Articles

COURT OF TAX APPEALS DECISIONS

A TAXPAYER’S VAT REGISTRATION IS SATISFIED ONCE THE HEAD OFFICE IS VAT-REGISTERED; BRANCHES NEED NOT BE SEPARATELY VAT-REGISTERED FOR PURPOSES OF A VAT REFUND. THE CTA En Banc held that only a VAT-registered person may claim a refund of input VAT attributable to zero-rated sales, and VAT registration is complied with once the taxpayer’s head office is duly registered as a VAT taxpayer. Applying this to the case, the Court ruled that the taxpayer’s branch did not need separate VAT registration because the Tax Code requires VAT registration only at the entity level, and administrative regulations cannot impose additional requirements not found in the law. Although the Court initially denied the claim for lack of branch registration, the En Banc reversed this finding, holding that head-office VAT registration was sufficient. (Foundever Philippines Corporation (formerly: Sitel Philippines Corporation) v. CIR, CTA EB No. 2799 (CTA Case No. 10136), April 2025)

TAXPAYERS CLAIMING ZERO-RATED VAT MUST STRICTLY SUBSTANTIATE THAT SERVICES WERE PERFORMED AT THE CORRECTLY REGISTERED SITE; LACK OF PERSONAL KNOWLEDGE OF THE WITNESS AND REGISTRATION AFTER THE PERIOD OF REFUND WARRANT THE DENIAL OF THE CLAIM. The law provides that only VAT-registered persons engaged in zero-rated or effectively zero-rated sales are entitled to claim input VAT refund, and the taxpayer must prove that, among others, services were rendered to nonresident foreign clients. Here, the taxpayer failed to demonstrate that the services were actually rendered at the Palawan Site during the relevant quarter, as the site was only registered after the period of claim, the witness (based in Mandaluyong City) lacked personal knowledge of operations, and no corroborating evidence such as operations records or agreements specifying the service site was provided. In view of the strict scrutiny applied in tax exemption claims, the Court found that the taxpayer did not satisfy all requisites for zero-rating, particularly the site-specific performance requirement, and thus disallowed the input VAT refund claim. (Foundever Philippines Corporation (formerly: Sitel Philippines Corporation) v. CIR, CTA EB No. 2799 (CTA Case No. 10136), April 2025)

TAX EXEMPTION IN THE SUBIC SPECIAL ECONOMIC ZONE APPLIES ONLY AFTER THE SBMA ISSUES A CERTIFICATE OF REGISTRATION OR CRTE, AND MERE EXECUTION OF A LEASE OR BOARD APPROVAL DOES NOT CONFER EXEMPTION; FAILURE TO COMPLY RESULTS IN LIABILITY FOR DOCUMENTARY STAMP TAX. Business enterprises within the Subic Special Economic Zone are exempt from national and local taxes, including documentary stamp tax, subject to registration with the SBMA and issuance of a Certificate of Registration or CRTE. In the case at hand, the taxpayer argued that its lease agreement and Board approval prior to the CRTE issuance should suffice for tax exemption. The Court held that only the issuance of the CRTE finalized registration and conferred entitlement to the tax exemption. Evidence showed that taxpayer executed the lease before the CRTE was issued, and that several procedural steps remained before registration could be deemed complete. Consequently, the lease agreement was subject to documentary stamp tax. The Court also ruled that the taxpayer was not liable for compromise penalty, as no agreement with the BIR had been made. (CIR v. The Teleempire Incorporated CTA EB No.2817, April 29, 2025; The Teleempire Incorporated v. CIR, CTA EB No. 2819, April 29, 2025 2025)

A FOREIGN AFFILIATE CONDUCTING CORE BUSINESS ACTIVITIES THROUGH A PHILIPPINE ENTITY IS CONSIDERED “DOING BUSINESS” LOCALLY. In zero-rated sales, one of the requirements is that the non-resident foreign corporation is not doing business in the Philippines. Here, the taxpayer acted as an agent of its foreign affiliate, performing significant and integral services in the Philippines under strict contractual controls, earning fees almost entirely from a foreign company, and operating under the affiliate’s instructions, pricing, among others. These facts established that the foreign company was effectively conducting business in the Philippines through the taxpayer, making it a resident foreign corporation engaged in trade or business locally, thereby disqualifying the VAT refund. (PPD Pharmaceutical Development Philippines Corp. v. Commissioner of Internal Revenue, CTA EB No. 2839 (CTA Case No. 10249), April 3, 2025)

IMPORTED COMMISSARY SUPPLIES 1) NECESSARY FOR OPERATIONS AND 2) CHEAPER OR UNAVAILABLE LOCALLY ARE EXEMPT FROM EXCISE TAX.  Under the law, a corporation may claim excise tax exemption on imported commissary supplies if it meets certain conditions, including payment of corporate income tax for the relevant period, use of the imported items in transport and related operations, and demonstration that the supplies are not reasonably available in the local market in terms of quantity, quality, or price. In this case, Philippine Airlines established compliance through detailed evidence: testimony of its in-flight materials purchasing manager, tables comparing the cost of importing versus local purchase, and published local and international price lists. The evidence showed that the cost of importing wines and liquor was lower than purchasing them locally. The Court emphasized that once the taxpayer establishes a prima facie right to the refund, the BIR must disprove it, which it failed to do. Accordingly, the Court affirmed the refund of excise taxes on imported wine and liquor products. (Commissioner of Internal Revenue v. Philippine Airlines, Inc., CTA EB No. 2866 (CTA Case No. 8340), April 24, 2025)

A TAXPAYER CLAIMING REFUND OF EXCISE TAX ON COPPER CONCENTRATES MUST STRICTLY COMPLY WITH STATUTORY RECOVERY PERIODS AND SECURE GOVERNMENT APPROVAL OF PRE-OPERATING EXPENSES; FAILURE TO DO SO BARS RECOVERY. Under the law, excise taxes due from FTAA contractors are collectible only after the contractor has fully recovered its pre-operating, exploration, and development expenses, reckoned from the date of commercial production. The Court found that the taxpayer failed to prove the proper reckoning point for its recovery period, as the date declared in the feasibility study and other documentation was not adequately established, and the contractor’s claimed pre-operating expenses were not approved by the DENR Secretary as required. Without proof of valid, unrecovered pre-operating expenses, the taxpayer could not establish that it was still within the recovery period, a prerequisite for excise tax refund claims. Accordingly, the Court affirmed the denial of the refund, emphasizing that tax exemptions and refunds are strictly construed against the taxpayer. (OceanaGold Philippines, Inc. v. Commissioner of Internal Revenue, CTA EB No. 2876 (CTA Case Nos. 9627, 9697, 9760, 9830 & 9856), May 9, 2025)

TAXPAYERS CLAIMING ZERO-RATED SALES MUST STRICTLY PROVE ACTUAL FOREIGN CURRENCY RECEIPTS OR VALID OFFSETTING ARRANGEMENTS, SUPPORTED BY CLEAR AND UNDERSTANDABLE EVIDENCE. Zero-rated sales of services require proof of foreign currency payment or a valid offsetting arrangement. The Court found that the taxpayer failed to establish that the funds advanced by its head office could be offset against receivables from its affiliates, as the Short-Term Credit Facility Agreement only covered loans between the head office and each affiliate, not between affiliates themselves. Moreover, the taxpayer’s Schedule of Offsetting of Receivables, the only evidence of such offsetting, was largely in a foreign language and was not adequately explained or translated, rendering it inadmissible as proof. Consequently, petitioner failed to prove the existence of a valid offsetting arrangement and, therefore, could not substantiate its claim of engaging in zero-rated sales of services. (Avaloq Philippines Operating Headquarters v. Commissioner of Internal Revenue, CTA EB No. 2897 (CTA Case No. 10397), June 2025)

INPUT VAT ON PURCHASES NOT COVERED BY A ZERO-RATED INCENTIVE IS REFUNDABLE IF VALID, PAID, AND PROPERLY SUBSTANTIATED. Under the law, a VAT-registered taxpayer may claim a refund of input taxes that are due or paid, even if the purchases are not directly exempt or zero-rated, provided they are incurred in the course of business and properly documented. In this case, while the taxpayer’s renewable energy operations are entitled to zero-rated VAT for certain plant-related purchases, not all local purchases were necessary for its plant development and therefore incurred regular VAT. The Court found that the taxpayer sufficiently proved that its input VAT arose from these non-zero-rated local purchases through supporting schedules and documents, establishing that it was the proper party to claim the refund. The Court accordingly allowed the refund of the input VAT that was valid, due, and unutilized. (Commissioner of Internal Revenue v. Monte Solar Energy, Inc., CTA EB No. 2919 (CTA Case No. 10434), April 15, 2025)

AN ASSESSMENT IS VOID WHEN THE BIR FAILED TO PROVE THAT PERSONAL SERVICE IS NOT PRACTICABLE; AND CANNOT PROVE ACTUAL RECEIPT OF THE PAN AND FAN/FLD, WHEN DENIED RECEIPT THEREOF THE BY THE TAXPAYER. Jurisprudence consistently holds that when a taxpayer categorically denies receipt of tax assessment notices, the burden shifts to the BIR to prove, by competent and credible evidence, that the PAN and FAN/FLD were actually received; mere registry receipts, or bare allegations of mailing do not suffice, as due process demands actual notice to enable the taxpayer to respond. Applying this doctrine, the CTA found that the BIR failed to justify resort to service by registered mail, failed to prove that personal service was impracticable, and failed to present reliable proof of mailing and receipt. Consequently, the failure to validly serve the PAN and FAN/FLD violated due process, rendering the assessment void and without legal effect. (Aegis Integrated Lightning and Grounding Protection Inc. v. Commissioner of Internal Revenue, CTA Case No. 10716, August 14, 2025)

RECEIPT OF FINAL DECISION IS PRESUMED IF TAXPAYER’S TESTIMONY IS NOT CREDIBLE; INITIATORY PLEADINGS SHOULD BE FILED BY PERSONAL SERVICE OR MAIL, AND IF ORDINARY MAIL, DATE OF COURT RECEIPT IS THE DATE OF FILING. The CTA exercises appellate jurisdiction only over decisions or inaction of the CIR when an appeal is filed strictly within the reglementary 30-day period, and compliance with the prescribed mode of filing is jurisdictional. Once the CIR establishes the fact of proper mailing of its decision, a disputable presumption of receipt arises, which prevails unless rebutted by competent and credible evidence. In this case, the CIR sufficiently proved that the Final Decision was dispatched by registered mail in May 2021, giving rise to the presumption that it was received by the taxpayer in due course. The taxpayer’s claim that it received the decision only in January 2022 through personal service was unsupported by any objective proof, such as acknowledgment stamps or receipts, and was contradicted by its own witness testimony. Moreover, even assuming arguendo that receipt occurred on January 20, 2022, the Petition for Review was still filed beyond the allowable period and, in any event, was improperly filed via private courier, an impermissible mode for initiatory pleadings, rendering the filing effective only upon actual receipt by the CTA. Consequently, the petition was filed out of time, the CIR decision had already become final and executory, and the CTA correctly dismissed the case for lack of jurisdiction. (SCG Marketing Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10779, October 9, 2025)

AN ASSESSMENT ISSUED 7 DAYS AFTER THE RECEIPT OF FAN/FLD IS VOID. Under the rules, taxpayer has 15 days to respond to PAN. In this case, the petitioner received the PAN on 08 January 2013 and timely filed its reply via registered mail on 09 January 2013. Despite this, the BIR issued the FLD/FAN on 15 January 2013, only seven (7) days after receipt of the PAN and well before the expiration of the 15-day period, which ended on 23 January 2013. Worse, the BIR’s authorized representative actually received the petitioner’s PAN reply only on 16 January 2013, meaning the FLD/FAN had already been issued even before the reply was received and considered. These undisputed dates clearly show that the assessment was prematurely issued, depriving the petitioner of its right to fully respond and have its defenses evaluated, thereby violating administrative due process and rendering the tax assessments null and void. (MyServ International Inc., as represented by Ms. Cecilia O. Toledo v. Cesar R. Dulay, Commissioner of Internal Revenue, et al., CTA Case No. 10796, July 17, 2025)

AN ASSESSMENT IS VOID WHEN A TAXPAYER RECEIVES A FLD/FAN AFTER THE DUE DATE.  The law mandates that a taxpayer must be informed in writing of the factual and legal bases of any proposed assessment, and that an FLD/FAN must contain a definite amount of tax due with a demand for payment within a specific, prospective period; failure to comply renders the assessment void. In this case, the FAN was issued on January 3, 2019 with a stated due date of January 31, 2019, and the FLD was dated February 11, 2019, but petitioner received both notices only on February 12, 2019, after the due date had already lapsed. The FLD and FAN also failed to state a fixed and determinate tax amount, leaving the liability uncertain and contingent on an already-lapsed due date. These defects deprived the taxpayer of a fair opportunity to pay or protest, thereby violating due process and nullifying the assessment. (I-Cyberworld Biz, Inc., represented by Jacqueline Guinto v. Bureau of Internal Revenue, represented by Commissioner Caesar R. Dulay, CTA Case No. 10827, July 11, 2025)

ASSESSMENT IS VOID IF THE REVENUE OFFICERS, WHO ARE NOT NAMED IN THE LOA, SIGNED THE WAIVER, INDICATED IN THE NOTICE OF INFORMAL CONFERENCE AND RECOMMENDED THE ISSUANCE OF PAN. Only the Commissioner of Internal Revenue (CIR) or his duly authorized representatives may examine taxpayers and issue assessments, and only Regional Directors or other officials specifically authorized by the CIR may issue Letters of Authority (LOAs) to revenue officers. BIR regulations further require that LOAs identify the authorized officers and mandate the issuance of a new LOA whenever cases are reassigned. In this case, the LOA authorized ROs Argoso and GS Favis to audit the taxpayer, yet the audit was actually conducted by RO Joey Fragante and GS Josefina B. Yu, who were not named in the LOA. The reassignment of ROs was not properly authorized by a valid LOA, as the memorandum signed by RDO Espiritu exceeded his authority. The absence of a valid LOA and the participation of unauthorized officers (signing the waiver and recommending the issuance of the PAN) violated both statutory and due process requirements, rendering the audit and resulting assessment fatally defective, null, and void. (Philam Properties Corporation v. Commissioner of Internal Revenue, CTA Case No. 10921, October 1, 2025)

REVENUE ISSUANCES

Revenue Memorandum Circular No. 109-2025

BIR DEADLINES FROM DECEMBER 22 TO DECEMBER 28, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS DECISIONS

THE COURT DENIED THE VAT ZERO-RATING CLAIM BECAUSE THE TAXPAYER FAILED TO PROVE THAT ASURION EUROPE LIMITED AND NEW ASURION EUROPE LIMITED WERE THE SAME NRFC. Under the rules on VAT zero-rating of services rendered to a non-resident foreign corporation (NRFC), the taxpayer must establish the true identity of the NRFC. Applying this standard, the Court found that the SEC Certification of Non-Registration and the Articles of Association presented by petitioner referred only to Asurion Europe Limited and not to New Asurion Europe Limited, the entity to whom the zero-rated sales were allegedly made. The taxpayer likewise failed to provide independent proof that these two entities are the same, and the testimonies of its finance manager and the court-commissioned independent accountant were deemed insufficient to establish such identity. Following the strict scrutiny applied to refund claims, the Court held that the taxpayer did not meet an essential element for zero-rating and thus sustained the disallowance sales to New Asurion Europe Limited. (Asurion Hongkong Limited – ROHQ v. CIR, CT Case No. 10413, April 24,2025)

A VAT ZERO-RATING CLAIM MUST BE SUPPORTED BY CLEAR PROOF OF THE ACTUAL SERVICE RENDERED, AND A STATEMENT “PURPOSE FOR TRAVEL COST” IS INSUFFICIENT TO ESTABLISH THE NATURE OF THE SERVICE. Under the requirements for VAT zero-rating of services to foreign clients, the taxpayer must establish through adequate and credible evidence the specific nature of the service performed. Here, the taxpayer argued that a service agreement is not indispensable and relied instead on witness testimony, SEC certifications, company documents, and VAT official receipts to substantiate its zero-rated sale. However, the Court found that the only official receipt issued merely described the payment as “Purpose for Travel Cost,” which neither identified nor substantiated the actual service rendered and failed to corroborate the witnesses’ statements. Given the strict construction applied to refund claims, the absence of evidence clearly describing the nature of the service was fatal to the taxpayer’s claim. (Asurion Hongkong Limited – ROHQ v. CIR, CT Case No. 10413, April 24,2025); While Regus Service Centre, Philippines B.V. presented VAT zero-rated official receipts, but it did not indicate the nature of the services rendered, a mandatory invoicing requirement. This defect rendered the substantiation of its zero-rated sales incomplete and prevented Regus from proving essential elements for a valid refund. (Regus Service Centre, Philippines B.V. v. Commissioner of Internal Revenue, CTA Case No. 10813, July 1, 2025)

EVEN IF A TAXPAYER FIRST OPTS FOR A REFUND, CARRYING OVER EXCESS CWTS MAKES THE CHOICE IRREVOCABLE, PREVENTING ANY LATER REFUND FOR THAT TAXABLE PERIOD. Under the rule governing excess and unutilized creditable withholding taxes, a taxpayer may either seek a refund/TCC or carry over the excess credits to succeeding taxable years, but choosing the carry-over option renders that choice irrevocable for the taxable period concerned. In this case, the taxpayer initially marked “To be refunded” in its 2019 AITR, indicating its intent to claim a refund. However, it subsequently carried over the same excess CWTs—including the amount claimed—to its 2020 amended AITR and quarterly returns as prior year’s excess credits. This act effectively shifted its choice to the carry-over option, which, by law and jurisprudence, cannot thereafter be reversed. Having availed of the carry-over, the taxpayer is barred from claiming a refund and may only apply the excess taxes to future periods until fully utilized. Accordingly, the Court denied the refund claim. (Decision dated Norconsult Management Services Phils., Inc. v. CIR, CTA Case No. 10835, July 1, 2025)

TO CLAIM A REFUND OF EXCESS CWTS, TAXPAYERS MUST PROVIDE DETAILED RECORDS LINKING WITHHELD INCOME TO REPORTED GROSS INCOME, AS SUMMARY FIGURES OR AGGREGATE BALANCES ARE INSUFFICIENT. To secure a refund of excess and unutilized creditable withholding taxes, the taxpayer must prove, among others, that the income payments on which CWTs were withheld were actually reported as part of gross income in its annual income tax return. Here, the Court found that the taxpayer failed to meet this requirement. Although the taxpayer submitted its 2019 Annual ITR, AFS, and General Ledger, the Court noted inconsistencies in reported sales figures and the absence of detailed transaction records linking specific income payments subjected to withholding to the amounts declared as revenue in the ITR. Without such documentation, the Court could not verify compliance with the requisite that withheld income must be included in reported gross income. The CTA emphasized that summary figures or aggregate GL balances are insufficient and that taxpayers must present expanded or detailed ledgers directly tracing the CWT-related income to reported sales. Given the failure to substantiate this critical element—and applying the strictissimi juris rule governing tax refunds—the Court denied the refund claim. (Ford Group Philippines, Inc. v. CIR, CTA Case No. 10877,April 21, 2025)

WHEN INPUT VAT CANNOT BE DIRECTLY TRACED, IT MUST BE PROPORTIONALLY ALLOCATED BASED ON THE RATIO OF VAT-ABLE TO ZERO-RATED SALES USING THE TAXPAYER’S DECLARED (NOT SUBSTANTIATED) INPUT VAT, AVOIDING INDIRECT JUDICIAL ASSESSMENT. Under the rule requiring proportional allocation of input VAT, input taxes that cannot be directly attributed to either zero-rated or VAT-able sales must be apportioned based on sales volume. The CTA held that courts must use the taxpayer’s declared input VAT—not merely the substantiated portion—to avoid making an indirect judicial assessment, which is reserved exclusively to the BIR. Following this legal standard, the Court noted that Pure Essence reported mixed sales and that its input VAT could not be directly traced to any specific category. Thus, it allocated the taxpayer’s declared input VAT based on the ratio of VAT-able to zero-rated sales. (Pure Essence International Incorporated v. CIR, CTA Case No. 10932, May 19, 2025; Stefanini Philippines, Inc. v. CIR CTA Case No. 10595, 2025).

SINCE EXCISE TAX EXEMPTIONS ATTACH TO THE PETROLEUM PRODUCT, THE SELLER OR IMPORTER (NOT THE BUYER) IS ENTITLED TO CLAIM A REFUND WHEN THE PRODUCT IS SOLD TO EXEMPT ENTITIES. Under the rules governing excise taxes and the statutory exemption for petroleum products sold to specified exempt entities, the exemption is impersonal in nature and attaches to the petroleum product itself rather than to the purchaser. Jurisprudence has consistently held that excise tax is a property tax, and although the manufacturer or importer is the statutory taxpayer, the product becomes tax-exempt once sold to entities enumerated under the exemption, making any excise taxes previously paid erroneous or illegal. Here, the BIR argued that only buyers may invoke the exemption and that petitioner remained liable as manufacturer, but the Court rejected this position, citing Supreme Court rulings recognizing that manufacturers/importers may claim refunds when the petroleum products they sold are ultimately tax-exempt. Since the taxpayer’s imported and locally manufactured LPG was sold to tax-exempt entities, the product’s exempt status became fixed upon sale, thereby converting the excise taxes earlier paid into refundable erroneous payments. (Petron Corporation v. CIR, CTA Case No. 10438, 2025; see also Pilipinas Shell Petroleum Corporation v. CIR, CTA 10707, April 14, 2025)

FOR VAT ZERO-RATING ON EXPORTED SERVICES, TAXPAYERS MUST PROVE INWARD REMITTANCE IN ACCEPTABLE FOREIGN CURRENCY; FAILING TO DO SO INVALIDATES THE ZERO-RATING CLAIM. The consideration for exported services must be paid in acceptable foreign currency and accounted for in accordance with BSP rules. Here, Citco International Support Services Limited submitted VAT zero-rated receipts for certain clients, but failed to prove that the corresponding payments were inwardly remitted through the Philippine banking system and duly accounted for under BSP regulations, relying instead on RMC No. 57-97, which does not exempt proof of inward remittance; consequently, the Court found that petitioner did not satisfy an essential element for zero-rating of its sales, rendering its claim for VAT refund invalid, and denied the Petition for Review (Citco International Support Services Limited- Philippine ROHQ, CTA Case No. 10462, May 6, 2025).

IN INPUT VAT REFUND CLAIMS, TAXPAYERS MUST ELEVATE ADMINISTRATIVE CLAIMS TO THE CTA WITHIN 30 DAYS FROM AN ADVERSE DECISION OR LAPSE OF THE 90-DAY BIR PERIOD, WHICHEVER IS EARLIER. The CTA dismissed the Petition for lack of jurisdiction, holding that under Section 112(C) of the NIRC, as amended by the TRAIN Law, the Commissioner must act on an administrative input VAT refund claim within 90 days from the submission of complete documents, and the taxpayer must elevate the matter to the CTA within 30 days from receipt of an adverse decision or from the lapse of the 90-day period, whichever comes earlier. Here, Stefanini Philippines filed its administrative claim on July 15, 2020, giving the BIR until October 13, 2020 to decide; because no decision was issued by that date, the claim was deemed denied by operation of law, and the taxpayer had only until November 12, 2020 to file a judicial claim. Its Petition for Review filed on December 23, 2020 was therefore out of time, depriving the CTA of jurisdiction. (Stefanini Philippines Inc. v. CIR, CTA Case No. 10431, June 23, 2025)

BUREAU OF INTERNAL REVENUE ISSUANCES

Revenue Memorandum Circular No. 091-2025, October 8, 2025

THE BIR WILL NOW ACCEPT BOARD RESOLUTIONS AND SECRETARY’S CERTIFICATES SIGNED BY THE ASSISTANT CORPORATE SECRETARY AS PART OF THE DOCUMENTARY REQUIREMENTS FOR BUSINESS REGISTRATION. While previous rules under RMC No. 74-2025 required that only the duly appointed Corporate Secretary may sign Secretary’s Certificates, the BIR now recognizes that, for administrative efficiency and in line with corporate practices, such authority may be validly exercised by an Assistant Corporate Secretary. Accordingly, the BIR will accept Board Resolutions and Secretary’s Certificates signed by the Assistant Corporate Secretary as part of the documentary requirements for business registration. (Clarifying Documentary Requirements for Business Registration, Revenue Memorandum Circular No. 091-2025, October 8, 2025)

Revenue Memorandum Circular No. 092-2025

Under R.A. No. 12214 (CMEPA) and RMC No. 092-2025, taxpayers shall temporarily use BIR Form No. 0605 to remit the increased 20% final withholding tax on foreign currency deposit interest pending revision of Form 1602Q.

Revenue Memorandum Order No. 046-2025

The BIR streamlines the identification and monitoring of the ½% creditable withholding tax.

BIR RULINGS 

TRANSFER OF MEMBERSHIP SHARE BETWEEN TRUSTEES NOT SUBJECT TO CAPITAL GAINS TAX, DOCUMENTARY STAMP TAX, OR DONOR’S TAX UNDER DUE TO ABSENCE OF CONSIDERATION AND CHANGE IN BENEFICIAL OWNERSHIP. Transfers that do not involve consideration or conveyance of beneficial ownership are not subject to Capital Gains Tax (CGT), Documentary Stamp Tax (DST), or Donor’s Tax. In this case, a domestic corporation transferred a club membership share from its former trustee to a newly appointed trustee pursuant to a Declaration of Trust, where both trustees merely held legal title and the corporation retained full beneficial ownership. Since the transfer did not result in any gain, conveyance of beneficial interest, or act of liberality, the transaction was deemed exempt from CGT, DST, and Donor’s Tax. (BIR Ruling No. OT-190-2025, August 29, 2025)

A NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION IS EXEMPT FROM INCOME TAX AND VAT ONLY FOR REVENUES ACTUALLY, DIRECTLY, AND EXCLUSIVELY USED FOR EDUCATIONAL PURPOSES, WHILE INCOME FROM NON-EDUCATIONAL ACTIVITIES REMAINS FULLY TAXABLE. Pursuant to Section 30(H) of the National Internal Revenue Code of 1997, as amended, non-stock, non-profit educational institutions are exempt from income tax on revenues derived from tuition fees and income from school-related facilities, provided such income is actually, directly, and exclusively used for educational purposes. Applying this provision, the Bureau of Internal Revenue issued a Certificate of Tax Exemption to a private non-stock, non-profit educational institution, recognizing its compliance with the statutory requirements and confirming its entitlement to exemption from income tax and VAT on its educational operations and ancillary services. However, it remains subject to other internal revenue taxes on non-exempt income, VAT or percentage tax on commercial activities beyond the exemption scope, and to its withholding and reporting obligations under applicable BIR rules and regulations. (Certificate of Tax Exemption No. SH30-192-2025, September 11, 2025)

BIR DEADLINES FROM DECEMBER 8 TO DECEMBER 14, 2025. A gentle reminder of the following deadlines, as may be applicable:

BIR ISSUANCE

The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular No. 107‑2025, which temporarily suspends all field audits and related operations nationwide, including the issuance, revalidation, extension, or replacement of Letters of Authority (LOAs) and Mission Orders (MOs). This suspension applies to all BIR audit offices and divisions, covering both large and small taxpayers. The directive is intended to provide the BIR sufficient time to review and improve existing audit procedures, ensuring a more transparent and standardized approach in the future. While the suspension is in effect, taxpayers are not prohibited from voluntarily settling known tax liabilities, and operations will resume only upon further notice from the BIR Commissioner.

COURT OF TAX APPEALS DECISIONS

computed from the DOJ’s receipt of the assailed Resolution, as the deputized BIR prosecutor acts only as the DOJ’s representative while the DOJ retains control of the prosecution. Applying this rule, the 15-day period deadline to file the petition began on May 2, 2024, when the DOJ received the Resolution, and expired on May 17, 2024. Because the Petition for Review was filed only on May 22, 2024, it was filed out of time. (People of the Philippines v. Lemuel Sibuma Consolacion, CTA EB Crim. No. 150, CTA Crim Case No. O-983, May 29 2025)

CONDOMINIUM CORPORATIONS ARE NOT SUBJECT TO LOCAL BUSINESS TAX (LBT) UNLESS THEY ENGAGE IN PROFIT-ORIENTED ACTIVITIES, WHICH SHOULD BE PROVED BY THE LGU. Condominium corporations are generally not subject to LBT because their statutory purposes under the Condominium Act are limited to holding and managing common areas and performing activities necessary to maintain the condominium project—not to earn profit. Applying this rule, the MeTC, RTC, and the Court En Banc uniformly found that LGU’s collection of association dues and alleged rental fees fell within its lawful, non-profit functions as a condominium corporation, and LGU failed to present any evidence showing that the Company is engaged in profit-oriented activities that would remove it from the general exemption. Further, the Court held that the Environmental Inspection Fee (EIF) and Business Permit Fee (BPF) are regulatory fees—not taxes—and thus fall outside its jurisdiction. Accordingly, while the petition was procedurally cognizable, the substantive claims on LBT and costs of suit lack merit. (CTA EB No. 2843, RTC SCA Case No. 285, Amended Decision dated Aril 7, 2025; see also Taguig City Treasurer and the City Government of Taguig v. Forbeswood Heights Condominium, CTA EB No. 2888, May 15, 2025)

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UNDER THE 1987 CONSTITUTION AND THE LOCAL GOVERNMENT CODE, A TAXPAYER MUST BE FULLY INFORMED OF THE LEGAL AND FACTUAL BASES OF A LOCAL TAX ASSESSMENT; THE RTC CORRECTLY RULED THAT DKT HEALTH’S ASSESSMENT REPORT VIOLATED DUE PROCESS BECAUSE IT LACKED SUFFICIENT DETAIL ON STATUTORY BASIS AND TAX APPORTIONMENT. Sections 195 and 196 of the Local Government Code prescribe that local tax assessments must clearly state the nature of the tax, the amount of deficiency, surcharges, penalties, and the period covered to adequately inform the taxpayer. In this case, Quezon City issued a two-page Assessment Report for DKT Health covering 2016–2021, but failed to indicate the precise statutory basis under the local revenue code and provided no detailed breakdown of the apportionment of sales between essential and non-essential products. As a result, DKT Health could not verify the computation of the deficiency tax. Precedents on proper assessment content establish that such omissions violate due process. Consequently, the RTC correctly ruled that the Assessment Report did not satisfy the required procedural safeguards, justifying DKT Health’s challenge (Quezon City v. DKT Health, Inc., CTA AC No. 304, June 13, 2025); a valid local tax assessment must inform the taxpayer of the nature, legal basis, period covered, and the specific deficiency tax, surcharge, interest, and penalties, the SOA issued to Royal Cargo cannot qualify as an assessment because it merely listed fees required for business permit renewal and was not issued after an examination of books. Applying this rule, the Court held that the SOA failed to apprise the taxpayer of the factual and legal bases of any deficiency, rendering Section 195 inapplicable and validating Royal Cargo’s recourse to a refund under the remedy for erroneous or illegal collection. (City Treasurer of Parañaque City v. Royal Cargo Inc., CTA EB No. 2908 (CTA AC No. 270), April 15, 2025)

CIVIL LIABILITY FOR UNPAID TAXES ARISES ONLY FROM A VALID TAX ASSESSMENT; A VOID FLD/FAN NEGATES BOTH CRIMINAL AND CIVIL LIABILITY UNDER SECTION 255 OF THE NIRC. Section 255 of the 1997 NIRC, as amended, penalizes any person who willfully fails to pay taxes, file returns, keep proper records, or remit withheld taxes when required by law or regulations, imposing both criminal and potentially civil consequences. While the general rule holds that a criminal acquittal does not automatically extinguish civil liability, which can be pursued based on preponderance of evidence, such liability is contingent upon the existence of a legally valid act or obligation. Here, the respondent was acquitted because the Bureau of Internal Revenue’s FLD/FAN was found void, as it failed to specify a clear due date for payment, rendering the assessment legally ineffective. Consequently, the Court emphasized that extinction of the penal action does not affect civil liability only when the underlying obligation is recognized in law, which is absent here. It was also ruled that Mendez case will not apply because in that case, there was no final assessment, unlike in this case, there is an assessment only that it was found void (People of the Philippines v. Enrico Candelaira Tuazon, CTA EB Crim. No. June 9, 2025).

APPEAL PERIOD IS COUNTED FROM RECEIPT BY THE PRINCIPAL COUNSEL (DOJ) NOT THE DEPUTIZED PROSECUTOR (BIR); HERE, DOJ’S EARLIER RECEIPT MADE THE PETITION LATE. Appeal periods are reckoned from receipt of the assailed ruling by the principal counsel—not a deputized lawyer—the filing period in this case must be computed from the DOJ’s receipt of the assailed Resolution, as the deputized BIR prosecutor acts only as the DOJ’s representative while the DOJ retains control of the prosecution. Applying this rule, the 15-day period deadline to file the petition began on May 2, 2024, when the DOJ received the Resolution, and expired on May 17, 2024. Because the Petition for Review was filed only on May 22, 2024, it was filed out of time. (People of the Philippines v. Lemuel Sibuma Consolacion, CTA EB Crim. No. 150, CTA Crim Case No. O-983, May 29 2025)

CONDOMINIUM CORPORATIONS ARE NOT SUBJECT TO LOCAL BUSINESS TAX (LBT) UNLESS THEY ENGAGE IN PROFIT-ORIENTED ACTIVITIES, WHICH SHOULD BE PROVED BY THE LGU. Condominium corporations are generally not subject to LBT because their statutory purposes under the Condominium Act are limited to holding and managing common areas and performing activities necessary to maintain the condominium project—not to earn profit. Applying this rule, the MeTC, RTC, and the Court En Banc uniformly found that LGU’s collection of association dues and alleged rental fees fell within its lawful, non-profit functions as a condominium corporation, and LGU failed to present any evidence showing that the Company is engaged in profit-oriented activities that would remove it from the general exemption. Further, the Court held that the Environmental Inspection Fee (EIF) and Business Permit Fee (BPF) are regulatory fees—not taxes—and thus fall outside its jurisdiction. Accordingly, while the petition was procedurally cognizable, the substantive claims on LBT and costs of suit lack merit. (CTA EB No. 2843, RTC SCA Case No. 285, Amended Decision dated Aril 7, 2025; see also Taguig City Treasurer and the City Government of Taguig v. Forbeswood Heights Condominium, CTA EB No. 2888, May 15, 2025)

COURT OF TAX APPEALS (CTA) DECISIONS

ABSENCE OF A VALID LETTER OF AUTHORITY (LOA) BEFORE THE CONDUCT OF TAX AUDIT RENDERS THE ASSESSMENT VOID FOR VIOLATION OF DUE PROCESS. Jurisprudence consistently requires that a revenue officer’s authority to examine and assess a taxpayer must emanate from an LOA duly issued by the CIR or his authorized representative; otherwise, the resulting assessment is a nullity. In this case, the Bureau of Internal Revenue (BIR) relied only on a Letter Notice (LN), which cannot substitute for an LOA. The Court further found that the assessment lacked a factual basis, being founded merely on presumptions derived from computerized data matching without supporting evidence. Thus, the Court En Banc affirmed the First Division’s ruling that the assessment was void and unenforceable. (Commissioner of Internal Revenue v. Ermilo Tan Ng Hua, CTA EB No. 2734 [CTA Case No. 9912], 14 April 2025).

FAILURE TO PROPERLY SERVE THE FAN/FLD ON THE TAXPAYER OR ITS DULY AUTHORIZED REPRESENTATIVE RENDERS THE ASSESSMENT AND THE RESULTING WDL VOID FOR VIOLATION OF DUE PROCESS. Assessment notices must be duly served upon the taxpayer or its authorized representative to comply with due process. In this case, the Court found that the Bureau of Internal Revenue (BIR) failed to validly serve the Formal Assessment Notice (FAN) and Final Letter of Demand (FLD), as they were delivered to a different, unregistered address and received by a person merely identified as the “daughter” of one of the taxpayer’s officers, without proof of authority to accept official notices. Such service does not constitute valid substituted service. The Court ruled that the lack of proper service rendered the FAN/FLD void, and consequently, the Warrant of Distraint and Levy (WDL) issued pursuant thereto was likewise invalid for violation of the taxpayer’s right to due process. (Weltel Corporation v. Commissioner of Internal Revenue, CTA Case No. 10947, 30 April 2025).

ASSESSMENT ISSUED BEYOND THE THREE-YEAR PRESCRIPTIVE PERIOD IS VOID; THE BIR’S BELATED INVOCATION OF THE TEN-YEAR PERIOD WAS IMPROPER AS IT FAILED TO PROVE FRAUD OR FALSITY. The Court held that the BIR’s right to assess the taxpayer had been prescribed, as the assessment was issued more than three years after the filing of the 2011 tax return and beyond the extended period under the executed waiver. The BIR’s reliance on the ten-year extraordinary prescriptive period was unwarranted because it failed to establish with clear and convincing evidence that the return was false or fraudulent, as required by law. The assessment notices merely cited general references to under-declaration and did not present any factual basis or computation to substantiate fraud. Moreover, the use of a waiver indicated that the BIR itself recognized the application of the ordinary three-year period, making its later invocation of the ten-year period a mere afterthought. Consequently, the Court ruled that the assessment was void for having been issued beyond the prescriptive period and without due process, entitling the taxpayer to a refund of the garnished amount.(Weltel Corporation v. Commissioner of Internal Revenue, CTA Case No. 10947, 30 April 2025).

THE FAN IS VALID FOR CONTAINING A DEFINITE TAX LIABILITY AND DUE DATE AS POSSIBLE INTEREST ADJUSTMENTS DID NOT RENDER THE ASSESSMENT UNCERTAIN. The Court ruled that the Final Assessment Notice (FAN) issued to the taxpayer was valid and complied with due process requirements, as it clearly indicated both the specific amount of tax due and the corresponding payment deadline. This distinguishes the case from Commissioner of Internal Revenue v. Fitness by Design, Inc., where the assessment was void for lacking definite figures and dates. The Court clarified that the inclusion of a reminder about possible interest adjustments did not render the assessment uncertain, as the taxpayer was still clearly informed of the amount and due date of payment. (Quartz Business Products Corporation v. Commissioner of Internal Revenue, CTA Case No. 11096, 19 May 2025).

ASSESSMENT FOR ALLEGED UNACCOUNTED INCOME AND CORRESPONDING VAT WAS VOID FOR LACK OF FACTUAL AND LEGAL BASIS, AS NO ACTUAL INCOME OR SALE WAS PROVEN. The Court held that the deficiency income tax and VAT assessments based on alleged unaccounted income were without legal and factual foundation. Jurisprudence requires that income tax may only be imposed when there is actual or constructive receipt of income, representing a realized gain or profit. In this case, the Bureau of Internal Revenue (BIR) merely presumed undeclared income from the supposed discrepancy between the Summary List of Purchases (SLP) and the alphalist of payees, treating it as an “unaccounted source of cash.” The Court found such presumption insufficient, as there was no proof that petitioner derived any actual income or profit from the alleged unaccounted payments. Further, even assuming that undeclared purchases existed, such omission does not automatically constitute undeclared income, since taxpayers are not legally bound to claim all allowable deductions. With respect to VAT, the Court emphasized that VAT applies only to sales of goods or services where consideration is received, not to mere purchases or disbursements. As there was no showing that the petitioner sold any goods or services or received consideration therefore, the corresponding VAT assessment had no basis. Accordingly, both the deficiency income tax and VAT assessments arising from the alleged unaccounted income were properly cancelled. (Quartz Business Products Corporation v. Commissioner of Internal Revenue, CTA Case No. 11096, 19 May 2025).

EXCESS TAX CREDITS VALIDLY CARRIED OVER TO THE SUCCEEDING TAXABLE YEAR MAY BE RECAPTURED BY THE BIR, PROVIDED THE COMPUTATION REFLECTS THE CORRECT AMOUNT AS SHOWN IN THE TAXPAYER’S RETURN. The Court affirmed the validity of the BIR’s recapture of the taxpayer’s excess income tax credits carried over to the succeeding period, consistent with the rule on the irrevocability of the carry-over option. Once a corporation elects to carry over excess tax credits to the next taxable year, such choice becomes final and binding; the same credits may not thereafter be claimed as a refund or applied twice. In this case, the BIR correctly recognized the taxpayer’s election to carry over its excess tax credits but erred in the amount used for the adjustment. The Court emphasized that the recapture of excess tax credits does not invalidate the taxpayer’s carry-over election but rather enforces it by ensuring that credits are properly applied against future income tax liabilities. Allowing the taxpayer to again use the same excess credits without proof of their availability would result in double benefit and prejudice the government. Thus, while the BIR’s recapture was upheld, the assessment must be corrected to reflect the proper amount per the taxpayer’s ITR. (Quartz Business Products Corporation v. Commissioner of Internal Revenue, CTA Case No. 11096, 19 May 2025).

DEFICIENCY VAT ASSESSMENTS FOR PRESCRIBED PERIODS WERE DEEMED TIME-BARRED; HOWEVER, THE ENTIRE ASSESSMENT WAS SUSTAINED DUE TO THE TAXPAYER’S FAILURE TO PROVE WHICH PORTIONS PERTAINED TO THE PRESCRIBED MONTHS. The Court applied the general three-year prescriptive period for the assessment of internal revenue taxes, reckoned from the due date or actual filing of the quarterly VAT returns. Based on the filing and due dates, the BIR’s right to assess deficiency VAT for the first three quarters of taxable year (TY) 2011 had already been prescribed, while the assessment for the fourth quarter remained within the allowable period. However, the taxpayer failed to substantiate which portions of the assessed deficiency VAT corresponded to the prescribed quarters. The Court reiterated that tax assessments enjoy the presumption of correctness and regularity, and the burden rests upon the taxpayer to prove not only that the assessment is erroneous but also to specify the correct computation. Since the petitioner failed to present copies of its VAT returns or other documentary evidence showing when the taxable transactions occurred, the Court had no basis to segregate the prescribed and unprescribed portions. Consequently, the entire deficiency VAT assessment was deemed attributable to the unprescribed fourth quarter of TY 2011 and thus upheld as valid. (Quartz Business Products Corporation v. Commissioner of Internal Revenue, CTA Case No. 11096, 19 May 2025).

UNSUPPORTED VAT ZERO-RATED AND EXEMPT SALES WERE SUSTAINED DUE TO LACK OF SUBSTANTIATING EVIDENCE FROM THE TAXPAYER. The Court upheld the deficiency VAT assessments on the taxpayer’s alleged unsupported zero-rated sales and exempt sales. Under tax regulations, the entitlement to VAT zero-rating or exemption must be sufficiently established by competent evidence. Tax exemptions are strictly construed against the taxpayer and liberally in favor of the taxing authority, and the party claiming such exemption bears the burden of proving entitlement thereto. Applying this principle, the Court found that the petitioner neither presented documents nor raised arguments to substantiate its claim of zero-rated and exempt transactions in its Petition for Review or Memorandum. Absent any supporting evidence, the presumption of regularity and correctness of the tax assessment stands. Consequently, the deficiency VAT assessments corresponding to the alleged unsupported zero-rated and exempt sales were properly retained.  (Quartz Business Products Corporation v. Commissioner of Internal Revenue, CTA Case No. 11096, 19 May 2025).

A LETTER OF AUTHORITY (LOA) IS REQUIRED EVEN IN MANDATORY AUDITS CONDUCTED IN RELATION TO BUSINESS RETIREMENT APPLICATIONS. The Court held that the absence of a valid Letter of Authority (LOA) renders any tax assessment void, regardless of whether it arises from a regular assessment or a mandatory audit in connection with the retirement of business. Under the National Internal Revenue Code, only revenue officers duly authorized through an LOA may conduct an examination of a taxpayer’s books and records. The law does not distinguish between the types of assessments, and courts are bound not to create such distinctions. Applying this rule, the Court rejected the petitioner’s argument that a mandatory audit in relation to business closure does not require an LOA. The Court emphasized that the requirement of an LOA is grounded on the taxpayer’s right to due process, ensuring that the taxpayer is properly informed of the authorized officers conducting the audit. Hence, even in mandatory audits, a valid LOA remains an indispensable requirement for a lawful assessment. (Commissioner of Internal Revenue v. Sellery Phils. Enterprises, Inc., CTA EB No. 2837 [CTA Case No. 10049], 20 May 2025).

TAX ASSESSMENTS MUST CLEARLY STATE THE FACTUAL AND LEGAL BASES AND CONSIDER THE TAXPAYER’S REPLY; FAILURE TO DO SO VIOLATES DUE PROCESS AND RENDERS THE ASSESSMENT VOID. Under the National Internal Revenue Code and its implementing regulations, tax assessments must inform the taxpayer in writing of the factual and legal bases of the deficiency and must consider any reply to the Preliminary Assessment Notice; otherwise, the assessment is void for violation of due process. The Court of Tax Appeals found that the Bureau of Internal Revenue issued a Formal Letter of Demand and Final Assessment Notice identical to the Preliminary Assessment Notice, without addressing the taxpayer’s explanations or evidence submitted in its reply. This disregard of the taxpayer’s defenses and failure to provide specific reasons for rejecting them demonstrated noncompliance with due process requirements. The Court ruled that both the FLD/FAN and the subsequent Warrant of Distraint and/or Levy were void, emphasizing that while the government has authority to collect taxes, it must do so with fairness and strict adherence to the law. (Conveying and Packaging Co. Inc. v. Commissioner of Internal Revenue, CTA Case No. 10844, 26 May 2025)

UNDER THE NIRC, INPUT TAXES ATTRIBUTABLE TO VAT-EXEMPT TRANSACTIONS ARE NOT CREDITABLE; PETITIONER’S FAILURE TO PROPERLY ALLOCATE SUCH INPUT TAXES WARRANTS DISALLOWANCE. Pursuant to the NIRC and its implementing regulations, input taxes directly or proportionately attributable to VAT-exempt transactions cannot be credited against output VAT. In this case, the petitioner engaged in both taxable and exempt sales but failed to properly allocate the corresponding input taxes, resulting in the disallowance of input VAT. The Court of Tax Appeals held that such disallowance was justified, as the petitioner’s argument that its available input VAT could offset the deficiency was contrary to the rule against using excess input tax carry-overs to settle deficiency VAT. The Court emphasized that allowing such offset would lead to double benefit and administrative inefficiency, further citing the principle that taxes cannot be the subject of set-off or compensation since they are the lifeblood of the government. (National Reinsurance Corporation of the Philippines v. Commissioner of Internal Revenue, CTA Case No. 10791, Decision dated 4 June 2025).

TAX ASSESSMENTS ARE PRESUMED CORRECT, AND THE TAXPAYER BEARS THE BURDEN OF PROVING OTHERWISE; PETITIONER FAILED TO SUBSTANTIATE ITS CLAIM THAT IT HAD SUFFICIENT INPUT VAT TO OFFSET THE DISALLOWED AMOUNT.  Under the National Internal Revenue Code, a tax assessment issued by the Bureau of Internal Revenue is presumed correct, and the taxpayer has the burden to prove both that the assessment is erroneous and that its own computation is accurate. Here, the petitioner merely asserted that it had sufficient input VAT credits to offset its alleged deficiency but failed to present supporting evidence to disprove the respondent’s findings. The Court held that bare allegations cannot overcome the presumption of correctness of an assessment, and since the petitioner failed to discharge its burden of proof, the petition was denied for lack of merit. (National Reinsurance Corporation of the Philippines v. Commissioner of Internal Revenue, CTA Case No. 10791, Decision dated 4 June 2025).

UNDER THE LOCAL GOVERNMENT CODE, PAYMENT UNDER PROTEST IS NOT REQUIRED TO QUESTION A LOCAL BUSINESS TAX ASSESSMENT; THUS, THE PETITIONER’S PROTEST WAS VALID DESPITE NONPAYMENT OF THE ASSESSED AMOUNT. The CTA ruled that the validity of a protest or judicial action is not contingent upon prior payment. It further held that the local ordinance provision requiring payment before protest was void for being inconsistent with the Local Government Code. (Takenaka Corporation – Philippine Branch v. City of Makati and Hon. Jesusa E. Cuneta, CTA AC No. 307, 4  June 2025)

THE TAXPAYER BEARS THE BURDEN OF PROVING PAYMENT OF ASSESSED TAXES; PETITIONER FAILED TO SUBSTANTIATE ITS CLAIM OF PRIOR PAYMENT OF LOCAL BUSINESS TAXES WITH COMPETENT EVIDENCE. The Court held that financial statements, tax returns, business permits, and certifications from other local government units were insufficient to prove payment, emphasizing that receipts are the best evidence thereof.(Takenaka Corporation – Philippine Branch v. City of Makati and Hon. Jesusa E. Cuneta, CTA AC No. 307, 4  June 2025)

UNDER THE LOCAL GOVERNMENT CODE, A NOTICE OF ASSESSMENT MUST CLEARLY STATE THE FACTUAL AND LEGAL BASES OF THE TAX DEFICIENCY; FAILURE TO DO SO VIOLATES DUE PROCESS AND RENDERS THE ASSESSMENT VOID. The Local Government Code mandates that a notice of assessment must inform the taxpayer of the nature and basis of the tax deficiency to satisfy the requirements of due process. In this case, the City of Makati’s Notice of Assessment (NOA) against the taxpayer failed to indicate the specific statutory provision supporting the alleged local business tax (LBT) deficiency. Neither the NOA nor the subsequent demand letters provided clear factual or legal bases for the assessment, resulting in the taxpayer being deprived of the opportunity to intelligently protest or appeal the same. The Court held that such deficiency assessments, issued without proper notice of the law and facts relied upon, are null and void for violating the taxpayer’s right to due process. Moreover, the assessments for certain taxable years were also declared. Accordingly, the Court cancelled the assessments and enjoined the City of Makati from collecting the disputed amounts. (Takenaka Corporation – Philippine Branch v. City of Makati and Hon. Jesusa E. Cuneta, CTA AC No. 307, 4  June 2025)

TIMELY PAYMENT OF DOCKET FEES WITHIN FIVE DAYS FROM ELECTRONIC FILING SATISFIES THE CTA’S FILING REQUIREMENTS, EVEN IF THE COURT WAS CLOSED ON THE INITIAL FILING DATE.  The Court of Tax Appeals held that the petitioner duly complied with the payment of docket fees under the CTA’s En Banc Resolution on electronic filing, which allows payment and submission of proof within five (5) calendar days from the date of electronic filing. The petitioner attempted to file the Original Petition physically on November 5, 2021, but the Court had closed early for disinfection, prompting the petitioner to file via email on the same date. Since payment of the filing fees on November 5 was impossible due to the closure, the petitioner settled the docket fees and submitted the official receipts on November 8, 2021, within the prescribed five-day period. The Court ruled that such compliance was sufficient and that respondent’s claim of untimely payment lacked merit. (CIC Property Venture Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10668, June 11, 2025)

DUE PROCESS IN TAX ASSESSMENTS — ASSESSMENT VOID FOR INDEFINITENESS OF DUE DATE AND FAILURE TO EXPLAIN REJECTION OF PROTEST.  The Court of Tax Appeals (CTA) held that the assessment issued by the Bureau of Internal Revenue (BIR) was void for violating due process, as the Formal Letter of Demand and Final Assessment Notice contained contradictory payment due dates, rendering the assessment indefinite, and because the BIR failed to clearly communicate the reasons for rejecting the taxpayer’s protest. Applying the due process standards established in Commissioner of Internal Revenue v. Avon Products Manufacturing, Inc., the Court ruled that such failures deprived the taxpayer of a meaningful opportunity to contest the assessment. Accordingly, the CTA denied the BIR’s Motion for Reconsideration and granted the taxpayer’s motion to amend the dispositive portion of its earlier decision to correctly refer to the taxable year 2017. (Kingston Aluminum and Stainless Sales Corp. v. Bureau of Internal Revenue–Revenue Region No. 9A, CTA Case No. 10326, Amended Decision, 17 June 2025). Where the BIR issued the FAN merely one day after the petitioner’s reply and without considering its contents, showing that the assessment was predetermined, such omission rendered the PAN, FAN, and Final Decision on Disputed Assessment null and void, as well as the Warrant of Distraint and/or Levy issued pursuant thereto. The Court emphasized that due process demands not only that a taxpayer be heard but that the BIR meaningfully consider the evidence presented. (CIC Property Venture Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10668, June 11, 2025)

WARRANT OF DISTRAINT AND LEVY VOID FOR LACK OF VALID ASSESSMENT AND IMPROPER SERVICE. The Court of Tax Appeals ruled that the Warrant of Distraint and/or Levy (WDL) issued against Diageo Philippines, Inc. was void for having been based on an invalid assessment and for not being properly served. The CTA reiterated that a valid assessment is a substantive prerequisite for tax collection and that void assessments produce no legal effect. The WDL was also deemed improperly served, as it was merely left with a lobby receptionist who was neither an employee nor an authorized representative of the taxpayer, and no barangay official or disinterested witnesses were present to validate substituted service. Given these due process violations, the Court cancelled and set aside both the deficiency tax assessments and the resulting WDL, and enjoined the BIR from enforcing collection. (Diageo Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10452, Decision, 19 June 2025)

ASSESSMENT IS VOID FOR LACK OF VALID LETTER OF AUTHORITY (LOA) TO CONDUCT AUDIT. The Court of Tax Appeals ruled that the deficiency tax assessment issued against Pro Star Sports Philippines, Inc. was void for having been conducted by revenue officers who were not armed with a valid Letter of Authority (LOA). The CTA emphasized that an LOA is a mandatory statutory requirement granting authority to revenue officers to examine a taxpayer’s books and issue assessments, and any audit conducted without such authority is a nullity. In this case, although an LOA was originally issued to other revenue officers, the subsequent reassignment of the audit to different officers was made through a mere Memorandum of Assignment without the issuance of a new or amended LOA, contrary to established rules and due process. Accordingly, the Court cancelled and set aside the deficiency income tax assessment and enjoined the BIR from collecting the assessed amount. (Pro Star Sports Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 11037, Decision, 24 June 2025); while the LOA named RO Tan and GS Hernandez, the audit and subsequent issuance of the assessment were instead conducted by RO Tan and GS Enriquez, who was not authorized under any LOA. The Court held that GS Enriquez’s unauthorized participation rendered the resulting deficiency tax assessment null and void, as an audit without proper authority violates due process and produces no valid tax liability. Consequently, the assessment, warrants, and garnishment were cancelled, and the BIR was ordered to refund the garnished amount to the taxpayer. (Brilliant Creations Publishing, Inc. v. Commissioner of Internal Revenue, CTA Case No. 11043, 20 June 2024)

TAX EXEMPTION OF COOPERATIVES ARISES FROM LAW, NOT FROM A BIR-ISSUED CERTIFICATE OF TAX EXEMPTION. Under the Philippine Cooperative Code, the grant of tax incentives and exemptions to duly registered cooperatives emanates directly from the law itself, not from any confirmatory issuance of the Bureau of Internal Revenue (BIR). The BIR’s Certificate of Tax Exemption merely serves as an administrative confirmation of the cooperative’s entitlement to exemptions already provided by statute and does not constitute the legal source of such privilege. Consequently, the absence or non-renewal of a Certificate of Tax Exemption does not automatically negate a cooperative’s tax-exempt status if it otherwise meets the legal requirements under the Code. In Commissioner of Internal Revenue v. Co, et al., G.R. No. 241424, February 26, 2020, the Supreme Court held that no prior confirmatory ruling is required for exemption or refund, as rulings merely operate to confirm conditions already existing under law. Applying the same principle, the Court ruled that the petitioner cooperative’s entitlement to exemption subsists by operation of law, and the BIR cannot deny such benefit solely for lack of a renewed Certificate of Tax Exemption. (CCT Multi-Purpose Cooperative [formerly CCT Credit Cooperative] v. Commissioner of Internal Revenue, CTA Case No. 10351, June 24, 2025)

COOPERATIVE EXEMPT FROM INCOME TAX BUT LIABLE FOR VAT, EWT, AND DST DUE TO TRANSACTIONS WITH NON-MEMBERS. Under the Philippine Cooperative Code, duly registered cooperatives that transact exclusively with their members are exempt from all internal revenue taxes, while those transacting with both members and non-members are exempt only on transactions with members, subject to income tax exemption granted to all cooperatives upon registration with the Cooperative Development Authority (CDA). In this case, the Court found that the petitioner cooperative failed to prove that it transacted solely with its members for taxable year 2016, as the Court-commissioned independent CPA confirmed that only 38% of its loan transactions were verified as member-related. Consequently, the cooperative was deemed to have dealt with non-members and was held liable for value-added tax (VAT), expanded withholding tax (EWT), and documentary stamp tax (DST). Nonetheless, since the cooperative was duly registered with the CDA and its registration remained valid, it was conclusively entitled to exemption from income tax under the law.(CCT Multi-Purpose Cooperative [formerly CCT Credit Cooperative] v. Commissioner of Internal Revenue, CTA Case No. 10351, June 24, 2025)

COOPERATIVE FAILED TO ESTABLISH ENTITLEMENT TO VAT AND EWT EXEMPTIONS, AND THE ASSESSMENTS WERE HELD VALID AND NOT PRESCRIBED. Under the Philippine Cooperative Code and its implementing rules, cooperatives with accumulated reserves exceeding PhP10,000,000.00 that transact with both members and non-members are subject to VAT and EWT on non-member transactions unless they prove compliance with statutory conditions for exemption, such as returning at least 25% of net income to members. In this case, the petitioner failed to substantiate that the VAT assessment pertained solely to transactions with members or that it complied with the income return requirement. It likewise failed to present evidence showing that the corresponding VAT and EWT returns were filed for taxable year 2016; hence, the Court applied the ten-year prescriptive period for assessment due to the presumed failure to file returns. Consequently, both the VAT and EWT assessments were upheld for lack of proof of exemption and prescription. (CCT Multi-Purpose Cooperative [formerly CCT Credit Cooperative] v. Commissioner of Internal Revenue, CTA Case No. 10351, 24 June  2025)

SECURITIES AND EXCHANGE COMMISSION

NUMBER OF DIRECTORS IN A FINANCING COMPANY (SEC-OGC OPINION NO. 24-37, NOVEMBER 19, 2024).. The Financing Company Act of 1998, as implemented by SEC Memorandum Circulars Nos. 5, 6, 14, and 16, financing companies—being stock corporations imbued with public interest—are generally required to have a Board of Directors composed of at least five (5) but not more than fifteen (15) members, with at least two (2) serving as independent directors. However, if the financing company qualifies as a close corporation and complies with the conditions under SEC MC No. 14, or if it does not possess the qualifications under SEC MC No. 5 that subject it to the Revised Code of Corporate Governance, it may operate with a minimum of two (2) regular directors. (Re: Number of Directors in a Financing Company, SEC-OGC Opinion No. 24-37, November 19, 2024.)

MANDATORY TENDER OFFER RULE (SEC-OGC OPINION NO. 24-38, NOVEMBER 26, 2024). Pursuant to the Securities Regulation Code (RA 8799) and its Implementing Rules and Regulations, as clarified in Cemco Holdings, Inc. v. National Life Insurance Co. of the Philippines, the mandatory tender offer rule applies to any transaction resulting in the acquisition of control or more than 50% of a public company’s outstanding equity, whether by cash subscription or debt-to-equity conversion. Thus, if a shareholder—such as Shareholder A—subscribes to additional unissued shares of Consolidated Mines, Inc. and thereby exceeds the 50% ownership threshold, a mandatory tender offer must be made to all remaining stockholders at a fair price supported by an independent fairness opinion. Failure of other stockholders to subscribe does not constitute waiver of their rights, and pre-emptive rights cannot be assigned to other shareholders. (Re: Mandatory Tender Offer Rule, SEC-OGC Opinion No. 24-38, November 26, 2024.)

RETAIL TRADE LIBERALIZATION ACT OF 2000, AS AMENDED (R.A. NO. 8762, AS AMENDED BY R.A. NO. 11595) – DEFINITION OF PAID-UP CAPITAL INCLUDES ADDITIONAL PAID-IN CAPITAL (APIC). Under the Retail Trade Liberalization Act (RTLA) and its Implementing Rules and Regulations, the term paid-up capital refers to the total investment paid into a corporation, which includes both par value and any additional paid-in capital or share premium. This interpretation aligns with the law’s liberal intent to attract foreign investments and promote market competitiveness by lowering barriers to entry in retail trade. Applying this to Electrolux Philippines, Inc., the Securities and Exchange Commission confirmed that its share premium or APIC should be included in determining compliance with the minimum paid-up capital requirement under the RTLA, as the premium forms part of the company’s total capital investment once infused. (Definition and Composition of Paid-Up Capital under the Retail Trade Liberalization Act of 2000, as Amended, SEC-OGC Opinion No. 24-39, November 26, 2024.)

BUY-BACK OF SHARES AFTER AUTOMATIC DELISTING (SEC-OGC OPINION NO. 24-40, DECEMBER 9, 2024). A corporation may reacquire its own shares provided it has unrestricted retained earnings and the buy-back serves a legitimate corporate purpose. Applying this to the case of PNOC Exploration Corporation (PNOC EC), which was involuntarily delisted from the Philippine Stock Exchange for non-compliance with the minimum public ownership requirement, the SEC held that PNOC EC may validly buy back its shares as long as these conditions are met. Considering that the shares subject to repurchase constitute only 0.21% of its total outstanding shares, the mandatory tender offer rules do not apply, although PNOC EC may choose to follow the tender offer procedures by analogy for transparency and fairness. (Re: Buy-Back of Shares After Automatic Delisting, SEC-OGC Opinion No. 24-40, December 9, 2024.)

MASS MEDIA AND ADVERTISING; FOREIGN OWNERSHIP RESTRICTIONS – ONLINE PLATFORM PROVIDING USER-GENERATED CONTENT IS NOT ENGAGED IN ADVERTISING (SEC-OGC OPINION NO. 24-41, DECEMBER 9, 2024). The SEC, interpreting these provisions alongside related laws such as R.A. No. 7394 (Consumer Act) and R.A. No. 9211 (Tobacco Regulation Act), reiterated that what characterizes a mass media entity is the dissemination of information or ideas to the public, not necessarily editorial control over content. Applying this principle, the Commission found that Pinoy Internet Ventures Online, Inc. (PIVOI), which operates a website allowing users to upload property listings and other user-generated content, is not engaged in mass media or advertising since it merely provides a digital platform and does not create, control, or disseminate content or advertising materials. However, the SEC emphasized that whether an online platform constitutes mass media depends on its use and extent of content dissemination. (Disini Law, Re: Entities Engaged in Mass Media and Advertising; Foreign Ownership Restrictions, SEC-OGC Opinion No. 24-41, December 9, 2024)

APPLICABILITY OF THE RULES ON MATERIAL RELATED PARTY TRANSACTIONS FOR PUBLICLY-LISTED COMPANIES (“MRPT”) (SEC-OGC OPINION NO. 24-42, DECEMBER 12, 2024). The regulation applies only to transactions between a reporting publicly-listed company (PLC) and its related parties to ensure transparency and prevent conflicts of interest. In SEC-OGC Opinion No. 24-42 (December 12, 2024), the SEC clarified that transactions by a subsidiary or affiliate of a PLC with a non-related party do not fall within the scope of the MRPT Rules, even if such subsidiary’s financials are consolidated with those of the parent PLC. Consolidation serves only for reporting and does not merge or disregard the distinct juridical personality of each entity. This principle is supported by Velarde v. Lopez, Inc., G.R. No. 153886 (January 14, 2004), which affirms the separate corporate personality of a subsidiary from its parent company.

SEC OPINION ON THE CAPACITY OF A FOREIGNER TO SIT AS PRESIDENT OF A FREIGHT FORWARDING CORPORATION. The SEC, citing the Revised Corporation Code and the Anti-Dummy Law, explained that while there is no express citizenship or residency requirement for a corporate president, foreigners are prohibited from managing or controlling corporations engaged in nationalized activities. The Commission examined PTO Air Express Corp.’s purpose of engaging in cargo and freight forwarding and, considering the amendments introduced by Republic Act No. 11659 to the Public Service Act, clarified that freight forwarding no longer constitutes a public utility activity restricted to Filipino citizens. Accordingly, a foreign national such as Ms. Kaikai Wu may lawfully serve as president of PTO Air Express Corp., provided that the company is not engaged in nationalized operations and remains compliant with other applicable laws and regulations. (SEC-OGC Opinion No. 25-01, Re: Capacity to Sit as President, February 10, 2025)

SEC OPINION ON THE AUTHORITY OF A FINANCING COMPANY TO INTRODUCE A NEW FINANCING PROGRAM UNDER ITS CORPORATE POWERS. Toyota Financial Services Philippines Corporation (TFSPC), being a duly registered financing company, may lawfully implement its proposed Lexus Financial Services (LFS) Program, as such activity is consistent with its primary purpose of financing and leasing motor vehicles under its Articles of Incorporation. Citing the Financing Company Act and jurisprudence, the Commission emphasized that a corporation possesses express and incidental powers necessary to fulfill its stated objectives, and acts performed within those limits are valid. However, since the LFS Program is a new product not yet reflected in TFSPC’s approved business plan, the company must first submit and secure approval of an amended plan before implementation. (SEC-OGC Opinion No. 25-05, Re: Implementation of New Financing Program; Corporate Powers; Purpose Clause, March 5, 2025)

PROHIBITION ON DIRECT LENDING BY CORPORATE DEBT VEHICLES (SEC-OGC OPINION NO. 25-06, MARCH 6, 2025). Under the Investment Company Act (ICA) and its Implementing Rules, as reinforced by SEC Memorandum Circular Nos. 23-20 and 33-20, Corporate Debt Vehicles (CDVs) are limited to investing in transferable securities and are expressly prohibited from engaging in direct lending of monies. In the case of Puyat Jacinto and Santos Law Office (for ATRAM Unitized Corporate Debt Vehicle, Inc.), the SEC clarified that investing in corporate debt securities such as bonds and notes does not equate to direct lending, as the former involves impersonal, market-based transactions distinct from a debtor-creditor relationship under a loan. Accordingly, the SEC ruled that ATRAM, as a CDV, cannot engage in direct lending activities. (SEC-OGC Opinion No. 25-06, “Prohibition on Direct Lending by Corporate Debt Vehicles,” March 6, 2025)

SEC CLARIFIES THAT ONLY DEPRECIATION ON REVALUATION INCREMENT MAY BE USED FOR DIVIDEND DECLARATION. The Securities and Exchange Commission (SEC) clarified that only the depreciation on the revaluation increment—and not the revaluation surplus itself—may be considered in determining the amount available for dividend declaration. In Opinion No. 25-08 (June 23, 2025), the SEC ruled that revaluation increments or appraisal surplus cannot be used directly as the basis for declaring dividends, as they do not represent actual earnings. However, when the depreciation on the appraisal increment has been charged to operations, that portion may be added back to retained earnings and made available for dividends, provided that (1) the company has sufficient operational income, (2) there is no deficit at the time the charge was made, and (3) the amount has not been impaired by subsequent losses.  (SEC-OGC Opinion No. 25-08, Re: Depreciation on Revaluation Increment Available for Dividend Declaration, June 23, 2025)

SEC CONFIRMS THAT REPRESENTATIVE OFFICES CANNOT ENGAGE IN INCOME-GENERATING ACTIVITIES. A representative office may conduct only non-income-generating activities such as information dissemination, product promotion, and quality control. It cannot import products for distribution or sale in the Philippines, as such activities constitute income-generating transactions that are beyond its allowed functions under the Revised Corporation Code and the Foreign Investments Act. In SEC-OGC Opinion No. 25-09 (June 24, 2025), the SEC clarified that a representative office, being an extension of its foreign parent company, does not have a separate legal personality and may only engage in activities such as information dissemination, product promotion, and quality control. While it may establish a physical office, employ personnel (including foreign nationals, subject to labor and immigration laws), and enter into lease contracts through its parent company, it is strictly prohibited from engaging in income-generating activities, including importing products for local distribution or sale. The SEC emphasized that importation for marketing or “market penetration” purposes that involves consideration or sale falls outside the permissible scope of a representative office’s functions.(SEC-OGC Opinion No. 25-09, Re: Limitations on Activities of Representative Offices, June 24, 2025)

SEC AFFIRMS THAT INCORPORATED JOINT VENTURES ARE GOVERNED BY THE REVISED CORPORATION CODE. Incorporated joint ventures (JVs) formed as domestic corporations are governed by the Revised Corporation Code of the Philippines (RCCP), not by the Civil Code provisions on partnerships, regardless of the parties’ contractual stipulations or choice of foreign law. The SEC held that when parties choose to form a joint venture as a corporation under Philippine law, such entity—referred to as an incorporated JV—is subject to the Revised Corporation Code and possesses a separate juridical personality distinct from its incorporators or shareholders. Even if the joint venture agreement provides that foreign law governs the arrangement or that the parties do not intend to form a partnership, the incorporated entity (Entity X) remains a Philippine domestic corporation bound by Philippine corporate law. The SEC emphasized that the shareholders’ agreement between the parties is valid only to the extent that it does not contravene mandatory provisions of the RCCP or public policy, reiterating that corporate laws take precedence over conflicting contractual terms.(SEC-OGC Opinion No. 25-12, Re: Governing Law Applicable to Incorporated Joint Ventures, July 14, 2025)

REVENUE REGULATIONS 

Revenue Regulations No. 022-2025

Pursuant to Sections 244 and 245 of the National Internal Revenue Code, in relation to Section 9 of Republic Act No. 12214 (Capital Markets Efficiency Promotion Act), Revenue Regulations No. 022-2025 further amends RR No. 17-2011 to allow private employers to deduct from gross income their qualified contributions to employees’ Personal Equity and Retirement Accounts (PERA) under RA No. 9505.

Revenue Regulations No. 024-2025

Sections 244 and 245 of the NIRC, RR No. 024-2025 imposes updated creditable withholding tax rates on income payments by top withholding agents to local suppliers of goods and services.

REVENUE MEMORANDUM CIRCULAR

Revenue Memorandum Circular No. 084-2025

Pursuant to DOF Department Order No. 012-2025 and Revenue Memorandum Circular No. 084-2025, the Department of Finance issued a revised schedule of filing fees for applications for Tax Exemption Indorsements (TEIs) and non-TEIs to update the 25-year-old rates under DO No. 54-2000, ensuring alignment with current economic conditions and streamlining processing in accordance with the Ease of Doing Business Act. (Circularizing DOF Department Order No. 012-2025, Revenue Memorandum Circular No. 084-2025, September 9, 2025)

Revenue Memorandum Circular No. 088-2025

BIR RULINGS

DONATION TO A RELIGIOUS CORPORATION IS EXEMPT FROM DONOR’S TAX. Donations made in favor of religious, charitable, and social welfare institutions, provided that not more than thirty percent (30%) of the donation is used for administrative purposes, are exempt from donor’s tax. Applying this, the Declaration of Heirship with Deed of Donation executed by the Donors in favor of a Religious Corporation, covering several parcels of land, qualifies for donor’s tax exemption. In accordance with Section 196 of the NIRC, the donation is also exempt from documentary stamp tax, except for the payment of ₱15.00 under Section 188 since it was made prior to the effectivity of the TRAIN Law. Accordingly, a Certificate of Tax Exemption was issued confirming such exemption. (Certificate of Tax Exemption No. DT-150-2025, DT-151-2025, April 25, 2025)

EXPORT SALES AND SERVICES PAID IN FOREIGN CURRENCY AND ACCOUNTED PER BSP RULES MAY BE SUBJECT TO 0% VAT, BUT NO RULING WAS ISSUED AS IT FALLS UNDER “NO-RULING AREAS.” Pursuant to Sections 106(A)(2)(a)(1) and 108(B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended, export sales of goods and services rendered to a non-resident foreign entity are subject to zero percent (0%) Value-Added Tax (VAT) when the consideration is paid in acceptable foreign currency and properly accounted for in accordance with Bangko Sentral ng Pilipinas (BSP) regulations. In this case, a VAT-registered domestic seller engaged in the sale of Uninterrupted Power Supply (UPS) units and related accessories entered into a transaction with a foreign buyer based outside the Philippines, with payment made in foreign currency and accounted per BSP rules, thus meeting the conditions for zero-rating under the law. However, the tax authority declined to issue a confirmatory opinion since the VAT treatment of export sales and services is classified as a “No-Ruling Area,” while emphasizing the seller’s obligation to comply with invoicing requirements under Section 113 of the NIRC, as amended by the Ease of Paying Taxes Act, including the proper labeling of sales as “zero-rated.” (BIR Ruling No. VAT-156-2025 April 25, 2025)

INCOME FROM SERVICES IS TAXABLE AND SUBJECT TO VAT IF THE INCOME-PRODUCING ACTIVITY IS PERFORMED WITHIN THE PHILIPPINES. Pursuant to Sections 23(F), 42(A)(3), and 108(A) of the National Internal Revenue Code (NIRC), a non-resident foreign entity is taxable only on income derived from sources within the Philippines, and services are considered sourced in the country if the income-generating activity or inflow of economic benefit occurs within Philippine territory. In this case, although the advertising services were carried out abroad, the income was derived from consumer activities and transactions within the Philippines resulting from such advertisements, showing that the income-producing activity was effectively performed locally. Accordingly, the service fees paid for these activities are subject to Philippine income tax, VAT, and applicable withholding tax. (BIR Ruling No. OT-168-2025, April 25, 2025)

SERVICES RENDERED ABROAD THAT GENERATE CUSTOMER LEADS AND ECONOMIC BENEFITS WITHIN THE PHILIPPINES ARE DEEMED PERFORMED LOCALLY AND ARE THEREFORE SUBJECT TO INCOME TAX, WITHHOLDING TAX, AND VAT. Pursuant to Sections 23(F), 42(A)(3), and 108(A) of the National Internal Revenue Code, income of a non-resident foreign corporation (NRFC) is taxable only if derived from sources within the Philippines, and services are considered sourced in the Philippines if performed therein. Applying this, the Bureau of Internal Revenue held that advertising and lead-generation services rendered abroad but resulting in customer engagement and economic benefits within the Philippines are deemed performed in the Philippines; thus, the related payments are subject to income tax, withholding tax, and VAT, as the income source and inflow of benefits occurred within Philippine territory. (BIR Ruling No. OT-169-2025, April 25, 2025)

PWDS ARE ENTITLED TO A 20% DISCOUNT AND VAT EXEMPTION ON SPECIFIED GOODS AND SERVICES, WHILE EMPLOYERS HIRING THEM MAY CLAIM AN ADDITIONAL 25% INCOME DEDUCTION. Pursuant to Republic Acts Nos. 9442 and 10754, which amend the Magna Carta for Persons with Disability (RA No. 7277), persons with disability (PWDs) are granted a 20% discount and exemption from the 12% value-added tax (VAT) on the purchase of specific goods and services such as medicines, medical and dental services, transportation, accommodations, and recreational activities, provided that a valid PWD ID is presented. While gainfully employed PWDs remain subject to income tax, employers hiring PWDs are entitled to an additional 25% deduction from gross income based on the salaries and wages paid to such employees. (BIR Ruling No. OT-170-2025, May 6, 2025)

MATERNITY LEAVE BENEFITS—INCLUDING SSS PAYMENTS AND EMPLOYER-PAID SALARY DIFFERENTIALS—ARE EXEMPT FROM INCOME AND WITHHOLDING TAXES FOR ELIGIBLE EMPLOYEES. Pursuant to Republic Act No. 11210 (Expanded Maternity Leave Law), Section 2.78.1(B)(1)(e) of Revenue Regulations No. 2-98, and Revenue Memorandum Circular No. 105-2019, maternity leave benefits consisting of the Social Security System (SSS) maternity benefit and the employer-paid salary differential are exempt from income and withholding taxes. In this case, the maternity benefits granted to employees of a government-owned or controlled corporation (GOCC) without a charter, duly registered with the SSS, fall within this exemption since the full pay during maternity leave is considered a benefit under the SSS law. (BIR Ruling No. OT-171-2025, May 6, 2025)

COMPENSATION FOR SUBTERRANEAN EASEMENT RIGHTS IS TREATED AS A TAXABLE TRANSFER OF REAL PROPERTY SUBJECT TO CGT OR FINAL INCOME TAX AND DST, THOUGH TITLE TRANSFER AND ECAR ISSUANCE ARE NOT REQUIRED. Pursuant to Sections 24(D)(1) and 196 of the National Internal Revenue Code (NIRC) of 1997, as amended, and Republic Act No. 10752, compensation received for the subterranean easement of right of way constitutes a transfer of real property subject to either capital gains tax (CGT) or final income tax at the taxpayer’s election, as the relinquishment of sub-terrain rights is deemed a disposition of real property under the law. Likewise, the transaction is subject to documentary stamp tax (DST) under Section 196 since it involves the conveyance of real property rights for consideration, although ownership of the surface land remains with the property owner. However, annotation of the easement on title may proceed without an eCAR since no actual transfer of ownership occurs. (BIR Ruling No. OT-173-2025, May 7, 2025)

THE PUBLIC AUCTION SALE OF GOVERNMENT-SEIZED ASSETS IS EXEMPT FROM CAPITAL GAINS TAX AND DOCUMENTARY STAMP TAX AS IT ARISES FROM THE EXERCISE OF ESSENTIAL GOVERNMENTAL FUNCTIONS. Pursuant to Section 32(B)(7)(b) of the National Internal Revenue Code of 1997, as amended, and Executive Orders Nos. 286 and 149, income derived by the government or its agencies from the exercise of essential governmental functions is exempt from income tax and related taxes. Since the sale of sequestered assets through public auction was conducted in the performance of the government’s mandate to dispose of forfeited properties, such a transaction is exempt from capital gains tax and documentary stamp tax in accordance with the statutory and executive exemptions granted to the Presidential Commission on Good Government (PCGG) as successor to the Sequestered Assets Disposition Authority (SADA). (BIR Ruling No. OT-174-2025, May 13, 2025)

INCOME DIRECTLY DERIVED FROM DULY REGISTERED BOI PROJECTS QUALIFIES FOR INCOME AND WITHHOLDING TAX EXEMPTION, WHILE NON-QUALIFYING OR EXCESS ACTIVITIES REMAIN SUBJECT TO REGULAR TAXATION. Entities registered with the Board of Investments (BOI) are granted exemption from income tax and creditable withholding tax on income directly attributable to their registered projects for a specified period. Accordingly, the certificates confirm tax exemption for revenues derived from BOI-registered activities, such as economic and low-cost housing projects and a petroleum distribution project, while maintaining that sales beyond the approved unit limits, commercial uses, or activities outside the registered scope remain taxable. (Certificate of Tax Exemption No. BOI-LEH-175-2025, BOI-LEH-176-2025, BOI-LEH-179-2025, May 15, 2025)

THE DONATION OF LAND TO A PUBLIC SCHOOL IS EXEMPT FROM DONOR’S TAX AND FROM DST, BEING A GIFT TO A GOVERNMENT ENTITY. Pursuant to Section 101(A)(2) of the National Internal Revenue Code of 1997, as amended, a donation made in favor of the government or any of its agencies is exempt from donor’s tax. Accordingly, the Deed of Donation executed by a local government unit in favor of a public educational institution over a parcel of land in Cabatuan, Iloilo qualifies for such exemption as it constitutes a gift to a government entity. The transaction is likewise not subject to documentary stamp tax (DST) under Section 196 of the Tax Code but is only liable to the DST imposed under Section 188 thereof. (Certificate of Tax Exemption No. DT-178-2025, May 15, 2025)

NPC-PAYOR IS RESPONSIBLE FOR WITHHOLDING AND REMITTING WITHHOLDING TAX COMPENSATION EVEN THOUGH PSALM ASSUMED NPC’S LIABILITY; HENCE, NPC’S TIN MUST BE USED FOR TAX REMITTANCE. Pursuant to Sections 2.57 and 2.57.3 of Revenue Regulations No. 2-98, as amended by RR No. 11-2018, the obligation to deduct, withhold, and remit withholding taxes rests upon the payor of income. In this case, although PSALM assumed the liabilities of the National Power Corporation (NPC) under the Electric Power Industry Reform Act (EPIRA), NPC acted as the processor and payor of the separation benefits due to its former employees. As confirmed by submitted documents and Board resolutions, NPC disbursed the payments, maintained access to employee records, and filed the related withholding tax returns; thus, the Bureau of Internal Revenue ruled that NPC’s Tax Identification Number (TIN) shall be used for remitting the taxes withheld on said separation benefits. (BIR Ruling No. OT-180-2025, May 29, 2025)

PROCEEDS FROM THE PRIVATIZATION OF A GOVERNMENT-OWNED POWER PLANT UNDER EPIRA ARE NOT SUBJECT TO INCOME TAX, WITHHOLDING TAX, OR VAT, AS THE TRANSACTION CONSTITUTES AN EXERCISE OF GOVERNMENTAL FUNCTION, NOT A COMMERCIAL ACTIVITY. Under Section 27(C) of the Tax Code, government-owned or controlled corporations (GOCCs) are generally subject to income tax only when engaged in commercial activities similar to those of private entities. However, Section 32(B)(7)(b) exempts income derived from the exercise of essential governmental functions, and Section 105 further limits VAT liability to transactions made in the course of trade or business. In this case, the sale of a hydroelectric power plant by two government entities to a private corporation was conducted under the mandate of the Electric Power Industry Reform Act (EPIRA) for the purpose of privatizing state-owned generation assets. Since this activity is legally recognized as a governmental function aimed at restructuring the energy sector and not a profit-driven business venture, the proceeds from the transaction are not subject to income tax, withholding tax, or VAT. (BIR Ruling No. OT-182-2025, June 10, 2025)

IMPORTATION OF LIQUEFIED NATURAL GAS (LNG) IS NOT SUBJECT TO EXCISE TAX AS THERE IS NO SPECIFIC PROVISION IMPOSING SUCH TAX ON IMPORTED LNG. Pursuant to Section 151(A)(2) of the Tax Code, as amended, excise tax is imposed only on specified mineral products, and it expressly exempts locally extracted natural gas and liquefied natural gas (LNG) from such tax. While this provision references local extraction, imported articles are subject to the same excise tax rules as their locally manufactured counterparts. Since LNG derived from locally extracted gas is tax-exempt and there is no separate provision for taxing imported LNG, the importation of LNG by a power-generating corporation for use in its Batangas-based plant is likewise not subject to excise tax. This interpretation is consistent with Revenue Regulations No. 8-96, relevant jurisprudence emphasizing strict construction against taxation, and the BIR’s prior ATRIGs confirming the tax-exempt status of the corporation’s LNG imports. (BIR Ruling No.  OT-183-2025, July 29, 2025)

BIR DEADLINES FROM OCTOBER 20 TO OCTOBER 26, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS (CTA) DECISIONS

AN ASSESSMENT ISSUED WITHOUT A VALID LETTER OF AUTHORITY AND WITHOUT DUE CONSIDERATION OF THE TAXPAYER’S DEFENSES IS VOID AB INITIO. The Court of Tax Appeals ruled that the Formal Letter of Demand (FLD) issued against Zambales Diversified Metals Corporation was void ab initio for violation of due process. Jurisprudence consistently requires a valid Letter of Authority (LOA) before revenue officers may conduct an audit, and any reassignment without issuance of a new LOA renders the audit and resulting assessment invalid. In this case, the audit was conducted by officers not named in the LOA, and further, the FLD was a mere verbatim reproduction of the Preliminary Assessment Notice without addressing the taxpayer’s reply or defenses, effectively depriving petitioner of its right to due process. Accordingly, the Court cancelled the assessment of deficiency taxes amounting to PhP 1.86 billion for taxable year 2014.(Zambales Diversified Metals Corporation v. Commissioner of Internal Revenue, CTA Case No. 10783, 7 April 2025).

A TAX ASSESSMENT IS VOID WHEN CONDUCTED BY REVENUE OFFICERS NOT COVERED BY A VALID LETTER OF AUTHORITY (LOA), AS A MEMORANDUM OF ASSIGNMENT (MOA) CANNOT SUBSTITUTE THE STATUTORY REQUIREMENT OF AN LOA. Jurisprudence is settled that the authority of a revenue officer to examine a taxpayer’s books flows exclusively from a validly issued Letter of Authority (LOA). A Memorandum of Assignment (MOA), Referral Memorandum, or similar internal document merely reassigns cases within the Bureau of Internal Revenue but cannot vest authority to audit. Otherwise, such practice usurps the statutory power of the Commissioner of Internal Revenue or his duly authorized representative. In this case, the audit of petitioner Schema Konsult, Inc. for taxable year 2013 was originally covered by an LOA issued to specific revenue officers. However, when those officers were reassigned, Revenue District Officer Emilia Combes issued a MOA designating other officers to continue the audit without the issuance of a new LOA in their names. These substitute officers, therefore, lacked valid authority to examine the petitioner’s books. Since the audit was conducted without a valid LOA, the resulting Preliminary Assessment Notice, Final Assessment Notice, and Formal Letter of Demand are void. Consequently, the Warrant of Distraint and/or Levy issued to enforce the assessments must likewise be cancelled. (Schema Konsult, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10041, 3 April 2025).

A WAIVER UNDER RMO NO. 14-2016 WITH EXECUTION AND EXPIRY DATES VALIDLY EXTENDED THE BIR’S PERIOD TO ASSESS, BUT THE DEFICIENCY VAT ASSESSMENT WAS CANCELLED FOR LACK OF BASIS IN DISALLOWING INPUT TAX AND DENYING VAT ZERO-RATING ON ECOZONE SALES. Under RMO No. 14-2016, a waiver of the statute of limitations is valid so long as it contains the date of execution and the expiry date, without need of acceptance by the BIR. In this case, the waiver executed on May 7, 2021 validly extended the BIR’s period to assess until November 15, 2021, rendering the FLD issued on June 14, 2021 timely. The Court also found that the revenue officers who issued the FLD were duly authorized under a valid LOA. However, the assessment was fatally defective because the BIR disallowed petitioner’s carried-over input tax without citing any factual or legal basis and erroneously denied VAT zero-rating on sales to PEZA and SBMA-registered entities, contrary to law and jurisprudence. Since the taxpayer’s allowable input tax exceeded its output tax, the recomputation showed an overpayment rather than a deficiency, thereby cancelling the assessment.  (Ford Group Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10805, 4 April 2025).

ASSESSMENT AND WARRANT OF DISTRAINT AND/OR LEVY ARE VOID FOR BEING BASED ON MERE PRESUMPTIONS, LACKING DUE PROCESS. The CTA ruled that to properly resolve the validity of the Warrant of Distraint and/or Levy (WDL), it had to examine the underlying assessments, which were null and void because they were founded on unverified third-party information and not personally served to the taxpayer or its authorized representative, thereby failing due process. Testimonial evidence confirmed that the taxpayer had no transactions with the third party during the relevant period, and the BIR did not properly substantiate the assessments. As such, the WDL issued pursuant to these defective assessments was likewise invalid. The CTA En Banc affirmed the Division’s decision denying the Commissioner’s petition. (Commissioner of Internal Revenue v. Julio R. De Quinto, CTA EB No. 2830, 22 April 2025).

ELECTRIC COOPERATIVES REGISTERED WITH THE NEA ARE PERMANENTLY EXEMPT FROM INCOME TAX. Electric cooperatives duly registered with the NEA enjoy permanent income tax exemption under existing law, and such exemption remains valid despite withdrawals or modifications by subsequent laws or executive issuances that are inconsistent with this provision. In this case, petitioner Pampanga I Electric Cooperative, Inc., being registered with the NEA, is entitled to permanent income tax exemption, and thus the deficiency income tax assessment and related notices issued against it are null and void. (Pampanga I Electric Cooperative, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10961, April 23, 2025).

MARKET FEES COLLECTED BY WESM MEMBERS TO COVER OPERATIONAL COSTS ARE NOT SUBJECT TO INCOME TAX. A market operator is allowed to recover costs of administering and operating the Wholesale Electricity Spot Market (WESM) through charges imposed on WESM members. Since these market fees are intended solely to cover operational costs and are collected on a non-profit basis, they do not constitute gain or profit to the Market Operator and therefore do not qualify as taxable income. Accordingly, such fees are not subject to income or withholding tax. (Independent Electricity Market Operator of the Philippines, Inc. v. Commissioner of Internal Revenue & Secretary of Finance, CTA Case No. 10885, 5 May 2025).

NET SETTLEMENT SURPLUS (NSS) IS NOT SUBJECT TO INCOME TAX AS IT DOES NOT CONSTITUTE GAIN OR PROFIT. Income is taxable only if there is a realized gain or profit. NSS represents the reconciliation of amounts payable to sellers and receivable from buyers in the Wholesale Electricity Spot Market and arises from locational pricing and congestion differences. The ERC Resolutions governing NSS distribution ensure that neither the Market Operator nor its successor realizes actual gain or profit from NSS, as surpluses are flowed back or allocated to market participants. Consequently, NSS does not constitute taxable income. (Independent Electricity Market Operator of the Philippines, Inc. v. Commissioner of Internal Revenue & Secretary of Finance, CTA Case No. 10885, 5 May 2025).

ASSESSMENT BEYOND THE PRESCRIPTIVE PERIOD IS VOID EVEN IF DEFICIENCY NOTICES ARE ISSUED. Under Sections 203 and 222(a) of the NIRC of 1997, internal revenue taxes must generally be assessed within three years from filing of the return, with an extraordinary 10-year period allowed only for false or fraudulent returns with intent to evade tax. Mere errors or unintentional misstatements do not justify the 10-year period, and the BIR bears the burden of proving such intent with clear and convincing evidence. In this case, petitioner filed its 2011 return in April 2012, and although a waiver was executed extending the three-year period until December 31, 2015, the assessment notices were issued only in December 2020, well beyond the prescriptive period. The BIR failed to establish that the return was false or fraudulent, and the notices did not provide sufficient factual basis for assessment, depriving the petitioner of due process. Accordingly, the assessment is void. (Welte! Corporation v. Commissioner of Internal Revenue, CTA Case No. 10947, May 5, 2025).

SECURITIES AND EXCHANGE COMMISSION

SEC CLARIFIES NON-APPLICABILITY OF SRC REGISTRATION TO FREE DISTRIBUTION OF TIMESHARE EXCHANGE PROGRAM DOCUMENTS. The Securities Regulation Code requires registration only when securities are sold or offered for sale within the Philippines. Applying this to Marriott Ownership Resorts, Inc.’s (MORI) Marriot Vacation Club Destinations Exchange Program (MVCD-EP), the SEC held that the program does not constitute a sale or offer of securities since no monetary consideration is involved, and the distribution merely provides a free upgrade to existing timeshare owners, whose timeshares were not originally sold in the Philippines. Thus, registration under the SRC is unnecessary. (Applicability of SRC Registration Requirements to Timeshares, SEC-OGC Opinion No. 24-04, March 26, 2024).

SEC RULES THAT LGEPH MUST AMEND ARTICLES OF INCORPORATION TO INCLUDE BPO SERVICES UNDER SECONDARY PURPOSES. In resolving LG Electronics Philippines, Inc. ‘s (LGEPH) query, the SEC ruled that a corporation may only exercise powers expressly stated in its Articles of Incorporation or those reasonably incidental to its primary purpose under the Revised Corporation Code. Since BPO operations are neither expressly authorized nor incidental to LGEPH’s primary purpose as a wholesaler and distributor of electrical products, such activities cannot be undertaken without an amendment. The proper approach is to add BPO services under its secondary purposes, as a primary purpose amendment cannot cover unrelated or distinct business activities. (Amendment of Primary Purpose to Include Business Process Outsourcing (BPO) Services, SEC-OGC Opinion No. 24-05, April 2, 2024).

SEC ALLOWS LIQUIDATION BEYOND 3-YEAR WINDING UP PERIOD WITH DIRECTORS AS TRUSTEES. Under the Revised Corporation Code, a dissolved corporation retains a limited three-year existence to settle its affairs, dispose of property, and distribute assets. However, jurisprudence and SEC rulings recognize that liquidation may continue beyond this period through a receiver, trustee, or by the board of directors acting as trustees by legal implication. Applying this to L. Aznar-Alfonzo Realty and Holdings Corporation, whose registration was revoked in 2004, the SEC confirmed that it may still liquidate its remaining investment in Southwestern University-PHINMA despite the lapse of the winding-up period. (Liquidation Beyond the 3-Year Winding Up Period, SEC-OGC Opinion No. 24-06, April 4, 2024).

SEC CONFIRMS FLEXIBILITY ON BOARD COMPOSITION AND NON-RESIDENCY REQUIREMENT UNDER RCCP. The SEC clarified that the Revised Corporation Code (RCCP) removed the old residency requirement for directors, thus corporations may elect non-resident directors unless their bylaws expressly require otherwise. In Oracle (Philippines) Corporation’s case, its Articles of Incorporation and bylaws impose no such restriction, allowing the election of a majority or even all non-resident directors. The SEC likewise confirmed that corporations may fix the number of directors at fewer than five, since the RCCP did not reproduce the minimum limit under the old Corporation Code. Thus, Oracle may lawfully amend its Articles of Incorporation to provide for a three-or four-member board, subject to approval by the SEC. (Re: Section 22 of Republic Act No. 11232 or the Revised Corporation Code of the Philippines (RCCP), SEC-OGC Opinion No. 24-07, April 4, 2024).

SEC CLARIFIES NON-APPLICATION OF “DOING BUSINESS” TEST TO FOREIGN CORPORATIONS WITH PASSIVE INVESTMENTS AND OFFSHORE SERVICES. The Foreign Investments Act (FIA) draws a clear line between activities that qualify as “doing business” in the Philippines and those that do not. Acts implying continuity of commercial dealings or performance of business functions locally fall within the definition, while passive stock ownership, the exercise of shareholder rights, and isolated transactions are expressly excluded. In Lhotse Enterprises Limited’s case, the SEC clarified that its minority shareholdings in Philippine corporations and its service agreement with a local affiliate—where all services are rendered abroad—do not amount to doing business in the country. The SEC emphasized that so long as the corporation’s activities remain limited to equity investments, the service engagement is performed outside the Philippines, and there is no intent to establish continuous commercial operations locally, a license to do business is not required. (Re: Doing Business in the Philippines, SEC-OGC Opinion No. 24-09, April 24, 2024).

SEC OPINION ON THE NON-ALLOWANCE OF PERPETUAL TERM FOR CORPORATE OFFICERS UNDER THE RCC. The SEC clarified that while non-stock corporations may vary the term of their trustees under their by-laws, a lifetime or unlimited tenure for officers or trustees is not legally permissible. Officers are elected by the board of trustees, whose one-year term under by-laws necessarily limits the tenure of officers as well. Allowing perpetual terms would prevent future boards from exercising their statutory power to elect officers and deprive members of the opportunity to serve. The SEC emphasized that this long-standing prohibition is consistent with Section 24 of the Revised Corporation Code, which requires officers to be elected after the trustees’ election. On the related query, the SEC held that MCGI, as a registered non-stock religious corporation, remains subject to the general provisions on non-stock corporations, including the requirement of officer elections, notwithstanding constitutional protections on religious freedom. However, the Commission declined to opine on alternative organizational structures, stating it cannot act as private legal counsel. (Re: Perpetual Term of Officers, SEC-OGC Opinion No. 24-10, April 25, 2024).

MEMBERS MAY VALIDLY ELECT DIRECTORS VIA REMOTE COMMUNICATION IF AUTHORIZED BY A BOARD RESOLUTION, EVEN IF THE BY-LAWS PROVIDE ONLY FOR MANUAL VOTING.  The Revised Corporation Code, reinforced by SEC Memorandum Circular No. 6, s. 2020, permits members to vote through remote communication or in absentia when so authorized either by the by-laws or by a resolution of the majority of the board of directors or trustees, subject to the condition that such resolution applies only to the particular meeting or election. Applying these provisions, the SEC ruled that the Philippine Society of Mechanical Engineers (PSME) may validly conduct the election of its national board of directors through online remote communication based solely on a board resolution, notwithstanding that its by-laws only allow manual voting. However, the SEC strongly encouraged corporations to amend their by-laws to institutionalize remote voting and ensure members’ rights are adequately protected. (Re: Voting by Remote Communication Based on a Board Resolution, SEC-OGC Opinion No. 24-12, May 8, 2024).

SHAREHOLDERS’ INSPECTION RIGHTS UNDER THE RCC MAY BE LIMITED IF NOT FOR A LEGITIMATE PURPOSE OR IF IT RISKS DISCLOSING CONFIDENTIAL INFORMATION. The right of shareholders to inspect corporate records is grounded in Section 73 of the Revised Corporation Code (RCC), which grants stockholders access to corporate books and records to ensure transparency and good governance. However, this right is not absolute and may be denied if the request is made in bad faith, for an illegitimate purpose, or involves confidential information protected under laws such as the Intellectual Property Code and the Data Privacy Act. In the case of Flexi Finance Asia, Inc., the SEC noted that while shareholders like Mr. Ronnie Katona may validly exercise inspection rights, the corporation may raise defenses if the demand is overly broad, lacks sufficient justification, or compromises sensitive data. Ultimately, the burden rests on the corporation to prove that the purpose of inspection is improper. (Inspection Rights of Shareholders, SEC-OGC Opinion No. 24-14, May 21, 2024).

REVENUE MEMORANDUM CIRCULAR NO. 081-2025

BIR RULINGS

ONLY CONGRESS MAY GRANT TAX EXEMPTIONS; HENCE, THE REQUEST TO EXEMPT FISHING ACTIVITIES FROM INPUT VAT CANNOT BE ACTED UPON BY THE PRESIDENT. Section 105 of the National Internal Revenue Code provides that VAT is an indirect tax that may be shifted to the buyer and becomes part of the purchase price, while Article VI, Section 28(4) of the Constitution mandates that tax exemptions may only be granted through legislation passed by Congress. Applying these provisions, the request from a local legislative body to exempt fishing and fishery activities from VAT on petroleum-based inputs due to increasing fuel prices cannot be granted by the President, as such authority lies solely with Congress. The Bureau of Internal Revenue clarified that no current law provides such an exemption, and any tax relief must be enacted through a clear and express provision of law. (BIR Ruling No. VAT-129-2025, April 23, 2025)

A NON-STOCK, NON-PROFIT SCHOOL IS EXEMPT FROM INCOME TAX ON REVENUES USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES, INCLUDING TUITION AND ON-SITE ANCILLARY SERVICES. Pursuant to Section 30(H) of the National Internal Revenue Code of 1997, as amended, a non-stock, non-profit educational institution is exempt from income tax on revenues actually, directly, and exclusively used for educational purposes. Applying this provision, the subject institution was granted a Certificate of Tax Exemption covering its tuition and school-related fees, as well as income from its cafeteria, dormitory, and bookstore, provided these are located within school premises and operated by the school itself. It is also exempt from VAT on educational services and from final tax on bank interest income used for educational purposes, subject to compliance with documentation and reporting requirements. However, the exemption does not extend to income from unrelated activities or property, which remains taxable, and the school must continue to comply with all regulatory conditions to maintain its exempt status. (Certificate of Tax Exemption No. SH30-131-136-2025, April 24, 2025)

DONATIONS TO NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS ARE EXEMPT FROM DONOR’S TAX, SUBJECT TO THE 30% ADMINISTRATIVE USE LIMITATION. Donations made to non-stock, non-profit educational institutions are exempt from donor’s tax, provided that no more than 30% of the gift is used for administrative purposes. In this case, the Bureau of Internal Revenue issued a Certificate of Tax Exemption covering a donation of four parcels of land located in Cebu City, executed through a Deed of Donation dated July 19, 2023, in favor of a qualified educational institution. The properties are to be used in compliance with the requirements of the law. Additionally, the donation is not subject to documentary stamp tax under Section 196 of the Tax Code but is covered by the DST under Section 188. The exemption was granted based on the documents submitted, and remains valid unless contrary facts are later discovered upon BIR verification. (Certificate of Tax Exemption No. DT-137-2025, April 24, 2025)

DONATION TO A GOVERNMENT AGENCY IS EXEMPT FROM DONOR’S AND DOCUMENTARY STAMP TAXES; BUT SUBJECT TO VAT IF DONOR IS ENGAGED IN REAL ESTATE BUSINESS. Pursuant to Section 101(A)(1) of the National Internal Revenue Code (Tax Code) of 1997, as amended by the TRAIN Law, donations made to the government or any of its political subdivisions are exempt from donor’s tax. In line with this, a deed of donation dated August 29, 2017, involving 5,000 square meters of land located in Bacoor, Cavite, executed by a private real estate entity in favor of a government agency, qualifies for such exemption. Furthermore, the donation is exempt from documentary stamp tax (DST) under Section 196 of the Tax Code but is subject to the minimal DST of ₱30.00 under Section 188 for notarization. However, since the donor is engaged in the real estate business, all its real properties are treated as ordinary assets, and the donated property—originally held for sale or business use is subject to value-added tax (VAT) pursuant to Section 106(B)(1) of the same Code. (Certificate of Tax Exemption No. DT-138-2025, April 24, 2025)

BIR DEADLINES FROM SEPTEMBER 29 TO OCTOBER 5, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS (CTA) DECISIONS

A TAX ASSESSMENT IS VOID WHEN CONDUCTED WITHOUT A VALID LOA, AS SUBSTITUTION OF REVENUE OFFICERS REQUIRES A NEW OR AMENDED LOA, NOT A MERE REASSIGNMENT NOTICE. The Court ruled that a valid Letter of Authority (LOA) is indispensable for revenue officers to lawfully conduct an audit, and any substitution of officers must be supported by a new or amended LOA issued by the Commissioner of Internal Revenue or his duly authorized representative, as emphasized in Commissioner of Internal Revenue v. McDonald’s Philippines Realty Corp.. In this case, although the initially authorized specific revenue officers to audit Master Sports Corporation, they were replaced through a mere Re-Assignment Notice signed by a Revenue District Officer, without the issuance of a new LOA. Since the replacement officers proceeded with the audit absent proper authority, the resulting deficiency assessments were declared void. Consequently, the Court cancelled and set aside the assessment and enjoined the BIR from enforcing collection. (Master Sports Corporation v. Commissioner of Internal Revenue, CTA Case No. 10458, 2 May 2025).

LOA SERVED BEYOND 30 DAYS REMAINS VALID IF THE TAXPAYER ACCEPTS SERVICE AND PARTICIPATES IN THE AUDIT, AS BELATED OBJECTIONS ARE DEEMED MERE AFTERTHOUGHTS. While RAMO No. 1-10 required an LOA to be served within 30 days from issuance, RAMO NO. 1-2020 dated 17 September 2020 removed this provision, which was further clarified in RMC No. 82-2022, dated June 28, 2022. While the LOAs were served in 2019 or before the amendment, a taxpayer who accepts the LOA and submits to the audit without timely objection is deemed to have acquiesced to the BIR’s authority. In this case, the records showed that the taxpayer eventually accepted both LOAs, submitted documents, and participated in the audit. Following AFP General Insurance Corporation v. Commissioner of Internal Revenue, the Court held that petitioner’s belated challenge was merely an afterthought to evade liability, thereby upholding the validity of the LOAs’ service. (Pristine Energy Transfer Corporation v. Commissioner of Internal Revenue, CTA Case No. 10338, 6 May 2025.)

UNDER THE NIRC, DEFICIENCY ASSESSMENTS MUST BE ISSUED WITHIN THREE YEARS FROM THE DUE DATE OF FILING THE RETURN. The law provides that internal revenue taxes must generally be assessed within three (3) years from the deadline for filing the return. If no return is filed, or if a false return is filed, the BIR is given ten (10) years from discovery to assess. Since the BIR issued the assessment on 27 November 2019 (received 10 January 2020), its right to assess VAT for the first three quarters of 2016, as well as EWT and WTC for January to October 2016, had already been prescribed. Only VAT for the 4th quarter of 2016 and EWT and WTC for November and December 2016 were still within the 3-year period. As for DST, because no return was filed, the 10-year extraordinary period applied, and the assessment had not been prescribed. (Pristine Energy Transfer Corporation v. Commissioner of Internal Revenue, CTA Case No. 10338,6 May 2025.)

DUE PROCESS REQUIRES ACTUAL RECEIPT OF ASSESSMENT NOTICES BY THE TAXPAYER; SINCE THE BIR FAILED TO PROVE VALID SERVICE, THE ASSESSMENT IS VOID. Jurisprudence consistently holds that when a taxpayer denies receipt of a Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN), and Formal Letter of Demand (FLD), the burden shifts to the BIR to prove that such notices were actually received. Proof of mailing alone is insufficient, especially when service is made to someone who is not authorized to receive documents on behalf of the taxpayer. An assessment that is not validly served violates due process and is void. In this case, the BIR claimed that the PAN and FAN/FLD were served through a courier service, but the evidence presented showed otherwise. The FAN/FLD was delivered to a security guard, who is not an authorized representative of the taxpayer. No competent proof was presented to establish actual receipt of the PAN. As a result, the BIR failed to discharge its burden to prove valid service of the assessment notices. Since the taxpayer was not properly informed of the legal and factual bases of the assessment, due process was violated, rendering the assessment void and without legal effect. Moreover, jurisprudence holds that a void tax assessment produces no legal effect and cannot serve as basis for collection. Without a valid assessment, subsequent collection measures such as a WDL are likewise void. Despite this, the BIR garnished PhP28,191,790.45 from the petitioner’s bank accounts. Since the assessment and collection were void, the government had no right to retain the amount, and the taxpayer is entitled to a refund of the illegally collected sum. (Fujitec, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10965, 7 May 2025.)

THE GOVERNMENT IS NOT LIABLE FOR DAMAGES OR LEGAL INTEREST SINCE THE COLLECTION, THOUGH LATER FOUND VOID, WAS NOT ATTENDED BY ARBITRARINESS AND NO LAW AUTHORIZES SUCH AWARD. Jurisprudence provides that interest on refunded taxes may only be awarded if expressly authorized by law or if the collection was arbitrary. Absent these conditions, the government cannot be compelled to pay damages or legal interest on amounts improperly collected. Arbitrariness exists only when there is inexcusable disregard of legal requirements, not when actions are based on a plausible interpretation of the law. In this case, while the BIR collected more than the amount stated in the WDL, the excess was attributed to its computation of interest and penalties, which it considered valid. Records also show that the BIR attempted to serve the Warrant of Garnishment and refrained from collecting the full available amounts once it deemed the liability satisfied. These actions negate arbitrariness. Since no statutory provision authorizes interest on tax refunds in this situation and the collection was not arbitrary, petitioner is not entitled to damages or legal interest. (Fujitec, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10965, 7 May 2025.)

A COMPROMISE SETTLEMENT REQUIRES EITHER REASONABLE DOUBT AS TO THE ASSESSMENT OR CLEAR INABILITY TO PAY; SINCE NEITHER WAS ESTABLISHED, THE DENIAL OF THE APPLICATION WAS PROPER. The Commissioner of Internal Revenue may compromise tax liabilities only in limited instances, specifically when there is reasonable doubt as to the validity of the assessment or when the taxpayer shows clear inability to pay. Such compromises must comply with regulatory approval procedures depending on the amount involved. Tax assessments, moreover, enjoy the presumption of correctness and regularity, and the burden lies with the taxpayer to prove otherwise. In this case, petitioner applied for a compromise settlement of its deficiency income tax on the ground of doubtful validity of the assessment. However, records showed that petitioner had in fact received the Final Assessment Notice, defeating its claim of non-receipt. Moreover, the assessment was supported by third-party data verified through the BIR’s no-contact audit system, which the petitioner failed to disprove with competent evidence. In the absence of proof that the assessment was arbitrary or baseless, no reasonable doubt existed as to its validity. Consequently, the National Evaluation Board acted within its authority in denying the application for compromise, and the Commissioner did not commit grave abuse of discretion in issuing the Notice of Denial. (Philippine Mining Development Corporation v. Commissioner of Internal Revenue, CTA Case No. 9292, 8 May 2025.)

A PETITION LACKING A VALID CERTIFICATION AGAINST FORUM SHOPPING MAY BE DISMISSED OUTRIGHT, ESPECIALLY WHEN THE PETITIONER FAILS TO CORRECT THE DEFECT DESPITE OPPORTUNITIES TO COMPLY. Courts strictly require a proper verification and certification against forum shopping as part of procedural due process. Failure to submit a compliant certification is a sufficient ground for dismissal, and repeated non-compliance despite extensions negates any claim of grave abuse of discretion by the court. Jurisprudence has consistently upheld dismissal where procedural defects remain uncorrected despite opportunities to cure. In this case, the petitioner was given equitable opportunities to submit a proper certification against forum shopping but failed to comply. No valid excuse or justification was presented for such failure. Applying the same principle, the First Division’s dismissal of the petitioner’s prior petition was proper, and no grave abuse of discretion was committed.(Johnny Sy Co v. Bureau of Internal Revenue, et al., CTA EB No. 2832 (CTA Case No. 11024), 9 May 2025.)

TAX ASSESSMENTS ARE VOID IF THE BIR FAILS TO CONSIDER AND ADDRESS THE TAXPAYER’S ARGUMENTS AND EVIDENCE, AS THIS VIOLATES THE TAXPAYER’S RIGHT TO DUE PROCESS. In Commissioner of Internal Revenue v. Avon Products Manufacturing, Inc., the Supreme Court held that while the Commissioner need not accept a taxpayer’s explanations, she must provide specific reasons for rejecting them. The right to due process is violated when the BIR disregards evidence without explanation, since administrative adjudication requires considering the taxpayer’s defenses and giving reasons for conclusions. Here, petitioner filed a Reply to the PAN and a Request for Reinvestigation, setting forth arguments and submitting evidence. Despite this, the BIR simply reiterated the deficiency assessments in the FLD without addressing the taxpayer’s points. The FDDA’s generic statement that petitioner failed to provide relevant documents was insufficient, as it did not specify why the submitted arguments and evidence were disregarded. This failure to consider petitioner’s defenses constitutes a denial of due process, rendering the deficiency assessments void. (My Solid Technologies and Devices Corporation v. Commissioner of Internal Revenue, CTA Case No. 10598, 15 May 2025)

TAX ASSESSMENTS ARE VOID IF CONDUCTED BY REVENUE OFFICERS WITHOUT BEING SPECIFICALLY NAMED IN A VALID LOA. Jurisprudence, particularly Medicard Philippines, Inc. v. CIR and Lancaster Philippines, Inc. v. CIR, makes clear that only revenue officers specifically named in a Letter of Authority (LOA) may validly examine a taxpayer’s records, and that a Memorandum of Assignment (MOA) cannot cure the absence of such authority. In this case, while an LOA existed, it did not name RO Yu and GS Roldan, Jr., who actually conducted the audit. Their reliance on MOAs issued by the RDO, a subordinate official not empowered to issue LOAs, was insufficient. Since the audit was conducted without proper authority, the resulting deficiency VAT assessment was void (Commissioner of Internal Revenue v. Sellery Phils. Enterprises, Inc., CTA EB No. 2837, 20 May 2025).

LOA IS ALWAYS REQUIRED IN TAX AUDITS, WHETHER REGULAR OR MANDATORY, AND ITS ABSENCE RENDERS THE RESULTING ASSESSMENTS VOID. Under jurisprudence, particularly CIR v. Manila Medical Services, Inc., the issuance of a valid LOA is indispensable in all tax audits, as it is the authority that empowers revenue officers to examine a taxpayer’s records. The law makes no distinction between regular assessments and mandatory audits, such as those arising from applications for business retirement. In this case, the BIR argued that a mandatory audit dispensed with the need for an LOA and that errors in issuance should not prejudice government revenue. The Court rejected this, stressing that lack of a valid LOA is not a mere technicality but a due process violation that invalidates the entire assessment. The lifeblood doctrine cannot override the taxpayer’s right to due process. Accordingly, the CTA Division correctly cancelled and set aside the deficiency assessments for being null and void (Commissioner of Internal Revenue v. Sellery Phils. Enterprises, Inc., CTA EB No. 2837, 20 May 2025).

SECURITIES AND EXCHANGE COMMISSION

SEC OPINION NO. 24-01 INTERPRETED THE CONSTITUTIONAL AND STATUTORY RESTRICTIONS ON FOREIGN OWNERSHIP, CONTROL, AND ADMINISTRATION OF EDUCATIONAL INSTITUTIONS IN RELATION TO THE FOREIGN INVESTMENTS NEGATIVE LIST. Pursuant to the 1987 Constitution and the Foreign Investments Act (RA 7042), as implemented through the 12th Foreign Investments Negative List (E.O. 175, s. 2022), the Securities and Exchange Commission (SEC) issued an opinion on the proposed investment of a Japanese corporation in a Philippine subsidiary offering non-degree certification courses. The SEC affirmed that while educational institutions are generally subject to the 40% foreign equity cap and must be controlled and administered by Filipinos, the restriction does not extend to short-term, high-level skills development programs that are not part of the formal education system under B.P. 232. However, the Commission emphasized that jurisdiction over determining whether such programs qualify rests with CHED and TESDA, and that corporations engaged in technical-vocational education with certification fall under TESDA regulation. Thus, foreign ownership beyond 40% is permissible only if the proposed activities fall outside the scope of formal education. (SEC-OGC Opinion No. 24-01, Re: Foreign Ownership, Control, and Administration of Educational Institutions; Applicability of the Foreign Investments Negative List to Educational Institutions, January 2, 2024).
SEC OPINION NO. 24-02 CLARIFIED THAT UNDER THE CONDOMINIUM ACT, THE MASTER DEED AND DECLARATION OF RESTRICTIONS PREVAIL OVER THE ARTICLES OF INCORPORATION AND BY-LAWS IN DETERMINING THE COMPOSITION OF A CONDOMINIUM CORPORATION’S BOARD OF TRUSTEES. Pursuant to Republic Act No. 4726 (Condominium Act), as amended, and the Revised Corporation Code (RA 11232), the Securities and Exchange Commission (SEC) issued an opinion clarifying that in cases of inconsistency, the provisions of a condominium corporation’s Master Deed and Declaration of Restrictions (MDDR) prevail over its Articles of Incorporation (AOI) and By-Laws. The opinion addressed queries from The Cambridge Village Condominium Association, Inc., where the AOI and By-Laws provided for five trustees while the MDDR required seven. The SEC ruled that the MDDR must be followed, and the AOI and By-Laws must be amended accordingly. It further explained that, pending amendment, the number of trustees to be elected should still conform with the MDDR, and that delinquent members are not entitled to vote in determining quorum, by analogy to stock corporations under the RCC. (SEC-OGC Opinion No. 24-02, Re: Composition of Board of Trustees of a Condominium Corporation, January 19, 2024).

SEC OPINION NO. 24-03 CLARIFIED THE REQUIREMENTS FOR INVOKING RECIPROCITY IN EXEMPTING FOREIGN GOVERNMENT SECURITIES FROM REGISTRATION UNDER THE SECURITIES REGULATION CODE. Under Republic Act No. 8799 (Securities Regulation Code), the Securities and Exchange Commission (SEC) issued an opinion clarifying the scope of exempt securities under Subsection 9.1(b). In response to an inquiry from HSBC Philippines, the SEC explained that while securities issued or guaranteed by foreign governments with diplomatic relations with the Philippines may qualify as exempt from registration, invoking reciprocity requires more than proof of trading activity abroad. Instead, parties must submit competent and duly authenticated evidence—such as foreign laws or regulations—that Philippine government securities are likewise exempt from registration in the foreign jurisdiction. The SEC emphasized that Philippine courts do not take judicial notice of foreign law, which must be properly proven as a fact in accordance with evidentiary rules. (SEC-OGC Opinion No. 24-03, Re: Exempt Securities under Subsection 9.1(b) of the Securities Regulation Code, March 26, 2024)

REVENUE REGULATIONS

Revenue Regulations No. 021-2025
Based on Republic Act (RA) No. 12214, also known as the Capital Markets Efficiency Promotion Act (CMEPA), Revenue Regulations No. 021-2025 were issued to implement major amendments to the National Internal Revenue Code of 1997. The regulations introduce a simplified and uniform tax system for passive income, with a general effective date of July 1, 2025. This includes defining and clarifying terms like “securities” and “shares of stock” to encompass a wider range of financial instruments. The regulations also provide specific tax treatments for new income types, such as equity-based compensation, and establish that certain gains from financial instruments, like project-specific bonds and mutual fund redemptions, are now exempt from income tax. Furthermore, the regulations allow new allowable deductions for dealers in securities and clarify that interest income from various sources is considered sourced within the Philippines, irrespective of where the instrument was executed.

Tax Rates for Individuals (Effective July 1, 2025)
Citizen, Resident Alien, and Non-Resident Alien Engaged in Trade or Business

Tax Rates for Corporations (Effective July 1, 2025)
Domestic and Resident Foreign Corporations

Non-Resident Foreign Corporations

BIR RULINGS

RETIREMENT BENEFITS ARE EXEMPT FROM WITHHOLDING TAX FOR EMPLOYEES WHO MEET THE AGE AND SERVICE DURATION REQUIREMENTS. Section 32 (B) (6) (a) of the National Internal Revenue Code of 1997 and Republic Act (RA) No. 7641, retirement benefits for two employees are exempt from withholding tax. The exemption applies because the employer does not have a BIR-approved retirement plan. The application of facts shows that both employees meet the conditions under RA No. 7641, which requires an employee to have at least five years of service and be between 60 and 65 years old at the time of retirement. One employee had 20.5 years of service, and the other had 16.19 years of service, both exceeding the minimum five-year requirement. The ruling also notes that the exemption does not cover salaries, 13th-month pay, or other benefits that exceed the P90,000 threshold. Additionally, unused monetized vacation leave credits of up to ten days are not subject to income or withholding tax, but sick leave credits are not included in this exemption. (BIR Ruling No. OT-121-2025, April 23, 2025)

A NON-STOCK SAVINGS AND LOAN ASSOCIATION IS EXEMPT FROM 20% FINAL WITHHOLDING TAX ON INTEREST INCOME FROM DEPOSITS. Under Republic Act (RA) No. 8367, a non-stock savings and loan association is exempt from certain taxes. The application of this law to a specific association shows that it is not subject to a 20% final withholding tax on its interest income from deposits and deposit substitutes. This exemption applies to the association’s income and interest earned on its deposits with banks. However, the tax exemption does not cover income derived from any of its properties, real or personal, or any activities conducted for profit. The association, which is a non-stock corporation and is registered with the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP), had requested a revalidation of its tax exemption certificate. The ruling is based on the provided facts and will be considered null and void if a later investigation reveals the facts were different. (BIR Ruling No. OT-124-2025, April 23, 2025)

A NON-STOCK SAVINGS AND LOAN ASSOCIATION CAN BE EXEMPT FROM GROSS RECEIPTS TAX (GRT) IF IT PROVES DURING AN AUDIT THAT IT OPERATES SOLELY FOR THE BENEFIT OF ITS MEMBERS AND DOES NOT ACQUIRE FUNDS FROM THE PUBLIC. Based on Republic Act No. 8367, Revenue Regulations No. 9-2004, and Revenue Memorandum Circular No. 9-2016, an organization, representing itself as a non-stock savings and loan association (NSSLA) and seeking exemption from the gross receipts tax (GRT), was advised that its claim for exemption cannot be granted based on mere representation. The Bureau of Internal Revenue (BIR) determined that while NSSLAs are generally exempt from certain taxes, they are subject to GRT if they function as a Non-Bank Financial Intermediary (NBFI) by obtaining funds from the public. Therefore, to qualify for the exemption, the association must prove through a factual determination by the Revenue District Office (RDO) that it exclusively serves its members, does not transact business with the public, and does not obtain funds from the public. The ruling emphasizes the principle that tax exemptions are construed strictly against the taxpayer and that the burden of proof rests on the entity claiming the exemption. (BIR Ruling No. OT-125-2025, April 23, 2025)

DONATIONS TO PRIVATE ENTERPRISES, EVEN IF FACILITATED BY A GOVERNMENT-OWNED AND CONTROLLED CORPORATION (GOCC), ARE SUBJECT TO THE 6% DONOR’S TAX. Pursuant to PD No. 1177, PD No. 1931, and EO No. 93, which withdrew tax exemptions for government-owned and controlled corporations (GOCCs), donations channeled through a GOCC to private enterprises are subject to donor’s tax. Specifically, a transfer of equipment from an intergovernmental organization to private enterprises, facilitated by a GOCC, is subject to the 6% donor’s tax on the total gift amount exceeding PHP 250,000, as provided by Sections 98 and 99 of the National Internal Revenue Code (NIRC). Although the GOCC itself, as the implementing arm of the project, may be exempt from certain taxes under its charter (PD No. 205), this exemption does not extend to the private enterprise-donees, which are not tax-exempt entities. (BIR Ruling No. OT-126-2025, April 23, 2025)

A COMPANY IS GRANTED APPROVAL TO CHANGE ITS INVENTORY VALUATION METHOD FROM WEIGHTED AVERAGE TO FIFO, AS THIS CHANGE ALIGNS WITH ITS PARENT COMPANY’S ACCOUNTING PRACTICES AND WILL NOT MISREPRESENT ITS INCOME. Pursuant to Section 41 of the Tax Code and Section 145 of Revenue Regulations No. 2, which require that a change in accounting method must be approved by the Commissioner of Internal Revenue, a request to change an inventory valuation method is granted. The company’s request to switch from the weighted average method to the First-In, First-Out (FIFO) method is approved, effective January 1, 2022. This approval is based on the company’s need to align its financial reporting with its parent company and affiliates, a change deemed to be in line with “best accounting practice” and one that will not significantly impact the company’s reported income. The BIR concluded that the change would clearly reflect the company’s income and is therefore permissible. (BIR Ruling No. OT-127-2025, April 23, 2025)

THE TAX CODE ALLOWS A 10-YEAR PRESCRIPTIVE PERIOD IN CASES INVOLVING PRIMA FACIE EVIDENCE OF FRAUD, MAKING A REQUEST FOR CANCELLATION OF TAX AUTHORITY BASED ON THE 3-YEAR RULE INAPPLICABLE. Under the National Internal Revenue Code, the standard three-year prescriptive period for tax assessments does not apply when fraud is present, in which case a ten-year period governs. In this case, the discovery of under-declared purchases amounting to over 70% of actual purchases was deemed prima facie evidence of fraud, thereby justifying the application of the extended prescriptive period and the denial of the request for cancellation of the electronic letter of authority. (BIR Ruling No. OT-128-2025, April 23, 2025)

BIR DEADLINES FROM SEPTEMBER 22 TO SEPTEMBER 28, 2025. A gentle reminder on the following deadlines, as may be applicable:

REVENUE REGULATIONS

Revenue Regulations No. 018-2025

Under the National Internal Revenue Code of 1997, as amended by the Capital Markets Efficiency Promotion Act, pick-ups are no longer exempt and are now subject to excise tax.

Revenue Regulations No. 019-2025

The Bureau of Internal Revenue issued Revenue Regulations No. 019-2025 to implement rate adjustments on documentary stamp tax (DST) and expand exemptions on certain documents and papers.

Revenue Regulations No. 20-2025

Republic Act No. 12214 (CMEPA), as implemented by Revenue Regulations No. 020-2025, imposes a 1% Stock Transaction Tax (STT) on sales of domestic shares traded in both local and foreign stock exchanges.

BIR RULINGS

THE GRANT OF PER DIEMS TO TRUSTEES CONSTITUTES PRIVATE INUREMENT THEREBY DISQUALIFYING THE INSTITUTION FROM TAX EXEMPTION AND SUBJECTING IT TO THE REGULAR CORPORATE INCOME TAX.
A non-stock, non-profit educational institution may be exempt from income tax only if it is organized as such and its revenues are actually, directly, and exclusively used for educational purposes. However, the presence of provisions allowing compensation or per diems to trustees constitutes private inurement, which is prohibited for entities claiming non-profit status. Since this violates the requirement that no part of net income or assets shall benefit any individual, the application for tax exemption was denied, and the entity is instead subject to income tax. (BIR Ruling No. SH30-049-2025, April 4, 2025)

TRANSFER OF CLUB MEMBERSHIP SHARES THROUGH TRUSTEES IS NOT SUBJECT TO CAPITAL GAINS TAX, DONOR’S TAX, OR DOCUMENTARY STAMP TAX, AS IT INVOLVES NO CONSIDERATION, DONATION, OR TRANSFER OF BENEFICIAL OWNERSHIP; HOWEVER, THE NOTARIAL ACKNOWLEDGMENT OF THE DEED OF DECLARATION OF TRUST REMAINS LIABLE TO DST. The transfer of club membership shares through nominees acting as trustees is not subject to capital gains tax, as no consideration or change in beneficial ownership occurs; not subject to donor’s tax, as there is no intent to donate nor patrimonial benefit to the transferees; and not subject to documentary stamp tax, as no conveyance of beneficial ownership takes place. However, the notarial acknowledgment of the Deed of Declaration of Trust remains subject to DST under Section 188 of the Tax Code. (BIR Ruling No. OT-051-2025, April 4, 2025; BIR Ruling No. OT-053-2025, April 14, 2025; (BIR Ruling No. OT-063-2025, April 15, 2025)

CONSTRUCTION OF SOCIALIZED HOUSING UNITS UNDER THE NHA’S HOUSING PROGRAM THROUGH THE COMMUNITY-BASED INITIATIVE APPROACH IS EXEMPT FROM PROJECT-RELATED INCOME TAXES, CWT, AND VAT ON SALES WITHIN THE PRICE THRESHOLD, BUT PURCHASES REMAIN SUBJECT TO VAT WITH THE OBLIGATION TO ISSUE VAT-EXEMPT RECEIPTS. Pursuant to Section 20(d)(1) of Republic Act No. 7279, as amended by RA 10884, and Section 109(1)(P) of the NIRC of 1997, as amended, a developer engaged by a homeowners’ association for the construction of socialized housing units under the NHA’s Government Employees Housing Program through the Community-Based Initiative Approach is exempt from project-related income taxes and creditable withholding tax, while the sale of the housing units is VAT-exempt provided the selling price per unit does not exceed ₱3,199,200.00 and subject to VAT rules effective January 1, 2021. However, its purchases of goods and services remain subject to VAT since it is an indirect tax, with the developer required to issue VAT-exempt official receipts for its gross receipts from the project. (Certificate of Tax Exemption No. NSH-052-2025, April 14, 2025) NSH-68-2025, NSH-71-2025, NSH-72-2025, NSH-73-2025, NSH-77-2025, NSH-79-2025, NSH-80-2025, NSH-81-2025, NSH-82-2025, (April 15, 2025) NSH-84-2025, NSH-85-2025, NSH-86-2025 NSH-87-2025, NSH-88-2025, NSH-89-2025 (April 16, 2025)

TRANSFER OF A PROPRIETARY CLUB MEMBERSHIP SHARE FROM ONE CORPORATE OFFICER-TRUSTEE TO ANOTHER IS NOT SUBJECT TO CGT, DST, OR DONOR’S TAX AND RELEVANT BIR RULINGS, SINCE NO CONSIDERATION, DONATION, OR TRANSFER OF BENEFICIAL OWNERSHIP OCCURS. Under the Tax Code of 1997, as amended, a transfer of a proprietary club membership share from one officer-trustee to another does not give rise to capital gains tax under Sec. 24(C) since no monetary consideration or change in beneficial ownership is involved, consistent with the trust arrangement recognized in jurisprudence. Likewise, it is not subject to documentary stamp tax under Section. 175 and RR 13-2004, as no beneficial ownership is transferred but only legal title for purposes of club use, akin to a transfer between trustees. Finally, the donor’s tax under Sec. 98 does not apply, as the requisites of a donation—reduction of the donor’s patrimony, increase of the donee’s patrimony, and intent to donate—are absent. Accordingly, the transfer of the proprietary club membership share from one officer to another officer of the same entity is tax-exempt. (BIR Ruling No. OT-054-2025, April 14, 2025)

UNDER THE CREATE LAW, ITS IRR, RA 7916, AND RMC NO. 24-2022, ONLY GOODS AND SERVICES DIRECTLY AND EXCLUSIVELY USED IN A REGISTERED PROJECT OR ACTIVITY OF A PEZA EXPORT ENTERPRISE QUALIFY FOR VAT ZERO-RATING; CONSTRUCTION SERVICES PARTLY FOR PRODUCTION AND PARTLY FOR ADMINISTRATIVE AREAS DO NOT FULLY MEET THIS TEST. Pursuant to Section 5, Rule 2 of the CREATE Law IRR and clarified under RMC No. 24-2022, VAT zero-rating applies only to purchases indispensable to the registered activity of an export enterprise, without which the project cannot be carried out. In the present case, the construction and rehabilitation services for the factory roof involved costs attributable both to the production area and to the administration area. Since only the portion directly and exclusively related to production may qualify for zero-rating, and considering that the works are not indispensable to the registered activity, the BIR upheld the denial of the application for VAT zero-rating, leaving the taxpayer to avail of legal remedies provided under the Tax Code. (BIR Ruling No. OT-055-2025, April 14, 2025)

A DULY REGISTERED HOMEOWNERS’ ASSOCIATION’S DUES, FEES, AND RENTALS USED SOLELY FOR COMMUNITY SERVICES AND FACILITY MAINTENANCE ARE EXEMPT FROM INCOME TAX AND VAT/PERCENTAGE TAX.

Pursuant to the Magna Carta for Homeowners and Homeowners’ Associations (R.A. 9904) and BIR guidelines, a non-stock, non-profit homeowners’ association registered with the proper regulatory body is exempt from income tax and VAT/percentage tax on dues, rentals, and assessments collected on a reimbursement basis, when these are applied to services such as cleanliness, safety, security, and facility maintenance that the local government is unable to provide. However, income from trade, business, or other activities beyond such dues, as well as interest income and other taxable earnings, remains subject to applicable internal revenue taxes, including final withholding tax on passive income and VAT or percentage tax on commercial operations. The association must also comply with reporting, invoicing, and withholding obligations under the Tax Code. (BIR Ruling No. OT-056-2025, April 14, 2025)

LOCAL GOVERNMENT UNIT IS NOT EXEMPT FROM WITHHOLDING TAX ON RENTAL INCOME FROM LEASING ITS PROPERTIES, AS THE ACTIVITY IS CONSIDERED PROPRIETARY. Under Sections 27(C) and 32(B)(7)(b) of the National Internal Revenue Code (NIRC), income derived from government functions that are essential or public in nature is exempt from taxation, while income from proprietary activities is taxable. In this case, the local government unit’s leasing of property for profit is a proprietary activity and not part of any essential governmental function. Therefore, the rental income generated from such leasing is subject to withholding tax, and the lessee is required to withhold tax on the payments. (BIR Ruling No. OT-057-2025, April 14, 2025)

HOUSING PROJECT REGISTERED WITH THE BOARD OF INVESTMENTS (BOI) IS EXEMPT FROM INCOME TAX AND VAT ON SALES OF UNITS BELOW P3.6 MILLION, SUBJECT TO CONDITIONS, BUT COMMERCIAL OR EXCESS SALES ARE TAXABLE. Under Executive Order No. 226 and the Tax Code, the company is granted a tax exemption for income and creditable withholding taxes on revenue derived from its low-cost housing project, provided it complies with BOI registration and project-specific terms. The exemption applies to units used exclusively for family dwelling, with specific VAT exemptions for sales under P3,600,000, effective January 2024. However, sales exceeding the price threshold or intended for commercial use are subject to tax. The exemption is contingent on compliance with BIR filing and reporting requirements, with periodic audits to ensure adherence to the conditions set forth by the tax code and regulations; failure to do so may result in the invalidation of the exemption. (Certificate of Tax Exemption No. BOI-LEH-058-060-2025, April 15, 2025) BOI-LEH-083-2025 (April 15, 2025) BOI-LEH-093-2025 (April 16, 2025)

SERVICE FEES PAID TO A NON-RESIDENT FOREIGN CORPORATION ARE SUBJECT TO PHILIPPINE INCOME TAX, WITHHOLDING TAX, AND VAT, AS THE SERVICES BENEFIT A DOMESTIC CORPORATION. Pursuant to Sections 23 (F), 28 (B), 42 (A), and 108 (A) of the National Internal Revenue Code, income derived by foreign corporations from services performed in the Philippines is taxable. In this case, the domestic corporation’s payment to a non-resident foreign corporation for services like data preparation and project management was deemed taxable, as the ultimate beneficiary of the services is a domestic entity. Although the services were performed outside the Philippines, they were considered income sourced in the Philippines because the services were rendered for a local business. Consequently, the service fees were subject to Philippine income tax, withholding tax, and VAT, as they were linked to activities within the domestic market. (BIR Ruling No. OT-061-2025, April 15, 2025)

REAL ESTATE PROPERTIES HELD BY A CORPORATION ENGAGED IN REAL ESTATE BUSINESS ARE CLASSIFIED AS ORDINARY ASSETS, SUBJECT TO CREDITABLE WITHHOLDING TAX (CWT), VALUE-ADDED TAX (VAT), AND DOCUMENTARY STAMP TAX (DST) According to Section 39(A)(1) of the Tax Code of 1997, as amended, and Revenue Regulations No. 7-2003, real properties held by a taxpayer primarily for sale, or used in the taxpayer’s business, are classified as “ordinary assets” and not “capital assets.” The corporation in question, whose Articles of Incorporation show it is involved in the real estate business, holds real properties that qualify as ordinary assets. As such, any sale or conveyance of these properties is subject to |CWT, VAT, and DST, in line with the Tax Code and the relevant revenue regulations. (BIR Ruling No. OT-064-2025, April 15, 2025)

UNDER THE CREATE LAW AND ITS IRR, VAT ZERO-RATING APPLIES ONLY TO PURCHASES DIRECTLY AND EXCLUSIVELY USED IN A REGISTERED PROJECT; RENOVATION SERVICES WERE HELD NOT INDISPENSABLE AND THUS DENIED ZERO-RATING. Pursuant to Section 5, Rule 2 of the CREATE Law IRR, as clarified by RMC No. 24-2022, VAT zero-rating may be granted only to local purchases of goods and services that are directly and exclusively used in a registered export project or activity, meaning expenses without which the project cannot be carried out. In this case, a construction contractor provided renovation works for a registered export enterprise within a freeport zone to accommodate expansion of production. After evaluation, the BIR ruled that such renovation expenditures do not qualify as directly and exclusively used in the registered activity, and thus are subject to 12% VAT, with the option for the taxpayer to pursue available remedies under the Tax Code. (BIR Ruling No. OT-65-2025 (April 15, 2025)

SERVICE FEES TO A NON-RESIDENT FOREIGN CORPORATION ARE TAXABLE WHERE SOURCE OF INCOME IS NOT PROVEN TO BE OUTSIDE THE PHILIPPINES.

Non-resident foreign corporations are taxable in the Philippines only on income derived from sources within the country, with the situs of taxation determined by where the income-producing activity is actually performed. In a ruling involving a local distributor and a foreign service provider, the BIR emphasized that tax exemptions must be clearly supported by evidence, and the burden rests on the taxpayer to prove that income is foreign-sourced. If the local entity failed to establish that the software development and related services were performed abroad and that ownership of the developed software was duly transferred, the payments were deemed to constitute supply of scientific or technical knowledge within the Philippines. Accordingly, the service fees were held subject to Philippine income tax and consequently to withholding tax. (BIR Ruling No. OT-66-2025, April 15, 2025)

DONATIONS TO A GOVERNMENT AGENCY’S PRIORITY PROGRAM ARE EXEMPT FROM DONOR’S TAX AND FULLY DEDUCTIBLE IF INCLUDED IN THE NEDA NATIONAL PRIORITY PLAN; OTHERWISE, DEDUCTIBILITY IS LIMITED TO 10% OR 5%. Donations made to the government or its agencies are exempt from donor’s tax, while full deductibility from gross income is allowed if the donation finances activities certified under the National Economic and Development Authority’s (NEDA) National Priority Plan (NPP); otherwise, deductions are limited to 10% for individuals and 5% for corporations. Applying this, contributions to a government digital library project included in the NPP for 2017–2022 qualify for full deductibility, while donations outside such certified years are subject to the statutory percentage limitations. (BIR Ruling No. OT-67-2025 (April 15, 2025)

TAX EXEMPTIONS APPLY ONLY TO REVENUES FROM QUALIFIED SOCIALIZED HOUSING UNITS WITHIN THE PRESCRIBED PRICE CEILINGS, WHILE DST REMAINS PAYABLE. Pursuant to Batas Pambansa Blg. 220 in relation to Republic Act No. 7279, as amended, and Section 109(1)(P) of the National Internal Revenue Code (NIRC), income and creditable withholding tax exemptions are granted on revenues directly attributable to a registered socialized housing project, provided that each house and lot does not exceed ₱450,000. In addition, the sale of residential house and lot and other dwellings priced at not more than ₱3,600,000 beginning January 1, 2024 is exempt from VAT, although the sale of residential lot only, regardless of value, is subject to VAT. However, the exemption does not cover documentary stamp tax, which remains due under Section 196 of the NIRC based on the higher of the contracted price or fair market value. The grant of exemption is conditioned upon compliance with BIR rules, reporting requirements, and may be revoked if facts presented are found inconsistent. (Certificate of Tax Exemption No. PSH-69-70-74-75-76-78-2025 (April 15, 2025) PSH-90-2025, PSH-91-2025, PSH-92-2025 (April 16, 2025)

TRANSFER OF SOCIALIZED HOUSING LOTS TO QUALIFIED MEMBER-BENEFICIARIES IS EXEMPT FROM CGT, CWT, DONOR’S TAX, AND DST, EXCEPT ₱30 NOTARIAL DST. Pursuant to Republic Act No. 7279 (Urban Development and Housing Act of 1992) and the National Internal Revenue Code, as clarified in prior BIR rulings, the transfer of subdivided lots under the Community Mortgage Program to qualified member-beneficiaries is not subject to capital gains tax, creditable withholding tax, donor’s tax, or documentary stamp tax, since the beneficiaries are deemed the actual owners who purchased the property through the association. Only the notarial acknowledgment of the deed of conveyance is subject to the ₱30 DST under Section 188 of the Tax Code, and title transfer may be affected only upon issuance of a Certificate Authorizing Registration after submission of required documents. (BIR Ruling No. OT-94-2025 (April 16, 2025)

BIR DEADLINES FROM SEPTEMBER 15 TO SEPTEMBER 21, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS DECISIONS

THE CTA EN BANC RULED THAT THE 30-DAY PERIOD TO APPEAL A DENIED VAT REFUND RUNS FROM THE TAXPAYER’S OWN RECEIPT OF THE DENIAL LETTER, MAKING THE LATE FILING JURISDICTIONALLY FATAL DESPITE THE TAXPAYER’S CLAIM THAT ONLY ITS COUNSEL SHOULD HAVE BEEN SERVED. The Court of Tax Appeals En Banc stressed that under the Tax Code and applicable revenue regulations, the reckoning point for the 30-day period to appeal the denial of a refund claim is the taxpayer’s actual receipt of the denial, not the date its counsel is informed. The law explicitly requires that the denial be addressed and sent to the taxpayer-claimant, and such receipt constitutes valid service in administrative proceedings, unlike in judicial proceedings governed by the Rules of Court, where service on counsel is required. The Court explained that in tax cases, administrative service to the taxpayer is sufficient, and it is the taxpayer’s duty to communicate promptly with counsel. In this case, the petitioner admittedly received the denial letter directly but failed to relay it to its counsel in time, resulting in the appeal being filed beyond the statutory 30-day window. The En Banc characterized this lapse as plain negligence, not excusable neglect, and reiterated that the appeal period is mandatory and jurisdictional. It thus affirmed the Court in Division’s dismissal of the petition for lack of jurisdiction. (Manulife Data Services, Inc. v. CIR, CTA EB No. 2850, CTA Case No. 10138, February 26, 2025)

IN INPUT VAT REFUND FROM ZERO-RATED SALES, PROOF THAT SERVICES TO NONRESIDENTS WERE PERFORMED IN THE PHILIPPINES MUST BE SUBMITTED. The Tax Code grants a 0% VAT rate to certain services rendered to nonresident clients, provided four elements are met: (1) the services are other than processing, manufacturing, or repacking of goods; (2) they are performed in the Philippines by a VAT-registered person; (3) the recipient is a foreign corporation doing business outside the Philippines or a nonresident not engaged in business in the Philippines; and (4) payment is in acceptable foreign currency and accounted for under BSP rules. The Court found that petitioner’s call and administration services to Therapeutic Case Management Services Limited met the first element, but failed to establish the second element, performance in the Philippines, since the Service Agreement was silent on service location, no witness testified to such fact, and the Independent CPA’s conclusion lacked personal knowledge and was not binding under CTA rules. Applying the rule that tax refunds and exemptions are strictly construed against taxpayers, the Court ruled that petitioner did not discharge its burden of proof, leading to the denial of its claim for ₱1,782,368.41 in unutilized input VAT for the 3^rd and 4^th quarters of 2018. (Organisational Support Services, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10525, February 14, 2025)

VAT OFFICIAL RECEIPTS MUST STATE THE ACTUAL NATURE OF SERVICES AND COMPLY WITH ALL INVOICING REQUIREMENTS. VAT official receipts must indicate, among others, the actual “nature of the service” and comply with all invoicing requirements, as these are mandatory for substantiating VAT refund claims. In this case, the petitioner’s receipts covering sales to PEZA-registered clients merely stated “downpayment” or “others,” which do not specify the actual services rendered, and were unsigned by the authorized signatory despite the petitioner’s own printed notation that such signature is required for validity. The Court held that strict compliance with invoicing and substantiation rules is essential to ensure accuracy and veracity in VAT claims; thus, the absence of the required details and signatures justified the denial of zero-rating for these sales. (Tetra Pak Philippines, Inc. v.  CIR, CTA Case No. 10546, Amended Decision, March 25, 2025)

TAXPAYER MUST PROVE THAT THAT THE BUYER IS AN EXPORT-ORIENTED ENTERPRISE – OVER 70% EXPORT SALES IN THE PRECEDING TAXABLE YEAR AND VALID FOR THE CLAIM PERIOD. Sales of raw or packaging materials to an export-oriented enterprise, defined as one whose export sales exceed 70% of total annual production in the preceding taxable year, qualify for 0% VAT, provided the enterprise’s status is established for the relevant period of sale. Petitioner sought VAT zero-rating based on DTI-EMB Certificates of Accreditation under RA No. 7844 and letters showing export percentages. However, the DTI-EMB list covered only July 2018, outside the 4th quarter 2018 claim period, and did not show its 2017 export sales ratio; another client’s list covered only January–February 2018 and reflected a 92% export rate based on 2016 data, not the required 2017 figures. The Court ruled that mere accreditation is insufficient without proof of export-oriented status for the specific claim period, thus sustaining the denial of VAT zero-rating for these sales. (Tetra Pak Philippines, Inc. v.  CIR, CTA Case No. 10546, Amended Decision, March 25, 2025)

INPUT VAT ON IMPORTATIONS IS REFUNDABLE ONLY IF TIED TO ZERO-RATED SALES WITHIN THE CLAIM PERIOD NOT WHEN PAID. VAT-registered taxpayer may claim refund of input VAT on importations only when such VAT is directly attributable to zero-rated sales made within the period of claim. Here, the petitioner sought reconsideration of disallowed input VAT on importations totaling ₱1,571,474.51, asserting that the refund period should be reckoned from the date of payment of VAT to the Bureau of Customs. The Court rejected this argument, clarifying that entitlement depends on when the related zero-rated sales were made, not when the VAT was paid. It found that certain importations either did not match the items sold under zero-rated invoices or, though related, pertained to sales outside the fourth quarter of CY 2018, rendering them ineligible. However, a small amount of ₱125.25 for matched sales was reconsidered as valid. Ultimately, the Court partially granted the petition, ordering a refund of ₱9,174,250.45 as excess and unutilized input VAT attributable to valid zero-rated sales for the quarter. (Tetra Pak Philippines, Inc. v.  CIR, CTA Case No. 10546, Amended Decision, March 25, 2025)

REASONS FOR DISALLOWANCE OF INPUT VAT DUE TO INVOICING REQUIREMENTS: Supporting documents which the Court noted as being partly blurred, blackened, and/or not properly scanned; input VAT on purchases of goods supported by documents other than VAT invoice; input VAT on purchases of service supported by documents other than VAT OR; input VAT on purchases of services reported as purchases of services supported by VAT ORs, but the nature of services were not indicated/statement not attached/nature of payment cannot be ascertained; input VAT on purchases of services supported by VAT ORs but input VAT amounts per OR are lower than the amounts per claim (Overclaimed input VAT); input VAT on purchases of services supported by VAT ORs but the input VAT amounts were not separately indicated; supporting documents not found in the scanned file but included in the  claim (Manulife Data Services, Inc. v. CIR, CTA Case No. 10666, January 2025); incomplete or incorrect name, address, or TIN of the petitioner; absence or inaccuracy of VAT amounts; missing unit cost, quantity, or VATable amount; use of the Liaison/Branch Office address with the Head Office TIN (or incomplete branch TIN); no indication of the nature of the payment for services; illegible or missing TIN; certain documents reflected prior period purchases, unsupported transactions, or payments not valid for input VAT claims. (Mindanao Container Corporation v. CIR, CTA Case No. 10513, February 19, 2025)

ZERO-RATING REQUIRES PROOF THAT SERVICES RENDERED TO A NONRESIDENT WERE PAID IN ACCEPTABLE FOREIGN CURRENCY AND ACCOUNTED FOR UNDER BSP RULES, WITH A CLEAR NEXUS BETWEEN PAYMENT AND THE ZERO-RATED SALE. A VAT refund for unutilized input tax on zero-rated sales requires, among others, proof that the sales are zero-rated and that payments received are in acceptable foreign currency, duly accounted for under BSP rules, and directly attributable to such sales. While PPD Pharma established its VAT registration, the nonresident status of its client PPD Global, and timely filing of claims, it failed to prove that the $7.5 million received was exclusively payment for zero-rated services rendered in Q3 and Q4 of 2018. Evidence, including Official Receipts, Proofs of Remittances, and bank certifications, merely showed foreign currency inflows without linking them to the alleged service fees, especially since the amounts could also represent advances or loans. The absence of billing statements or other documentation to establish this nexus led the court to deny the refund claim for insufficiency of evidence. (PPD Pharmaceutical Development Philippines. Corp. v. Commissioner of Internal Revenue, CTA Case No. 10466, February 6, 2025)

DEPARTMENT OF ENERGY (DOE) REGISTRATION IS MANDATORY TO AVAIL VAT INCENTIVES, BUT  HYDROPOWER SALES TO NPC STILL QUALIFIED FOR ZERO-RATING WARRANTING A VAT REFUND.  Under the Renewable Energy Act and its implementing rules, registration with the Department of Energy is required before a renewable energy developer can enjoy fiscal incentives such as the 0% VAT rate. This rule means that simply being engaged in renewable energy generation does not automatically grant such benefits. In this case, the Court found that CBK Power Company Limited, though operating a hydropower plant, was not entitled to VAT incentives under the RE Law due to its admitted non-registration with the DOE. However, the Court still recognized CBK’s sales of electricity to the National Power Corporation as zero-rated, given that hydropower is a renewable source. (Commissioner of Internal Revenue v. CBK Power Company Limited, CTA EB No. 2801 CTA Case No. 10137, January 17, 2025)

THE CTA EN BANC DISMISSED THE CIR’S PETITION FOR RELIEF FROM JUDGMENT FOR BEING FILED WAY PAST THE 60-DAY AND 6-MONTH PERIODS AND FOR FAILING TO SHOW THAT COUNSEL’S LAPSES AMOUNTED TO EXCUSABLE NEGLIGENCE, REITERATING THAT CLIENTS ARE BOUND BY THEIR LAWYERS’ ACTS. The Court of Tax Appeals En Banc emphasized that a petition for relief from judgment is an equitable, exceptional remedy subject to the strict “double-period” rule—both (1) within 60 days from actual knowledge of the judgment and (2) within six months from its entry. These periods must be met simultaneously; noncompliance is fatal as they are jurisdictional. In this case, judgment was entered on August 19, 2022, but the CIR filed its petition only on March 31, 2023, well beyond the 6-month cut-off of February 19, 2023. The CIR also failed to prove the exact date when it received or learned of the judgment, preventing verification of the 60-day requirement. On substance, the CIR argued excusable negligence due to Atty. Tejada’s inaction, but the Court ruled this unavailing since the case had multiple counsels who could have intervened. Under settled doctrine, clients are bound by counsel’s acts or omissions, absent compelling exceptions—which were not shown here. Consequently, the En Banc affirmed the Special Second Division’s denial, stressing that procedural deadlines for this remedy admit no leniency. (Commissioner of Internal Revenue v. Unnamed Respondent, CTA EB No. 2833, January 16, 2025)

BIR RULINGS

INCOME TAX EXEMPTION GRANTED FOR REVENUES USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES BY A QUALIFIED NON-STOCK, NON-PROFIT INSTITUTION. Pursuant to Section 30(H) of the National Internal Revenue Code of 1997, as amended, a Certificate of Tax Exemption was issued to a non-stock, non-profit educational institution proven to operate exclusively for educational purposes. The exemption covers income derived from tuition and school fees, as well as revenues from cafeteria, dormitory, and bookstore operations located within school premises, provided they are owned and operated by the institution and used directly for educational activities. Interest income from bank deposits used exclusively for educational purposes is likewise exempt from final taxes, subject to documentary compliance. The institution remains liable for taxes on unrelated income or profit-driven activities and is subject to VAT, percentage tax, and withholding tax where applicable. The exemption is contingent on continued compliance with BIR rules, including annual reporting, record-keeping, and submission of certified financial and operational documents. (BIR Ruling No. SH30-027-2025, January 14, 2025); SH30-036-2025, February 26, 2025).

CAPITAL GAINS TAX EXEMPTION GRANTED FOR A COMMUNITY MORTGAGE PROGRAM LAND SALE TO A QUALIFIED HOMEOWNERS’ ASSOCIATION. The sale of a parcel of land located in Brgy. Riverside, Calinan, Davao City under the Community Mortgage Program (CMP) to a duly registered homeowners’ association is exempt from capital gains tax. However, the transaction remains subject to documentary stamp tax under Section 196 of the Tax Code. The exemption does not authorize the transfer of land title unless a Certificate Authorizing Registration (CAR) is secured following the submission of documents required under RMO No. 15-2003. (BIR Ruling No. CMP-028-2025, January 14, 2025)TRANSFER OF LEGAL TITLE OF A CLUB SHARE BETWEEN TRUSTEES, WITHOUT CHANGE IN BENEFICIAL OWNERSHIP, IS NOT SUBJECT TO CGT, DONOR’S TAX, OR DST. Pursuant to Sections 24(C), 175, and 176 of the National Internal Revenue Code, as amended, and consistent with established jurisprudence, the Bureau of Internal Revenue ruled that the transfer of legal title over a proprietary club membership share from a former corporate trustee to a newly designated trustee, under a valid Declaration of Trust, is not subject to capital gains tax, donor’s tax, or documentary stamp tax, as there is no monetary consideration, no intent to donate, and no transfer of beneficial ownership – the beneficial title remaining with the corporate principal. The transaction is purely for administrative compliance with club membership rules requiring natural persons as registered holders. However, the notarial acknowledgment of the Declaration of Trust remains subject to DST under Section 188, and no Certificate Authorizing Registration or Tax Clearance is required to affect the transfer. (BIR Ruling No. OT-029-2025, January 17, 2025; BIR Ruling No. OT-046-2025, April 4, 2025)

INCOME FROM GAMING OPERATIONS BY A PAGCOR LICENSEE IS EXEMPT FROM CIT AND VAT SUBJECT ONLY TO 5% FRANCHISE TAX. A licensed operator authorized by PAGCOR to conduct electronic gaming activities is exempt from corporate income tax and value-added tax on income solely derived from its gaming operations. The exemption, as clarified in jurisprudence, inures to the benefit of PAGCOR’s licensees and contractees, who, like PAGCOR, are subject only to a 5% franchise tax on gross revenue from gaming operations, in lieu of all other national and local taxes. However, income from unrelated or non-gaming services shall remain subject to regular corporate income tax and VAT. (BIR Ruling No. OT-032-2025, (January 21, 2025)

SALE OF EDUCATIONAL E-MATERIALS NOT DEVOTED TO ADVERTISEMENTS IS VAT-EXEMPT. The sale of e-journals, e-books, and other electronic materials used for educational purposes, and not principally devoted to paid advertisements, is exempt from the 12% value-added tax. A corporation engaged in such transactions qualifies for this VAT exemption. However, if the entity engages in other non-exempt services such as bookbinding, engraving, or printing, those transactions remain subject to VAT, requiring separate VAT registration and invoicing. Additionally, while exempt on its sales of educational materials, the corporation is not exempt from VAT passed on by suppliers on its purchases, as VAT is an indirect tax borne by the buyer. (BIR Ruling No. VAT-033-2025, February 05, 2025)

TAX EXEMPTION IS GRANTED FOR A GOVERNMENT-CONTRACTED SOCIALIZED HOUSING PROJECT. A tax exemption was granted to a contractor engaged by a national housing agency for a socialized housing project consisting of five five-storey low-rise buildings with 300 units in Caloocan City, intended as relocation for informal settler families affected by a government infrastructure project. The exemption covers income tax and creditable withholding tax directly related to the project, and the sale of residential units is exempt from VAT provided the selling price per unit does not exceed ₱3,600,000. However, purchases of goods or services related to the project remain subject to VAT, and VAT-exempt receipts must be issued. This certification does not substitute for a Certificate Authorizing Registration (CAR), which must still be secured from the BIR following the proper process. (BIR Ruling No. NSH-034-2025, February 26, 2025)

RECONVEYANCE OF PROPERTY UNDER A COURT-DECLARED TRUST IS NOT SUBJECT TO CGT OR DST. No capital gains tax or documentary stamp tax applies to a court-ordered reconveyance of real property where no consideration is involved and no capital gain is presumed to have been realized. In this case, two parcels of land registered in the name of a former director were judicially confirmed to be held in trust for a corporation, which had continuously possessed, used, and paid real estate taxes on the properties. A final and executory decision declared the existence of a resulting trust and ordered reconveyance to the true owner. As the transfer was merely to restore legal title to its rightful holder and did not involve a sale or exchange, it is not subject to CGT or DST, except for the ₱30.00 DST on the notarial acknowledgment under Section 188. (BIR Ruling No. OT-035-2025, February 26, 2025).

MANDATED TRANSFER OF SHARES TO THE REPUBLIC THROUGH A GOVERNMENT COMMISSION PURSUANT TO ADMINISTRATIVE ORDERS IS EXEMPT FROM CAPITAL GAINS TAX, DONOR’S TAX, AND DOCUMENTARY STAMP TAX.  The transfer of shares from certain corporations to the Republic of the Philippines through a government commission is not considered a sale, donation, or taxable conveyance. The transaction was undertaken solely to comply with the directives of the administrative orders, without any donative intent or commercial exchange. As such, the Bureau of Internal Revenue ruled that the transfer is exempt from capital gains tax due to the absence of a sale or disposition, from donor’s tax for lack of liberality, and from documentary stamp tax as it is not a taxable conveyance under the law (BIR Ruling No. OT- 40-41-2025, March 13, 2025).

DONATION OF REAL PROPERTIES TO A LOCAL GOVERNMENT UNIT IS EXEMPT FROM DONOR’S TAX AND DOCUMENTARY STAMP TAX (DST), EXCEPT FOR THE DST ON NOTARIZATION. Donations made to political subdivisions of the national government are exempt from donor’s tax. In this case, the transfer of parcels of land from a private entity to a local government unit qualifies for such exemption, being a gratuitous transfer to a political subdivision. The transaction is likewise exempt from documentary stamp tax, except for the P30 DST. (BIR Ruling No. DT-042-2025 (March 24, 2025).

THE SALE OF LAND TO A LOCAL GOVERNMENT FOR A SOCIALIZED HOUSING PROJECT IS EXEMPT FROM CAPITAL GAINS TAX BUT SUBJECT TO DOCUMENTARY STAMP TAX. The transfer of a parcel of raw land from private owners to a local government unit for use in a qualified socialized housing project is exempt from capital gains tax. However, the transaction remains subject to documentary stamp tax, and title transfer shall require an eCAR from the BIR with an annotation stating “Intended for Socialized Housing Project.” (BIR Ruling No. OT-043-44-2025, March 24, 2025).

SALE OF CARBON EMISSION CREDITS BY A REGISTERED RENEWABLE ENERGY DEVELOPER ARE EXEMPT FROM ALL TAXES. Republic Act No. 9513, as implemented by Revenue Regulations No. 7-2022, grants full tax exemption on proceeds from the sale of carbon emission credits by duly registered Renewable Energy developers. The developer transferred carbon emission credits generated from a solar rooftop project to a foreign government in exchange for funding, under an agreement fulfilling all requisites of a valid contract of sale – consent, determinate subject matter, and price certain in money. As the transaction constitutes a sale in substance and aligns with the objectives of the bilateral low-carbon growth partnership, the proceeds are exempt from income tax, VAT, and all other taxes pursuant to RA No. 9513 and related regulations. (BIR Ruling No. OT-045-2025, April 3, 2025)

REVENUES FROM SALES AND SERVICES BY A NON-STOCK, NON-PROFIT ENTITY ARE SUBJECT TO VAT AS TAXABLE INCOME, NOT EXEMPT CAPITAL CONTRIBUTIONS. Any person, including non-stock, non-profit organizations, engaged in the regular sale of goods or performance of services for a fee is liable for VAT regardless of profit intent, unless specifically exempt under Section 109. A non-profit religious institution sought VAT exemption for proceeds from sales of religious materials, facility rentals, training services, and licensing, asserting these were capital infusions. The BIR ruled that the receipts are payments for goods and services, not funds held in trust, and therefore constitute taxable income. Since the transactions fall within the statutory definition of sale of service and are not listed among VAT-exempt transactions, they are subject to VAT despite the entity’s non-profit status. (BIR Ruling No. OT-047-2025, April 4, 2025)

A REGISTERED DOMESTIC MARKET ENTERPRISE AVAILING OF THE 5% GROSS INCOME TAX BEFORE CREATE REMAINS EXEMPT FROM REGULAR INCOME TAX AND 5% CREDITABLE WITHHOLDING TAX ON RENTAL PAYMENTS FOR UP TO TEN YEARS. Income payments to entities registered in special economic zones and enjoying income tax exemption are not subject to creditable withholding tax. A domestic market enterprises already availing of the 5% tax on gross income prior to the CREATE Law’s effectivity may continue such incentive for a maximum of ten years. Applying this, a registered enterprise engaged in industrial development and leasing activities remains entitled to the 5% preferential tax rate in lieu of all national and local taxes during the transition period, and its lessees are not required to withhold the 5% creditable withholding tax on rental payments. BIR Ruling No. OT-048-2025 (April 4, 2025)

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. If you have clarification or concern or no longer wish to receive updates, please feel free to reach out to us.

BIR DEADLINES

BIR DEADLINES FROM AUGUST 18 TO AUGUST 24, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS DECISIONS

AMORTIZED INPUT VAT MUST BE SUPPORTED BY INVOICE OR OFFICIAL RECEIPTS AND CERTIFIED TRUE COPY OF THE AMORTIZATION SCHEDULE.  Section 110(A)(2) of the NIRC of 1997, as amended, requires that input VAT on capital goods exceeding ₱1 million be amortized over 60 months or the estimated useful life of the asset, whichever is shorter. Only the portion that has ripened during the claim period may be applied for refund, and Section 110(A)(1) mandates that such claims be supported by valid VAT invoices or official receipts issued during the claim period. In this case, petitioner sought a refund of the ripened portion of its deferred input VAT on capital goods from prior years but failed to present the necessary VAT invoices or official receipts to substantiate the claim. Additionally, as required under Section 11(4)(b) of RMC No. 47-2019, a claimant referring to previously approved deferred input VAT must submit the amortization schedule marked as a “Certified True Copy from the Original” by the head of the processing office. However, the taxpayer submitted only photocopies marked “Authenticated from: Photocopy,” which did not satisfy the prescribed documentary standards. As a result, the Court found that both the lack of proper invoices and failure to submit duly certified documents justified the BIR’s disallowance of the input VAT claim. (Unilever Global Services B.V. Philippines Regional Operating Headquarters ROHQ v. CIR, CTA Case No. 10385, January 20, 2025)

IN VAT REFUND CASES, THE BIR CANNOT VALIDLY IMPOSE OUTPUT VAT, WITHHOLDING VAT AND COMRPOMISE PENALTY; EVEN ASSUMING FINAL WITHHOLDING VAT IS CORRECTLY IMPOSED, IT IS CREDTABLE TO THE TAXPAYER HENCE HAS NO EFFECT IN THE REFUND. Section 228 of the NIRC of 1997, as amended, and Revenue Regulations No. 12-99 require that any deficiency assessment such as output VAT, withholding VAT, or compromise penalties must go through proper assessment procedures, including the issuance of a notice of assessment and the opportunity for the taxpayer to protest.  Here, the BIR deducted from the taxpayer’s VAT refund claim several amounts on the ground that these represented unpaid output VAT on alleged VAT-able transactions, 12% final withholding VAT on interest payments to a foreign entity, and compromise penalties. The Court held that these deductions effectively constituted tax assessments, which are invalid when done within a refund proceeding without issuing a proper assessment and observing due process. Notably, the BIR’s deductions deprived the petitioner of the opportunity to refute the impositions administratively, which is contrary to the procedure mandated by law. Furthermore, the Court clarified that even if the 12% final withholding VAT on interest expense were correct, such VAT is creditable to the petitioner as a VAT-registered withholding agent, and would have no effect on the refund claim. Accordingly, the Court found that these deductions were improperly made and ordered their exclusion from the computation of the refundable amount. (Unilever Global Services B.V. Philippines Regional Operating Headquarters ROHQ v. CIR, CTA Case No. 10385, January 20, 2025)

TAXPAYER HAS OPTION TO OFFSET INPUT VAT FROM OUTPUT VAT OR PRORATE THE INPUT VAT BETWEEN VATABLE AND ZERO-RATED SALES. Under Section 112 of the NIRC of 1997, as amended, a VAT-registered taxpayer with zero-rated sales may apply for a refund or tax credit certificate (TCC) of its unutilized input VAT. In Chevron Holdings, Inc. v. CIR, the Supreme Court clarified that the taxpayer has two options: (1) charge the input VAT attributable to zero-rated sales against output VAT from taxable sales and claim only the excess for refund, or (2) claim the entire amount of input VAT attributable to zero-rated sales directly for refund. These remedies are cumulative but mutually exclusive for a given amount of input VAT. Here, the Court found that the taxpayer clearly opted for the first method, which is applying input VAT against output VAT. However, since petitioner’s input VAT directly allocated to VAT-able sales was insufficient to fully offset its output VAT liability, the input VAT originally allocated to zero-rated sales was partially used to settle the remaining output VAT due. The balance of the unutilized input VAT, attributable to zero-rated sales, was then computed and considered for refund. Thus, the Court applied proportional allocation based on sales volume and allowed the remaining unutilized portion of input VAT as refundable. (Unilever Global Services B.V. Philippines ROHQ v. CIR)

WITHOUT PROOF OF INWARD REMITTANCE OR VALID OFFSETTING, ZERO-RATED VAT REFUND UNDER SECTION 108(B)(2) OF THE NIRC CANNOT BE GRANTED. Under Section 108(B)(2) of the NIRC, services rendered in the Philippines to a non-resident foreign client may qualify for VAT zero-rating if paid in acceptable foreign currency and accounted for in accordance with BSP rules. Here, although petitioner proved that services were rendered locally, it failed to establish actual foreign currency remittance or a valid offsetting arrangement. The submitted credit facility agreement did not authorize inter-affiliate offsetting, nor was there sufficient documentation to show that payments were for services rendered. Hence, the claim for VAT refund was denied. (Avaloq Philippines Operating Headquarters v. Commissioner of Internal Revenue, CTA Case No. 10248, February 3, 2025)

FILING BEYOND THE 30-DAY PERIOD AFTER THE 90-DAY INACTION PERIOD UNDER SECTION 112(C) OF THE NIRC DEPRIVES THE CTA OF JURISDICTION. Section 112(C) of the NIRC requires that a judicial claim for VAT refund be filed within 30 days from either the receipt of the CIR’s decision or the lapse of the 90-day period to act on the administrative claim, whichever comes first. Here, the BIR failed to act within the 90-day period. Although petitioner later received a VAT Refund/Credit Notice and sought clarification, the Court ruled that the 30-day period must be reckoned from the lapse of the 90 days, not from any later correspondence. Since the petition was filed beyond this period, the CTA dismissed the case for lack of jurisdiction. (Schaeffler Philippines Inc. v. Commissioner of Internal Revenue, CTA Case No. 10268, January 24, 2025)

INVOICE AND OFFICIAL RECEIPTS REQUIREMENTS: MUST INDICATE “ZERO-RATED”, DATED WITHIN THE COVERED QUARTER, ATP MUST HAVE VAILIDITY PERIOD, MUST BE REGISTERED, MUST STATE THE NATURE OF THE SERVICE. Section 108(B) of the NIRC of 1997, as amended, provides that certain sales of services may qualify for VAT zero-rating if specific conditions are met, including payment in acceptable foreign currency and proper documentation. Meanwhile, Section 113(B), in relation to Section 237 and Revenue Regulations No. 16-2005, mandates that VAT official receipts must be BIR-registered and must clearly indicate essential details such as the nature of the services, TIN, and the phrase “zero-rated sale” for the sale to be considered validly zero-rated. Here, the receipts were either dated outside the covered quarter or ATP validity period, did not indicate “zero-rated” status, or were entirely unregistered. Even the amount supported by BIR-registered VAT ORs was denied because the receipts merely referenced “various invoices” without identifying the specific nature of services rendered, in violation of Section 113(B)(3), the taxpayer did not submit in evidence the said invoices, which could have been cross-referenced with the ORs and provided the necessary data that will confirm the nature and details of the supposed zero-rated sales. Consequently, the Court cannot ascertain on its own whether the payments received are indeed for the claimed services rendered by petitioner.  Given that tax refunds are in the nature of tax exemptions, they must be strictly construed against the taxpayer. The Court emphasized that it is the claimant’s burden to prove compliance with all legal and documentary requirements. For failure to comply with these mandatory invoicing and substantiation requirements, petitioner’s claim for refund of unutilized input VAT was denied. Nippon Express Philippines Corporation v. Commissioner of Internal Revenue, CTA Case No. 10416, February 27, 2025)

FAILURE TO PROVE THAT SERVICES WERE PERFORMED IN THE PHILIPPINES DEFEATS A CLAIM FOR VAT ZERO-RATING. Under Section 108(B)(2) of the NIRC of 1997, as amended, services rendered by a VAT-registered person may be subject to zero percent VAT if (1) the services are not processing, manufacturing, or repacking; (2) the services are performed in the Philippines; (3) the recipient is a nonresident or a foreign entity doing business outside the Philippines; and (4) payment is in an acceptable foreign currency accounted for per BSP rules. Here, the taxpayer claimed a refund of unutilized input VAT attributed to alleged zero-rated sales made to a foreign entity (TCMS) under a Service Agreement. While the nature of services met the first requirement, petitioner failed to prove the second, that the services were actually performed in the Philippines. The Service Agreement was silent on the place of performance, and no witness testified to establish this fact. The independent CPA’s report merely inferred performance in the Philippines based on the petitioner’s registration documents, which the Court found insufficient, citing that findings of an ICPA are not conclusive. Because the taxpayer failed to prove that a key element of Section 108(B)(2) was satisfied, the Court held that it need not evaluate the other requisites and denied the claim (Organisational Support Services, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10525, February 14, 2025)

BIR ISSUANCES

REVENUE MEMORANDUM CIRCULAR NO. 071-2025

REVENUE MEMORANDUM CIRCULAR (RMC) NO. 76-2025

BIR RULINGS

THE CIR MAY RE-ALLOCATE INCOME AND IMPOSE DST ON APIC AS CONSIDERATION, FINDING CONTROL AND NON-ARM’S-LENGTH PRICING IN A BELOW-BOOK-VALUE SHARE SALE AMONG RELATED PARTIES. Pursuant to Section 50 of the National Internal Revenue Code of 1997, as amended, and interpreted under RR No. 02-2013 and RR No. 20-2020, the Commissioner of Internal Revenue (CIR) may allocate income and deductions between controlled entities to reflect true taxable income and prevent tax evasion, even absent fraud or an actual share transfer. In this case, shares sold below book value were assessed based on the prescribed valuation rules for unlisted shares, using the latest audited financial statements. Additional Paid-In Capital (APIC), despite not resulting in new share issuance, was deemed part of the actual consideration under the original subscription agreement and thus subject to documentary stamp tax. The CIR also found that allocating APIC solely to certain share classes with special privileges, without proper value alignment, violated arm’s length principles, allowing the application of Section 50. Control was inferred based on the preferential rights of certain share classes, justifying the CIR’s exercise of authority to ensure income was properly reflected and taxed. BIR Ruling No. OT-006-2025 (January 6, 2025).

VESSELS CAPABLE OF WATER TRANSPORT AND USED FOR NON-PROFITABLE DISPLAY ARE CONSIDERED “INTENDED FOR PLEASURE” AND SUBJECT TO 20% EXCISE TAX. Pursuant to Section 150(c) of the National Internal Revenue Code of 1997, as amended, and interpreted alongside PD No. 474, PD No. 1158, and RA No. 9295, the importation of engineless pontoon boats intended solely for decorative display is subject to 20% excise tax as non-essential goods. While the boats lack engines and are not used for transportation, they meet the legal definition of a “vessel” as they are artificial contrivances capable of floating and transport using external motive power. The fact that the boats are used for non-profitable display purposes, as certified by the maritime authority, classifies them as being intended “for pleasure.” Hence, they fall squarely under the scope of luxury vessels taxable under the cited provision. BIR Ruling No. OT-007-2025 (January 6, 2025).

SERVICE FEES FOR WORK PERFORMED ABROAD BY A NON-RESIDENT FOREIGN CORPORATION ARE EXEMPT FROM PHILIPPINE TAX, BUT PAYMENTS FOR THE TRANSFER OF SOFTWARE IP ARE SUBJECT TO 25% FINAL TAX AND IMPORT VAT. Pursuant to Sections 23(F), 42(A)(3), and 108(A) of the Tax Code of 1997, as amended, payments made by a domestic financing company to a non-resident foreign corporation (NRFC) for software development services performed entirely abroad are not considered Philippine-sourced income and are therefore exempt from income tax, VAT, and withholding tax. However, under Section 28(B) and relevant BIR issuances, the transfer of exclusive intellectual property rights—including source code—of the developed software is treated as a transfer of copyright ownership and thus subject to a 25% final withholding tax on business income. Additionally, the electronic transfer of the software constitutes importation and is subject to 12% VAT, which must be withheld and remitted by the Philippine company prior to fund remittance. BIR Ruling No. OT-008-2025 (January 6, 2025).

SERVICES PERFORMED ABROAD MAY STILL BE TAXABLE IN THE PHILIPPINES IF THE INCOME-GENERATING ACTIVITY IS EFFECTIVELY RENDERED WITHIN PHILIPPINE TERRITORY. Pursuant to Sections 23(F), 42(A)(3), and 108(A) of the Tax Code, income and VAT are imposed only when the service is performed in the Philippines. Applying this, the tax authority found that the income-generating activity—measured by user actions triggered through online advertisements—occurred within the Philippines, as the value of the services rendered by the non-resident foreign entity depended on results achieved within Philippine territory. Despite the contractual performance being executed abroad, the economic benefit originated locally, thus making the income Philippine-sourced and subject to income tax, VAT, and withholding tax. The Supreme Court ruling in Aces Philippines guided the analysis by emphasizing that completion of services and inflow of economic benefit determine tax situs, not mere physical location of the service provider. BIR Ruling No. OT-009-2025 (January 6, 2025).

SERVICE FEES PAID TO A FOREIGN ADVERTISING PROVIDER ARE TAXABLE IN THE PHILIPPINES WHERE ECONOMIC BENEFITS ARISE LOCALLY. Under Sections 23(F), 42(A)(3), and 108(A) of the Tax Code, a non-resident foreign corporation is taxable on income from Philippine sources, including services deemed performed in the Philippines. In this case, a domestic financing firm engaged a UAE-based advertising service provider under a lead generation agreement where fees were computed based on statistical data linked to Philippine user actions such as sign-ups or purchases. Applying the Supreme Court’s ruling in Aces Philippines, the BIR concluded that the provider’s services—while initiated abroad—were effectively completed in the Philippines, as the inflow of economic benefit occurred locally upon user engagement. As such, the payments were held subject to income tax, VAT, and withholding tax, with the domestic entity failing to sufficiently establish that the income was sourced exclusively from outside the Philippines. (BIR Ruling No. OT-010-2025 (January 6, 2025).

ROYALTIES PAID TO A NON-RESIDENT FOR ACCESS TO COMMERCIAL INFORMATION USED IN THE PHILIPPINES ARE TAXABLE IN THE PHILIPPINES. Under Sections 28(B)(1) and 42(A)(4) of the Tax Code, royalties paid to a non-resident foreign corporation are considered income from Philippine sources if the right or information is used in the Philippines, making it subject to final withholding tax. In this case, a domestic financing company engaged a Hungarian service provider to grant access to a cloud-based machine learning platform used for customer profiling and fraud detection. Although the provider operated entirely from abroad, the platform enabled Philippine-based activities by allowing access to profiling data based on user information collected locally. The BIR ruled that such access constituted the supply of commercial information used in the Philippines, classifiable as royalty income and therefore subject to 25% final withholding tax. BIR Ruling No. OT-011-2025 (January 6, 2025).

PAYMENTS TO A FOREIGN SERVICE PROVIDER ARE NOT SUBJECT TO PHILIPPINE TAX WHERE SERVICES ARE RENDERED ENTIRELY ABROAD. Under Sections 23(F), 42(A)(3), and 108(A) of the Tax Code, a non-resident foreign corporation is taxable in the Philippines only on income derived from sources within the country, with the source of service income determined by the place of performance. In this case, a domestic financing firm engaged a Russian-based entity to perform risk engine development and IT technical support services, all of which were carried out in the provider’s head office abroad. Since no part of the service was performed in the Philippines, the income earned was not considered Philippine-sourced. As a result, the payments made were not subject to income tax, VAT, or withholding tax under Philippine law. BIR Ruling No. OT-012-2025 (January 6, 2025).

A HOMEOWNERS’ ASSOCIATION IS NOT ENTITLED TO INCOME TAX EXEMPTION WITHOUT PROOF THAT IT PERFORMS BASIC COMMUNITY SERVICES IN PLACE OF THE LOCAL GOVERNMENT UNIT, AND THAT ITS FUNDS ARE USED SOLELY FOR THOSE SERVICES. Under Section 30 of the Tax Code, tax exemption is granted only to specific types of non-stock, non-profit organizations, which do not include residential homeowners’ associations. While RA No. 9904 and RMC No. 9-2013 provide for conditional tax exemption on association dues and rental income, the benefit applies only if the association is duly recognized under RA No. 9904, performs basic community services in place of the local government unit, and proves that its funds are used solely for those services. In this case, the homeowners’ association failed to submit proof of compliance with these conditions, such as LGU certification and financial statements demonstrating proper use of funds, thereby disqualifying it from income tax exemption and subjecting its income to applicable withholding tax. BIR Ruling No. OT-013-2025 January 6, 2025.

SERVICE FEES PAID TO A NON-RESIDENT FOREIGN ADVERTISING PROVIDER ARE SUBJECT TO PHILIPPINE INCOME TAX AND WITHHOLDING TAX WHERE SERVICES ARE EFFECTIVELY RENDERED WITHIN THE PHILIPPINES. Under Section 42(A)(3) of the Tax Code, services are considered sourced within the Philippines and thus taxable if actually performed in the country. In this case, a domestic financing corporation engaged a Singapore-based non-resident foreign corporation to perform online advertising services under a lead generation agreement. Payment was based on statistical data generated from customer actions originating from the Philippines, evidencing that the income-generating activity occurred locally. Applying the Supreme Court ruling in Aces Philippines, the situs of income is determined by the completion of services that deliver economic benefits—in this case, the availment of services through online advertisements targeting Philippine users. Consequently, the payments made are subject to Philippine income tax, withholding tax, and 12% VAT, as the services were effectively rendered within Philippine territory. BIR Ruling No. OT-014-2025 (January 7, 2025)

BIR DEADLINES

BIR DEADLINES FROM AUGUST 4 TO AUGUST 10, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS DECISIONS

ONLY THE DEPARTMENT OF JUSTICE’S (DOJ) RECEIPT OF THE DECISION, NOT THAT OF DEPUTIZED BIR COUNSEL, STARTS THE APPEAL PERIOD. Criminal cases must be prosecuted under the direction and control of the public prosecutor. Deputized legal officers, such as BIR lawyers, merely assist and remain under the supervision of the DOJ, which retains principal prosecutorial authority. Service of a decision on deputized counsel does not bind the principal counsel; instead, only receipt by the DOJ triggers the reglementary period for appeal. In this case, the DOJ received the Division’s Resolution on December 29, 2023, giving plaintiff-appellant until January 15, 2024 to file a Petition for Review. However, the Motion for Extension of Time was filed only on January 24, 2024 via registered mail, beyond the allowable 15-day period. Since the motion was granted only on condition that it was timely filed, the Court deemed it denied. Consequently, no valid Petition for Review or motion to extend was filed within the reglementary period, rendering the assailed Resolution final and executory. The Court En Banc thus dismissed the Petition for lack of jurisdiction. (People of the Philippines v. SKI Construction Group, Inc. et. al., CTA EB Crim No. 139, CTA Crim Case No. A-17, February 17, 2025)

A CLAIM FOR EXEMPTION FROM REAL PROPERTY TAX (RPT) INVOLVES A QUESTION OF FACT CONCERNING THE CORRECTNESS OF THE ASSESSMENT, WHICH IS WITHIN THE JURISDICTION OF THE LOCAL BOARD OF ASSESSMENT APPEALS (LBAA)  AND CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA); THUS, EXEMPTION CLAIM SHOULD HAVE BEEN RESOLVED AT THE ADMINISTRATIVE LEVEL, NOT DISMISSED AS A PURE QUESTION OF LAW. A taxpayer claiming exemption from RPT must submit sufficient documentary evidence to the assessor, thereby placing the burden on the taxpayer to prove factual grounds for exemption. Such claims pertain to the reasonableness or correctness of the assessment and are questions of fact, distinct from questions of law involving authority to assess or collect, which fall under the jurisdiction of the LBAA and CBBA. In this case, Qualfon Philippines, Inc. (QPI) challenged the assessment of its desktop computers, claiming they are exempt from RPT. The CBAA erroneously ruled the issue as a pure question of law, despite its own exercise of jurisdiction when it rendered a decision upholding RPT liability and ordering reassessment. In line with the legal framework and jurisprudence, QPI’s claim involved factual determination of its entitlement to exemption and should have been properly evaluated by the LBAA and CBAA. (Qualfon Philippines, Inc. v. The City of Dumaguete, et al., CTA EB No. 2741, July 2025)

A PROTEST MUST BE IN WRITING AND FILED WITHIN 30 DAYS FROM PAYMENT OF THE ASSESSED REAL PROPERTY TAX (RPT); THE TAXPAYER’S AUGUST 8, 2017 LETTER OF MANIFESTATION WAS NOT A VALID WRITTEN PROTEST, AND ITS FAILURE TO TIMELY APPEAL RENDERED THE ASSESSMENT FINAL AND UNAPPEALABLE. Section 252(a) of the 1991 Local Government Code requires that a protest to an RPT assessment be made in writing within 30 days from payment, and any denial must be appealed to the LBAA within 60 days from receipt. Qualfon Philippines, Inc. (QPI) contended that its August 8, 2017 Letter of Manifestation constituted its formal protest following the City Treasurer’s denial dated July 25, 2017. However, the Court ruled that the letter was merely a manifestation, with no accompanying formal protest submitted to the records. The claim that the Treasurer’s early denial deprived QPI of the 30-day protest period was also rejected, as the law imposes the 30-day period on the taxpayer to act, not on the Treasurer to wait. The Court emphasized that statutory periods must be strictly followed, and failure to do so is fatal. As QPI failed to file a timely appeal by the September 25, 2017 deadline, the assessment became final and executory. (Qualfon Philippines, Inc. v. The City of Dumaguete, et al., CTA EB No. 2741, July 2025)

WHERE THERE IS NO NOTICE OF ASSESSMENT (NOA) ISSUED, THE PROPER REMEDY FOR THE TAXPAYER IS UNDER SECTION 196 OF THE LOCAL GOVERNMENT CODE (LGC) ON REFUND OF ERRONEOUSLY PAID OR ILLEGALLY COLLECTED TAXES, NOT UNDER SECTION 195, WHICH PRESUPPOSE A FORMAL DEFICIENCY TAX ASSESSMENT. Under Section 196 of the LGC, a taxpayer may file a claim for refund of taxes that were erroneously or illegally collected, without the need for a prior assessment or protest. This provision applies when there is no finding of deficiency and, consequently, no Notice of Assessment (NOA) issued by the local treasurer. In this case, the Court held that the billing statements issued to respondent after the renewal of its business permit were not formal NOAs as contemplated under Section 195 of the LGC. Since there was no NOA finding a deficiency, the respondent was not required to file a protest within 60 days under Section 195. As such, the respondent properly availed of the remedy under Section 196 by filing a claim for refund within the two-year prescriptive period. Therefore, Section 7B.14(b) and (c) of the Revised Makati Revenue Code, which mirror Section 195, do not apply. (City of Makati and the Office of the City Treasurer of Makati through Jesusa E. Cuneta v. Casas+Architects, CTA EB No. 2771 [CTA AC No. 259], April 29, 2025).

LOCAL GOVERNMENTS ARE PROHIBITED FROM IMPOSING BUSINESS TAXES ON PROFESSIONALS SOLELY ENGAGED IN THE PRACTICE OF THEIR PROFESSION; SINCE CASAS+ARCHITECTS OPERATES EXCLUSIVELY AS A PROFESSIONAL PARTNERSHIP OF ARCHITECTS, IT IS EXEMPT FROM LOCAL BUSINESS TAX (LBT) AND ENTITLED TO A REFUND OF THE AMOUNTS PAID. Section 133(j) of the LGC prohibits local government units from levying taxes on professionals who are exclusively engaged in the practice of their profession. In this case, the Court affirmed that Casas+Architects is a professional partnership engaged solely in the practice of architecture, including interior design and landscaping, which fall within the lawful scope of the architectural profession. The Court in Division found no evidence that the Casas+Architects was involved in interior decorating or any other commercial activity that would remove it from the ambit of tax exemption. Given this, the imposition of LBT by the City of Makati was unlawful. (City of Makati and the Office of the City Treasurer of Makati through Jesusa E. Cuneta v. Casas+Architects, CTA EB No. 2771 [CTA AC No. 259], July 2025).

FOREIGN CURRENCY EXCEEDING USD10,000 BROUGHT INTO THE PHILIPPINES WITHOUT FULL DECLARATION IS SUBJECT TO LAWFUL SEIZURE BY CUSTOMS AUTHORITIES, AS CORRECTLY APPLIED WHEN MOHAMMAD FAILED TO DECLARE USD501,600 OUT OF THE USD649,600 HE CARRIED UPON ARRIVAL FROM HONG KONG. Custom Modernization and Tariff Act (CMTA) authorizes customs officers to seize goods subject to forfeiture, including undeclared items under Section 1113(l)(2), while Section 1404 specifically mandates seizure for failure to declare dutiable goods—including foreign currency—upon arrival. Section 4.1 of Customs Administrative Order (CAO) No. 1-2017 requires arriving passengers carrying foreign currency in excess of USD 10,000 to declare the entire amount using a Foreign Currency Declaration Form (FCDF), consistent with Bangko Sentral ng Pilipinas (BSP) rules. In this case, Mohammad arrived at NAIA from Hong Kong carrying USD 649,600 in his baggage, but declared only USD 148,000 in the FCDF. As this left USD 501,600 undeclared, the District Collector of NAIA rightfully exercised the authority to seize the amount through a Warrant of Seizure and Detention (WSD). (Chang L. Mohammad, et al. v. Commissioner of Customs, CTA EB No. 2784, July 2025).

SETTLEMENT OF SEIZURE CASES WHEN FRAUD IS PRESENT IS PROHIBITED; THE DELIBERATE NON-DECLARATION OF USD 491,600 CONSTITUTED FRAUD THAT DISQUALIFIED THE CASE FROM COMPROMISE. Section 1124 of the CMTA authorizes the District Collector, with the approval of the Commissioner, to settle seizure cases through payment of a fine or redemption of forfeited goods. However, such settlement is expressly disallowed when fraud is involved, the importation is prohibited, or the release of goods would be contrary to law. In this case, the Commissioner of Customs acted within the legal bounds of his discretion when he upheld the denial of petitioners’ Motion to Enter Into Compromise Settlement. Although petitioners contended that none of the statutory exceptions applied, the record shows that petitioner Mohammad declared only USD 148,000 out of the USD 649,600 he carried upon arrival in the Philippines. This substantial discrepancy, involving over USD 491,000 in undeclared funds, was found to be a deliberate act of concealment—an indicium of fraud. Accordingly, in view of the fraud attending the undeclared importation, settlement of the seizure case was legally barred under Section 1124.
(Chang L. Mohammad, et al. v. Commissioner of Customs, CTA EB No. 2784, July 2025).

FORFEITURE OF THE UNDECLARED USD 491,600 WAS PROPER AND NOT EXCESSIVE, AS IT IS A PENALTY EXPRESSLY ALLOWED UNDER SECTION 1124 OF THE CMTA, AND NEITHER PROVISIONAL DECLARATION UNDER SECTION 403 NOR AMENDMENT UNDER SECTION 408 APPLIED, GIVEN THE COURT’S FINDING OF FRAUD AND THE ABSENCE OF VALID JUSTIFICATION. The penalty of forfeiture is authorized under CMTA  when fraud attends the importation of goods, and may not be settled by payment of a fine. Petitioners’ reliance on CAO 10-2020, Section 14-4, and CMTA Sections 403 and 408—on provisional and amended declarations—is misplaced, as these provisions do not apply when the declarant is aware of material facts but deliberately fails to disclose them. In this case, the Court found that petitioner Mohammad knew he was carrying USD 491,600, despite his claim that some of the money belonged to another person and was verbally declared. His failure to lodge a proper written declaration or request an amendment before examination, without any valid justification, disqualified him from the remedial provisions of the CMTA. The presence of prima facie evidence of fraud warranted the denial of the motion for settlement and justified the forfeiture. (Chang L. Mohammad, et al. v. Commissioner of Customs, CTA EB No. 2784, July 2025).

CAPITAL GAINS TAX (CGT) MUST BE BASED ON THE CORRECT ZONAL VALUE, AND SINCE THE BIR USED AN INCORRECT AND UNSUBSTANTIATED VALUATION, RESULTING IN OVERPAID TAX, THE TAXPAYER IS ENTITLED TO A REFUND. A CGT on the sale of land by a domestic corporation is imposed at 6% based on the higher of the gross selling price or the fair market value (FMV), which may either be the zonal value prescribed by the BIR or the value stated in the city assessor’s schedule. In this case, the BIR computed CGT based on a zonal value of ₱10,650/sqm, amounting to ₱5.75 million in CGT liability, which the petitioner contested as erroneous. The Court found merit in the petitioner’s claim that the property should be assessed using a zonal value of ₱4,725/sqm, citing a certified BIR document (Exhibit “P-4”) that accurately reflected the applicable rates for the property’s classification. Although the petitioner also proposed a lower ₱7,500/sqm valuation based on “Interior Lot” classification, this claim lacked evidentiary support. Nonetheless, the Court determined that the BIR misapplied the higher rate applicable only to “Along-the-road” properties, and thus used the ₱4,725/sqm rate as the correct basis. With this adjustment, the correct CGT was computed at ₱2.55 million, and taking into account initial and subsequent payments, the Court found an overpayment of ₱3.2 million in CGT alone. Furthermore, the Court ruled that the surcharge of ₱1.44 million and excessive interest of over ₱1 million were unjustified under Sections 248 and 249 of the NIRC, because no grounds for civil penalties were established. In total, the petitioner was held to have overpaid by ₱5,677,373.22 and was awarded a refund of this amount.
(Bangko Sentral ng Pilipinas v. CIR, CTA Case No. 10083, Amended Decision dated February 19, 2025).

BOTH ADMINISTRATIVE AND JUDICIAL CLAIMS FOR REFUND MUST BE FILED WITHIN TWO YEARS FROM TAX PAYMENT, AND THE COURT DISMISSED THE PETITION FOR LACK OF JURISDICTION BECAUSE THE PETITIONER FAILED TO PROVE ACTUAL FILING AND RECEIPT OF ITS ADMINISTRATIVE REFUND CLAIM WITH THE BIR. Sections 204(C) and 229 of the 1997 National Internal Revenue Code (NIRC), as amended, provide that a taxpayer seeking refund of taxes erroneously or illegally collected must file a written administrative claim with the BIR within two years from the date of payment, and only thereafter may it file a judicial claim before the Court. In this case, the Bangko Sentral ng Pilipinas (BSP) sought the refund of documentary stamp tax (DST) paid on a property acquired through extrajudicial foreclosure, asserting exemption under the NIRC. However, while BSP claimed it filed an administrative claim dated June 18, 2018 and a follow-up letter dated April 10, 2019, the Court found these insufficiently substantiated. The LBC receipt submitted as proof for the June 18 letter merely showed delivery to a certain “Mary Ann G. Salazar” but bore no stamp or acknowledgment from BIR RDO No. 23-B confirming actual receipt. During cross-examination, BSP’s witness admitted there was no BIR stamp on the document. Similarly, the April 10 follow-up letter, filed via registered mail, was returned undelivered with a “Moved Out” notation, and BSP’s representative testified that no one signed the return card. As no other evidence or testimony established proper filing or receipt of the administrative claim, the Court ruled that BSP failed to meet the jurisdictional requirement of prior administrative filing, which rendered the judicial claim premature and void of jurisdiction. (Bangko Sentral ng Pilipnas v. CIR, CTA Case No. 10106, Amended Decision dated March 13, 2024).

BIR ISSUANCES

Revenue Memorandum Circular No. 75-2025, July 23, 2025

BIR RULINGS

FRANCHISE FEES ARE SUBJECT TO REGULAR CORPORATE INCOME TAX AS ORDINARY BUSINESS INCOME AND A 2% EXPANDED WITHHOLDING TAX IF THE PAYOR IS A TOP WITHHOLDING AGENT. Pursuant to Sections 27 (A) and (D) and 42 (A) (4) of the Tax Code, as amended, and Revenue Regulations No. 2-1998, as amended, along with the Supreme Court’s interpretation of passive income, franchise fees are generally subject to regular corporate income tax rather than the final withholding tax (FWT) on royalties. This is because such fees are considered ordinary business income derived from the active pursuit of a corporation’s primary purpose, which includes activities such as developing and licensing intellectual property rights, as well as providing training and systems for franchisees. Consequently, these fees are subject to the regular corporate income tax rate of 25% for income earned after July 1, 2020 (or 30% for income earned before that date). Furthermore, suppose the payor of these franchise fees is designated as one of the top withholding agents by the Bureau of Internal Revenue (BIR). In that case, the fees will also be subject to an expanded withholding tax (EWT) of 2%. Otherwise, if the payor is not a top withholding agent, the EWT will not apply. (BIR Ruling No. OT-015-2025, January 7, 2025)

RECONVEYANCE OF LAND WITHOUT CONSIDERATION BY A REAL ESTATE BUSINESS IS A TAXABLE TRANSFER OF AN ORDINARY ASSET, INCURRING CORPORATE INCOME TAX, VAT FOR THE TRANSFEROR, AND CWT (BASED ON HIGHER OF SELLING PRICE OR FAIR MARKET VALUE) AND DST FOR THE TRANSACTION. Under Section 27(A) and 196 of the Tax Code, as amended, and Revenue Regulations No. 2-98 and No. 7-2003, the reconveyance of a parcel of land, even without consideration, is considered a taxable transfer if the transferor is engaged in the real estate business. As such, the reconveyed land by Cityland Development Corporation to original owners due to overlapping of structures, which treated as an ordinary asset, is considered subject to corporate income tax and value-added tax for the transferor. Consequently, the transaction is also subject to creditable withholding tax (CWT) by the transferee, based on the gross selling price or fair market value (whichever is higher) and depending on the property’s value, and a documentary stamp tax (DST). (BIR Ruling No. OT-016-2025, January 7, 2025)

THE BIR DOES NOT ISSUE RULINGS SUCH AS REQUESTS TO CANCEL A LETTER OF AUTHORITY IF THE MATTER IS ALREADY UNDER AUDIT OR INVESTIGATION. Pursuant to Section 2 (r) of Revenue Bulletin No. 01-03, the Bureau of Internal Revenue (BIR) considers requests for rulings on matters that are already the subject of an ongoing audit or investigation as “No-Ruling Areas.” Therefore, a request to cancel a Letter of Authority due to an existing audit/investigation falls under this “No-Ruling Area” policy. (BIR Ruling No. OT-017-2025, January 7, 2025)

ONLY IMPORTED SWEETENED BEVERAGES EXCLUSIVELY USING COCONUT SAP SUGAR OR STEVIOL GLYCOSIDES ARE EXCISE TAX-EXEMPT; NO ADDED CALORIC/NON-CALORIC SWEETENERS REMAIN TAXABLE. Under Section 47 of Republic Act No. 10963 (TRAIN Law) and Section 3 of Revenue Regulations No. 20-2018, only sweetened beverages using purely coconut sap sugar and purely steviol glycosides are exempt from excise tax; therefore, imported sweetened beverages, even if certified by the FDA as having no added caloric and non-caloric sweeteners, remain subject to excise tax if they do not exclusively use the exempted sweeteners, especially if the presence of high fructose corn syrup is not explicitly ruled out. (BIR Ruling No. OT-018-2025, January 7, 2025).

A RETIREMENT FUND, WHILE TAX-EXEMPT, IS STRICTLY PROHIBITED FROM INVESTING IN THE EMPLOYER’S BUSINESS VENTURES TO PREVENT DIVERSION OF FUNDS, SAFEGUARD EMPLOYEE BENEFITS, AND MAINTAIN FINANCIAL SEPARATION. Under Section 60(B) of the Tax Code, as amended, and Section 5 of Revenue Regulations No. 1-68, as amended, a retirement fund, while a separate taxable entity with income generally exempt from tax, must operate exclusively for the benefit of its employees. Consequently, investing the retirement fund in the employer’s business ventures is prohibited as it could lead to a substantial diversion of income or corpus, jeopardize the fund’s sufficiency to pay benefits due to the variability of business operations, and compromise the crucial separation of funds, potentially facilitating tax evasion. (BIR Ruling No. OT-019-2025, January 7, 2025)

INCOME FROM PHILIPPINE INVESTMENTS BY FOREIGN GOVERNMENT-OWNED ENTITIES IS ONLY TAX-EXEMPT IF THEY ARE RECOGNIZED “FINANCING INSTITUTIONS,” NOT “INVESTMENT COMPANIES”, THUS MAKING THE SUBJECT COMPANIES’ INCOME FROM PHILIPPINE STOCKS, BONDS, OR OTHER DOMESTIC SECURITIES FULLY TAXABLE. Pursuant to Section 32 (B) (7) (a) of the Tax Code, as amended, and considering the distinctions between “financing companies” (as defined by R.A. No. 5980, as amended by R.A. No. 8556) and “investment companies” (as per Section 4 of R.A. No. 2629), income derived from Philippine investments by entities owned by foreign governments is exempt from income tax only if they are recognized as financing institutions or international/regional financial institutions established by foreign governments. In this case, the Companies, despite being wholly owned subsidiaries of a foreign sovereign wealth fund, are primarily engaged in investing and trading securities, which classifies them as investment companies rather than financing institutions. Therefore, their income from investments in Philippine stocks, bonds, or other domestic securities is subject to Philippine income tax and withholding taxes. (BIR Ruling No. OT-020-2025, January 7, 2025).

BIR DEADLINES FROM JULY 28 – AUGUST 03, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS DECISIONS

A criminal case for willful failure to pay tax prescribes after 5-years from finality of the tax assessment; thus, should be dismissed if assessment becomes final on February 10, 2013, but the Information was filed only on January 28, 2020. Violations of tax laws prescribe in five (5) years from the date of commission or, if unknown, from discovery and institution of judicial proceedings. Jurisprudence such as Lim v. Court of Appeals (G.R. No. L-48134-37, October 18, 1990) and Tupaz v. Ulep (G.R. No. 127777, October 1, 1999) clarifies that for failure to pay taxes despite demand, prescription begins upon finality of the assessment coupled with willful refusal to pay. In this case, the assessment became final on February 10, 2013 or thirty days after the Final Letter of Demand was mailed on January 10, 2013, and thus, the prescriptive period ended on February 10, 2018. Since the Information was filed only on January 28, 2020, it was filed nearly two years beyond the allowable period. Consequently, the government’s right to prosecute had already prescribed, warranting the dismissal of the case. (People of the Philippines v. Cosco Petroleum Cmpan, Inc. Michael T. Co Say, CTA Crim. No. O-805, January 20, 2025; see also People of the Philippines v. Buensol Construction Co.,et. al., CTA Crim. No. O-969, January 21, 2025)

Prosecution must prove beyond reasonable doubt the willful failure to pay tax; thus, accused should be acquitted due to invalid assessment for lack of valid Letter of Authority (LOA) and absence of proof of receipt of the Preliminary Assessment Notice (PAN) and Formal Letter of Demand (FLD). Under Section 255 of the NIRC of 1997, as amended, conviction for willful failure to pay taxes requires proof that (1) the accused is required to pay tax, (2) failed to do so, and (3) such failure was willful. However, the BIR’s assessment was rendered void due to a lack of a valid LOA authorizing Revenue Officer Galagac to conduct the examination. As a result, there was no valid deficiency tax liability to trigger the legal duty to pay. Even assuming that an obligation existed, the prosecution failed to establish willfulness, as it could not prove that the accused received the PAN and FLD due to the absence of return cards and failure to authenticate registry receipts. Thus, the Court held that all three elements of the crime were not established, warranting acquittal. (People of the Philippines v. Cosco Petroleum Cmpan, Inc. Michael T. Co Say, CTA Crim. No. O-805, January 20, 2025 )

Accused incurs no civil liability if the government fails to present competent evidence, apart from the void assessment. In Mendez and reaffirmed in People v. Tiotangco, the Supreme Court ruled that in criminal tax cases, civil liability for unpaid taxes must be established by competent evidence independent of the tax assessment. A void assessment, without more, is insufficient to support a civil judgment. In the present case, the prosecution relied solely on documents and testimony derived from an invalid assessment conducted without lawful authority. No independent or competent evidence was presented to substantiate the tax deficiency. Consequently, the Court found no factual or legal basis to impose civil liability on the accused. (People of the Philippines v. Cosco Petroleum Cmpan, Inc. Michael T. Co Say, CTA Crim. No. O-805, January 20, 2025 )

Accused should be acquitted for prosecution’s failure to establish a valid assessment or prove the willful non-payment of taxes beyond reasonable doubt, due to the prescription of the assessment, lack of due process, and insufficient evidence of intent. Under Section 255 of the National Internal Revenue Code (NIRC), as interpreted in People v. Mendez, criminal liability for willful failure to pay taxes requires proof beyond reasonable doubt of three elements: (1) the legal obligation to pay tax, (2) failure to pay at the time required by law, and (3) that such failure was willful (i.e., done knowingly, voluntarily, and intentionally in disregard of a known legal duty). In the present case, although the prosecution established that Buensol was a registered taxpayer in 2012 and that accused Solis was a responsible officer, it failed to prove that a valid and enforceable assessment existed. The FLD/FAN issued by the BIR was declared void for being time-barred under Section 203 of the NIRC, as it was issued more than three years after the due date for filing the 2012 tax return. Additionally, the assessment was based on unverified third-party information without the required confirmations under RMO No. 28-2007, and failed to indicate a clear and definite due date for payment, violating due process (the FLD stated the accused is only “requested” to pay tax;  “Due date: February 22” may refer to due date when the FLD/FAN should be delivered; deadline of February 22, 2017 is confusing as interest is computed until February 24, 2017). These defects rendered the assessment invalid and incapable of supporting a criminal charge. Further, the prosecution failed to establish that Solis was aware of a final tax liability and deliberately refused to pay it. Mere receipt of notices by family members through substituted service was insufficient to prove the accused’s willful intent to evade taxes. Given these substantial procedural and evidentiary lapses, the Court held that the essential elements of the offense were not proven, and thus acquitted the accused. (People of the Philippines v. Buensol Construction Co.,et. al., CTA Crim. No. O-969, January 21, 2025 )

The petition was dismissed for lack of jurisdiction as petitioner failed to timely appeal within the 30-day period from the deemed affirmed decision of the Commissioner of Customs (COC), pursuant to Section 1126 of the Custom Modernization and Tariff Act (CMTA) and Section 11 of RA No. 1125. a person aggrieved by the decision of the District Collector may elevate an appeal to the COC within 15 days from the receipt of the decision. The COC shall have 30 days from the receipt of the records to decide on the case. If no such decision is rendered within the said 30-day period, the decision of the District Collector shall be deemed affirmed, and an aggrieved party must then file a petition for review with the CTA within 30 days from such deemed affirmed decision. In this case, the records of petitioner Sigrid Carandang’s appeal were received by the Commissioner on January 14, 2021, and no action was taken within the 30-day period, resulting in a deemed affirmed decision on February 13, 2021. Instead of appealing to the CTA within the required period, petitioner filed a motion for reconsideration before the Commissioner, an unauthorized remedy not provided under the CMTA, which further delayed her filing of the petition for review until May 20, 2021, well beyond the March 15, 2021 deadline. The CTA emphasized that jurisdiction over the subject matter is conferred strictly by law, and that failure to comply with the statutory appeal period is fatal, thereby leaving the Court without authority to take cognizance of the case or rule on its merits. (Sigrid Carandang v. Hon. Rey Lenardo B. Guerrero, Commissioner of Customs et. al., CTA Case No. 10523)

An environmental fee is not a tax and  thus not within the jurisdiction of the CTA. The CTA’s appellate jurisdiction over regional trial court’s decisions become operative only when the case involves a tax. Tax and fees are different from each other. An imposition is considered a tax if the generation of revenue is the primary purpose; otherwise, it is a regulatory fee. An environmental tax is not a tax but a regulatory fee, as it is imposed for purposes of watershed protection, conservation and management program under  the Watershed Code. Thus, the CTA has no jurisdiction in assailing the environmental fee. (DOLE Philippines Inc. – Stanfilco Division v. The Sangguniang Panlungsod of the City of Davao et. al., CTA AC no. 306, February 17, 2025);

The BIR must collect assessed taxes within three years from the date of assessment, and since the valid FLD was issued on December 1, 2014 and no valid suspension occurred, the BIR’s collection efforts initiated only in 2017 and 2021 were made beyond the prescriptive period and thus barred. Under Section 203 of the NIRC, the BIR is given three years from the date of assessment to collect internal revenue taxes, either by distraint, levy, or court action, unless the period is suspended under Section 224 (e.g., when a reinvestigation is granted) or extended under Section 223 (e.g., via a written agreement). In this case, the Court found that a valid FLD was received by the accused on December 1, 2014, which served as the valid assessment notice. From this date, the BIR had until December 1, 2017 to collect. The taxpayer filed a protest with a request for reinvestigation, but failed to submit supporting documents within 60 days as required under RR No. 18-13 and Section 228 of the NIRC, rendering the protest void. Moreover, the BIR did not prove that it granted the reinvestigation or that the Final Decision on Disputed Assessment (FDDA) issued in 2017 was validly received. Consequently, there was no valid suspension of the prescriptive period. Since the BIR only issued the Warrant of Distraint and/or Levy on December 13, 2017, and filed criminal Informations in March 2021, both actions occurred after the three-year period had lapsed, making the BIR’s collection efforts prescribed. Thus, the Court ruled that the taxpayer can no longer be compelled to pay the assessed deficiency taxes, and revoked the BIR’s authority to enforce collection.

The five-year prescriptive period for criminal tax violations, if unknown, begins from discovery and referral for preliminary investigation, and since more than five years lapsed before the Information was filed in court, the criminal case is barred by prescription. Section 281 of the National Internal Revenue Code (NIRC) states that violations of tax laws prescribe after five (5) years, which is reckoned either from the date of the violation or, if unknown, from the date of discovery and the institution of judicial proceedings for its investigation and punishment. Further, Section 2, Rule 9 of the RRCTA provides that only the filing of the Information in the CTA interrupts the prescriptive period and not the filing of a complaint with the DOJ. The Court rejected petitioner’s argument that the complaint’s filing with the DOJ already interrupted prescription. The CT ruled that for unknown violations, the prescriptive period starts only upon discovery and referral for preliminary investigation, and that the period from that point up to the filing of the Information in court must not exceed five years. In this case, while the violation was discovered and referred for preliminary investigation, the Information was filed beyond the five-year limit, and the Court ruled that the case had already prescribed, leading to the dismissal of the criminal action. (People of the Philippines v. Ma. Luisa Reyes Angulo, CTA Crim Case Nos. O-867 and O-868, February 13, 2025)

Rappler Holdings Corporation (RHC) is not a dealer in securities as it was not regularly engaged in buying and selling securities for profit, and its issuance of Philippine Depositary Receipts (PDRs) was a legitimate capital-raising activity of a financial holding company, which is not a taxable event. Under Securities Regulation Code (SRC), and Revenue Regulations No. 06-08, a “dealer in securities” must be regularly engaged in the purchase and resale of securities to customers for profit, or in the ordinary course of business. The CTA En Banc upheld the Division’s ruling that RHC did not fall under this definition. The evidence showed that RHC issued PDRs to NBM and Omidyar Network for the sole purpose of raising capital for its subsidiary, Rappler Inc., in line with its purpose as a financial holding company, not as a merchant of securities. The Court noted that RHC neither bought securities from its subsidiary nor resold them to third parties, and that its Articles of Incorporation expressly prohibited it from acting as a dealer or stockbroker. Furthermore, the PDRs did not convey ownership or economic rights over the underlying shares unless exercised and subject to legal limitations on foreign ownership. Therefore, the PDR issuance was an investment arrangement, not a taxable sale or trading transaction, and there was no grave abuse of discretion in the Division’s factual findings to that effect. (People of the Philippines and Bureau of Internal Revenue v. Rappler Holdings Corporation and Maria Ressa, CTA EB Crim No. 126, CTA Crim Case Nos. O-679, O-680, O-681 and O-682, February 21, 2025)

BIR ISSUANCES

Revenue Memorandum Circular No. 061-2025, June 19, 2025

Repealed/Modified Tax Exemptions under Capital Markets Efficiency Promotions Act (CMEPA)

• All the above exemptions are revoked starting July 1, 2025.
• Affected transactions are now subject to income tax, capital gains tax, dividends tax, and/or documentary stamp tax, depending on the transaction type.

Revenue Memorandum Circular  No. 066-2025, July 2, 2025

Revenue Memorandum Circular No. 065-2025, July 2, 2025

BIR RULINGS

Income earned by CDPQ, a government-owned entity of Quebec, from investments in the Philippines is exempt from income tax and withholding tax as it qualifies as a foreign government agency. Under Section 32(B)(7)(a)(i) of the Philippine Tax Code, income derived by foreign governments or their controlled financing institutions from investments in Philippine securities is exempt from income tax and withholding tax. CDPQ, created by a legislative act of the National Assembly of Quebec and mandated to manage public pension and insurance funds, is a government instrumentality of the State of Quebec. Its structure, control, and ownership—along with its public mandate and accountability to Quebec’s Ministry of Finance—qualify it as a “foreign government” for tax purposes. As such, income from its Philippine investments, including dividends and interest, falls within the scope of this tax exemption. Accordingly, the BIR confirmed that CDPQ’s current and future Philippine-sourced investment income is not subject to Philippine income or withholding taxes (BIR Ruling No. OT-001-2025, January. 3, 2025).

If a homeowners association remains a validly registered homeowners’ association with an existing BIR registration and Authority to Print (ATP), no subsequent ATP may be issued to another group without first properly canceling the original. Under Section 4 of the Tax Code, the CIR has exclusive authority to interpret tax laws and rule on matters under the BIR’s jurisdiction, including the issuance of Authorities to Print (ATP). Section 238 of the Tax Code further requires taxpayers to secure an ATP prior to printing official receipts, which must contain required tax details. Consistent with RMO No. 83-99, a validly issued ATP remains in force unless revoked due to the taxpayer’s dissolution or loss of registration with a competent agency. In BIR Ruling No. OT-002-2025, the BIR confirmed that Sun Valley Residential Estates Homeowners Association, Inc. (SVREHAI), Phases 1-2, remains duly registered with the BIR and the Department of Human Settlements and Urban Development (DHSUD), and was validly issued an ATP. Given that its ATP has not been canceled or invalidated following the required procedures, the issuance of a separate ATP to a different faction is improper. The intra-association dispute is not within the BIR’s jurisdiction and does not independently affect the validity of the existing ATP. (BIR Ruling No. OT-002-2025, January 6, 2025)

SKK, a Top 10,000 Corporation, failed to withhold 2% EWT from payments to PSALM as required under RR No. 2-1998; while PSALM is not liable to refund since it reported and paid taxes on the income, SKK remains liable for penalties. Under Sections 2.57.2 to 2.57.5 of Revenue Regulations No. 2-1998, as amended, Top 10,000 Corporations like SKK Steel Corporation are mandated to withhold 1% or 2% expanded withholding tax (EWT) from payments to regular suppliers—including government-owned and controlled corporations (GOCCs) such as PSALM—at the time of payment or when the expense is recorded, whichever is earlier. Section 2.57.3 clearly places the withholding obligation on the buyer-payor, while failure to comply is subject to penalties under Sections 251 and 255 of the Tax Code. In this case, SKK failed to withhold the required EWT on its earlier payments to PSALM. After a BIR audit in 2014 revealed this lapse, SKK unilaterally deducted the back taxes from PSALM’s billing and claimed to have remitted the amount to the BIR. However, PSALM objected and billed SKK for the deducted amount plus interest, citing lack of BIR Form 2307 as proof of remittance. The BIR ruled that although SKK failed in its withholding obligation, PSALM had already reported the income in its tax returns without claiming deductions, and paid the corresponding taxes—thereby satisfying the substance of the withholding system. As a result, PSALM has no obligation to refund the deducted amount or the interest. Nonetheless, SKK may still be penalized for its failure to withhold and may claim a tax refund from the BIR upon submission of proper documentation (e.g., Form 2307) proving actual remittance (BIR Ruling No. OT-003-2025, January 6, 2025).

Technical fees paid by AAPPI to AMPL for remote services performed abroad are deemed Philippine-sourced royalties, and are thus subject to income tax, withholding tax, and VAT. Under Sections 23(F), 28(B)(1), and 42(C)(3) of the Tax Code, a non-resident foreign corporation (NRFC) is generally taxed only on income derived from sources within the Philippines, and compensation for services performed abroad is considered foreign-sourced and not subject to Philippine tax. However, Section 42(A)(4)(c) creates an exception: income derived from the supply of scientific, technical, industrial, or commercial knowledge or information is treated as royalties from Philippine sources if such knowledge is used in the Philippines. In this case, although the services rendered by Allegiance Marketing Pty. Ltd. (AMPL), an Australian NRFC, under a Technical Services Agreement were performed remotely from Australia and supported by a certification of non-rendition in Philippine territory, the BIR determined that the services involved the supply of technical knowledge used by Accor Advantage Plus Philippines, Inc. (AAPPI) in its operations in the Philippines. Therefore, the technical fees constitute Philippine-sourced royalties subject to income tax and final withholding tax under Section 28(B)(1), and to 12% VAT pursuant to Section 108(A)(3) of the Tax Code. (BIR Ruling No. OT-004-2025, January 6, 2025).

Tanay Water District is exempt from income tax, but remains liable for the 2% franchise tax under Section 119 and for 2% creditable withholding by government entities. Section 27(C) of the Tax Code, as amended by Republic Act No. 10026, exempts local water districts (LWDs) from the corporate income tax otherwise imposed on government-owned and controlled corporations (GOCCs). This means that Tanay Water District is not liable to pay the regular 25% income tax imposed on domestic corporations, nor is it subject to creditable withholding tax (CWT) on its income. However, the same law does not provide an exemption from the 2% franchise tax under Section 119 of the Tax Code, which applies to all franchise holders, including water utilities, regardless of whether they are GOCCs or not. Section 119 specifically imposes a 2% tax on gross receipts derived from the business covered by the franchise, which in this case includes water distribution services. In addition, Section 5.116(A)(4)(b) of Revenue Regulations No. 2-98, as amended, requires all government agencies, instrumentalities, GOCCs, LGUs, and their subsidiaries to withhold 2% franchise tax from gross payments made to franchise holders operating water utilities. Applying these provisions, while Tanay Water District enjoys income tax exemption, it is still liable for the 2% franchise tax on its gross receipts and must account for the corresponding withholding made by government payors, which can be credited against its franchise tax liability. The BIR thus affirmed that Tanay Water District remains subject to the franchise tax and related withholding requirements despite its income tax exemption (BIR Ruling No. OT-005-2025).

BIR DEADLINES FROM JULY 21 – 27 2025. A gentle reminder on the following deadlines, as may be applicable: