CHAPTER IV SOURCES AND CONSTRUCTION OF TAX LAWSI. SOURCES OF TAX LAWS

1. Statutes

a. Existing Tax Laws

i. National National Internal Revenue Code of 1997

REPUBLIC ACT NO. 8424

TAX REFORM ACT OF 1997

AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Short Title - This Act shall be cited as the "Tax Reform Act of 1997".

SECTION 2. State Policy. It is hereby declared the policy of the State to promote sustainable economic growth through the rationalization of the Philippine internal revenue tax system, including tax administration; to provide, as much as possible, an equitable relief to a greater number of taxpayers in order to improve levels of disposable income and increase economic activity; and to create a robust environment for business to enable firms to compete better in the regional as well as the global market, at the same time that the State ensures that Government is able to provide for the needs of those under its jurisdiction and care.

SECTION 3. Presidential Decree No. 1158, as amended by, among others, Presidential Decree No. 1994 and Executive Order No. 273, otherwise known as the National Internal Revenue Code, is hereby further amended.

ii. Local Book II, 1991 Local Government Code

THE LOCAL GOVERNMENT CODE OF THE PHILIPPINES

BOOK II LOCAL TAXATION AND FISCAL MATTERS

TITLE ONE. - LOCAL GOVERNMENT TAXATION

CHAPTER 1 - GENERAL PROVISIONS

SEC. 128. Scope.- The provisions herein shall govern the exercise by provinces, cities, municipalities, and barangays of their taxing and other revenue-raising powers.

SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units.

SEC. 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units:

(a) Taxation shall be uniform in each local government unit;

(b) Taxes, fees, charges and other impositions shall: (1) be equitable and based as far as practicable on the taxpayer's ability to pay; (2) be levied and collected only for public purposes; (3) not be unjust, excessive, oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in restraint of trade;

(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person;

(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and,

(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.iii. Tariff and Custom Codes

Republic Act No. 1937 A Decree to Consolidate and Codify all the Tariff and Customs Laws of the Philippines is one of the sources of taxation laws in the Philippines.

iv. BCDA Law

REPUBLIC ACT NO. 7227 REPUBLIC ACT NO. 7227

AN ACT ACCELERATING THE CONVERSION OF MILITARY RESERVATIONS INTO OTHER PRODUCTIVE USES, CREATING THE BASES CONVERSION AND DEVELOPMENT AUTHORITY FOR THE PURPOSE, PROVIDING FUNDS THEREFORE AND FOR OTHER PURPOSES

Section 1. Short Title. This Act shall be known as the "Bases Conversion and Development Act of 1992."

Sec. 2. Declaration of Policies. It is hereby declared the policy of the Government to accelerate the sound and balanced conversion into alternative productive uses of the Clark and Subic military reservations and their extensions (John Hay Station, Wallace Air Station, O'Donnell Transmitter Station, San Miguel Naval Communications Station and Capas Relay Station), to raise funds by the sale of portions of Metro Manila military camps, and to apply said funds as provided herein for the development and conversion to productive civilian use of the lands covered under the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended.Provisions under Sec 12 of BCDA Law related to Tax Laws:

(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;

(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to be base areas. In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter;

v. PEZA Law

REPUBLIC ACT NO. 7916AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSESSECTION 1. Title. This Act shall be known and cited as The Special Economic Zone Act of 1995.

Provisions under PEZA Law related to Tax Laws:

SECTION 24.Exemption from Taxes Under the National Internal Revenue Code. Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows:

(a) Three percent (3%) to the national government;

(b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and

(c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE: Provided, however, That the respective share of the affected local government units shall be determined on the basis of the following formula:

(1) Population fifty percent (50%);

(2) Land area twenty-five percent (25%); and

(3) Equal sharing twenty-five percent (25%).

SECTION 25. Applicable National Taxes. All income derived by persons and all service establishments in the ECOZONE shall be subject to taxes under the National Internal Revenue Code.

vi. Omnibus Investment Law

THE OMNIBUS INVESTMENTS CODE OF 1987(Executive Order No. 226)CHAPTER 1 TITLE AND DECLARATION OF POLICY ARTICLEThis Order shall be known as the "Omnibus Investments Code of 1987."

Provisions under PEZA Law related to Tax Laws:

ART. 39. Incentives to Registered Enterprises. - All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment: (a) Income Tax Holiday.

(1) For six (6) years from commercial operation for pioneer firms and four (4) years for non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by the National Government.

(2) For a period of three (3) years from commercial operation, registered expanding firms shall be entitled to an exemption from income taxes levied by the National Government proportionate to their expansion under such terms and conditions as the Board may determine; Provided, however, That during the period within which this incentive is availed of by the expanding firm it shall not be entitled to additional deduction for incremental labor expense.

2. Revenue Regulations (RR)a. Authority to promulgate

The NIRC provides:

SEC. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations. - The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code.b. Specific provisions to be contained in Revenue Regulations

The NIRC provides:

SEC. 245. Specific Provisions to be Contained in Rules and Regulations. - The rules and regulations of the Bureau of Internal Revenue shall, among other thins, contain provisions specifying, prescribing or defining: (a) The time and manner in which Revenue Regional Director shall canvass their respective Revenue Regions for the purpose of discovering persons and property liable to national internal revenue taxes, and the manner in which their lists and records of taxable persons and taxable objects shall be made and kept; (b) The forms of labels, brands or marks to be required on goods subject to an excise tax, and the manner in which the labelling, branding or marking shall be effected; (c) The conditions under which and the manner in which goods intended for export, which if not exported would be subject to an excise tax, shall be labelled, branded or marked; (d) The conditions to be observed by revenue officers respecting the institutions and conduct of legal actions and proceedings; (e) The conditions under which goods intended for storage in bonded warehouses shall be conveyed thither, their manner of storage and the method of keeping the entries and records in connection therewith, also the books to be kept by Revenue Inspectors and the reports to be made by them in connection with their supervision of such houses; (f) The conditions under which denatured alcohol may be removed and dealt in, the character and quantity of the denaturing material to be used, the manner in which the process of denaturing shall be effected, so as to render the alcohol suitably denatured and unfit for oral intake, the bonds to be given, the books and records to be kept, the entries to be made therein, the reports to be made to the Commissioner, and the signs to be displayed in the business or by the person for whom such denaturing is done or by whom, such alcohol is dealt in; (g) The manner in which revenue shall be collected and paid, the instrument, document or object to which revenue stamps shall be affixed, the mode of cancellation of the same, the manner in which the proper books, records, invoices and other papers shall be kept and entries therein made by the person subject to the tax, as well as the manner in which licenses and stamps shall be gathered up and returned after serving their purposes; (h) The conditions to be observed by revenue officers respecting the enforcement of Title III imposing a tax on estate of a decedent, and other transfers mortis causa, as well as on gifts and such other rules and regulations which the Commissioner may consider suitable for the enforcement of the said Title III; (i) The manner in which tax returns, information and reports shall be prepared and reported and the tax collected and paid, as well as the conditions under which evidence of payment shall be furnished the taxpayer, and the preparation and publication of tax statistics; (j) The manner in which internal revenue taxes, such as income tax, including withholding tax, estate and donor's taxes, value-added tax, other percentage taxes, excise taxes and documentary stamp taxes shall be paid through the collection officers of the Bureau of Internal Revenue or through duly authorized agent banks which are hereby deputized to receive payments of such taxes and the returns, papers and statements that may be filed by the taxpayers in connection with the payment of the tax: Provided, however, That notwithstanding the other provisions of this Code prescribing the place of filing of returns and payment of taxes, the Commissioner may, by rules and regulations, require that the tax returns, papers and statements that may be filed by the taxpayers in connection with the payment of the tax. Provided, however, That notwithstanding the other provisions of this Code prescribing the place of filing of returns and payment of taxes, the Commissioner may, by rules and regulations require that the tax returns, papers and statements and taxes of large taxpayers be filed and paid, respectively, through collection officers or through duly authorized agent banks: Provided, further, That the Commissioner can exercise this power within six (6) years from the approval of Republic Act No. 7646 or the completion of its comprehensive computerization program, whichever comes earlier: Provided, finally, That separate venues for the Luzon, Visayas and Mindanao areas may be designated for the filing of tax returns and payment of taxes by said large taxpayers. For the purpose of this Section, "large taxpayer" means a taxpayer who satisfies any of the following criteria; (1) Value-Added Tax (VAT). - Business establishment with VAT paid or payable of at least One hundred thousand pesos (P100,000) for any quarter of the preceding taxable year; (2) Excise Tax. - Business establishment with excise tax paid or payable of at least One million pesos (P1,000,000) for the preceding taxable year; (3) Corporate Income Tax. - Business establishment with annual income tax paid or payable of at least One million pesos (P1,000,000) for the preceding taxable year; and (4) Withholding Tax. - Business establishment with withholding tax payment or remittance of at least One million pesos (P1,000,000) for the preceding taxable year. Provided, however, That the Secretary of Finance, upon recommendation of the Commissioner, may modify or add to the above criteria for determining a large taxpayer after considering such factors as inflation, volume of business, wage and employment levels, and similar economic factors. The penalties prescribed under Section 248 of this Code shall be imposed on any violation of the rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, prescribing the place of filing of returns and payments of taxes by large taxpayers.

c. What is the force and effect of Revenue Regulations?

The Civil Code provides:

Article 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse, or custom or practice to the contrary.

When the courts declared a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern.

Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitutiond. http://www.lawphil.net/judjuris/juri1969/sep1969/gr_l-19337_1969.htmlAsturias Sugar Central v. Commissioner of Customs and CTAG.R. No. L-19337September 30, 1969

Justice Castro

Facts:

Asturias Sugar Central, Inc. is engaged in the production and milling of centrifugalsugar, the sugar so produced being placed in containers known as jute bags.In 1957, it made two importations of jute bags, free from customs duties and special import tax upon the Petitioners filing of re-exportation and special import tax bond, conditioned upon the exportation of the jute bags within one year from the date of importation.

However, out of the 44,800 jute bags imported first, only 8,647 were exported and only 25,000 were exported out of the 75,200 jute bags imported on the second shipment. In other words, of the total number of imported jute bags only 33,647 bags were exported within one year after their importation. The remaining 86,353 bags were exported after the expiration of the one-year period but within three years from their importation.

Petitioner requested the Commissioner of Customs for a week's extension of Re-exportation and Special Import Tax Bond no. 6 which was to expire the following day, citing reasons for its failure to export the remaining jute bags within the period of one year.However, this request was denied by the Commissioner.

Due to the petitioner's failure to show proof of the exportation of the balance of 86,353jute bags within one year from their importation, the petitioner was required to pay the amount of Php 28,629.42 representing the customs duties and special import tax due thereon,which the petitioner paid under protest and later on demanded the refund of the amount it had paid.

Issues:

a) Whether the Commissioner of Customs is vested with discretion to extend the period of one year provided for in Section 23 of the Philippine Tariff Act of 1909.

b) Whether the interpretation or construction of an ambiguous or uncertain statute by the Executive Department or other Administrative Agencies be given consideration. In this case, the Bureau of Customs.

Held:

a.) Section 23 of the Philippine Tariff Act Of 1909 and the superseding sec. 105(x) of theTariff and Customs Code, while fixing at one year the period within which the containers therein mentioned must be exported, are silent as to whether the said period may be extended. By reason of this silence, the Bureau of Customs Issued Administrative Orders 389 and 66 to eliminate confusion and provide a guide as to how it shall apply the law, and, more specifically, to make officially known its policy to consider the one-year period mentioned in the law as non-extendible.

b.) Considering that the statutory provisions in question (Section 23 of the Philippine Tariff Act of 1909 and Sec. 105(x) of the Tariff and Customs Code) have not been the subject of previous judicial interpretation, then the application of the doctrine of "judicial respect for administrative construction (in the case at bar the Bureau of Customs issued Administrative Orders 389 and 66 to eliminate confusion and provide a guide as to how it shall apply the law, and, more specifically, to make officially known its policy to consider the one-year period mentioned in the law as non-extendible., " would, initially, be in order. Only where the court of last resort has not previously interpreted the statute is the rule applicable that courts will give consideration to construction by administrative or executive departments of the state. The formal or informal interpretation or practical construction of an ambiguous or uncertain statute or law by the executive department or other agency charged with its administration or enforcement is entitled to consideration and the highest respect from the courts, and must be accorded appropriate weight in determining the meaning of the law, especially when the construction or interpretation is long continued and uniform or is contemporaneous with the first workings of the statute, or when the enactment of the statute was suggested by such agency.

Considering that the Bureau of Customs is the office charged with implementing and enforcing the provisions of our Tariff and Customs Code, the construction placed by it thereon should be given controlling weight.

In applying the doctrine or principle of respect for administrative or practical construction, the courts often refer to several factors which may be regarded as bases of the principle, as factors leading the courts to give the principle controlling weight in particular instances, or as independent rules in themselves. These factors are the respect due the governmental agencies charged with administration, their competence, expertness, experience, and informed judgment and the fact that they frequently are the drafters of the law they interpret; that the agency is the one on which the legislature must rely to advise it as to the practical working out of the statute, and practical application of the statute presents the agency with unique opportunity and experiences for discovering deficiencies, inaccuracies, or improvements in the statute.

ACCORDINGLY, the judgment of the Court of Tax Appeals of November 20, 1961 is affirmede. http://www.lawphil.net/judjuris/juri2003/nov2003/gr_127624_2003.htmlBPI Leasing Corp (BLC) v. CA and CIR

G.R. No. 127624November 18, 2003

Justice Azcuna

Facts:

BLC is a corporation engaged in the business of leasing properties.For the calendar year 1986, BLC paid the Commissioner of Internal Revenue (CIR) a total of P1,139,041.49 representing 4% "contractors percentage tax" then imposed by Section 205 of the National Internal Revenue Code (NIRC), based on its gross rentals from equipment leasing for the said year amounting to P27,783,725.42.On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2 thereof provided that finance and leasing companies registered under Republic Act 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for "contractors percentage tax" under Section 205 but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the aforementioned "contractors percentage tax," it re-computed its tax liabilities under the "gross receipts tax" and arrived at the amount of P361,924.44.

On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount of P777,117.05, representing the difference between the P1,139,041.49 it had paid as "contractors percentage tax" and P361,924.44 it should have paid for "gross receipts tax." The CTA dismissed the petition and denied BLCs claim of refund. The CTA held that Revenue Regulation 19-86, as amended, may only be applied prospectively such that it only covers all leases written on or after January 1, 1987. On appeal, the CA affirmed the CTAs decision.Issues:

a) Whether Revenue Regulation 19-86 is legislative or interpretative in nature.

b) Whether Revenue Regulation 19-86s application should be prospective or retroactive. Held:

a) The Court finds the questioned revenue regulation to be legislative in nature. Administrative issuances may be distinguished according to their nature and substance: legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing.

Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. InPaper Industries Corporation of the Philippines v. Court of Appeals,the Court recognized that the application of Section 277 calls for none other than the exercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that Revenue Regulation 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC.

b) The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication.In the present case, there is no indication that the revenue regulation may operate retroactively. Furthermore, there is an express provision stating that it "shall take effect on January 1, 1987," and that it "shall be applicable to all leases written on or after the said date." Being clear on its prospective application, it must be given its literal meaning and applied without further interpretation.Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987.WHEREFORE,the petition for review is herebyDENIED, and the assailed decision and resolution of the Court of Appeals areAFFIRMED3. BIR Issuances BIR Revenue Administrative Order (RAO) No. 2-2001 issued January 18, 2001 defines and delineates the functions and processes of the National Office Management Information System (NOMIS)-Management Reporting through Executive Information System (EIS) Capability (Release 4).

The following officials will have access on the NOMIS (Release 4): 1) Commissioner; 2) Deputy Commissioners; 3) concerned Assistant Commissioners; 4) concerned Head Revenue Executive Assistants; 5) Regional Directors; 6) Asst. Regional Directors of Metro Manila and Cebu City; and 7) selected Division Chiefs and Section Chiefs.a. BIR Rulings

i. Rulings of first impression

These refer to the rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws without established precedent, and which are issued in response to a specific request for ruling filed by a taxpayer with the Bureau of Internal Revenue.Provided, however, that the term shall include reversal, modification or revocation of any existing ruling.

ii. Rulings with established precedents

These refer to mere reiteration of previous rulings, opinions and interpretations of the Commissioner, as delegated to duly authorized internal revenue officers (i.e., Deputy Commissioner, Legal and Inspection Group; Assistant Commissioner, Legal Service; Regional Directors) that are issued in response to a specific request for ruling filed by a taxpayer with the Bureau of Internal Revenue.

iii. Power of CIR to interpret Tax Laws

The NIRC provides:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

iv. Non-retroactivity of Rulings

The NIRC provides:

SEC. 246. Non- Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith.

v. http://www.lawphil.net/judjuris/juri1986/jun1986/gr_66653_1986.html

CIR v. Burroughs Ltd.

G. R. No. L-66653June 19, 1986

Justice Paras

Facts:

Burroughs Ltd is a foreign corporation authorized to engage in business in the Philippines. Its branch office in Makati applied with the Central Bank for authority to remit to its parent company abroad, branch profits. It paid 15% branch profit remittance tax. The branch, however, later claimed for a refund or credit contending that the branch profit remittance tax pursuant to a BIR ruling of 21 January 1980. The Court of Tax Appeals granted the companys petition. The Commissioner filed a petition for certiorari, claiming Memorandum Circular 8-82 (17 March 1982) should apply.

Issue:

Whether the Memorandum Circular 8-82 should be retroactively applied.

Held:

Revenue Ruling of January 21, 1980 remains to apply in the case as the company paid the tax on March 14, 1979. Memorandum Circular 8-82 cannot be given retroactive effect in the light of Section 327 (non-retroactivity of rulings) of the tax code. The retroactive application of the Circular would deprive the company the substantial amount of P172,058.90. The misstates or omits material facts from his return or in any document required of him by the BIR, or where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or where the taxpayer acted in bad faith to allow the retroactive application of the circular.

vi. http://www.lawphil.net/judjuris/juri2007/apr2007/gr_168129_2007.html

CIR v. Philippine Health Care Providers, Inc.

G.R. No. 168129April 24, 2007

Justice Sandoval-Gutierrez

Facts:

Issue:

Held:

vii. Exceptions

PBCOM v. CIR

Facts:

Philippine Bank of Communications (PBCom) filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of more than P5M.The taxes due were settled by applying PBCom's tax credit memos and accordingly, the BIR issued Tax Debit Memo for P3M+ and P1M+, respectively.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, it reported a net loss of more than P14M and thus declared no tax payable for the year.

But during these two years (1985 and 1986), PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes for both 1986 and 1986 (about P200k+ for each of those years).

PBCom then requested the CIR, among others, for a tax credit of P5M+ representing the overpayment of taxes in the first and second quarters of 1985. Three years later, PBCom filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 and 1986 (the P200k+ each)

Pending CIRs investigation, PBCom instituted a Petition for Review before the CTA. CTA denied the request for a tax refund or credit (P5M+) given that it was filed beyond the 2-year reglementary period provided for by law. The petitioner's claim for refund in 1986 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.

PBCom argued that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985.

The RM Circular states that overpaid income taxes are NOT covered by the two-year prescriptive period under the Tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten 10 years under Article 1144 of the Civil Code.

Issue:

Whether the tax refund should be denied on the ground of prescription, despite PBComs reliance on RMC No. 7-85, changing the prescriptive period of 2 years to 10 years.

Held:

No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.

The NIRC states that the taxpayer may file a claim for refund or credit with the CIR w/in 2 years after payment of tax, before any suit in CTA is commenced.

The 2-year prescriptive period should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

Clearly, the prescriptive period of 2 years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished.

When the Acting CIR issued RMC 7-85, changing the prescriptive period of 2 years to 10 years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of the NIRC.

In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. Rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter.

Art. 8 of the Civil Code recognize judicial decisions, applying or interpreting statutes as part of the legal system of the country.

But administrative decisions do not enjoy that level of recognition.

A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same.

Moreover, the non-retroactivity of rulings by the CIR is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the CIR.

Lastly, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

b. Revenue Memorandum Rulings (RMR) These refer to the rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations.c. Revenue Travel Assignment Orders (RTAO)

These orders assign revenue personnel to specific functions in specific units. Travel assignment orders specifically mention the names of revenue personnel concerned.

d. Revenue Special Orders (RSO)

Instructions or directives for the accomplishment of special assignments or missions of significance which are temporary in nature or for a definite period of time. These issuances specifically mention the personnel or units of organization concerned.

e. Revenue Memorandum Circulars (RMC)

These issuances shall disseminate and embody pertinent and applicable portions, as well as amplifications of the rules, precedents, laws, regulations, opinions and other orders and directives issued by or administered by the Commissioner of Internal Revenue, and by offices and agencies other than the Bureau of Internal Revenue, for the information, guidance or compliance of revenue personnel.

f. Revenue Memorandum Orders (RMO)

These are directives or instructions outlining procedures, techniques, methods, processes, operations, activities, work flow, and the like, which are necessary to carry out programs or to achieve policy goals and objectives. These issuances may be of general or of limited scope yet in any case require definite compliance by those concerned. They are not addressed to any particular group of employees or offices because they are for general information, but those directly concerned with the compliance of these provisions are either definitely stated, or unmistakably implied thereat.

g. Revenue Audit Memorandum Orders (RAMO)

These refer to the uniform audit procedures to be observed by revenue officers in the conduct of audit of tax cases and in their submission of reports of investigation.

h. Revenue Delegation of Authority Orders (RDAO)

These refer to the functions delegated by the Commissioner to revenue officers in accordance with law.

i. Revenue Administrative Orders (RAO)

These refer to matters that deal strictly with more or less permanent administrative set-up of the Bureau. Delineation of organizational structures, statements of functions and/or responsibilities, definitions and delegations of authority, staffing and personnel requirements, standards of performance, establishment of Bureau-wide programs, installation of systems, and the like, are most likely subject matter of Revenue Administrative Orders. These issuances are for general guidance, compliance and/or information.

4. Opinions of the Secretary of Justice

Tax laws were also derived from the opinions of the Secretary of Justice which are prominent and influential in taxation.

5. Legislative Materials

These refer to legislative history documents and materials where taxation laws can be obtained. The origin of the laws can be ascertained through legislative materials.6. Court Decision

In the Philippines, Supreme Court decisions form part of the law of the land. As such, decisions by the Supreme Court in the exercise of its power to review, revise, reverse, modify or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts cases involving the legality of any tax, impost, assessment, or toll or any penalty imposed in relation thereto are adhered to and recognized as binding interpretations of Philippine tax law. Court of Appeals and Court of Tax Appeals decisions which have become final and executory are also recognized interpretations of Philippine tax law.