NIRC Remedies

2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018

2008

After examining the books and records of EDS Corporation, the 2004 final assessment notice, showing basic tax of P1,000,000 deficiency interest of P400,000 and due date for payment of April 30, 2007, but without the demand letter, was mailed and released by the BIR on April 15, 2007. The registered letter, was received by the EDS Corporation on April 25, 2007.

(A) What is an assessment notice? What are the requisites of a valid assessment? Explain.

(B) As tax lawyer of EDS Corporation, what legal defense(s) would you raise against the assessment? Explain.

SUGGESTED ANSWER:

(A) An assessment notice is a computation prepared by the BIR of the alleged unpaid taxes, plus interests, penalties or surcharges, if any. However, an assessment notice must be accompanied by a demand letter from the BIR in order to result in valid.

(B) As a tax lawyer, I raise the defense that there is no valid assessment because EDS Corporation did not receive a demand letter from the BIR which is required by law.

Pedro Manalo, a Filipino Citizen residing in Makati City, owns a vacation house and lot in San Francisco, California, USA, which he acquired in 2000 for P15 million. On January 10, 2006, he sold said real property to Juan Mayaman, another Filipino citizen residing in Quezon City, for P20 million. On February 9, 2006, Manalo filed the capital gains tax return and paid P1.2 million representing 6% capital gains tax. Since Manalo did not derive any ordinary income, no income tax return was filed by him for 2006. After the tax audit conducted in 2007, the BIR officer assessed Manalo for deficiency income tax computed as follows: P5 million (P20 million less P15 million) x 35% = P1.75 million, without the capital gains tax being allowed as tax credit. Manalo consulted a real estate broker who said that the P1.2 million capital gains tax should be credited from the P1.75 million deficiency income tax.

(A) Is the BIR officer’s tax assessment correct? Explain.

(B) If you were hired by Manalo as his tax consultant, what advice would you give him to protect his interest? Explain.

SUGGESTED ANSWER:

(A) The BIR officer correctly disallowed the credit of the final tax of P1.2 million against the net income tax, which is subject to deductions. However, the assessment of 35% is incorrectly imposed. The correct rate is based on the 5-32% tax scale which is applicable to individuals (Sec. 24[D1] and Sec. 42[A5] of NIRC).

(B) As a tax consultant, I would advise him to demand the application of the 5-32% tax scale instead of the fixed rate of 35% which applies only to domestic corporations as provided by Sec. 24[D1] of NIRC.

DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Starting December 15, 2004, DEF Corporation paid annual royalties to DEF, Inc., for the use of the latter’s software, for which the former, as withholding agent of the government, withheld and remitted to the BIR the 15% final tax based on the gross royalty payments. The withholding tax return was filed and the tax remitted to the BIR on January 10 of the following year. On April 10, 2007, DEF Corporation filed a written claim for tax credit with the BIR, arising from erroneously paid income taxes covering the years 2004 and 2005. The following day, DEF Corporation filed a petition for review with the Court of Tax Appeals involving the tax credit claim for 2004 and 2005.

(A) As a BIR lawyer handling the case, would you raise the defense of prescription in your answer to the claim for tax credit? Explain.

(B) Can the BIR lawyer raise the defense that DEF Corporation is not the proper party to file such claim for tax credit? Explain.

SUGGESTED ANSWER:

(A) Yes. The defense of prescription is available as against the 2004 tax credit. As provided by National Internal Revenue Code under Sec. 229, the prescriptive period is two years reckoned from the filing of the annual return (CIR v. TMX Sales, G.R. No. 83736, 15 January 1992; CIR v. PhilAm Life, G.R. No. 105208, 29 May 1995; CIR v. CTA, G.R. No. 117254, 21 January 1999). However, it should be noted that the 2005 claim has not yet prescribed since its prescriptive period ends on January 11, 2008 while the claim was filed on April 10, 2007. The filing of the Petition for Review with the Court of Tax Appeals on the 2005 claim is premature (Sec. 57[A] of NIRC).

(B) No. The BIR cannot raise the defense that DEF Corporation is not the proper party. The Supreme Court held in the case of CIR v. Procter & Gamble, G.R. No. 66838, 02 December 1991, that a final withholding agent is a proper party “with sufficient legal interest” because it will be liable in the event that the final income tax cannot be paid by the taxpayer.

2009

The Sangguniang Bayan of the Municipality of Sampaloc, Quezon, passed an ordinance imposing a storage fee of ten centavos (P0.10) for every 100 kilos of copra deposited in any bodega within the Municipality's jurisdiction. The Metropolitan Manufacturing Corporation (MMC), with principal office in Makati, is engaged in the manufacture of soap, edible oil, margarine, and other coconut oil-based products. It has a warehouse in Sampaloc, Quezon, used as storage space for the copra purchased in Sampaloc and nearby towns before the same is shipped to Makati. MMC goes to court to challenge the validity of the ordinance, demanding the refund of the storage fees it paid under protest.

Is the ordinance valid? Explain your answer.

SUGGESTED ANSWER:

YES. As per the Local Government Code, the municipality may impose and collect such reasonable fees and charges on business and occupation and, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice of such profession or calling

In the case at bar, the storage of copra in any warehouse within the municipality can be the proper subject of regulation pursuant to the police power granted to municipalities under the Revised Administrative Code of the “general welfare clause.” A warehouse used for keeping or storing copra is an establishment likely to endanger the public safety or likely to give rise to conflagration because the oil content of the copra, when ignited, is difficult to put under control by water and the use of chemicals is necessary to put out the fire. It is, thus, reasonable to conclude that all exportable copra deposited within the municipality is part of the surveillance and look out of municipal authorities

Kenya International Airlines (KIA) is a foreign corporation, organized under the laws of Kenya. It is not licensed to do business in the Philippines. Its commercial airplanes do not operate within Philippine territory, or service passengers embarking from Philippine airports. The firm is represented in the Philippines by its general agent, Philippine Airlines (PAL), a Philippine corporation.

KIA sells airplane tickets through PAL, and these tickets are serviced by KIA airplanes outside the Philippines. The total sales of airline tickets transacted by PAL for KIA in 1997 amounted to P2,968,156.00. The Commissioner of Internal Revenue assessed KIA deficiency income taxes at the rate of 35% on its taxable income, finding that KIA's airline ticket sales constituted income derived from sources within the Philippines.

KIA filed a protest on the ground that the P2,968,156.00 should be considered as income derived exclusively from sources outside the Philippines since KIA only serviced passengers outside Philippine territory.

Is the position of KIA tenable? Reasons.

SUGGESTED ANSWER:

No. KIA’s position is not tenable. The revenue it derived in 1997 from sales of airplane tickets in the Philippines, through its agent PAL, is considered as income from within the Philippines, subject to 35% tax based on its taxable income pursuant to Sec 25(a)(1) of the Tax Code of 1997. The transacting of business in the Philippines through its local sales agent, makes KIA a resident foreign corporation despite the absence of landing rights, thus, it is taxable on income derived within. The source of an income is the property, activity or service that produced the income. In the instant case, it is the sale of tickets in the Philippines which is the activity that produced the income. KIA’s income being derived from within is subject to Philippine income tax.

The taxable year involved in the problem is 1997, hence, the suggested answer above follows the applicable provision of the old Tax Code (National Internal Revenue Code of 1997) then in effect and the prevailing jurisprudence on the matter. However, with the adoption of the National Internal Revenue Code of 1997 (RA 8424) which took effect on January 1, 1998 an answer framed in his wise should also be considered as an alternative answer, viz:

ALTERNATIVE ANSWER:

Yes. KIA is a non-resident foreign corporation which is taxable only on income from within. The income of KIA as an international air carrier is derived from the sale of transportation services. Compensation for services is an income from within if the sources are performed in the Philippines (Sec 42(A)(3), NIRC). The origination of the flight is determinative of the sources of income of the international carrier. If the flight originated from the Philippines to a foreign destination, the income is an income from within; if it originated in a foreign country to any destination, the income is from without. In the case at bar, no flight will originate from the Philippines because KIA is not licensed to do business here. Hence, the income is not taxable in the Philippines (Sec 28(A)(3), NIRC).

A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer on June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was initially given due course, but was eventually denied by the Commissioner of Internal Revenue in a decision dated June 15, 2005. The taxpayer then filed a petition for review with the Court of Tax Appeals (CTA), but the CTA dismissed the same.

(A) Is the CTA correct in dismissing the petition for review? Explain your answer.

(B) Assume that the CTA's decision dismissing the petition for review has become final. May the Commissioner legally enforce collection of the delinquent tax? Explain.

SUGGESTED ANSWER:

The remedy of a taxpayer is to avail of either of two options:

(1) File a petition for review with the CTA within 30 days after the expiration of the 180-day period from submission of all relevant documents; or

(2) Await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days after receipt of a copy of such decision.

NOTE: These options are mutually exclusive such that resort to one bars the application of the other (RCBC v. CIR, G.R. No. 168498, June 16, 2006).

2010

True or False.

In civil cases involving the collection of internal revenue taxes, prescription is construed strictly against the government and liberally in favor of the taxpayer. (1%)

SUGGESTED ANSWER:

True. (CIR v. BF Goodrich., Phils. Inc., G.R. No. 104171, Feb. 24, 1999; Phil. Journalists, Inc. v. CIR, G.R. No. 162852, Dec. 16, 2004.)

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.||| (Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc., G.R. No. 104171, [February 24, 1999], 363 PHIL 169-181)

In criminal cases involving tax offenses punishable under the National Internal Revenue Code (NIRC), prescription is construed strictly against the government. (1%)

SUGGESTED ANSWER:

False. (Lim v. Court of Appeals, G.R. No. 48134-37, Oct. 18, 1990)

They receive a strict construction in favor of the Government and limitations in such cases will not be presumed in the absence of clear legislation||| (Lim, Sr. v. Court of Appeals, G.R. Nos. 48134-37, [October 18, 1990], 268 PHIL 680-692)

In criminal cases where the Court of Tax Appeals (CTA) has exclusive original jurisdiction, the right to file a separate civil action for the recovery of taxes may be reserved. (1%)

SUGGESTED ANSWER:

False. (Sec. 11, Rule 9, 2005 Rules of the Court of Tax Appeals, as amended)

SEC. 11. Inclusion of civil action in criminal action. – In cases within the jurisdiction of the Court, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall be deemed jointly instituted in the same proceeding. The filing of the criminal action shall necessarily carry with it the filing of the civil action. No right to reserve the filing of such civil action separately from the criminal action shall be allowed or recognized. (Rules of Court, Rule 111, sec. 1[a], par. 1a)

Proceedings before the CTA in the exercise of its exclusive original jurisdiction are in the nature of trial de novo. (1%)

SUGGESTED ANSWER:

True. (CIR v. Manila Mining Corp. G.R. No. 153204, Aug. 31, 2005)

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial de novo) where the parties must present their evidence accordingly if they desire the Court to take such evidence into consideration.||| (Commissioner of Internal Revenue v. Manila Mining Corp., G.R. No. 153204, [August 31, 2005], 505 PHIL 650-672)

The Tax Code allows an individual taxpayer to pay in two equal installments, the first installment to be paid at the time the return is filed, and the second on or before July 15 of the same year, if his tax due exceeds P2,000.

SUGGESTED ANSWER:

TRUE. SEC. 56. Payment and Assessment of Income Tax for Individuals and Corporations. -

(A) Payment of Tax. - (2) Installment of Payment. - When the tax due is in excess of Two thousand pesos (P2,000), the taxpayer other than a corporation may elect to pay the tax in two (2) equal installments in which case, the first installment shall be paid at the time the return is filed and the second installment, on or before July 15 following the close of the calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable, together with the delinquency penalties.

An individual taxpayer can adopt either the calendar or fiscal period for purposes of filing his income tax return.

SUGGESTED ANSWER:

FALSE. Section 43 of the National Internal Revenue Code provides that:

SEC. 43. General Rule. - The taxable income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer, but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner clearly reflects the income. If the taxpayer's annual accounting period is other than a fiscal year, as defined in Section 22(Q), or if the taxpayer has no annual accounting period, or does not keep books, or if the taxpayer is an individual, the taxable income shall be computed on the basis of the calendar year.

Judgments, resolutions or orders of the Regional Trial Court in the exercise of its original jurisdiction involving criminal offenses arising from violations of the NIRC are appealable to the CTA, which shall hear the cases en banc. (1%)

SUGGESTED ANSWER:

SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions shall exercise:

(b) Exclusive jurisdiction over cases involving criminal offenses, to wit:

(2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional Trial Courts in their original jurisdiction in criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than one million pesos or where there is no specified amount claimed;

What is the effect of the execution by a taxpayer of a "waiver of the statute of limitations" on his defense of prescription? (2%)

SUGGESTED ANSWER:

As provided in Phil. Journalists Inc., v. CIR, the waiver of the statute of limitation executed by a taxpayer is not a waiver of the right to invoke the defense of prescription. The waiver of the statute of limitation is merely an agreement in writing between the taxpayer and the BIR that the period to assess and collect taxes due is extended to a date certain. If prescription has already set in at the time of execution of the waiver or if the said waiver is invalid, the taxpayer can still raise prescription as defense (Phil. Journalists Inc., v. CIR, G.R. No. 162852, Dec. 16, 20 04). Thus, the execution of a waiver of the statute of limitations does not have any effect on the taxpayer’s defense of his prescription especially if the prescription has already set in at the time of the execution of the waiver or if the waiver is invalid.

Mirador, Inc., a domestic corporation, filed its Annual Income Tax Return for its taxable year 2008 on April 15, 2009. In the Return, it reflected an income tax overpayment of P1,000,000.00 and indicated its choice to carry-over the overpayment as an automatic tax credit against its income tax liabilities in subsequent years.

On April 15, 2010, it filed its Annual Income Tax Return for its taxable year 2009 reflecting a taxable loss and an income tax overpayment for the current year 2009 in the amount of P500,000.00 and its income tax overpayment for the prior year 2008 of P1,000,000.00.

In its 2009 Return, the corporation indicated its option to claim for refund the total income tax overpayment of P1,500,000.00

Choose which of the following statements is correct.

(A) Mirador, Inc. may claim as refund the total income tax overpayment of P1,500,000.00 reflected in its income tax return for its taxable year 2009;

(B) It may claim as refund the amount of P500,000.00 representing its income tax overpayment for its taxable year 2009; or

(D) Explain the basis of your answer. (5%)

SUGGESTED ANSWER:

B, the answer is that the taxpayer may claim as refund the amount of P500,000.00 representing its income tax overpayment for its taxable year 2009. It is provided in Section 76 of the National Internal Revenue Code that:

SEC. 76. - Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor.

Furthermore, it is reiterated in CIR vs Bank of the Philippine Islands that. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor||| (Commissioner of Internal Revenue v. Bank of the Philippine Islands, G.R. No. 178490, [July 7, 2009], 609 PHIL 678-694)

In the present case, since the taxpayer has opted to carry-over the P1 million overpaid income tax for taxable year 2008, said option is considered irrevocable and no application for cash refund shall be allowed for it. Hence, it may claim as refund the amount of P500,000.00 representing its income tax overpayment for its taxable year 2009.

On March 10, 2010, Continental, Inc. received a preliminary assessment notice (PAN) dated March 1, 2010 issued by the Commissioner of Internal Revenue (CIR) for deficiency income tax for its taxable year 2008. It failed to protest the PAN. The CIR thereupon issued a final assessment notice (FAN) with letter of demand on April 30, 2010. The FAN was received by the corporation on May 10, 2010, following which or on May 25, 2010, it filed its protest against it.

The CIR denied the protest on the ground that the assessment had already become final and executory, the corporation having failed to protest the PAN.

Is the CIR correct? Explain. (5%)

SUGGESTED ANSWER:

NO. According to Revenue Memorandum Order No. 26-2016, protest against preliminary assessment notice is optional / not mandatory. Within 30 days from the receipt of the FLD/ FAN, shall either (a) accept the assessment and pay or (b) protest the assessment by filing either a request for reinvestigation or request for reconsideration.

In this case, the issuance of preliminary assessment notice (PAN) does not give rise to the right of the taxpayer to protest. What can be protested by the taxpayer is the final assessment notice (FAN) or that assessment issued following the PAN. Since the FAN was timely protested (within 30 days from receipt thereof, the assessment did not become final and executory (Sec 228, NIRC; RR No. 12-99).Hence, the CIR not correct.

Does the Court of Appeals have the power to review compromise agreements forged by the Commissioner of Internal Revenue and a taxpayer? Explain. (5%)

SUGGESTED ANSWER:

No, the Supreme Court held in Koppel Phils., Inc. v. CIR, 87 Phil, 351 (1950), in instances in which the Commissioner of Internal Revenue is vested with authority to compromise, such authority should be exercised in accordance with the Commissioner’s discretion, and courts have no power, as a general rule, to compel him to exercise such discretion one way or another.

Moreover, if the Commissioner abuses his discretion by not following the parameters set by law, the CTA, not the Court of Appeals, may correct such abuse if the matter is appealed to it. Under Section 7 of RA 9282, The CTA shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided:

"1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue

In case of arbitrary or capricious exercise by the Commissioner of the power to compromise, the compromise can be attacked and reversed through the judicial process. It must be noted however, that a compromise is considered as other matters arising under the NIRC which vests the CTA with jurisdiction, and since the decision of the CTA is appealable to the Supreme Court, the Court of Appeals is devoid of any power of review a compromise settlement forged by the Commissioner (PNOC v. Savellano, G.R. No. 109976, April 26, 2005).

Therefore, the Court of Appeals does not have the power to review compromise agreements forged by the Commissioner of Internal Revenue and a taxpayer

Based on the Affidavit of the Commissioner of Internal Revenue (CIR), an Information for failure to file income tax return under Section 255 of the National Internal Revenue Code (NIRC) was filed by the Department of Justice (DOJ) with the Manila Regional Trial Court (RTC) against XX, a Manila resident.

XX moved to quash the Information on the ground that the RTC has no jurisdiction in view of the absence of a formal deficiency tax assessment issued by the CIR.

Is a prior assessment necessary before an Information for violation of Section 255 of the NIRC could be filed in court? Explain. (4%)

SUGGESTED ANSWER:

No, under Section 222 of the National Internal Revenue Code,

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

Furthermore, Section 205 provides that:

SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:

(b) By civil or criminal action.

It is reiterated in Section 6 of the NIRC that iIn case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

If an Information for failure to file income tax return under Section 255 of the National Internal Revenue Code (NIRC) was filed, a proceeding in court for the collection of the tax may be filed without an assessment. Thus, a prior assessment is not necessary.

What are the conditions that must be complied with before the Court of Tax Appeals may suspend the collection of national internal revenue taxes? (3%)

SUGGESTED ANSWER:

According to Section 11, RA 1125, as amended by RA 9282

Section 11. Who may appeal; effect of appeal. - Any person association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

No appeal taken by the Court of Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs shall suspend the payment, levy, distraint, and or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law; Provided, however, That when in the opinion of the Court the collection by the Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court;

Thus, the conditions are the following

the case is pending appeal with the CTA;
in the opinion of the Court the collection will jeopardize the interest of the Government and/or the taxpayer; and 3
. the taxpayer is willing to deposit in Court the amount being collected or to file a surety bond for not more than double the amount of the tax

What is the rule on appeal from decisions of the Collector of Customs in protest and seizure cases? When is the decision of the Collector of Customs appealable to the Court of Tax Appeals? Explain. (5%)

SUGGESTED ANSWER:

The rule on appeal from decisions of the Collector of Customs in protest and seizure cases is provided in Section 7 of RA 9282:

"Sec. 7. Jurisdiction. - The CTA shall exercise:

"a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

"4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs;

Also, according to Section 9 of RA 9282,

Any party adversely affected by a decision, ruling or inaction of the Collector of Customs, may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law.

Hence, the decision of the Collector of Customs appealable to the Court of Tax Appeals within 30 days after receipt of the decision.

2011

Mia, a compensation income earner, filed her income tax return for the taxable year 2007 on March 30, 2008. On May 20, 2011, Mia received an assessment notice and letter of demand covering the taxable year 2007 but the postmark on the envelope shows April 10, 2011. Her return is not a false and fraudulent return. Can Mia raise the defense of prescription?
A. No. The 3 year prescriptive period started to run on April 15, 2008, hence, it has not yet expired on April 10, 2011.
B. Yes. The 3 year prescriptive period started to run on April 15, 2008, hence, it had already expired by May 20, 2011.
C. No. The prescriptive period started to run on March 30, 2008, hence, the 3 year period expired on April 10, 2011.
D. Yes. Since the 3-year prescriptive period started to run on March 30, 2008, it already expired by May 20, 2011.

On July 31, 2011, Esperanza received a preliminary assessment notice from the BIR demanding that she pays P180,000.00 deficiency income taxes on her 2009 income. How many days from July 31, 2011 should Esperanza respond to the notice?
A. 180 days.

B. 30 days.

C. 60 days.

D. 15 days.

The BIR could not avail itself of the remedy of levy and distraint to implement, through collection, an assessment that has become final, executory, and demandable where
A. the subject of the assessment is an income tax.
B. the amount of the tax involved does not exceed P100.00.
C. the corporate taxpayer has no other uncollected tax liability.

D. the taxpayer is an individual compensation income earn

On March 30, 2005 Miguel Foods, Inc. received a notice of assessment and a letter of demand on its April 15, 2002 final adjustment return from the BIR. Miguel Foods then filed a request for reinvestigation together with the requisite supporting documents on April 25, 2005. On June 2, 2005, the BIR issued a final assessment reducing the amount of the tax demanded. Since Miguel Foods was satisfied with the reduction, it did not do anything anymore. On April 15, 2010 the BIR garnished the corporation's bank deposits to answer for the tax liability. Was the BIR action proper?

A. Yes. The BIR has 5 years from the filing of the protest within which to collect.
B. Yes. The BIR has 5 years from the issuance of the final assessment within which to collect.
C. No. The taxpayer did not apply for a compromise.
D. No. Without the taxpayer’s prior authority, the BIR action violated the Bank Deposit Secrecy Law.

Spanflex Int’l Inc. received a notice of assessment from the BIR. It seasonably filed a protest with all the necessary supporting documents but the BIR failed to act on the protest. Thirty days from the lapse of 180 days from the filing of its protest, Spanflex still has not elevated the matter to the CTA. What remedy, if any, can Spanflex take?

A. It may file a motion to admit appeal if it could prove that its failure to appeal was due to the negligence of counsel.
B. It may no longer appeal since there is no BIR decision from which it could appeal.
C. It may wait for the final decision of the BIR on his protest and appeal it to the CTA within 30 days from receipt of such decision.
D. None. Its right to appeal to the CTA has prescribed.

When a BIR decision affirming an assessment is appealed to the CTA, theBIR's power to garnish the taxpayer's bank deposits
A. is suspended to await the finality of such decision.
B. is suspended given that the CTA can reverse BIR decisions when prejudicial to the taxpayer.
C. is not suspended because only final decisions of the BIR are subject to appeal.
D. is not suspended since the continued existence of government depends on tax revenues.

Jeopardy assessment is a valid ground to compromise a tax liability
A. involving deficiency income taxes only, but not for other taxes.
B. because of doubt as to the validity of the assessment.
C. if the compromise amount does not exceed 10% of the basic tax.

D. only when there is an approval of the National Evaluation Board.

As a general rule, within what period must a taxpayer elevate to the Court of Tax Appeals a denial of his application for refund of income tax overpayment?
A. Within 30 days from receipt of the Commissioner’s denial of his application for refund.
B. Within 30 days from receipt of the denial which must not exceed 2 years from payment of income tax.
C. Within 2 years from payment of the income taxes sought to be refunded.
D. Within 30 days from receipt of the denial or within two years from payment.

What is the effect on the tax liability of a taxpayer who does not protest an assessment for deficiency taxes?
A. The taxpayer may appeal his liability to the CTA since the assessment is a final decision of the Commissioner on the matter.
B. The BIR could already enforce the collection of the taxpayer's liability if it could secure authority from the CTA.
C. The taxpayer's liability becomes fixed and subject to collection as the assessment becomes final and collectible.
D. The taxpayer's liability remains suspended for 180 days from the expiration of the period to protest.

There is prima facie evidence of a false or fraudulent return where the
A. tax return was amended after a notice of assessment was issued.

B. tax return was filed beyond the reglementary period.
C. taxpayer changed his address without notifying the BIR.
D. deductions claimed exceed by 30% the actual deductions.

No action shall be taken by the BIR on the taxpayer’s disputed issues until the taxpayer has paid the deficiency taxes
A. when the assessment was issued against a false and fraudulent return.

B. if there was a failure to pay the deficiency tax within 60 days from BIR demand.
C. if the Regional Trial Court issues a writ of preliminary injunction to enjoin theBIR.
D. attributable to the undisputed issues in the assessment notice.

Ka Tato owns a parcel of land in San Jose, Batangas declared for real property taxation, as agricultural. In 1990, he used the land for a poultry feed processing plant but continued to declare the property as agricultural. In March 2011, the local tax assessor discovered Ka Tato’s change of use of his land and informed the local treasurer who demanded payment of deficiency real property taxes from 1990 to 2011. Has the action prescribed?
A. No, the deficiency taxes may be collected within five years from when they fell due.
B. No. The deficiency taxes for the period 1990 up to 2011 may still be collected within 10 years from March 2011.
C. Yes. More than 10 years had lapsed for the period 1990 up to 2000, hence the right to collect the deficiency taxes has prescribed.
D. Yes. More than 5 years had lapsed for the collection of the deficiency taxes for the period 1990 up to 2005.

Apparently the law does not provide for the refund of real property taxes that have been collected as a result of an erroneous or illegal assessment by the provincial or city assessor. What should be done in such instance to avoid an injustice?
A. Question the legality of the no-refund rule before the Supreme Court.
B. Enact a new ordinance amending the erroneous or illegal assessment to correct the error.
C. Subsequent adjustment in tax computation and the application of the excess payment to future real property tax liabilities.
D. Pass a new ordinance providing for the refund of real property taxes that have been erroneously or illegally collected.

What should the BIR do when the prescriptive period for the assessment of a tax deficiency is about to prescribe but the taxpayer has not yet complied with the BIR requirements for the production of books of accounts and other records to substantiate the claimed deductions, exemptions or credits?
A. Call the taxpayer to a conference to explain the delay.
B. Immediately conduct an investigation of the taxpayer's activities.

C. Issue a jeopardy assessment coupled with a letter of demand.
D. Issue a notice of constructive distraint to protect government inter

The taxpayer seasonably filed his protest together with all the supporting documents. It is already July 31, 2011, or 180 days from submission of the protest but the BIR Commissioner has not yet decided his protest. Desirous of an early resolution of his protested assessment, the taxpayer should file his appeal to the Court of Tax Appeals not later than
A. August 31, 2011.

B. August 30, 2011.
C. August 15, 2011.

D. August 1, 2011.

2012

On April 15, 2011, the Commissioner of Internal Revenue mailed by registered mail the final assessment notice and the demand letr covering the calendar year 2007 with the QC Post Office. Which statement is correct?

a) The assessment notice is void because it was mailed beyond the prescriptive period;

b) The assessment notice is void because it was not received by the taxpayer within the three-year period from the date of filing of the tax return;

c) The assessment notice is void if the taxpayer can show that the same was received only after one (1) month from date of mailing;

d) The assessment notice is valid even if the taxpayer received the same after the three-year period from the date of filing of the tax return.

SUGGESTED ANSWER:

d) The assessment notice is valid even if the taxpayer received the same after the three-year period from the date of filing of the tax return.

Legal basis: According to Section 203 of the National Internal Revenue Code,

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.

A preliminary Assessment Notice (PAN) is NOT required to be issued by the BIR before issuing a Final Assessment Notice (FAN) on one of the following cases:

a) When a taxpayer does not pay the 2010 deficiency income tax liability on or before July 15 of the year;

b) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return;

c) When a discrepancy has been determined between the value added tax paid and the amount due for the year;

d) When the amount of discrepancy shown in the Letter Notice is not paid within thirty (30) days from date of receipt.

SUGGESTED ANSWER:

b) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return;

Legal basis: Section 228 of the National Internal Revenue Code,

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a pre-assessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return;

When a protest against the deficiency income tax assessment was denied by the BIR Regional Director of Quezon City, the appeal to the Court of Tax Appeals must be filed by a taxpayer:

a) If the amount of basic tax assessed is P100,000.00 or more;

b) If the amount of basic tax assessed is P300,000.00 or more;

c) If the amount of basic tax assessed is P500,000.00 or more;

d) If the amount of basic tax assessed is P1 Million or more;

SUGGESTED ANSWER:

: All the choices are correct.

Legal basis: "Sec. 7. Jurisdiction. - The CTA shall exercise:

"a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

Hence, all assessment disputes regardless of amount are appealable to the CTA.

The taxpayer received an assessment notice on April 15, 2011 and filed its request for reinvestigation against the assessment on April 30, 2011. Additional documentary evidence in support of its protest was submitted by it on June 30, 2011. If no denial of the protest was received by the taxpayer, when is the last day for the filing of its appeal to the CTA?

a) November 30, 2011;

b) December 30, 2011;

c) January 30, 2012;

d) February 28, 2012.

SUGGESTED ANSWER:

There is no correct answer in the above choices. The correct answer is August 29, 2012. According to Section 228 of the National Internal Revenue Code, If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

51. Which court has jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of the Statute of Limitations was validly effected?

a) City Courts;

b) Regional Trial Court;

c) Court of Tax Appeals;

d) Court of Appeals.

SUGGESTED ANSWER:

c) Court of Tax Appeals.

Legal basis: Section 7, RA 9282: "Sec. 7. Jurisdiction. - The CTA shall exercise:

"a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

Which statement below on compromise of tax liability is correct?

a) Compromise of a tax liability is available only at the administrative level;

b) Compromise of a tax liability is available only before trial at the CTA;

c) Compromise of a tax liability is available even during appeal, provided that prior leave of court is obtained;

d) Compromise of a tax liability is still available even after the court decision has become final and executory.

SUGGESTED ANSWER:c) Compromise of a tax liability is available even during appeal, provided that prior leave of court is obtained;

Legal basis: According to Revenue Regulation 30-2002

In case of full or partial denial of the written claim for refund or excess input tax directly attributable to zero-rated sales, or the failure on the part of the Commissioner to act on the application within 120 days from the date of submission of complete documents, an appeal must be filed with the CTA:

a) Within thirty (30) days after filing the administrative claim with the BIR;

b) Within sixty (60) days after filing the administrative claim with the BIR;

c) Within one hundred twenty (120) days after filing the administrative claim with the BIR;

d) Within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the 120-day period.

SUGGESTED ANSWER: d) Within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the 120-day period.

Legal basis: Section 112 C of NIRC

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) hereof. [73]

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

The submission of the required documents within sixty (60) days from the filing of the protest is available only where:

a) The taxpayer previously filed a Motion for Reconsideration with the BIR official;

b) The taxpayer previously filed a request for reconsideration with the BIR official;

c) The taxpayer previously filed a request for reinvestigation with the BIR official;

d) The taxpayer previously filed an extension to file a protest with the BIR official.

SUGGESTED ANSWER: c) The taxpayer previously filed a request for reinvestigation with the BIR official;

Legal basis: Section 228 of the National Internal Revenue Code,, Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

The prescriptive period for the collection of the deficiency tax assessment will be tolled:

a) If the taxpayer files a request for reconsideration with the Asst. Commissioner;

b) If the taxpayer files a request for reinvestigation that is approved by the Commissioner of Internal Revenue;

c) If the taxpayer changes his address in the Philippines that is communicated to the BIR official;

d) If a warrant of levy is served upon the taxpayer’s real property in Manila.

SUGGESTED ANSWER:

b) If the taxpayer files a request for reinvestigation that is approved by the Commissioner of Internal Revenue;

Legal basis: Section 223 of the National Internal Revenue Code,

SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.

Furthermore, in the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a "protest" is to be treated as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive period of the Commissioner to collect on an assessment. . ||| (Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, [October 17, 2005], 510 PHIL 1-37)

Which statement is correct? The collection of a deficiency tax assessment by distraint and levy:

a) May be repeated, if necessary, until the full amount due, including all expenses, is collected;

b) Must be done successively, first by distraint and then by levy;

c) Automatically covers the bank deposits of a delinquent taxpayer;

d) May be done only once during the taxable year.

SUGGESTED ANSWER:

a) May be repeated, if necessary, until the full amount due, including all expenses, is collected;

Legal basis: Section 217 of the National Internal Revenue Code,

SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected.

The prescriptive period to file a criminal action is:

a) Ten (10) years from the date of discovery of the commission of fraud or non-filing of tax return;

b) Five (5) years from the date of issuance of the final assessment notice;

c) Three (3) years from the filing of the annual tax return;

d) Five (5) years from the commission of the violation of the law, and if the same be not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.

SUGGESTED ANSWER:

Legal basis: Section 281 of the National Internal Revenue Code provides that

SEC. 281. Prescription for Violations of any Provision of this Code. - All violations of any provision of this Code shall prescribe after Five (5) years.

Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.

The prescription shall be interrupted when proceedings are instituted against the guilty persons and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy.

The term of prescription shall not run when the offender is absent from the Philippines.

The accused’s mere reliance on the representations made by his accountant, with deliberate refusal or avoidance to verify the contents of his tax return and to inquire on its authenticity constitutes:

a) Simple negligence;

b) Gross negligence;

c) Willful blindness;

d) Excusable negligence.

SUGGESTED ANSWER:

(D) None of the above. Section 6(B) of the NIRC authorizes the Commissioner to assess the property tax due from a taxpayer when he believes that the report the taxpayer submitted is false, incomplete, or erroneous. The same provision authorizes the Commissioner to amend the return from his own knowledge and from such information he can obtain through testimony or otherwise, which is deem d prima facie correct and sufficient for all legal purposes.

Mr. Alvarez is in the retail business. He received a deficiency tax assessment from the BIR containing only the computation of the deficiency tax and the penalties, without any explanation of the factual and legal bases for the assessment.

Is the assessment valid? - (1%)

(A) The assessment is valid; all that Mr. Alvarez has to know is the amount of the tax.

(B) The assessment is invalid; the law requires a statement of the facts and the law upon which the assessment is based.

(D) The assessment is invalid because Mr. Alvarez has no way to determine if the computation is erroneous.

SUGGESTED ANSWER:

(B) The assessment is invalid; the law requires a statement of the facts and the law upon which the assessment is based. Section 228 of the NIRC provides that a preliminart assessment notice shall inform the taxpayer in writing of the law and the facts on which the assessment is based as part of due process; otherwise, the assessment shall be void. In relation to this provision, Section 3 of RR No. 12-99 states that the preliminary assessment notice shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the assessment is based.

On October 15, 2005, ABC Corp. imported 1,000 kilos of steel ingots and paid customs duties and VAT to the Bureau of Customs on the importation. On February 17, 2009, the Bureau of Customs, citing provisions of the Tariff and Customs Code on post-audit, investigated and assessed ABC Corp. for deficiency customs duties and VAT.

Is the Bureau of Customs correct?

SUGGESTED ANSWER:

The Bureau of Customs was not correct. As to the VAT: The Bureau of Customs has no authority to assess ABC Corp. as this falls under the jurisdiction of the Bureau of Internal Revenue (BIR). Under Sec. 2 of the NIRC, the BIR’s powers and duties include, among others, the assessment and collection of all national internal revenue taxes, fees and charges. VAT is a national internal revenue tax under Title IV of the NIRC.

Under Sec. 12 of the NIRC, the Commissioner of Customs and his subordinates are merely agents and deputies for collection, not assessment of national internal revenue taxes. As to the deficiency customs duties found on post-audit, The Bureau of Customs was not correct in assessing deficiency customs duties. The facts show that the investigation and assessment on post-audit were made on February 17, 2009, which is more than three (3) years from October 15, 2005 which is the date of payment by ABC Corp. Sec. 4 of Republic Act 913510 amended Section 1603 of the Tariff and Customs Code of the Philippines. The provision states that when articles have been entered and passed free of duty or final adjustments of duties made, with subsequent delivery, such entry and passage free of duty or settlements of duties will, after the expiration of three (3) years from the date of the final payment of duties, in the absence of fraud or protest or compliance audit pursuant to the provisions of this Code, be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative. Customs Administrative Order No. 5-2001 which implements RA 9135, confirms the above conclusion.

In 2010, pursuant to a Letter of Authority (LA) issued by the Regional Director, Mr. Abcede was assessed deficiency income taxes by the BIR for the year 2009. He paid the deficiency. In 2011, Mr. Abcede received another LA for the same year 2009, this time from the National Investigation Division, on the ground that Mr. Abcede's 2009 return was fraudulent. Mr. Abcede contested the LA on the ground that he can only be investigated once in a taxable year. Decide.

SUGGESTED ANSWER:

Mr. Abcede’s contention is not correct; he may be re-investigated because he filed a fraudulent tax return for 2009. Section 235 of the NIRC provides that the books and records of taxpayers may be examined and inspected only once in a taxable year, except in cases of fraud, irregularity or mistakes, as determined by the Commissioner.

Taxpayer A was required by the BIR to sign and submit a waiver of the statute of limitations on the assessment period, to give the BIR more time to complete its investigation. The BIR accepted the waiver but failed to indicate the date of its acceptance. What is the legal status of the waiver? - (1%)

(A) The waiver is valid because the date of acceptance is immaterial and unimportant.

(B) The waiver is invalid; the taxpayer cannot be required to waive the statute of limitations.

(C) The waiver is invalid; the date of acceptance is crucial in counting the start of the period of suspension of the prescriptive period.

(D) The waiver is valid, having been accepted by the BIR.

SUGGESTED ANSWER:

(C) The waiver is invalid; the date of acceptance is crucial in counting the start of the period of suspension of the prescriptive period. Section 2 of the Revenue Memorandum Order No. 20-90 provides that the date of such acceptance by the BIR should be indicated. Both the date of execution by the taxpayer and date of acceptance by the BIR should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

Taxpayer Andy received on January 3, 2010 a preliminary assessment notice (PAN) from the BIR, stating that he had fifteen (15) days from its receipt to comment or to file a protest. Eight (8) days later (or on January11, 2010), before he could comment or file a protest, Andy received the final assessment notice (FAN). Decide on the validity of the FAN. - (1%)

(A) The FAN is invalid; Andy was not given the chance to respond to the PAN, in violation of his due process rights.

(B) The FAN is invalid for being premature.

(D) The FAN is valid. There is no legal requirement that the FAN should await the protest to the PAN because protest to the PAN is not mandatory.

SUGGESTED ANSWER:

(D) The FAN is valid. There is no legal requirement that the FAN should await the protest to the PAN because protest to the PAN is not mandatory. RR No. 12-99 provides for the due process requirement in the issuance of a deficiency tax assessment pursuant to Section 228 of the NIRC. Under 3.1.1 of RR No. 12-99, if the taxpayer is not amenable to the submitted report of investigation of the revenue officer, the taxpayer shall be informed by the BIR, in writing, of the discrepancy/discrepancies for purposes of the informal conference in order to afford the taxpayer with an opportunity to present his side of the case. His failure to respond within 15 days from the date of the receipt of the notice for the informal conference would result in the issuance of PAN.

Therefore, prior to the issuance of the PAN, the taxpayer is already given the opportunity to present his side. Although the same RR provides that the taxpayer is given 15 days to file a protest, his failure to do so or the issuance by the BIR of the FAN before the expiration of the 15-day period, as in the given problem, shall not defeat Andy’s right to due process. Upon issuance of the FAN, Andy may still file an administrative protest within thirty (30) days from the date of receipt thereof. In case of denial of the protest by the Commissioner’s authorized representative, Andy may still elevate the adverse decision to the Commissioner within 30 days from its receipt. He may, thereafter, elevate the adverse decision to the CTA and, finally, to the Supreme Court.

Considering, therefore, that Andy could present his side before and after the issuance of the PAN, the reply to the latter is mandatory.

In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax credits arising from its over-withholding of income payments. It opted to carry over the excess tax credits to the following year. Subsequently, ABC Corp. changed its mind and applied for a refund of the excess tax credits. Will the claim for refund prosper?

SUGGESTED ANSWER:

The claim for refund will not prosper as it is barred by the irrevocability rule.

Paragraph 2, Section 76 of the NIRC embodies the irrevocability rule. This rule provides that a corporation which is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry-over the excess credit; or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the corporation opts to carry-over its excess credit in the final adjustment return, its choice shall be irrevocable for that taxable period. The purpose of this rule is to prevent a taxpayer from claiming excess tax credits twice.

In the given problem, ABC Corp. opted to carry-over its excess tax credits for the 2010 taxable year. Consequently, ABC Corp. can no longer revoke its choice to carry-over the excess tax credits and instead claim for a refund.

MSI Corp. imports orange and lemon concentrates as raw materials for the fruit drinks it sells locally. The Bureau of Customs (BOC) imposed a 1% duty rate on the concentrates. Subsequently, the BOC changed its position and held that the concentrates should be taxed at 7% duty rate. MSI disagreed with the ruling and questioned it in the CTA which upheld MSI's position. The Commissioner of Customs appealed to the CTA en bane without filing a motion for reconsideration. Resolve the appeal. - (1%)

(A) The appeal should be dismissed because a motion for reconsideration is mandatory.

(B) The appeal should be dismissed for having been filed out of time.

(D) The appeal should be upheld to be fair to the government which needs taxes.

SUGGESTED ANSWER:

The present case is similar to the case of Commissioner of Customs vs. Marina Sales, Inc. (G.R. No. 183868, November 22, 2010) where the Supreme Court held that Rule 8, Section 1 of the Revised Rules of Court of Tax Appeals requires that “the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.” The word “must” clearly indicates the mandatory, not merely directory, nature of a requirement.”

2014

When is a pre-assessment notice required under the following cases? (1%)

(A) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return.

(B) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent.

(D) When an article locally purchased or imported by an exempt person, such as, but not limited to vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

SUGGESTED ANSWER:

Mr. Tiaga has been a law-abiding citizen diligently paying his income taxes. On May 5, 2014, he was surprised to receive an assessment notice from the Bureau of Internal Revenue (BIR) informing him of a deficiency tax assessment as a result of a mathematical error in the computation of his income tax, as appearing on the face of his income tax return for the year 2011, which he filed on April 15, 2012. Mr. Tiaga believes that there was no such error in the computation of his income tax for the year 2011. Based on the assessment received by Mr. Tiaga, may he already file a protest thereon? (4%)

SUGGESTED ANSWER:

Yes, Mr. Tiaga may already file a protest. Rev. Regs. No. 18-2013, implementing Sec. 228 of the Tax Code, states that no PAN is required if the deficiency tax is a result of a mathematical error in the computation of tax as appearing on the face of the tax return. In such case, an FLD/FAN shall be issued outright. Thus, Mr. Tiaga may consider the assessment notice as a final assessment notice and his right to protest within 30 days from receipt may now be exercised by him.

On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of assessment against Blue Water Industries Inc. (BWI), a domestic corporation, informing the latter of its alleged deficiency corporate income tax for the year 2009. On April 20, 2012, BWI filed a letter protest before the BIR contesting said assessment and demanding that the same be cancelled or set aside.

However, on May 19, 2013, that is, after more than a year from the filing of the letter protest, the BIR informed BWI that the latter’s letter protest was denied on the ground that the assessment had already become final, executory and demandable. The BIR reasoned that its failure to decide the case within 180 days from filing of the letter protest should have prompted BWI to seek recourse before the Court of Tax Appeals (CTA) by filing a petition for review within thirty (30) days after the expiration of the 180-day period as mandated by the provisions of the last paragraph of Section 228 of the National Internal Revenue Code (NIRC). Accordingly, BWI’s failure to file a petition for review before the CTA rendered the assessment final, executory and demandable. Is the contention of the BIR correct? Explain. (5%)

SUGGESTED ANSWER:

No. the contention of BIR is not correct. Notwithstanding the lapse of the 180-day period, BWI had the option to await the BIR’S final decision on its protest before filing a Petition for Review with the CTA. Pursuant to the case of Lascona Land Co., Inc. v. Commissioner of Internal Revenue (G.R. No. 171251, March 5, 2012), in case the Commissioner fails to act on a taxpayer’s protest within the 180-day period, a taxpayer can either: (i) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (ii) await the final decision of the Commissioner on the disputed assessments, and thereafter appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision. In the present case, BWI simply availed itself of the second option.

The City of Liwliwa assessed local business taxes against Talin Company. Claiming that there is double taxation, Talin Company filed a Complaint for Refund or Recovery of Illegally and/or Erroneously-collected Local Business Tax; Prohibition with Prayer to Issue Temporary Restraining Order and Writ of Preliminary Injunction with the Regional Trial Court (RTC). The RTC denied the application for a Writ of Preliminary Injunction. Since its motion for reconsideration was denied, Talin Company filed a special civil action for certiorari with the Court of Appeals (CA). The government lawyer representing the City of Liwliwa prayed for the dismissal of the petition on the ground that the same should have been filed with the Court of Tax Appeals (CTA). Talin Company, through its lawyer, Atty. Frank, countered that the CTA cannot entertain a petition for certiorari since it is not one of its powers and authorities under existing laws and rules. Decide. (5%)

SUGGESTED ANSWER:

The government lawyer is correct that it is the CTA that is vested with proper jurisdiction. The law is clear when it said that the CTA shall have exclusive appellate jurisdiction to review by appeal the decisions, orders or resolutions of the RTC, in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction (Section 7(3), R.A. 9282). In the case of City of Manila v. Ho. Caridad H. Grecia-Cuerdo (G.R. No. 175723, February 4, 2014), it was held that the CTA has jurisdiction over a special civil action for certiorari assailing interlocutory orders issued by the RTC in local tax cases filed before it.

2015

On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment issued by the Commissioner of Internal Revenue (CIR) dismissing the protest of CCC, Inc. and affirming the assessment against said corporation. On June 10, 2013, CCC, Inc. filed a Petition for Review with the Court of Tax Appeals (CTA) in division. On July 31, 2015, CCC, Inc. received a copy of the Decision dated July 22, 2015 of the CT A division dismissing its Petition. CCC, Inc. immediately filed a Petition for Review with the CT A en banc on August 6, 2015. Is the immediate appeal by CCC, Inc. to the CTA en banc of the adverse Decision of the CTA division the proper remedy? (3%)

SUGGESTED ANSWER:

GGG, Inc. should seek recourse with the Court of Tax Appeals. Section 7 (a)(6) of R.A. 9282 states that the Court of Appeals has exclusive appellate jurisdiction to review by appeal, the ‘decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees, other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered under the Bureau of Internal Revenue’.

Here, GGG, Inc. may seek relief from the adverse decision of the Secretary denying its request to rule that the transfer of shares of stock be exempted from donor’s tax by filing a petition with the Court of Tax Appeals which possesses jurisdiction to review cases decided they the Secretary. The Court of Appeals was correct to dismiss the petition filed before it as it did not have jurisdiction to hear and decide upon the petition. Thus, the Court of Tax Appeals is the proper court of jurisdiction in this case.

After filing an Information for violation of Section 254 of the National Internal Revenue Code (Attempt to Evade or Defeat Tax) with the CTA, the Public Prosecutor manifested that the People is reserving the right to file the corresponding civil action for the recovery of the civil liability for taxes. As counsel for the accused, comment on the People's manifestation. (3%)

SUGGESTED ANSWER:

I will question the validity of the manifestation. Under Rules of Procedure of the Court of Tax Appeals (Section 11), any criminal action and the corresponding civil action for the recovery of civil liability for for taxes and penalties shall be deemed jointly instituted in the same proceeding. The filing of the criminal action shall necessarily carry with it the filing of the civil action. No right to reserve the filing of such civil action separately from the criminal action shall be allowed or recognized.

The public prosecutor is misplaced in manifesting the reservation of the civil liability corresponding to the criminal liability because the law expressly provides that the same is prohibited. Thus, while the information is for violation of the National Internal Revenue Code for an offense with penal sanction, the general rule that the civil action may be reserved or tried separately from the criminal action does not apply in this case.

2016

State at least five (5) cases under the exclusive appellate jurisdiction of the Court of Tax Appeals (CTA).

SUGGESTED ANSWER:

No, BIR is incorrect in denying SMZ Inc.’s application for the VAT zero-rating of its sale of services. Sec 112(a) of 1997 NIRC, as amended, provides that any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. Thus, SMZ, Inc., as a VAT-registered enterprise, is entitled to apply tax credit certificate or refund of creditable input tax due within 2 years. Additionally, Section 108 (B)(3), of the 1997 NIRC as amended, provides that services rendered to persons or entities whose exemption under special laws effectively subjects the supply of such services to zero percent (0%) rate are considered zero-rated. Considering the law does not provide for any additional qualification or disqualification, the BIR cannot deny the application on the ground that HP International already enjoys income tax holiday.

All sales of goods, properties, and services made by a VAT-registered supplier from the Customs Territory to an ecozone enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latter’s type or class of PEZA registration. (Coral Bay Nickel Corporation v. CIR, G.R. No. 190506, June 13, 2016, citing CIR v. Toshiba Information Equipment (Phils.), Inc., G.R. No. 350154, August 9, 2005, 466 SCRA 221)

Wreck Corporation is a domestic corporation engaged in the business of importing, reﬁning and selling petroleum products. During the period from September 1, 2014 to December 31, 2014, Wreck Corporation imported 225 million liters of Jet A-1 aviation fuel and paid the excise taxes thereon. Seventy-ﬁve percent (75%) of the total volume of aviation fuel imported were actually sold to international carriers of Philippine and foreign registries for their use or consumption outside of the Philippines in the period from November 1, 2014, to December 31, 2014. Wreck Corporation did not pass on to the international carriers the excise taxes it paid on the importation of petroleum products.

On June 25, 2015, Wreck Corporation ﬁled an administrative claim for refund or issuance of tax credit certiﬁcate amounting to the excise taxes it had paid on the importation of 225 million liters of Jet A-1 aviation fuel.

If you were the Commissioner of Internal Revenue, will you grant Wreck Corporation’s administrative claim for refund or issuance of tax credit certificate? Explain your answer.

SUGGESTED ANSWER:

Yes I will grant the clam for tax refund or issuance of tax credit certificate , but only the excise tax which corresponds to the 75% of the total volume of aviation fuel imported that were actually sold to the international carriers pursuant to Sec. 135(a) of 1997 NIRC, as amended. Sec. 135(a) provides that petroleum products sold to international carriers of Philippine or foreign registry on their use or consumption outside the Philippines are exempt from excise tax. Wreck Corporation, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the excise taxes it paid corresponding to the 75% volume of aviation fuel imported were actually sold to international carriers of Philippine and foreign registries. (CIR v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497, February 19, 2014)

Vanderful, Inc.’s income tax return for taxable year 2015 showed an overpayment due to excess creditable withholding taxes in the amount of P750,000. The company opted to carry over the excess income tax credits as tax credit against its quarterly income tax liabilities for the next succeeding years. For taxable year 2016, the company’s income tax return showed an overpayment due to excess creditable withholding taxes in the amount of P1,100,000, which included the carry-over from year 2015 in the amount of P750,000 because its operations resulted in a net loss hence, there was no application for any tax liability. This time, the company opted and marked the box “To be refunded” in respect of the total amount of P1,100,000.

Vanderful, lnc. now ﬁles in the BIR a claim for refund of unutilized overpayments of P1,100,000. Is the claim meritorious?

SUGGESTED ANSWER:

No the claim is not meritorious, but only to the extent of the amount of P750,000.00 which was carried over from year 2015 to 2016. Section 76 of 1997 NIRC, as amended, clearly states that in case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. It was expressly stated by Sec. 76 that the option shall be considered irrevocable for that taxable period referring to the period comprising the succeeding taxable years. It further stated that no application for cash refund or issuance of a tax credit certificate shall be allowed referring to such taxable period once made and not utilized; it cannot be carried over the next succeeding year. (Asiaworld Properties Philippine Corporation v. CIR, G.R. No. 171766, July 29, 2010)

On March 30, 2016, XL Co. filed an administrative claim for refund of unutilized input VAT for taxable year 2014, together with supporting documents. XL Co. claimed that its sale of generated power and delivery of electric capacity was VAT zero-rated. Due to the inaction of the Commissioner of Internal Revenue (CIR), XL Co. filed with the Court of Tax Appeals (CTA) the following judicial claims for refund.

Period Covered Date Filed

1st Quarter of 2014 March 31, 2016

2nd Quarter of 2014 June 30, 2016

3rd and 4th quarter of 2014 August 12, 2016

Is XL Co.’s claim for VAT refund timely filed? Explain your answer.

SUGGESTED ANSWER:

The claims for VAT refund, which are administrative in nature, have been timely filed. However, the same is not the case as to the judicial claims. Only the judicial claim filed on August 12, 2016 is timely filed. As provided by Section 112(C), 1997 NIRC, as amended, one of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30 day mandatory and jurisdictional periods. Commissioner grants a refund or issue the tax credit certificate for creditable input taxes within 120 days from the date of submission of complete documents however in case of full or partial denial of the claim for tax refund or tax credit, or inaction on the part of Commissioner on the application, the taxpayer affected may, within 30 days from the receipt of the decision denying the claim or after the expiration of the one hundred 120-period, appeal the decision or the unacted claim with the Court of Tax Appeals. Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper. (CIR v. San Roque Power Corporation, G.R. No. 187485, 196113 and 197156, February 12, 2013)

Applying the rule to the present case, the 120th day from the filing of the administrative claim fell on July 28, 2016. XL Co. may file the judicial claim from July 29, 2016 to August 27, 2016; thus, only the judicial claim filed on August 12, 2016 has been timely filed.

Calvin Dela Pisa was a Permits and Licensing Officer (rank-and-file) of Sta. Portia Realty Corporation (SPRC). He invited the Regional Director of the Housing and Land Use Regulatory Board (HLURB) to lunch at the Sulo Hotel in Quezon City to discuss the approval of SPRC’s application for a development permit in connection with its subdivision development project in Pasig City. At breakfast the following day, Calvin met a prospective client interested to enter into a joint venture with SPRC for the construction of a residential condominium unit in Cainta, Rizal.

Calvin incurred expenses for the lunch and breakfast meetings he had with the Regional Director of HLURB and the prospective client, respectively. The expenses were duly supported by official receipts issued in his name. At month’s end, he requested the reimbursement of his expenses, and SPRC granted his request.

(A) Can SPRC claim an allowable deduction for the expenses incurred by Calvin? Explain your answer.

(B) Is the reimbursement received by Calvin from SPRC subject to tax? Explain your answer.

SUGGESTED ANSWER:

(A) Yes, SPRC claim an allowable deduction for the expenses incurred. Section 34 (A)(1)(a) of the 1997 NIRC, as amended, provides that there shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business. To be deductible from gross income, an expense must comply with the following requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers. (CIR v. General Foods (Phils.), Inc., G.R. No. 143672, April 24, 2003) Since the expenses incurred by Calvin are pursuant to his duties as an employer and for the benefit of the Sta. Portia Realty Corporation (SPRC) and such is supported by official receipts issued in the name of Calvin Dela Pisa, SPRC claim an allowable deduction for the necessary expenses.

While Section 34 (A)(1)(b) of the 1997 NIRC, as amended, does not require that the substantiation be in the form of official receipts or invoices issued in the name of the taxpayer claiming the expense. It must only be proven that there is a “direct connection or relation of the expense being deducted to the development management, operation and/or conduct of the trade, business or profession of the taxpayer”.

(B) No. Any amount paid as reimbursements for representation incurred by the employee in the performance of his duties is not compensation subject to withholding, if the following conditions are satisfied: (i) It is for ordinary and necessary representation expense paid or incurred by the employee in the pursuit of the trade, business or profession; and (ii) The employee is required to account/liquidate for the such expense in accordance with the specific requirements of substantiation pursuant to Sec. 34 of the 1997 NIRC, as amended.

On April 30, 2015, Daryl resigned as the production manager of 52nd Avenue, a television studio owned by SSS Entertainment Corporation. 52nd Avenue issued to her a Certificate of Withholding Tax on Compensation (BIR Form No. 2316), which showed that the tax withheld from her compensation was equal to her income tax due for the period from January 2015 to April 30 2015.

A month after her resignation, Daryl put up her own studio and started producing short films. She was able to earn a meager income from her short films but did not keep record of her production expenses.

Is Daryl qualified for substituted filing for taxable year 2015? Explain your answer.

SUGGESTED ANSWER:

No. Pursuant to the relevant revenue issuance, only an individual receiving purely compensation income, regardless of amount, from only one employer in the Philippines for the calendar year, the income tax of which has been withheld correctly by the said employer shall qualify for substituted filing of income tax return (Revenue Regulations No. 3-2002). Daryl, after resignation from previous employment, within the same calendar year derived income from producing short films. Thus, the income derived for the calendar year 2015 is not purely compensation income for such calendar. Accordingly, the amount withheld from her compensation income is not equal to the income tax due on his aggregate taxable income during the taxable year.

On January 27, 2017, Ramon, the comptroller of Vantage Point, Inc., executed a document entitled “Waiver of the Statute of Limitations” in connection with the BIR’s investigation of the tax liabilities of the company for the year 2012. However, the Board of Directors of Vantage Point, Inc., did not adopt a board resolution authorizing Ramon to execute the waiver.

On October 14, 2017, Vantage Point, Inc., received a preliminary assessment notice from the BIR indicating its deficiency withholding taxes for the year 2012. Vantage Point, Inc., filed its protest. On October 30, 2017, the BIR issued a formal letter of demand and final assessment notice. Vantage Point, Inc., again filed a protest. The Commissioner of Internal Revenue denied the protests and directed the collection of the assessed deficiency taxes.

Accordingly, Vantage Point, Inc., filed a petition for review in the CTA to seek the cancellation and withdrawal of the assessment on the ground of prescription.

(A) What constitutes a valid waiver of the statute of limitations for the assessment and collection of taxes? Explain your answer.

(B) Has the right of the Government to assess and collect deficiency taxes from Vantage Point, Inc. for the year 2012 prescribed? Explain your answer.

SUGGESTED ANSWER:

(A) As held by the Court in the case of CIR v. Kudos Metal Corporation, generally, a valid waiver of the statute of limitations for the assessment and collection of taxes must be executed by the taxpayer and accepted by the BIR prior to the expiration of the period which it seeks to extend. The same must also be executed by the taxpayer or his duly authorized representative, or in the case of a corporation, it must be signed by any of its responsible officers. Such requirements must be met considering that a waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed.

(B) Yes, the right of the government to assess and collect deficiency taxes from Vantage Point, Inc. for the year 2012 has prescribed.

According to Section 203 of the 1997 NIRC, as amended, internal revenue taxes shall be assessed within 3 years after the last day prescribed by law for the filing of the return. In the problem, final assessment was issued beyond the three-year prescriptive period. The Waiver did not extend three-year prescriptive period since it was executed after the expiration of such period.

The Board of Directors of Sumo Corporation, a company primarily engaged in the business of marketing and distributing pest control products, approved the partial cessation of its commercial operations, resulting in the separation of 32 regular employees. Only half of the affected employees were notified of the board resolution.

Rule on the taxability of the separation pay and indemnity that will be received by the affected employees as the result of their separation from service. Explain your answer.

SUGGESTED ANSWER:

The separation pay and indemnity received by the affected employees shall be tax-exempt. Under Section 32(B)(6)(b) of the 1997 NIRC, as amended, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death sickness or other physical disability or for any cause beyond the control of the said official or employee shall be exempt from taxation. Thus, the separation pay and indemnity that will be received by the 32 affected employees as the result of their separation from service will not be subject to gross income tax.

On September 17, 2015, Data Realty, Inc., a real-estate corporation duly organized and existing under Philippine law, sold to Jenny Vera a condominium unit at Freedom Residences in Malabon City with an area of 32.31 square meters for a contract price of P4,213,000. The condominium unit had a zonal value amounting to P2,877,000 and fair market value amounting to P550,000.

(A) Is the transaction subject to value-added tax and documentary stamp tax? Explain your answer.

(B) Would your answer be the same if the property was sold by a bank in a foreclosure sale? Explain your answer.

SUGGESTED ANSWER:

(A) Yes. As provided by Section 106 (A)(1)(a), 1997 NIRC, as amended, sale of real properties held primarily for sale to customer or held for lease in the ordinary course of trade or business is subject to VAT. Further, the contract price, which is the highest compared to the zonal value and the fair market value, is beyond the transactional threshold amount for residential dwellings thereby making the sale transaction VATable. As to the Documentary Stamp Tax liability, Sec. 196 of 1997 NIRC, as amended, provides that all deeds of sale and conveyances of real property whereby any land, tenement, or other realty sold are granted, assigned, transferred or otherwise conveyed to the purchaser, there shall be collected a documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value, whichever is higher.

(B) No, but only insofar as the bank’s VAT liability in a foreclose sale. While the Documentary Stamp Tax may still be imposed despite the bank being the seller, the VAT may not be imposed on such transaction. This is owing to the fact that banks are subject to percentage tax under Sec. 121 of the NIRC, as amended, and Sec. 109(e) exempts services that are already subject to percentage tax under Title V. Thus, if the property was sold by a bank in a foreclosure sale such transaction is would not be subject to value-added tax.

Globesmart Services, Inc. received a final assessment notice with formal letter of demand from the BIR for deficiency income tax, value-added tax and withholding tax for the taxable year 2016 amounting to P48 million. Globesmart Services, Inc., fied a protetst against the assessment, but the Commissioner of Internal Revenue denied the protest. Hence, Globesmart Services, Inc. filed a petition for review in the CTA with an urgent motion to suspend the collection of tax.

After hearing, the CTA Division issued a resolution granting the motion to suspend but required Globesmart Services, Inc., to post a surety bond equivalent to the deficiency assessment within 15 days from notice of the resolution. Globesmart Services, Inc. moved for the partial reconsideration of the resolution and for the reduction of the bond to an amount it could obtain. The CTA division issued another resolution reducing the amount of the surety bond to P24 million. The latter amount was still more than the net worth of Globesmart Services, Inc., as reported in its audited financial statements.

(A) May the collection of taxes be suspended? Explain your answer.

(B) Is the CTA Division justified in requiring Globesmart Services, Inc., to post a surety bond as a condition for the suspension of the deficiency tax collection? Explain your answer.

SUGGESTED ANSWER:

(A) Yes, the collection of taxes may be suspended.

As provided by RA No. 1125, as amended by RA No. 9282, when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer, the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

(B) No, the CTA Division is not justified in requiring Globesmart Services, Inc to post a surety bond as a condition for suspension of the deficiency in tax collection.

In the case of Pacquiao v. Court of Tax Appeals, the Supreme Court held that the CTA should first conduct a preliminary hearing for the proper determination of the necessity of a surety bond or the reduction thereof. In the conduct of its preliminary hearing, the CTA must balance the scale between the inherent power of the State to tax and its right to prosecute perceived transgressors of the law, on one side; and the constitutional rights of petitioners to due process of law and the equal protection of the laws, on the other.

In this case, the CTA failed to consider that the amount of the surety bond that it is asking Globesmart Services, Inc. to pay is more than its net worth. Thus, it is necessary for the CTA to first conduct a preliminary hearing to give the taxpayer an opportunity to prove its inability to come up with such amount.

Distinguish compromise from abatement of taxes.

SUGGESTED ANSWER:

A compromise of tax is a remedy which is available when there is a reasonable doubt as to the validity of the claim against taxpayer exists, or when the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

Meanwhile, abatement of tax is available as a remedy when the tax or any portion thereof appears to be unjustly or excessively assessed, or when the administration and collection costs involved do not justify the collection of the amount due.

The BIR assessed the Babuyan Water District (BWD) with deficiency income taxes amounting to P8.5 million, inclusive of interest and surcharge. The BWD disputed the assessment, and argued that it was a wholly-owned government entity performing essential government functions. However, the BIR denied the protest.

The BWD filed a petition for arbitration in the Office of the Secretary of Justice pursuant to Sections 66 to 71, Chapter 14, Book IV of the Administrative Code of 1987 to assail the denial of its protest, and to seek the proper interpretation of Section 32(B)(7)(b) of the Tax Code that excluded from gross income the income derived by the Government or its political subdivisions. The Secretary of Justice rendered a decision declaring the BWD exempt from the payment of income tax.

The Commissioner of Internal Revenue appealed to the CTA on the sole ground that the Secretary of Justice had no jurisdiction to review the assessment of the BIR.

Is the appeal meritorious? Explain your answer.

SUGGESTED ANSWER:

No, the appeal is not meritorious.

Section 7(a) of RA No. 1125, as amended by RA 9282 enumerates CTA’s exclusive appellate jurisdiction to review by appeal certain decisions or inaction but not that of a Secretary of Justice. Moreover, Section 7(a)(1) of the same law, specifically the phrase “other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue” must be read together with words preceding it, i.e., “decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, x x x”, following the statutory construction principle of ejusdem generis.

2018

The BIR Commissioner, in his relentless enforcement of the Run After Tax Evaders (RATE) program, filed with the Department of Justice (DOJ) charges against a movie and television celebrity. The Commissioner alleged that the celebrity earned around PhP 50 million in fees from product endorsements in 2016 which she failed to report in her income tax and VAT returns for said year. The celebrity questioned the proceeding before the DOJ on the ground that she was denied due process since the BIR never issued any Preliminary Assessment Notice (PAN) or a Final Assessment Notice (FAN), both of which are required under Section 228 of the NIRC whenever the Commissioner finds that proper taxes should be assessed.

Is the celebrity's contention tenable? (2.5%)