TAXATION LAW II

Value-Added Tax

Cases Doctrine/Ruling
Kapatiran vs.  VAT is constitutional. The President had authority to issue EO
Tan 273 as it was provided in the Provisional Constitution that the
President shall have legislative powers.
 Petitioners failed to prove that EO 273 is oppressive,
discriminatory, unjust and regressive, in violation of the equal
protection clause.
o Petitioners merely rely upon newspaper articles which are
actually hearsay and have evidentiary value. To justify the
nullification of a law. there must be a clear and
unequivocal breach of the Constitution, not a doubtful and
argumentative implication. As the Court sees it, EO 273
satisfies all the requirements of a valid tax.
Tolentino vs.  RA 7716 – An Act Restructuring the VAT System
Secretary of  It is of no moment that the law did not originate exclusively from
Finance the House of Representatives as it should not be the law which is
required by the Constitution to come from the lower house but the
Revenue Bill.
o To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the
enactment of the law must substantially be the same as
the House bill would be to deny the Senate’s power not
only to concur with amendments but also to propose
amendments.
ABAKADA Guro  Delegation to the President of the power to raise the VAT from
Partylist vs. 10% to 12% is valid since the delegation only amounts to a
Ermita ministerial function on the part of the President to raise the
amount of VAT and not discretionary on his part.
o Thus, it is the ministerial duty of the President to
immediately impose the 12% rate upon the existence of
any of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as
the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the
specified conditions are present.
CIR vs.  Sale of vessels by a corporation whose VAT-registered activity is
Magsaysay Lines leasing out personal property is not subject to VAT because the
sale was not in the ordinary course of business.
 Course of Business or Doing Business – what is usually done
in the management of trade or business which connotes
regularity; The regular conduct or pursuit of a commercial or
economic activity, including incidental transactions, by any
person.
 The sale was involuntary and was made in pursuant to the
declared policy of government for privatization could no longer be
repeated or carried on with regularity
Mindanao II  Mindanao II is engaged in the sale of electricity. It decided to sell
Geothermal a fully depreciated Nissan Patrol car which is previously booked
Partnership vs. as part of its property, plant, and equipment (PP&E – ordinary
CIR asset).
 The sale is subject to VAT because it is incidental to the business
of Mindanao II. Tax Code provides that a transaction in the
course of trade or business includes “transaction incidental
thereto”.
 Although the sale is an isolated transaction, it does not follow that
an isolated transaction cannot be an incidental transaction for
purposes of VAT liability.
 What is sold is an personal property classified as an ordinary
asset used in the business.
 2-year period is to be counted from the close of the taxable
quarter when the relevant sale (not purchase) was made
PSALM vs. CIR  PSALM was created for the privatization of NPC and it sold 2
power plants which sale was assessed with VAT liabilities.

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 The sale is not subject to VAT because the sale of the power
plants is not in pursuit of a commercial or economic activity but a
governmental function mandated by law to privatize NPC
generation assets
o PSALM is limited to selling only NPC assets and IPP
contracts of NPC. The sale of NPC assets by PSALM is
not “in the course of trade or business” but purely for the
specific purpose of privatizing NPC assets in order to
liquidate all NPC financial obligations. PSALM is tasked to
sell and privatize the NPC assets within the term of its
existence.
Philippine  (PA) sold to NOC and Voice of America oxygen and acetylene
Acetylene vs. gases which such sales was assessed with deficiency of sale tax
CIR (VAT) despite the buyers being exempt from taxation.
 PA is liable for VAT because exemption from taxes is personal in
nature and covers only taxes for which the taxpayer-grantee is
directly liable.
 VAT is a tax on the seller who is not exempt from taxes.
 Since PA is directly liable for the sales of tax and no tax
exemption privilege was given by the buyer to the seller then PA
cannot claim that the sale is exempt from tax.
CIR vs. John  The WHO issued a certification that Gotamco should be
Gotamco and exempted, but the Commissioner insisted on the tax.
Sons  Gotamco is not liable for tax.
 Herein, the contractor’s tax is payable by the contractor but it is
the owner of the building that shoulders the burden of the tax
because the same is shifted by the contractor to the owner as a
matter of self-preservation. Such tax is an “indirect tax” on the
organization, as the payment thereof or its inclusion in the bid
price would have meant an increase in the construction cost of
the building.
o Hence, WHO’s exemption from “indirect taxes” implies
that Gotamco is exempt from contractor’s tax.
CIR vs. American  The taxpayer who can file a claim for refund is the person
Rubber statutorily liable for the payment of the tax.
CIR vs. Sony  Financial assistance equivalent to advertising expense is but just
a mere dole out which should not be subject to VAT since there is
no sale, barter or exchange in the subsidy given.
 The subsidy for the services rendered by the advertising
companies, paid for by the taxpayer evidenced by a VAT invoice,
using its affiliate’s dole out or assistance in view of the taxpayer’s
dire or adverse economic conditions, in the amount equivalent to
the latter’s advertising expense but the affiliate never received
any good, properties, or service from the taxpayer, is not subject
to VAT.
 The reimbursement by the affiliate may be considered as income
of the taxpayer, and, therefore, subject to income tax, but the
same cannot be subject to VAT.
Medicard  The amounts earmarked and eventually paid by MEDICARD to
Philippines Inc the medical service providers do not form part of gross receipts
vs. CIR for VAT purposes.
 For purposes of determining the VAT liability of an HMO, the
amounts earmarked for payment to unrelated third (3rd) party (or
received as reimbursement for advance payment on behalf of
another which do not redound to the benefit of the payor) should
not be included in the computation of its gross receipts.
Philippine  The domestic sales of pineapples and pineapple products grown
Packing and canned by PPC are exempt from VAT.
Corporation vs.  The very text of the law, in exempting "agricultural products —
CIR whether in their original state or not," makes it clear that the
exemption is not divested merely because the products
themselves have undergone processing of some kind.
 The canning of the products is but a mere incident and
consequence of its large-scale production of pineapples.
CIR vs. United  Sugar is an agricultural food product. However, tax regulation
Cadiz Sugar differentiate between raw sugar and refined sugar.

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Farmers  The sale of raw cane sugar is EXEPMT from VAT because it is
Association; considered to be in its original state.
 Refined sugar is an agricultural product that can no longer be
CIR vs. Negros considered to be in its original state because it has undergone
Consolidated the refining process hence its sale is subject to VAT.
Farmers Multi- o Nonetheless, in the case of United Cadiz, the Court said
Purpose that the sale of refined sugar is not subject to VAT
Cooperative because although as a general rule, the sale of refined
sugar is subject to VAT, it is exempt when the sale of
refined sugar is made by an agricultural cooperative duly
registered and the sale was made exclusively to its
members or both to members and non-members when its
produce (whether in original state or processed form)
 The sale of refines sugar by an agricultural cooperative duly
registered with the CDA is exempt from VAT.
o If the cooperative transacts only with members, all its
sales are VAT-exempt, regardless of what it sells.
o If the cooperative transacts with both members and
customers, the product sold must be the cooperative’s
own produce in order to be VAT-exempt.
Western  The term “zero-rated” must be indicated in the Official Receipt for
Mindanao Power purposes of claiming refunds.
Corp. vs. CIR;  In a claim for tax refund or tax credit, the applicant must prove
not only entitlement to the grant of the claim under substantive
Panasonic vs. law. It must also show satisfaction of all the documentary and
CIR evidentiary requirements for an administrative claim for a refund
or tax credit.
o The mere fact that petitioner’s application for zero-rating
has been approved by the CIR does not, by itself, justify
the grant of a refund or tax credit. The taxpayer claiming
the refund must further comply with the invoicing and
accounting requirements mandated by the NIRC, as well
as by revenue regulations implementing them.
o Under the NIRC, a creditable input tax should be
evidenced by a VAT invoice or official receipt, which may
only be considered as such when it complies with the
requirements of RR 795, particularly Section 4.1081.
o This section requires, among others, that if the sale is
subject to zero percent (0%) value-added tax, the term
zero-rated sale shall be written or printed prominently
on the invoice or receipt.
Hitachi vs. CIR Section 4.1081 of RR 795 specifically required the following to be
reflected in the invoice:
Sec.4.1081. Invoicing Requirements. All VAT registered
persons shall, for every sale or lease of goods or properties or
services, issue duly registered receipts or sales or commercial
invoices which must show:

1. The name, TIN and address of seller;

2. Date of transaction;
3. Quantity, unit cost and description of merchandise or
nature of service;
4. The name, TIN, business style, if any, and address of
the VAT registered purchaser, customer or client;
5. The word zero-rated imprinted on the invoice covering
zero-rated sales; and
6. The invoice value or consideration.

Only VAT registered persons are required to print their TIN followed
by the word VAT in their invoices or receipts and this shall be
considered as a VAT invoice. All purchases covered by invoices other
than a VAT invoice shall not give rise to any input tax.
Silicon  Failure to indicate Authority to Print (ATP) is NOT an invoicing
Philippines, Inc. requirement but the ATP must be presented, otherwise, the claim
vs. CIR for refund or credit shall be denied.
 The ATP need not be reflected or indicted in the invoices or
receipts because there is no law or regulation requiring it. Hence,

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failure to print of ATP shall not result to an outright denial of a

claim for refund.
 However, lack of ATP, no ATP, or failure to present ATP shall be
a ground for denial of the administrative claim for refund.
CIR vs. Manila  Zero rating is primarily intended to be enjoyed by the seller –
Mining Corp MMC, which charges no output VAT but can claim a refund
of or a tax credit certificate for the input VAT previously
charged to it by suppliers.
o As export sales, the sale of gold to the Central Bank is
zero-rated, hence, no tax is chargeable to it as purchaser.
 For a judicial claim for refund to prosper, however, MMC must not
only prove that it is a VAT registered entity and that it filed its
claims within the prescriptive period. It must substantiate the
input VAT paid by purchase invoices or official receipts. It is
required that a photocopy of the purchase invoice or receipt
evidencing the value added tax paid shall be submitted
together with the application. This MMC failed to do.
Northern  Section 113, NIRC (1997) provides that a VAT invoice is
Mindanao Power necessary for every sale, barter or exchange of goods or
Corp vs. CIR properties, while a VAT official receipt property pertains to every
lease of goods or properties; as well as to every sale, barter, or
exchange of services.
 VAT invoice is the seller’s best proof of the sale of goods or
services to the buyer.
 VAT receipt is the buyer’s best evidence of the payment of goods
or services received from the seller.

Sales of commercial invoice – written account of goods sold or

services rendered indicating the price charged therefor or a list by
whatever name it is known which is used in the ordinary course of
business evidencing sake and transfer or agreement to sell or transfer
goods and services.

Receipt – written acknowledgment of the fact of payment in money or

other settlement between seller and buyer of goods, debtor, or creditor,
or person rendering services and client or customer.
Contex vs. CIR  Contex is a non-VAT taxpayer claiming for tax refund or tax
(non-VAT credit.
taxpayer; cannot  As a non-VAT taxpayer, it is exempt from VAT. Consequently, it
claim tax credit) is not allowed any tax credit or any input VAT previously paid.
 VAT-exempt taxpayer does not acquire any input tax credit, as
the VAT that it shouldered was merely part of its purchase price.
 While it is true that Contex should not have been liable for the
VAT inadvertently passed on to it by its supplier since such is a
zero-rated sale on the part of the supplier, Contex is not the
proper party to claim the refund. It is Contex’s supplier who are
the proper parties to claim the tax credit and accordingly refund
Contex of the VAT erroneously passed on to the latter.
o NB: A seller who is directly and legally liable for payment
of an indirect tax, such as VAT on goods and services, is
not necessarily the person who bears the burden pf the
same tax. Rather, it is the final purchaser.
CIR vs. Seagate  Seagate is a VAT taxpayer.
Technology  Business companies registered in and operating from the Special
(VAT taxpayer; Economic Zone in Naga, Cebu are entities exempt from all
allowed to claim internal revenue taxes and the implementing rules relevant
refund) thereto, including the value-added taxes or VAT. Although export
sales are not deemed exempt transactions, they are nonetheless
zero-rated.
 A VAT-registered enterprise may comply with all requisites to
claim a tax refund of or credit for the input VAT it paid on capital
goods it purchased. In short, after compliance with all requisites,
such enterprise is entitled to refund or credit.
 An ecozone managed and operated by the PEZA (although
situated in the Philippines), is regarded in law as a foreign soil.
 If a taxpayer is located in an export processing zone within that

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ecozone, sales to the export processing zone, even without being

actually exported, shall in fact be viewed as constructively
exported.
o The services rendered within that ecozone shall ne
considered as service rendered in a foreign soil.
Therefore, the transaction shall be subject to zero-rated
VAT.
CIR vs. Acesite  PAGCOR has extended its exception to taxes to Acesite,
Hotel consequently Acesite should not be liable for VAT as lodged
Corporation under Section 108(B)(3).
 By extending the tax exemption to entities or individuals dealing
with PAGCOR in its casino operations, it is exempting PAGCOR
from being liable to indirect taxes
 Similar to the case of CIR vs. Gotamco
PAGCOR vs. BIR  PAGCOR’s charter is not deemed repealed or amended by R.A.
9337.
 In this case, there is no real conflict between P.D. 1869 as
amended and R.A. 9337. The former lays down the taxes
imposable upon petitioner, which includes a 5% franchise tax of
the gross revenues or earnings derived from its operations. The
enactment of R.A. No. 9337, which withdrew PAGCOR’s income
tax exemption under R.A. No. 8424, only reinstated their liability
for such tax.
CIR vs.  PDI engaged Placer Dome Technical Services Limited (PDTSL),
Placerdome a non-resident foreign corporation with office in Canada, to carry
Tech Services out the project. In turn, PDTSL engaged the services of Placer
(Phils.) Dome Technical Services (Philippines), Inc. (respondent), a
domestic corporation and registered Value-Added Tax (VAT)
entity, to implement the project in the Philippines.
o Such is subject to a zero-rated transaction
CIR vs. American  The Legislature does not intend to impose the condition of being
Express (AmEx) "consumed abroad" in order for services performed in the
Philippines by a VAT-registered person to be zerorated. In this
case, the taxpayer renders services in the Philippines and
facilitates the collection and payment of receivables belonging to
its nonresident foreign client, for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in
conformity with BSP rules and regulations.
 American Express is a VAT-registered person that facilitates the
collection and payment of receivables belonging to its non-
resident foreign client, for which it gets paid in acceptable foreign
currency inwardly remitted and accounted for in conformity with
BSP rules and regulations. Certainly, the service it renders in the
Philippines is not in the same category as "processing,
manufacturing or repacking of goods" and should, therefore, be
zero-rated.
Sitel vs. CIR  Sitel fell short of proving that the recipients of its call services
were foreign corporations doing business outside the Philippines.
CIR vs.
Magsaysay Lines
Fort Bonifacio  Transitional input tax credit operates to benefit newly VAT-
Development registered persons, whether or not they previously paid taxes in
Corporation vs. the acquisition of their beginning inventory of goods, materials,
CIR and supplies.
o During that period of transition from non-VAT to VAT
status, the transitional input tax credit serves to alleviate
the impact of the VAT on the taxpayer.
 At the very beginning, the VAT-registered taxpayer is obliged to
remit a significant portion of the income it derived from its sales
as output VAT.
 The transitional input tax credit mitigates this initial diminution of
the taxpayer’s income by affording the opportunity to offset the
losses incurred through the remittance of the output VAT at a
stage when the person is yet unable to credit input VAT
payments
Southern Requisites for claiming refund:

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Philippines
Power 1. The taxpayer is VAT-registered;
Corporation vs. 2. The taxpayer is engaged in zero-rated or effectively zero-rated
CIR sales;
3. The input taxes are due or paid;
4. The input taxes are not transitional input taxes;
5. The input taxes have not been applied against output taxes
during and in the succeeding quarters;
6. The input taxes claimed are attributable to zero-rated or
effectively zero-rated sales;
7. For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B);
and 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds have been duly accounted for in accordance with BSP
rules and regulations;
8. Where there are both zero-rated or effectively zero-rated sales
and taxable or exempt sales, and the input taxes cannot be
directly and entirely attributable to any of these sales, the input
taxes shall be proportionately allocated on the basis of sales
volume; and
9. The claim is filed within two years after the close of the taxable
quarter when such sales were made.
Takenaka The taxpayer claiming the refund must further comply with the invoicing
Corporation and accounting requirements mandated by the NIRC, as well as by
Philippine revenue regulations implementing them.
Branch vs. CIR
A "sales or commercial invoice" is a written account of goods sold or
services rendered indicating the prices charged therefor or a list by
whatever name it is known which is used in the ordinary course of
business evidencing sale and transfer or agreement to sell or transfer
goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of

payment in money or other settlement between seller and buyer of
goods, debtor or creditor, or person rendering services and client or
customer.

The petitioner submitted sales invoices, not official receipts, to support

its claim for refund. The submissions were inadequate for the purpose
thereby intended
CIR vs. Mirant  Unutilized input VAT payments not otherwise used for any
Pagbilao internal revenue tax due the taxpayers must be claimed within
Corporation the 2 years reckoned from the close of the taxable quarter when
the relevant sales were made pertaining to the input VAT
regardless of whether said tax was paid or not.
CIR vs. Aichi  Taxpayer must await the lapse of the 120-day period before
Forging taxpayer can appeal to CTA
Company  The second paragraph of Section 112(D) of the NIRC envisions
(120-day period) two scenarios:
o (1) when a decision is issued by the CIR before the lapse
of the 120-day period; and
o (2) when no decision is made after the 120-day period.
 In both instances, the taxpayer has 30 days within which to
file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA
 Failure to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of exhaustion
of administrative remedies and renders the petition premature
and thus without a cause of action, with the effect that the CTA
does not acquire jurisdiction over the taxpayer's petition.
CIR vs. San  The 30-day period of appeal to the CTA need not necessarily fall
Roque Power within the two-year prescriptive period, as long as the
Corporation administrative claim before the CIR is filed within the two-year
prescriptive period. This is because Sec. 112 (D) of the 1997
NIRC mandates that a taxpayer can file the judicial claim: (1) only
within thirty days after the Commissioner partially or fully denies
the claim within the 120-day period, or (2) only within thirty days
from the expiration of the 120-day period if the Commissioner

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does not act within the 120-day period

Chevron  Chevron paid on its importation of petroleum products
Philippines vs. subsequently sold to CDC were illegal and erroneous, and should
CIR be credited or refunded to Chevron in accordance with Sec. 204
of NIRC.
 Pursuant to Section 135(c), petroleum products sold to entities
that are by law exempt from direct and indirect taxes are exempt
from excise tax. Inasmuch as its liability for the payment of the
excise taxes accrued immediately upon importation and prior to
the removal of the petroleum products from the customs house,
Chevron was bound to pay, and actually paid such taxes.
 But the status of the petroleum products as exempt from the
excise taxes would be confirmed only upon their sale to CDC.
Consequently, the payment of the excise taxes by Chevron upon
its importation of petroleum products was deemed illegal and
erroneous upon the sale of the petroleum products to CDC.
CIR vs.  "If the law confers an exemption from both direct or indirect taxes,
Philippine a claimant is entitled to a tax refund even if it only bears the
Associated economic burden of the applicable tax. On the other hand, if the
Smelting and exemption conferred only applies to direct taxes, then the
Refining statutory taxpayer is regarded as the proper party to file the
Corporation refund claim.
 In PASAR's case, Section 17 of P.D. No. 66, as affirmed in
Commissioner of Customs, specifically declared that supplies,
including petroleum products, whether used directly or indirectly,
shall not be subject to internal revenue laws and regulations.
Such exemption includes the payment of excise taxes, which was
passed on to PASAR by Petron. PASAR, therefore, is the proper
party to file a claim for refund

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Tax Administration

Cases Doctrine/Ruling
ABAKADA Guro  The creation of congressional oversight committee is violative of
Party List vs. the doctrine of separation of powers.
Purisima  The power of oversight embraces all activities undertaken by
Congress to enhance its understanding of and influence over the
implementation of legislation it has enacted.
 A provision that requires Congress or its members to approve the
implementing rules of a law after it has already taken effect shall
be unconstitutional as it is a provision which allows Congress to
overturn any directive or ruling made by the members of the
executive branch charged with the implementation of the law.
British American  Petitioner failed to clearly demonstrate the exact extent of such
Tobacco vs. impact as the price is not the only factor which affects the
Camacho competition.
 The classification freeze provision was the main result of
Congress’ earnest efforts to improve the efficiency and effectivity
of the tax administration over sin products while trying to balance
the same with other state interest.
CIR vs.  Upheld the general rule that subsequent ruling cannot be given
Burroughs retroactive effect when it is prejudicial to the taxpayer.
CIR vs. CA and  A legislative rule is in the nature of subordinate legislation
Fortune designed to implement a primary legislation by providing the
details thereof.
 In order to place the three branded cigarettes within the scope of
the amendatory law and subject them to an increased tax rate,
RMC 37-93 had to be issued. In doing so, the BIR did not simply
interpret the law but legislated the same under its quasi-
legislative authority. Therefore, the requirements of notice, of
hearing, and of publication should have been observed.
PB Com vs. CIR  Claims for refund or tax credit should be exercised within the time
fixed by law as the BIR being an administrative body enforced to
collect taxes.
 The law states that the taxpayer may file a claim for refund or
credit with the Commissioner of Internal Revenue, within two
years after payment of tax, before any suit in CTA is commenced.
 When the CIR issued RMC 7-85, changing the prescriptive period
of two years to ten years on claims of excess quarterly income
tax payments, such circular created a clear inconsistency with the
provision of Sec. 230 of 1977 NIRC. In doing so, the BIR did not
simply interpret the law but legislated guidelines contrary to the
statute passed by Congress.
o When a provision of law grants tax incentives, such
incentives cannot be withdrawn by the Secretary of
Finance in the guise of enacting a regulation, as he
cannot arrogate upon himself a power reserved
exclusively to Congress.
CIR vs. San Operative Fact Doctrine
Roque Power - The taxpayer may rely upon a ruling issued by the Commissioner
Corp from the time the ruling is issued up to its reversal by the
Commissioner or the court.
 The reliance to the prior ruling must be in good faith.
CIR vs. Leal  The jurisdiction to review the rulings of the Commissioner of
Internal Revenue pertains to the Court of Tax Appeals, not to the
RTC.
 Under Republic Act No. 1125 or the act which created the Court
of Tax Appeals as amended, such rulings of the Commissioner of
Internal Revenue are appealable to CTA. The CTA exercises
exclusive appellate jurisdiction to review by appeal decisions of
the CIR in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under the National
Internal Revenue Code or other law or part of law administered
by the Bureau of Internal Revenue.

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 As Leal was assailing the revenue orders imposing 5% lending

investor’s tax on pawnshops issued by CIR, she should have filed
her petition with the Court of Tax Appeals, not the RTC.
COURAGE vs.  Rulings of the Secretary of Finance in its exercise of its power of
CIR review under Section 4 of the NIRC of 1997, as amended, are
appealable to the CTA, since such rulings are exercised in the
nature of its quasi-legislative powers.
 It is within the power of the CTA, through its power of certiorari, to
rule on the validity of a particular administrative rule or regulation
so long as it is within its appellate jurisdiction. It can now rule not
only on the propriety of an assessment or tax treatment of a
certain transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on which the said
assessment is based.
 The CTA has exclusive appellate jurisdiction to review, on
certiorari, the constitutionality or validity of revenue issuances,
even without a prior issuance of an assessment.
 CTA may likewise take cognizance of cases directly challenging
the constitutionality or validity of a tax law or regulation or
administrative issuance. The law intends the CTA to have
exclusive jurisdiction to resolve all tax problems.
CIR vs. Sony  LOA 19734 covered the period 1997 and unverified prior years.
Philippines Thus, CIR went beyond the scope of their authority as the
(the period 1997 deficiency VAT they assessed was based on records from
and unverified January to March 1998, and it knew which period should be
prior years) covered by the investigation. Should CIR intended the
investigation to include the year 1998, it should have included it
in the LOA or by issuing another LOA.
 The phrase “and unverified prior years,” violated Section C of
Revenue Memorandum Order No. 43-90 stating that a LOA
should cover a taxable period not exceeding one taxable year.
The practice of issuing LOAs covering audit of “unverified prior
years is hereby prohibited. If the audit of a taxpayer shall include
more than one taxable period, the other periods or years shall be
specifically indicated in the LOAs.
Fitness by  FBDI’s lack of consent, regarding Sablan’s submission of its
Design vs. CIR documents, does not imply that the BIR obtained them illegally or
that the information received is false or malicious, nor does the
lack of consent preclude the BIR from assessing deficiency taxes
on FBDI based on the documents.
 Section 5 of the Tax Code provides that in determining or
collecting the liability of any person for any internal revenue tax,
the Commissioner is authorized to summon the person liable for
tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the
books of accounts and other accounting records containing
entries relating to the business of the person liable for tax, or any
other person, to appear before the Commissioner or his duly
authorized representatives at a time and place specified in the
summons and to produce such books, papers, records, or other
data, and to give testimony.
 The law thus allows the BIR access to all relevant or material
records and data in the person of the taxpayer and the BIR can
accept documents which cannot be admitted in a judicial
proceeding where the Rules of Court are strictly observed. To
require the consent of the taxpayer would defeat the intent
of the law to help the BIR assess and collect the correct
amount of taxes.
BIR vs. Lepanto  Where a rehabilitation court issues an order calling for the
Ceramics suspension of the enforcement of claims against a distressed
company, the BIR’s act of sending a notice of informal
conference and formal letter of demand to the distresses
company are considered acts of defiance of the Commencement
order.
 The proper remedy of the BIR is to submit its claim to the
Rehabilitation Court for proper consideration so that it may
participate in the proceedings.

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CIR vs. Hantex  While it is true that hearsay evidence may be used as basis of an
(photocopy case) assessment, such hearsay evidence must be verifiable. Meaning,
such information must be verified by documents.
 Photocopies have no probative value hence cannot be used in
supporting the assessment.
 “Verified Information” does not pertain to a notarized document
rather it pertains to an information verified or corroborated by
documents.
CIR vs.  The assessment cannot be solely based on a sworn statement
Embroidery and upon individual because the assessment must be based on a
Garment verified information.
Industries  For it to be considered as a verified information, the information
must not be based on speculations or conjectures. The
information must be
Farcon  CIR failed to present any evidence which it procured by resorting
Marketing to the Best Evidence Obtainable Rule, as basis for the deficiency
Corporation vs. assessment against Farcon. Applying the rule laid down by the
BIR Supreme Court in Hantex, CIR could have determined
(records were petitioner's tax liability through estimation considering the
destroyed by absence of the latter's accounting records, which were
Typhoon Ondoy destroyed by typhoons Ondoy and Pepeng. However, such
and Pepeng) estimation should be based on sufficient evidence. The
presumption of correctness of an assessment, being a mere
presumption, cannot be made to rest on another
presumption. Since CIR failed to present any evidence which it
used as basis or foundation for the subject deficiency
assessment, the assessment is void for lack of factual basis.
Jacinto  A taxpayer cannot be permitted to hide its taxable income and
Marketing vs. evade the payment of taxes with impunity by the simple
CIR expediency of conveniently losing its books of accounts and then
paying the minimal compromise penalty. Otherwise, it would be
impossible to collect income taxes due from a dishonest
taxpayer.
CIR vs.  The actual use is not considered for zonal valuation, but the
Aquafresh predominant use of other classification of properties located in
Seafoods the zone.
 Since Barrio Banica has been classified as residential area, the
RDO cannot just unilaterally change its classification to
commercial without first conducting a re-evaluation of the zonal
values as mandated under Section 6 (E) of the NIRC.
o CIR’s act of classifying the subject properties involves a
re-classification and revision of the prescribed zonal
values. Revenue Memorandum No. 58-69 also provides
for the procedures on the establishment of the zonal
values of real properties, to which CIR failed to prove its
compliance thereto. Thus, the 1995 Revised Zonal Values
of Real Properties must be followed for purposes of
computing the CGT and DST.
Victoria Net Worth Method
Manufacturing
Corp vs. CIR 1. The taxpayer maintains no books and records;
2. The taxpayer's books and records are not available, or
3. Inadequate; or
4. The taxpayer withholds books and records from investigation.

This is a method of reconstructing income which is based on the theory

that if the taxpayer's net worth has increased in a given year in an
amount larger than his reported income, he had understated his income
for that year.
Republic vs.  Sec. 7 of the NIRC authorizes the BIR Commissioner to delegate
Hizon the powers vested in him under the pertinent provisions of the
Code to any subordinate official with the rank equivalent to a
division chief or higher.
Exceptions: (4 Non-Delegable Powers of CIR)
1. The power to recommend the promulgation of rules and
regulations by the Secretary of Finance;

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2. The power to issue rulings of first impression or to reverse,

revoke or modify any existing ruling of the Bureau;
3. The power to compromise or abate any tax deficiency; (with
exceptions to the exceptions) and
4. The power to assign or reassign internal revenue officers to
establishments where articles subject to excise tax are produced
or kept.

Exceptions to Non-Delegation of Power to Compromise:

1. The assessment was issued by the regional office of the BIR;
2. The amount involved a basic tax deficiency tax of P500,000 or
less, or those involving minor criminal violations; and
3. The same was discovered by regional and distinct officials.
CIR vs. Deutsche  Section 4 of the 1997 Tax Code provides that the power to
Knowledge interpret the provisions of this Code and other tax laws shall be
Services under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
 However, Section 7 of the same Code does not prohibit the
delegation of such power. The Commissioner may delegate the
powers vested in him under the pertinent provisions of this Code
to any or such subordinate officials with the rank equivalent to a
division chief or higher, subject to such limitations and restrictions
as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation
of the Commissioner.
People vs. Tan  Although referred to in the pleadings as a compromise, this case
is actually a matter of an abatement or a cancellation. Abatement
is the diminution or decrease in the amount of tax imposed. To
abate is to nullify or reduce in value or amount while to cancel is
to obliterate, cross out, or invalidate.
 The BIR may therefore abate or cancel the whole or any unpaid
portion of a tax liability, inclusive of increments, if its assessment
is excessive or erroneous or if the administration costs involved
do not justify the collection of the amount due. No mutual
concessions need be made, because an excessive or erroneous
tax is not compromised but abate. There was, in the first place,
no finality in the assessment that could be settled.

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