Tax Controversy 2020

Last Updated May 20, 2020


Law and Practice


SyCip Salazar Hernandez & Gatmaitan is a full-service law firm, one of the largest in the Philippines, and it is celebrating its 75th anniversary this year. The firm (SyCipLaw) is comprised of multiple departments based on a broad range of practice areas. The tax department consists of 21 lawyers (nine partners and 12 associates), a third of whom are certified public accountants, and is headed by Ms Carina C. Laforteza, who is a partner and a certified public accountant. SyCipLaw’s tax department provides the entire range of tax services, from advising on and structuring the tax aspects of corporate transactions to administrative and judicial litigation in relation to tax refunds and defending clients against assessments for national and local taxes as well as customs duties. To a great extent, the firm’s tax lawyers draw their work from the extensive corporate client base of the firm and assist other departments in the tax aspects of their transactions.

The Philippines practices a self-assessment approach, wherein the taxpayer determines his or her tax liability, files his or her tax return, and pays the taxes due. Proper tax administration, however, cannot rely on voluntary compliance alone. Thus, several measures are in place to facilitate compliance by the taxpayer with the provisions of tax laws, such as, the extensive investigatory powers granted to tax authorities. In order to check the correctness of taxes remitted to the government, local tax authorities are authorised to examine the taxpayer’s returns and other related documents (such as books of accounts and computational schedules, as well as source documents including invoices and official receipts).

Tax controversies in the Philippines are generally the result of regular tax audits/investigations conducted by the:

  • Bureau of Internal Revenue (BIR) for national taxes as provided under the National Internal Revenue Code of 1997, as amended (Tax Code);
  • Bureau of Customs (BOC) for tariff and customs duties; and
  • local government units for local taxes, which include local business taxes and real property taxes (RPT).

It is when the authorities issue an assessment for deficiency taxes and the taxpayer disputes that assessment that a tax controversy arises. 

Tax controversies may also arise from the following:

  • Claims for refund by the taxpayer involving:
    1. erroneously or illegally collected taxes;
    2. excess creditable taxes withheld; and
    3. excess unutilised input taxes.
  • Requests filed by the taxpayer for a tax exemption ruling or a confirmatory ruling on the tax implications of a certain activity or transaction; common examples include tax treaty relief applications (TTRA) and requests for tax-free exchange ruling.
  • Court decisions, which finally resolve and confirm the taxability of certain transactions; these may lead to tax audits of taxpayers with similar transactions, or of those belonging to the same industry or industries where such transactions are common.
  • Complaints, confidential information filed by informers, or referrals from other government agencies, which may result in the investigation and prosecution of criminal tax cases under the BIR’s Run After Tax Evaders (RATE) programme.
  • Petitions filed by taxpayers to assail the validity of a tax statute, local tax ordinance issued by local government units or regulations issued by the BIR or BOC.

Generally, tax controversies arise from all types of taxes.

For national taxes, most tax controversies involve corporate income taxes, withholding taxes and value-added taxes (VAT). This is due mainly to the taxpayer’s poor tax compliance system and inadequate documentation or lack of supporting records. Deficiency assessments on corporate income taxes usually come from conflicting interpretations of law or tax regulations or differing tax positions on a complex transaction. Withholding tax deficiencies are commonly due to differences of opinions on the applicable withholding tax rates and discrepancies over the amount of certain expenses reported in the financial statements or tax returns as against the alphabetical list of income payees (which contains the amounts paid to these payees and the taxes withheld). These discrepancies are usually reconciled by presenting factual and legal support. VAT controversies normally arise from non-compliance with the proper invoicing requirements for VAT zero-rated sales.

For local taxes, the typical tax controversy involves RPT, where there is a dispute over the property classification and assessment level of certain real properties, which may lead to different calculations of RPT due. Some local governments also continue to impose local taxes on export-oriented companies and other companies which are otherwise entitled to tax incentives.

A tax controversy involving national taxes is usually mitigated by securing a confirmatory ruling from the BIR regarding the tax implications of a transaction. 

The other ways to mitigate tax controversies include:

  • seeking tax advice or opinion on a transaction, especially when it involves a novel tax issue, difficult interpretation of tax laws or conflicting positions due to its complexity;
  • engaging an external advisor to conduct tax due diligence; and
  • maintaining a robust tax compliance system, such that the books of accounts are in order, the supporting documents are intact, tax returns are properly recorded and timely filed, and all taxes are fully accounted for.

The Philippines has not yet adopted the OECD's Base Erosion and Profit Shifting (BEPS) Recommendations, nor the EU’s recent measures to combat tax avoidance.

However, there is a proposed tax measure which introduces an amendment to Section 50 of the Tax Code which would grant the Commissioner of Internal Revenue (CIR) the power to impute income, and the authority to disregard and counter tax avoidance arrangements in order to clearly reflect the income of the taxpayer. Under the proposed law, the CIR will also have the power to consider transactions void when the only intention is to obtain a tax benefit or advantage.

If the proposed tax measure is passed into law, we anticipate that the BIR will strictly enforce this amendment, and this will certainly contribute to the increase in the number of tax controversies.

When the BIR assesses a taxpayer for deficiency taxes, it will issue a final assessment notice/formal letter of demand, requiring the taxpayer to pay the assessed taxes within 30 days from the date of that demand. If the taxpayer agrees, it can immediately pay the assessed taxes. However, if the taxpayer disagrees with the assessment, the taxpayer must file a protest within 30 days from receipt of the demand. The protest must contain the taxpayer’s factual and legal bases for disputing the tax assessment, together with supporting documents. While the tax assessment is under protest, the taxpayer is not required to pay the amount of deficiency taxes due. However, interests on the deficiency tax will continue to accumulate unless and until the full amount of tax is paid.

Generally, the CIR’s decision or inaction on the protest may be elevated to the Court of Tax Appeals (CTA) without payment of the disputed tax. Nonetheless, the BIR may still enforce collection against the taxpayer, unless collection is suspended by the CTA.

However, the rule is different in case of RPT (a local tax). Under the Local Government Code, the taxpayer must pay the RPT due before filing a protest.

The COVID-19 pandemic will likely delay the resolution of tax controversies. On 16 March 2020, the Philippine President issued Proclamation No 929 declaring a State of Calamity throughout the Philippines due to the COVID-19 pandemic. To curb the spread of COVID-19, the entire Luzon, including Metro Manila, was placed under enhanced community quarantine (ECQ) from 17 March until 30 April 2020. On 30 April 2020, Executive Order No 112 was issued extending the ECQ period up to 15 May 2020 in certain high-risk areas (including Metro Manila). However, starting 1 May 2020, other parts of the country were placed under general community quarantine (GCQ).

On 12 May 2020, the President declared that high-risk areas (such as Metro Manila, Cebu City and Laguna province) would be placed under modified ECQ from 16 May 2020 to 31 May 2020, without prejudice to the declaration of localized ECQ in critical areas. Beginning 1 June 2020, areas previously under MECQ, such as Metro Manila, transitioned to GCQ, which allows limited mobility, opening and operations of certain establishments, government offices, courts and workplaces.

Courts in areas covered by the ECQ are physically closed, although designated judges may act on extremely urgent matters, which mainly relate to criminal cases, applications for injunctions and other urgent applications. Courts in areas under GCQ have been open since 4 May 2020 and are assisted by a skeletal workforce while following strict guidelines on social distancing and health standards. Beginning 1 June 2020, all courts in the country have been in full operation and hearings have resumed.

The running of the statute of limitations is likewise suspended from 16 March 2020 until 60 days from the lifting of the state of national emergency. This suspension also applies to the issuance and service of assessment notices, warrants and enforcement and/or collection of deficiency taxes. In addition, filing of taxpayers’ protests, supporting documents and other correspondence falling due during the national emergency period may be filed within 30 days after the period of national emergency. The deadlines for filing and payment of national internal revenue taxes due within this period have likewise been extended. On 21 May 2020, the BIR issued Revenue Regulation No 12-2020, which provides that there will be no further extensions of the filing and payment deadlines once the MECQ is lifted on 31 May 2020.

We anticipate that following the lifting of the national emergency period the government, particularly the BIR, will be more aggressive in tax collection to fund the unexpected expenditures arising from the COVID-19 pandemic and minimise the expected drop in tax collections. While the BIR has recently reduced its collection target, it is highly likely that the BIR will still adopt a stricter and more extensive approach in conducting tax audits and assessments, whether pending or new ones.

Revenue Memorandum Order (RMO) No 19-2015, as amended by RMO No 64-2016, prescribes the policies, guidelines and procedures to be observed during a tax audit or investigation. It classifies those that are subject to tax audits as follows:

  • mandatory cases – which include claims for tax refund, requests for tax clearance and estate tax returns;
  • priority taxpayers or industries – such as professionals, the real estate industry, the telecommunications industry, insurance companies, issue-oriented audits, taxpayers with zero-rated sales, taxpayers enjoying tax exemptions/incentives and those whose compliance is below the established benchmark rate; and
  • other priority audits that may be identified by the BIR Regional Director, the Assistant BIR Commissioner and the BIR Large Taxpayers Service.

RMO 19-2015 also provides that taxpayers who have not been audited but have been in operation for more than three years are subject to a mandatory tax audit. Meanwhile, those that have been subject to a tax audit for two successive taxable years will no longer be subject to tax audit, unless there is a presumption of a tax fraud (ie, understatement of sales or income, or overstatement of expenses or deductions by at least 30%).

Under the Tax Code, the BIR has the authority to assess internal revenue taxes within three years after the last day prescribed by law for the filing of the return or the actual date of filing, whichever is later. In exceptional cases (ie, false or fraudulent return with intent to evade tax or failure to file a return), the BIR may assess the taxpayer at any time within ten years after discovery of the falsity, fraud or omission.

The law does not prescribe a time limit as to the duration of the tax audit, as long as it is conducted within the three-year prescriptive period. However, RMO 19-2015 requires the BIR examiners to strictly comply with the prescribed periods for completion of their audits and submission of reports. The BIR examiners are given an internal deadline of 180 days (for non-Large Taxpayers) or 240 days (for Large Taxpayers) from the issuance of the letter of authority (LOA) within which to submit the results of their tax investigations.

Generally, tax audits do not suspend the prescriptive period. Under the Tax Code, only the following instances suspend the running of the prescriptive period:

  • when the BIR is prohibited from making the assessment and for 60 days thereafter;
  • when the taxpayer requests a reinvestigation which is granted by the CIR;
  • when the taxpayer cannot be located at the address given by him or her in the tax return filed, upon which a tax is being assessed or collected; and
  • when the taxpayer is out of the Philippines.

The prescriptive period is also suspended when the taxpayer agrees, in writing, to waive such period.

Generally, tax audits are conducted in the office or business premises of the taxpayer during reasonable business hours. The BIR examiners usually request copies of certain documents, including tax returns, invoices and official receipts, journal vouchers, ledgers and other accounting books and records. Tax returns, invoices and official receipts are based on printed documents, while books of accounts and accounting records can be made available electronically or in a spreadsheet format.

Tax auditors should check the authority of the BIR examiners assigned to a taxpayer and the validity of the LOA issued to the taxpayer. A taxpayer may validly refuse a request for examination of any revenue officer not mentioned in the LOA. Tax auditors must ensure that the BIR examiners’ power to conduct the tax audit has not lapsed or does not go beyond the scope of the authority granted to them.

In terms of documentation and substantive issues, the BIR typically examines the completeness and timeliness of a taxpayer’s filings and reportorial obligations. Furthermore, it is likely that the BIR will compare the financial statements, tax returns and other documents submitted to them to spot discrepancies between the amounts reported or disclosed (eg, sales in the financial statements as opposed to sales reported in the alphabetical list). The discrepancies noted will become the basis of any deficiency tax assessment.

The increasing prevalence of rules concerning cross-border exchanges of information and mutual assistance between tax authorities has contributed to an increase, though not a significant one yet, in tax audits in the Philippines.

Republic Act No 10021 or the Exchange of Information on Tax Matters Act of 2009 allows the exchange of information by the BIR on tax matters according to internationally agreed tax standards. Under the law, the CIR is authorised to inquire into the bank deposits and other related information of taxpayers held by financial institutions, and to respond to a request from a foreign tax authority, pursuant to a tax treaty to which the Philippines is a signatory or a party. Furthermore, income tax returns of the taxpayer, who is the subject of a request for exchange of information by a foreign tax authority, shall be open to inspection, upon the order of the President of the Philippines.

We have not experienced, or are not aware of, any joint tax audits conducted by the BIR with the tax authority of another state.

Familiarity with the Tax Treatments of Accounts and Transactions

Taxpayers should be familiar with the tax treatment of all their accounts, entries and transactions, especially the material ones. It would be helpful if these tax treatments were documented through company policies or supported by the advice or opinion of a tax expert.

Prepare Tax Documents and Other Supporting Documents in Advance

In all tax audits, the BIR will request all relevant tax returns, books of accounts, accounting records and other documents. The BIR usually requests the same set of documents when conducting a tax audit in a given year. Thus, the taxpayer can prepare the documents for a given year in anticipation of a tax audit. Having the complete documents in order not only gives the impression that the taxpayer is prima facie compliant with all its tax filings and tax reporting obligations, it also facilitates the conduct of the audit. It is also helpful if the taxpayer can provide a reconciliation of the usual discrepancies the BIR examiners note in their findings (ie, financial statements and tax returns as opposed to alphabetical list of payees). Accordingly, the taxpayer can easily point out and explain the reason for any discrepancies thereby preventing the discrepancy from giving rise to an assessment 

Designate a Contact Person for the BIR

To avoid communication lapses and to ensure a smooth audit, the taxpayer should designate a responsible employee to co-ordinate with the BIR, to cater to its document and information requests and to handle the overall conduct of the tax audit.

Engage an External Tax Advisor

It is prudent to engage an external tax advisor to handle the tax audit. The tax advisor can help prepare the factual and legal arguments and ensure that the rights of the taxpayer are adequately protected. An external advisor may also be consulted by the company’s point person on major legal issues and to address possible questions from the BIR examiner during the audit.

When attempting to refute or protesting an assessment by the tax authorities, the administrative phase is mandatory and must be concluded before proceeding to the judicial phase.

Letter of Authority (LOA)

The issuance of an LOA usually signifies the start of a tax assessment. The LOA is issued to authorise a BIR examiner to conduct a tax audit. It must specify the type of taxes that will be examined and the taxable year subject of the tax audit.

Tax Audit Proper

After the issuance of the LOA, the BIR examiners can request and examine the tax returns, books of accounts and accounting records, official receipts, invoices, and other relevant documents necessary for the tax audit.

Notice of Informal Conference (NIC)

Upon examination of the documents submitted, as well as the other information obtained from the BIR system and from third parties, the BIR examiners will submit their preliminary findings to the BIR Revenue District Officer for approval. Upon approval, the BIR will issue its preliminary findings or the NIC, which is a written statement issued by the BIR informing the taxpayer of discrepancies in its tax payments for the purpose of conducting an informal conference. In this conference, the taxpayer will be given an opportunity to dispute the BIR’s findings and present his or her side of the case. If the taxpayer does not agree with the BIR’s findings, or if the BIR finds that the taxpayer is still liable for deficiency taxes, the case will be endorsed to the assessment division of the BIR Regional Office, the CIR or his or her duly authorised representative for issuance of a deficiency tax assessment.

Preliminary Assessment Notice (PAN)

Based on the case docket forwarded, the BIR Regional Office’s assessment division will further review the same and, if it agrees with the findings, it will issue the PAN. The PAN contains the proposed deficiency tax assessment along with its factual and legal bases. The taxpayer may file a reply to the PAN within 15 days from receipt. The reply contains the taxpayer’s arguments and a discussion of the factual and legal bases in disputing the PAN. The taxpayer may also submit supporting documents together with the reply to the PAN.

Final Assessment Notice and Formal Letter of Demand (FAN/FLD)

The BIR will review the taxpayer’s reply to the PAN. If the BIR does not accept, fully or partially, the explanation of the taxpayer as contained in the reply, it will issue the FAN/FLD, which must be done within the three-year prescriptive period, and in exceptional cases, within ten years. Otherwise, the BIR’s right to assess will prescribe. Usually, the FAN/FLD is only a reiteration of the findings in the PAN with adjustments on the amount of interest.

If the taxpayer does not agree with the BIR’s findings, it must file a protest within 30 days from receipt of the FAN/FLD. A protest may be in the form of a request for reconsideration or a request for reinvestigation. In the case of a request for reinvestigation, the taxpayer must submit additional supporting documents within 60 days from the date of filing of the protest. If the taxpayer does not file a protest, the assessment becomes final and executory. 

Final Decision on Disputed Assessment (FDDA)

Based on the arguments in the protest and the supporting documents, the BIR will decide whether to grant or deny (in whole or in part) the protest, which decision will be embodied in an FDDA. The taxpayer may appeal the FDDA administratively through a motion for reconsideration before the CIR, or judicially through an appeal before the CTA.

There is no mandatory deadline given to the tax authorities to decide a protest lodged by a taxpayer.

For national taxes, the CIR is given 180 days from receipt or, in the case of a request for reinvestigation, from receipt of the supporting documents to decide on the protest. If a decision is received during this period, the taxpayer has 30 days from receipt of the BIR’s decision within which to elevate the case to the CTA.

However, in the case of inaction on the part of the CIR, the taxpayer has the option to file an appeal before the CTA within 30 days from the lapse of the 180-day period or to wait for the CIR’s decision and then appeal it within 30 days from receipt of that decision.

Different periods are provided in the case of refunds of national taxes and protests against, and refunds of, local taxes.

Judicial tax litigation is initiated by filing a petition for review (Petition) with the CTA to appeal a:

  • decision or inaction of the CIR in the case of disputed assessments involving national internal revenue taxes;
  • decision of the BOC Commissioner in cases involving liability for customs duties; or
  • decision of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate jurisdiction over cases involving the RPT assessments originally decided by the provincial or city board of assessment appeals.

The Petition must set out, among other things, a statement of the complete facts and a summary statement of the issues involved in the case, as well as the reasons and authorities relied upon for the review of the challenged decision.

Judicial tax litigation may also be initiated by filing a complaint before the regional trial courts (RTC) in respect of local taxes originally decided by the local treasurer of the respective local government units.

After the filing of a Petition and payment of docket fees, summons will be served to the respondent (the BIR), requiring the BIR to file a response (Answer) within 15 days after receipt of the summons. The Answer must include all of the respondent’s defences, legal bases, and grounds for dismissal of the Petition (if any). After the BIR files an Answer, the case will be set for pre-trial on the first available date immediately following the tenth day after the filing of the Answer. At least three days before the pre-trial, the parties must submit their respective pre-trial briefs.

During the pre-trial conference (PTC), the parties, through counsel, may stipulate on facts, determine the issues to be resolved and identify the documents and witnesses to be presented during trial. After the PTC, the CTA will issue a pre-trial order reciting the actions taken, the facts stipulated, the admissions made, the evidence marked, and such other matters covered during the PTC. The order shall bind the parties, limit the trial to matters not disposed of and control the course of the action during the trial, unless modified by the CTA to prevent manifest injustice.

Thereafter, trial hearings will be conducted by the CTA for the presentation of the parties’ respective witnesses and documentary evidence. Upon the completion of the trial hearings, the CTA will direct the parties to file their respective memoranda, which summarise the parties; claims, arguments and defences. The CTA Division, composed of three justices, will decide on the issues of the case based on the evidence presented during trial.

Testimonial and documentary evidence are important considering that judicial claims before the CTA are litigated de novo and decided based on what has been presented and formally offered by the parties (and admitted by the CTA) during the trial. The evidence submitted in the administrative proceeding before the BIR has no evidentiary value unless presented and formally offered before the CTA.

The documents or exhibits to be presented, their purpose, and the numbers and names of witnesses, are identified as early as during the PTC. However, testamentary and documentary evidence will still need to be presented and marked before the CTA during the course of the trial hearings.

The testimonies of the witnesses will be presented pursuant to the Judicial Affidavit Rule. The judicial affidavit contains the testimony of the witness in a question and answer format, and is submitted in lieu of the direct testimony of the witness during the trial. Judicial affidavits of witnesses are filed with the court five days prior to pre-trial, together with the evidentiary documents to be identified by the witness. Nevertheless, the witness will still be presented before the court for the purposes of identifying and affirming his or her judicial affidavit and attached exhibits, and then for cross-examination, re-direct examination and re-cross examination.

Under the Revised Rules of Civil Procedure and Revised Rules on Evidence (collectively, the Revised Rules), which took effect on 1 May 2020 and may apply supplementarily to CTA proceedings, the taxpayer should have already submitted all its evidence (eg, judicial affidavits and documentary evidence) upon filing of the Petition with the CTA. This is a significant change to the current practice wherein evidence is submitted only during the course of the PTC.

Generally, in judicial litigation, the person who alleges a fact has the burden of proving that fact through evidence. In tax controversies, tax assessments are presumed to be correct and made in good faith. Thus, in order to rebut this presumption and avoid a decision in favour of the tax authority, the taxpayer must prove, by presenting evidence, that the assessment has no legal or factual basis. Similarly, the claimant must prove all the elements required for a tax refund since refunds are construed strictly against the claimant and in favour of the state. In criminal tax litigation, the government is required to prove the accused’s guilt beyond reasonable doubt.

Timing to Produce Documents

Under the current CTA rules of procedures, the production of witnesses and documentary evidence is done during trial (subject to the submission of judicial affidavits and exhibits at least five days before the scheduled pre-trial). Thereafter, the parties will submit a formal offer of evidence stating the testamentary and documentary evidence offered with its corresponding purpose.

However, under the Revised Rules, all pieces of evidence must be submitted upon filing of the Petition with the CTA. Accordingly, the judicial affidavits, supporting documents and other evidence must already be attached to the Petition upon filing.


In cases where the dispute involves mostly factual issues, it is important and critical for the taxpayer to determine, as early as possible, the quantity and quality of evidence that is available or can be produced to support its position. Note that judicial claims are decided based on what has been presented and formally offered by the parties during the trial, and while the allegations by the taxpayer may be factually correct, mere allegations without any evidence to support them cannot be given weight by the courts, unless they can be subject to judicial notice.

Legal Arguments

Tax disputes normally arise from conflicting interpretations of a legal provision. Thus, it is critical for the taxpayer and its external tax advisor, who may or may not be the litigating lawyer, to conduct comprehensive research to determine the probability of obtaining a favourable ruling.

Possibility of Settlement

The current CTA rules provide for referral to mediation and entering into a compromise agreement if both parties are willing to settle the case out of court. The taxpayer, in determining whether to settle, must evaluate not only the strength of its factual and legal arguments, but also practical considerations such as litigation costs, the length of time before a case can be decided by the courts, the potential benefit it may gain should the case be decided in its favour and whether an early settlement outweighs all the costs incurred, monetary or otherwise.

Expert Reports

The party who desires to introduce voluminous documents or long accounts into evidence must, with the CTA’s prior approval, refer the voluminous documents to an independent Certified Public Accountant (ICPA) who will review, as a court-appointed commissioner, the source documents or other financial records, and render a summary report to the CTA.

While not typical, it is also possible to obtain testimony from an expert on certain issues that have an impact on the tax treatment (eg, an accountant on the question of whether an item is a deductible expense or a capital expenditure).

Court decisions are based primarily on tax laws and regulations. Judicial decisions applying or interpreting the laws form a part of the legal system of the Philippines. However, only decisions of the Philippine Supreme Court establish jurisprudence and are binding on all other courts. However, since the Tax Code originated from US tax law, older decisions of US courts in tax cases are, although not binding, particularly persuasive.

In cases where there is no established precedent, or where the case involves international tax issues, the local courts may find foreign jurisprudence and international guidelines (eg, those of the OECD) persuasive in the interpretation of tax treaties, including the concepts and terms therein, and in the resolution of the tax issue at hand. However, these foreign authorities, while persuasive and carrying some weight, are not binding on local courts.

The judicial phase of tax litigation consists of several levels of review.

A taxpayer may seek judicial relief if their protest was denied, whether fully or partially, by the CIR. Upon issuance of the FDDA, the taxpayer may opt to appeal administratively or elevate its appeal to the CTA, through filing a Petition.

The CTA is a highly specialised court that reviews cases involving tax issues. It has exclusive jurisdiction to review, on appeal, the decisions of the CIR involving disputed assessments and tax refunds. It also has jurisdiction to review the decisions of the RTCs on local taxes resolved by them in the exercise of their original or appellate jurisdiction, as well as decisions of the CBAA over cases involving the assessment and taxation of real property. There are two levels of review at the CTA: the CTA Divisions and the CTA En Banc.

The appealed decision of the CIR will be tried and resolved by the CTA Division. In the case of an unfavourable ruling, the taxpayer may file a motion for reconsideration (MR) or a motion for new trial (MNT) before the same CTA Division. The resolution of the CTA Division on the MR or MNT may be appealed through a Petition with the CTA En Banc. Lastly, the decision of the CTA En Banc may be appealed to the Philippine Supreme Court through a Petition for Review on Certiorari.

For local taxes originally decided by the local treasurer of the respective local government units, an appeal on the local treasurer’s decision may be made through filing a complaint before the RTC having jurisdiction over the taxpayer’s place of business.

Cases involving RPT go through the Local Board of Assessment Appeals and the CBAA before they are appealed to the CTA En Banc.

Petition for Review (CTA Division)

For cases under the exclusive appellate jurisdiction of the CTA, such as decisions of the CIR involving disputed assessments, the taxpayer files an appeal by filing a Petition before the CTA. The Petition must be filed within 30 days from receipt of the FDDA or denial by the CIR of the taxpayer’s motion for reconsideration.

The CTA Division will hear and resolve the case. The CTA Division shall decide the case based on the issues presented and evidence submitted by the parties.

Motion for Reconsideration or New Trial (CTA Division)

Once a decision is promulgated, an aggrieved party may file an MR or MNT before the same CTA Division. Otherwise, the decision of the CTA Division becomes final and executory.

The CTA Division may grant or deny, whether fully or partially, the MR or MNT based on the merits and arguments by the parties.

Petition for Review (CTA En Banc)

The resolution of the CTA Division on the MR or MNT may be appealed by filing a Petition with the CTA En Banc within 15 days from receipt of the resolution. Otherwise, the resolution of the CTA Division becomes final and executory.

The CTA En Banc may sustain, reverse or modify the decision of the CTA Division. The aggrieved party may file an MR of the decision before the CTA En Banc within 15 days from receipt of the adverse decision. If no MR is filed before the CTA En banc, the decision shall become final and executory.

Petition for Review on Certiorari (Supreme Court)

The aggrieved party may appeal the decision of the CTA En Banc to the Supreme Court by filing a Petition for Review on Certiorari within 30 days from receipt of the decision. In exceptional cases, an aggrieved party from a decision of the Supreme Court Division may file an MR with the Supreme Court En Banc. Upon finality of the decision by the Supreme Court, the tax assessment becomes final and executory.

Court of Tax Appeals

The CTA is composed of a Presiding Justice and eight Associate Justices. These justices are appointed by the President of the Philippines. The CTA may sit En Banc, or in three Divisions comprised of three justices each, including the Presiding Justice, who shall be the Chairman of the First Division.

Cases in Divisions are heard and decided upon by three CTA justices sitting as one body. The attendance of at least two CTA justices is necessary to constitute a quorum, and the affirmative votes of at least two CTA justices are required for the rendition of a decision or resolution.

Cases in CTA En Banc are decided by the eight Associate Justices and the Presiding Justice sitting as one body. The attendance of at least five justices constitutes a quorum, and the affirmative votes of at least five justices shall be necessary for the rendition of a decision or resolution. If a majority vote is not reached, the petition shall be dismissed or the motion shall be denied.

Supreme Court

The Philippine Supreme Court is composed of a Chief Justice and 14 Associate Justices, who are likewise appointed by the President of the Philippines. The Supreme Court may sit En Banc or in one of its three divisions composed of five members each.

Under the CTA guidelines, the CTA may refer cases to mediation. However, not all cases may be referred to mediation (eg, criminal tax cases and those cases where there is already a final and executory decision).

After the CTA refers a case to mediation, the parties will appear before a mediator to find out whether they are willing to enter into mediation. If one party objects or is not willing to undergo mediation, the mediation proceedings will be terminated and the CTA proceedings will continue.

If both parties are willing to enter into mediation, they will be asked to execute an agreement to mediate and proceed with mediation before a mediator. The parties and the mediator have 30 days, extendible for another 30 days, to reach a compromise agreement. A successful mediation may result in either a full compromise, which would terminate the CTA proceedings, or a partial compromise, in which case CTA proceedings on the remaining issues would continue.

Mediation allows the party and the BIR to enter into a settlement which may entail reduction of the amount of tax assessed, including any surcharge, interest and penalties.

Aside from the court-annexed mediation, the BIR assessment may be settled by compromise or abatement. Under the Tax Code, the CIR may compromise the payment of taxes when:

  • reasonable doubt exists as to the validity of the claim against the taxpayer; or
  • the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

In cases of financial incapacity, the minimum compromise rate is equivalent to 10% of the basic assessed tax, while for all other cases, the minimum compromise rate is 40%.

The CIR may also abate or cancel the entire amount or portion of unpaid tax liability if the assessment is excessive or if the administration costs involved are not justified by the collection of the amount due.

A revocation, modification or reversal of a BIR ruling shall not be given retroactive application if to do so will be prejudicial to the taxpayer. In this sense, confirmatory tax rulings issued by the tax authority are binding against the BIR, but only in relation to the taxpayer who originally applied for that ruling, the specific transaction involved, and the taxes that were the subject of the ruling. Moreover, since the ruling is issued by the BIR based on facts represented by the taxpayer, if the BIR finds, upon investigation, that the facts represented are different from the actual ones, the ruling will be considered void and will not be binding against the BIR.

In addition to the details discussed in 6.2 Settlement of Tax Disputes by Means of ADR, the following cases are not covered and cannot be referred to mediation:

  • cases where the jurisdiction of the CTA, BIR, BOC, Secretary of Finance, Secretary of Trade and Industry, or Secretary of Agriculture is in issue;
  • cases where there is a pending application for a temporary restraining order or preliminary injunction for the suspension of collection of taxes;
  • cases arising from criminal offences with the jurisdiction of the CTA Division or En Banc;
  • decisions/resolutions/orders of the RTC in tax collection cases involving final and executory assessments;
  • decisions/resolutions/orders of the RTC in local tax cases;
  • decisions of the CBAA over cases involving the assessment and taxation of real property; and
  • civil cases involving tax assessments that are final and executory.

When referred to mediation, the CTA will require the parties to appear before the Philippine Mediation Center – CTA (PMC-CTA). Where the parties agree to a compromise, the mediator will ask them to execute a compromise agreement. Upon approval, the CTA will render judgment based on the compromise agreement. In case of a partial compromise, the CTA will continue further proceedings as to the matter not compromised. Where the parties fail to reach a settlement, the case will be returned to the CTA for further proceedings.

As the BIR has only recently issued the transfer audit pricing guidelines, the BIR has not yet strictly implemented such guidelines during a tax audit.

The transfer pricing regulations provide that the BIR and the taxpayer may enter into an advance pricing agreement (APA) to determine in advance an appropriate set of criteria for the determination of the transfer prices of controlled transactions over a fixed period of time. The APA aims to reduce the risk of transfer pricing examination and double taxation. However, the APA is not a mandatory requirement, and is undertaken purely on a voluntary basis on the part of the taxpayer.

As of writing, the BIR has not yet issued separate guidelines on the application of APAs.

Failure to pay the correct taxes will not only result in an assessment for deficiency basic taxes but will also result in the imposition of civil penalties. Civil penalties include a 25% surcharge (50% in cases of wilful neglect to file the return or in cases where a false or fraudulent is wilfully made) and interest on the unpaid amount of tax at the rate of 12% per annum.

Non-payment of taxes does not automatically give rise to a criminal offence, unless the circumstances of non-payment (eg, it is attended by fraud) constitute a separate criminal offence.

When a criminal action is instituted, the civil action for collection of taxes (eg, tax evasion) is automatically instituted in that criminal action. However, an assessment (or a determination that taxes have not been paid) is not necessary before a criminal case may be instituted, and a collection or an assessment case does not automatically mean that a tax offence has been committed.

Based on the findings in a regular tax audit, third-party information or other sources, a taxpayer may be the subject of a preliminary investigation for violation of the Tax Code before the Department of Justice (DOJ), which is the initial step in a criminal tax case.

Pursuant to the RATE programme, the BIR is mandated to investigate criminal violations of the Tax Code and assist in the prosecution of criminal cases that will generate the maximum deterrent effect, enhance voluntary compliance, and promote public confidence in the tax system. RATE is a joint programme of the BIR and the DOJ to investigate, prosecute and convict tax evaders.

Criminal tax cases are initially filed with the DOJ for determination of the existence of probable cause in a preliminary investigation. “Probable cause” means the existence of such facts and circumstances as would excite the belief, in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged is guilty of the crime for which he or she will potentially be prosecuted. Upon a finding of the existence of probable cause, the case will be filed either at the RTC or the CTA, depending on the amount involved.

The RTC has original jurisdiction over criminal offences arising from violations of the Tax Code and other laws administered by the BIR or BOC, where the principal amount of taxes and fees claimed, exclusive of charges and penalties, is less than PHP1 million (approximately USD20,000) or where there is no specified amount claimed. The CTA has original jurisdiction over criminal tax cases when the amount claimed is at least PHP1 million.

Upfront payment of the additional tax assessment does not result in the reduction of potential fines applicable to the tax offence. Further, under the Tax Code, the payment of the tax due shall not constitute a valid defence in any prosecution for violations of the Tax Code.

Payment of the assessed tax does not prevent or stop a criminal tax trial. Criminal cases already filed in court and those involving tax fraud may not be compromised.

During the administrative phase of the tax assessment, compromise penalties are imposed and collected by the BIR against the taxpayer, in lieu of criminal prosecution for violations committed by the taxpayer (see 6.3 Agreements to Reduce Tax Assessments, Interest or Penalties). However, certain violations, such as tax evasion and declarations under penalties of perjury, may not be compromised.

Rule 9 of the CTA rules sets out the following procedures for appeals.

Notice of Appeal

An appeal to the CTA En Banc in criminal cases decided by the RTC in the exercise of its original jurisdiction shall be made by filing a notice of appeal within 15 days from receipt of a copy of the decision or final order with the court which rendered the final judgment or order appealed from and by serving a copy upon the adverse party.

Petition for Review

An appeal to the CTA En Banc in criminal cases decided by the CTA Division shall be taken by filing a Petition within 15 days from receipt of the decision or resolution appealed from. The CTA may, for good cause, extend the time for filing of the Petition for an additional period not exceeding 15 days.

An appeal to the CTA En Banc in criminal cases decided by the RTC in the exercise of their appellate jurisdiction shall be taken by filing a Petition within 15 days from receipt of the decision/final order appealed from.

Neither GAAR nor SAAR have been adopted in the Philippines.

In one case involving transfer pricing issues, in which the BIR imputed interest on an interest-free loan, the Philippine Supreme Court ruled that the BIR’s power to allocate gross income does not include the power to impute “theoretical interest” because there must be actual or, at the very least, probable receipt or realisation by the taxpayer of the income that is being allocated. The Philippine Supreme Court also recognised that interest cannot be imposed unless expressly stipulated in writing.

Currently, the Philippines still adheres to the distinction between tax evasion and tax avoidance with the latter being considered generally to be acceptable. However, there are specific rules in the Tax Code which seek to prevent tax avoidance practices, such as the substantial change of ownership in connection with net operating loss carryover, limitation on interest expenses, and the imposition of improperly accumulated earnings tax. Further Section 50 of the Tax Code allows the CIR to allocate income and deductions between controlled entities. However, we note that there is a proposed tax measure to amend Section 50 that would give the CIR the right to question avoidance schemes.

If the BIR has assessed additional taxes in a cross-border transaction resulting in double taxation, taxpayers typically resort to domestic litigation (as opposed to availing themselves of the mechanisms under the double tax treaty) to appeal the administrative decision.

Neither a GAAR nor a SAAR have been adopted in the Philippines.

As of this writing, international transfer pricing adjustments have not been challenged before local tax courts.

The transfer pricing regulations provide for an APA, which a taxpayer may enter into on a voluntary basis in order to reduce the risk of a transfer pricing audit and double taxation. The APA may be either unilateral (an agreement between the taxpayer and the BIR) or bilateral/multilateral (an agreement among the taxpayer, the BIR and one or more countries).

As of this writing, however, the BIR has yet to issue separate guidelines on the APA.

Withholding taxes and permanent establishment are common issues relating to cross-border transactions. Another common issue is the documentary stamp tax implications of transactions that have both local and international elements (eg, an offshore loan contract with a security agreement that has onshore property as collateral, and vice versa).

As the BIR has recently (in 2019) issued the transfer pricing guidelines and the Philippines has pending tax reform measures on tax avoidance, we anticipate that transfer pricing and taxation of digital economy will be major sources of tax controversies involving cross-border transactions in the coming years.

There is no filing fee for tax cases at the administrative level.

The filing fee for instituting a case before the CTA Division is between 0.67% and 1.5% of the amount of the disputed assessment. Other nominal fees include the legal research fund, victim compensation fund, summons fee, sheriff’s trust fund and mediation fee.

These fees are collected from the taxpayer upon filing of a Petition and are considered as sunk costs which cannot be refunded, regardless of the outcome of the case. Nominal fees will also be paid upon filing of an appeal with the CTA En Banc and the Supreme Court.

There are also filing fees for tax-related cases filed before other courts or agencies such as the RTC and the CBAA. These filing fees are paid upon filing of the case.

Payment of filing fees are mandatory and the courts or agencies will not assume jurisdiction over the case without payment of these fees.

The filing fees to litigate before the CTA, and other costs incurred in connection with the tax litigation (eg, professional or attorney’s fees, out of pocket expenses) are for the taxpayer’s own account, and considered as sunk costs that cannot be recovered or reimbursed.

The mediation fee consists of a basic mediation fee in the amount of PHP2,500 (approximately USD50) and an additional mediation fee of PHP5,000 to PHP50,000 (approximately USD100 to USD1,000), depending on the sum in dispute.

There is currently no available data on the number of cases that are pending before the CTA.

The latest publicly available annual report containing the statistics on case disposition was published in 2016. Accordingly, in 2016, the CTA attained a disposal rate (or ratio of case output over case input) of 23% and a clearance rate (or ratio of case output over cases filed) of 72%.

There is no readily available data regarding the number of cases initiated and terminated every year relating to different taxes.

In tax criminal cases, the CTA has published statistics regarding the number of cases initiated and resolved every year. The latest report in 2018 provides that out of the 38 criminal tax cases initiated and filed before the CTA, only seven cases were decided or resolved during the same year.

There is currently no available data regarding which party succeeds in litigation.

In the latest publicly available annual report, published in 2016, it was reported that the CTA awarded, in favour of the litigants, a total of PHP28.9 billion.

Cost-Benefit Analysis

The taxpayer must evaluate whether pursuing a certain remedy would actually be beneficial, or more costly – in terms of money, time and effort – than simply paying.

Filing an appeal before the courts entails costs, including filing fees, legal fees, cost of engaging legal counsel and a tax expert, out-of-pocket expenses and other incidental fees. These costs are over and above the potential tax liabilities that the taxpayer may pay if the decision turns out to be unfavourable. Further, the interest on deficiency taxes continues to run while the case is pending (unlike in tax refund cases wherein the government is not obliged to pay interest in case the taxpayer is entitled to a refund). Therefore, if the taxpayer loses, it can end up with a hefty tax bill. Aside from monetary costs, court litigation also involve time and effort.


In general, when seeking judicial relief, it takes a long time (even decades) before the case can be resolved with finality. If the taxpayer does not obtain a favourable judgment, the interest on the deficiency taxes continues to accumulate while the case is pending. This goes together with the cost-benefit analysis to be conducted by the taxpayer in deciding which course of action to pursue.

It is generally better to settle the deficiency taxes at the audit stage if the claim is indefensible or, even if it is defensible, if the cost of litigation exceeds the proposed assessment.

Strength of the Case

During the course of the tax audit, and before seeking judicial relief, the taxpayer must evaluate the legal and factual basis of its case. The taxpayer must not only provide legal arguments, it should also be able to substantiate these arguments with facts based on documents or the testimonies of witnesses. While the taxpayer’s position may be legally sound and correct, there is always a risk that the taxpayer may lose the case for failure to present sufficient evidence to warrant a favourable ruling.

Possibility of Settlement

The taxpayer may also wish to consider exploring settlement. A mediation and compromise settlement may sometimes be a win-win situation for both parties, not only in financial terms, but also with regard to the speedy disposition and termination of the case.

SyCip Salazar Hernandez & Gatmaitan

SyCipLaw Center
105 Paseo de Roxas
Makati City 1226
Metro Manila

+632 8982 3500

+632 8817 3896
Author Business Card

Trends and Developments


SyCip Salazar Hernandez & Gatmaitan is a full-service law firm, one of the largest in the Philippines, and it is celebrating its 75th anniversary this year. The firm (SyCipLaw) is comprised of multiple departments based on a broad range of practice areas. The tax department consists of 21 lawyers (nine partners and 12 associates), a third of whom are certified public accountants, and is headed by Ms Carina C. Laforteza, who is a partner and a certified public accountant. SyCipLaw’s tax department provides the entire range of tax services, from advising on and structuring the tax aspects of corporate transactions to administrative and judicial litigation in relation to tax refunds and defending clients against assessments for national and local taxes as well as customs duties. To a great extent, the firm’s tax lawyers draw their work from the extensive corporate client base of the firm and assist other departments in the tax aspects of their transactions.

The Impact of the COVID-19 Pandemic on the Philippines

The enhanced community quarantine (ECQ)

The COVID-19 pandemic poses unique and unprecedented challenges to countries around the world as they continue to attempt to find solutions that will help people and businesses affected by the pandemic. The Philippines is no different.

On 16 March 2020, the Philippine President declared the largest island of the Philippines, Luzon, under “enhanced community quarantine” (ECQ) from March 17th to midnight of April 13th. The ECQ was subsequently extended to April 30th and, to date, has been further extended further to May 15th.

As stated in the Memorandum from the Executive Secretary, dated 16 March 2020, during the ECQ, a strict home quarantine is to be observed, public mass transport is suspended, and only private establishments providing basic necessities remain open. Officials of the executive branch of the government will be working from home, except those involved in, among other sectors, the health and emergency services and the police.

Other regions in Visayas and Mindanao soon followed suit and have been placed under ECQ by their respective local governments. Included are Cebu and Davao which are the main business hubs in, respectively, Visayas and Mindanao.

Based on the announcement made by the Philippine President on 24 April 2020 the ECQ will be in place up to May 15th for certain areas of the country, including Metro Manila, where the capital city of the Philippines is located and where most business districts are located, and the cities of Cebu and Davao. The other areas not under ECQ after April 30th will be under general community quarantine, which still provides for restrictions on the movement of people.

Impact of the ECQ on the Philippine tax system

ECQ was imposed in order to further limit the spread of the COVID-19 pandemic. However, the ECQ has negatively impacted the Philippine tax system as it has prompted the government, through its various agencies, to release issuances and measures to extend tax deadlines and, where possible, provide tax relief.

Tax collection

April is generally considered a tax month in the Philippines. Although tax filings and payments happen regularly throughout the year, it is during this month that individuals, corporations and other entities that follow the calendar year file their annual income tax returns. Under the Tax Code, the filing and payment of the annual income tax returns are due on April 15th, and this date falls with the period of the ECQ.

As the Philippine tax filing and payment system is still in the process of transitioning into a fully electronic one, some of the steps involved in filing tax returns and paying taxes still require filing hard copies of documents and the physical presence of taxpayers at the offices of the tax authority, the Bureau of Internal Revenue (BIR), and at the authorised agent banks (AAB) of the BIR. The ECQ has prevented taxpayers from stepping out of their homes to accomplish these steps, thus the Secretary of Finance (SOF) and the Commissioner of the BIR have issued regulations for the extensions of the periods to file and pay taxes (please see below). These extensions have delayed the receipt by the Philippine government of taxes. As stated in an article in the Philippine Daily Inquirer, the BIR, the country’s national tax authority, and the Bureau of Customs, the country’s import duties collector, have collectively failed to meet their 2020 first quarter collections target by 20%. It would not be a surprise to see a bigger shortfall in the 2020 second quarter collections considering that half of the quarter will be covered by the ECQ.

A shortfall in the tax collections for the rest of the year and even until next year can only be expected considering that most businesses – including large taxpayers as well as micro, small and medium enterprises (MSME) – have been forced to close their premises if not shut down entirely, businesses that are allowed to operate can only do so with a skeleton workforce, and members of the workforce who are currently not working are not receiving compensation unless this is freely given by the employers or if company policy dictates that they do so.

Only retailers of essential products are allowed to operate. Other industries, such as, but not limited to, the stock market and the tourism industry, have felt the effects of the COVID-19 pandemic. In fact, according to news reports, the lack of demand for its products has already deeply affected the oil industry.

Tax litigation

The courts are currently at a standstill. The Philippine Supreme Court has issued a circular announcing the physical closure of all courts nationwide, which includes the Court of Tax Appeals (CTA), and all hearings nationwide, except on urgent matters, have been suspended. This means that tax cases currently pending with the CTA remain undecided.

Tax as a Response to the COVID-19 Pandemic

In response to the COVID-19 pandemic, the Philippine Congress passed Republic Act No 11469 or the “Bayanihan to Heal As One Act” (the Bayanihan Act), which came into force on 26 March 2020 and is effective for three months. This law declares “a state of national emergency over the entire country” and to address this, it authorises the President to adopt “temporary emergency measures to respond to crisis brought about by the pandemic.”

Among these temporary measures are the:

grant of grace periods and extensions on loans and rents;

grant of tax exemptions;

extension of deadlines to file tax returns and pay taxes;

provision of lower lending rates and incentives; and

regulation of certain businesses and industries.

Government agencies have issued regulations to implement this law. In the case of taxes, the SOF and the BIR have issued regulations to:

implement the tax exemptions provided under the statute;

extend the deadlines to file and pay taxes;

suspend the prescriptive period for the assessment and collection of taxes; and

improve the ease of filing and payment.

Tax exemptions

Grace period on loans

Section 4(aa) of the Bayanihan Act gives the Philippine President the power to direct banks and other financial institutions to implement a grace period for “payment of loans falling due within the period of the ECQ.”

The Department of Finance (DOF) has issued implementing rules for the above provision, which took effect on 1 April 2020, directing “all banks, quasi-banks, financing companies, lending companies, and other [public and private] financial institutions, the Government Service Insurance System, Social Security System, and Pag-ibig Fund” to grant a minimum 30-day grace period, which will be automatically extended if the ECQ period is extended.

In this connection, the SOF has issued Revenue Regulations (RR) No 8-2020, which took effect on 3 April 2020. Under this RR, credit extensions, credit restructuring, and micro-lending are exempt from documentary stamp tax (DST) that would have otherwise been imposed on the renewal or extensions of credits.

To facilitate the DST exemption, the BIR issued Revenue Memorandum Circular (RMC) No 35-2020 and RMC No 36-2020, which took effect on 2 and 3 April 2020, respectively. These circulars clarify the scope of the DST exemption, provide that the new loan principal will not be subject to DST, and outline reportorial requirements.

On importations

Section 4(o) of the Bayanihan Act provides that “importation [of] healthcare equipment and supplies” shall be exempt from import duties, taxes and other fees.

To implement this provision, the SOF issued RR No 6-2020, which took effect on March 27, 2020, and will remain effective only during the period of effectivity of the Bayanihan Act.

RR No 6-2020 exempts – from value-added tax (VAT), excise tax and other fees – the importation of healthcare equipment, supplies and materials needed to address the pandemic. In addition, donations of imported articles to the government are exempt from donor’s tax, and fully deductible from income under existing rules and issuances.

Under RR No 6-2020, the Bureau of Customs may release the aforementioned imported goods without the need of an Authority to Release Imported Goods. In this connection, the BIR has issued Revenue Memorandum Order No 10-2020, which took effect on 30 March 2020, to prescribe guidelines for those looking to avail themselves of this exemption.

Donations to combat COVID-19

Sections 3(g) and 3(h) of the Bayanihan Act state that there is an urgent need to “partner with the private sector and other stakeholders” to quickly deliver measures and promote the interests of Filipinos.

To implement these provisions, RR No 9-2020, which were issued by the SOF and which took effect retroactively on 16 March 2020, exempts donations or gifts from donor’s tax and allows full deductibility against the donor’s gross income subject to compliance with certain conditions.

According to news reports, the new National Economic and Development Authority (NEDA) Secretary, Karl Kendrick Chua has also made statements to the press that tax incentives will be provided to private persons who make donations in support of any of the six programmes under the National Priority Plan, which include research for sciences, providing access to scientific resources, the development of a modern classroom, and research to alleviate malnutrition. It is not clear what these tax incentives are as, currently, under the Tax Code and under certain conditions, such donations may already be entitled to exemption from donor’s tax and full deductibility from income.

Extension of deadlines to pay taxes

Section 4(z) of the Bayanihan Act gives the Philippine President the power to move the deadlines for the filing and submission of various documents and the payment of taxes. It must be noted that, even before the Bayanihan Act was passed, the BIR had already extended the deadlines for various tax filings and payments that fell within the period of ECQ.

Pursuant to the Bayanihan Act, the SOF issued RR No 7-2020. This RR took effect on 27 March 2020 and consolidates the various extensions previously granted by the BIR. RR No 7-2020 also provides that the Commissioner may extend the deadlines “if the circumstances warrant” or if “directed by the [SOF].”

In view of the initial extension of the ECQ to April 30th, the SOF issued RR No 10-2020 to amend RR No 7-2020. RR No 10-2020 further extended the due dates for the filing and submission of documents and payment of taxes falling within the extended period in RR 7-2020. RR No 10-2020 further provides that, if the ECQ period will be further extended, the filing and submission of documents and the payment of taxes falling within the “enhanced extended period” shall be extended “for 30 calendar days from the lifting of the ECQ.”

In view of the subsequent extension of the ECQ to May 15, the SOF issued RR No 11-2020 to further extend the deadlines for filing and payment that were covered by RR No 10-2020 as well as the deadlines for filing and payment falling due from May 1st to May 15th. The RR also provides that “in case of another quarantine extension,” the extended due dates in RR No 11-2020 will be further extended “by 15 calendar days.”

Suspension of prescriptive period for assessment and collection of taxes

One of the consequences of the ECQ is that the BIR cannot assess taxes during this period. In this connection, RR No 7-2020, as amended by RR No 10-2020 and RR No 11-2020, provides for the suspension of the prescriptive periods for the assessment and collection of national taxes for the duration of the ECQ, and “for 60 days after.” This suspension is in accordance with the provision of the Tax Code that suspends the running of the statute of limitations for the period during which the BIR is prohibited from making an assessment and for sixty days thereafter.

Ease of filing and paying taxes

Even with the extended deadlines, the BIR has still encouraged taxpayers to pay their taxes by issuing regulations allowing taxpayers to file and pay taxes through various channels.

Prior to the start of the ECQ, the BIR issued an advisory encouraging taxpayers to comply with tax obligations using electronic means.

On April 15, 2020, the BIR issued RMC No 43-2020 to prescribe guidelines on the place and mode of payment of internal revenue taxes during the ECQ. This issuance:

  • allows taxpayers to pay internal revenue taxes at “the nearest AAB, notwithstanding Revenue District Office (RDO) jurisdiction” or “the concerned Revenue Collection Officers of the nearest RDO, even in areas where there are AABs”; and
  • prescribes guidelines for payment of internal revenue taxes through cash and check.

To facilitate collection, the BIR has issued a bulletin advising AABs to accept the above payments. It must be noted that under the Tax Code, as implemented by regulations, payment at the wrong venue would have subjected the taxpayer to a surcharge.

With respect to the amendment of tax returns, the BIR issued RMC No 37-2020, which provides guidelines for the amendment of returns filed on or before the extended deadlines, which guidelines are likewise incorporated into RR No 10-2020 and RR No 11-2020.

Under the guidelines, taxpayers have the option to pay before the extended deadlines and may amend the return without penalty in case additional taxes need to be paid. On the other hand, if there is overpayment, the taxpayer may either file a claim for refund or “carry over the overpaid tax as credit against the tax due for the same tax type in the succeeding periods.”

The BIR has also issued RMC No 42-2020, consolidating filing and payment instructions for 2019 annual income tax returns via online and offline channels.

Local government response

Local Government Units (LGUs) have also extended deadlines for local tax payments in response to the COVID-19 pandemic.

Fiscal Stimulus and The Philippine Government’s Socioeconomic Strategy

To financially support the fight against the COVID-19 pandemic, the national government, through the DOF, has proposed the “4-Pillar Socioeconomic Strategy Against COVID-19.” In a press release on its website, the DOF reported that the strategy is worth PHP1.49 trillion. The strategy includes setting aside funds to aid vulnerable groups and individuals, raising funds to finance medical resources, fiscal and monetary actions to maintain economic sustainability, and providing for an “economic recovery plan” when the pandemic subsides.

Monetary outflow

The government has come up with financial aid measures to help individuals and MSMEs affected by the COVID-19 pandemic. According to a DOF press release, around 85% of Filipino families are covered by the government’s subsidy programmes, which amount to PHP256 billion.

The first program is the Social Amelioration Program (SAP), which was implemented pursuant to Joint Memorandum Circular No 1-2020. SAP is a cash emergency subsidy programme covering some 18 million “poor and low-income households.” Under SAP, the Department of Social Welfare and Development will provide a wage subsidy of between PHP5,000 and PHP8,000 per month to qualified households.

The second program is the Small Business Wage Subsidy. The DOF, on its website, has announced that the social security system shall provide a wage subsidy of between PHP5,000 and PHP8,000 per month per eligible employee to qualified small businesses that have been affected by the ECQ.

Both subsidy programmes will be for a period of two months.

To ease the economic impact of the COVID-19 pandemic, the Department of Trade and Industry issued Memorandum Circular No 20-12, providing a minimum 30-day grace period for the payment of residential rents and commercial rents of MSMEs falling due within the ECQ period.

Further, the state-run Land Bank of the Philippines has announced on its website that it is implementing its I-Rescue Lending Program to aid small and medium enterprises, microfinance institutions and co-operatives. Small businesses can borrow “up to 85% of actual need,” with an interest rate of “5% per annum” payable for up to five years, with a “grace period on the principal payment.”


The Philippine government has been tapping various sources to secure additional funding for its response to the COVID-19 pandemic.

According to news reports, the Philippine Central Bank(Bangko Sentral ng Pilipinas) has purchased PHP300 billion in treasury bills from the Bureau of Treasury.

The DOF has issued a press release that the Philippines and the World Bank have signed a USD500 million loan accord to fight the COVID-19 pandemic, which is programmed for accelerated disbursement by 30 April 2020 to support the immediate financing requirements.

It has also been reported that the World Bank and the Philippines have signed a USD1.5 billion loan agreement to support the government’s fight against the COVID-19 pandemic.

Pending Tax Reforms

Looking forward, the COVID-19 pandemic will continue to impact how the government will carry out its planned tax reforms.

The Philippines is currently in the process of a tax reform initiative. In 2018, TRAIN Package 1 came into effect. This covers individual income taxes, DST, and transfer taxes. Following this, reports provided by the SOF have stated that TRAIN Packages 2, 3, and 4 are expected to be released this year. All of these packages were being considered long before anyone had heard of COVID-19 and have not taken into consideration the financial toll that is an inevitable consequence of a pandemic. 

TRAIN Package 2, or the Corporate Income Tax and Incentives Rationalization Bill (CITIRA Bill), will gradually lower the corporate income tax rate to 20% and streamline the tax incentive system. The CITIRA Bill aims to make the Philippines more competitive with other Association of Southeast Asian Nations (ASEAN) countries in becoming a country of choice for business ventures and investors. The CITIRA Bill has passed the lower house, as House Bill (H.B.) No 4157, and is being deliberated by the Senate as Senate Bill (S.B.) No 1357.

TRAIN Package 3, or the Valuation Reform Act (VRA), will broaden the tax base used for property-related taxes by the government, and streamline the valuation of real property in the country. According to the DOF, the VRA aims “to increase government revenues without increasing existing tax rates or devising new tax impositions.” The VRA has passed the lower house, as H.B. No 4664, and is being deliberated by the Senate as S.B. Nos 246, 519, and 894.

TRAIN Package 4 is also known as the Passive Income and Financial Intermediary Taxation Act (PIFITA Bill). According to the DOF, the PIFITA Bill is made for the purpose of “simplifying the taxation of passive income, financial services, and transactions.” Ultimately, the PIFITA Bill, like the CITIRA Bill, aims to attract potential business and raise capital. The PIFITA Bill has passed the lower house, as H.B. No 304, and the Senate is currently conducting committee hearings on the package.

While the Philippine President has certified the CITIRA Bill as urgent and it was expected to be passed within the year, following the COVID-19 pandemic, reports have suggested that some lawmakers are considering postponing the enactment of the CITIRA Bill. Similarly, reports have also been circulated suggesting that lawmakers are considering postponing the enactment of the PIFITA Bill and the VRA.

Nonetheless, the new NEDA Secretary, Karl Chua, who was the DOF Undersecretary involved in the preparation of the TRAIN packages, has stated that suspending the enactment of the bills would do more harm than good since the government will need the revenue to be raised by these reforms. According to the Secretary, rather than delaying the passing of these packages, some provisions should instead be revisited. Considering the Secretary’s involvement in the formulation of TRAIN, it is likely that reforms may still be pushed by the government.

There are also news reports that the SOF has suggested that “a tax hike is needed in one to two years” in order to pay off debts incurred in the fight against the COVID-19 pandemic. However, at present, Congress has yet to discuss this proposal.

With the ECQ set to end on May 15th (for now), the magnitude of the effects of the COVID-19 pandemic has yet to be fully determined. Even if the ECQ is lifted, as is currently scheduled, on May 15th, the COVID-19 pandemic will continue to adversely affect the economy for the rest of the year and beyond. It remains to be seen what measures may be undertaken to stimulate the economy and what tax measures may be undertaken to fund such stimulus measures.

SyCip Salazar Hernandez & Gatmaitan

SyCipLaw Center
105 Paseo de Roxas
Makati City 1226
Metro Manila

+632 8982 3500

+632 8817 3896
Author Business Card

Law and Practice


SyCip Salazar Hernandez & Gatmaitan is a full-service law firm, one of the largest in the Philippines, and it is celebrating its 75th anniversary this year. The firm (SyCipLaw) is comprised of multiple departments based on a broad range of practice areas. The tax department consists of 21 lawyers (nine partners and 12 associates), a third of whom are certified public accountants, and is headed by Ms Carina C. Laforteza, who is a partner and a certified public accountant. SyCipLaw’s tax department provides the entire range of tax services, from advising on and structuring the tax aspects of corporate transactions to administrative and judicial litigation in relation to tax refunds and defending clients against assessments for national and local taxes as well as customs duties. To a great extent, the firm’s tax lawyers draw their work from the extensive corporate client base of the firm and assist other departments in the tax aspects of their transactions.

Trends and Development


SyCip Salazar Hernandez & Gatmaitan is a full-service law firm, one of the largest in the Philippines, and it is celebrating its 75th anniversary this year. The firm (SyCipLaw) is comprised of multiple departments based on a broad range of practice areas. The tax department consists of 21 lawyers (nine partners and 12 associates), a third of whom are certified public accountants, and is headed by Ms Carina C. Laforteza, who is a partner and a certified public accountant. SyCipLaw’s tax department provides the entire range of tax services, from advising on and structuring the tax aspects of corporate transactions to administrative and judicial litigation in relation to tax refunds and defending clients against assessments for national and local taxes as well as customs duties. To a great extent, the firm’s tax lawyers draw their work from the extensive corporate client base of the firm and assist other departments in the tax aspects of their transactions.

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