2020-problem-exercises-in-taxation.-handouts-for-distribution

PROBLEM EXERCISES IN TAXATION (Series 2020)

Prepared by: Dr. Jeannie P. Lim 1. X died in 2009 leaving behind real and personal properties. X bought his principal dwelling in 1987 for Php 500,000 only and a vacant lot in 1990 for Php 250,000. At the time of his death the house and lot have a fair market value of Php 6.5 M, whereas, the vacant lot has a current value of Php 2.5M. X’s wife prepared the estate tax return indicating therein the values of real properties at their acquisition cost and paid the estate tax in due time. Upon examination of the tax return the tax examiner issued a deficiency estate tax on the ground that the real properties values declared were the acquisition cost of the real properties and not the price at the time of death. Is the deficiency assessment correct? (Lorenzo vs. Posadas, 64 Phil. 353) Answer. The tax examiner is correct in demanding payment of deficiency tax from X’s wife because in estate tax the fair market values of properties left behind by the decedent at the time of death shall be declared in the tax return and not the acquisition cost of those properties. 2. X was designated as the beneficiary in an irrevocable insurance policy purchased by her Aunt Matilda. One year thereafter X received the life insurance proceeds under the policy as her Aunt died. Are the life insurance proceeds received by X subject to estate tax? Answer. No, the life insurance proceeds received by X on the policy purchased by her Aunt will not be subject to estate tax because X is a beneficiary irrevocably appointed in the policy. If the insurance policy is a revocable policy then the life insurance proceeds therefrom shall form part of the gross estate of X upon her death. 3. Rambert is a brilliant boy who graduated valedictorian from his senior high school class. His parents could not afford to send him to pursue higher education. Rambert’s teacher suggested that he joins a quiz bee contest in Math sponsored by X Corporation. It was announced that X Corporation is contributing Php 300,000.00 to deserving students for their college education. Rambert was among the winners and he received a portion from X’s contribution. May “X” deduct the contributions it gave to the deserving students from its gross income? Answer. No, X’s contribution is not deductible from its gross income because it was not made in favor of the government or accredited non-government organizations. Contributions made in favor of individuals are nondeductible. 4. R Corporation (domestic) entered into a merger with its wholly-owned domestic subsidiaries S Corporation and U Corporation. S and U transferred all their assets and liabilities to R. R Corporation is the surviving corporation. R did not issue any shares of stocks to S and U in consideration of the assets and liabilities it got from S and U because S and U are wholly-owned by R. Is the merger between R, S and U tax free? Answer. This activity is called upstream merger between a parent and its subsidiaries where the parent company will not be issuing any shares to the subsidiaries in exchange for the assets transferred to it. In effect, the transfer is in the nature of donation made by the subsidiaries to the parent, hence subject to donor’s tax. The intended merger has the effect of dissolving and liquidating the subsidiaries without payment of the corresponding taxes. (BIR Ruling No. 614-12, November 9, 2012) 5. Sotanes Law Offices has 4 lawyer-partners. The tax official discovered that the law firm has accumulated income in the past five (5) years, so the 10% Improperly Accumulated Earnings Tax was imposed against the law firm. Is the imposition correct? Why? Answer. The law firm is a General Professional Partnership (GPP) that is exempt from corporate income tax because it is not considered to be a corporation and therefore the 10% IAET which is applicable only to corporate taxpayers is not imposable against it. When the partners receive their net income share from the firm they shall be taxed separately and individually based on their distributive share. 6. X Corporation bought some equipment and machineries for use in its trade and business. At the end of the 10-year period said assets becomes fully depreciated. X decided to acquire new ones which are more efficient. On the 12th year, the old equipment and machineries were sold. Is the sale subject to capital gains tax considering that those were no longer use in business? Reason. Answer. The transaction is not subject to Capital Gains Tax because depreciated asset does not lose its character as an ordinary asset even if it becomes fully depreciated. In fact, monetary consideration or the presence or absence of profit in the operation of the property is not significant in the characterization of the property. So long as the property was or has been used for business purposes, whether for the benefit of the

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owner or any of its members or stockholders, it is still considered as an ordinary asset. The sale is an incidental transaction pursued in the regular course of X’s business, hence, it is subject to the VAT. 7. S and B entered into a Contract of Sale (Pacto de Retro) with a period of 3 years. Is the transaction taxable? What taxes are payable and who shall bear the burden of taxation under the given facts? Answer. Capital Gains Tax and Documentary Stamps Tax is payable by S when they entered into the pacto de retro sale. When S sold his real property to B, vendee a retro, the title and ownership of the property sold are immediately vested on B. Eventually, if S repurchased the same property within the agreed period of 3 years. B shall likewise pay the CGT and DST. Both the sale to the vendee a retro and the repurchase by the vendor a retro are subject to taxes. 8. B bought a condominium unit on installment from XYZ Realty, Inc. The term agreed upon under this conditional sale is for 6 years’ installment payments payable quarterly beginning the month of possession by B of the unit sold to him. Is this transaction subject to capital gains tax considering that B will not receive title or is not considered the owner of the property until he has fully paid the agreed price? Reason. Answer. Conditional sale is subject to the CGT and DST. Once the buyer is already given the privilege to occupy, possess, or use the property the seller shall pay the CGT within 30 days from execution of the Deed of Conditional Sale. The 6% CGT is based on the zonal value, the assessed value of the real property by the local government and consideration whichever is highest figure at the time of execution of the Deed of Conditional Sale. (TRAIN Law) 9. X is a successful businessman engaged in marketing. Seven (7) years ago he bought a 5-storey commercial building located in the busiest commercial district of the city. Early last year he had caused the re-appraisal of his real property. In his book of accounts, it showed that his depreciation allowance is based on the re-appraisal value of his property. The BIR disallowed the depreciation allowance. Is the denial valid? (Basilan Estate Inc. vs. CIR, September 5, 1967) Answer. The disallowance of the depreciation expense is valid because depreciation allowance should be based on the acquisition cost or value of the property and not on the re-appraised value of the same. 10. S, an individual taxpayer, agreed to dispose of his house and lot (principal dwelling) in exchange for a condominium unit in Quezon City owned by XYZ Realty to be used by S as his residence. Is S subject to CGT under the given facts? Answer. The transaction in the given problem may be covered by exemption from CGT since S disposed his principal dwelling in exchange for a condominium unit which is also to be used by him as his principal dwelling. The disposition is not subject to CGT but only to DST. The exemption applies only to S, the taxpayer transferor and not to XYZ realty. XYZ Realty is not subject to CGT because the real property it sold to S is an ordinary asset. Hence, the taxes payable by XYZ are creditable withholding tax, income tax and VAT. 11. (a) S and B are brothers. S stays is Manila and B resides in La Union. S and B agreed to exchange their principal dwelling without any monetary consideration whatsoever. S has retired from service and he desires to live in the province while the children of B shall pursue their education in Manila. Is the transaction taxable? Answer. The transaction is exempt from CGT because both S and B are disposing of their principal dwelling to acquire another principal dwelling. They may avail of the exemption provided by law. (b) S owns parcels of land within the subdivision complex identified as lots 3, 5 and 11. S agreed to exchange his Lot No. 11 with B’s Lot No. 4, so that S can consolidate his ownership of Lots 3, 4 and 5. No monetary consideration was involved in this transaction. Is the exchange taxable? Answer. Yes, both S and B shall be subject to CGT and DST. What they are parting with are not their principal dwellings but vacant lots. No exemption is given to any individual taxpayer disposing a property not used as principal dwelling even if the proceeds thereof will be used for his acquisition of another dwelling. The exemption from CGT is available only when an individual sells his principal dwelling and uses the proceeds thereof to acquire another principal dwelling. 12. S and B are cousins. S owns a parcel of land and he allows B to construct a 2-storey house on it. The arrangement is that S shall occupy the first floor of the house for his residential requirement for free. Granting that S and B are now relocating themselves to the city and they agreed to sell the house and lot. Can both of them apply for exemption of the capital gains tax? (RR Nos. 14-00 and 17-03) Answer. Yes. Both of them may avail of the exemption from capital gains tax because they were using the real property as their principal dwelling. Note however, that if S does not reside at the same principal dwelling of B, S may not avail of the exemption because what he is selling is the land and not his principal dwelling. Hence, only B can avail of the exemption.

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13. (a) X, a bank manager, intended to relocate his whole family to the Bacolod City, so that he could be near his ailing parents. He executed an SPA naming his broker as his agent to sell his house and lot in Baguio City. While waiting for a buyer, X bought a house and lot in Bacolod City that is now used by his family as their principal dwelling. Two (2) months after X’s purchase he was able to sell the house and lot in Baguio. Can X avail of tax exemption from capital gains tax considering that he sold his principal dwelling and bought another principal dwelling? Briefly explain. (b) Is there any tax implication if X was able to sell his house and lot in Baguio City for Php 8.0 million and used the proceeds to buy him another the house and lot in Bacolod City for Php 5.0 million? Reason. Answer. (a) X cannot avail of exemption from capital gains tax because he did not use the proceeds of the sale of his house and lot in Baguio City to buy him another principal dwelling. The second principal dwelling in Bacolod City was purchased even before the house and lot in Baguio City was sold. (b) Under the given facts X did not utilize the entire proceeds of Php 8.0 million which he realized from the sale of his first principal dwelling in the purchase of his second principal dwelling in Bacolod City, the difference of Php 3.0 million shall be subject to capital gains tax. 14. X. a domestic corporation purchased shares of stocks from Y, another domestic corporation. Y declared dividends in favor of its stockholders. Is the Dividend received by X taxable? Answer. The dividend received by a domestic corporation from another domestic corporation is called an INTRA-CORPORATE DIVIDEND which is exempt from income tax. However, if Y is a foreign corporation, the dividend received by X is subject to the corporate income tax of 30%. If Y is a non-resident corporation that purchased shares of stocks of X, a domestic corporation and subsequent it received dividends from X, a 15% Final Withholding Tax subject to the Tax Sparing Rule shall be imposed upon Y’s dividends. ISSUER

Domestic corporation (Cash Dividend) Domestic corporation (Stock Dividend) Resident Foreign Corporation

Recipient of Dividend Domestic Resident Corporation Foreign Corporation

Individual (RC, NRC, RA)

Individual (NRA)

10% Final withholding tax

25% Final withholding tax

Exempt

Exempt from tax

Exempt from tax

Exempt from tax

Exempt from tax

(Intra-corporate Dividend)

(Intra-corporate Dividend)

30% Corporate income tax

Exempt from tax

Subject to the normal income tax

Exempt

Non-resident Foreign Corporation

Exempt 15% Final withholding tax subject to the Tax Sparing Rule Exempt from tax

(Cash Dividend)

15. Pagcor is granted tax exemption on all taxes except income tax under PD No. 1869, Recently, Pagcor gave fringe benefits to all its managerial employees. When PAGCOR was subjected to tax assessment, the tax officials found out that no withholding taxes were remitted on the value of the fringe benefit it gave. It was held liable. Pagcor invokes its tax exemption and disputed the assessment. Is the contention of Pagcor correct that it is not liable under its exemption privilege? (PAGCOR vs. CIR, November 22, 2017) Answer. No, PAGCOR is not correct. PAGCOR is liable for payment of withholding taxes on the fringe benefit it gave to its managerial employees. The fringe benefit tax is imposed on the managerial employees who receive the same. PAGCOR is a mere withholding agent and not the concerned taxpayer. Its liability as a withholding agent is not covered by the tax exemption under its charter. 16. X and Y are both compensation income earners. X’s salary is less than Php 250K per annum. His holiday pay, hazard pay, overtime pays and night differential pays per annum is less than Php 90K. Y ‘s annual compensation income is Php 300K and his holiday pay, hazard pay, overtime pays and night differential pays per annum is less than Php 90K. Briefly explain how their compensation salaries will be treated for income tax purposes. Answer. X’s annual compensation income is below the threshold of Php 250K per annum, hence, it is exempt from income tax and from withholding tax. The other benefits he received has a total value of less than Php 90K per annum which are also exempted. On the other hand, Y’s salary is Php 300K, more than Php 250K per annum, the threshold of exemption, hence; it is subject to income tax and withholding taxes. His other benefits are exempt because the total amount is less than Php 90K. Granting that the total benefits Y received is more than Php 90k per annum, the excess of Php 90K shall be included in his gross compensation income and subject to income tax and withholding taxes.

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17. M is a manager of a local bank. Last year he received benefits similar to the benefits given to the rank and file employees with a total value of Php 45,000. However, his 13 th month pay was Php 70,000 and his Christmas bonus was Php 10,000. Are these benefits taxable to M? Answer. M’s total benefits received last year amounted to Php 125,000. The first Php 90,000 shall be exempted from income tax whereas the excess of Php 35,000 shall form part of his gross compensation income subject to income tax. There is no fringe benefit tax imposable since the benefits he received are not among those enumerated under Sec. 33(B) of the Tax Code. 18. X Corporation grants benefits to all its employees in cash and in kinds. (a) Are the benefits taxable to the employees? (b) Is X subject to fringe benefit tax (FBT) on the same? Answer. The benefits granted by employer X to its rank and file employees are not subject to fringe benefit tax, but the value of the benefits shall form part of the compensation income of the employees taxable to them. However, if the benefits are among those enumerated under Sec. 33(B) they are subject to FBT and only if granted to managerial or supervisory employees. The employer shall pay the fringe benefit tax NOTE: The fringe benefit tax shall constitute an allowable deduction from the gross income of the employer. When the benefits given to managers or supervisory employees are among those enumerated under Sec. 33(B) there is FRINGE BENEFIT TAX imposable and the value of the benefit shall not form part of the compensation income of the managerial or supervisory employees. But, if the benefits given to them are not among those enumerated under Sec. 33(B) of the Tax Code, it shall be included in the computation of “other benefits” forming part of their compensation income and subject to the first Php 90,000 exemption on benefits as provided under the TRAIN Law. 19. TP is a businessman engaged in the selling of construction supplies. It deducted from its gross income worthless debts because customer X was murdered and there is no way for TP to enforce collection; the debt of customer Y could not be collected anymore because his establishment was totally guttered by fire; on the other hand, customer C’s debts is deemed worthless for reason that C has absconded and could no longer be located. The deductions of these uncollected debts were disallowed by the BIR. Is the denial meritorious? Answer. Yes, the denial is valid. Bad debts are considered worthless only under the following requisites are met: (a) the debt must have formed part of the gross income of the taxpayer, (b) the debt due to the taxpayer was actually ascertained to be worthless, (c) the debt was charged off within the taxable year, (d) it must be connected with taxpayer’s profession, trade or business, (e) the debts is still valid, legally demandable and subsisting, (f) the debtor could not pay because he became insolvent, (g) the creditor has exerted efforts to collect, and (h) the debt must not be sustained in transaction entered into between related parties. The reasons TP gave are in no way valid to support TP’s deductions of worthless debts. Absence of debtors are not proof of insolvency. 20. X Corporation is engaged in the manufacture of baby garments and clothing. The president tapped S, a foreigner whom he met in Italy to sell the company’s products there. They agreed that S shall be entitled to 10% commission on orders she is able to book. S went around Italy offering X’s products and was doing well. X sends her commission regularly via bank transfers net of withholding taxes. S did not agree to the withholding taxes deducted from her commission because the services were all rendered abroad, BIR argued that the payor, payment, and the products originated from the Philippines and therefore the transaction is taxable here. Is S entitled to tax refund? (CIR vs. Juliane Baier-Nickel, August 29, 2006) Answer. Yes, S is correct the tax situs of services is at the place where the services were rendered. All services of S were rendered in Italy therefore her compensation for services is not taxable here. She is entitled to tax claim. (Section 42, NIRC) 21. X is a businessman who hired the services of a lawyer to help him in all his tax problems. The lawyer was remised in the performance of his legal services as a result of which X lost all his tax cases before the BIR. X hired another lawyer to defend him before the CTA. Unfortunately, his appeal was dismissed for being time barred. X was arguing that his first lawyer did not attend to his cause and mislead him into believing that the assessment was not valid. The tax court did not give due course to X’s arguments. Does X have a good defense under the given facts? Answer. X cannot invoke the mistakes of his first lawyer because he is bound by all the mistakes of his counsel. The most prudent remedy available to him is to enter into a compromise agreement with the BIR if still feasible but the assessment will not be invalidated because his counsel was irresponsible or had committed blunders in handling his case. 22. In 2013, ABC a Domestic Corporation purchased the following shares of stocks:

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(a) Php 100,000 worth of shares of stocks of Y Corporation, a domestic corporation that is listed in the Philippine Stock Exchange. (b) Php 300,000 worth of shares from VVV Domestic Corporation that is listed in the exchanges (c) Php 500,000 worth of shares of WWW Corporation, a domestic corporation not listed in the exchanges. (d) Php 200,000 worth of shares of Z Corporation, a Non-resident Foreign Corporation not listed in the Philippine Stock Exchange and (e) Php 150,000 worth of shares from RRR Corporation, a Resident Foreign Corporation not listed in the exchanges. Today ABC sold all these shares and realized the following profits/losses: (a) Y’s shares were sold at Php 225,000, (b) VVV shares were sold for only 220,000 (loss of Php 80,000) (c) Net gain of 50,000 from WWW shares, (d) Net gain of Php 185,000 from Z’s shares and (e) Net gain of Php 80,000 from RRR’s shares. What kind of taxes are payable and how much? Answer. Answer. Issuing Corp. Y Corp – DC, listed in exchanges VVV Corp – DC, listed in exchanges WWW Corp – DC, not listed in exchanges Z Corp – NRFC, not listed in exchanges

the the the the

RRR Corp – RFC, not listed in the exchanges

Selling price/Net Gain Selling price: Php 225,000 Selling price: Php 220,000 Net gain: Php 50,000 Net gain: Php 185,000 Net gain: 80,000

Php

Tax Rates 6/10 of 1% of gross selling price 6/10 of 1% of gross selling price 15% 5% on the first 100,000 net gain and 10% in excess of 100,000 5% on the first 100,000 net gain

Amount of Tax Payable Php 1,350.00 Php 1,320.00 Php 7,500.00 Php 13,500.00 Php 4,000.00

F

Tax on shares that are listed in the exchanges are payable even if there is a loss sustained because the tax rate is applied on the GROSS SELLING PRICE; hence, gain or loss is immaterial.

F

All taxes paid are Capital Gains Tax on sale of shares of stocks and they in the nature of final withholding taxes. (NOTE: no income tax imposable)

F

The TRAIN Law (RA 10963) has increased the tax rate from 7.5% to 15% on Net Capital Gain realized from sale of shares of stocks not traded in the exchanges if the shares were issued by domestic corporation. However, sale of shares that were issued by a RESIDENT FOREIGN CORPORATION or NON-RESIDENT FOREIGN CORPORATION, not listed in the exchanges THE TAX RATES OF 5% and 10% on net gain as provided in the Tax Code apply because this has not been amended. (NAKALIMUTAN ng Congress!)

23. X Corporation was found to be in possession of large sum of cash. When asked why its failed to distribute dividends to its stockholders, X argued that the corporation is saving its earned profits for additional working capital of the business. The tax examiner did not accept X’s arguments because X’s current assets is more than twice its liability, BIR imposed the Improperly accumulated Earnings Tax (IAET). Is the imposition valid? (Cyanamid Phils. Inc., vs. CIR, January 20, 2000) Answer. The arguments of X are not acceptable. Failure to distribute dividends to stockholders when there is more than enough cash to meet liabilities is not a valid reason to deny stockholders of their share in the surplus profit of the corporation. Thus, the imposition of the IAET is valid. (NOTE: The IAET applies only to domestic corporations.) 24. X is under tax investigation and the tax examiner noticed that his business records and accounts are incomplete. X’s tax liabilities cannot be ascertained because of the inadequacy and inaccurateness of his tax return. What remedy is available to the government under the given situation? (BIR vs. CA, GR No. 197590, November 24, 2014) Answer. The tax examiner can resort to all evidences or resources available to determine a taxpayer’s income and to use methods to reconstruct his income. The commonly used method is the EXPENDITURE METHOD of reconstructing a taxpayer’s income where taxpayer’s yearly aggregated expenditures is deducted from his yearly declared income. The theory of this method is that when the amount of the money that a taxpayer spends during a given year exceeds his reported or declared income and the source of such money is unexplained, it may be inferred that such expenditures represent unreported or undeclared income. 25. As required by law, when a debtor pays interest under a loan agreement it has to withhold the final withholding tax from the interest due the creditor. When is the final withholding tax due, is it payable upon execution of the loan agreement or from the payment of the interest? (Edison Bataan Cogenerating Corp. vs. CIR, April 30, 2017)

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Answer. As held in the above cited case, the SC ruled that the final withholding tax is reckoned and payable from the date of the first interest payment and not from the execution of the loan agreement. 26. X International Airline (with landing rights in the Philippines) sold in the Philippines airline tickets to passengers travelling to New Delhi, India. One day before the scheduled flight, the passengers were indorsed to another airline which airlifted the passengers from Manila to India. Is the 2.5 % Gross Philippine Billings Tax (GPBT) imposable under the given facts? Answer. No. The gross receipts arose from the sale of tickets covering on-line fights of other carriers. X who sold the tickets to the passengers did not personally transport them to their destination, but instead arranged that another air-carrier will carry the passengers to their destination. Such income is not subject to the 2.5% GPBT but shall be subject to the regular corporate income tax of 30%. 27. Most of the major cities in the entire archipelago were placed under general community quarantine (GCQ) by the government to address the wide spread of Covid 19. Prior to the lockdown, X, was a parttime businessman that regularly bought and sold goods to friends, relatives and to employees of offices. He has no store and does not purchase goods in bulk. He just carried the items for sale with him as he went around. Today, since X could no longer go out to sell his products, he decided to sell through the internet. If X comes to you and inquire whether or not his business activity (on-line selling) is taxable, what will be your most esteemed answer? Give the legal basis of your answer. Answer. I will tell X that he is subject to both income tax and business taxes. X is a self-employed businessman and therefore he is required to register with the BIR as such. His income from on-line selling is taxable under Section 32 of the Tax Code that provides: “gross income includes all income derived from whatever source which shall be taxable unless exempt under the law”. X shall likewise be subject to business taxes because he is regularly, habitually, and customarily engaged in a commercial activity.

On VAT: 28. Capital goods defined. Answer. Capital goods refer to (a) properties that has as estimated useful life of more than one (1) year, (b) they are treated as depreciable assets under Sec. 29 (f) and RR No. 7-95, and (c) they are used directly or indirectly in the production or sale of taxable goods. 29. What are the characteristics of the Value-added tax? Answer. (a) It is an indirect tax, (b) It is consumption based, (c) It is imposed on the value added in each stage of production and distribution process, and (d) It is collected through the “tax credit” method or the “invoice method.” 30. The motorists argued that imposing 12% VAT on toll fees is tax pyramiding (tax on top of a tax), which is illegal. Is the argument valid? (Diaz & Timbol vs. Sec. of Finance & CIR, July 19, 2011) Answer. The argument of the motorists that toll fee is a user’s tax and to impose VAT on toll fees is tantamount to taxing a tax is not correct. Fees paid by the public to toll way operators for use of the toll ways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private toll way operators as reimbursement for the costs and expenses incurred in the construction, maintenance, and operation of the toll ways, as well as to assure them a reasonable margin of income. Although the fees are charged for the use of public facilities, they are not government exactions that can be properly treated as tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership. VAT is assessed against the toll way operator’s gross receipts and not necessarily on the toll fees. Although the toll way operator may shift the VAT burden to the toll way user, it will not make the latter personally liable for the VAT. The shifted VAT simply becomes part of the toll fees that one must pay in order to use the toll ways. Hence, fees are VATABLE. 31. X, a non-profit, non-stock affiliate of Y Insurance Company organized by the latter to perform collection, consultative and other technical services, including functioning as an internal auditor of Y and its other affiliates. The BIR assessed X for deficiency VAT. X contends that the services it rendered to Y were on a “non-profit, reimbursement-of-cost-only” basis, that it was not engaged in the business of providing services to Y and its affiliates. X was established to ensure operational orderliness and administrative efficiency of Y and its affiliates, and not in the sale of services. Thus, since it was not engaged in business, it was not VATable. Is X’s contention valid? (CIR vs. CA & Commonwealth Management & Services Corp. March 30, 2000)

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Answer. The services of X to Y and its affiliates for a fee or consideration are subject to VAT. VAT is a tax on the value added by the performance of the service. It is immaterial whether profit is derived from rendering the service or not. The Tax Code provides that even a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods or services even in the absence of profit attributable thereto, provided the sale or performance of the services were made in the course of trade or business which requires that the regular conduct or pursuit of a commercial or an economic activity regardless of whether or not the entity is profitoriented. 32. The local branch of American Express is facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines on behalf of its Hong Kong based clients. Are the services of the local branch of American Express subject to VAT and other business taxes? (CIR vs. Am. Express, Int’l. Inc. (Phil. Branch) June 29, 2005) Answer. Yes, for the following reasons:    

It regularly renders in the Philippines the service of facilitating the collection and payment of receivables belonging to a foreign company that is clearly a separate and distinct entity; Such service is commercial in nature For such service, American Express is clearly paid consideration in foreign currency; It is not an entity exempt under any of our laws or international agreements.

33. X Corporation is registered with the PEZA engage in the manufacture of garments for sale abroad. X joins local trade fairs to show case its products and it made sales in those occasions. Is X subject to VAT on its sales during those occasions? (b) If X sells its used vehicle to its manager, is the sale VATable? (c) Is X VATable on its sales of garments to its employees? (CS Garments, Inc. vs. CIR, March 12, 2014) Answer. a) Sales in local trade fairs are considered ordinary sales and therefore are VATable. These sales are not included in the exemptions from VAT of a Zero-rate Sales of exporters. b) Sale of ordinary assets used in business is an incidental sale that is VATable. c) Sale of goods to one’s own employees is an ordinary sale covered by VAT. 

Sale “at cost” or “even at a loss” is VATABLE.



Sale on credit is VATABLE. Sale on consignment is VATABLE if after 60 days the goods are not yet returned to the seller.

34. Are the PEZA-registered businesses exempt from VAT? (Toshiba Information Equipment (Phils.), Inc. vs. CIR, March 9, 2010) Answer. Prior to the issuance by the BIR of RR No. 74-99, whether a PEZA-registered enterprise was exempt from VAT or subject to VAT depended on the type of fiscal incentive availed of by said enterprise. If the enterprise availed itself of 5% gross income taxation under RA 7916, it was exempt from VAT. If it availed itself of income tax holiday under the Omnibus Investments Code, it was subject to VAT. Today, upon issuance of RMC 74-99, the rule clearly established that following the CROSS-BORDER DOCTRINE, based on the fiction that ecozone are foreign territory, a sale by a supplier in the customs territory to a PEZA-registered enterprise is considered an export sale and therefore subject to zero-rated (0%) VAT. Such sale is referred to as “technical export”. 35. X is PEZA-Registered. Sometimes it engages in activities which are not registered with PEZA. Is income derived from unregistered activities of X taxable? (Sutherland Global Services, Phil. Inc. vs. CIR, CTA case No. 8180, January 13, 2014, CIR vs. First Sumiden Realty, Inc. CTA EB No. 975, January 7, 2014) Answer. The income tax exemption of a PEZA-Registered Enterprise applies only to income derived from its registered activities. When X engages in activities which are not registered with PEZA, the income or receipts derived from all its unregistered activities shall be subject to regular internal revenue tax, such as VAT. In such case, X is obliged to register as a VAT taxpayer and issue a VAT official receipt or invoice for every sale or transaction which is subject to VAT, Should X use its VAT official receipt or invoice to evidence its VAT exempt sale, the words “VAT Exempt Sale” must be prominently printed on the VAT official receipts/invoice as failure to do so make it liable to account for the VAT as if the sale is not VAT exempt.

 Sale of fixed assets used in PEZA-Registered activities is subject to ordinary income tax. (BIR Ruling 2912012, April 25, 2012)  Enterprises registered with PEZA, BOI and BOI-ARMM is NOW subject to ordinary tax investigation following the revocation of MOA with PEZA, BOI and BOI-ARMM. (RR No. 14-2012, April 2, 2012)

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36. X is a VAT registered taxpayer. Its business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to NAPOCOR. In the course of X’s business, it bought and eventually sold a Nissan Patrol to NAPOCOR. The BIR assessed VAT on the sale of the motor vehicle. X contends that the sale is an isolated transaction and not a transaction done “in the course of trade or business” hence it is not VATable. Is X correct? (Mindanao II Geothermal Partnership vs. CIR, March 11, 2013) Answer. While the sale of the vehicle is an isolated transaction, it does not follow that an isolated transaction cannot be an incidental transaction for purposes of the VAT liability of the seller. Sec. 105, NIRC would show that a transaction “in the course of trade or business” includes “transactions incidental thereto.” Prior to the sale, the Nissan Patrol was part of X’s property, plant, and equipment. Therefore, the sale is an incidental transaction made in the course of X’s business that is VATABLE. 37. X is a VAT-registered taxpayer. It is a GOCC now undergoing privatization. Many of its properties are sold to interested private buyers. Is the sale of its assets subject to VAT? (Mindanao II Geothermal Partnership vs. CIR, March 11, 2013) Answer. The sale of X’s assets is not subject to VAT because they are not in pursuit of a commercial or economic activity or sale “in the course of business or trade” but a governmental function mandated by law for its privatization. 38. The privatization of NDC has been ordered by the government. Is the sale of NDC’s vessels to Magsaysay Lines, Inc. subject to VAT? (CIR vs. Magsaysay Lines, July 26. 2006) Answer. The sale is not VATABLE since it was not in the course of trade or business, as it was involuntary and made pursuant to the government’s policy of privatization. After the sale, X could no longer continue with this business operation and activities. 39. X is engaged in lease subsequently decided to sell the property leased. Is the sale VATable? Answer. The regular conduct or pursuit of a commercial or economic activity including transactions incident thereto, by any person regardless of whether or not the person engage therein is non-stock, non-profit private organization (regardless of the disposition of the income) and whether or not it sells exclusively to members or their guests or government entity is VATable. NOTE: If the sale conducted is in the pursuit of a commercial activity resulted to a loss, the sale is still VATable. 40. PSALM was created as a GOCC to take ownership of all the existing generation assets, independent power producer contracts, real estate, and all other disposable assets of NPC and to assume all liabilities and obligations of NPC. PSALM shall primarily manage the orderly sale, disposition and privatization of NPC generation assets and other real properties with the objective of liquidating NPC’s financial obligations and stranded contract costs and debts. (a) PSALM sold NPC’s generation assets and other real properties to winning bidders, is the sale subject to income tax and withholding taxes? (b) Prior to PSALM’s takeover of NPC, the later has rental income from its generation assets and other real property, is the rent income subject to income tax and VAT? (c) Prior to NPC’s privatization it had income derived from sale of electric power, is the income subject to the regular corporate income tax? Answer. (a) The sale of NPC’s generation assets and other real properties to winning bidders is not subject to income and withholding taxes because it was not done in the ordinary course of business, but was an activity involuntarily pursued in relation the mandate of law to privatized NPC. (b) Yes, the rental income of NPC from lease of its generation assets and other real properties prior to the sale of its assets and real properties is subject to income tax and VAT. (c) Yes, NPC’s income derived from the sale of electric power prior to the privatization of its assets shall be subject to the regular corporate income tax. 41. X is a service provider to entities doing businesses in the Philippines. Some of its customers are branches of foreign corporations licensed to do business in the Philippines. The payment of X’s services to these foreign branches were sent from abroad by their head offices to X thru inward remittances in foreign currency Are the services of X under the given facts subject to 12% VAT? (Accenture, Inc. vs. CIR, July 11, 2012) Answer. If the provider and recipient of services are both doing business in the Philippines, the payment of foreign currency in irrelevant. The transaction is subject to the regular 12% VAT. 42. X Corporation is engaged in recruiting qualified and skilled workers from the custom’s territory for jobs placement within the Freeport Economic Zone (FEZ). X’s services were hired by many PEZA-registered corporations. The BIR assessed X of deficiency 12% VAT. However, X insisted that it is subject to the 0% VAT. The BIR contends that the services of X scouting qualified people were done in the Philippines

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and therefore subject to the 12% VAT. Is the BIR correct? (ZMG Ward Howell, Inc. vs. CIR, September 18, 2017) Answer. NO. The BIR is not correct. Sec. 108 (B3) provides that:” Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate.” Business that are PEZA registered and operating inside the FEZ enjoy preferential tax treatment and/or tax exemption. Therefore, X should be subject to the 0% VAT and not to the 12%. 43. What kind of business transactions will allow refund of unutilized input taxes? [Panasonic Communications Imaging Corp. of the Phils. vs. CIR, GR No. 178090, February 8, 2010] Answer. (a) Zero rated sales of VAT-registered exporters, (b) Effectively zero-rated sales of domestic VATregistered businessmen and (c) those input taxes that were absorbed from the acquisition of capital goods by VAT-registered businessmen. 44. When may input tax be credited against output tax in a domestic sale subject to 12% VAT? Answer. Any input tax on the purchase or importation of goods a) For sale or for conversion into or intended to form part of a finished product for sale or for use in the course of business, or b) For use as supplies in the course of business, or c) For use as materials supplied in the sale of service, or d) For use in trade or business for which deduction for depreciation is allowed under the VAT law except automobiles, aircrafts, and yacht; e) Sale of tax-exempt products domestically by the PIONEER industries registered under BOI as of August 1, 1986 to VAT-registered person, the VAT otherwise due on such products shall also be considered as input tax creditable against the output tax payable; f) Purchase of real properties for which a VAT has actually been paid; g) Purchase for services for which a VAT has actually been paid; h) Transactions “deemed” sale; i) Presumptive input tax; and j) Service performed by a VAT-registered person shall be credited against the output tax payable by the VAT-registered person, provided the invoice or receipt was issued therefore by a VAT-registered person in a manner prescribed under the VAT law. NOTE: A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed input tax credit as follows: (a) Total input tax which can be directly attributed to transactions subject to VAT, and (b) a ratable portion of any input tax which cannot be directly attributed to either activity. 45. An excise tax is an indirect tax like the VAT. The burden of taxation can be shifted to another person. Excise taxes are taxes on certain goods whether (a) locally manufactured or produced in the Philippines for domestic consumption or for any other disposition and (b) to things imported. X bought excisable goods from the manufacturers and importers. The excise taxes were passed on to it by the sellers. Thereafter it sought the refund of the taxes shifted to it contending that it should not be liable because it is not the manufacturer or the importer of the goods. The BIR denied the claim. Is the denial valid? (Diageo Phils., Inc. vs. CIR, November 12, 2012) Answer. Yes, the denial is legal. When indirect taxes are passed on to the buyer it is no longer in the nature or considered a tax but the same forms part of the purchase price of the goods sold or services rendered. X cannot claim the refund or credit of excise taxes because this is different from the unutilized creditable input taxes that businessmen claims under the VAT law particularly in cases of automatic zero-rated sale or effectively zerorated sales. NOTE: In the event that there is an invalid payment of an indirect tax, the claimant is the payor even if the burden of taxation has been shifted to another person. 46. The decision of the SC in the case of CIR vs. Pilipinas Shell Petroleum Corp., April 25, 2012 that the excise tax imposed on petroleum products is the direct liability of the manufacturer, hence, it cannot shift the excise taxes it paid to international carriers buying its petroleum products because the latter are exempt from excise taxes. Manufacturers are not entitled to claim tax refund. The SC recently reexamined said ruling and in the latest case of CIR vs. Pilipinas Shell Petroleum Corp., February 19, 2014, The SC granted the petroleum manufacturer’s claim for refund or tax credit of excise taxes on petroleum sold to international carriers exempt from excise taxes on petroleum products giving primary consideration to its broad implication on the country’s commitment to international agreement. [CIR vs. Acecite (Phils.) Hotel Corporation, February 16, 2007] 47. X Corporation enjoys blanket tax exemption under PD 1869 (the Charter creating PAGCOR). X rents a building from Y where it operates its casino activities. Y passes to X the VAT on lease as required by law. X refused to pay invoking its blanket tax exemption. Y paid the subject taxes for fear of the legal

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consequences of non-payment of the tax to the BIR. Thereafter, albeit belatedly Y realized it should not have paid because the transactions it had with X is subject to “zero rate” VAT. Immediately, Y filed an administrative claim for tax refund with the CIR, but the latter failed to resolve in favor of Y. Is the implied denial (inaction) of the CIR on Y’s claim for refund valid? Reason. Answer. The blanket tax exemption of X under PD 1869 applies to both direct and indirect taxes which extend to entities and individuals dealing with it in its casino operations. Considering that Y paid the tax under a mistake of fact and was not aware at the time of payment that the transactions it has with X is “zero-rated”, the invalid payment can be recovered or refunded. The principle of solutio indebeti” applies to the Government as well, the basis thereto is grounded upon the right of recovery of money paid through misapprehensions of facts belongs in equity and in good conscience to the person who paid it and the government cannot enrich itself at the expense of another. 48. Distinguish transitional input tax from creditable input (unutilized) tax: (Fort Bonifacio Development Corporation vs. CIR, etc., January 22, 2013) Answer. Transitional input tax credits are input taxes on a taxpayer’s beginning inventory of goods, materials and supplies equivalent to 8% (for real estate dealers but for sales of goods and services it is 2%) or the actual VAT paid on such goods, materials and supplies, whichever is higher. It may only be availed of once by firsttime VAT taxpayers. On the other hand, creditable input taxes are input taxes of VAT taxpayers in the course of their trade or business, which should be applied within 2 years after the close of the taxable quarter when the sales were made. 49. What the requisites for a valid claim of unutilized input tax credit? Answer. a) The taxpayer-claimant must be a vat registered taxpayer b) He is engaged in sales which are zero-rated or effectively zero-rated; c) The claim is filed within 2 years after the close of the taxable quarter when such sales were made, and d) The creditable input VAT due or paid must be attributable to such sales, except the transitional input VAT, to the extent that such input tax has not been applied against the output VAT. An application for tax refund or credit must be accompanied by copies of the taxpayer’s VAT return(s) for taxable quarter(s) concerned showing that the claimant is entitled to the refund or credit of input VAT and the same has not been applied against its output VAT-liabilities. (Atlas Consolidated Mining and Development Corp., vs. CIR, January 26, 2011) 50. X filed its claim for unutilized input taxes. The BIR denied the claim for failure of X to submit complete documents in support of said administrative claim. X filed a judicial claim before the CTA within 30 days from receipt of the denial. Will his appeal prosper? (Ayala Corp. vs. CIR, CTA case No. 8262, March 21, 201) Answer. Failure to submit complete documents in support of taxpayer’s administrative claim for refund of unutilized input tax is NOT FATAL to judicial claim. Judicial claims before the CTA seasonably filed are litigated DE NOVO and decided based on what has been presented and formally offered by parties during the trial. When a taxpayer’s claim reaches the judicial level or when claim is elevated to CTA, the Rules of Court and the Revised CTA Rules govern the matter of proving the claim. 51. Procedures in claiming for the unutilized creditable input VAT. (Nippon Express (Phils.) Corp., vs. CIR, March 13, 2013) Answer. a) An administrative claim (before the CIR) must be filed within 2 years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made, b) The CIR has 90 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant the credit or issue a tax credit certificate. c) If the 90-day period expires without any decision of the CIR, such inaction may be considered an implied denial of the claim, d) A judicial claim with the CTA must be filed within 30 days from receipt of a denial of said claim or from the expiry of the 90-day period without a decision from the CIR. NOTE: The Doctrine of the Twin Prescriptive Period for invalid payments under Sec. 229, NIRC and RA 1125, DOES NOT APPLY TO AN APPEAL BEFORE THE CTA INVOLVING CLAIMS FOR UNUTILIZED INPUT TAXES. 52. WHAT ARE THE RULES ON DETERMINING THE PRESCRIPTIVE PERIOD FOR CLAIMING A REFUND OR CREDIT OF UNUTILIZED INPUT TAX? (S 112D)

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Answer. a) The administrative claim (before the CIR) must be filed within the two-year period prescriptive period (Aichi Doctrine) b) The proper reckoning date for the 2-year prescriptive period is the close of the taxable quarter when the relevant sales were made (San Roque Doctrine) The taxpayer can file a judicial claim (before the CTA) in two ways: (a) file within 30 days after CIR denies the administrative claim within the 90 days resolution time or (b) file a judicial claim within 30 days from the expiration of the 90-day period if CIR does not act within the 120-day period. Taxpayer MUST wait for a resolution of his administrative claim within 90 days from submission of complete documents in support of his claim before he can appeal before the CTA or in case of CIR’s inaction, taxpayer can appeal within 30 days from lapsed of the 90-day without a resolution on his claim. A judicial claim with the CTA without a decision of the CIR filed before the lapse of the 90-day period is premature whereas, a judicial claim filed after the lapsed of the 30-day with the CTA when there is inaction is a claim filed out of time. (CIR vs. Silicon Phils., Inc. March 12, 2014) F

The 30-day period always applies whether there is a denial or inaction on the part of the CIR.

F

As a rule, the 30-day period of appeal is both mandatory and jurisdictional. (Aichi and San Roque)

F

Doctrine of the Twin Prescriptive period does not apply to a claim for unutilized input taxes but to a claim for tax refund or credit under an invalid payment.

NOTE: The above rules do not apply to EPZA-REGISTERED ENTITIES because they are exempt from the enforcement of Customs Laws and other Rules and Regulations, such as the prescriptive periods and/or procedural requirements of the Tariff and Customs Code of the Philippines to a refund claim are not applicable. (Phil. Associated Smelting & Refining (PASAR) Corp. vs. Comm. Of Customs and Bureau of Customs, CTA case No. 8404, February 20, 2014) NOTE: Under the Tax Code the 120-day period given to the CIR to resolved taxpayer’s claim for refund of unutilized input taxes has been reduced to 90 days only and there is no more implied denial of an administrative claim within the said period. Which means that the taxpayer must wait for a decision of the CIR or the revenue officers before he is allowed to go to the CTA to pursue his judicial claim. The tax examiners assigned to review the validity of taxpayer’s claim must resolve the claim within 90 days otherwise they may be sanctioned either administratively or criminally. 53. X, a VAT-registered businessman is engaged in export activities. He has unutilized input VAT payments not otherwise used for any internal revenue tax. What is the prescriptive period within which he must claim the input tax credit? [CIR vs. Mirant Pagbilao Corp., 565 SCRA 154 (2008)] Answer. The unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two (2) years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. Hence, the reckoning frame would always be the end of the quarter when the pertinent sales or transactions was made, regardless of when the input VAT was paid. (S112B) 54. Distinguish the 2-year period under Sec. 229 and the 2-year period under Sec. 112(D): 2-year Period under Secs. 204(C) and 229, NIRC Applies to invalid payment of IR Taxes invalid payments such as: overpayment, illegal payment, erroneous payment, or penalties imposed without authority. The reckoning point of the 2-year period depends on the classification of the taxpayer, the particular tax paid and the mode of payment made. The appeal to the CTA must be perfected within the 2year period of claim. An appeal to the CTA beyond the 2-year period is time-barred Doctrine of Twin Prescriptive period is applicable No period is given to the CIR to resolved taxpayers claim

2-year Period under Sec. 112(D), NIRC Applies to a claim for unutilized input taxes under 0% VAT (2) years period is reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. Taxpayer can appeal to the CTA even outside of the 2-year period of claim Doctrine of Twin Prescriptive period is NOT applicable CIR is given 90 days from submission of complete documents to resolve taxpayer claim

55. Is there a distinction between an (a) administrative case appealed to the CTA Division due to CIR’s inaction and (b) that which was dismissed by the CIR at the administrative level due to the failure of the

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taxpayer to submit documents in support of his claim for tax refund of unutilized input taxes under the 0% VAT? Dismissal due to Inaction When taxpayer goes on appeal to the CTA it is imperative for him to show that there was an unsuccessful administrative claim notwithstanding that fact that within the prescriptive period he has filed complete documents in support of his claim for tax refund/credit but his claim was not acted upon by the CIR.

Dismissal due to Insufficiency of Documents Judicial claim before the CTA would be dismissible not for lack of jurisdiction but for the taxpayer’s failure to substantiate the claim at the administrative level. The taxpayer’s appeal was timely filed and therefore CTA acquired jurisdiction of the appeal, but it must dismiss the case for insufficiency of evidences.

56. (a) The CIR is given 90 days to resolve a claim for unutilized input taxes. Where is the reckoning point of the 90-day period? (CIR vs. CE Casecnan Water and Energy Co., CTA En Banc case No. 971, January 7, 2014) Answer. The 90 day-day period is reckoned from the submission of the “complete documents” necessary to support the application for tax credit as determined by the taxpayer. Should the taxpayer decide to submit only certain documents, or should the taxpayer fail, or opted not to submit any document at all, in support of its application for refund or tax credit certificate under Sec. 112, NIRC, it is reasonable to conclude that the reckoning date of the 90-day period thereunder, should be reckoned from the filing of the said application. (b) X exported his goods on September 22, 2010. On January 24, 2012 it filed an administrative claim for unutilized input taxes and on March 16, 2012 X submitted complete documents to the BIR in support of the claim. Where is the reckoning period of the 90-day for the CIR to act on the claim? (CE Cebu Geothermal Power Co., Inc. vs. CIR, CTA case No. 7740, September 2, 2011) Answer. The administrative claim was filed on September 22, 2010 and the complete documents in support of such claim were filed only on March 16, 2012. The Court held that the CIR had 90-day period from the latter date, or until June 16, 2012 within which to decide the claim. 57. Under the VAT law, the CTA does not acquire jurisdiction over a judicial claim for unutilized input taxes in zero-rated sales that is filed before the expiration of the 90-day period because the 90+30-day periods are mandatory and jurisdictional. What are the exceptions to this rule? (CIR vs. San Roque Power Corp/ Taganito Mining Corp vs. CIR/ Philex Mining Corp. vs. CIR, February 12, 2013) Answer. Under the doctrine of equitable promissory estoppel, such as (a) if the CIR, through specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer and (b) where the CIR, through a general interpretative rule issued under Sec. 4 of the NIRC, misleads the taxpayer into filing prematurely judicial claims with the CTA. In these cases, the CIR cannot be allowed to later on question the CTA’s assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Sec. 246 of the NIRC. Taxpayers should not be prejudiced by an erroneous interpretation by the CIR, particularly on a difficult question of law. BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, NOT by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits. 58. What is the prescriptive period to claim for a refund of taxes of an enterprise duly registered under the EPZA Law? (Commissioner of Customs vs. Phil. Phosphate Fertilizer Corp., September 1, 2004). Answer. The EPZA Law itself is silent on the matter, and the prescriptive periods under the TCC and other revenue laws are inapplicable by specific mandate of Sec 17(1) of the EPZA Law. This does not mean however, that the prescriptive period will not lie. The provisions on solutio indebiti of the Civil Code may find application. solutio indebitii is a quasi-contract, thus the claim for refund must be commenced within six (6) years from date of payment pursuant to Art. 1145(2) of the New Civil Code. (This is an isolated exemption to the 2-year prescriptive period for refund under the Tax Code) 59. X ceased business operations effective December 31, 2016. On July 1, 2017, it filed an Application for Registration Update with the BIR (Notice of Dissolution). On July 7, 2017, it filed an administrative claim for issuance of a Tax Credit Certificate (TCC) of its unutilized input VAT with the BIR. The BIR denied the claim for being premature. Is the denial correct? Answer. The administrative claim for issuance of TCC is prematurely filed since the effectivity date of X’s formal cessation of business is reckoned from the first day of the following month, or on August 1, 2017, where the application for Registration Update was filed on July 1, 2017. (Associated Swedish Steels Phils., Inc. vs. CIR, CTA EB case No. 854, August 23, 2012) 60. Who are the customers or recipient of services under a “Zero-Rated Sales” for VAT purposes? (Accenture, Inc. vs. CIR, July 11, 2011)

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Answer. It is not enough that the recipient of the services be proven to be a foreign corporation doing business outside of the Philippines; it must be specifically proven that the recipient of services must be a non-resident foreign corporation as well. 61. X is a domestic corporation operating a “call center.” The recipients of its services are entities doing business outside of the Philippines. X is VAT registered taxpayer and its transactions with the nonresident foreign corporations abroad for services rendered were paid in foreign currency inwardly remitted to X. Is the sale a zero-rated transaction? Can X claim for tax credit on its unutilized input taxes? (Accenture, Inc. vs. CIR, July 11, 2012) Answer. Yes, the sale is zero-rated sales. It is allowed to claim unutilized input tax credit. 62. X is a VAT registered corporation engaged in export activities. It seeks from the BIR the refund of its unutilized input taxes. All necessary documents in support of its claim were attached to the application for tax credit. Upon verification and investigation, the BIR denied the claim for reason that X’s sales invoices failed to reflect the authority of print (ATP) said receipt. X contends that there is no such requirement provided under the Tax Code. Is the denial of the BIR on that basis valid? (Silicon Phils., Inc. vs. CIR, January 17, 2011) Answer. The denial has no legal basis. X is correct – there is no law or regulation requiring it to reflect the ATP in its sales invoices. In the absence of such law or regulation or failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. The BIR can simply verify whether the invoices or receipts are duly registered by requiring the claimant to present the ATP from the BIR. What is required under the Tax Code is the printing of the words “Zero-Rated Sale” in the sales invoices and without these words pre-printed in the sales invoices is fatal to a claim for unutilized input taxes under the 0% VAT. In the case of Philex Mining Corp. vs. CIR, CTA case No. 8371, April 15, 2014, the court held that there is no law or regulation requiring it, failure to print the ATP on invoices or receipts should not result in outright denial of a claim or the invalidation of invoices or receipts for purposes of claiming a refund. The BIR can just require the taxpayer to produce its permit to print sales invoices or receipts to check whether the authority exists. 63. X is a VAT registered taxpayer. It is engaged in export activities. The goods it produced were actually exported abroad on August 24, 2012. All receipts and documents relative to the export are intact and available. Thereafter, X applied for the refund of its unutilized creditable input taxes. The BIR disallowed the claim for reason that the sales receipts of X did not indicate that the transaction was a “Zero-rated Sales.” X contends that such requirement is not provided under the Tax Code. Is the BIR’s disallowance valid? (Hitachi Global Technologies Phils., Corp. vs. CIR, October 10, 2010, Eastern Telecommunication Phils., Inc. vs. CIR, August 12, 2012, Microsoft Phils., Inc., vs. CIR, April 7, 2011) Answer. While it is true that the requirement to print the word zero-rated sales in the sale invoices is required in support of a claim for tax refund, this was not in the Tax Code prior to the enactment of RA 9337 but it was in a Revenue Regulation. Rev. Regulations are part and parcel of our tax laws and they have the force and effect of our tax laws. Thus, the need for taxpayers engaged in export activities to indicate in their receipts and invoices that fact that the sale is “zero-rated” is mandatory. Failure to comply will warrant the disallowance for any claim for credit of unutilized input taxes. Sec. 244 of the Tax Code explicitly grants the Sec. of Finance the authority to promulgate the necessary rules and regulations for the effective enforcement of the provisions of the Tax Code. The invoicing requirements he set under RR No. 7-95 was subsequently integrated with Sec. 113 of the NIRC when RA 9337 was adopted.. Hence, BIR is correct. The SC ruled that the printing of the word “zero-rated” is required to be placed on VAT invoices covering the zero-rated sales in order to be entitled to claim for tax credit or refund. This requirement prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually paid. Absent of such word, the government may be refunding taxes it did not collect. (Microsoft Phils., Inc., vs. CIR, April 6, 2011, Panasonic vs. CIR) 64. X is a VAT-registered businessman engage in export activities. X filed a claim for tax credit of his unutilized input taxes within the reglamentary period. X has submitted all documents in support of said claim. CIR denied his claim for reason that the word “Zero-Rated Sales” is not duly imprinted in X’s sales invoices and receipts but was merely rubber-stamped in violation of the invoicing requiring under the VAT law. Is the denial valid? (Phil. Gold Processing & Refining Corp. vs. CIR, December 12, 2017, Toledo Power, Inc. vs. CIR, January 20, 2014) Answer. The words “Zero-Rated Sales” although merely stamped and not pre-printed in the sales invoices and receipts constitutes sufficient compliance with law. Since the imprinting of the words “ZRS” was required merely to distinguish sales subject to 12% VAT from those that are subject to 0% VAT and exempt sales, to enable the BIR to properly implement and enforce the other VAT provisions of the Tax Code. The CIR should not literally interpret the provisions of the Tax Code to the extent of denial of taxpayer’s right when the later has proven compliance to all requisites of law. 65. X Corporation is engaged in export activities subject to 0% VAT. X’s claim for tax refund of its unutilized

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input taxes were denied because some of the invoices it presented contain alterations, insertions and/or erasures. Is the denial valid? (Coral Bay Nickel Corp. vs. CIR, June 29, 2016) Answer. The outright denial of the claim is not correct. For as long as the alterations, erasures or insertions in the sales invoices were countersigned by the issuer or supplier and there are proof of the authority of the person signing the same the denial is misplaced. 66. X is covered by the Zero (0%) Rated VAT. As of the last day of the third quarter of 2010 it has unutilized input taxes. On September 1, 2012 it filed a claim for tax credit. Together with the application X has submitted all documents and proof of its entitlement thereto. Within 30 days from the expiration of the 2year prescriptive period to claim X filed a judicial claim before the CTA contending that the inaction/silence of the CIR is an implied denial of its claim. BIR argues that the judicial claim is time barred having been filed beyond the 2-year period to claim and moved for the dismissal of the petition for review. Is the tax official correct? (CIR vs. Mindanao II Geothermal Partnership, January 15, 2014) Answer. In a claim for refund for unutilized input VAT, only the administrative claim (before the CIR) must be filed within the 2-year prescriptive period, which begins to run from the close of the taxable quarter when relevant sales were made. However, the claim for unutilized input taxes is different from the claim for refund/credit of an invalid payment under S229 of the Tax Code. In the former, after an administrative claim of the taxpayer, the CIR is given a 90-day period to resolve the validity of the claim. If CIR denies the claim within said period the taxpayer can file a judicial claim before the CTA within 30 days from receipt of the denial or in case there is inaction and the 90-day period has expired without resolution on the claim, the taxpayer may within 30 days from expiration of the 90-day period to resolve, file a judicial claim with the CTA. The 90 + 30 days periods are mandatory. NOTE: This case was decided before the TRAIN Law of 2018. The Tax Code provided for 120 days for the tax officers to resolve the validity of taxpayer’s claim and in case of inaction, the taxpayer must wait for a resolution before he is allowed to appeal to the CTA. 67. X Company is engaged in selling local and imported books. As a seller X is required to withhold the expanded final VAT when it pays suppliers and remits the same to the BIR. Upon BIR’s tax audit it discovered that X had not been withholding taxes on the payment to foreign suppliers on imported books it purchased for sale. Thereafter, BIR enforces collection of the unremitted final withholding tax on VAT plus penalties. X strongly protested. Is the BIR correct? (Asia Books, Inc. vs. CIR, December 28, 2004) Answer. No. the BIR is not correct, the importation of books is not VATABLE as provided under Sec. 109 of the Tax Code. The withholding of taxes applies only to business activities or transactions within the country. X is exempt from VAT not because its gross sales the preceding year was below Php 3.0M but for reason that the nature of its business activity is expressly exempt from VAT.  In the case of TS Tech Phils., Inc. vs. CIR, April 6, 2016, the Supreme Court ruled that the 2% expanded withholding tax on payment to suppliers apply only to purchases from local and resident suppliers and not to payment made to foreign suppliers or on imported goods purchase abroad.

On the Power of the Commissioners under the Tax Code: 68. When is the decision of the Commissioners deemed final? Answer. When it constitutes the final action taken by him or his authorized deputies with respect to the taxpayer’s tax liability. (Oceanis Wireless Network) The following communications have been held as final decisions appealable to the CTA: a) An FDDA (Final Decision on Disputed Assessment) issued to the taxpayer which is inclusive of a Final Demand Letter. b) A letter which stated the result of the reinvestigation requested by the taxpayer and the consequent modification of the assessment; c) A letter which denied the taxpayer’s request for reconsideration or cancellation of the original assessment; d) A letter which contained a demand for the payment of previous assessments; e) A letter which notified the taxpayer of a revision of previous assessment f) A letter which gave warning that in the event the taxpayer failed to pay, the Commissioner would enforce the collection thereof by means of the remedies by law. 69. T disputed a final assessment notice within the prescriptive period of 30 days, and he had complied with the submission of documentary evidences in support of his disputes. The CIR failed to act within 180 days therefrom. T filed an appeal before the CTA within 30 days from the expiration of the 6-month period given to the CIR to act on the dispute. Can the CIR resolve T’s dispute now that there is already a pending appeal before the Tax Court in view of his inaction? (RCBC vs. CIR, June 16, 2006)

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Answer. Once the taxpayer appeals to the CTA within 30 days from inaction the CIR is automatically deprived of his jurisdiction on the protest otherwise the assessment will never reach finality resulting to non-collection of the assessed tax. The CIR instead should answer the appeal of the taxpayer. 70. (a) What is a Letter of Authority (LOA) for purposes of tax assessment? (b) Is this the same as Letter of Notice to the taxpayer? Answer. (a) This is a written authority addressed to a revenue officer assigned to perform assessment functions. It empowers or enables him to examine the books of accounts and other accounting and business records of a taxpayer for purpose of collecting the correct amount of tax. This authority is required before the examination of the taxpayer. It is valid for 30 days from date of issue and the tax examiner has 10 days from issuance to conduct his examination. (b) Letter of Notice (LN) to the taxpayer has the purpose of notifying the taxpayer that a discrepancy in his tax return is found based on the BIR’s RELIEF (Reconciliation of Listings for Enforcement) After the letter of notice is sent to the taxpayer, the revenue examiner is issued an LOA. Under the Tax Code, the LN is not a mandatory requirement of law and its non-issuance will not affect the validity of a tax examination or assessment. Under the TRAIN Law a Notice of Informal Conference (NIC) is mandatory without which no assessment is allowed. 71. The tax examiner sent the taxpayer a Letter of Notice (LC), inviting him to be at the office within 15 days from receipt thereof to answer some queries regarding his tax return. The taxpayer did not appear. After 2 months the CIR sent the taxpayer a formal assessment notice which was not disputed within the prescriptive period. Subsequently, the BIR filled a judicial collection in court enforcing the tax collection. The collection was filed within 5 years from assessment as required by law. Is the collection valid? Answer. The collection has no legal basis. When the taxpayer failed to appear before the BIR within 15 days from receipt of the Letter of Notice, the tax official should have sent him a Notice of Informal Conference (NIC) ordering the submission of his business records, books of accounts, tax returns among others within 30 days from receipt. Subsequently, the BIR should send a preliminary assessment notice (PAN) stating therein the facts and the law upon which the assessment is made. Without this mandatory requirement of NIC and PAN the tax collection is not valid because collection without a valid assessment is void. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigation. 72. X Petroleum Company is a BOI registered Company. In the course of its business operation it had accepted Tax Credit certificates (TCC) from customers buying its products. X used these TCC in payment of its IR taxes to the BIR. Several months thereafter, BIR discovered that some of the TCC’s were fictitious. The BIR immediately cancelled the TCC and issued collection letters to X contending that X has unpaid deficiency taxes because the TCCs were disallowed. BIR sent X demand letters and then enforced collection. Is the collection valid? (CIR vs. Pilipinas Shell Petroleum Corp. July 9, 2018) Answer. The collection being enforced by the BIR is void because there was no prior assessment made on the alleged tax deficiency of X. X was not given an opportunity to dispute the assessment and this fact violates its right to due process. 73. X is a businessman operating in the City of Manila. In 2017 he transferred his business to Legaspi City, Bicol. He did not give notice of his relocation to the BIR having jurisdiction over his former legal place of business in violation of Sec. 11, RR No. 12-85. What is the tax implication of his failure to inform the BIR of his new address? Granting that the BIR sent X an assessment notice at his old address will that notice bind the taxpayer? (CIR vs. BASF Coating + Inks Phils., Inc. November 26, 2014) Answer. The running of the Statute of Limitation provided under Secs. 203 and 222 shall be suspended when the taxpayer cannot be located in the address given by him in his tax return upon which a tax is being assessed or collected. The failure of the taxpayer to inform the BIR of his new business address in case of relocation is fatal to him because he will be bound by the assessment notice that was sent to his old address. EXCEPTION: The absence of formal written notice of change of address will not suspend the 3-year period to assess if the CIR is aware of the taxpayer’s whereabouts. 74. X validly disputed a final assessment within the prescriptive period. The CIR issued a Final Decision on Disputed Assessment (FDDA) denying X’s dispute. Within 30 days from receipt of said denial, X appealed to the CTA En Banc, questioning the denial. Will appeal prosper? Reason. Answer. The CIR’s denial should be the subject of a petition for review before the CTA in Division. Said petition should be filed within 30 days from receipt of the denial. An appeal brought directly to the CTA En Banc is dismissible for lack of jurisdiction. X should have filed his petition for review first with the CTA Division, and file with the same division a Motion for Reconsideration should his petition be denied before proceeding to CTA En Banc. It is the denial of the MR that is reviewable by the CTA En Banc and not the decision of the CTA Division.

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75. The BIR went to the business establishment of TP to serve him the Notice of Informal Conference. Since TP was not around the tax examiners left the NIC with an employee in the store and requested her to give it to TP. Two (2) months thereafter, the same tax examiners went back to the store to personally serve TP with the Preliminary assessment notice. Again, TP was not at his business address, so the PAN was left with the cashier seated by the cash registry machine with the request to give it to TP. TP never responded or disputed the assessment notice. Thereafter, the CIR issued a warrant of Distraint and Levy against TP to enforce collection. Is the warrant enforcing collection valid? (Mannasoft Technology vs. CIR, January 13, 2017) Answer. Both the NIC and PAN of the BIR were served to the wrong persons. These notices must be served personally to TP or to his authorized representative or by registered mail. Under the facts stated above, the notices (NIC and PAN) were left with employees who were not proven to be duly authorized by TP and there is no mention that the FAN/FDL which are mandatory before any collection is pursued were served personally to TP. Therefore, the warrant enforcing collection has no legal basis and should be dismissed because the NIC and PAN will not ripen to a collection case. 76. In the exercise of his quasi-legislative functions, the CIR issued a Revenue Regulation with the approval of the Sec. of Finance (SF). X believes that the Rev. Regulation is unconstitutional and therefore not valid. Where should X question the constitutionality or validity of the RR? Answer. X should subject the Revenue Regulation (RR) to a Request for Ruling Review before the SF. If the SF would rule that RR is valid X may question the constitutionality of validity of the Rev. Regulation before the Regular Court and not before the CTA. 77. CIR filed a criminal case against X for tax fraud. In the complaint CIR prayed for the settlement of X’s liability in case he is proven guilty. Is a deficiency assessment necessary in a criminal case? (BIR vs. CA, GR No. 197590, November 24, 2014) Answer. The general rule is that an assessment is not necessary before criminal charges can be filed. A criminal charge need only be supported by prima facie showing of failure to file a required return. Sec. 222 of the Tax Code specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return, a proceeding in court may be commenced without an assessment. Likewise, Sec. 205 of the Tax Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. As held in the case of Ungab tax protest could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. The CIR has, in such tax evasion cases, the discretion on whether to issue an assessment, or to file a criminal case against the taxpayer. Under the given facts, since the CIR prays for the tax payment then the computation (assessment) of X’s tax liability must be included in the criminal complaint. The tax due must first be proved before one can be prosecuted for tax evasion. 78. X is a well know actors and actress’s manager. He has regular ads on the newspaper promoting his recruitment agency. When BIR investigated, it found out that X had not been filing income tax returns and paying taxes. BIR used the Third-Party Rule and gathered evidences from the LTO, Reg. of Deeds, DFA, BSP and local government agencies. When they had enough data and evidences, the BIR filed a criminal case for tax evasion against X. In the same case, BIR was enforcing collection of X’s civil liability for deficiency IR taxes and penalties. Is collection under the given facts valid? (People vs. Joel Mendez, December 7, 2017) Answer. The collection is void for reason that there was no assessment made by the BIR. No assessment notices were sent to X informing him of his tax liability nor was he given an opportunity to dispute the assessment. While it is ruled that assessment is not necessary to pursue a criminal case for violation of the Tax Code, the enforcement of a taxpayer’s civil liability must be preceded by a valid assessment informing the taxpayer of his tax liability for collection could proceed. 79. What is a compromise penalty? Answer. A taxpayer’s criminal liability from his violation of the pertinent provisions of the Tax Code may be settled extra-judicially instead of the BIR instituting a criminal action in court against the taxpayer. It is now a well settled doctrine that compromise penalty cannot be imposed or collected without the agreement and conformity of the taxpayer. (CIR vs. UST, November 28, 1958, Wander Mechanical Engineering Corp. vs. CTA, et. al., 64 SCRA 555, CIR vs. Saturn Holdings Corp., April 4, 2019). If an offer of compromise by the BIR is rejected by the taxpayer, the CIR should file a criminal action if it believes that the taxpayer is criminally liable for violation of the tax law as the only way to enforce a penalty. Thus, compromise penalty is in lieu of a criminal prosecution. As penalty, it can be imposed only on a finding of criminal liability. (CIR vs. Abad, 23 SCRA 1132) 80. Cite examples of acts of the CIR that may be considered as denial of the taxpayer’s protest? Answer.

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a) Final demand letter reiterating to the taxpayer the CIR’s demand to pay an assessment in lieu of an answer to the protest. (CIR vs. Ayala Securities, 70 SCRA 204, Surigao Electric vs. CTA, 57 SCRA 523, Allied Bank vs. CIR, February 5, 2010) b) Filing of a civil suit for collection of the deficiency tax in lieu of an answer to taxpayer’s protest. (CIR vs. Union Shopping, May 21, 1990) c) The issuance of a warrant of distraint and levy in lieu of an answer to taxpayer’s protest. (CIR vs. Union Shopping, May 21, 1990) d) Final notice before seizure to taxpayer in lieu of an answer to the protest. (CIR vs. Isabela Cultural Corp., July 11, 2001)

ON ASSESSMENT AND COLLECTION 81. (A) The examination of the books of accounts of PASCOR by the tax officials resulted to a recommendation for the issuance of an assessment. However, instead of issuing an assessment to PASCOR, the CIR filed a criminal complaint against it, alleging evasion of taxes. PASCOR filed a request for reconsideration, which the CIR denied on the ground that no formal assessment has yet been issued. PASCOR elevated the decision of the CIR to the CTA. The CIR filed a Motion to dismiss the petition on the ground that the CTA has no jurisdiction over the subject matter as there was no formal assessment issued against the petitioners. The CTA dismissed the motion, which was upheld by the CA in a petition filed by the CIR. 1. What constitutes an assessment? 2. Can an affidavit containing the computation of the taxpayer’s tax liability and attached to a criminal complaint for tax evasion be construed as an assessment? 3. Is an assessment needed before the filing of a criminal complaint for tax evasion? Answer. (1) An assessment is a formal notice to the taxpayer stating that the amount thereon is due as a tax and it also contains a demand for the payment thereof within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. (2) No. The affidavit merely contained a computation of respondent’s tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. The purpose of the Affidavit was merely to support and substantiate the criminal complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondent for payment thereof. (3) No. An assessment is NOT necessary before criminal charges can be filed. A criminal charge need only be supported by prima facie showing of failure to file a required return. Sec. 222 of the Tax Code specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return, a proceeding in court may be commenced without an assessment. Furthermore, Sec. 205 clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. As held in the Ungab case, tax protests could not stop or suspend the criminal action, which was independent of the resolution of the protest in the CTA. The CIR has, in such tax evasion cases, the discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both. 82. Who are the “duly authorized representatives” of the CIR who can issue PAN, FAN, Formal demand letter for tax payments (FLD) and final decision on disputed assessment (FDDA)? Answer. The “duly authorized representatives” refers to (1) Revenue Regional Directors, (2) Assistant Commissioner - Large Taxpayers Service, and (3) Assistant Commissioner – Enforcement and Advocacy Service. Taxpayers shall submit/file their responses and protests with the duly authorized representative of the CIR who signed the PAN, FLD or FAN. If protest is denied by the Commissioner’s duly authorized representative, the same is not considered final, executory, and demandable and may still be appealed to the CIR within 30 days from receipt thereof. (Belle Corp. vs. CIR, CTA case No. 8175, September 18, 2012) 83. What is the requirement of a valid assessment? (CIR vs. Metro Star Superama, December 8, 2010) Answer. The sending of a preliminary assessment notice (PAN) to the taxpayer to inform him of the assessment is part of the “due process requirement in the issuance of a deficiency tax assessment.” The absence of which render nugatory any assessment made by the tax authorities. Hence, failure to send a “PAN” stating the facts and the law, Rules and Regulations on which the assessment was made as required under Sec. 228, NIRC, the assessment made the CIR is VOID. Thereby, any collection under a void assessment has no leg to stand on. 84. TP personally received from the tax examiner the preliminary assessment notice (PAN) and the final assessment notice (FAN) on the same day. Is this considered a valid assessment? (CIR vs. Yumex Phil. Corporation, August 11, 2015)

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Answer. The assessment is VOID because of violation of the due process clause of the Constitution. PAN should precede the FAN because when TP receives the PAN, he is given fifteen (15) days to reply or protest the PAN, without this opportunity the PAN is void. When the PAN is invalid, there can be no valid FAN that follows. These two (2) assessment notices cannot be served simultaneously to the taxpayer. 85. TP received a valid PAN from the BIR. TP did not send a reply or protest to the PAN. Thereafter the CIR sent TP a final demand letter enforcing collection. TP argues that the collection is void because there was no assessment that would have fixed his tax liability. Is TP correct? (CIR vs. Derek Arthur Ramsey, June 22, 2017) Answer. Yes, TP is correct. The TP is given 15 days to respond to the PAN and if no agreement was arrived at this stage. The BIR should send the taxpayer a final assessment notice (FAN) which shall be inclusive of the Final Letter of Demand (FLD) to pay. This will give the taxpayer an opportunity to formally dispute the FAN. A denial of TP’s right to dispute the FAN is a violation of his right to due process. Since the assessment is VOID, the collection being enforce under the given facts shall likewise be invalid. 86. TP received a valid assessment. The assessment notice included deficiency withholding tax on some expenses incurred. TP filed a timely protest which was denied by the CIR. After the receipt of denial (FDDA) TP paid the deficiency withholding taxes and moved that the disallowed expenses should now be deductible. The BIR refused to allow the deductions. Is the BIR correct? (Hotel Specialist Inc. vs. CIR, January 18, 2019) Answer. The payment of the withholding taxes on disallowed expenses is still non-deductible because there was already a decision (FDDA) on TP’s protest. Payment of taxes after the FDDA has been issued will not obliterate tax liability. Once there is already a FDDA, the tax liability of the taxpayer is already final and conclusive. 87. CIR enforces assessment on X Corporation notwithstanding the incomplete documentary evidence against it. X contends that the assessment is void because the CIR determined his tax liability by way of estimation and by using accounting records of other taxpayers engaged in the same line of business. Is X correct? Answer. The CIR is allowed to determine the tax liability of a taxpayer by estimation provided the Best Evidence Obtainable Rule is complied with and in addition the estimation arrived at should not be arbitrarily and capriciously done. In the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales may be considered to determine the tax liability of X Corporation. (Hantex Doctrine, 2005) 88. What will be the basis of a valid assessment? Answer. It must be based on actual facts and proved by competent evidence, and not on unverified information supplied by an informant or disputable presumptions. (The Best Evidence Obtainable Rule, BIR vs. Embroidery & Garments Industries (Phils), March 22, 1999)

 The FAN must include a Final Demand Letter (FDL) when serve upon the taxpayer. It must contain a definite and conclusive amount. The usual statement in an assessment notice stating that “please note that total amount and interest will have to be adjusted if paid after due date” IS HELD TO BE VOID! (CIR vs. Fitness by Design, November 9, 2016) Justice Llonen’s case.  The FAN must contain a date or deadline within which the tax liability must be paid. Without this the FAN is void. (Lorenzo Shipping Corp. vs. CIR, June 28, 2018) Computation of tax payable under an FDL: It is stated in the valid FAN and FDL sent to the taxpayer that he is given 30 days to settle his tax liability of until July 15, 2020. In case he complies he must pay deficiency interest of 12% from demand, the main tax, and surcharge of 25%. In the event the taxpayer failed to pay the deficiency interest it stops and is converted to delinquency interest. The computation of the latter is 12% on the main tax, 12% on the surcharge and 12% on the deficiency interest.  Under the TRAIN Law, the deficiency interest and the delinquency interest cannot be imposed simultaneously. 89. When no proof is given as to when an assessment has been made, where is the reckoning point of the period for a valid assessment? (China Banking Corp. vs. CIR, February 4, 2015)

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Answer. If the records of the BIR do not show when an assessment notice was mailed, released or sent to the taxpayer, the latest possible date that the BIR could have released, mailed or sent the assessment notice was on the same date the taxpayer received it. Hence, the case law deems it to be made on the date the taxpayer received the assessment. 90. X is a medical doctor with a very prosperous medical practice. Everyday patients must wait in line for consultation. BIR was able to establish that X owns properties here and abroad and that all his children are studying abroad. After examining X’s tax return, he was assessed based on presumption of undeclared income. Is the assessment valid? (CIR vs. Benipayo, Jan. 31, 1962) Answer. The assessment is VOID because an assessment cannot be based on mere presumption no matter how reasonable or logical it may be. An assessment must be based on factual basis supported with legal and valid evidences and not mere presumption. 91. The tax examiners under the authority of the CIR sent X a Letter of Authority (LOA) in support of a tax investigation. The LOA states that X is being investigated on his business activities covering the year 2012 and all “unverified prior years”. Is the LOA valid? (CIR vs. Sony Phils., Inc. November 17, 2010) Answer. The practice of the BIR of issuing Letters of Authority covering an audit of “unverified prior years” is prohibited. If the audit of a taxpayer shall include more than one (1) taxable period the other periods or years it shall be specifically indicated in the LA.  The tax examiners conducting tax investigation must be duly authorized and issued a LOA by the CIR or the Reg. Director.  The LOA is mandatory and necessary to conduct an assessment without this written authority, the assessment conducted by the tax examiners is VOID. (Medicard Phils. Inc. vs. CIR, April 5, 2017)  Rev. District Officer of the BIR has no authority to sign the LOA. (Nikken Phils. Inc. vs. CIR, June 7, 2018)  The LOA has a validity to 30 days only. If unserved within 30 days, it must be revalidated for another 30 days by the RD or the CIR.  The tax examiner must conclude his tax investigation of TP’s business books and records within 120 days. 92. Is the issuance of a Letter of Authority (LOA) mandatory prior to a tax audit/examination of a taxpayer? (Masin-AES Pte. Ltd. (Phil. Br.) vs. CIR, CTA case No. 8543, April 10, 2014) Answer. There is no need for the issuance of a LOA if the alleged erroneous payment of tax is already manifested on the face of the taxpayer’s Monthly Remittances of Final Income Taxes Withheld. There is no need for the CIR to examine and scrutinize the books of accounts and other accounting records of the taxpayer to determine its correct tax liabilities. In ascertaining the correctness of any tax return, or (b) in making a return when none has been made filed, or (c) in determining the tax liability of any person, or (d) in collecting any such liability, or (e) in evaluating tax compliance, the CIR is authorized to examine any book, paper or other data which may be relevant or material in such inquiry. 93. What constitutes falsity to warrant the application of the 10-year prescriptive period to assess? (CIR vs. Asalus Corporation, GR No. 221590, February 22, 2017) Answer. The mere showing that the tax return is false is sufficient to warrant the application of the 10-year prescriptive period to assess under Sec. 222, NIRC. Sec. 248(B), NIRC. It provides that there is prima facie evidence of a false return if there is substantial under declaration of taxable sales, receipts, or income. It is incumbent upon the taxpayer to overcome the presumption of falsity against him/it. 94. The BIR’s assessment is usually embodied in a prescribed BIR form known as the assessment notice. If the issue date indicated therein is anterior than the date of actual release or mailing of the notice and/or demand, when does the prescriptive period to assess begin? Answer. It is not the issue date of the assessment notice that is the reckoning point in computing the prescriptive period but rather it is the date when the demand letter is released, mailed or sent to the taxpayer that constitutes an actual assessment of the CIR. (Republic vs. De Guzman, 5 SCRA 990) 95. In 2009 X Corporation was assessed deficiency withholding tax under its tax return filed for the year 2007. X paid the penalties as imposed. In the same year (2009) the tax officials discovered that X had income undeclared in 2007. Can the BIR enforce collection of said income now (May 2016)? (Platinum Plans, Phil. Inc. vs. CIR, CTA case No. 7878, September 7, 2011) Answer. Late remittances of withholding taxes can be subjected to penalties only within the prescriptive period of 3 years from the time of filing of the tax return. Deficiency assessment comprising of deficiencies in amount paid with respect to income payments declared in the return is subject to 3 years prescriptive period of assessment. On the other hand, deficiency assessments of income payments NOT subjected to withholding tax

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and NOT declared in the tax return is subject to the 10-year prescriptive period of assessment. Certainty, the BIR can still collect the undeclared income of 2007 today. (2016) 96. “M” Resources, Inc. filed its corporate income tax return before the due date. Subsequently it amended its tax return within the reglamentary period. “M” is now under audit; it challenges the validity of the assessment on the ground that the same is based on its first “tentative return” and not on the amended return it filed. It is the position of “M” that the BIR should have confined its assessment to the “final (amended) return” filed. Is “M” correct? (Magnetic Resonance Imaging Services, Inc. vs., CIR, CTA case No. 6608, October 20, 2009) Answer. Sec. 5(A) and 6(A) of the Tax Code provide that once tax return has been filed, CIR or his duly authorized representative is authorized to examine correctness of return filed. The Court held that in ascertaining the correctness of “M’s” final return, the CIR is not prevented from looking into a taxpayer’s tentative return nor in determining taxpayer’s tax liability, CIR may examine any book, paper, record or any material relevant to such inquiry, including any return, statement or declaration filed by the taxpayer. 97. “T” lost his right to dispute a formal assessment because he forgot about it. May he be given a relief through the filing of a claim for refund after paying the tax assessed? (CIR vs. Jose Concepcion, 22 SCRA 1998) Answer. The relief sought by “T” is not justified. He was trying to circumvent the law. Once the assessment has become final and executory and therefore binding upon the taxpayer, the procedure for refund is not available to revive the right to contest the validity of the assessment. After the lapse of the 30-day period to assess, the assessment becomes final and therefore, any payment committed in relation thereto is a valid payment not covered by a tax refund. (It is not any of these – “OIEP”) 98. X, a businessman is under tax investigation. He was required to produce all his business records, sales invoices, purchase receipt, proof of tax payments and other papers used in his business operations. X was not able to comply contending that his business establishment inclusive of all his business records, documents, tax returns and papers were totally submerged and destroyed in flood water during the super typhoon that hit the country. (a) Is X exempt from tax investigation under his allegations? (b) How will the BIR pursue the tax audit if taxpayer does not cooperate with the production of his records? (CIR vs. Hon. Gonzalez, LM Camus Engineering Corporation, October 13, 2010) Answer. (a) No. the absence of taxpayer’s business records and other documents used relative to his business operations and proof of tax payments will not exempt him from tax examination by the tax officials. (b) The investigating revenue officers may resort to the “Best Evidence Obtainable” Rule as provided in Sec. 5(B) of the NIRC in their audit. 99. X seasonably perfected an appeal before the Tax Court. While his appeal is pending before the CTA, the BIR discovered certain documents showing that X is liable for additional taxes. Accordingly, the BIR amended its assessment to include the newly discovered additional taxes. Should the amendment be allowed? (CIR vs. Guerrero, 19 SCRA 2015) Answer. The Supreme Court held that amendment pending appeal should not be allowed. The CTA, being a court with purely appellate jurisdiction, has no jurisdiction over additional charges considering that the same were not originally on issue when the case was elevated to the tax court. To allow amendment would violate the due process clause of the Constitution because X was not given an opportunity to dispute the additional taxes assessed. Exception – when the amendment involves only the surcharge and interest amendment may be allowed but not to the main tax involved. (BF Goodrich Rubber case) However, in the case of Batangas Land Transportation vs. Collector, 102 Phil. 822, the S.C. allowed the amendment pending appeal in order to avoid multiplicity of suits. NOTE: Guerrero case is of recent vintage. 100. X received a valid assessment from the CIR. He disputed it seasonably. The tax official denied his request for reconsideration. Thereafter, he appealed before the Tax Court within the reglamentary period. Pending appeal before the tax court, the BIR discovered certain documents showing X to be liable for more taxes. Accordingly, the CIR amended the assessment to include the newly discovered charges. May the CIR amend the assessment pending appeal? Reason. Answer. No. Amending of an assessment pending appeal is not allowed, because the taxpayer was not given his chance to dispute the same. Moreover, the CTA, being a court with purely appellate jurisdiction, has no jurisdiction over the additional charges considering that the same were not originally in issue when the case was elevated to the CTA, the new assessment is an undisputed assessment to which the Tax Court has no jurisdiction. 101. While his protest has not yet been resolved by the CIR, X submitted a compromise proposal to the BIR. Upon receipt of the proposal CIR dismissed the protest of X contending that there is now an

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abandonment of X’s protest of the assessment. Is the tax official correct? (Dole Phils., Inc. vs., CIR, CTA case No. 8155, March 21, 2014) Answer. The mere act of applying for a compromise does not equate to abandonment of any claim/protest against the validity of an assessment and/or a waiver. It is the act of immediately paying the tax assessment covered by the waivers of the statute of limitations that renders the taxpayer estopped from questioning the validity of said waivers. 102. What are the requisites of a valid tax waiver that can suspend the periods of assessment and collection? (Phil. Journalists, Inc. vs. CIR, 2004) Answer. (a) The tax waiver must be in the proper form prescribed by the BIR b) It must indicate the expiry date of the period agreed upon to assess/collect the tax after the regular 3-year prescriptive period; c) It must be signed by the taxpayer or his duly authorized representative d) It must be notarized; e) The CIR must have agreed to the waiver and his signature affixed therein showing his acceptance; f) The acceptance should have been made know to the taxpayer and that he was given a copy of the same; g) Both the execution of the waiver and the acceptance should be before the expiration of the prescriptive period or before the lapse of the period agreed upon in case a subsequent agreement is executed. NOTE: If the tax waiver is invalid, the right of the government to assess and to collect is not tolled or suspended. 103. CBT Corporation filed its Corporate Annual Income Tax Return for taxable year ending September 30, 2001. Subsequently, CBT Corporation’s SVP signed three (3) separate waivers of the Statute of Limitations. The waivers were not signed by the CIR or any of his agents. On July 29, 2008, the BIR assessed and claimed deficiency income tax from “CBT”. The latter disputed the assessment as having been issued beyond the prescriptive period. Is the concurrence of the CIR required in a waiver of the Statute of Limitations executed by the taxpayer to make the same valid and binding? (CIR vs. CA, GR. No. 115712, February 25, 2000) Answer. Yes. For a waiver to have a binding effect and thus work to toll the running of the prescriptive period of assessment, it must be accepted by the CIR. This is because the law speaks of an “agreement in writing” by and between the CIR and the taxpayer, as among the exceptions as to the period of limitation of assessment and collection of taxes. When a tax waiver is void, the prescriptive period to assess and collect is not tolled. Hence, the collection is already time-barred. 104. The tax examiner is pursuing an assessment beyond the prescriptive period of 3 years because taxpayer has submitted a tax waiver. X objected to the investigation contending that the CIR has ruled that the waiver was invalid. The CIR insisted otherwise. Rule on the validity of the assessment beyond the prescriptive period under the given facts. (CIR vs. Transitions Optical Phils., Inc. November 22, 2017) Answer. While it is true that an assessment shall be declared void if the waiver is void. Nonetheless, this accepts exceptions under the Doctrine of Estoppel, such as in a case where the taxpayer (a) never raised the invalidity of the waiver at the earliest opportunity, and (b) he has benefitted from the waivers because under the waiver, the taxpayer was given more time to comply with the audit requirement of the BIR. 105. X submitted a waiver of both the period to assess and collect the IR taxes being pursued against him. How should the waiver be construed? Answer. If the waiver refers to both assessment and collection and interpreting it will in effect shorten the collection period, then the waiver is deemed to refer to the assessment only and not collection. (Republic vs. Lim De Yu, April 30, 1964) 106. X is under tax investigation. He was required to submit a tax waiver in support of his dispute. What is the nature of a tax waiver? (CIR vs. Stanley Works Sales (Phils.), Inc. December 3, 2014) Answer. A waiver of the statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the CIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not imply that taxpayer relinquishes his right to invoke prescription unequivocally. 107. At the time of tax payment, the applicable tax investigation of tax payment was covered by a different procedure. T paid the tax accordingly. But, at the time of investigation of T’s tax return and payment new assessment procedures were introduced for more efficient tax collection. What tax examination procedures should be followed? (McGeorge Food Industries case, 2010)

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Answer. The procedural law applicable on assessment will be the tax procedure prevailing at the time of the assessment but the tax law, such as tax rate, applicable will be that which is prevailing and obtaining at the time the tax is due., 108. X Engineering Firm was assessed of deficiency income tax. Payment was made accordingly, thereafter, and within the same year X was again subjected to another assessment on deficiency withholding tax then to VAT and other taxes. Are the repeated assessments within the year allowed under the Tax Code? (CIR vs. Hon. Raul Gonzales & L. M. Camus Engineering Corp., October 13, 2010) Answer. If it involves income tax, only one examination of the books of accounts of taxpayer is allowed per taxable year. Whereas, if it involves withholding taxes, VAT and other business taxes examination may be pursued oftener than once a year. In addition, in case of fraud, irregularities or mistakes as determined by the CIR, the examination can also be done more than once per taxable period. 109. The Treasurer of City “X” issued a Notice of Assessment to EDC demanding payment of franchise tax. EDC filed a timely protest, but it was not acted upon and instead X demanded for payment. On appeal to the RTC the court held that EDC enjoyed an extraordinary privilege accorded by the government when it was appointed and constituted as the exclusive party to conduct geothermal operation in City X which is in the nature of a “secondary franchise”. Thus, the court rendered a decision holding EDC liable. EDC believes that it is not a franchise holder, but it merely entered into a service contract with the government. Is EDC correct? Answer. EDC operates pursuant to a geothermal service contract executed by and between EDC and the Department of Energy and NOT by virtue of a franchise from legislature or from an administrative agency through a delegation of a legislative franchise, the requisite secondary or special franchise is absent and therefore there is no legal and factual basis to impose a franchise tax. 110. May defenses be raised for the first time on appeal. Is there an exception? (Aguinaldo Industries Co. vs. CIR, 25 SCRA 1982) Answer. No. Thus, the question of tax exemption may not be raised for the first time on review where such question was not raised at the administrative forum. This cannot be permitted, for the same reason that underlies the requirement of prior exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide controversies within its competence, and in must the same way that, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal. An exception to the rule – The SC has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. “The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision. (Abra Valley College vs. Aquino, June 15, 1988) 111. X seasonably disputed an assessment and within 60 days therefrom he submitted all his documentary evidences in support of his protest. The CIR failed to act on X’s dispute within 180 days. X filed his petition for review before the tax court 60 days after the lapsed of the 180-day period to resolve. Can X still wait for the final decision of the CIR and then appeal the same to the CTA in case the decision of the CIR is adverse to his interest? (Lascona Land Co., vs. CIR, GR No. 171251, March 5, 2012) Answer. After availing of the first option albeit filing his petition for review out of time, X cannot successfully resort to the second option of waiting for CIR’s final decision and appeal the same to the CTA within 30 days from receipt of the decision on the pretext that there is yet no final decision on the disputed assessment due to CIR’s inaction. His remedy in case of an inaction is (a) file a petition for review with the CTA within 30 days after the expiration of the 180-day period, OR (b) Await the final decision of the CIR on his protest (without an appeal before the CTA) and upon receipt of a copy of such decision to appeal the same to the CTA within 30 days from receipt. These 2 remedies are alternative remedies. 112. Will the failure of the taxpayer to appeal the inaction of the CIR result in the finality of the FAN? (RCBC vs. CA, April 24, 2007) Answer. No. The failure of the taxpayer to appeal to the CTA the inaction on his protest by the CIR or his representative within 30 days after the lapse of 180 days to resolve taxpayer’s protest will not result in the finality of the FAN. 113. On August 29, 2019, the CIR sent TP an assessment notice enforcing collection of deficiency withholding taxes and expanded withholding taxes for the year 2013. TP protested the assessment contending that the BIR’s right to assess has already prescribed. The tax examiners insist that withholding taxes are not IR taxes and therefore the prescriptive periods of the Tax Code to assess and collect are not applicable. Is the argument of the BIR correct? (CIR vs. La Flor Dela Isabela, Inc. January 14, 2019)

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Answer. The argument of the BIR is not correct, withholding taxes are not penalties but they are internal revenue taxes that are governed by the prescriptive periods of the Tax Code. The assessment under the given facts is more than the 3-year period provided under Sec. 203 of the Tax Code, hence, it is time barred. 114. The BIR filed a collection case against X before the regular court. X believes that the right of the BIR to collect has prescribed. The regular court decided the case against X. Where will X file his appeal questioning the validity of the collection? Is it before the CA or the CTA? (CIR vs. Hambrecht & Quist Phils., Inc., November 17, 2010) Answer. His appeal (petition for review) must be filed with the CTA within 30 days from receipt of the adverse decision of the regular court and not with the CA. In the case at bar, the issue at hand is whether or not the BIR’s right to collect the taxes had already prescribed. The validity of the assessment itself is a separate and distinct issue from the issue of whether to the right of the CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided under the NIRC, is well within the jurisdiction of the CTA to decide. 115. Briefly explain how judicial collection of tax liability is pursued in court. (Mambulao Lumber Co. vs. Republic) Answer. Civil action is a remedy resorted to (a) when a tax liability becomes collectible or (b) when the tax assessment has become final. A civil action shall commence only upon the approval of the CIR except when expressly delegated by the CIR to the Regional Directors or to the chief of the legal apartment of the BIR. The civil action for the collection of tax liability shall be filled in the regular courts. In such case, the taxpayer is precluded from raising the following defenses: (1) The BIR has no authority to collect the tax within the prescriptive period and (2) the legality or validity of the assessment. Once the assessment has become final, the civil case for collection of such tax liability becomes akin to an action to enforce a judgment such that no inquiry can be made thereon as the merits of the original case or the justness of the final judgment relied upon. 116. Can a court issue an injunction to restraint the collection of an internal revenue tax? Answer. No. Sec. 218 of the NIRC provides that no court shall have the authority to grant injunction to restrain the collection of any internal revenue taxes, fees or charges imposed by said Tax Code. This is so because it is upon taxation that the Government relies to obtain the means to carry on its operations and it is of the utmost importance that the means is adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.

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TROs and injunctions issued by courts other than the CTA against the BIR should be annulled and cancelled for lack of jurisdiction. (RMO No. 042-10, May 4, 2010, Sec. 11, RA 9282)

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The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes is applied only to IR taxes not to local taxes. (Angeles City vs. Angeles Electric Corp., June 29, 2010)

117. Is there an exception to the provision above stated? Answer. The rule against injunction however admits of ONE exception: The CTA is empowered to suspend the collection of internal revenue taxes and customs duties only when – (a) There is a valid appeal pending before the Tax Court, (b) That the collection of the tax may jeopardize the interest of the Government and/or the taxpayer; (c) that the taxpayer is willing to deposit the amount claimed or file a surety bond for not more than double the amount of the tax with the court when required; (d) That the petition is not frivolous or dilatory. 118. TP received a valid assessment from the CIR. Within 30 days from receipt TP wrote the CIR that it does not agree with the assessment and intends to contest the BIR’s claim. Several months thereafter the BIR filed a collection case against TP. Is the collection case valid? (Asia Renal Care Phils. Inc. vs. CIR, May 30, 2018) Answer. TP never filed a valid protest to the assessment. He failed to submit a Motion for Reconsideration or Motion for Reinvestigation to support his protest. He submitted a single page letter to the BIR but did not state the law, Rev. Regulations, or jurisprudence in support of his protest. Hence, there was no valid protest resulting to the finality of the assessment. An uncontested assessment ripens to a collection case. Hence, the collection is valid. 119. Can a Motion for Reconsideration and Motion for Reinvestigation be interchanged as a mode of dispute? (BPI vs. CIR, 473 SCRA 205, 2005) Answer. Request for reconsideration and request for reinvestigation can no longer be used interchangeably and their differences so lightly brushed aside. Sec. 223 of the Tax Code provides that the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation NOT request for reconsideration for the reason that a reinvestigation which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence

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already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. 120. X received a valid assessment from the CIR which he disputed seasonably within 30 days from receipt thereof. The CIR issued a warrant of garnishment against X’s bank deposits despite the pendency of his protest. Is the action of the CIR correct? Answer. (a) The action of the CIR is valid. Nowhere in the Tax Code is the CIR required to rule first on the protest of a taxpayer before he can enforce tax collection. (Yabes vs. Flojo, 15 SCRA 278) The legislative policy is to give the CIR much latitude in the speedy and prompt collection of taxes because taxes are the lifeblood of the government. (Republic vs. Tian Teng Sons, 16 SCRA 584) 121. After repeated demands the BIR levied X’s property for failure to pay his tax delinquencies. X did not also exercise his right of pre-emption and right of redemption within the prescribed periods. Thereafter, the BIR caused the publication of the scheduled public sale of the real property to effect the collection of taxes without sending X notice of the same. Is the BIR authorized to sell the real property? (Talusan vs. Tayap, 2001) Answer. Sale of public land to effect tax collection is an action IN PERSONAM, service of notice cannot be made through publication. It is not like sale of property under mortgages which are action IN REM where the notice of sale can be effected by publication if the property owner cannot be located. 122. Does forfeiture operate as a total discharge of the government’s claim against the taxpayer? Answer. No. The remedy by distraint or levy may be repeated if necessary until the full amount including all expenses relative to the collection is satisfied. (Sec. 217, NIRC, Castro vs. Commissioner) 123. X’s properties (real and personal) were subjected to a warrant of distraint and levy pursuant to a final assessment. Subsequently, the Labor Arbiter of the NLRC issued a writ of execution against several properties of X to satisfy a judgment for unpaid wages of his employees. Said employees alleged that their labor claims are preferred and creates a lien on the properties under Art. 110 of the Labor Code. Are the employees’ contentions correct? Reason. Answer. The employees’ claims are without merit. It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint on personal property but from the time the tax became due and demandable. Moreover, the distraint was made prior to the writ of execution. It must be noted that Art. 110 of the Labor Code applies only in the case of bankruptcy or judicial liquidation of the employer which is not the case involved in the given facts. (CIR vs. NLRC, 238 SCRA 43) The Government has a preferential lien pursuant to Art. 2247 and 2241 of the Civil Code. The preferential lien of the employees for the unpaid wages under Art. 110 of the Labor Code applies only to bankruptcy cases where the employer is under liquidation due to bankruptcy. The preferential lien of the government for taxes is not only limited to taxes accruing on the property subject of the distraint, but it applies to all kinds of internal revenue taxes. (CIR vs. NLRC, 238 SCRA 43) NOTE: Wages prevails over taxes in case of bankruptcy! 124. How is judicial action for the collection of a tax commenced? (Alhambra vs. Collector, Palanca vs. Commissioner) Answer. It is begun by (a) filing of a complaint with the proper court, or (b) where the assessment is on appeal before the CTA, by the filing by the government of its answer to the taxpayer’s petition for review wherein payment of the tax is prayed for. 125. Briefly discuss the remedy of civil action to collect tax liability. Answer. Civil action is a remedy resorted to when a tax liability becomes collectible or when the tax assessment has become final. A civil action shall commence only upon the approval of the CIR except when expressly delegated by the CIR to the Regional Directors. The civil action for the collection of tax liability shall be filed in the regular courts. In such case, the taxpayer is precluded from raising the following defenses: a) That the BIR has no authority to collect the tax within the prescriptive period, and b) The legality or validity of the assessment. Once the assessment has become final, the civil case for collection of such tax liability becomes akin to an action to enforce a judgment such that no inquiry can be made thereon as to the merits of the original case or the justness of the final judgment relied upon. (Mambulao Lumber Co. vs. Republic)

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126. X, a domestic corporation, received an income tax deficiency assessment from the BIR on May 17, 2010. On June 15, 2010, “X” filed its protest with the BIR. On August 13, 2010, it submitted to the BIR all his documentary evidences in support of its Motion for Reinvestigation. The CIR did not formally rule on the protest but on February 10, 2012 the Bureau filed a collection case against X. On March 5, 2012 X was served a summons and a copy of the complaint for collection of tax deficiency tax filed by the BIR with the RTC. On the following day, X brought a petition for review before the CTA. The BIR argued and contended that the petition for review before the CTA is premature since there was no formal denial of the protest of X and should therefore be dismissed. Has the CTA acquired jurisdiction over the case? Does the RTC have jurisdiction over the collection case filed by the BIR? Explain. (Republic vs. Lim Tian Teng & Sons, Inc., Dayrit vs. Cruz) Answer. Yes, the CTA has acquired jurisdiction over the case because this qualifies as an appeal from the CIR’s decision on the disputed assessment. When the CIR decided to collect the tax assessed against X without first deciding on the taxpayer’s protest, that is an implied denial of X’s protest, in which event the taxpayer may file an appeal with the CTA within 30 days from receipt of the summons from the RTC. The filing of an appeal with the CTA has the effect of divesting the RTC of jurisdiction over the CIR’s filing of the collection case with the RTC which was considered as an implied decision of denial, it gives a justifiable basis for the taxpayer to move for dismissal in the RTC of the Government’s action to collect the tax liability under dispute. (Yabes vs. Flojo, San Juan vs. Vasquez). There is no final, executory and demandable assessment that can be enforced by the BIR; once a timely appeal is filed before the CTA. Hence, the RTC has no more jurisdiction over the collection case filed by the BIR. 127. X filed its income tax return for the year 2008 on April 15, 2009. On January 24, 2015 X received a prospective assessment from the BIR. Not knowing the materiality of the notice X did not dispute the same. Thereafter, the tax officials sent X a formal assessment on April 29, 2015. Again, X did not answer the notice. CIR files a judicial collection against X. Before the regular court X was disputing the validity of the assessment. After adjudication on the merits, the collection case was decided in favor of the government. On appeal to the CTA, X was arguing that the right of the government to collect has no basis because of prescription. CIR maintained that defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived and they may not be allowed or pleaded for the first time on appeal. Under the given facts is the collection case valid? (China Banking Corporation vs. CIR, February 4, 2015) Answer. In this case at bar X did not object to the collection case before the regular court on ground of prescription and instead litigated the same on other issues and both parties submitted it for resolution. When the case was decided in favor of the government, X went on appeal before the CTA and invoked the defense of prescription for the first time. CTA ordered CIR to comment on X’s appeal, but CIR failed to submit his comments in due time. The high court ruled that the actuation of the CIR is a waiver or estoppel that prevents the government from invoking the rule against raising the issue of prescription for the first time on appeal. The pleadings or the evidence on record show that the claim (collection) is barred by prescription, Hence, the court is mandated to dismiss the claim even if prescription is not raised as a defense. The right of the BIR to collect the assessed should be denied on the ground of prescription.. Note that the CTA may motu propio dismiss the case on the ground of prescription despite failure to raise this ground on appeal. The court is imbued with sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it funds that their consideration is necessary in arriving at a complete and just resolution of the case. More so, when the provisions on prescription were enacted to benefit and protect taxpayers from investigation after a reasonable period. 128. X received a valid assessment from RDO. X failed to dispute the same seasonably within the 30-day period from receipt thereof. Thereafter, BIR enforces tax collection. X appealed to the CTA disputing the validity of the assessment which was used as the basis of the BIR’s collection. Did the CTA acquire jurisdiction on X’s appeal? (Castalloy Technology et.al., vs. RDO of Cebu City (Region 13) for and in behalf of CIR, CTA case No. 8244, January 30, 2014) Answer. When X received the assessment from the BIR, he has an administrative remedy. He should have initiated the prescribed administrative procedure to obtain relief and to pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter correctly and prevent unnecessary and premature resort to court. Before a taxpayer is allowed to seek judicial remedy, he must prove that the principles of administrative remedies were exhausted. Therefore, “no dispute no appeal” to the CTA. 129. The BIR filed a collection case against X before the regular court. X believes that the right of the BIR to collect has prescribed. The regular court decided the case against X. Where will X file his appeal questioning the validity of the collection? Is it before the CA or the CTA? (CIR vs. Hambrecht & Quist Phils., Inc., November 17, 2010) Answer. His appeal (petition for review) must be filed with the CTA within 30 days from receipt of the adverse decision of the regular court and not with the CA. In the case at bar, the issue at hand is whether or not the

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BIR’s right to collect the taxes had already prescribed. The validity of the assessment itself is a separate and distinct issue from the issue of whether to the right of the CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided under the NIRC, is well within the jurisdiction of the CTA to decide. 130. In 2013 X Corporation was assessed deficiency withholding tax under its tax return filed for the year 2012. X paid the penalties as imposed. In the same year (2013) the tax officials discovered that X had income undeclared in 2012. Can the BIR enforce collection of said income now (June 2020)? (Platinum Plans, Phil. Inc. vs. CIR, CTA case No. 7878, September 7, 2011) Answer. Late remittances of withholding taxes can be subjected to penalties only within the prescriptive period of 3 years from the time of filing of the tax return. Deficiency assessment comprising of deficiencies in amount paid with respect to income payments declared in the return is subject to 3 years prescriptive period of assessment. On the other hand, deficiency assessments of income payments NOT subjected to withholding tax and NOT declared in the tax return is subject to the 10-year prescriptive period of assessment. Certainty, the BIR can still collect the undeclared income of 2012 today. (2020). 131. Upon audit of X’s business books and records, the tax examiners noted that X had under declared its purchases as a result BIR imposed deficiency income tax and VAT and enforced collection of the same. Are the imposition correct? (CIR vs. C & W Architects, Engineers and Consultants, February 23, 2018, CIR vs. Agrinurture, Inc. January 13, 2015) Answer. Findings of under declaration of purchases by itself does not warrant the outright imposition of deficiency income tax and VAT. To enforce the collection of deficiency income tax, the BIR must prove that (a) there was profit or gain, (b) that the profits was realized or received actually or constructively and (c) the gain is not exempt by law or treaty from income tax and the taxpayer did not declare such gain in his tax return. Whereas, VAT is imposable when there were sales made but undeclared. 132. Within the 2-year period TP filed a claim on its excess withholding taxes paid earlier. It was not able to present to the BIR the withholding tax returns (BIR 2307) showing the invalid payment. On this score the BIR denied the claim. TP submitted other supporting documents evidencing the overpayments but again the tax officials refused to consider TP’s documents and insisted on the denial. Is BIR correct? (PNB is CIR, March 18, 2015) Answer. The withholding tax return (BIR 2307) is not the be all and end all document that will warrant a claim for excess payment, for as long as the taxpayer is able to present other documents, such as but not limited to schedule of tax payments, corporate income tax returns etc., the claim that was seasonably filed should be given due course. 133. X, a businessman, has an excess payment of his income tax in 2007. He indicated in his return of his desire to avail of tax credit on that excess payment in the subsequent taxable years. Thereafter, without availment of that tax credit X left to work abroad. X came back in 2013 and engages in a new business venture. At the end of 2013, X deducted his excess payment in 2007 from his tax payment for 2013. If you are the tax official, will you allow X such tax credit? Reason. Answer. If I am the tax official, I will allow X to avail of his tax credit in view of the Irrevocability Rule, X is entitled to utilize that amount of excess payment as tax credit in succeeding taxable years until fully exhausted provided he can prove compliance with the requisites of a valid claim. In this regard, prescription did not bar him from applying the amount as tax credit considering that there is no prescription period for the carryingover of the amount as tax credit in subsequent taxable years. He may consume the same until wholly utilized. (CIR vs. PL Management Int’l. Phils., Inc. April 4, 2011) 134. X paid Y an amount of money representing the income of the latter. X failed to withhold the corresponding tax therefrom. The BIR assesses Y the unpaid withholding tax relative thereto. Y refused to pay contending that it is not the withholding agent in the said transaction and therefore the liability to withhold taxes should rest on X. The BIR believes otherwise. Is Y correct that the tax due from the transaction where it earned an income should be collected from X, the payor-withholding agent? Answer. The liability of the withholding agent is independent from that of the taxpayer. X cannot be made liable for the tax due because it is Y who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability of the tax remains with the taxpayer because the gain was realized and received by him. Y cannot evade his liability to pay the tax by shifting the blame on X, the payor-withholding agent. (RCBC vs. CIR, September 7, 2011) 135. In 2010 X availed of the tax amnesty program of the BIR by submitting all the requisite documents thereto and payment of the corresponding tax. Within the same year BIR wanted to conduct an examination of X’s books and business records. X protested contenting that he is exempt from assessment under the Tax Amnesty program of the government. The tax officials posit that his

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availment of the tax amnesty program is still subject to verification and validation; meanwhile X is not exempt from tax investigation. Is the government correct? Answer. Amnesty taxpayers like X may immediately enjoy the privileges and immunities under the Tax Amnesty Law (RA 9480) as soon as requisite documents and papers are filed with the RDO or an authorized agent bank and payment of the amnesty tax. The benefits provided under the amnesty law are not depended upon the verification and validation of the BIR. (CS Garment, Inc. vs. CIR, March 12, 2014)

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HAPPY READING GOOD LUCK AND GOD BLESS! ALL RIGHTS RESERVED. JPL/2020

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