Professional Documents
Culture Documents
BDO CASE
Exceptional case where the general rule of exhaustion of
administrative remedies was not followed
Q: Which powers of the CIR Section 7 of the 1997 Tax Code enumerates the CIR powers which may not be
may not be delegated to delegated, to wit:
his/her subordinates? RICA (1) To recommend the promulgation of rules and regulations by the DOF
1. recommend promulgation Secretary;
2. adjudicate, R, R, M (2) To issue rulings of first impression, or to reverse, revoke, or modify any
3. compromise, abate liability existing ruling of the CIR;
4. assign/reassign officers (3) To compromise or abate tax liability, subject to certain exceptions; and
(4) To assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.
Q: Distinguish between Meralco Securities Corporation v. Savellano
ministerial and discretionary Facts: Upon receipt of confidential information submitted by Maniago,
duty. the CIR caused the investigation of Meralco Securities Corporation for
tax evasion. Maniago claimed that Meralco Securities paid income tax
Discretion means power or right only on 25% of the tax dividends it received from Meralco, shortchanging
by law of acting officially, under the government of income tax due from 75% of said dividends.
certain circumstances, o The CIR found and held that no deficiency corporate income tax
according to the dictates of own was due from the corporation on dividends it received from
judgment and consciences, another corporation since under the law then prevailing, in case
uncontrolled by others’ of dividends received by a resident corporation, only 25% of the
judgments and consciences. dividends shall be taxed.
o Subsequently, Maniago filed with the CFI a petition for
Ministerial means an act which mandamus to compel CIR to impose the alleged deficiency tax.
an officer performs in a given o The CFI issued a writ of mandamus ordering the corporation to 3
state of facts, in a prescribed pay, and the CIR to collect, alleged deficiency corporate income
manner, in obedience to the tax, plus interests and surcharges due thereon, as well as
mandate of legal authority, informer’s reward.
without regard to or the Issue: WON the petition for mandamus can prosper as against the CIR?
exercise of own judgment upon Held: NO. CIR is charged with the administration of revenue laws, which
the propriety of the act done. is the primary responsibility of the executive branch of the government.
Ministerial means discharge of Thus, after the CIR who is specifically charged by law with the task of
the duty does not require enforcing and implementing the tax laws and the collection of taxes had
exercise of official discretion or after a mature and thorough study rendered his decision or ruling that no
judgment. tax is due or collectible, and his decision is sustained by the Secretary of
Finance, such decision or ruling is a valid exercise of discretion in the
performance of official duty and cannot be controlled, much less
reversed by mandamus.
Mandamus only lies to enforce the performance of a ministerial act or
duty and not to control the performance of a discretionary power.
Discretion, when applied to public functionaries, means a power or right
conferred upon them by law of acting officially, under certain
circumstances, according to the dictates of their own judgments and
consciences, uncontrolled by the judgments or consciences of others.
A purely ministerial act or duty, in contradistinction to a discretional act,
is one which an officer or tribunal performs in a given state of facts, in a
prescribed manner, in obedience to the mandate of a legal authority,
without regard to or the exercise of his own judgment upon the propriety
or impropriety of the act done.
If the law imposes a duty upon a public officer, and gives him the right to
decide how or when the duty shall be performed, such duty is
discretionary and not ministerial.
The duty is ministerial only when the discharge of the same requires
neither the exercise of official discretion nor judgment.
TAXATION 1 – Dean Gruba H. TAN, 2018
In other words, mandamus may NOT lie to compel the CIR to impose a
tax assessment not found by him to be proper.
Q: When may the CIR Vera v. Cuevas
exercise police power? Private respondents are companies engaged in the manufacture, sale
and distribution of filled milk products.
Only when necessary in the There were several provisions in the Tax Code pertaining to skimmed
enforcement of principal milk.
powers and duties consisting in o Section 141 imposed a specific tax on skimmed milk.
collection of national taxes, o Section 169 required that the packaging of skimmed milk contain
fees, charges and the a declaration to the effect that skimmed milk was not suitable for
enforcement of forfeitures, nourishment for infants less than one year of age.
penalties, and fines connected o Section 177 penalized the sale of skimmed milk without payment
therewith. of the specific tax and without the legend required by Section
169.
Sections 141 (specific tax) and 177 (penalty) were expressly repealed by
various laws. The SC held that by the express repeals of Sections 141
and 177 of the old Tax Code, Section 169 became a merely declaratory
provision, without a tax purpose or a penal sanction.
The controversy arose when the CIR required the companies to
withdraw from the market all of their filled milk products which do not
bear the inscription required by Sec. 169 of the Tax Code within 15 days
from receipt of the order with a warning of action if they failed.
The CIR contended that he still had jurisdiction to enforce Section 169
by virtue of a section of the 1997 Tax Code which provides that the BIR
“shall give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.”
Issue: WON the CIR may still enforce Section 169?
Held: No. The CIR and the Fair Trade Board, are without jurisdiction to
investigate and to prosecute alleged misbranding, mislabeling and/or
misleading advertisements of filled milk. 4
o The BIR “may claim police power only when necessary in the
enforcement of its principal powers and duties consisting of the
‘collection of all national internal revenue taxes, fees and
charges, and the enforcement of all forfeitures, penalties and
fines connected therewith.’
o The enforcement of Section 169 entails the promotion of the
health of the nation and is thus unconnected with any tax
purpose. Neither the CIR nor the Fair Trade Board had
jurisdiction to investigate and prosecute alleged misbranding,
mislabeling and/or misleading advertisements of filled milk. The
jurisdiction was properly vested upon the Board of Food and
Drug Inspection and the Food and Drug Administrator, with the
Secretary of Health and the Secretary of Justice also intervening
in such event that criminal prosecution would have to be
instituted.
Sec. 3, Chief Officials of the Bureau of Internal Revenue. –
The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue,
hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as Deputy
Commissioners.
Sec. 4, Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. –
The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the BIR is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the
CTA.
May 7, 2002
DOF ORDER NO. 007-02
TAXATION 1 – Dean Gruba H. TAN, 2018
PROVIDING FOR THE IMPLEMENTING RULES OF THE FIRST PARAGRAPH OF SECTION 4 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, REPEALING FOR THIS PURPOSE DEPARTMENT ORDER NO. 005-99
AND REVENUE ADMINISTRATIVE ORDER NO. 1-99
WHEREAS, Section 4 of Republic Act No. 8424 (the National Internal Revenue Code of 1997, "the NIRC" for
brevity) vests with the Commissioner of Internal Revenue exclusive and original jurisdiction to interpret its
provisions and other tax laws, subject to review by the Secretary of Finance;
WHEREAS, Department Order No. 005-99, dated January 26, 1999 and Revenue Administrative Order No. 1-99,
dated February 5, 1999, implements the power of the Secretary of Finance to review rulings of the
Commissioner of Internal Revenue;
WHEREAS, there is need to further provide for the implementing rules of the first paragraph of Section 4 of the
NIRC. ACDIcS
NOW THEREFORE, I, JOSE ISIDRO N. CAMACHO, Secretary of Finance, by virtue of the powers of supervision
and control over the Bureau of Internal Revenue granted to me by Section 2 of the NIRC and Book IV, Title II,
Chapter 4, Section 18 of the Administrative Code of 1987, do hereby order:
SECTION 1. Scope of This Order. — This Department Order shall apply to all rulings of the Bureau of
Internal Revenue (BIR) that implement the provisions of the NIRC and other tax laws.
SECTION 2. Validity of Rulings. — A ruling by the Commissioner of Internal Revenue shall be presumed
valid until overturned or modified by the Secretary of Finance.
SECTION 3. Rulings Adverse to the Taxpayer. — A taxpayer who receives an adverse ruling from the
Commissioner of Internal Revenue may, within thirty (30) days from the date of receipt of such ruling, seek its
review by the Secretary of Finance.
The request for review shall be in writing and under oath, and must:
a) be addressed to the Secretary of Finance and be filed with the Legal Office, Department of Finance, 5
DOF Building, BSP Complex, Roxas Boulevard corner Pablo Ocampo St., City of Manila;
b) contain the heading "Request for review of BIR Ruling No.______
c) allege and show that the request was filed within the reglementary period;
d) indicate the Tax Identification Number of the taxpayer;
e) allege the material facts upon which the ruling was requested;
f) state that exactly the same facts were presented to the BIR;
g) define the issues sought to be resolved;
h) contain the facts and the law relied upon to dispute the ruling of the Commissioner;
i) be signed by or on behalf of the taxpayer filing the appeal; provided that, only lawyers engaged by the
taxpayer and/or tax agents accredited by the BIR may sign on behalf of the taxpayer;
j) be accompanied by a copy of the Commissioner's challenged ruling; and
k) contain a stamp of the Office of the Commissioner of Internal Revenue, indicating that a copy of the
request to review the ruling was received by the Commissioner; and
l) specifically state that the taxpayer does not have a pending assessment or case in a court of justice
where the same issues are being considered.
Furthermore, the taxpayer must, at the time of filing of the request for review, submit a duplicate copy of the
records on file with the BIR pertaining to his request, which set of records must be authenticated and certified
by the BIR.
The Secretary of Finance may dismiss with prejudice a request for review that fails to comply with these
requirements.
SECTION 4. Motu proprio review by the Secretary of Finance. — The Secretary of Finance may, of his own
accord, review a ruling issued by the Commissioner of Internal Revenue. In such a case, the Secretary of
Finance shall order the Commissioner of Internal Revenue to transmit a duplicate copy of the BIR records. The
Commissioner of Internal Revenue shall transmit such records within fifteen days from receipt of notice of the
request for transmittal.
SECTION 5. Affirmation, reversal or modification by the Secretary of Finance. — The Secretary of Finance
may affirm, reverse or modify a ruling of the Commissioner of Internal Revenue. In the case of an affirmation,
SECTION 6. Certification Fee to be Imposed by the BIR. — Except for review of rulings under Section 4 the
BIR may impose appropriate certification fees to carry out the provisions of this Order.
SECTION 7. Repealing Clause. — Department Order No. 005-99 and Revenue Administrative Order No. 1-99,
as well as all other existing Department Orders and issuances of the Commissioner of Internal Revenue that
are inconsistent with this Order are hereby repealed.
The power to interpret the National Internal Revenue Code and other tax
laws is under the exclusive and original jurisdiction of the CIR, subject to
review by the Secretary of Finance (Section 4, NIRC).
Under RMC No. 37-07, the authority of the CIR to sign rulings granting
and/or confirming tax incentives, and tax treaty relief through the ruling
process is now delegated to the Deputy Commissioner of the Legal and
Inspection Group and to the Assistant Commissioner of the Legal Service
Group.
The CIR is empowered, motu proprio to reverse, modify or alter any such
ruling issued by the Department Commissioner or the Assistant
Commissioner.
Q: What are the kinds of There are two kinds of administrative issuances:
administrative issuances? o Legislative rules, and
Secondary legislation to primary legislation; quasi-legislative
provides details
requires due process - hearing and opportunity to be heard
o Interpretative rules.
Directory
Q: Discuss the rule on non- ABS-CBN Broadcasting Corporation v. CTA, GR No. L-52306, 12 October 1981
retroactivity of revenue ABS-CBN was engaged in the business of telecasting local and foreign films
issuances or rulings. acquired from foreign corporations not engaged in trade or business within
the Philippines, for which it paid film rentals after withholding income tax.
In implementing the Tax Code, the Commissioner issued General Circular.
Pursuant to General Circular, petitioner withheld the amount of 30% of one
half of film rentals paid by it to the foreign corporations. The last year that
petitioner withheld taxes pursuant to the foregoing circular was in 1968.
In 1971, RMC was issued revoking General Circular and now holding that
the tax should be 35% based on gross income without deduction whatever.
Later, the CIR issued an assessment against petitioner for deficiency 11
withholding income tax on the remitted film rentals for the years 1965
through 1968.
Issue: WON Revenue Memorandum Circular revoking General Circular may
be retroactively applied?
Held: No. The prejudice to petitioner of the retroactive application of RMC is
beyond question. It was issued only in 1971, or three years after 1968, the
last year that petitioner had withheld taxes under General Circular. Petitioner
was no longer in a position to withhold taxes due from foreign corporations
because it had already remitted all film rentals and no longer had any control
over them when the new Circular was issued.
Hence, RMC No. 4-71 was not given retroactive application.
CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 April 2007
VAT Ruling No. 231-88 dated 8 June 1988 was issued to respondent stating
that as a provider of medical services, it was exempt from the VAT coverage.
The 1997 Tax Code became effective on 1 January 1998, which exempted
from VAT only medical, dental, hospital and veterinary services (as opposed
to services of arranging for the same).
Hence, the 1997 Tax Code effectively imposed VAT on the services
provided by respondent. Later, respondent received an assessment for
deficiency VAT and documentary stamp tax for taxable years 1996 and
1997.
The Supreme Court confirmed that respondent believed in good faith that it
was VAT exempt for the subject taxable years on the basis of VAT Ruling
No. 231-88. The CIR was precluded from adopting a position contrary to one
previously taken where injustice would result to the taxpayer.
Q: Are there exceptions to CIR v. Court of Appeals, GR No.117982, 6 February 1997
the rule on non-retroactivity Alhambra Industries, Inc. was engaged in the manufacture and sale of cigar
of revenue issuances or and cigarette products. The present dispute arose from the discrepancy in
rulings? the taxable base on which the excise tax payable on Alhambra’s products
TAXATION 1 – Dean Gruba H. TAN, 2018
was to apply, on account of two incongruous BIR Rulings: (1) BIR Ruling No.
473-88 dated 4 October 1988 which excluded the VAT from the tax base in
computing the 15% excise tax due, and (2) BIR Ruling No. 017-91 dated 11
February 1991 which included back the VAT in computing the tax base for
purposes of the 15% ad valorem tax.
The Supreme Court said that Alhambra would be prejudiced by the
retroactive application of the revocation, i.e., BIR Ruling No. 017-91, as
Alhambra would be assessed deficiency excise tax. “[R]ulings and circulars,
rules and regulations promulgated by the Commissioner of Internal Revenue
would have no retroactive application if to so apply them would be prejudicial
to the taxpayers.”
Additionally, the CIR imputed bad faith on the part of Alhambra. It was the
CIR’s position that the rule on non-retroactivity of rulings would not apply
where the taxpayer acted in bad faith. On this point, the Supreme Court held
that it found no convincing evidence to show that Alhambra’s implementation
of the first ruling was attended with bad faith. To the contrary, the Supreme
Court said, as a sign of good faith, Alhambra immediately reverted to the
computation mandated by the new ruling upon knowledge of its issuance.
“Bad faith imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. It partakes of the nature of fraud; a breach of a
known duty through some motive of interest or ill will.”
CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 April 2007
VAT Ruling No. 231-88 dated 8 June 1988 was issued to PhilHealth stating
that as a provider of medical services, it was exempt from the VAT coverage.
The 1997 Tax Code took effect, exempting from VAT only medical, dental,
hospital and veterinary services (as opposed to services of arranging for the
same). Hence, the 1997 Tax Code effectively imposed VAT on the services
provided by respondent.
PhilHealth received an assessment for deficiency VAT and documentary 14
stamp tax for taxable years 1996 and 1997.
The CTA ruled that PHCPI was a service contractor liable for VAT and that
Ruling is void for being an erroneous application of the law. However, it
likewise ruled that the striking down of the Ruling had no retroactive effect.
CIR imputed bad faith on the part of respondent. It was the CIR’s position
that the rule on non-retroactivity of rulings would not apply where the
taxpayer deliberately misstated or omitted material facts from his return or
any document required of him by the CIR.
Issue:
1. W/N PHCPI’s services were subject to VAT. Yes, subject to VAT.
The exemption from VAT under the TAX code extends only to
those engaged in the performance of medical, dental, hospital,
and veterinary services, and not to the likes of PHCPI which
merely act as a conduit between the members and their
accredited and recognized hospitals and clinics. In other words,
PHCPI is a service contractor subject to VAT since it does not
actually render medical services.
2. W/N the revocation of VAT Ruling 231-88 had a retroactive effect. No,
no retroactive effect.
o There was no showing of bad faith on the part of PHCPI when it
originally procured the ruling in 1987 and so it had a right to rely on
the opinion rendered by the BIR on its exemption from VAT, at least
until the same was revoked. Therefore, it is not liable for VAT for the
years 1996 and 1997 on the strength of the Ruling.
o PHCPI believed in good faith that it was VAT exempt for the subject
taxable years on the basis of VAT Ruling No. 231-88. The CIR was
precluded from adopting a position contrary to one previously taken
where injustice would result to the taxpayer.
Supreme Transliner
Q: What is the significance of Alexander Howden & Co., Ltd. v. CIR, GR No. L-19392, 14 April 1965
revenue issuances? Commonwealth Insurance entered into reinsurance contracts with 32 British
insurance companies not engaged in business in the Philippines, whereby
Commonwealth agreed to cede a portion of the premiums on insurances on
fire, marine and other risks it had underwritten in the Philippines. Alexander
Howden represented the aforesaid British insurance companies.
Pursuant to the contracts, Commonwealth Insurance remitted to Alexander
Howden reinsurance premiums. On behalf of Howden, Commonwealth
Insurance filed an income tax return for the calendar year 1951.
Commonwealth paid for the taxes of Howden.
Later, Alexander Howden filed a claim for tax refund or credit, invoking a
1953 BIR Ruling which stated that it exempted from withholding tax
reinsurance premiums received from domestic insurance companies by
foreign insurance companies not authorized to do business in the
Philippines.
o Howden’s brief cited other rulings of the same official thereby
attempting to show that the prevailing administrative interpretation
was that reinsurance premiums ceded to nonresident foreign
insurance premiums were exempted from withholding tax.
Issue: Are portions of premiums earned from insurances locally underwritten
by a domestic corporation, ceded to and received by non-resident foreign
reinsurance companies, pursuant to reinsurance contracts signed by the 17
reinsurers abroad but signed by the domestic corporation in the Philippines,
subject to income tax or not?
Held: Yes, not exempt.
Section 24 of the NIRC subjects to tax a foreign corporation's income from
sources within the Philippines. It subjects foreign corporations not doing
business in the Philippines to tax for income from sources within the
Philippines. If by source of income is meant the business of the taxpayer,
foreign corporations not engaged in business in the Philippines would be
exempt from taxation on their income from sources within the Philippines.
SC ruled that the reinsurance premiums were considered derived from
sources within the Philippines and hence taxable.
o On the evidentiary weight of the BIR rulings cited by Alexander
Howden in support of its claim for tax refund or credit, the Supreme
Court had the following to say: “the administrative rulings of the CIR
relied upon by the taxpayers were only contained in letters to
taxpayers and never published, so that the Legislature is not
presumed to know said rulings.
o Thirdly, in the case on which Howden relies, Interprovincial Autobus
Co., Inc. vs. Collector of Internal Revenue, L-4671, January 31,
1956, what was declared to have acquired the force or effect of law
was a regulation promulgated to implement a law; whereas, in this
case, what Howden would seek to have the force of law are opinions
on queries submitted.”
o For issuances to have force and effect of law, it must be legislative
rules which require publications.
Section 2 talks about the functions and duties of the BIR. most important part
here is the assessment and the collection.
Main power of CIR is the interpretation of tax laws and decide cases.
Most important are the rulings, these are specific applications to a specific
sets of tax.
Sec. 5, Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of
Persons. - In ascertaining the correctness of any return, or in making a return when none has been made, or in
determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability
is subject to audit or investigation, or from any office or officer of the national and local governments,
government agencies and instrumentalities, including the BSP and GOCCs, any information such as,
but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers,
and the names, addresses, and financial statements of corporations, mutual fund companies,
insurance companies, regional operating headquarters of multinational companies, joint accounts,
associations, joint ventures of consortia and registered partnerships, and their members;
(C) To summon the person liable for tax or required to file a return, or any officer or employee of such 20
person, or any person having possession, custody, or care of the books of accounts and other
accounting records containing entries relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly authorized representative at a time and place
specified in the summons and to produce such books, papers, records, or other data, and to give
testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; and
(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district
or region and inquire after and concerning all persons therein who may be liable to pay any internal
revenue tax, and all persons owning or having the care, management or possession of any object with
respect to which a tax is imposed.
The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed
as granting the Commissioner the authority to inquire into bank deposits other than as provided for in
Section 6(F) of this Code.
Read also Section 71 in relation to Section 270 of the 1997 Tax Code which provide:
Sec. 71, Disposition of Income Tax Returns, Publication of Lists of Taxpayers and Filers. –
After the assessment shall have been made, as provided in this Title, the returns, together with any corrections
thereof which may have been made by the Commissioner, shall be filed in the Office of the Commissioner and
shall constitute public records and be open to inspection as such upon the order of the President of the
Philippines, under rules and regulations to be prescribed by the Secretary of Finance, upon recommendation
of the Commissioner.
The Commissioner may, in each year, cause to be prepared and published in any newspaper the lists
containing the names and addresses of persons who have filed income tax returns.
TRY TO READ the FOREIGN ACCOUNT TAX COMPLIANCE ACT (US FEDERAL LAW, requires any
American with account in any financial institution with the PH send to IRS about the account)
Sec. 6, Power of the Commissioner to Make Assessments and Read also Section 56 of the 1997 Tax
Prescribe Additional Requirements for Tax Administration and Code:
Enforcement. - Sec. 56, Payment and Assessment of
(A) Examination of Returns and Determination of Tax Due. - After a Income Tax for Individuals and
return has been filed as required under the provisions of this Code, Corporation. -
the Commissioner or his duly authorized representative may (A) Payment of Tax. -
authorize the examination of any taxpayer and the assessment of (1) In General. - The total amount
the correct amount of tax: Provided, however; That failure to file a of tax imposed by this Title shall
return shall not prevent the Commissioner from authorizing the be paid by the person subject
examination of any taxpayer. thereto at the time the return is
The tax or any deficiency tax so assessed shall be paid upon notice filed. In the case of tramp
and demand from the Commissioner or from his duly authorized vessels, the shipping agents
representative. and/or the husbanding agents,
Any return, statement of declaration filed in any office authorized to and in their absence, the
receive the same shall not be withdrawn: Provided, That within captains thereof are required to
three (3) years from the date of such filing, the same may be file the return herein provided
modified, changed, or amended: Provided, further, That no notice and pay the tax due thereon
for audit or investigation of such return, statement or declaration before their departure. Upon
has in the meantime been actually served upon the taxpayer. failure of the said agents or
(B) Failure to Submit Required Returns, Statements, Reports and captains to file the return and
other Documents. - When a report required by law as a basis for pay the tax, the Bureau of
the assessment of any national internal revenue tax shall not be Customs is hereby authorized to 21
forthcoming within the time fixed by laws or rules and regulations or hold the vessel and prevent its
when there is reason to believe that any such report is false, departure until proof of payment
incomplete or erroneous, the Commissioner shall assess the proper of the tax is presented or a
tax on the best evidence obtainable. sufficient bond is filed to answer
In case a person fails to file a required return or other document at for the tax due.
the time prescribed by law, or willfully or otherwise files a false or (2) Installment of Payment. -
fraudulent return or other document, the Commissioner shall make When the tax due is in excess of
or amend the return from his own knowledge and from such P2,000, the taxpayer other than
information as he can obtain through testimony or otherwise, which a corporation may elect to pay
shall be prima facie correct and sufficient for all legal purposes. the tax in 2 equal installments in
(C) Authority to Conduct Inventory-Taking, Surveillance and to which case, the first installment
Prescribe Presumptive Gross Sales and Receipts. - The shall be paid at the time the
Commissioner may, at any time during the taxable year, order return is filed and the second
inventory-taking of goods of any taxpayer as a basis for determining installment, on or before July 15
his internal revenue tax liabilities, or may place the business following the close of the
operations of any person, natural or juridical, under observation or calendar year. If any installment
surveillance if there is reason to believe that such person is not is not paid on or before the date
declaring his correct income, sales or receipts for internal revenue fixed for its payment, the whole
tax purposes. The findings may be used as the basis for assessing amount of the tax unpaid
the taxes for the other months or quarters of the same or different becomes due and payable,
taxable years and such assessment shall be deemed prima facie together with the delinquency
correct. penalties.
When it is found that a person has failed to issue receipts and (3) Payment of Capital Gains Tax.
invoices in violation of the requirements of Sections 113 and 237 of - The total amount of tax
this Code, or when there is reason to believe that the books of imposed and prescribed under
accounts or other records do not correctly reflect the declarations Section 24 (c), 24(D), 27(E)(2),
made or to be made in a return required to be filed under the 28(A)(8)(c) and 28(B)(5)(c) shall
provisions of this Code, the Commissioner, after taking into account be paid on the date the return
the sales, receipts, income or other taxable base of other persons prescribed therefor is filed by the
engaged in similar businesses under similar situations or
TAXATION 1 – Dean Gruba H. TAN, 2018
circumstances or after considering other relevant information may person liable thereto: Provided,
prescribe a minimum amount of such gross receipts, sales and That if the seller submits proof of
taxable base, and such amount so prescribed shall be prima facie his intention to avail himself of
correct for purposes of determining the internal revenue tax the benefit of exemption of
liabilities of such person. capital gains under existing
(D) Authority to Terminate Taxable Period. _ When it shall come to special laws, no such payments
the knowledge of the Commissioner that a taxpayer is retiring from shall be required : Provided,
business subject to tax, or is intending to leave the Philippines or to further, That in case of failure to
remove his property therefrom or to hide or conceal his property, or qualify for exemption under such
is performing any act tending to obstruct the proceedings for the special laws and implementing
collection of the tax for the past or current quarter or year or to rules and regulations, the tax
render the same totally or partly ineffective unless such due on the gains realized from
proceedings are begun immediately, the Commissioner shall the original transaction shall
declare the tax period of such taxpayer terminated at any time and immediately become due and
shall send the taxpayer a notice of such decision, together with a payable, subject to the penalties
request for the immediate payment of the tax for the period so prescribed under applicable
declared terminated and the tax for the preceding year or quarter, provisions of this Code:
or such portion thereof as may be unpaid, and said taxes shall be Provided, finally, That if the
due and payable immediately and shall be subject to all the seller, having paid the tax,
penalties hereafter prescribed, unless paid within the time fixed in submits such proof of intent
the demand made by the Commissioner. within 6 months from the
(E) Authority of the Commissioner to Prescribe Real Property registration of the document
Values. - The Commissioner is hereby authorized to divide the transferring the real property, he
Philippines into different zones or areas and shall, upon shall be entitled to a refund of
consultation with competent appraisers both from the private and such tax upon verification of his
public sectors, determine the fair market value of real properties compliance with the
located in each zone or area. For purposes of computing any requirements for such
internal revenue tax, the value of the property shall be, whichever is exemption.
the higher of;
In case the taxpayer elects and
(1) the fair market value as determined by the Commissioner, or is qualified to report the gain by 22
(2) the fair market value as shown in the schedule of values of the installments under Section 49 of
Provincial and City Assessors. this Code, the tax due from each
installment payment shall be
assessors have a list of zonal values per area paid within (30) days from the
receipt of such payments.
(F) Authority of the Commissioner to inquire into Bank Deposit No registration of any document
Accounts and Other Related Information Held by Financial transferring real property shall
Institutions. - Notwithstanding any contrary provision of Republic be effected by the Register of
Act No. 1405, Republic Act No. 6426, otherwise known as the Deeds unless the Commissioner
Foreign Currency Deposit Act of the Philippines, and other general or his duly authorized
or special laws, the Commissioner is hereby authorized to inquire representative has certified that
into the bank deposits and other related information held by such transfer has been reported,
financial institutions of: and the tax herein imposed, if
(1) A decedent to determine his gross estate. any, has been paid.
(2) Any taxpayer who has filed an application for compromise of (B) Assessment and Payment of
his tax liability under Sec. 204(A)(2) of this Code by reason of Deficiency Tax. - After the return is
financial incapacity to pay his tax liability. filed, the Commissioner shall
In case a taxpayer files an application to compromise the examine it and assess the correct
payment of his tax liabilities on his claim that his financial amount of the tax. The tax or
position demonstrates a clear inability to pay the tax assessed, deficiency income tax so discovered
his application shall not be considered unless and until he shall be paid upon notice and
waives in writing his privilege under Republic Act No. 1405, demand from the Commissioner.
Republic Act No. 6426, otherwise known as the Foreign As used in this Chapter, in respect of
Currency Deposit Act of the Philippines, or under other general a tax imposed by this Title, the term
or special laws, and such waiver shall constitute the authority of 'deficiency' means:
the Commissioner to inquire into the bank deposits of the (1) The amount by which the tax
taxpayer. imposed by this Title exceeds
A specific taxpayer(s) subject of a request for the supply of tax the amount shown as the tax by
information from a foreign tax authority pursuant to an the taxpayer upon his return; but
international convention or agreement on tax matters to which the amount so shown on the
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the Philippines is a signatory or a party of: Provided, That the return shall be increased by the
information obtained from the banks and other financial amounts previously assessed
institutions may be used by the BIR for tax assessment, (or collected without
verification, audit and enforcement purposes. assessment) as a deficiency,
In case of a request from a foreign tax authority for tax and decreased by the amount
information held by banks and financial institutions, the previously abated, credited,
exchange of information shall be done in a secure manner to returned or otherwise repaid in
ensure confidentiality thereof under such rules and regulations respect of such tax; or
as may be promulgated by the Secretary of Finance, upon (2) If no amount is shown as the tax
recommendation of the Commissioner. by the taxpayer upon this return,
a. The Commissioner shall provide the tax information or if no return is made by the
obtained from banks and financial institutions pursuant to a taxpayer, then the amount by
convention or agreement upon request of the foreign which the tax exceeds the
authority when such requesting foreign tax authority has amounts previously assessed
provided the following information to demonstrate the (or collected without
foreseeable relevance of the information to the request: assessment) as a deficiency; but
b. The identity of the person under examination or such amounts previously
investigation; assessed or collected without
c. A statement of the information being sought including its assessment shall first be
nature and the form in which the said foreign tax authority decreased by the amounts
prefers to receive the information from the Commissioner; previously abated, credited
d. The tax purpose for which the information is being sought; returned or otherwise repaid in
e. Grounds for believing that the information requested is held respect of such tax.
in the Philippines or is in the possession or control of a
person within the jurisdiction of the Philippines;
f. To the extent known, the name and address of any person
believed to be in possession of the requested information;
g. A statement that the request is in conformity with the law
and administrative practices of the said foreign tax
authority, such that if the requested information was within 23
the jurisdiction of the said foreign tax authority then it would
be able to obtain the information under its laws or in the
normal course of administrative practice and that it is in the
conformity with a convention or international agreement;
and
h. A statement that the requesting foreign tax authority has
exhausted all means available in its own territory to obtain
the information, except those that would give rise to
disproportionate difficulties.
The Commissioner shall forward the information as
promptly as possible to the requesting foreign tax authority.
To ensure a prompt response, the Commissioner shall
confirm receipt of a request in writing to the requesting tax
authority and shall notify the latter of deficiencies in the
request, if any, within sixty (60) days from receipt of the
request. If the Commissioner is unable to obtain and
provide the information within ninety (90) days from receipt
of the request, due to obstacles encountered in furnishing
the information or when the bank or financial institution
refuses or furnish the information, he shall immediately
inform the requesting tax authority of the same, explaining
the nature of the obstacles encountered or the reasons for
refusal.
The term ‘foreign tax authority,’ as used herein, shall refer
to the tax authority or tax administration of the requesting
State under the tax treaty or convention to which the
Philippines is a signatory or a party of. (As amended by RA
No. 10021.)
(G) Authority to Accredit and Register Tax Agents. - The
Commissioner shall accredit and register, based on their
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professional competence, integrity and moral fitness, individuals
and general professional partnerships and their representatives
who prepare and file tax returns, statements, reports, protests, and
other papers with or who appear before, the Bureau for taxpayers.
Within 120 days from January 1, 1998, the Commissioner shall
create national and regional accreditation boards, the members of
which shall serve for 3 years, and shall designate from among the
senior officials of the Bureau, 1 chairman and 2 members for each
board, subject to such rules and regulations as the Secretary of
Finance shall promulgate upon the recommendation of the
Commissioner.
Individuals and general professional partnerships and their
representatives who are denied accreditation by the Commissioner
and/or the national and regional accreditation boards may appeal
such denial to the Secretary of Finance, who shall rule on the
appeal within sixty (60) days from receipt of such appeal. Failure of
the Secretary of Finance to rule on the Appeal within the prescribed
period shall be deemed as approval of the application for
accreditation of the appellant.
(H) Authority of the Commissioner to Prescribe Additional
Procedural or Documentary Requirements. - The Commissioner
may prescribe the manner of compliance with any documentary or
procedural requirement in connection with the submission or
preparation of financial statements accompanying the tax returns.
Q: What is the rule on the Sy Po v. Court of Tax Appeals, GR No. L-81446, 18 August 1988
“best evidence obtainable.” Petitioner was the widow of the late Po Bien Sing who in his lifetime was the
sole proprietor of Silver Cup Wine Factory. Upon receipt of confidential
information that Silver Cup was allegedly involved in tax evasion, an
Can get info from investigation, directed by Sec. of Finance Virata, was conducted by the
other people Finance-BIR-NBI team. 24
Accordingly, a letter and a subpoena duces tecum were issued against
Silver Cup requesting production of the accounting records and other related
documents for the examination of the team.
Po did not heed the team’s request for production of books of accounts. The
team, consequently, entered the factory bodega of Silver Cup and seized
different brands of alcohol products. On the basis of the team’s report of
investigation, the CIR assessed Po of deficiency income tax for 1966 to 1970
and specific tax for 1964 and 1972.
Issue: Did the assessments have valid and legal bases?
Held: Yes.
The applicable legal provision is Section 16(b) of the National Internal
Revenue Code of 1977 as amended. It reads:
o Sec. 16. Power of the Commissioner of Internal Revenue to make
assessments.—
o (b) Failure to submit required returns, statements, reports and other
documents. - When a report required by law as a basis for the
assessment of an national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation or when there
is reason to believe that any such report is false, incomplete, or
erroneous, the Commissioner of Internal Revenue shall assess the
proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time
prescribed by law, or willfully or otherwise, files a false or fraudulent return or
other documents, the Commissioner shall make or amend the return from his
own knowledge and from such information as he can obtain through
testimony or otherwise, which shall be prima facie correct and sufficient for
all legal purposes.
The rule on the “best evidence obtainable” applies “when a tax report
required by law for the purpose of assessment is not available or when the
** Section 203 of the 1997 Tax Code provides that the government has the right to
assess internal revenue taxes within 3 years from the last day prescribed by law for
the filing of the tax return or the actual date of filing of such return, whichever comes
later.
Sec. 9, Internal Revenue Districts. - With the approval of the Secretary of Finance, the Commissioner shall
divide the Philippines into such number of revenue districts as may from time to time be required for
administrative purposes. Each of these districts shall be under the supervision of a Revenue District Officer.
Sec. 10, Revenue Regional Director. - Under rules and regulations, policies and standards formulated by the
Commissioner, with the approval of the Secretary of Finance, the Revenue Regional director shall, within the
region and district offices under his jurisdiction, among others:
a) Implement laws, policies, plans, programs, rules and regulations of the department or agencies in
the regional area;
b) Administer and enforce internal revenue laws, and rules and regulations, including the assessment
and collection of all internal revenue taxes, charges and fees.
c) Issue Letters of authority for the examination of taxpayers within the region;
d) Provide economical, efficient and effective service to the people in the area;
e) Coordinate with regional offices or other departments, bureaus and agencies in the area; 31
f) Coordinate with local government units in the area;
g) Exercise control and supervision over the officers and employees within the region; and
h) Perform such other functions as may be provided by law and as may be delegated by the
Commissioner.
Sec. 11, Duties of Revenue District Officers and Other Internal Revenue Officers. - It shall be the duty of every
Revenue District Officer or other internal revenue officers and employees to ensure that all laws, and rules and
regulations affecting national internal revenue are faithfully executed and complied with, and to aid in the
prevention, detection and punishment of frauds of delinquencies in connection therewith.
It shall be the duty of every Revenue District Officer to examine the efficiency of all officers and employees of
the Bureau of Internal Revenue under his supervision, and to report in writing to the Commissioner, through
the Regional Director, any neglect of duty, incompetency, delinquency, or malfeasance in office of any internal
revenue officer of which he may obtain knowledge, with a statement of all the facts and any evidence
sustaining each case.
Sec. 12, Agents and Deputies for Collection of National Internal Revenue Taxes. - The following are hereby
constituted agents of the Commissioner:
a) The Commissioner of Customs and his subordinates with respect to the collection of national
internal revenue taxes on imported goods;
b) The head of the appropriate government office and his subordinates with respect to the collection
of energy tax; and
c) Banks duly accredited by the Commissioner with respect to receipt of payments internal revenue
taxes authorized to be made thru bank.
Any officer or employee of an authorized agent bank assigned to receive internal revenue tax payments and
transmit tax returns or documents to the Bureau of Internal Revenue shall be subject to the same sanctions
and penalties prescribed in Sections 269 and 270 of this Code.
Sec. 13, Authority of a Revenue Officer. - Subject to the rules and regulations to be prescribed by the Secretary
of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment
Sec. 15, Authority of Internal Revenue Officers to Make Arrests and Seizures. - The Commissioner, the Deputy 33
Commissioners, the Revenue Regional Directors, the Revenue District Officers and other internal revenue
officers shall have authority to make arrests and seizures for the violation of any penal law, rule or regulation
administered by the Bureau of Internal Revenue. Any person so arrested shall be forthwith brought before a
court, there to be dealt with according to law.
Q: What are the general Stonehill v. Diokno, GR No. L-19550, 19 June 1967
requirements for a warrant? Respondent-prosecutors and respondent-judges issued 42 search warrants
on different dates against petitioners and the corporations of which they
were officers. The search warrants authorized the search of the persons of
the petitioners or the premises of their offices, warehouses and/or
residences, and the seizure of such personal property constituting the
subject of the offense, stolen or embezzled and proceeds or fruits of the
offense, or used or intended to be used as the means of committing the
offense, such offense being the “violation of Central Bank Laws, Tariff and
Customs Laws, NIRC and the RPC.”
Petitioners filed with the SC this original action for certiorari, prohibition and
mandamus and injunction, alleging that the search warrants were null and
void for contravening the Constitution and Rule of Courts, as they do not
describe with particularity the documents, books, and things to be seized?
Issue: WON the warrants are valid?
Held: No.
o The Supreme Court held that the search warrants were general
warrants. No warrant shall issue but upon probable cause, to be
determined by the judge in the manner set forth in said provision;
and that the warrant shall particularly describe the things to be
seized. None of these requirements has been complied with in the
contested warrants.
o In other words, no specific offense had been alleged in said
applications. The averments thereof with respect to the offense
committed were abstract. As a consequence, it was impossible for
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the judges who issued the warrants to have found the existence of
probable cause, for the same presupposes the introduction of
competent proof that the party against whom it is sought has
performed particular acts, or committed specific omissions, violating
a given provision of our criminal laws.
o It would be the legal heresy, of the highest order, to convict anybody
of a "violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and Revised Penal Code," — as alleged in
the aforementioned applications — without reference to any
determinate provision of said laws or to uphold the validity of the
warrants in question would be to wipe out completely one of the
most fundamental rights guaranteed in our Constitution, for it would
place the sanctity of the domicile and the privacy of communication
and correspondence at the mercy of the whims caprice or passion of
peace officers.
o General search warrants are outlawed because they place the
sanctity of the domicile and the privacy of communication and
correspondence at the mercy of the whims, caprice or passion of
peace officers.
Sec. 16, Assignment of Internal Revenue Officers Involved in Excise Tax Functions to Establishments Where
Articles Subject to Excise Tax are Produced or Kept. - The Commissioner shall employ, assign, or reassign
internal revenue officers involved in excise tax functions, as often as the exigencies of the revenue service
may require, to establishments or places where articles subject to excise tax are produced or kept: Provided,
That an internal revenue officer assigned to any such establishment shall in no case stay in his assignment for
more than two (2) years, subject to rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
Sec. 17, Assignment of Internal Revenue Officers and Other Employees to Other Duties. - The Commissioner
may, subject to the provisions of Section 16 and the laws on civil service, as well as the rules and regulations
to be prescribed by the Secretary of Finance upon the recommendation of the Commissioner, assign or 34
reassign internal revenue officers and employees of the Bureau of Internal Revenue, without change in their
official rank and salary, to other or special duties connected with the enforcement or administration of the
revenue laws as the exigencies of the service may require: Provided, That internal revenue officers assigned to
perform assessment or collection function shall not remain in the same assignment for more than three (3)
years; Provided, further, That assignment of internal revenue officers and employees of the Bureau to special
duties shall not exceed one (1) year.
Sec. 18, Reports of Violation of Laws. - When an internal revenue officer discovers evidence of a violation of
this Code or of any law, rule or regulations administered by the Bureau of Internal Revenue of such character
as to warrant the institution of criminal proceedings, he shall immediately report the facts to the Commissioner
through his immediate superior, giving the name and address of the offender and the names of the witnesses if
possible: Provided, That in urgent cases, the Revenue Regional director or Revenue District Officer, as the
case may be, may send the report to the corresponding prosecuting officer in the latter case, a copy of his
report shall be sent to the Commissioner.
Sec. 19, Contents of Commissioner's Annual Report. - The annual Report of the Commissioner shall contain
detailed statements of the collections of the Bureau with specifications of the sources of revenue by type of
tax, by manner of payment, by revenue region and by industry group and its disbursements by classes of
expenditures.
In case the actual collection exceeds or falls short of target as set in the annual national budget by fifteen
percent (15%) or more, the Commissioner shall explain the reason for such excess or shortfall.
CIR v. S.C. Johnson and Son, Inc., GR No. 127105, 25 June 1999
SC Johnson Phils. entered into a license agreement with SC Johnson US
pursuant to which SC Johnson Phils. was granted the right to use the
trademark, patents and technology owned by SC Johnson US. For the use
of the trademark or technology, SC Johnson Phils. was obliged to pay SC
Johnson US royalties based on a percentage of net sales and subjected the
same to 25% withholding tax on royalty payments.
Later, SC Johnson Phils. filed with the BIR International Affairs Division a
claim for refund of overpaid withholding tax on royalties, invoking the
application of the most favored nation clause of the RP-US Tax Treaty in
relation to the RP-West Germany Tax Treaty. Hence, according to SC
Johnson Phils., the royalty payments should have been subjected to a
reduced/preferential withholding tax rate of 10%.
The purpose of a most favored nation clause is to grant to the contracting
party treatment less favorable than that which has been or may be granted
to the ‘most favored’ among other countries.
The most favored nation clause is intended to establish the principle of
equality of international treatment by providing that the citizens or subjects of
the contracting nations may enjoy the privileges accorded by either party to
those of the most favored nation.
The essence of the principle is to allow the taxpayer in one state to avail of
more liberal provisions granted in another tax treaty to which the country of
residence of such taxpayer is also a party provided that the subject matter of
h. RMO 09-14
Section 1. Background - Republic Act No. 8424, or The Tax Reform Act of 1997 (hereinafter referred to as the Tax
Code of 1997), which was approved on December 11, 1997 has put in place the last phase of the comprehensive
reform package on tax laws which took effect on January 1, 1998. Pursuant to Section 244, in relation to Section 4
of the Tax Code of 1997, these Regulations are being promulgated to establish the policy on the binding effect of
rulings issued prior to the effectivity of the Tax Code of 1997 on January 1, 1998.
Section 2. Coverage. – All rulings issued prior to January 1, 1998 will no longer have any binding effect.
Consequently, these rulings cannot be invoked as basis for any current business transaction/s. Neither can these
rulings be used as basis for securing legal tax opinions/rulings.
Section 3. Repealing Clause. – All existing rules and regulations or parts thereof which are inconsistent with the
provisions of these Regulations are hereby amended, repealed or revoked accordingly.
i. RR 05-2012
Section 1. Background - Republic Act No. 8424, or The Tax Reform Act of 1997 (hereinafter referred to as the Tax
Code of 1997), which was approved on December 11, 1997 has put in place the last phase of the comprehensive
reform package on tax laws which took effect on January 1, 1998. Pursuant to Section 244, in relation to Section 4
TAXATION 1 – Dean Gruba H. TAN, 2018
of the Tax Code of 1997, these Regulations are being promulgated to establish the policy on the binding effect of
rulings issued prior to the effectivity of the Tax Code of 1997 on January 1, 1998.
Section 2. Coverage. – All rulings issued prior to January 1, 1998 will no longer have any binding effect.
Consequently, these rulings cannot be invoked as basis for any current business transaction/s. Neither can these
rulings be used as basis for securing legal tax opinions/rulings.
Section 3. Repealing Clause. – All existing rules and regulations or parts thereof which are inconsistent with the
provisions of these Regulations are hereby amended, repealed or revoked accordingly.
j. RMC 22-12
This Circular is issued to clarify the implementation and proper interpretation of
Revenue Regulations No. 5 – 2012, to wit:
1. All BIR Rulings issued prior to Jan 1, 1998 are not to be used as precedent by
any taxpayer as a basis to secure rulings for themselves for current business
transaction/s or in support of their position against any assessment.
2. All BIR Rulings issued prior to Jan 1, 1998 are not to be used by any BIR
action lawyer in issuing new rulings for request for rulings involving current
business transaction/s.
3. However, BIR Rulings issued prior to Jan 1, 1998 remains to be valid but
only:
a. to the taxpayer who was issued the ruling; and
b. covering the specific transaction/s which is the subject of the
same ruling
4. BIR Rulings issued prior to Jan 1, 1998, shall remain valid as mentioned
above, unless expressly notified of its revocation or unless the legal basis in
law for such issuance has already been repealed/amended in the current Tax
Code.
37