Can a Revoked BIR Ruling Apply to Past Transactions? NIRC Section 246 Non-Retroactivity Explained

NIRC Section 246 provides that when the BIR revokes, modifies or reverses a rule, regulation, ruling or circular, the change cannot be applied retroactively if it would prejudice taxpayers. Three exceptions apply: the taxpayer deliberately misstated or omitted material facts, the facts later gathered by the BIR are materially different from those the ruling was based on, or the taxpayer acted in bad faith.

What does NIRC Section 246 say? #

NIRC Section 246, “Non-Retroactivity of Rulings,” is the Tax Code provision that governs whether a change in BIR position reaches transactions already completed. It sets a general rule against retroactive application when the change prejudices taxpayers, followed by three listed exceptions. The text reads:

“Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith.”

— NIRC (Republic Act No. 8424), Section 246 (LawPhil)

The rule is limited to changes that are prejudicial. A revocation that favors the taxpayer, such as one that removes a tax, is not restricted by the text. Obtaining a ruling in the first place is covered in how to request a BIR ruling.

What are the three exceptions? #

The three exceptions in Section 246 each turn on the taxpayer’s conduct or the facts presented, not on whether the BIR simply changed its mind. When one applies, the revoked ruling can reach past transactions. The table below lists them.

How did the Supreme Court apply Section 246 in ABS-CBN v. Court of Tax Appeals? #

In ABS-CBN Broadcasting Corporation v. Court of Tax Appeals and Commissioner of Internal Revenue (G.R. No. L-52306, October 12, 1981), the Supreme Court set aside a deficiency withholding tax assessment for 1965 to 1968 because the BIR applied a later circular retroactively. The Court applied the earlier version of the rule, Section 338-A of the Tax Code, which has the same text as today’s Section 246. The Court stated:

“It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive application where to so apply them would be prejudicial to taxpayers.”

— ABS-CBN Broadcasting Corporation v. Court of Tax Appeals, G.R. No. L-52306, October 12, 1981 (LawPhil)

The decision records that the taxpayer had withheld tax on film rentals under General Circular No. V-334, that the Commissioner’s later circular was issued in 1971 (three years after 1968), and that the petitioner admittedly fell under none of the enumerated exceptions. The Court’s dispositive portion reversed the Court of Tax Appeals and set aside the assessment.

What did the Supreme Court say in CIR v. San Roque Power Corporation? #

In Commissioner of Internal Revenue v. San Roque Power Corporation (G.R. No. 187485, February 12, 2013, En Banc, consolidated with G.R. Nos. 196113 and 197156), the Supreme Court held that taxpayers may rely on a general BIR interpretative rule from its issuance until its reversal, and applied Section 246 to BIR Ruling No. DA-489-03. The Court wrote:

“Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time the rule is issued up to its reversal by the Commissioner or this Court.”

— Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, February 12, 2013 (LawPhil)

The decision concerned VAT refund claims. BIR Ruling No. DA-489-03, dated December 10, 2003, stated that a taxpayer-claimant need not wait for the 120-day period to lapse before going to the Court of Tax Appeals. The Court treated that ruling as a general interpretative rule that taxpayers could rely on from December 10, 2003 until the Court’s decision in the Aichi case on October 6, 2010. The Court also stated that the ruling was an erroneous interpretation of the law and could not be given retroactive effect before its issuance. San Roque, which filed its judicial claim on April 10, 2003, before the ruling existed, could not invoke it, while Taganito Mining Corporation, which filed on February 14, 2007, could. Philex Mining Corporation could not, because it filed late rather than prematurely.

In the same decision the Court noted that Section 246 is not limited to reversals by the Commissioner; a reversal by the Court is also covered. The case shows both sides of the rule: reliance is protected from the date of the ruling, and not for conduct that came before it.

Worked example: relying on a ruling that is later revoked #

The example below is fictional and uses round numbers; it shows how the Section 246 analysis proceeds. Dela Cruz Trading Corporation asks the BIR for a ruling on whether a service fee is subject to a particular tax, disclosing the full contract. In March 2023 the BIR issues a ruling that the fee is not subject to the tax. The corporation stops collecting the tax and files returns accordingly for 2023 and 2024. In June 2025 the BIR revokes the ruling and holds that the fee is subject to the tax.

1. Transactions through June 2025. The revocation is prejudicial, since it would create a deficiency. Under Section 246 it is not given retroactive application, unless an exception applies.
2. Check exception (a). The corporation disclosed the full contract and made no misstatement, so (a) does not apply.
3. Check exception (b). The contract the BIR reviewed matches the transactions that took place, so the facts are not materially different. Had the corporation later performed services not described in the request, (b) could apply.
4. Check exception (c). Nothing suggests bad faith.
5. After the revocation. For transactions from June 2025 onward the corporation follows the new position.

A taxpayer in this position keeps the ruling, the supporting documents, and dated copies of the returns filed, because reliance and good faith may need to be shown. The deadline for the BIR to assess a deficiency is a separate question from retroactivity; see when the BIR’s prescription period stops running under Section 223.

What limits does Section 246 have? #

Section 246 limits retroactive changes in BIR position, but it does not guarantee that a ruling is correct, and it does not cover every kind of taxpayer reliance. The sources above point to these limits:

• The protection depends on a prejudicial change. The text speaks of revocation, modification or reversal that is “prejudicial to the taxpayers.”
• The exceptions for misstatement, materially different facts and bad faith remain available to the BIR.
• Reliance begins only when the ruling exists, as San Roque’s own filing date shows.
• Taxpayers who dispute an assessment based on a changed position should use the formal remedies; the Letter of Authority audit rights guide explains the audit stage.

Summary #

NIRC Section 246 keeps a revoked, modified or reversed BIR rule, ruling or circular from being applied retroactively when that would prejudice taxpayers, except for deliberate misstatement or omission, materially different facts, or bad faith. In ABS-CBN v. Court of Tax Appeals (G.R. No. L-52306) the Supreme Court set aside an assessment built on a retroactive circular, and in CIR v. San Roque Power Corporation (G.R. No. 187485) it allowed reliance on BIR Ruling No. DA-489-03 between December 10, 2003 and October 6, 2010.

Frequently asked questions #

Can the BIR apply a revoked ruling to past transactions? #

Generally not when it would hurt the taxpayer. NIRC Section 246 provides that any revocation, modification or reversal of BIR rules and regulations, rulings or circulars shall not be given retroactive application if it will be prejudicial to the taxpayers, unless one of three exceptions applies.

What are the exceptions to NIRC Section 246? #

There are three: (a) the taxpayer deliberately misstates or omits material facts from a return or any document required by the BIR; (b) the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; or (c) the taxpayer acted in bad faith.

Does Section 246 protect a taxpayer who relied on a general BIR circular, not a ruling issued to that taxpayer? #

Yes, according to the Supreme Court in Commissioner of Internal Revenue v. San Roque Power Corporation (G.R. No. 187485, February 12, 2013), which held that a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time the rule is issued up to its reversal. In ABS-CBN Broadcasting Corporation v. Court of Tax Appeals (G.R. No. L-52306, October 12, 1981), the Court applied the same protection to a BIR circular.

Does Section 246 apply when the Supreme Court, not the BIR, reverses the earlier interpretation? #

Yes. In San Roque, the Supreme Court noted that Section 246 refers to any revocation, modification or reversal without specifying who made it, and concluded that a reversal by the Court is covered.

Is a BIR ruling protected even if it was wrong? #

Section 246 protects against prejudicial retroactive application of a revocation, but it does not make the ruling correct. In San Roque, the Court held that BIR Ruling No. DA-489-03 was admittedly erroneous yet could be relied upon by taxpayers from its issuance on December 10, 2003 until its reversal in the Aichi decision on October 6, 2010, and not before its issuance.