TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B.

Aban
CABANEIRO) A2011

JUICY NOTES (PROF.

Chapter 4: TAX LAWS AND REGULATION

NATURE OF INTERNAL REVENUE LAWS
1. Internal revenue laws are not political in nature.
2. Tax laws are civil and not penal in nature.
Not political in nature
Internal revenue laws are not political in nature. They are
deemed to be the laws of the occupied territory and not of
the occupying enemy.
Thus, our tax laws were in force during the Japanese
occupation.
Hilado v. CIR, [100 Phil 288]
It is well known that our internal revenue laws are not
political in nature and, as such, continued in force during the
period of enemy occupation and in effect were actually
enforced by the occupation government. Income tax returns
that were filed during that period and income tax payments
made were considered valid and legal. Such tax laws are
deemed to be the laws of the occupied territory and not of
the occupying enemy.
Civil, not penal in nature
Tax laws are civil and not penal in nature, although there are
penalties provided for their violation.
The purpose of tax laws in imposing penalties for
delinquencies is to compel the timely payment of taxes or to
punish evasion or neglect of duty in respect thereof.
Republic v. Oasan, [99 Phil 934]
The war profits tax is not subject to the prohibition on ex
post facto laws as the latter applies only to criminal or penal
matters. Tax laws are civil in nature.

INTERPRETATION/CONSTRUCTION OF TAX LAWS

1. Rule when legislative intent is clear.
Tax statutes are to receive a reasonable construction
with a view to carrying out their purpose and intent.
It should not be construed as to permit the taxpayer to
evade the payment of taxes easily.
2. Rule when there is doubt.
No person or property is subject to taxation unless within
the terms or plain import of a taxing statute. In every
case of doubt, tax statutes are construed strictly against
the government and liberally in favour of the taxpayer.
Taxes being burdens, are not to be presumed beyond
what the statute expressly and clearly declares.
3. Provisions granting tax exemptions
Such provisions are construed strictly against the
taxpayer claiming tax exemption.
APPLICATION OF TAX LAWS
General rule:
Tax laws are prospective in operation
because the nature and amount of the tax could not be
foreseen and understood by the taxpayer at the time the
transactions which the law seeks to tax was completed.
Exception: While it is not favored, a statute may
nevertheless operate retroactively provided it is expressly
declared or is clearly the legislative intent. But a tax law
should not be given retroactive application when it would be
harsh and oppressive.
SOURCES OF TAX LAWS
1.
Constitution
2.
National Internal Revenue Code
3.
Tariff and Customs Code
4.
Local Government Code (Book II)
5.
Local tax ordinances/ City or Municipal tax codes
6.
Tax treaties and international agreements
7.
Special laws

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
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8.
9.

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Decisions of the Supreme Court and the Court of Tax

Appeals
Revenue rules and regulations and administrative rulings
and opinions

DIRECTORY AND MANDATORY PROVISIONS OF TAX LAWS

Directory provisions are those designed merely for the
information or direction of officers or to secure methodical
and systematic modes of proceedings.
Mandatory provisions are those intended for the security of
the citizens or which are designed to ensure equality of
taxation or certainty as to the nature and amount of each
persons tax.
The omission to follow mandatory provisions renders invalid
the act or proceeding to which it relates while the omission
to follow directory provisions does not involve such
consequence, [Roxas v, Rafferty, 37 Phil 958].
PUB LICATION REQUIREMENT
Not all sources of tax laws as enumerated above require
publication.
Interpretative regulations and those which are merely
internal in nature, i.e., those which regulate only the
personnel of the administrative agency and not the public,
need not be published.
Examples:
1. Revenue Memorandum Orders
2. Revenue Memorandum Circulars
3. Revenue Administrative Orders
4. BIR Rulings
ARE TAX LAWS SPECIAL LAWS?
Tax laws are special laws. The Tax Code is an example of a
Tax law
The Tax Code is a special law and prevails over a general
law such as the Civil Code (Republic vs Gancayco, June 30,
1964)

In case the provisions of a special law are found to be

deficient in a particular situation, the Civil Code shall apply.

REVENUE RULES AND REGULATIONS AND ADMINISTRATIVE

RULINGS AND OPINIONS
Authority to promulgate rules and regulations, and rulings
and opinions
The Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, shall promulgate needful
rules and regulations for the effective enforcement of the
provisions of the NIRC.
This is without prejudice to the power of the Commissioner
of Internal Revenue to make rulings or opinions in
connection with the implementation of the provisions of the
Internal Revenue laws, including rulings on the classification
of articles for sales tax and similar purposes.
Purpose
1. To
2. To
3. To

of rules and regulations

properly enforce and execute the laws.
clarify and explain the law
carry into effect the laws general provisions by providing
details of administration and procedure.

Requisites for validity of rules and regulations]

1. They must not be contrary to law and the Constitution.
2. They must be uniform
3. They must be applicable to both present and future
circumstances.
4. They must be published in the Official Gazette or a
newspaper of general circulation.
Commissioner v. CA, [240 SCRA 368]
The authority of the Minister of Finance, in conjunction with the
Commissioner of Internal Revenue, to promulgate rules and
regulations for the effective enforcement of internal revenue
rules cannot be controverted. Neither can it be disputed that
such rules and regulations, as well as administrative opinions
and rulings, ordinarily should deserve weight and respect by the

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011

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courts. Much more fundamental than either of the above,

however, is that all such issuances must not override, but must
remain consistent with, the law they seek to apply and
implement. Administrative rules and regulations are intended to
carry out, neither to supplant nor to modify, the law.
La Suerte v. CTA [134 SCRA 29]
When an administrative agency renders an opinion by means of
a circular or memorandum, it merely interprets existing laws
and no publication is necessary for its validity. Construction by
an executive branch of the government of a particular law,
although not binding upon the courts, must be given weight as
the construction came from the branch of the government
which is called upon to implement the law.
EFFECTIVITY OF REVENUE RULES AND REGULATIONS
Revenue Memorandum Circular 20-86 was issued to govern the
drafting, issuance, and implementation of revenue tax
issuances, including:
1. Revenue Regulations;
2. Revenue Audit Memorandum Orders; and
3. Revenue Memorandum Circulars and Revenue
Memorandum Orders.

Except when the law otherwise expressly provides, the

aforesaid revenue tax issuances shall not begin to be operative
until after due notice thereof may be fairly assumed.

Due notice of the said issuances may be fairly presumed only

after the following procedures have been taken:
1. Copies of the tax issuances have been sent through
registered mail to the following business and professional
organizations:
a. Philippine Institute of Certified Public Accountants
b. Integrated Bar of the Philippines
c. Philippine Chamber of Commerce and Industry
d. American Chamber of Commerce

e. Federation of Filipino-Chinese Chamber of

Commerce; and
f. Japanese Chamber of Commerce and Industry in the
Philippines.
*however, other persons or entities may request a
copy of the said issuances.
2. The Bureau of Internal Revenue shall issue a press release
covering the highlights and features of the new tax issuance
in any newspaper of general circulation.
3. Effectivity date for enforcement of the new issuance shall
take place thirty (30) days from the date of the issuance had
been sent to the above-enumerated organizations.

BIR rulings
Administrative rulings, known as BIR rulings, are the less
general interpretation of tax laws being issued from time to
time by the Commissioner of Internal Revenue. They are
usually rendered on request of taxpayers to clarify certain
provisions of a tax law. These rulings may be revoked by the
Secretary of Finance if the latter finds them not in
accordance with law.
The Commissioner may revoke, repeal, or abrogate the acts
or previous rulings of his predecessors in office because the
construction of the statute by those administering it is not
binding on their successors if, thereafter, such successors
are satisfied that a different construction of the law should
be given.
Rulings in the form of opinions are also given by the
Secretary of Justice who is the Chief Legal Officer of the
Government.
2 KINDS OF RULINGS:
1. Rulings of first impression (RFI)
2. Rulings of established precedents.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011

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EFFECTIVITY AND VALIDITY OF A TAX ORDINANCE

If the resolution is to be considered as a tax ordinance, it
must be shown to have been enacted in accordance with
the requirements of the Local Government Code. These
would include the holding of a public hearing on the
measure and its subsequent approval by the Secretary of
Finance, in addition to the usual requisites for publication of
ordinances in general. Tuazon v. CA, [212 SCRA 739]
NON-RETROACTIVITY OF RULINGS
General Rule
Rulings are not retroactive if they are prejudicial to the
taxpayer.
Exceptions:
1. Where the taxpayers deliberately misstates or omits
material facts from his return or any document required
of him by the Bureau of Internal Revenue.
2. Where the facts subsequently gathered by the BIR are
materially different from the facts on which the ruling is
based.
3. Where the taxpayer acted in bad faith.
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN
ADMINISTRATIVE INTERPRETATION THROUGH REENACTMENT
It means that where a statute is susceptible of the meaning
placed upon in by a ruling of government agency charged
with its enforcement and the legislature thereafter reenacts the provisions without substantial change, such
action is to some extent confirmatory that the ruling carries
out the legislative purpose.
Legislative adoption of tax rulings
Reenactment of a statute substantially unchanged is
persuasive indication of the adoption by Congress of prior
executive construction. (ABS-CBN vs CTA)
DOCTRINE OF IMPLICATIONS

What is plainly implied in the language of the statute is as

much a part of it as that which is expressed

TAX TREATY
A tax treaty is one of the sources of our law on taxation. The
Philippine government usually enters into tax treaties in
order to avoid or minimize the effects of double taxation. A
treaty has the force and effect of law.
EXERCISES
Tax Laws; BIR Ruling; Non-Retroactivity of Rulings (2004)
Due to an uncertainty whether or not a new tax law is applicable to
printing companies, DEF Printers submitted a legal query to the
Bureau of Internal Revenue on that issue. The BIR issued a ruling
that printing companies are not covered by the new law. Relying on
this ruling, DEF Printers did not pay said tax. Subsequently,
however, the BIR reversed the ruling and issued a new one stating
that the tax covers printing companies. Could the BIR now assess
DEF Printers for back taxes corresponding to the years before the
new ruling? Reason briefly.
SUGGESTED ANSWER: No. Reversal of a ruling shall not be given
a retroactive application if said reversal will be prejudicial to the
taxpayer. Therefore, the BIR cannot assess DEF printers for back
taxes because it would be violative of the principle of nonretroactivity of rulings and doing so would result in grave injustice
to the taxpayer who relied on the first ruling in good faith (Section
246, NIRC; CIR v. Burroughs, Inc.,142 SCRA 324).
Purpose of Taxation; Interpretation (2004)
Which of the following propositions may now be untenable:
1) The court should construe a law granting tax exemption strictly
against the taxpayer.
2) The court should construe a law granting a municipal corporation
the power to tax most strictly.
3) The Court of Tax Appeals has jurisdiction over decisions of the
Customs Commissioner in cases involving liability for customs
duties.
4) The Court of Appeals has jurisdiction to review decisions
of the Court of Tax Appeals.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011

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5) The Supreme Court has jurisdiction to review decisions of the

Court of Appeals. Justify your answer or choice briefly.
SUGGESTED ANSWER:
2. The court should construe a law granting a municipal corporation
the power to tax most strictly.
This proposition is now untenable. The basic rationale for the grant
of tax power to local government units is to safeguard their viability
and self-sufficiency by directly granting them general and broad tax
powers (Manila Electric Company v. Province of Laguna et. al., 306
SCRA 750 [1999]). Considering that inasmuch as the power to tax
may be exercised by local legislative bodies, no longer by valid
congressional delegation but by direct authority conferred by the
Constitution, in interpreting statutory provisions on municipal fiscal
powers, doubts will, therefore, have to be resolved in favor
of

municipal
corporations (City Government of San Pablo,
Laguna v. Reyes, 305 SCRA 353 [1999]). This means that the court
must adopt a liberal construction of a law granting a municipal
corporation the power to tax.
Note: If the examinee chose proposition no. 4 as his
answer, it should be given full credit considering that the present
CTA Act (R.A. No. 9282) has made the CTA a coequal judicial body
of the Court of Appeals. The question "Which of the following
propositions may now be untenable" may lead the examinee to
choose a proposition which is untenable on the basis of the new
law despite the cut-off date adopted by the Bar Examination
Committee. R.A. No. 9282 was passed on March 30, 2004.

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