INSIGHTS is a monthly publication of BDB LAW to inform, update and provide perspectives to our clients and readers on significant tax-related court decisions and regulatory issuances (includes BIR, SEC, BSP, and various government agencies).

DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court decisions, and articles written by our experts. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.

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The propriety of seizure and detention of excisable items falls under the purview of “other matters arising under the National Internal Revenue Code or other laws administered by the BIR” which is within the exclusive appellate jurisdiction of the CTA in Section 7(a)(1) of RA No. 1125, as amended.

The taxpayer filed a request for ruling before the Commissioner of Internal Revenue (CIR) to confirm its tax exemption for excise taxes on minerals during the recovery period. In response, the Bureau of Internal Revenue (BIR) issued BIR Ruling No. 10-2007 confirming the taxpayer’s tax exemption in accordance with the terms of the agreement that the latter executed, the Philippine Mining Act of 1995, and its Implementing Rules and Regulations. However, the same ruling was invalidated by Revenue Memorandum Circular (RMC) No. 17-2013. The BIR also seized and detained the taxpayer’s copper concentrates for the latter’s alleged failure to pay excise taxes. The taxpayer then paid the same under protest.

However, despite payment, the BIR again seized and detained metric tons of copper concentrates. Thus, the taxpayer filed before the CTA a Petition for Review assailing the (1) seizure and detention of its copper concentrates; (2) the alleged illegal collection of excise taxes; and (3) the validity of RMC No. 17-2013. The taxpayer’s Petition was denied by the Court of Tax Appeals (CTA) for lack of jurisdiction. It ruled that the validity and constitutionality of rules and regulations lies with the regular courts and not the CTA. It also declared that it could not rule on the validity of the BIR's apprehension and detention of taxpayer’s copper concentrates since this would depend on the validity or invalidity of the assailed RMC.

The Supreme Court partially granted the taxpayer’s Petition. On the issue of the validity of the assailed RMC, it ruled that the CTA En Banc correctly held that this should have been first elevated to the Secretary of Finance. However, the CTA En Banc erred in throwing out the taxpayer’s “lock, stock, and barrel” just for this reason. Contrary to its conclusions, the seizure, apprehension, and detention of the taxpayer’s copper concentrates are not hinged on RMC No. 7-2013.

Notably, some apprehension and seizure occurred before the issuance of the assailed RMC, hence, this should be appreciated as a separate matter from the issue on the validity of the said RMC. The same should be interpreted in relation to Sections 171 and 172 of the Tax Code which falls under the purview of “other matters arising under the National Internal Revenue Code or other laws administered by the BIR” which is within the exclusive appellate jurisdiction of the CTA in Section 7(a)(1) of RA No. 1125, as amended, rather than to be considered some form of assessment or penalty per se. Nevertheless, it is only the decision of the CIR, or his duly authorized representative, on such matters which is appealable to the CTA, and certainly not the act of the revenue officers in the first instance. Thus, strictly speaking, the taxpayer should have first filed a protest for the seizure and detention of its copper concentrates prior to seeking judicial relief before the CTA. Despite the foregoing, there is sufficient reason to relax the rule on exhaustion of administrative remedies, such as when there is a violation of due process or when there is estoppel on the part of the administrative agency concerned, or when there are circumstances indicating the urgency of judicial intervention which are present in this case. (Oceangold (Philippines), Inc. v. Commissioner of Internal Revenue. G.R. No. 234614, June 14, 2023)

The electric cooperatives registered with NEA are subject to income tax on certain sources. However, since taxpayer relied upon a previous ruling stating otherwise, the assessment imposing income tax against it is void.

The taxpayer contends that the income tax assessments against it for taxable years (TY) 2012 and 2013 are void because as an electric cooperative registered with the National Electrification Administration (NEA), it enjoys permanent income tax exemption under Section 39(a)(1) of PD No. 269.

The Court ruled that the electric cooperatives registered with NEA are subject to income tax on certain sources. It clarified that the supposed permanent income tax exemption of electric cooperatives under Section 39(a)(1) of PD No. 269, as amended which has been effectively withdrawn by subsequent legislation, was not entirely restored by FIRB Resolution No. 24-87. At present, electric cooperatives registered with NEA are subject to income tax with respect to income tax derived from: (1) electric service operations; and (2) other sources such as interest income from bank deposits and yield or any other monetary benefit from bank deposits and yield or any other similar arrangements.

In this case, however, although the taxpayer is subject to income tax, the assessment for TY 2012 is void for being violative of Section 246 of the Tax Code, which provides that taxpayers may rely upon a rule or ruling issued by the Commissioner of Internal Revenue (CIR) or the Court. The reversal of which is not given a retroactive effect. Here, the assessment was based on RMC No. 74-2013 which clarified that electric cooperatives registered with the NEA are subject to income tax in accordance with FIRB Resolution No. 24-87. However, prior to such issuance, the CIR issued RMC No. 72-2003 which provides that the electric cooperatives registered with NEA are exempt from income taxes for which they are directly liable. Thus, from the promulgation of RMC No. 72-2003 on October 20, 2003, up until November 25, 2013, or prior to the issuance of RMC No. 74-2013, it was the CIR’s position that electric cooperatives registered with NEA are exempt from income tax, notwithstanding that FIRB Resolution No. 24-87 has been effective since July 14, 1987.

On the other hand, the assessment for TY 2013 is also void since the revenue officers who conducted the audit were not clothed with proper authority. (Nueva Ecija I Electric Cooperative, Inc. v. Commissioner of Internal Revenue, et. al., CTA Case Nos. 10587 & 10632, November 13, 2023) 

To assail a real property tax assessment, the taxpayer must comply with the procedures under Section 252 of the LGC which requires it to pay taxes “under protest” and file a protest letter; otherwise, the assessment will become final and executory.

The taxpayer received a Notice of Assessment dated June 12, 2008, with the subject Tax Declarations from the Municipality of Cordova. Subsequently, on October 13, 2011, it received a letter of even date from the Provincial Treasurer of Cebu in relation to its supposed unpaid taxes from 1992 to 2011, with computations of real property tax from the Municipality of Cordova for its transformers. It also received two other letters dated March 14, 2012, and March 27, 2012 from the Provincial Treasurer, inviting it to meetings with the Governor of Cebu to discuss the real property tax delinquency. On April 30, 2012, the taxpayer filed a complaint with the RTC seeking the (a) issuance of a Writ of Preliminary Injunction, (b) the nullification of the Notice Assessment and the subject Tax Declarations, and (c) the issuance of final injunction. The Municipality of Cordova and Provincial Treasurer contend that the taxpayer failed to file an appeal to the Local Board of assessment Appeals (LBAA), hence, its Petition should be denied.

The Court ruled against the taxpayer. It held that the taxpayer failed to comply with the requirement of payment under protest in Section 252, in relation to Sections 226 and 229 of the Local Government Code (LGC). Under this Section, it is required that the taxpayer must first pay the tax under protest and file a protest with the Local Treasurer within 30 days from the date of payment of the tax. If the protest is denied or upon the lapse of 60-day period for the Local Treasurer to decide on the protest, the taxpayer may appeal to the LBAA within 60 days from the denial of the protest or the lapse of the 60-day period to decide. Then, if the taxpayer is unsatisfied with the decision of the Local Board of Assessment Appeals (LBAA), it may appeal before the Central Board of Assessment Appeals (CBAA) within 30 days from receipt of the LBAA’s decision. The decision of the CBAA is appealable before the CTA En Banc.

In this case, the taxpayer, after receiving notices and letter from the Municipality of Cordova and Provincial Treasurer, did not pay “under protest” the assessed real property taxes and filed a protest under Section 252 of the LGC. For its failure to do so, the subject assessment becomes final and executory. (Mactan Electric Company, Inc. v. The Municipality of Cordova, et. al, CTA AC No. 258, November 17, 2023)

An unprotested final tax assessment would only attain finality if the assessment were valid.

The taxpayer was assessed for all internal revenue taxes for taxable year 2006. It assailed the assessment before the CTA in Division which ruled in favor of the taxpayer declaring the assessment null and void. The CIR appealed the said decision before the CTA En Banc, arguing that the Court in Division has no jurisdiction to try and hear the case, considering that the deficiency tax assessments against the taxpayer have become final, executory, and demandable for its failure to file its protest to the PAN and FLD.

The CTA En Banc affirmed CTA in Division’s decision. It emphasized that the CIR’s contention that the deficiency tax assessments have already become final, executory and demandable should be premised on the assessment’s validity. Here, as found by CTA in Division, the BIR failed to comply with the due process requirements in issuing the subject assessments rendering the said assessment void.

Under Section 228 of the Tax Code, the taxpayer must be given 15 days to respond to the PAN as part of the due process requirement. It necessarily follows that only after the BIR's receipt of the taxpayer response or in the case of the taxpayer’s default can it issue the FLD/FAN. In this case, PAN and FLD was issued only one day apart from each other. Clearly ignoring the taxpayer’s right to respond to the PAN. Consequently, the assessments are void. (Commissioner of Internal Revenue v. Digos Market Vendors Multi-Purpose Cooperative (DIMAVEMC), CTA EB No. 2518, November 30, 2023)

When the taxpayer denies receipt of the assessment notices, it became incumbent upon the CIR to prove by competent evidence that the assessment notices were indeed mailed to and received by the taxpayer.

The taxpayer was assessed for all internal revenue taxes for taxable year 2013. In assailing the assessment, it argued that it did not receive the FAN and ANs issued by the BIR. While the CIR contends that the FAN and ANs were mailed to the taxpayer’s registered address as evidenced by the Record of Case of the Administrative Division of the BIR RR No. 8 and the Certification from the Postmaster of Parañaque Central Post Office. Based on the record, the FAN and ANs were received by the taxpayer’s representative. The Court En Banc denied the CIR’s contentions. It ruled that the CIR failed to discharge the burden of proof that the subject FAN and ANs were mailed to and received by the taxpayer. It reiterates the well-settled rule that when the taxpayer denies receipt of the assessment notices, it became incumbent upon the CIR to prove by competent evidence that the assessment notices were indeed mailed to and received by the taxpayer.

Here, the Record Certification and Postmaster Certification merely indicate that a certain document was mailed. However, these documents failed to provide confirmation that the items mailed to the taxpayer were the subject FAN and ANs. (Commissioner of Internal Revenue v. 10K South Concrete Mix Specialist, Inc., CTA EB No. 2647 [CTA Case No. 9730], November 24, 2023) 

RR No. 13-2023, November 10, 2023
This pertains to rules and regulations prescribing policies and guidelines for the Optional VAT-Registration of Registered Business Enterprises Classified as Domestic Market Enterprise under Five Percent (5%) Tax on Gross Income Earned in lieu of all taxes regime during the transitory period pursuant to Rule 18, Section 5 of Amended Implementing Rules and Regulations of RA No. 11534 of CREATE Act.

This pertains to rules and regulations prescribing policies and guidelines for the Optional VAT-Registration of Registered Business Enterprises Classified as Domestic Market Enterprise under Five Percent (5%) Tax on Gross Income Earned in lieu of all taxes regime during the transitory period pursuant to Rule 18, Section 5 of Amended Implementing Rules and Regulations of RA No. 11534 of CREATE Act.

RMC No. 120-2023, November 9, 2023
This circularizes the availability, use and acceptance of Digital TIN ID.

BSP Circular No. 1180, November 10, 2023
This provides amendments to the Check Clearing and Settlement Regulations.