SEPTEMBER • VOL. 9 • SERIES OF 2025

HIGHLIGHTS for August 2025

SUPREME COURT DECISIONS

• PEZA-registered enterprises are not absolute VAT-exempt entities and the VAT treatment on its transactions depend on whether the cross-border doctrine applies. (Coral Bay Nickel Corporation v. Commissioner of Internal Revenue, G.R. Nos. 251333-34, March 5, 2025)

• Before the CIR can avail of the summary administrative collection remedies, it must first be established that the taxes sought to be collected have become “delinquent”. Without an assessment that has become final and executory, a tax cannot be deemed delinquent. (Commissioner of Internal Revenue v. Stradcom Corporation, G.R. No. 255520, April 21, 2025)

COURT OF TAX APPEALS DECISIONS

• The existence of apparent authority must be assessed based on the acts of the principal. There must be acquiescence on the part of taxpayer, through any overt act that a specific directive was given, authorizing a person to receive notice of assessment/s from the BIR. (Commissioner of Internal Revenue v. Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao, CTA EB No. 2737 (CTA Case No. 8683), August 18, 2025)

BIR ISSUANCES

• RR No. 19-2025, August 5, 2025 – This implements the Documentary Stamp Tax (“DST”) rate adjustments and amendments to the documents and papers not subject to DST under Republic Act No. 12214, otherwise known as the “Capital Markets Efficiency Promotion Act.”

• RR No. 20-2025, August 5, 2025 – This implements the rate adjustment of stock transaction tax (“STT”) and the imposition of the STT on the sale of exchange of domestic shares of stocks and other securities listed and traded through a foreign stock exchange under Section 17 of Republic Act No. 12214, otherwise known as the “Capital Markets Efficiency Promotion Act.”

• RR No. 21-2025, August 5, 2025 – This implements the amendments introduced by Republic Act No. 12214, otherwise known as the “Capital Markets Efficiency Promotion Act,” on Sections 22, 24, 25, 27, 28, 32, 34, 38, 39, and 42 of the National Internal Revenue Code of 1997, as amended.

 

 

PEZA-registered enterprises are not absolute VAT-exempt entities and the VAT treatment on its transactions depend on whether the cross-border doctrine applies.

This is a claim for refund filed before the BIR for the taxpayer’s unutilized input VAT. The taxpayer recognized input VAT on its local purchases which prompted the said refund. However, the BIR is in the position that the purchases should have been zero-rated in the first place since the taxpayer is a PEZA-registered enterprise. Any input tax passed on to the taxpayer therefore is not the subject of a claim for refund with the BIR but one of recovery from the supplier.

Due to BIR’s inaction, the taxpayer filed a petition for review before the CTA. The BIR argued that as a PEZA-registered enterprise, taxpayer’s purchases of goods and services were effectively zero-rated. Hence, such purchases should not have carried a VAT component.

The Supreme Court emphasized that PEZA-registered enterprises are not absolute VAT-exempt entities and that the VAT treatment on its transactions depend on whether the cross-border doctrine applies. VAT is a tax on consumption. As such, the cross-border doctrine and destination principle apply. Indeed, the situs is determined by where goods are consumed or where services are rendered. Additionally, if PEZA-registered enterprises could enjoy VAT zero-rating on any of its purchases, regardless of whether the goods are consumed or services are rendered outside of the ecozone, it would be subject to abuse.

The Supreme Court further held that the CTA En Banc erred in treating the taxpayer as an absolute VAT-exempt entity and declaring that its purchases of services outside of the ecozone should likewise be subject to zero-rating. Having been consumed outside of the ecozone, the cross-border doctrine finds no application. The same could not have been deemed “exported” to the taxpayer. Having been rendered within the Philippines’ customs territory, it is naturally subject to national internal revenue laws such as VAT. (Coral Bay Nickel Corporation v. Commissioner of Internal Revenue, G.R. Nos. 251333-34, March 5, 2025)

Before the CIR can avail of the summary administrative collection remedies, it must first be established that the taxes sought to be collected have become “delinquent”. Without an assessment that has become final and executory, a tax cannot be deemed delinquent.

Without an assessment that has become final and executory, a tax cannot be deemed delinquent. Without receiving an assessment from the BIR, the taxpayer received a letter from the BIR, demanding payment of deficiency income taxes. Subsequently, the BIR issued a WDL against taxpayer and a WOG over the taxpayer’s bank account. In order to lift and cancel the WDL and WOG, taxpayer paid cash, representing the actual income tax liability and interest. The taxpayer then filed an administrative claim for refund or for the issuance of a TCC, representing allegedly erroneously collected basic tax and interest. Due to BIR's inaction on the administrative claim for refund, the taxpayer filed a Petition for Review with the CTA.

Before the CIR can avail of the summary administrative collection remedies, it must first be established that the taxes sought to be collected have become “delinquent”. Under RR No. 4-2019, a delinquent account is defined as a tax due from an assessment that has become final and executory. RR No. 4-2019 provides that a tax becomes delinquent in the following instances:

1. Failure to pay the tax due on the prescribed due date provided in the FAN/FLD and for which no valid Protest, whether a request for reconsideration or reinvestigation, has been filed within thirty (30) days from receipt thereof;
2. Failure to file an appeal to the CTA or an administrative appeal before CIR within thirty (30) days from receipt of the decision denying the request for reinvestigation or reconsideration; or
3. Failure to file an appeal to the CTA within thirty (30) days from receipt of the Decision of the CIR denying the taxpayer's administrative appeal to the FDDA.

Based on the foregoing, without an assessment that has gone through any of the above stages and has become final and executory, a tax cannot be deemed delinquent. (Commissioner of Internal Revenue v. Stradcom Corporation, G.R. No. 255520, April 21, 2025)

The CTA Division should have acted on the BIR’s Motion for Reconsideration and/or New Trial to allow the BIR to present LOA No. 2000-000158676, subject to the right of taxpayer to examine the same and raise objections as to its validity and authenticity.

 

This is an assessment case filed before the CTA. The CTA cancelled the assessment after finding no evidence to show that the examination of taxpayer’s books was authorized through a LOA. The BIR filed a Motion for Reconsideration and/or New Trial arguing that the issuance of the Letter of Authority was never raised as an issue during trial. The CTA denied the Motion and held that the BIR effectively waived its right to present evidence when it manifested that it would no longer offer any evidence or witness during the trial.

The Supreme Court held that the CTA may consider arguments raised for the first time on appeal or on motion for reconsideration, respectively, only if two conditions concur:

a) these arguments are related to the principal issue to be resolved by the court and is necessary to achieve an orderly disposition of the case; and
b) the resolution of these new arguments would not require the presentation of additional evidence, and must rely solely on factual bases that are already matters of record in the case.

In this case, the parties never raised the existence of the LoA as an issue in their pleadings and during trial. Thus, we adhere to the principle that tax assessments are presumed correct and made in good faith. The CTA should not have ruled on this matter as it violates the right of the CIR to refute allegations as to its invalidity and "conjures up secondary issues and factual matters that need to be adjudicated upon based on evidence or lack thereof."

Accordingly, the CTA Division and En Banc erroneously passed upon the validity of the assessment based on the revenue officer's possession of the requisite LoA when the existence of a valid LoA was never put an issue.

At any rate, the BIR submitted Letter of Authority No. 2000-000158676, presumably as proof of authority of the revenue officers to conduct the audit investigation, in its Motion for Reconsideration and/or New Trial.

Hence, the Court of Tax Appeals should have acted on the BIR’s Motion for Reconsideration and/or New Trial to allow the BIR to present LOA No. 2000-000158676, subject to the right of taxpayer to examine the same and raise objections as to its validity and authenticity. (CIR vs. Marily Development Corporation, GR No. 263794, April 2, 2025)

 

 

The existence of apparent authority must be assessed based on the acts of the principal. There must be acquiescence on the part of taxpayer, through any overt act that a specific directive was given, authorizing a person to receive notice of assessment/s from the BIR.

For the Court’s resolution is CIR’s Motion for Reconsideration, arguing that the FDDA was validly served on the taxpayer through his alleged authorized representative and receiving clerk (“Jamora”). The date of receipt of Jamora should be the reckoning point for the 30-day period to appeal to the CTA.

Assuming that Jamora who received the FDDA was not in fact authorized to receive documents from the BIR, the taxpayer is now estopped from questioning his authority, having previously accepted service through him without objection.

In this case, the existence of an implied agency authorizing Jamora to receive the FDDA on behalf of respondents was never sufficiently established. Even if it were argued that Jamora subsequently received the PCL, this does not make him an authorized representative for purposes of receiving the FDDA, as the circumstances surrounding the two (2) instances of service differ – the taxpayer was present at the premises when the PCL was served, but was not present when the FDDA was served.

The existence of apparent authority must be assessed based on the acts of the principal. Here, there was no acquiescence on the part of the taxpayer, as it was not sufficiently proven through any overt act that a specific directive was given authorizing Jamora to receive the FDDA.

In view of the foregoing, the reckoning point for the 30-day period to file an appeal before the CTA cannot be counted from the receipt of Jamora. The period should be counted from the date of the receipt of taxpayer’s counsel, who is considered authorized representative. (Commissioner of Internal Revenue v. Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao, CTA EB No. 2737 (CTA Case No. 8683), August 18, 2025)

DST is essentially a tax on the transaction as represented by the document and not on the document itself.

This is an assessment for alleged deficiency DST, among others.

The Court ruled that DST is essentially a tax on the transaction as represented by the document and not on the document itself. Nothing in the statutory text indicates that the nationality and/or residence of the contracting parties should be determinative of the situs for purposes of imposing the DST. The term sources in the phrase “when the obligation or right arises from Philippine sources” under Section 173 refers to the contract itself that the parties have entered into inasmuch as under Philippine law, contract is among the statutorily enumerated sources of obligation.

Taxpayer’s 2015 Audited Financial Statements is bereft of any categorical statement as to where the proceeds of the subject loans were released or used. Nonetheless, taxpayer’s witness testified in his Judicial Affidavit that the proceeds of the subject loans were used by the NRFC-affiliates in their operations within the Republic of Korea.

In view thereof, the loan proceeds were released, located, and/or used outside the Philippines. Accordingly, the loan agreements are deemed perfected outside the Philippines, specifically in Republic of Korea. Given that the situs of the subject transactions lies outside the Philippines jurisdiction, these transactions are not subject to DST. (Commissioner of Internal Revenue v. Bloomberry Resorts Corporation, CTA EB No. 2933, August 6, 2025)

 

 

 

Under the Tax Code, for the purpose of determining the taxable income subject to tax, there shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred in the development, management, operation and/or conduct of the trade, business or exercise of a profession of a taxpayer such as reasonable allowance for salaries and wages and other forms of compensation for personal services, reasonable allowance for travel expenses, reasonable allowance for entertainment and recreation expenses, and reasonable allowance for rentals and other payments which are required for the continued use or possession of the trade, business or profession of the taxpayer.

In Revenue Memorandum Circular 81-2025, the Bureau of Internal Revenue (BIR), citing existing court decisions, laid down the conditions for the deductibility of business expenses from gross income, as follows: 1) the expense   must  be ordinary   and  necessary; 2) the  expense   must  be paid  or incurred  within  the taxable   year; 3) the  expense   must   have  been  paid  or  incurred   in  carrying   on  or  which   are  directly attributable   to  the  development,    management,    operation   and/or  conduct   of the  trade, business  or exercise   of a profession;   and 4)  the  expense   must  be supported   by invoices,   records  or other  pertinent   papers.

Therefore, for an expense to be deductible, the same should be ordinary and necessary. And it must be reasonable, among other requirements. Except for a few items, there has been no exact formula under the Tax Code on what constitutes ordinary and necessary as well as what is considered reasonable as the operational needs of a particular business are heavily dependent upon the circumstances and the nature of the trade, business, or profession of the taxpayer.

So, what constitutes an ordinary expense? As defined in the circular, an "ordinary    expense" is one that is normal, usual   and customary   in the type of business   conducted   by the taxpayer.   It does not need to be habitual or recurring but should   be common in the context of the business. Further, the expense must be typical and usual in relation to the business activities.     

Citing existing court decisions on the matter, the circular further clarified that in determining whether a particular   expense is ordinary, the size and relative proportion of expenses must be considered and should meet the further test of reasonableness in amount. Thus, an expense that is inordinately large cannot be considered as an ordinary expense even if it is necessary. And if an expense nearly equaled half of the total claimed expenses, it may be considered as inordinately large and, thus, could not be considered "ordinary," even if it might be "necessary" for the taxpayer’s marketing strategy. 

On the other hand, a "necessary expense"   is one that is appropriate and helpful for the development of the taxpayer's business.  The expense   should   be directly connected and proximately resulting from carrying on the business and must contribute to the generation of income or profit or minimizing a loss. Thus, expenditures not directly related to the earnings of the business within the Philippines are not deductible. The expense must be necessary or integral to the income-generating activities of the business.  

So, therefore, a luxury service vehicle may not be ordinary and necessary for a certain type of business, say a construction company, but may be ordinary and necessary for another type of business, say, a travel agency catering to high-end tourists. So also, bribes, kickbacks, and other similar payments may be necessary to accomplish a business purpose, but the same is not ordinary. So, it cannot be claimed as deduction for tax purposes even if the same was actually incurred in carrying out the taxpayer’s business.  Incidentally, by express provisions of the Tax Code, no deduction from gross income shall be allowed for any payment made, directly or indirectly, to an official or employee of the national government, any local government unit, government-owned or controlled corporation, representative of a foreign government, or to a private corporation, general professional partnership, or a similar entity, if the payment constitutes a bribe or kickback.

I hope the provisions of the circular would be implemented with caution and in accordance with the spirit of the cited court decisions. The decisions are anchored on the specific facts surrounding the case and therefore should only serve as mere guidelines and will not serve as absolute formula in the determination of what is considered ordinary and necessary as the need of a particular business is necessarily different from the need of the others.

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