Competence. Integrity. Commitment.

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: