InTAX: May 2022 Issue 2 | Volume 1

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

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Supreme Court

The Supreme Court (SC) ruled that Revenue Regulations (RR) No. 4-2011* is void.

Considering that RR No. 4-2011 has neither provided details for the enforcement of the Tax Code nor an interpretation of the provisions thereof, RR No. 4-2011 effectively modified the Tax Code as follows:


RR No. 4-2011 is contrary to Section 43 of the Tax Code which provides that taxpayers are allowed to self-determine the most applicable accounting method and the Commissioner of Internal Revenue (CIR) may only prescribe an accounting method if it is determined that the accounting method employed by the taxpayers do not reflect their actual income;


RR No. 4-2011 unduly expands Section 50 of the Tax Code**since the RR provides for an allocation for different units or income streams within one bank or financial institution instead of only between two or more organizations, trades or businesses; and


RR No. 4-2011 impairs the taxpayer’s right to claim deductions under Section 34 of the Tax Code when the RR imposed a requirement for deductibility of expenses which is not provided under the Tax Code.

In ruling for the taxpayer (banks and NBFIs), the SC emphasized that the administrative issuances must not override, supplant, or modify the law, and must remain consistent with the law they intend to carry out.

[Department of Finance (DOF), represented by its Secretary and the Bureau of Internal Revenue (BIR) represented by its commissioner Vs. Asia United Bank, et al., GR Nos. 240163 & 240168-69 dated 01 December 2021; uploaded in the SC website on 12 May 2022]

* RR No. 4-2011 provides that cost and expenses of banks and NBFIs attributable to the operations of units/income streams can be claimed as deduction to arrive at the taxable income of such unit/income stream only. In computing the allowable deduction, RR No. 4-2011 prescribes the use of: (1) specific identification; and (2) allocation of common expenses between the units/income streams.

** Section 50 of the Tax Code will only apply between two or more organizations, trades or business, if the CIR determines that allocation of income is necessary to prevent evasion of taxes or clearly to reflect the income of controlled taxpayer’s organization, trade or business.

Attached is the full text of the issuance.

Supreme Court

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