a.

Processing, manufacturing, or repacking of generally used as, or yielding or producing foods

goods for other persons doing business outside for human consumption; and breeding stock and
the Philippines, which goods are subsequently genetic materials therefor
exported, where services are paid for in
acceptable foreign currency and accounted for in Livestock shall include cows, bulls and calves,
accordance with the rules and regulations of the pigs, sheep, goats, and rabbits. Poultry shall
BSP; and include fowls, ducks, geese, and turkey. Livestock
or poultry does not include fighting cocks,
b. Services performed by subcontractor and/or racehorses, zoo animals and other animals
contractors in processing, converting, or generally considered as pets.
manufacturing goods for an enterprise whose
export sales exceed 70% of the total annual Marine food products shall include fish and
production (R.R. No. 13-18, Sec. 2). crustaceans, such as, but not limited to, eels,
trout, lobster, shrimps, prawns, oysters, mussels,
and clams. Meat, fruit, fish, vegetables, and
other agricultural and marine food products
7. VAT-Exempt Transactions
classified under this paragraph shall be
considered in their original date even if they have
VAT-exempt transactions refer to the sale of undergone the simple processes of preparation or
goods or properties and/or services and the use preservation for the market, such as freezing,
or lease of properties that is not subject to VAT drying, salting, broiling, roasting, smoking or
(output tax) and the seller is not allowed any tax stripping, including those using advanced
credit of VAT (input tax) on purchases. The person technological means of packaging. such as shrink
making the exempt sale of goods, properties or wrapping in plastics, vacuum packing, tetra pack,
services shall not bill any output tax to his and other similar packaging methods.
customers because the said transaction is not
subject to VAT. (R.R. 16-2005) Polished and/or husked rice, corn grits, raw cane
sugar and molasses, ordinary salt and copra shall
FEATURES OF VAT EXEMPT TRANSACTIONS be considered as agricultural food products in
1. VAT exempt transactions shall not be included their original state.
in determining the general threshold prescribed
by law [P3,000,000] (R.R. No. 16-2011, Sec. 3). Sugar whose content of sucrose by weight, in the
dry state, has a polarimeter reading of 99.5* and
2. VAT-exempt transactions shall not be liable for above are presumed to be refined sugar.
VAT or the 3% percentage tax under Sec. 116 of
the NIRC except those sale or lease of goods and Bagasse is not included in the exemption provided
properties under Sec. 109(BB) which shall be for under this section (Sec. 4.109-1(B)(1)(a), RR
subject to 3% percentage tax if not exceeding the No. 16 - 2005).
VAT threshold. [Inferable from Sec. 116 of the
NIRC and Sec. 4.109-1 of R.R. No. 16-2005]. 2. Fertilizers; seeds, seedlings, and fingerlings;
fish, prawn, livestock and poultry feeds including
3. The person making the exempt sale of goods, ingredients, whether locally produced or
properties, or services shall not bill any output imported, used in the manufacture of finished
tax to his customers because the said transaction feeds (NIRC, Sec, 109 (B));
is not subject to VAT (R.R. No. 16-2005, Sec.
4.109-1). XPN: Specialty feeds for Racehorses, fighting
cocks, Aquarium fish, Zoo animals and other
TRANSACTIONS EXEMPT FROM VAT (NIRC, SEC. animals generally considered as pets (NIRC, Sec.
109, As AMENDED BY TRAIN LAW): 109 (B)).
1. Agricultural and marine food products in their
original state, livestock and poultry of a kind

51
3. Importation of personal and household effects
belonging to residents of the Philippines returning 10. Transactions which are exempt under
from abroad and nonresident citizens coming to international agreements to which the Philippines
resettle in the Philippines Provided the goods are is a signatory or under special laws except those
exempt from customs duties under the Tariff and granted under PD No. 529 which refers to
Customs Code of the Philippines; Petroleum Exploration Concessionaires under the
Petroleum Act of 1949;
4. Importation of professional instruments and
implements, wearing apparel, domestic animals, 11. Sales by agricultural cooperatives duly
and personal household effects (except vehicles, registered with the Cooperative Development
goods for use in manufacture and merchandise for Authority (CDA) to their members, as well as sale
any kind of commercial quantity). Belonging to of their produce, whether in its original state or
people coming to settle in the Philippines and are processed form, to non-members; their
not for sale; importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to
5. Services subject to percentage tax; be used directly and exclusively in the production
and/ or processing of their produce;
6. Services by Agricultural contract growers, and
milling for others of Palay into rice, Corn into 12. Gross receipts from lending activities by
grits, and Sugar cane into raw sugar; credit or multi-purpose cooperatives duly
● Agricultural contract growers refer to registered and in good standing with the
those persons producing for others Cooperative Development Authority;
poultry, livestock or other agricultural
and marine food products in their original 13. Sales by non-agricultural, non-electric and
state. non-credit cooperatives duly registered with and
in good standing with the CDA; Provided, That the
7. Medical, dental hospital and veterinary share capital contribution of each member does
services, except those rendered by professionals; not exceed Fifteen Thousand Pesos (₱15,000.00)
● Laboratory services are exempted. If the and regardless of the aggregate capital and net
hospital or clinic operates a pharmacy or surplus ratably distributed among the members;
drugstore, the sale of drugs and medicine
is subject to VAT. 14. Export sales by persons who are not
VAT-registered;
8. Educational services rendered by private
educational institutions, accredited by the 15. Sale of real properties not primarily held for
DEPED, CHED, TESDA, and those rendered by sale to customers or held for lease in the ordinary
government educational institutions course of trade or business;

● Educational services do not include ● If the real property is not primarily held
seminars, In-service training, review for sale to customers or held for lease In
classes and other similar services the ordinary course of trade or business
rendered by persons who are not BUT the same is used in the trade or
accredited by the DEPED, CHED or TESDA. business of the seller, the sale thereof
shall be subject to VAT being a
9. Services rendered by regional, or area transaction incidental to the taxpayer's
headquarters established in the Philippines by main business. (R.R. 4-2007)
multinational corporations. Which act as ●
supervisory, communications, and coordinating 16. Sale of real properties utilized for low-cost
centers in the Asia pacific region for their housing;
affiliates, subsidiaries, or branches, and do not ● "Low-cost housing" refers to housing
earn or derive income from the Philippines; projects intended for homeless

52
 low-income family beneficiaries, the sale is subject to VAT regardless of
undertaken by the Government or private the selling price (R.R. 13-2012).
developers, which may either be a
subdivision, or a condominium registered 19. Beginning 2021, the VAT exemption for the
and licensed by the HLURB. sale of real properties shall only apply to the:
● Sale of real properties not primarily held
17. Sale of real properties utilized for socialized for sale to customers or held for lease in
housing; the ordinary course of trade or business;
● "Socialized housing" refers to housing ● Sale of real property utilized for
programs and projects covering houses socialized housing as defined under R.A.
and lots or home lots only undertaken by 7279;
the Government or the private sector for ● Sale of house and lot, and other
the underprivileged and homeless residential dwellings with selling price of
citizens. not more than P2,000,000 (to be adjusted
every 3 years depending on the Consumer
18. Sale of the following: Price Index);
● Residential lot valued at Pl,919,500 and
below, or 20. Lease of residential units where the monthly
● House and lot and other residential rental per unit does not exceed ₱15,000,
dwellings valued at P3,199,200 and below regardless of the number of aggregate rentals
(R.R. 16-2011, to be read with R.R. received by the lessor during the year (R.R.
3-2012) 13-2018).
● If two or more adjacent residential lots, ● However, the lease of residential units
house and lots or other residential where the monthly rental per unit
dwellings are sold or disposed in favor of exceeds PlS,000 but the aggregate of
one buyer from the same seller, for the such rentals of the lessor during the year
purpose of utilizing the lots, house, and do not exceed P3,000,000 shall likewise
lots or other residential dwellings as one be exempt from VAT. However, it shall be
residential area, the sale shall be exempt subjected to the 3% percentage tax (R.R.
from VAT only if the aggregate value of 13- 2018).
the lots do not exceed Pl,919,500 for ● Less than ₱15,000/month -> exempt.
residential lots, and P3,199,200 for More than ₱15,000/month but less than
residential house and lots or other P3,000,000/year -> 3% Percentage tax.
residential dwellings. Adjacent More than P15,000/month and more than
residential lots, house and lots or other P3,000,000/ year-> 12% VAT (R.R.
residential dwellings although covered by 13-2018).
separate titles and/or separate tax
declarations, when sold or disposed to
8. Input and Output Tax
one and the same buyer, whether covered
by one or separate Deed of Conveyance,
shall be presumed as a sale of one Input tax refers to the VAT due from or paid by a
residential lot, house and lots or VAT-registered person
residential dwelling. (R.R. 13-2012). ● in the course of his trade or business,
● This does not include the sale of parking ● on importation of goods, or
lot which may or may not be included in ● local purchase of goods or
the sale of condominium units. The sale services including lease or use of property
of parking lots in a condominium is a ● from a VAT-registered person
separate and distinct transaction and is ● including transitional input tax.
not covered by the rules on threshold (Sec. 110(A)(3), NIRC).
amount not being a residential lot, house
and lot or a residential dwelling. Thus,

53
Output tax refers to the VAT due on the sale or
10. Filing of Returns and Payment
lease of taxable goods or properties or service by
any person registered or required to register
under the NIRC. (Sec. 110(A)(3), NIRC) Every person liable to pay VAT shall file a
quarterly return of the amount of his quarterly
The following input taxes are creditable to output gross sales or receipts within twenty-five days
taxes: following the close of the taxable quarter using
• Any input tax evidenced by a VAT invoice or the latest version of Quarterly VAT Return (Sec.
official receipt in accordance with the NIRC; 4.114-1, RR 16-05).
• The input tax on domestic purchase of goods or
properties; and The following transactions are subject to the
• Transactions of a VAT- registere·d person advance payment of VAT:
engaged in transactions not subject to VAT in the
following: 1. Sale of refined sugar
1. Total input tax which can be directly An advance payment shall be paid by the
attributed to transactions subject to BAT; owner/seller to the BIR through:
and 1. an Authorized Agent Bank (AAB)
2. A ratable portion of any input tax which 2. the revenue
cannot be directly attributed to either collection officer, or
activity. (Sec. 110(A)(1), NIRC) 3. the deputized city
or municipal treasurer in places where
there are no AABs
9. Tax Refund or Tax Credit before any refined sugar can be withdrawn from
any sugar refinery/mill.
The VAT-registered person must go through the
following process: 2. Sale of flour
The sale of flour milled from imported wheat
The VAT-registered person may apply for the shall be paid prior to the release of the Bureau of
issuance of a tax credit or refund within two Custom's custody of the wheat, and
years after the close of the taxable quarter:
1. when the sales were paid in the case of Purchases by flour millers of imported wheat
zero-rated or effectively zero-rated sales, from traders shall be paid by the flour miller
or prior to delivery. (Ceballos, p.128)
2. when the purchase or importation was
made in the case of importation or
D. Tax Remedies Under the National Internal
purchase of capital goods, to the extent
Revenue
that such input tax has not been applied
against output tax. (Sec. 112(A), NIRC)

The taxpayer has the following remedies: 1. Assessment of Internal Revenue Taxes
In case the full or partial denial of his
application: Kinds of Assessment
● the taxpayer may, within thirty days from 1. Self - Assessments
the decision, appeal to the CTA. A self assessment is when the the taxpayer:
● Computes his own tax liability
In case of the failure of the BIR to act on the ● Files his return
application within 90 days: ● Pays the tax based on his own
● the inaction is deemed as a denial, and to computation
appeal is with CTA within 30 days. (sec, 2. Deficiency Assessments
112(C), NIRC) ● Occurs upon discovery of the BIR that
○ Self-assessment was deficient
○ No return was made

54
 ● If the taxpayer is not amenable to the and other accounting records of a
Revenue Officer’s audit, he shall be taxpayer for the purpose of collecting the
informed in writing of the discrepancy correct amount of tax (Medicard
in his payment for the purpose of Philippines Inc. vs CIR, G.R. No. 222743)
Informal Conference which in no case ● LOA covers a taxable period not
shall extend beyond 30 days. exceeding 1 year
● If there is still deficiency and the ● Valid only for 30 days from the days of
taxpayer is not amenable, the case issue within which it must be served to
may be endorsed to the Assessment the taxpayer (Medicard Philippines vs CIR)
Division of the Revenue Regional Office ● Thereafter, unless, revalidated, the
or to the Commissioner for issuance of taxpayer can refuse the service
deficiency tax assessment (Rev. Reg. ● A letter of authority is revalidated
No. 7-2018) ○ By the issuance of a new letter of
3. Delinquency Assessments authority
● Occurs upon failure of the taxpayer to ○ Revalidation can be done once, if
pay his tax due, making him a the LOA is issued by the Regional
delinquent taxpayer Director
○ Revalidation can be made twice,
a) Procedural Due Process in Tax Assessments if the LOA is issued by the
Commissioner
○ The previous LOA has to be
1. Issuance of a Letter of Authority
attached to the newly issued LOA
(RMO 38-88)

2. Tax Audit or Investigation A letter of authority is not necessary when

● The assessment was made by the
Commissioner or the Revenue Regional
Director
3. Notice of Informal Conference ● In cases involving civil or criminal tax
fraud falling under the jurisdiction of the
Tax Fraud Division of the Enforcement
Services
4. Issuance of Preliminary Assessment Notice ● Policy cases audited by the special teams
(PAN) of the National Office (Revenue
Memorandum Order 36-99)

Letter Notice
5. Issuance of Formal Letter of Demand / ● A Letter Notice is served by the BIR upon
Final Assessment Notice (FAN) taxpayers upon taxpayers who were found
to have under-declared their sales or
purchases through the Third-Party
Information Program.
6. Administrative Action / Inaction on
● It can be considered a notice of audit or
Disputed Assessment
investigation which would in effect
disqualify the taxpayers concerned from
1. Letter of Authority (LOA) amending any return which is the subject
● A LOA is the authority given to the of such audit or investigation
appropriate revenue officers assigned to
perform assessment functions. It
empowers or enables said revenue
officers to examine the books of account

55
Difference between Letter Notice and Letter of ● Taxpayer has 30 days from notice to
Authority submit relevant documents to explain the
discrepancy (RMC No. 22-2020)
LETTER NOTICE LOA

Not an authority to Serves as authority to 4. Preliminary Assessment Notice (Very

conduct an audit conduct an audit important)
● Issued if after review and evaluation by
Merely a notice to Official Document the Assessment Division or by the
taxpayer, does not giving the Revenue Commissioner or his duly authorized
serve as authority of Officer the power to representative, it is determined that
an officer to conduct perform assessment there exists sufficient basis to assess the
assessment functions functions taxpayer for any deficiency taxes
(Mamalateo, 2019)
No limitation as to ● Serves as an ● Shall show in detail the facts and the law,
period of validity LOA for only rules and regulations, or jurisprudence on
one taxable which the proposed assessment is based
year ● The remedy of the taxpayer is to make
a REPLY to the PAN
● Valid only ○ A requests for reconsideration
from 30 days and requests for reinvestigation is
from the date not yet an available remedy as
of issue they are remedies in the
issuance of a Final Assessment
No limitation as to the Allows the Revenue Notice not for the issuance of a
period within which Officer only a period Preliminary Assessment Notice
the Revenue Officer of 10 days from the ○ Making a reply is optional,failure
must conduct an receipt thereof to to do so will only give the CIR,
examination conduct his the duty to make a FAN after 15
examination days from the issuance of the PAN
○ Issuance of FAN reiterating
2. Tax Audit or Investigation immediate payment of deficiency
● Involves the examination of the books and taxes and penalties is a denial of
records of the taxpayer the response to PAN. (RMC No.
● For the purpose of 11-2014)
○ ascertaining the correctness of
the tax declared and paid by the Instances when a PAN is no longer needed
taxpayer (Section 228, NIRC)
○ determining the correct tax ● When the finding for any deficiency tax is
liability the result of mathematical error in the
computation of the tax
3. Notice of Discrepancy ● When a discrepancy has been determined
● Requisite before issuing a preliminary between the tax withheld and the
assessment notice (PAN) amount actually remitted by the
● Issued to the taxpayer if he is found withholding agent; or
liable for deficiency taxes during the ● When a taxpayer who opted to claim a
investigation conducted by a revenue refund or tax credit of excess creditable
officer withholding tax for a taxable period was
● Gives the taxpayer 5 days from the notice determined to have carried over and
to explain the discrepancy automatically applied the same amount
claimed against the estimated tax
liabilities for the taxable quarter

56
 ● When the excise tax due on excisable ● Joint-account
articles has not been paid; or ● Association
● When the article locally purchased or ● Insurance Company
imported by an exempt person, such as, ➔ Who are liable to pay an internal
but not limited to, vehicles, capital revenue tax and neglects or
equipment, machineries and spare parts, refuses to pay the same, despite
has been sold, traded or transferred to demand (Section 219, NIRC)
non-exempt person
Extinguishment of tax lien
5. Formal Letter of Demand and Final A tax lien may be extinguished on the following
Assessment Notice grounds
● Issued by the Commissioner or his duly ● Payment or rescission of the tax
authorized representative ● Prescription of the right of the
● Calls the taxpayer for the payment of the government to assess or collect
taxpayer’s deficiency tax or taxes ● Failure to file a notice of lien in the
● Issued 15 days office of the Register of Deeds as against
● Shall state the facts and the law, rules mortgagee, purchaser, or judgment
and regulations, or jurisprudence on creditor, or
which the proposed assessment is based; ● by destruction of the property subject of
otherwise, the assessment is void the lien
○ From the issuance of the PAN if no
reply was made by the taxpayer 2) Distraint
○ From the date of the reply of the ● The collection of delinquent taxes
taxpayer, if he makes one ● Is enforced on the goods, chattels or
○ A FAN can still be issued after 15 days effects, and other personal property of
from the issuance of the PAN or from whatever character of the taxpayer (Sec.
the reply of the taxpayer, provided it 205 (a) NIRC)
is within the period to assess the said
tax Kinds of Distraint
■ Such will only be an ● Actual Distraint
administrative infraction, ○ Resorted to when at the time
making the officer in charge required for payment a person
liable fails to pay his delinquent tax
obligation.
6. Administrative Action / Inaction on Disputed ○ Actual distraint consists in the
Assessment actual seizure and taking
Administrative Remedies possession of the personal
1) Tax lien property of the taxpayer (Section
● A tax lien is a legal claim or charge on 207, NIRC)
property, either real or personal, as
security for the payment of some debt or ● Constructive Distraint
obligation. (Hongkong & Shanghai Banking
Corporation vs Rafferty, G.R. No. ○ Issued where actual tax
L-13188, November 15, 1918) delinquency of the taxpayer is
necessary before the same is
Nature and extent of a tax lien resorted by the government
The following persons can have properties
attached to a tax lien ○ Can be availed of when
● Person ■ The taxpayer is retiring
● Corporation from any business subject
● Partnership to tax

57
 ■ He intends to leave the Differentiate between Distraint and Levy
Philippines
Distraint (Sec 207 Levy (Sec 207 (B),
■ He removes his property
(A), NIRC NIRC)
therefore
■ He performs any act
Covers personal Covers real properties
tending to obstruct the
properties
proceedings for collecting
the tax due or which may Is effected by the Is effected by writing
be due from him (Sec seizure of the goods, upon the duly
206, NIRC) chattels, or effects authenticated
certificate, the
Difference between Actual Distraint and description of the
Constructive Distraint property upon which
Actual Distraint Constructive Distraint the levy is made and
at the same time
Made on the property Made on the property written notice of the
of a delinquent even if the taxpayer is levy shall be mailed to
taxpayer not delinquent or served upon the
Register of Deeds and
Involves the taking of Prevents taxpayer upon the taxpayer
possession from disposing his
property Involves a notice of Involves an
the sale, shall be advertisement of real
Effected by a service Is effected by exhibited in not less property for sale
of warrant of distraint requiring the taxpayer than 2 public places in within 20 days after
or leaving a list of the to sign a receipt of the municipality or the levy for a period
property the property or city where the of at least 30 days.
leaving a list of such distraint was made,
property One place of posting The advertisement
of which is the Office shall be effected by
3) Levy of the Mayor posting a notice at the
● Remedy whereby the collection of main entrance of the
delinquent taxes is enforced on the real municipal building or
property belonging to the delinquent city hall and in a
taxpayer. (Sec 207, NIRC) public and
● May be done after the expiration of the conspicuous place in
the time required to pay the delinquent the barrio or district
tax or delinquent revenue, in which the real
● May be done simultaneously, or after the estate lies.
distraint of personal property belonging
to the delinquent (Sec. 207 (B), NIRC) There is also
● Both Levy and Distraint may be repeated publication once every
if necessary until the full amount week for 3
including all expenses, is collected (Sec. consecutive weeks in
217, NIRC) a newspaper of
general circulation

4. Forfeiture of Personal Property

a) For personal properties
● Forfeitures of chattels and removable
fixtures of any sort shall be enforced by

58
 ○ Seizure and Sale, or Differentiate PAN from FAN (Asked in the 2019
○ Destruction (Section 224, NIRC) Bar Exams)
Preliminary Final Assessment
● The sales of forfeited chattels and
Assessment Notice Notice (FAN)
removable fixtures shall be effected, so far
(PAN)
as practicable, in the same manner and
under the same conditions, as the public It merely informs the As soon as it is served,
notice and the time and manner of sale as taxpayer of the initial an obligation arises on
are prescribed for sales of personal property findings of the Bureau the part of the
distrained for the non-payment of taxes of Internal Revenue. It taxpayer concerned to
(Sec. 225, NIRC) contains the proposed pay the amount
assessment, and the assessed and
The following goods or articles may be destroyed facts, law, rules, and demanded
● Distilled spirits regulations or
● Liquors jurisprudence on
● Cigars which the proposed
● Cigarettes, or assessment is based
● Other manufactures product of tobacco,
and It does not contain a It contains not only a
● All apparatus used in or about the illicit demand for payment computation of tax
production of such articles but usually requires liabilities but also a
the taxpayer to reply demand for payment
They may, upon forfeiture, be destroyed by order within 15 days from within a prescribed
of the Commissioner, when the sale of the same receipt. Otherwise, period.
for consumption or use would be injurious to the Commissioner of
public health or prejudicial to the enforcement of Internal Revenue will
the law. finalize an assessment
and issue a FAN.
The following may be sold or destroyed
● All other articles subject to excise tax,
which have been manufactured or It gives both the It signals the time
removed in violation of this Code taxpayer and the when penalties and
● Dies for the printing or making of internal Commissioner of interests begin to
revenue stamps and labels which are Internal Revenue the accrue against the
imitation of or purports or be lawful opportunity to settle taxpayer.
stamps or labels (Sec. 225, NIRC) the case at the
earliest possible time
b) For real properties without the need for
● Forfeiture shall be enforced by the issuance of a FAN.
○ Judgment of condemnation or
○ Sale in a legal action or proceeding,
(Commissioner of Internal Revenue v.
civil or criminal (Sec. 224, NIRC)
Transitions Optical Philippines, Inc., G.R. No.
227544, November 22, 2017)
Disputed Assessment
1. If the taxpayer disagrees with the PAN, he has
15 days from receipt of the PAN to file a written
reply to contest the proposed assessment.
2. If the taxpayer disagrees with the FAN, he has
30 days from receipt of the FAN to file a written
protest to contest the proposed assessment

59
Differentiate Request for Reconsideration from 5. The FAN/DL must be issued within the
Request for Reinvestigation original prescriptive period as validly
agreed between the BIR and the
Request for Request
taxpayer; and served by personal delivery
Reconsideration for Reinvestigation
or by registered mail (Sec. 222(b) and
(d),NIRC) (R.R. No. 18-13, Section 3.1.6)
6. The FAN/DL must be addressed and
Does not toll the Tolls the period to
served to the taxpayer in his registered or
period to collect the collect the tax
duly notified address (R.R. No. 18-13,
tax Except if the letter
Sec. 3.1.6)
requesting for
reinvestigation is
c) Tax Delinquency vs. Tax Deficiency
denied
Tax Delinquency Tax Deficiency

No additional Relevant supporting The state of a person The amount by which

documents or other documents will be upon whom the the tax imposed
personal obligation to exceeds the amount
pieces of evidence given by the taxpayer
pay the tax has been
will be given by the Said relevant shown as the tax by
fixed by lawful
taxpayer supporting documents assessment and who the taxpayer upon his
must be submitted thereafter fails to pay return; but the
within 60 days from the tax within the amount so shown on
the Filing of The time limited by law the return shall be
Protest (U.S. v. Abejo, G.R. increased by the
No. 12362, August 29, amounts previously
1917).
assessed (or collected
b) Requisites of a Valid Assessment
without assessment)
1. The FAN contains the name, address, and
as a deficiency, and
TIN of the taxpayer; the kind of tax,
decreased by the
period covered, basic tax and penalties;
amount previously
signed by the authorized BIR official, and
abated, credited,
the date of payment of the tax. The
returned or otherwise
Demand Letter (DL) contains the
repaid in respect of
computation of the deficiency tax, the
such tax (Sec. 56[B],
factual and legal basis of the assessment,
NIRC)
and the demand for payment of the tax.
(R.R. No. 18-13, Sec. 3.1.3)
2. The FAN/DL must be issued on account of
or covered by a validly issued letter of d) Prescriptive Period for Assessment
authority.(R.M.C. No. 75-18; Medicard (1) False Returns vs. Fraudulent Returns vs.
Phil Inc v. CIR, G.R. No. 222743, April 5, Non-Filing of Returns
2017) False Return Fraudulent Failure to
3. The FAN/DL must state the factual and Return File a Return
legal basis of the assessment and
jurisprudence on which it is based; Contains Refers to a Refers to the
wrong return made omission to
otherwise, the assessment is void (R.R.
information with the file a return
No. 18-13, Section 3.1.3) due to: intention of within the
4. The FAN/DL must be signed by the mistake, evading the time
Commissioner or his duly authorized carelessness, correct taxes prescribed by
representative (R.R. No. 18-13, Section or ignorance due law
3.1.3)
May or may Is intentional May or may

60
 not be not be
intentional intentional (3) Effect of Failure to File Protest
Failure to file a protest will make the
Is only Is subject to Is only assessment final, executory and
subject to 50% surcharge subject to demandable
50% surcharge 50% surcharge
if done if done (4) Action of the Commissioner on the
intentionally intentionally
Protest Filed
(Sec. 222, NIRC) If a decision was made within 180 days
from the request for reconsideration,
(2) Suspension of the Running of Statute of the appeal to the CTA is 30 days from the
Limitations receipt of the decision of the CIR

● When the CIR is prohibited from making If no decision was made within the 180
the assessment or beginning distraint or day period, the taxpayer may either
levy or a proceeding in court and for sixty (a) Appeal to the CTA within 30 days
(60) days thereafter; from the lapse of the 180 day
● When the taxpayer requests for a period to make a decision
reinvestigation which is granted by the (b) Wait for a decision of the CIR
CIR; even after the 180 day period. In
● When the taxpayer cannot be located in case a decision is rendered,
the address given by him in the return, appeal within 30 days from the
unless he informs the CIR of any change said decision
in his address;
● When the warrant of distraint or levy is b) Compromise and Abatement of Taxes
duly served, and no property could be Compromise
located; and A contract whereby the parties, by reciprocal
● When the taxpayer is out of the concessions, avoid litigation or put an end to one
Philippines (Sec. 223, NIRC) already commenced. (Art. 2028, New Civil Code)

GROUNDS FOR COMPROMISE OF CIVIL LIABILITY:

2. Taxpayer’s Remedies 1. Where the assessment is of doubtful
validity;
2. 2. When the financial position of the
a) Protesting an Assessment taxpayer demonstrates clear inability to
A protest is a vital document which is a formal pay the tax.
declaration of resistance of the taxpayer. It is a
repository of all arguments. It is also the formal MINIMUM COMPROMISE RATE
act of the taxpayer questioning the official 1. Financial Incapacity - 10% of the basic
actuations of the CIR. This is equivalent to a assessed tax
pleading. 2. Other Cases - 40% of the basic assessed
tax
(1) Period to File Protest
Must be made within 30 days from the Abatement
receipt of the FAN the diminution or decrease in the amount of tax
imposed,” such that to abate is “to nullify or
(2) Submission of Supporting Documents reduce in value or amount.” “In abatement or
Only applies to requests for cancellation, no mutual concessions between the
reinvestigation, i.e., the 60-day period taxpayer and the CIR are made.” (People v.
for submission of all relevant supporting Sandigayanbayan, G.R. No. 152532, 2005)
documents shall not apply to requests for
reconsideration (R.R. No. 18-2013)

61
Grounds for Abatement finality; or 10 years from discovery in case of
1. The tax or any portion thereof appears to false or fraudulent return or omission to file one.
be unjustly or excessively assessed; or
2. The administration and collection costs Under Sec. 205 of the Tax Code, the BIR has the
involved do not justify the collection of following options for collection:
the amount due. (NIRC, Sec. 204(B)) 1. Distraint of personal property;
2. Levy of real property
c) Recovery of Tax Erroneously or Illegally 3. Civil action
Collected 4. Criminal Action; and
5. Enforcement of a Tax Lien.
Requisites for Claims for Tax Refund
1. Necessity of written claim for refund; a) Requisites
Requisites before a taxpayer may be required to
XPNs: No written claim is needed pay delinquent taxes: (AG-NoWri-Pre-Flo-Not)
(a) A return filed showing an overpayment 1. There must be an Assessment that has
shall be considered as a written claim for become final, executory, and collectible;
credit or refund (NIRC, Sec. 204[C]) 2. The amount, being collected must be part
(b) On the face of the return upon which the of the Government’s accounts receivable;
payment was made, such payment 3. The amount being collected must Not
appears clearly to have been erroneously have been Written-off or cancelled;
paid (NIRC, Sec. 229) 4. The right of the government to collect
has not yet Prescribed;
2. Claim must contain a categorical demand for 5. The proper procedure for collection
reimbursement (Bermejo v. CIR, G.R. No. L-3029, whether administrative or judicial are
1950); and Followed;
6. The taxpayer can still be Located; and
3. Filing of administrative claim for refund and 7. The government is Not enjoined from
the suit/proceeding before the CTA both within 2 collecting the tax (DOMONDON, National
years from date of payment regardless of any Taxation, p. 334)
supervening cause.

Note: The suit may be maintained whether or not b) Prescriptive Periods

such tax/penalty/sum has been paid under GR: Five (5) years from the date of assessment
protest; (Sec. 222 (C) , NIRC)

If proven that the entity is tax exempt, then the XPN:

previously paid tax can be refunded but the claim 1. False or fraudulent return with intent to
is still subject to the prescriptive period of 2 evade taxes: within 10 years from
years. (CIR vs. Manila Electric Company, G.R. No. discovery without need for prior
181459, 2014) assessment. The government may file a
proceeding in court.
2. Failure or omission to file a return: within
10 years from discovery without need for
3. Government Remedies for Collection of
assessment.
Delinquent Taxes
3. Waiver in writing executed before the
five-year period expires: period agreed
COLLECTION upon. (Ingles, supra at 475)
It is only allowed when there is already a final
assessment made for the determination of the tax For false, fraudulent, or failure to file a return:
due and must be made within 5 years from such If the government does not make an assessment,
they can collect within 10 years from discovery.

62
They are, however, limited to purely judicial other than those with whom the return is
remedies. (Sec. 222 (A), NIRC; Ingles, supra at required to be filed;
477) C. Failure to pay the deficiency tax within
the time prescribed for its payment in the
notice of assessment; or
D. Failure to pay the full or part of the
4. Civil Penalties
amount of tax shown on any return
required to be filed, or the full amount of
a) Delinquency Interest and Deficiency Interest tax due for which no return is required to
be filed, on or before the date prescribed
Delinquency Interest for its payment (Sec. 248 (A), NIRC)
12% (or 20% prior to the TRAIN) In case of failure 2. Fifty percent (50%) penalty in case of the
to pay: following: (WF)
1. The amount of the tax due on any return A. Willful neglect to file a return within the
required to be filed, or period prescribed; or
2. The amount of the tax due for which no
return is required, or NOTE: If the taxpayer voluntarily files the return,
3. A deficiency tax, or any SURCHARGE or without notice from the BIR, only a 25% surcharge
interest thereon on the due date shall be imposed for late filing and late payment
appearing in the notice and demand of of the tax.
the Commissioner, there shall be assessed
and collected on the unpaid amount, But if the taxpayer files the return only after
interest at the rate of double the legal prior notice in writing from the BIR, then the 50%
interest until the amount is fully paid, surcharge will be imposed (Ingles, Reviewer, p.
which interest shall form part of the tax. 404)
(NIRC, Sec. 249)
B. False or fraudulent return willfully made
Deficiency Interest (Sec. 248(B), NIRC)
Any deficiency in the tax due, as the term is NOTE: The following are prima facie evidence of
defined in NIRC, shall be subject to the double a false or fraudulent return:
the legal interest, which interest shall be 1. Substantial underdeclaration of sales, receipts
assessed and collected from the date prescribed or income;
for its payment until the full payment thereof, or 2. Substantial overstatement of
upon issuance of a notice and demand by the deductions.
Commissioner of Internal Revenue, whichever
comes earlier. (Casasola, The Consolidated NIRC Substantial = more than 30% of actual
of 1997, pp. 334-335) sales/deductions

NOTE: The deficiency and the delinquency Surcharge and interest can be deleted when the
interest cannot be imposed simultaneously. basis of a previous interpretation of the agency
(NIRC, Sec. 249) tasked to implement the law is highly
controversial and the taxpayer acted in good
b) Surcharge faith and in honest belief that it is not subject to
1. Twenty-five percent (25%) of the amount due tax (M Lhuillier Pawnshop v. CIR, 501 SCRA 460,
shall be imposed in the following: cited in BSP v. CIR, Feb 2010)
A. Failure to file any return and pay the tax
due thereon on the date prescribed; c) Compromise Penalty
B. Wrong venue - Unless otherwise In all cases of criminal violations of the NIRC, not
authorized by the Commissioner, filing a involving the commission of fraudulent act, it is
return with an internal revenue officer directed that henceforth, compromise penalties
to be imposed shall follow strictly the amounts in

63