page 27
Settlement of trade and other payables does not fall under
reasonable needs of the business to justify the accumulation
of earnings exempt from IAET
1Maple Sales, Inc. vs. CIR

CTA (Third Division) Case No. 8925, December 16, 2016
Facts:
► CIR assessed 1Maple Sales, Inc. (1Maple) for Improperly
Accumulated Earnings Tax (IAET) for taxable year 2009 after it was
found that the company had earnings in excess of 100% of its capital
stock.
► 1Maple protested, insisting that there was no improper accumulation

of profits and that the accumulation of earnings was necessitated by
the reasonable needs of the business, particularly to fund its planned
expansion, pursuant to an Exclusive Marketing Agreement with
Fortune Tobacco Corporation.
Page 28

Facts:
► Under the Agreement, 1Maple became the exclusive distributor of
cigarettes manufactured by FTC in the whole Visayas Region and
was required to expand business by investing in additional goods and
inventories to generate sales and maintain presence in the region.
► In support of this, it submitted a notarized Corporate Secretary’s

Certificate stating that 100% of the retained earnings as of December
31, 2009 have been appropriated. This appropriation was also
reflected in the 2009 Audited Financial Statements.
Page 29

Facts:
► Due to the CIR’s inaction, 1Maple filed a Petition for Review with the
CTA.
► At the CTA, the CIR argued that:

► Under Section 29 of the Tax Code, 1Maple must clearly prove that
the accumulation of the earnings or profits is not for the purpose of
avoiding the tax, which it allegedly failed to do.
► 1Maple did not establish that the retained earnings will be used for
the immediate and reasonable needs of the business.
Page 30

Issue 1:
► Is 1Maple liable to IAET?
Held:
► Yes. 1Maple is a closely-held corporation under the Lucio Tan Group
of Companies and is therefore covered by the provisions of the IAET
under Section 29 of the Tax Code, as amended, and implemented by
RR 2-2001 and Revenue Memorandum Circular 35-2011.
Page 31

Held:
► Moreover, the planned corporate expansion never took place and an
analysis of the cash flow statement disclosed that earnings were used
to pay for the corporation’s current liabilities as shown by the
decrease in the amount of 1Maple’s Trade and Other Payables
account in 2010.
► This was contrary to the resolution passed and approved by 1Maple’s

Board of Directors authorizing the corporation to retain
P110,000,000.00 of its earnings for “planned expansion.”
Page 32

Held:
► As settlement of trade and other payables does not fall under
reasonable needs of the business, it was improper for 1Maple to
accumulate its profits.
► Further, 1Maple’s Audited Financial Statements for taxable years

2007 to 2010 showed that its appropriated earnings were reverted to
unappropriated status as soon as the reasonable demands of the
business ceased, which negates 1Maple’s claim that its earmarking
was for the immediate and reasonable needs of the business
Page 33
Absent definiteness of plans coupled with actions taken
towards consummation of such, a Secretary’s Certificate is
not sufficient to establish a valid appropriation

CTA (Third Division) Case 8925, December 16, 2016
Issue 2:
► Is the Corporate Secretary’s Certificate sufficient to establish a valid
appropriation?
Held:
► No. 1Maple’s Secretary’s Certificate is wanting as the details of the
alleged planned expansion were not included therein.
► Section 7 of RR 2-2001 provides that a speculative and indefinite

purpose will not suffice. Definiteness of plans coupled with actions
taken towards its consummation are essential.
Page 34
Absent definiteness plans coupled with actions taken
towards consummation of such, a Secretary’s Certificate is
not sufficient to establish a valid appropriation

CTA (Third Division) Case 8925, December 16, 2016
Held:
► Lastly, 1Maple failed to disclose in its Notes to Financial Statements

the appropriations made, which are significant transactions and/or
information that the stockholders, the government, and the public
should be apprised about and a requirement under Philippine
Accounting Standards 1: Presentation of Financial Statements.
Page 35
Withholding Tax
Page 36
Withholding Tax -
Final Withholding Tax
Page 37
Satellite airtime service fees paid to a NRFC are
considered income from sources within the Philippines
subject to FWT
Aces Philippines Cellular Satellite Corporation vs. CIR
CTA (En Banc) Case No. 1242, June 8, 2016
Facts:
► CIR assessed Aces Philippines Cellular Satellite Corporation (Aces)
for, among others, deficiency final withholding tax (FWT) for taxable
year 2006.
► CIR alleged that Aces is liable for 35% FWT on the satellite airtime
fees paid to Aces International Limited (AIL), a non-resident foreign
corporation.
Page 38
subject to FWT
Facts:
► Aces protested the assessment and argued that:
► It is not liable for deficiency FWT because the payments to AIL
arise from satellite airtime services rendered outside the
Philippines; and
► Even assuming that services are rendered within the Philippines, it

should only be subject to 7.5% FWT for the use of AIL’s
equipment.
Page 39
subject to FWT
Facts:
► CIR denied the protest.
► Aces filed a Petition for Review with the CTA Division.
► The CTA (Div) ruled that satellite air time service fees paid by Aces to
AIL are considered income from sources within the Philippines that
are subject to 35% (now 30%) FWT.
► Aces elevated the case to the CTA En Banc. It insisted that payments
for satellite air transmission are derived from sources outside of the
Philippines, hence, not subject to FWT.
Page 40
subject to FWT
Issue:
► Are the satellite air time service fees paid by Aces to AIL considered
income from sources within the Philippines that are subject to 35%
(now 30%) FWT?
Held:
► Yes. The source of income relates to the property, activity or services
that produced the income. Under Philippine tax law, it is sufficient that
the income was derived from an activity within the Philippines. The
place of activity, not place of business, is controlling.
Page 41
subject to FWT
Held:
► Section 28 (B) (1) of the Tax Code provides that income of a non-
resident foreign corporation from all sources within the Philippines is
subject to 35% (now 30%) income tax.
► The services for satellite airtime fees do not only cover the use of the
Garuda satellite (located in outer space) and the Network Control
Center (located in Indonesia), but also require that satellite
communication time be available and delivered in the Philippines.
Page 42
subject to FWT
Held:
► There is continuous and very real connection starting from the
Philippines (i.e., agreement to sell satellite communications time for
the Aces System in the Philippines), Garuda Satellite, Network
Control Center, and again the Philippines, through Aces’ gateway
facilities.
► AIL’s contract with Aces extended its activities within the Philippine
boundaries, which arises from the activity and services that produce
the income within the Philippines.
Page 43
A debt instrument is considered a deposit substitute, the
interest of which shall be subject to 20% FWT, if the
borrowing is made from 20 or more lenders at any one time
Banco De Oro, et al vs. Republic of the Philippines et al
Supreme Court (En Banc Resolution), G.R. No. 198756, August 16 2016
Facts:
► In 2001, the Bureau of Treasury (BTr) announced the auction of 10-
year Zero-Coupon Bonds, which the BTr states shall not be subject to
the 20% FWT since the issue is limited to 19 lenders.
► At auction date, the Rizal Commercial Banking Corporation (RCBC),

on behalf of Caucus of Development NGO Networks (CODE-NGO),
participated and won the bid.
► Thus, the BTr issued the bonds to RCBC.
Page 44
Supreme Court (En Banc Resolution), G.R. No. 198756, August 16 2016
Facts:
► Meanwhile, RCBC Capital entered into an underwriting agreement
with CODE-NGO whereby RCBC Capital was appointed as the Issue
Manager and Lead Underwriter for the offering of the bonds which will
be called Poverty Eradication and Alleviation Certificates or PEACe
Bonds.
► RCBC Capital then sold and distributed the government bonds, and
petitioner-banks purchased the PEACe Bonds on different dates.
Page 45
Supreme Court (En Banc Resolution), G.R. No. 198756, August 16, 2016
Facts:
► Before maturity of the PEACe Bonds, the BIR issued the following:
► BIR Ruling No. 370-2011 – declared that the PEACe Bonds, being deposit
substitutes, were subject to 20% FWT and directed the BTr to withhold the tax from
the face value of the PEACe Bonds upon their payment at maturity; and
► BIR Ruling No. DA 378-2011 – clarified that the FWT due on the discount or
interest earned on the PEACe Bonds should be imposed and withheld not only on
RCBC CODE-NGO but also on all subsequent holders of the bonds.
► Banco de Oro et al (BDO et al) thus filed before the Supreme Court a
Petition for Certiorari, Prohibition, and/or Mandamus (with urgent
application for a TRO and/or writ of preliminary injunction).
Page 46
Facts:
► SC then issued a TRO enjoining implementation of the BIR Ruling,
subject to the condition that the 20% FWT shall be delivered by the
BTr to the banks and placed by said banks in escrow pending
resolution of the petition.
► In its Decision promulgated January 13, 2015, the SC granted the

petition and ruled that the number of lenders/investors at every
transaction determines whether a debt instrument is a deposit
substitute subject to the 20% FWT.
Page 47
Facts:
► January 13, 2015 SC Decision:
► When at any transaction, funds are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public borrowing and the bonds at that
point are deemed deposit substitutes. Hence, the seller is required to withhold the
20% FWT on the imputed interest income from the bonds.
► The two BIR Rulings are void for having disregarded the 20-lender rule provided in
Section 22 (Y) of the Tax Code.
► The BTr is reprimanded for its continued retention of the amount corresponding to
the 20% FWT despite its directive in the TRO to deliver the amounts to the banks,
which shall be placed in escrow pending resolution of the case, and despite its
subsequent Order to comply with such directive.
Page 48
CTA has jurisdiction and may take cognizance of cases
directly challenging the constitutionality or validity of a tax
law, regulation or administrative issuance
Facts:
► Separate motions for reconsideration and clarification were filed by
both BDO et al and the Republic et al.
Issue 1:
► Does the CTA have jurisdiction to determine the constitutionality or

validity of tax laws, rules and regulations, and other administrative
issuances of the CIR?
Page 49
CTA has jurisdiction and may take cognizance of cases
directly challenging the constitutionality or validity of a tax
law, regulation or administrative issuance
Held:
► Yes. The CTA has jurisdiction and may take cognizance of cases
directly challenging the constitutionality or validity of a tax law,
regulation or administrative issuance (such as revenue order, revenue
memorandum circular, and ruling).
► Section 7 of Republic Act 1125 (Act Creating the CTA), as amended

by RA 9282, is explicit that except for local taxes, appeals from the
decisions of quasi-judicial agencies (CIR, Commissioner of Customs,
Secretary of Finance, Central Board of Assessment Appeals,
Secretary of Trade and Industry) on tax-related problems must be
brought exclusively to the CTA.
Page 50
Depending on the number of lenders “at any one time,” the
20-lender rule may apply to the PEACe Bonds

Issue 2:
► May the 20-lender rule apply to the PEACe Bonds?
Held:
► Yes. The 20-lender rule may apply to the PEACe Bonds, depending
on the number of lenders “at any one time.”
► The definition of deposit substitutes in Section 22 (Y) specifically

defined “public” to mean “twenty or more individual or corporate
lenders at any one time.” Hence, if there are 20 or more lenders, the
debt instrument is considered a deposit substitute which is subject to
the 20% FWT.
Page 51

Held:
► The existence of 20 or more lenders should be reckoned at the time
when the successful Government Securities Eligible Dealer (GSED)-
bidder distributes (by itself or through an underwriter) the government
securities to final holders.
► When the GSED sells the government securities to 20 or more

investors, the government securities are deemed to be in the nature of
a deposit substitute.
Page 52

Held:
► In this case, the PEACe Bonds were awarded to RCBC/CODE-NGO as the
winning bidder in the primary auction. At the same time, CODE-NGO got
RCBC-Capital as underwriter to distribute and sell the bonds to the public.
► The Underwriting Agreement and RCBC term Sheet for the sale of the
PEACe Bonds show that the settlement dates for the issuance by the BTr of
the bonds to RCBC CODE-NGO and the distribution by RCBC Capital of the
PEACe Bonds to various investors fall on the same day, October 18, 2001.
► Hence, the reckoning of the phrase “20 or more lenders” should be at the time
when RCBC Capital sold the PEACe Bonds to investors.
Page 53
However, the phrase “at any one time” cannot be applied
to the PEACe Bonds and should instead be given
prospective application
Issue 3:
► Assuming that the PEACe Bonds are deposit substitutes, may RCBC,
RCBC Capital, and CODE-NGO be held liable to pay the 20% FWT?
Held:
► No. They may still not be held liable to pay the 20% FWT.
► The Supreme Court interpretation in its January 2015 decision of the phrase “at any
one time” cannot be applied to the PEACe Bonds and should instead be given
prospective application.
► RCBC and the rest of the investors relied on the opinions of the BIR in its Ruling Nos.
020-2011, 035-2001 and DA 175-01 which provide that the “20 or more lenders” is to be
determined at the time of the original issuance. Under the said rulings, the PEACe
Bonds were not to be treated as deposit substitutes.
Page 54
BTr is liable to pay legal interest for refusal to release
withheld tax pursuant to an Order of the Supreme Court

Issue 4:
► May the BTr be held liable to pay legal interest for refusal to release
the withheld tax to the banks, as ordered by the SC?
Held:
► Yes. The BTr made no effort to release the amount corresponding to the 20%
FWT which it had not shown to have already been remitted to the BIR. It
remained obstinate in its refusal to release the monies and exhibited utter
disregard and defiance of the SC’s order.
► The BTr is ordered to immediately release and pay the bondholders the 20%
FWT on the PEACe Bonds, with legal interest of 6% per annum from October
19, 2011, the day the BTr received the TRO, until full payment.
Page 55
Value-Added Tax
Page 56
An insurance broker that issued VAT official receipts on
the gross premiums collected is liable for output tax on the
whole amount
Lacson & Lacson Insurance Brokers, Inc. vs. CIR
CTA (En Banc) Case No. 1272, October 4, 2016
Facts:
► CIR assessed Lacson & Lacson Insurance Brokers, Inc. (Lacson) for
alleged deficiency VAT arising from a discrepancy between its sales
per VAT returns and the purchases reported by its customers.
► Lacson protested the assessment.
► Upon denial of its protest, Lacson filed a Petition for Review with the
CTA.
Page 57
whole amount
Facts:
► At the CTA, Lacson argued that:
► As an insurance broker that liaises between the clients and the insurance
companies, it is liable for VAT only on the commission earned from policies placed
with various insurance companies and not on the gross premiums collected; and
► The assessment was issued beyond the 3-year prescriptive period.
► The BIR countered that:

► Lacson is liable for VAT based on the gross premiums since it issued VAT official
receipts (ORs) for the full amount of premiums and the clients claimed input tax
based on gross premiums reflected on the VAT ORs issued to them; and
► The 10-year prescriptive period applies since Lacson filed a false return.
Page 58
whole amount
Facts:
► The CTA (Third Division) sustained the BIR’s deficiency VAT
assessment, noting that Lacson issued VAT ORs to its clients on the
gross amount of premiums collection from which the latter claimed
their input VAT.
► Lacson elevated the case to the CTA En Banc and argued that:
► The VAT returns were not false by themselves as the mistake was merely brought
about by the erroneous claim of input VAT by some of Lacson’s clients; and
► The 10-year prescriptive period should not apply since the government was not
placed at a disadvantage as to prevent the proper assessment of tax liabilities. To
justify the imposition of the 50% surcharge, proof of actual fraud or filing of a false
return with intent to evade taxes is required.
Page 59
whole amount
Issue 1:
► Is Lacson liable for VAT on the gross amount of premiums?
Held:
► Yes. Although Lacson is only a broker, it becomes liable to output tax on
the gross premiums collected for issuing VAT ORs for the said premiums
and considering that the clients claimed input tax based on the gross
premiums reflected on the VAT ORs issued to them.
► Lacson failed to present documentary evidence to refute the existence of
the undeclared gross receipts. The CTA cannot rely on testimony that
Lacson wrongfully issued ORs on insurance premium of the insurance
company in the absence of documentary evidence to prove otherwise.
Page 60
Lack of malicious intent to evade payment of tax does not
preclude a finding of a false return since a false return
merely implies a deviation from the correct amount of tax
Issue 2:
► Did Lacson file false returns (which justifies the application of the 10-
year prescriptive period by the CIR)?
Held:
► Yes. False returns were willfully made and this is evident from
Lacson’s own admission that its VAT returns only reflected its income,
which consists of commissions. It did not report in its VAT return the
gross amount of premiums reflected in the VAT official receipts it
issued to its clients resulting in substantial under-declaration of sales
more than 30%.
Page 61
Lack of malicious intent to evade payment of tax does not
preclude a finding of a false return since a false return
merely implies a deviation from the correct amount of tax
Held:
► Quoting the decision of Court of Appeals in Holiday Inn (Phils), Inc vs.
CIR (CA-G.R. SP No. 78828, September 9, 2004):
► “…although there may be no malicious intent to evade payment of tax, this does
not preclude a finding of a false return. While a fraudulent return implies a malicious
and deliberate intent to evade payment of tax, a false return merely implies a
deviation from the correct amount of tax.”
► As the false returns were willfully made upon an admission of Lacson,

the 50% surcharge applies.
Page 62
Remedies
Page 63
Remedies –
Tax Assessment/Investigation
Page 64
Best evidence obtainable rule
When may BIR properly apply the rule
Farcon Marketing Corp. vs. BIR
CTA (En Banc) Case No. 1306, November 21, 2016
Facts:
► CIR issued a Tax Verification Notice to Farcon Marketing Corp.
(Farcon) to verify its supporting documents and pertinent records
relative to all its internal revenue taxes for taxable year 2007. When
required to present its books of accounts and accounting records,
Farcon claimed that it cannot comply as the documents were
destroyed and damaged by typhoons Ondoy and Pepeng.
► CIR assessed Farcon for alleged deficiency income tax for taxable
year 2007 arising from disallowed expenses, such as gas and oil,
postage, telephone and telegraph, and other purchases.
Page 65
Facts:
► Farcon protested the assessment. Upon denial of its protest, Farcon
filed a Petition for Review with the CTA.
► Farcon argued that:

► The assessment is without factual and legal bases;
► Farcon’s its failure to submit the required documents was not willful but due to
reasonable and justifiable causes, i.e., records were destroyed by the flood caused
by typhoons; and
► It was able to submit to the BIR reconstructed worksheets and schedule of
purchases and expenses to support its protest, which were not considered by BIR.
Page 66
Facts:
► CIR countered that:
► Farcon’s failure to submit the required supporting documents within the prescribed
period justifies the BIR’s resort to the Best Evidence Obtainable Rule under Section
6 (B) of the Tax Code; and
► Farcon failed to substantiate the expenses claimed as deduction from gross income
as provided under Section 34 (A) (1) of the Tax Code.
Page 67
Facts:
► The CTA (2nd Division) ruled in favor of Farcon. It held that the law
allows the BIR wide latitude to resort to the Best Evidence Obtainable
Rule to make an assessment. The BIR may determine Farcon’s tax
liability through estimation considering the absence of accounting
records, which were destroyed by the typhoons.
► But while the approximation in the calculation of the taxes due is
justified, the CTA ruled that such estimation should still be based on
sufficient evidence. In this case, the BIR failed to present any
evidence which it used as basis or foundation for the subject
deficiency assessment. Thus, the assessment is void for lack of
factual basis.
Page 68
Issue 1:
► Was the deficiency income tax assessment valid on the basis of the
Best Evidence Obtainable Rule?
Held:
► No. While the BIR can resort to the Best Evidence Obtainable Rule
and estimate the tax liability of taxpayers who failed to submit its
accounting records, it is still required to provide sufficient evidence as
basis for its deficiency tax assessment.
Page 69
Held:
► CIR did not follow the requirements under Section 6 (B), which
authorizes him to amend what may be deemed a false or fraudulent
return based on his own knowledge and from such information he can
obtain through testimony, among others, which shall be presumed
correct and sufficient.
► CIR cannot use Farcon’s ITR as the factual basis for the deficiency
income tax assessment as tax returns filed with the BIR are presumed
to have been filed in accordance with law.
► Moreover, the ITR did not prove that there were unsupported
expenses, for it merely showed Farcon’s operations in 2007 and the
income tax due for the year.
Page 70
RDO cannot authorize the examination of a taxpayer’s
records in lieu of the Regional Director
Issue 2:
► Can the Revenue District Officer authorize the examination of a
taxpayer’s records in lieu of the Regional Director?
Held:
► No. Pursuant to Sec. 13 of the NIRC, a Revenue Officer assigned to
perform assessment functions in any district may examine taxpayers
pursuant to a LOA issued by the Revenue Regional Director.
► The assessment or examination is a nullity in the absence of such
authority. In the instant case, only the Revenue District Officer, not the
Regional Director, signed the Tax Verification Notice to conduct the
examination and verification. (CIR vs. Sony Philippines, Inc. G.R. No. 178697,
November 17, 2010)
Page 71
An assessment should contain a computation of tax
liabilities as well as a demand for payment within the
prescribed period
CIR vs. 3M Philippines, Inc.
Facts:
► CIR assessed 3M Philippines, Inc. (3M) for, among others, deficiency
income tax, withholding tax, and expanded withholding tax, for taxable
year 2002.
► 3M received an advance copy of the Preliminary Assessment Notice

(PAN) through fax.
► In August 2008, 3M paid the alleged deficiency taxes on the same day
to stop the continuous accrual of interest charges but reserved the
right to file a formal protest upon receipt of the Formal Assessment
Notice (FAN).
Page 72
prescribed period
Facts:
► After 3M filed its reply to the PAN, the BIR neither acted on it nor
issued a FAN.
► In June 2010, 3M filed a claim for refund of the amount paid based on
the PAN. It argued that the period for BIR to assess had prescribed
and the taxes it paid were erroneously or illegally collected. To toll the
running of the 2-year prescriptive period, 3M filed a Petition for
Review with the CTA.
Page 73
prescribed period
Facts:
► At the CTA, the BIR contended that:
► The payment in response to the PAN dispensed with the need for the issuance of
the FAN;
► 3M’s actions after the PAN issuance, particularly the payment of the assessed
deficiency, support the view that it recognized and treated the PAN as FAN; and
► 3M should not be permitted to use a refund petition when it lost its right to contest
the assessment.
► The CTA 3rd Division ordered the refund of the erroneously paid
deficiency income tax and withholding taxes, VAT, FBT, prompting the
CIR to elevate the case to the CTA En Banc.
Page 74
prescribed period
Issue 1:
► Can taxes paid based on the PAN be considered erroneously or
illegally collected which can be subject of a refund?
Held:
► Yes. Erroneously paid taxes may come in the form of amounts that
should not have been paid. In this case, the CTA held that it was not
shown that what 3M paid was legally due nor was 3M legally bound to
pay the amount.
Page 75
prescribed period
Held:
► An assessment contains not only a computation of tax liabilities, but
also a demand for payment within the prescribed period. A cursory
reading of the PAN revealed that while there was a computation of
3M’s supposed tax liabilities, there was not a demand for payment
thereof. The demand had yet to be made and, as stated in the PAN,
only after the BIR fails to hear from 3M will such demand be issued.
► There was no assessment to speak of which may create a liability to

pay tax on the part of 3M.
Page 76
A FAN has to be issued or served for the tax liability to
arise

Issue 2:
► Is there a need to issue a FAN even if 3M voluntarily paid the
deficiency taxes alleged in the PAN?
Held:
► Yes. A FAN is necessary. For the tax liability to arise, an assessment
has to be issued and served to the taxpayer. The issuance of a valid
formal assessment is a substantive prerequisite to tax collection. Due
process requires that it must be served on and received by the
taxpayer to enable the taxpayer to determine the remedies thereon.
Page 77
A FAN has to be issued or served for the tax liability to
arise

Held:
► Contrary to the CIR’s claim, payment was made not to extinguish
3M’s supposed tax liability but to “stop the accrual of interest charges”
and “without prejudice to the right to file a formal protest upon receipt
of the FAN.” The intention was supported by the 3M’s subsequent
filing of the protest to the PAN and the filing of the refund claim.
Page 78
Assessments issued based on data extrapolated from surveillance
operations are presumed valid, if there is reason to believe that the
taxpayer is not declaring the correct income
Heavenly Urban Chef, Inc vs. CIR

CTA (Third Division) Case No. 8556, August 9, 2016
Facts:
► Based on confidential information, the BIR initially conducted
surveillance and monitoring of Heavenly Urban Chef, Inc.’s (HUCI)
place of establishment on January 19 to February 5, 2010, for
possible violation of bookkeeping and invoicing rules.
► In June 2010, the BIR issued a Letter of Authority (LOA) for the
investigation of HUCI’s books of accounts and accounting records for
taxable year 2009.
► In March 2010, the CIR issued a Formal Assessment Notice (FAN)

against HUCI for alleged deficiency income tax, VAT and improperly
accumulated earnings tax (IAET) for taxable year 2009.
Page 79

Facts:
► HUCI protested the FAN and requested for reinvestigation.
► The CIR denied the protest and issued a Final Decision on Disputed
Assessment (FDDA). HUCI filed a Petition for Review at the CTA.
► HUCI argued that:

► The assessments are speculative, hypothetical and fictional as these were based
on mere “extrapolation” of data unsupported by written testimony or report of a duly
authorized personnel, who is professionally competent to perform statistical
computations; and
► The IAET assessment is not valid since HUCI had appropriated retained earnings
for expansion purposes.
Page 80

Issue 1:
► Are assessments issued based on “extrapolation method” valid?
Held:
► Yes. Assessments issued based on data extrapolated from
surveillance operations are valid subject to compliance with Section 6
(C) of the Tax Code, as implemented by Revenue Memorandum
Order No. 3-09, which prescribes the guidelines in the conduct of
surveillance and stock-taking activities.
Page 81

Held:
► The BIR may use the results of its surveillance as basis for assessing
the taxes for the other months or quarters of the same or different
taxable years if there is reason to believe that a person is not
declaring his correct income, sales or receipts for internal revenue tax
purposes and such assessment shall be deemed prima facie correct.
► Since there is sufficient reason to believe that HUCI had undeclared

sales and no evidence was presented to controvert the BIR’s findings,
resorting to surveillance and extrapolation method in assessing HUCI
for undeclared sales is justified. The sales amount used by the BIR
can be considered as prima facie valid and correct for purposes of
determining the internal revenue tax liabilities of HUCI.
Page 82
A speculative and indefinite purpose will not suffice against the
IAET assessment. Definiteness of plans coupled with actions taken
towards its consummation is essential.

Issue 2:
► Is HUCI subject to IAET?
Held:
► Yes. The allegation that its retained earnings will be reserved for
expansion is not sufficient as details of the planned expansion or
transfer was not included in the Board Resolution.
► Section 7 of RR 02-01 explicitly provides that a speculative and
indefinite purpose will not suffice. Definiteness of plans coupled with
actions taken towards its consummation is essential. Considering that
no other evidentiary documents were presented, HUCI’s contention
against the IAET assessment has no leg to stand on.
Page 83
The issuance of a LOA covering “unverified prior years” is
prohibited and does not confer any authority to audit the taxpayer’s
book of accounts
Priscilla J. Cruz and Jocelyn Cruz De los Reyes (in

substitution of the deceased Julio S. Cruz) vs. CIR
CTA (First Division) Case No. 8103, September 2, 2016
Facts:
► CIR assessed Petitioners Priscilla J. Cruz and Jocelyn Cruz De los
Reyes (Cruz family) for deficiency income taxes for taxable years
1992 to 2004.
► The assessment was pursuant to a Letter of Authority (LOA) issued by

the BIR National Investigation Division to audit the taxpayers for
taxable years 2004 and Unverified Prior Years (UPY).
► The Cruz family filed a protest against the assessments, which was
denied. The Cruz family then filed a Petition for Review with the CTA.
Page 84
book of accounts

Facts:
► The Cruz family argued that:
► The LOA authorizing the review of their books of accounts for “unverified prior
years” is not valid; and
► They can no longer be assessed for 1992 to 2004 after they have availed of tax
amnesty in 2005 under Republic Act 9480.
► The CIR argued that:

► The Cruz family were not deprived of their right to due process even as the
deficiency income tax assessment notices covered 13 years, as they were properly
informed of the findings of the BIR.
► There was no tax amnesty return filed, thus, they cannot claim immunity.
Page 85
book of accounts

Issue 1:
► Is a Letter of Authority covering “Unverified Prior Years” valid?
Held:
► No. The assessment notices for taxable years 1992 to 2003 are null
and void for lack of a valid LOA.
► There must be a grant of authority before a revenue officer can

conduct an examination of the taxpayer’s books of accounts and other
accounting records for the purpose of determining the correct tax rule.
Page 86
book of accounts

Held:
► In this case, the revenue officers conducted the examination on the
strength of an LOA covering 2004 to Unverified Prior Years, without
any specification as to the years.
► The issuance of an LOA covering “unverified prior years” is a

prohibited practice under Section C of Revenue Memorandum Order
No. 43-90 and does not confer any authority to audit the taxpayer’s
books outside the specific taxable years mentioned therein.
► However, the assessment notice for 2004 is valid.
Page 87
The benefits of a tax amnesty granted to a corporation do
not extend to its stockholders
Issue 2:
► Can the benefits of a tax amnesty granted to a corporation extend to
its stockholders?
Held:
► No. Records show that the Cruz family were major stockholders of
J.S. Cruz Construction Development Corporation (Cruzcon) which
supposedly availed of tax amnesty in 2005. Even assuming that a tax
amnesty was availed by Cruzcon, the benefits and privileges granted
to it cannot inure to the benefit of the Cruz family.
Page 88
The benefits of a tax amnesty granted to a corporation do
not extend to its stockholders
Held:
► Section 6 of RA 9480 provides that only those who availed of the tax
amnesty and have fully complied with all its conditions shall be
entitled to immunities and privileges.
► In the instant case, the rights and privileges granted to a corporation

will not extend to its stockholders in their personal capacity
considering that a corporation has personality separate and distinct
from its shareholders.
Page 89
A Letter of Authority should be properly served on the taxpayer
within 30 days from the date of issue; otherwise it becomes null and
void
Dakay Construction and Dev’t Corporation vs. CIR

Facts:
► CIR assessed Dakay Construction Development Corporation (DCDC)
for deficiency VAT and DST for taxable year 2007.
► DCDC assailed the validity of the assessment, arguing that the Letter
of Authority (LOA) is void and without force and effect as it was
received beyond 30 days from the date of issuance:
► The LOA was dated October 22, 2008 but was received only on November 24,
2008. Thus, the revenue officers had no valid authority to conduct the examination
and subsequently issue the deficiency assessments.
► Upon receipt of the Final Decision on Disputed Assessment (FDDA)

denying its protests, DCDC filed a Petition for Review with the CTA.
Page 90
void

Facts:
► At the CTA, the CIR argued that:
► Neither the LOA nor other internal revenue issuances or audit programs and
policies provide that failure of revenue examiners to serve the LOA to the taxpayers
within 30 days from the date of issuance will give rise to taxpayer immunity from
audit for that particular period. The requirement is merely directory and is intended
to enhance the efficiency and ensure quality of audit; and
► DCDC can no longer assail the validity of the LOA as it has voluntarily submitted its
books of accounts and accounting records for audit. Neither did it raise the
invalidity of the LOA in its protest letter.
Page 91
void

Issue:
► Is the LOA valid and binding?
Held:
► No. All audits or investigations must be conducted under a valid LOA,
which should be properly served on the taxpayer within 30 days from
the date of issue or it becomes null and void pursuant to Revenue
Memorandum Order 43-90 and Revenue Audit Memorandum Order 1-
2000.
► Revenue Memorandum Order 23-83 even states that a simple
erasure on a LOA already renders it void; more so if it is improperly or
belatedly served.
Page 92
void

Held:
► The LOA no longer has any force or effect having been served
beyond the prescribed 30-day period.
► The assessment conducted by the revenue officers was already

unauthorized, because there was no valid covering LOA.
Page 93
Receipt of the notices by unauthorized personnel cannot
be deemed receipt by the taxpayer
Mannasoft Technology Corporation vs. CIR

Facts:
► CIR assessed Mannasoft Technology Corporation (MTC) for
deficiency income tax, VAT, EWT for taxable year 2008, which MTC
protested.
► The BIR issued a Warrant of Distraint and/or Levy (WDL), which MTC
protested.
► MTC then filed for a request for investigation, which the BIR denied
with a statement that it was the final decision on the matter.
► MTC filed a Petition for Review with the CTA.
Page 94

Facts:
► At the CTA, MTC argued that:
► The BIR violated its right to due process when it did not receive the Notice of
Informal Conference (NIC), the Preliminary Assessment Notice, and the FAN.
► The FAN and WDL were not received by the company’s duly authorized officers:
► The NIC was received by the client service assistant;
► The PAN was received by the receptionist; and
► The FAN was received by the reliever security guard.
► The BIR, on the other hand, maintained that the assessments were
made and issued in accordance with the law, rules and regulations.
Page 95

Issue 1:
► Did the receipt of the NIC, PAN and FAN by unauthorized personnel
invalidate the assessment?
Held:
► Yes. The client service assistant, receptionist, and the reliever security
guard, who received the NIC, PAN, and FAN respectively, do not have
the authority to receive the notices from the BIR.
► The receipt of the notices by unauthorized personnel cannot be

deemed receipt by MTC.
Page 96

Held:
► It is incumbent upon the BIR to prove that the personal service of the
notices was done properly and that the taxpayer or the taxpayer’s
authorized representative received the notices.
► Non-receipt of the NIC and the PAN results in the invalidity of the FAN
issued thereafter, for being violative of MTC’s right to due process.
Page 97
Filing of protest does not cure the BIR’s violation of the
taxpayer’s right to due process

Issue 2:
► Did the submission of a protest by the taxpayer cure the infirmity?
Held:
► No. The fact that the MTC was able to protest the FAN, albeit
belatedly, does not cure the BIR’s violation of its right to due process.
► The filing of a protest to the FAN “does not denigrate the fact that it
was deprived of statutory and procedural due process to contest the
assessment before it was issued.”
Page 98
The CTA En Banc cannot annul a final and executory
judgment of a division of the court; remedy is certiorari
under Rule 65
CIR vs. Kepco Ilijan Corporation
Supreme Court (En Banc) G.R. No. 199422, June 21, 2016
Facts:
► Kepco Ilijan Corporation (KIC) filed a claim for refund with the BIR for
input tax incurred in 2000 from its importation and domestic
purchases of capital goods and services preparatory to its production
and sales of electricity to the National Power Corporation.
► Due to the inaction of the CIR on its claim, KIC filed a Petition for
Review with the CTA.
► While the CIR filed her Answer, she failed to file the requisite
Memorandum despite notice. The CTA First Division rendered its
decision finding KIC entitled to refund.
Page 99
under Rule 65
Facts:
► As the CIR did not contest the decision, it became final and executory.
The CTA issued an Entry of Judgment on October 10, 2009 and a
corresponding Writ of Execution on February 16, 2010.
► April 11, 2011 - The CIR filed a Petition for Annulment of Judgment
with the CTA En Banc and claimed that she only found out about the
decision and the issuance of the writ when the Office of the Deputy
Commissioner for Legal and Inspection Group received a
Memorandum from the BIR Appellate Division recommending the
issuance of a Tax Credit Certificate in favor of KIC.
Page 100
under Rule 65
Facts:
► The CIR prayed that:
► the decision of the CTA First Division be annulled and set aside,;
► the Entry of Judgment and the Writ of Execution be nullified; and
► the CTA First Division be directed to re-open the case to allow the CIR to submit
her Memorandum setting forth her substantial legal defenses.
► After the CTA En Banc dismissed the petition, the CIR filed with the
Supreme Court a Petition for Review on Certiorari under Rule 45 of
the Rules of Court, where she asked for the reversal of the resolutions
of the CTA En Banc.
Page 101
under Rule 65
Issue:
► Does the CTA En Banc have jurisdiction over the CIR’s Petition for
Annulment of Judgment of the CTA First Division?
Held:
► No. The CTA En Banc does not have jurisdiction over the CIR’s
petition.
Page 102
under Rule 65
Held:
► Annulment of Judgment is provided for in Rule 47 of the Rules of
Court and is based solely on the grounds of extrinsic fraud and lack of
jurisdiction:
► It is a recourse that presupposes the filing of a separate and original action for the
purpose of annulling and avoiding a decision in another case.
► It is independent of the case where the judgment sought to be annulled is rendered.
► It is unlike a motion for reconsideration, appeal or even a petition for relief from
judgment, because annulment is not a continuation or a progression of the same
case as, in fact, the case it seeks to annul is already final and executory.
Page 103
under Rule 65
Held:
► Annulment of judgment involves the exercise of original jurisdiction,
like the CA over the decision of the RTC, or like the RTC over the
decision of the MTC or MeTC.
► The laws creating the CTA and expanding its jurisdiction , and the
CTA’s own rules of procedure do not provide for a scenario where the
CTA sitting en banc is asked to annul a decision of one of its divisions.
► Similarly, the Supreme Court or the CA divisions are not considered

separate and distinct courts but are divisions of one and the same
court. There is no hierarchy of courts within the SC and the CA.
Page 104
under Rule 65
Held:
► Thus, the annulment by a collegial court, sitting En Banc is

tantamount to allowing a court to annul its own judgment and
acknowledging that a hierarchy exists within such court.
► It also betrays the principle of finality of judgments.
Page 105
under Rule 65
What is the proper remedy?
► A direct petition for annulment of judgment of the CTA to the SC is

unavailing since there is no identical remedy with the SC to annul a
final and executory judgment of the CA.
► Similarly, RA 9282 puts the CTA on the same level as the CA.
► Thus, a proper remedy would have been an original action for

Certiorari under Rule 65 of the Rules of Court directly before the SC
and not before the CTA En Banc. Certiorari is availed of when there is
no appeal, or any other plain, speedy, adequate remedy in the
ordinary course of law, such as in the present case.
Page 106
Claim for refund of DST erroneously paid through a
documentary stamp metering machine is reckoned from
date of imprinting the documentary stamp
Philippine Bank of Communications vs. CIR
Supreme Court (First Division) G.R. No. 194065, June 20, 2016
Facts:
► Philippine Bank of Communications (PBCom) was authorized to
operate and use Online Electronic Documentary Stamp Metering
Machine (DS metering machine).
► PBCom purchased documentary stamps from the BIR and loaded

them to its DS Metering Machine.
► March 23 to December 23, 2004 - PBCom then entered into several

repurchase agreements with the Bangko Sentral ng Pilipinas, and the
documentary stamps were imprinted on the corresponding
Confirmation Letters.
Page 107
Facts:
► Claiming that the repurchase agreements were not subject to

documentary stamp tax (DST), PBCom filed a claim for issuance of
tax credit certificates.
► PBCom filed a Petition for Review with the CTA alleging inaction by
BIR.
Page 108
Facts:
► CTA (2nd Division) ruled that while the repurchase agreements were
exempt from DST under RA 9243 where 1) said agreements were
treated as derivatives, and 2) transaction with BSP were not subject to
DST, PBCom’s claim was barred by prescription, the two-year period
counted from the date of the Confirmation Letters.
► CTA (En Banc) ruled that for taxpayers using the DS metering
machine, the DST was deemed paid upon purchase of the
documentary stamps and the two-year period must be counted from
the reloading on the machine through the filing of the DST
Declaration BIR Form No. 2000.
Page 109
Issue:
► For taxpayers using the DS metering machine, what is the reckoning
date for purposes of counting the two-year prescriptive period for filing
a claim for refund of erroneously paid DST?
Held:
► The date of imprinting the documentary stamp on the taxable
document is considered as the date of payment from which the two-
year prescriptive period to recover erroneously paid tax commences.
Page 110
Held:
► The payment of DST upon loading/reloading is merely an advance
payment for future application. The liability for the payment of the DST
falls due only upon the occurrence of a taxable transaction. Therefore,
it is only then that the payment may be considered for the purpose of
filing a claim for a refund or tax credit.
► Since actual payment was already made upon loading/reloading of

the DS metering machine and the filing of the DST Declaration
Return, the date of imprinting the documentary stamp on the
taxable document must be considered as the date of payment
contemplated under Section 229 of the Tax Code on recovery of
erroneously paid taxes.
Page 111
Real Property Tax
Page 112
A taxpayer questioning the excessiveness or
reasonableness of a RPT assessment should first pay the
tax due before his protest can be entertained
National Power Corp. vs. Provincial Treasurer of Benguet et al
Supreme Court (Third Div), G.R. No. 209303, November 14, 2016
Facts:
► May 2000 – The Municipal Assessor of Itogon, Benguet, assessed
National Power Corporation (NPC) for real property tax (RPT) on
properties located within the Binga Hydro-Electric Power Plant.
► March 2006 – The Provincial Treasurer of Benguet demanded

payment of the RPT from NPC.
Page 113
Facts:
► April 20, 2006 - NPC challenged before the Local Board of
Assessment Appeals (LBAA) the legality of the assessment and the
authority of the respondents Municipal and Provincial Assessors to
assess and collect RPT from it. It asserts that its properties are
exempt from RPT pursuant to Section 234 (b) and (c) of the Local
Government Code (LGC).
► Previously, in letters dated Sept 3, 2000 and April 19, 2001, NPC filed
its requests for exemption from RPT before the Municipal Treasurer,
which the latter has not acted upon.
Page 114
Facts:
► August 9, 2006 – NPC received the LBAA’s Order deferring the proceedings
conditioned upon NPC’s payment under protest of the assessed amount, or
upon filing of a surety bond to cover the disputed RPT.
► August 25, 2006, NPC filed a Motion for Reconsideration (MR) of the LBAA’s
order, which was denied by the LBAA.
► NPC filed a petition for review with the Central Board of Assessment Appeals
(CBAA) where it claimed that payment under protest was not required before
it could challenge the authority of respondents to assess RPT on tax-exempt
properties. The CBAA dismissed the appeal for being filed out of time.
Page 115
Facts:
► NPC then appealed to the CTA En Banc, but the same was denied for
lack of merit. The CTA ruled that Section 252 of the LGC requires
payment under protest before a written protest against the
assessment may be filed before the LBAA.
► NPC filed its petition for review before the Supreme Court, and
alleged that payment under protest is required when the
reasonableness of the amount assessed is being questioned, and not
in the present case, when the taxpayer challenges the very authority
and power of the assessor to impose the assessment.
Page 116
Issue 1:
► Is NPC’s payment of the RPT under protest a condition prior to the
appeal to the LBAA?
Held:
► Yes. It is only after the taxpayer has paid the tax due that he may file a
protest in writing within 30 days from payment of the tax to the
provincial or Municipal Treasurer, who shall decide the protest within
sixty days from receipt. The local treasurer is not obliged to entertain
the protest unless the tax due has been paid.
Page 117
Held:
► There was nothing in the petition before the LBAA which supports the
petitioner’s claim regarding the respondent’s alleged lack of authority.
Though couched in terms which challenge the validity of the
assessment and authority of the respondents, NPC essentially
anchors its petition based on a claim of exemption from RPT.
► A claim for RPT exemption not actually questions the assessor’s
authority to assess and collect such taxes, but pertains to the
reasonableness or correctness of the assessment by the local
assessor, a question of fact which should be resolved, at the very first
instance, by the LBAA.
Page 118
Held:
► Under Section 206 of the LGC, a person claiming RPT exemption
shall file with the provincial, city or municipal assessor within 30 days
from the date of declaration of real property sufficient documentary
evidence in support of such claim. If the required evidence is not
submitted within the 30-day period, the property shall be listed as
taxable in the assessment roll. However, if the property shall be
proven to be tax exempt, it shall be dropped from the assessment roll.
► There was no evidence to show that, within 30 days from the filing of
its Tax Declaration, NPC filed with the Municipal Assessor an
application for exemption or any supporting documentary evidence of
the exempt status of its properties.
Page 119
A taxpayer has 30 days from its receipt of the assailed
order of the LBAA to file its appeal before the CBAA

Issue 2:
► Was the appeal before the CBAA filed out of time?
Held:
► Yes, the appeal to the CBAA was filed out of time.
► Under Section 229 (c) of the LGC, the taxpayer has 30 days from its
receipt of the assailed order of the LBAA to file its appeal before the
CBAA.
Page 120
A taxpayer has 30 days from its receipt of the assailed
order of the LBAA to file its appeal before the CBAA

Held:
► On August 9, 2006, NPC received the LBAA’s Order postponing the
hearing subject to the condition that payment of the RPT should first
be made, and on August 25, 2006, or on the sixteenth day from its
receipt of the LBAA’s Order, NPC filed a MR. When NPC received, on
October 17, 2006, the Resolution of the LBAA denying its MR, it had
only 14 days left within which to appeal to the CBAA.
► The filing of the appeal before the CBAA through registered mail on
November 16, 2006 which was received by the CBAA on November
22, 2006, was already late.
Page 121
Ownership Requirements
Page 122
The interpretation of the term “capital” in the Gamboa
Decision, as referring only to voting shares, stands.
Jose M. Roy III vs. Chairperson Teresita Herbosa, the SEC, et al

Supreme Court (En Banc), G.R. No. 207246, November 22, 2016
Facts:
► Section 11 of Article XII of the 1987 Constitution provides in part:
► “No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty
years x x x”
Page 123

Facts:
► June 28, 2011 – Wilson P. Gamboa vs. Finance Secretary Margarito
B. Teves et al (Gamboa Decision) was promulgated by the SC.
► Ruling: Capital refers only to shares of stock entitled to vote in the election of
directors.
► October 9, 2012 – a Resolution on the MR of the Gamboa Decision

was promulgated by SC (Gamboa Resolution).
► Ruling: The Constitutional requirement of 60% Filipino ownership of public utility
companies applies not only to voting control but also to beneficial ownership of
the corporation.
Page 124

Facts:
► May 20, 2013 – SEC issued SEC-MC No. 8, which provided
guidelines on compliance with the Filipino-Foreign ownership
requirements, Section 2 of which provides:
► “Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance
therewith, the required percentage of Filipino ownership shall be applied to both: (a)
the total number of outstanding shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding shares of stock, whether or not
entitled to vote in the election of directors.
► Corporations covered by special laws which provide specific citizenship
requirements shall comply with the provisions of said law.”
Page 125

Facts:
► Jose M. Roy III (Roy) questioned the validity of the SEC circular as
unconstitutional for not conforming to the letter and spirit of the
Gamboa Decision and Resolution.
► Roy seeks to apply the 60-40 Filipino ownership requirement

separately to each class of shares of public utility corporation, whether
common, preferred non-voting, preferred voting or any other class of
shares.
Page 126

Issue:
► Did the Gamboa Decision and Resolution interpret the law to mean
that the 60-40 Filipino ownership requirement shall apply separately
to each class of shares of a public utility corporation?
Held:
► No. As ruled in the Gamboa Decision, the term “capital” in Section 11,
Article XII of the Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus pertains only to common
shares and not to the total outstanding capital stock comprising both
common and non-voting preferred shares.
Page 127

Held:
► Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting
rights, the term “capital” in Sec. 11, Art XII of the Constitution refers
only to common shares.
► However, if the preferred shares also have the right to vote in the
election of directors, the term “capital” shall include such preferred
shares because the right to participate in the control or management
of the corporation is exercised through the right to vote in the election
of directors.
Page 128

Held:
► With regard to the SEC-MC No. 8, the SC ruled that the circular
clearly incorporates the Voting Control Test (pursuant to the Gamboa
pronouncement that “full 60% beneficial ownership of 60% of the
outstanding capital stock, coupled with 60% of the voting rights, is
required” (full beneficial ownership test).
► Although SEC-MC No. 8 does not expressly mention the full beneficial
ownership test, it is not rendered invalid as it does not follow that SEC
will not apply this test in determining the Filipino-Foreign ownership
requirement.
Page 129

Held:
► The pronouncement in the Gamboa Resolution that the Constitutional
requirement shall apply “uniformly to and across the board to all
classes of shares, regardless of nomenclature and category,
comprising the capital of a corporation” is a mere obiter dictum (or
something said in passing) that cannot override the SC’s unequivocal
definition of the term “capital” in both the Gamboa Decision and
Resolution.
Page 130
These seminar materials are provided to you for your exclusive
use. These materials may not be sold in part or in their entirety to any
third party. Furthermore, these may not be shown to, shared with, or
transferred to any third party, without the express written consent of SGV.
The information in these materials and any oral presentations made by
SGV are confidential and proprietary and should not be disclosed, used,
or duplicated - in whole or in part - for any purpose.
SGV has no responsibility to update these materials for events,

transactions, or circumstances occurring after the date of the issuance of
these materials. The opinions expressed herein are based upon our
interpretation of the tax laws, regulations, rulings and court decisions
promulgated there under and discussed in these materials. Note that
these laws, regulations, rulings and court decisions are subject to
change, and such changes could affect the opinions expressed in these
materials. If there is a change in the tax law, regulations and
administrative guidance issued, or the prevailing juridical interpretation of
the foregoing, the opinions expressed herein would necessarily have to
be reevaluated in light of any such changes.
Page 131
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PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

Seminar on Tax Updates

UPDATES on NEW COURT DECISIONS

Atty. Luis Jose P. Ferrer, CPA

► MBMI protested, arguing that its employees listed under Schedules

► Notwithstanding the protest, the CIR issued a Final Decision on

► MBMI filed a Petition for Review with the CTA.

Mt. Blanc Motors, Inc. vs. CIR

► The School argued that as a non-stock, non-profit educational

► The CIR denied the School’s protest.

► present a Certificate of Tax Exemption as provided in RMC No.

► While the school is correct that a Certificate of Tax Exemption is not a

Kilusang Magkaibigan Multi-Purpose Cooperative vs. CIR

Kilusang Magkaibigan Multi-Purpose Cooperative vs. CIR

► CIR subsequently issued a Preliminary Collection Letter and a Final

Kilusang Magkaibigan Multi-Purpose Cooperative vs. CIR

Kilusang Magkaibigan Multi-Purpose Cooperative vs. CIR

Kilusang Magkaibigan Multi-Purpose Cooperative vs. CIR

► Thus, assuming that KMMC is subcontracting its projects, it is still not

► NHMFC securitized receivables worth P600 Million from long-term

► In October 2014, NHMFC requested for a refund of the FWT paid.

► Section 31 of RA 9267 (a more recent law than the Tax Code)

1Maple Sales, Inc. vs. CIR

► 1Maple protested, insisting that there was no improper accumulation

1Maple Sales, Inc. vs. CIR

► In support of this, it submitted a notarized Corporate Secretary’s

1Maple Sales, Inc. vs. CIR

► At the CTA, the CIR argued that:

1Maple Sales, Inc. vs. CIR

1Maple Sales, Inc. vs. CIR

► This was contrary to the resolution passed and approved by 1Maple’s

1Maple Sales, Inc. vs. CIR

► Further, 1Maple’s Audited Financial Statements for taxable years

1Maple Sales, Inc. vs. CIR

► Section 7 of RR 2-2001 provides that a speculative and indefinite

1Maple Sales, Inc. vs. CIR

► Lastly, 1Maple failed to disclose in its Notes to Financial Statements

► Even assuming that services are rendered within the Philippines, it

► Aces filed a Petition for Review with the CTA Division.

► At auction date, the Rizal Commercial Banking Corporation (RCBC),

► Thus, the BTr issued the bonds to RCBC.

► In its Decision promulgated January 13, 2015, the SC granted the

► Does the CTA have jurisdiction to determine the constitutionality or

► Section 7 of Republic Act 1125 (Act Creating the CTA), as amended

Banco De Oro, et al vs. Republic of the Philippines et al

► The definition of deposit substitutes in Section 22 (Y) specifically

Banco De Oro, et al vs. Republic of the Philippines et al

► When the GSED sells the government securities to 20 or more

Banco De Oro, et al vs. Republic of the Philippines et al

Banco De Oro, et al vs. Republic of the Philippines et al

► Lacson protested the assessment.

► The BIR countered that:

► As the false returns were willfully made upon an admission of Lacson,

► Farcon argued that:

► 3M received an advance copy of the Preliminary Assessment Notice

► There was no assessment to speak of which may create a liability to

CIR vs. 3M Philippines, Inc.

CIR vs. 3M Philippines, Inc.

Heavenly Urban Chef, Inc vs. CIR

► In March 2010, the CIR issued a Formal Assessment Notice (FAN)

Heavenly Urban Chef, Inc vs. CIR

► HUCI argued that:

Heavenly Urban Chef, Inc vs. CIR