Tax 2 Case Digests

G.R. No. 171251

March 5, 2012

LASCONA LAND CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner Lascona Land Co., Inc. was assessed for alleged deficiency income tax in the amount of P753,266.56 for the taxable year 1993. Petitioner filed a protest with the respondent Commissioner of the Internal Revenue (CIR), but it was denied on the ground that it has become final, executory and demandable as is it was not elevated to the Court of Tax Appeals (CTA) as required in the last paragraph of Section 228 of the Tax Code. Petitioner appealed before the CTA alleging that the CIR erred in ruling that the failure to appeal to the CTA within 30 days from the lapse of the 180-day period rendered the assessment final and executory. However, the CIR maintained its argument that petitioner’s failure to file an appeal after the lapse of the 180-day reglementary period required by law resulted to the finality of the assessment. Issue: Whether or not the subject assessment has become final and executory. Ruling: No. When the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing an appeal after the lapse of the 180day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the protested assessment. It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment, the taxpayer has two options, either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision, these options are mutually exclusive and resort to one bars the application of the other. In the case at bar, petitioner opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within 30 days after receipt of a copy of such decision or ruling, even after the expiration of the 180day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments.

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G.R. No. 174759

September 7, 2011

DENIS B. HABAWEL AND ALEXIS F. MEDINA vs. COURT OF TAX APPEALS, FIRST DIVISION

Facts: Petitioners Habawel and Medina were the counsel of Surfield Development Corporation (Surfield). Surfield sought the refund of excess realty taxes paid by it from 1995 until 2000 from the Office of the Treasurer of Mandaluyong City, which the latter denied. Surfield filed a Special Civil Action for Mandamus before the Regional Trial Court (RTC) which dismissed the petition on the ground that the period to file the claim had already prescribed and that Surfield had failed to exhaust administrative remedies. The RTC ruled that the grant of a tax refund was not a ministerial duty compellable by writ of mandamus. The Court of Tax Appeals (CTA) First Division affirmed the decision of the RTC. On its motion for reconsideration, the petitioners insists that the CTA had jurisdiction pursuant to Section 7(a)(3) of Republic Act No. 9282 and there was no need to file an appeal before the Local Board of Assessment Appeals pursuant to Section 22 of RA 7160. The CTA denied the motion for reconsideration, explaining that the jurisdiction conferred by Section 7(a)(3) of Republic Act No. 9282 referred to appeals from the decisions, orders, or resolutions of the RTCs in local tax cases and did not include real property tax, an ad valorem tax, the refund of excess payment of which Surfield was claiming. Accordingly, the CTA First Division ruled that the jurisdiction of the CTA concerning real property tax cases fell under a different section of the same law and under a separate book of Republic Act No. 7160. Issue: Whether or not the CTA has jurisdiction over the case. Ruling: No. Section 7(a)(3) covers only appeals from the decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction. The provision is clearly limited to local tax disputes decided by the Regional Trial Courts. In contrast, Section 7(a)(5) grants the CTA cognizance of appeals from the decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. Therefore, as the CTA First Division forthrightly explained and contrary to the petitioners’ contention, Section 7(a)(3) is not applicable because real property tax, being an ad valorem tax, cannot be treated as a local tax.

G.R. No. 180173

April 6, 2011 Case Digests – Taxation II

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MICROSOFT PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner Microsoft Philippines, Inc., a VAT-registered taxpayer, renders marketing services to Microsoft Operations Pte. Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both affiliated non-resident foreign corporations. The services are paid for in acceptable foreign currency and qualify as zero-rated sales for VAT purposes. Petitioner filed an administrative claim for tax credit of VAT input taxes in the amount of P11,449,814.99 attributable to its zero-rated sales. Due to the Bureau of Internal Revenue’s (BIR) inaction, petitioner filed a petition for review before the Court of Tax Appeals (CTA), which denied the claim for tax credit of VAT input taxes. The CTA explained that petitioner failed to comply with the invoicing requirements of Sections 113 and 237 of the National Internal Revenue Code (NIRC) as well as Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95). The CTA stated that petitioner’s official receipts do not bear the imprinted word "zero-rated" on its face, thus, the official receipts cannot be considered as valid evidence to prove zero-rated sales for VAT purposes. Issue: Whether or not the petitioner is entitled to a refund of VAT input taxes. Ruling: No. The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue regulations are clear. A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zerorated sales. A "VAT invoice" is an invoice that meets the requirements of Section 4.108-1 of RR 7-95. Contrary to petitioner's claim, RR 7-95 expressly states that "All purchases covered by invoices other than a VAT invoice shall not give rise to any input tax." Petitioner's invoice, which lacks the word "zero-rated," is not a "VAT invoice," and thus cannot give rise to any input tax. It was ruled in several cases that the printing of the word "zero-rated" is required to be placed on VAT invoices or receipts covering zero-rated sales in order to be entitled to claim for tax credit or refund. In Panasonic v. Commissioner of Internal Revenue, it was held that the appearance of the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually paid. Absent such word, the government may be refunding taxes it did not collect. In the case at bar, both the CTA Second Division and CTA En Banc found that Microsoft's receipts did not indicate the word "zero-rated" on its official receipts.

G.R. No. 172378

January 17, 2011 Case Digests – Taxation II

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SILICON PHILIPPINES, INC. (formerly INTEL PHILIPPINES MANUFACTURING, INC.) vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner Silicon Philippines, Inc., a Philippine corporation engaged in the business of designing, developing, manufacturing and exporting advance and large-scale integrated circuit components or "IC’s.", is registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer. Petitioner filed with the respondent Commissioner of Internal Revenue (CIR) an application for credit/refund of unutilized input VAT for 1998 in the amount of P31,902,507.50. The CIR denied this application. On appeal to the Court of Tax Appeals (CTA) Division, petitioner’s claim for refund of unutilized input VAT on capital goods was granted. However, the CTA Division reduced the amount which petitioner claimed from P15,170,082.00 to P9,898,867.00 .With regard to petitioner’s claim for credit/refund of input VAT attributable to its zero-rated export sales, the CTA Division denied the same. Upon denial of its motion for reconsideration, petitioner elevated the case to the CTA En Banc. The CTA En Banc denied petitioner’s claim for credit/ refund of input VAT attributable to its zero-rated sales due to its failure to show that it secured an Authorization-to-Print (ATP) invoices from the BIR and to indicate the same in its export sales invoices; and failure to print the word "zero-rated" in its export sales invoices. It also ruled that the items being claimed as capital goods (training materials, office supplies, posters, banners, tshirts, books and the like) purchased by petitioner were not duly proven to have been used, directly or indirectly in the production or sale of taxable goods or services. As such, they cannot be considered as capital goods, and so the reduction decided by the CTA Division was upheld. Issues: 1. Whether or not petitioner can claim credit/refund of input VAT attributable to its zero-rated sales. 2. Whether or not the petitioner can claim input VAT paid on capital goods. Ruling: 1. No. In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A) of the NIRC lays down four requisites: (1) the taxpayer must be VATregistered; (2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax. Under Section 112(A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or receipts would have no Case Digests – Taxation II

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probative value for the purpose of refund. In the case of Intel, we emphasized that “It is not specifically required that the BIR authority to print be reflected or indicated therein. Indeed, what is important with respect to the BIR authority to print is that it has been secured or obtained by the taxpayer, and that invoices or receipts are duly registered.” The non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to print the word "zero-rated" on its export sales invoices. Thus, the CTA ruled correctly. 2. No. To claim a refund of input VAT on capital goods, Section 112 (B) of the NIRC requires that: (1) The claimant must be a VAT registered person; (2) The input taxes claimed must have been paid on capital goods; (3) The input taxes must not have been applied against any output tax liability; and (4) The administrative claim for refund must have been filed within two years after the close of the taxable quarter when the importation or purchase was made. Section 4.106-1(b) of RR No. 7-95 defines capital goods as “goods or properties with estimated useful life greater that one year and which are treated as depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of taxable goods or services.” Based on this definition, the Supreme Court affirmed the findings of the CTA that training materials, office supplies, posters, banners, Tshirts, books, and the other similar items reflected in petitioner’s Summary of Importation of Goods are not capital goods. The reduction in the refundable input VAT on capital goods from P15,170,082.00 to P9,898,867.00 is proper.


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G.R. No. 179961

January 31, 2011

KEPCO PHILIPPINES CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner Kepco Philippines Corporation, a domestic corporation engaged in the production and sale of electricity, is a value-added tax (VAT) registered taxpayer. It sells its electricity to the National Power Corporation (NPC). Petitioner filed with respondent Commissioner of Internal Revenue (CIR) an application for effective zero-rating of its sales of electricity to the NPC. Petitioner alleged that for the taxable year 1999, it incurred input VAT in the amount of P10,527,202.54 on its domestic purchases of goods and services that were used in its production and sale of electricity to NPC for the same period. Upon denial of its application, petitioner elevated the case to the Court of Tax Appeals (CTA) and the CTA Second Division denied petitioner’s claim for refund due to failure to properly substantiate its effectively zero-rated sales. The tax court held that petitioner also failed to comply with the invoicing requirements in clear violation of Section 4.108-1 of Revenue Regulations (R.R.) No. 7-95, implementing Section 108(B)(3) in conjunction with Section 113 of the 1997 NIRC. Petitioner filed an appeal but the CTA En Banc dismissed such, reasoning out that petitioner’s failure to comply with the requirement of imprinting the words "zero-rated" on its official receipts resulted in non-entitlement to the benefit of VAT zero-rating and denial of its claim for refund of input tax. Issue: Whether or not petitioner’s failure to imprint the words "zero-rated" on its official receipts issued to NPC justifies an outright denial of its claim for refund of unutilized input tax credits. Ruling: Yes. It is the duty of petitioner to comply with the requirements, including the imprinting of the words "zero-rated" in its VAT official receipts and invoices in order for its sales of electricity to NPC to qualify for zero-rating. It must be emphasized that the requirement of imprinting the word "zero-rated" on the invoices or receipts under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En Banc, citing Tropitek International, Inc. v. Commissioner of Internal Revenue. The imprinting of "zero-rated" is necessary to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other provisions of the 1997 NIRC on VAT. Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund. Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the nature of a claim for exemption and the law is construed in strictissimi juris against the taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption are also scrutinized and must be duly proven.


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G.R. No. 179632

October 19, 2011

SOUTHERN PHILIPPINES POWER CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner Southern Philippines Power Corporation, a power company that generates and sells electricity to the National Power Corporation (NPC), applied with the Bureau of Internal Revenue (BIR) for zero-rating of its transactions under Section 108(B)(3) of the National Internal Revenue Code (NIRC). The BIR approved the application for taxable years 1999 and 2000. Petitioner also filed a claim with respondent Commissioner of Internal Revenue (CIR) for a tax credit of its unutilized input VAT attributable to its zero-rated sale of electricity to NPC. Before the lapse of the two-year prescriptive period for such actions, petitioner filed with the Court of Tax Appeals (CTA) Second Division a petition for review covering its claims for refund or tax credit. CTA Second Division denied the petition, holding that its zero-rated official receipts did not correspond to the quarterly VAT returns, bearing a difference of P800,107,956.61. Further, these receipts do not bear the words "zero-rated" in violation of RR 7-95. The Second Division denied SPP’s motion for reconsideration and on appeal, the CTA En Banc affirmed the Second Division’s decision. The CTA En Banc rejected petitioner’s contention that its sales invoices reflected the words "zero-rated," pointing out that it is on the official receipts that the law requires the printing of such words. Moreover, SPP did not report in the corresponding quarterly VAT return the sales subject of its zero-rated receipts. Issue: Whether or not the word “zero-rated” must be reflected on the official receipts for the petitioner to be entitled to a tax credit of unutilized VAT input on its zero-rated transactions. Ruling: No. NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by a VAT invoice "or" official receipt issued in accordance with Section 113. Section 113 does not distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction. Consequently, the CTA should have accepted either or both of these documents as evidence of petitioner’s zero-rated transactions. Section 237 of the NIRC also makes no distinction between receipts and invoices as evidence of a commercial transaction. The Court held in Seaoil Petroleum Corporation v. Autocorp Group that business forms like sales invoices are recognized in the commercial world as valid between the parties and serve as memorials of their business transactions. The Supreme Court also ruled that petitioner’s failure to indicate its zero-rated sales in its VAT returns is not sufficient reason to deny it its claim for tax credit or refund when there are other documents from which the CTA can determine the veracity of SPP’s claim. Although such failure partakes of a criminal act under Section 255 of the NIRC could warrant the criminal prosecution of the responsible person/s, the omission does not furnish ground for the outright denial of the claim for tax credit or refund if such claim is in fact justified. Case Digests – Taxation II

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G.R. No. 193007

July 19, 2011

RENATO V. DIAZ AND AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioners Renato Diaz and Aurora Ma. F. Timbol filed a petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. They alleged that the Congress when it enacted the NIRC did not intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user’s tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution. The government averred that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars. Issue: Whether or not toll fees collected by tollway operators may be subjected to value- added tax. Ruling: Yes. If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken. The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads. The charging of fees to the public does not determine the character of the property whether it is for public dominion or not. Article 420 of the Civil Code defines property of public dominion as "one intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.


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G.R. No. 178090

February 8, 2010

PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILIPPINES (formerly MATSUSHITA BUSINESS MACHINE CORPORATION OF THE PHILIPPINES) vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner Panasonic Communications Imaging Corporation of the Philippines produces and exports plain paper copiers and their sub-assemblies, parts, and components. It is a registered value-added tax (VAT) enterprise. From 1998 to 1999, petitioner generated export sales where it paid input VAT of P9,368,482.40 believing that its sales are zero-rated sales. Claiming that the input VAT it paid remained unutilized. Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax credit of what it paid. When the BIR did not act on the same, Panasonic filed a petition for review with the Court of Tax Appeals (CTA). The CTA First Division denied the petition stating that while petitioner’s export sales were subject to 0% VAT under the NIRC, the same did not qualify for zero-rating because the word "zero-rated" was not printed on its export invoices. This omission violates the invoicing requirements of Section 4.108-1 of Revenue Regulations (RR) 7-95. The motion for reconsideration was denied. On appeal, the CTA en banc upheld the First Division’s decision. Issue: Whether or not the words "zero-rated" must appear in the sales invoice so that a claim for refund of unutilized input VAT on zero-rated sales will be proper. Ruling: Yes. Zero-rated transactions generally refer to the export sale of goods and services. When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive. For the effective zero rating of such transactions, however, the taxpayer has to be VATregistered and must comply with invoicing requirements. Interpreting these requirements, respondent CIR ruled that under Revenue Memorandum Circular (RMC) 42-2003, the taxpayer’s failure to comply with invoicing requirements will result in the disallowance of his claim for refund. If the claim for refund is based on the existence of zero-rated sales by the taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices, its claim for tax credit/refund of VAT on its purchases shall be denied considering that the invoice it is issuing to its customers does not depict its being a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense account or asset account subject to depreciation, whichever is applicable. Moreover, the case shall be


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referred by the processing office to the concerned BIR office for verification of other tax liabilities of the taxpayer. G.R. No. 182722

January 22, 2010

DUMAGUETE CATHEDRAL CREDIT COOPERATIVE, represented by FELICIDAD L. RUIZ (General Manager) vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner Dumaguete Cathedral Credit Cooperative is a credit cooperative duly registered with and regulated by the Cooperative Development Authority (CDA). The Bureau of Internal Revenue (BIR) examined petitioner’s books of accounts and other accounting records for all internal revenue taxes for the taxable years 1999 and 2000. Petitioner received two Pre-Assessment Notices for deficiency withholding taxes for said taxable years which cover the payments of the honorarium of the Board of Directors, security and janitorial services, legal and professional fees, and interest on savings and time deposits of its members. Petitioner informed BIR that it would only pay the deficiency withholding taxes corresponding to the honorarium and per diems of the Board of Directors, security and janitorial services, commissions, legal and professional fees for the years 1999 and 2000; and that it would avail of the Voluntary Assessment and Abatement Program (VAAP) of the BIR. Petitioner then received from the BIR Letters of Demand with attached Transcripts of Assessment and Audit Results/Assessment Notices, ordering petitioner to pay the deficiency withholding taxes, inclusive of penalties, for the years 1999 and 2000. Petitioner protested with the Commissioner of Internal Revenue (CIR). However, the latter failed to act on the protest within the prescribed 180-day period. Hence, petitioner filed a Petition for Review before the CTA, which was partially granted. Petitioner moved for a partial reconsideration, but it was denied. Issue: Whether or not petitioner is required to withhold taxes on interest from savings and time deposits of their members. Ruling: No. The BIR declared in BIR Ruling No. 551-888 that cooperatives are not required to withhold taxes on interest from savings and time deposits of their members. The legislative intent to give cooperatives a preferential tax treatment is apparent in Articles 61 of RA 6938, which read: “ART. 61. Tax Treatment of Cooperatives. — Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.” This exemption extends to members of cooperatives. It must be emphasized that cooperatives exist for the benefit of their members. In fact, the primary objective of every cooperative is to provide goods and services to its members to enable them to attain increased income, savings, investments, and productivity. Therefore, limiting the application of the tax exemption to cooperatives would go against the very purpose of a credit cooperative. Extending the exemption to members of cooperatives, on the other hand, would


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be consistent with the intent of the legislature. Thus, although the tax exemption only mentions cooperatives, this should be construed to include the members. G.R. No. 179085

January 21, 2010

TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Respondent Commissioner of Internal Revenue sent petitioner Tambunting Pawnshop, Inc. an assessment notice for P3,055,564.34 deficiency value-added tax, P406,092.50 deficiency documentary stamp tax on pawn tickets, P7,201.55 deficiency withholding tax on compensation, and P21,723.75 deficiency expanded withholding tax, all inclusive of interests and surcharges for the taxable year 1999. Petitioner protested the assessment. As the protest merited no response, it filed a Petition for Review with the Court of Tax Appeals the ground that Pawnshops are not subject to Value Added Tax pursuant to Section 108 of the National Internal Revenue Code, which states that a pawnshop is not enumerated as one of those engaged in sale or exchange of services and Petitioner's pawn tickets are not subject to documentary stamp tax pursuant to existing laws and jurisprudence. The First Division of the CTA ruled that petitioner is liable for VAT and documentary stamp tax but not for withholding tax on compensation and expanded withholding tax. Issue: What are tax liabilities of pawnshops? Ruling: On the issue of whether pawnshops are liable to pay VAT, the Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning, subject to the appropriate taxes provided by law, thus — • Under the National Internal Revenue Code of 1977, pawnshops should have been levied the 5% percentage tax on gross receipts imposed on bank and nonbank financial intermediaries under Section 119 (now Section 121 of the Tax Code of 1997); • With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, pawnshops should have been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997); • This was restated by R.A. No. 8241, which amended R.A. No. 7716, although the levy, collection and assessment of the 10% VAT on services rendered by banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions, were made effective January 1, 1998; • R.A. No. 8424 or the Tax Reform Act of 1997 likewise imposed a 10% VAT under Section 108 but the levy, collection and assessment thereof were again deferred until December 31, 1999; Case Digests – Taxation II

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• The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until December 31, 2000, and by R.A. No. 9010, until December 31, 2002; • With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were finally made effective beginning January 1, 2003; Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were specifically exempted from VAT, 28 and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was re-imposed under Section 122 of the Tax Code of 1997. •

At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general provision on "sale or exchange of services" as defined under Section 108 (A) of the Tax Code of 1997, which states: "'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration." Instead, due to the specific nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries. Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically deferred by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be. Since the imposition of VAT on pawnshops, which are nonbank financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year 1999. In dodging liability for documentary stamp tax on its pawn tickets, petitioner argues that such tickets are neither securities nor printed evidence of indebtedness. The argument fails. True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. There is therefore no basis in petitioner's assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket.


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G.R. No. 180356

February 16, 2010

SOUTH AFRICAN AIRWAYS vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner South African Airways is a foreign corporation organized and existing under and by virtue of the laws of the Republic of South Africa. In the Philippines, it is an internal air carrier having no landing rights in the country. Petitioner has a general sales agent in the Philippines, Aerotel. Aerotel sells passage documents for compensation or commission for petitioner's off-line flights for the carriage of passengers and cargo between ports or points outside the territorial jurisdiction of the Philippines. Petitioner is not registered with the Securities and Exchange Commission as a corporation, branch office, or partnership. It is not licensed to do business in the Philippines. For the taxable year 2000, petitioner filed separate quarterly and annual income tax returns for its off-line flights. On 2003, petitioner filed with the Bureau of Internal Revenue a claim for the refund of the amount of P1,727,766.38 as erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such claim was unheeded. Thus petitioner filed a petition for Review with the CTA for the refund of the abovementioned amount. Issue: Whether or not petitioner, as an off-line international carrier selling passage documents through an independent sales agent in the Philippines, is engaged in trade or business in the Philippines subject to the 32% income tax. Ruling: Yes. In Commissioner of Internal Revenue v. British Overseas Airways Corporation, which was decided under similar factual circumstances, the Court ruled that offline air carriers having general sales agents in the Philippines are engaged in or doing business in the Philippines and that their income from sales of passage documents here is income from within the Philippines. Thus, in that case, we held the off-line air carrier liable for the 32% tax on its taxable income. Sec. 28 (A) (1) of the 1997 NIRC is a general rule that resident foreign corporations are liable for 32% tax on all income from sources within the Philippines. Sec. 28 (A) (3) is an exception to this general rule. In the instant case, the general rule is that resident foreign corporations shall be liable for a 32% income tax on their income from within the Philippines, except for resident foreign corporations that are international carriers that derive income "from carriage of persons, excess baggage, cargo and mail originating from the Philippines" which shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner, being an international carrier with no flights originating from the Philippines, does not fall under the exception. As such, petitioner must fall under the general rule. This principle is embodied in the Latin maxim, exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be regarded as coming within the purview of the general rule.


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G.R. No. 160756

March 9, 2010

CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATIONS, INC. vs. THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA AMATONG, AND THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.

Facts: Petitioner Chamber of Real Estate and Builders’ Associations, Inc. is an association of real estate developers and builders in the Philippines. They assail the validity of the imposition of minimum corporate income tax (MCIT) on corporations and creditable withholding tax (CWT) on sales of real properties classified as ordinary assets. Section 27 (E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-98. They argue that the MCIT violates the due process clause because it levies income tax even if there is no realized gain. Petitioner also seeks to nullify Sections 2.57.2 (J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4 (a) (ii) and (c) (ii) of RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale of real properties categorized as ordinary assets. Petitioner contends that these revenue regulations are contrary to law for two reasons: first, they ignore the different treatment by RA 8424 of ordinary assets and capital assets and second, respondent Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross selling price or fair market value of the real properties classified as ordinary assets. Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause because, like the MCIT, the government collects income tax even when the net income has not yet been determined. They contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but not on other business enterprises, more particularly those in the manufacturing sector. Issue: Whether or not the imposition of the MCIT on domestic corporations is unconstitutional. Ruling: No. MCIT is not violative of due process. Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The exercise of taxing power derives its source from the very existence of the State whose social contract with its citizens obliges it to promote public interest and the common good. Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of 2% of its gross income when such MCIT is greater than the normal corporate income tax imposed under Section 27 (A). If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the MCIT over the normal tax shall be carried forward and credited against the normal income tax for the three immediately succeeding taxable years. Petitioner is correct in saying that income is distinct from capital. Income means all the wealth which flows into the taxpayer other than a mere return on capital. Case Digests – Taxation II

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Capital is a fund or property existing at one distinct point in time while income denotes a flow of wealth during a definite period of time. Income is gain derived and severed from capital. Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital. The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed. Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation's gross income. In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and confiscatory. The Court cannot strike down a law as unconstitutional simply because of its yokes. Taxation is necessarily burdensome because, by its nature, it adversely affects property rights. The party alleging the law's unconstitutionality has the burden to demonstrate the supposed violations in understandable terms.


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G.R. No. 178087

May 5, 2010

COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION

Facts: On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return for the taxable year 1998. A review and audit of respondent’s records ensued after petitioner Bureau of Internal Revenue (BIR) served respondent with a subpoena duces tecum for its documents. On December 10, 2001, Nelia Pasco, respondent’s accountant, executed a Waiver of the Defense of Prescription, which was notarized on January 22, 2002, received by the BIR Tax Fraud Division on February 4, 2002. This was followed by a second Waiver of Defense of Prescription executed by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26, 2003. Respondent challenged the assessments by filing its protest on the assessment. The BIR rendered a final decision on the matter, requesting the immediate payment of tax liabilities amounting to P25,624,048.76. Believing that the government’s right to assess taxes had prescribed, respondent filed a Petition for Review with the CTA. The CTA Second Division issued a Resolution canceling the assessment notices issued against respondent for having been issued beyond the prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90. Petitioner moved for reconsideration but the CTA Second Division denied such motion. On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Petitioner sought reconsideration but the same was unavailing. Issue: Whether or not the waivers of prescriptive period to assess are valid. Ruling: No. The waivers executed by respondent’s accountant did not extend the period within which the assessment can be made. Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-9017 and RDAO 05-0118 lay down the procedure for the proper execution of the waiver, to wit: (1) The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up; (2) The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized; (3) The Case Digests – Taxation II

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waiver should be duly notarized; (4) The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative; (5) Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed; and (6) The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. In the case at bar, the waivers executed by respondent’s accountant were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent; the waivers failed to indicate the date of acceptance, and the fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers. Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond the three-year period and are void.


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G.R. No. 166134

June 29, 2010

ANGELES CITY vs. ANGELES CITY ELECTRIC CORPORATION AND REGIONAL TRIAL COURT BRANCH 57, ANGELES CITY

Facts: Respondent Angeles City Electric Corporation (AEC), which was granted a legislative franchise to generate and distribute electricity in Angeles City, Pampanga, pays a franchise tax of two percent (2%) of its gross receipts to the BIR. When the Local Government Code (LGC) of 1991 was passed into law, the Sangguniang Panlungsod of Angeles City enacted a tax ordinance known as the Revised Revenue Code of Angeles City (RRCAC) which imposed a local franchise tax upon AEC. Metro Angeles Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a member filed a petition seeking the reduction of the tax rates and a review of the provisions of the RRCAC was filed by, claiming that the ordinance is oppressive. The petition was referred to the Bureau of Local Government Finance (BLGF) and an indorsement was issued to the City Treasurer of Angeles City, instructing the latter to make representations with the Sanggunian for the appropriate amendment of the RRCAC. On 2004, the City Treasurer issued a Notice of Assessment to AEC for payment of business tax, license fee and other charges for the period 1993 to 2004 amounting to P94,861,194.10. AEC protested the assessment but the City Treasurer denied the protest. AEC appealed to the RTC of Angeles City via a Petition for Declaratory Relief. The City Treasurer however levied on the real properties of AEC and a Notice of Auction Sale was published announcing that a public auction of the levied properties would be held. This prompted AEC to file with the RTC an Urgent Motion for Issuance of Temporary Restraining Order (TRO) and/or Writ of Preliminary Injunction. After due notice and hearing, the RTC issued a TRO and a Writ of Preliminary Injunction. Angeles City filed a motion for dissolution of preliminary injunction, contending that the RTC cannot enjoin the collection of taxes pursuant to the LGC, but the RTC denied such motion. Issue: Whether or not the RTC can enjoin the collection of local taxes. Ruling: No. The LGC does not specifically prohibit an injunction enjoining the collection of taxes. A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the government should be collected promptly, without unnecessary hindrance or delay. In line with this principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the code. The situation, however, is different in the case of the collection of local taxes as there is no express provision in the LGC prohibiting courts from issuing an injunction to restrain local governments from collecting taxes. Unlike the National Internal Revenue Code, the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the Case Digests – Taxation II

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collection of local taxes. Nevertheless, it must be emphasized that although there is no express prohibition in the LGC, injunctions enjoining the collection of local taxes are frowned upon. Courts therefore should exercise extreme caution in issuing such injunctions. No grave abuse of discretion was committed by the RTC in the issuance of the writ of preliminary injunction because the two requisites to warrant the issuance of such, which are the existence of a clear and unmistakable right that must be protected and an urgent and paramount necessity for the writ to prevent serious damage, have been satisfied. The Court then had no other recourse but to grant the prayer for the issuance of a writ of preliminary injunction considering that if the respondent will not be restrained from doing the acts complained of, it will preempt the Court from properly adjudicating on the merits the various issues between the parties, and will render moot and academic the proceedings before the court. The petition was dismissed.


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G.R. Nos. 172045-46

June 16, 2009

COMMISSIONER OF INTERNAL REVENUE vs. FIRST EXPRESS PAWNSHOP COMPANY, INC.

Facts: Petitioner Bureau of Internal Revenue (BIR) issued assessment notices against respondent First Express Pawnshop Company, Inc., which included assessments for deficiency documentary stamp tax (DST) of P12,328.45 on deposit on subscription and for deficiency DST of P62,128.87 on pawn tickets. Respondent filed its written protest on the assessments and when petitioner did not act on the protest during the 180-day period, respondent petitioned before the Court of Tax Appeals (CTA). Respondent alleged that no deficiency DST was due because the National Internal Revenue Code (Tax Code) does not cover any document or transaction which relates to respondent. The CTA First Division ruled that the assessments for deficiency DST shall be cancelled. Both parties filed Motions for Reconsideration which were denied, hence, both parties filed Petitions for Review with the CTA En Banc. The CTA En Banc promulgated a Decision ordering respondent to pay DST on its pawnshop tickets but found that respondent’s deposit on subscription was not subject to DST. Aggrieved, petitioner elevated the case before this Court. Issue: Whether or not the subscription contracts are subject to DST. Ruling: Yes. According to Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. DST attaches upon acceptance of the stockholder’s subscription in the corporation’s capital stock regardless of actual or constructive delivery of the certificates of stock. Sections 175 and 176 of the Tax Code contemplate a subscription agreement in order for a taxpayer to be liable to pay the DST. A stock subscription is a contract by which the subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same or expressly or impliedly promising to pay for the same. Based on the testimony of respondent’s auditor and respondent’s financial statements as of 1998, there was no agreement to subscribe to the unissued shares. Here, the deposit on stock subscription refers to an amount of money received by the corporation as a deposit with the possibility of applying the same as payment for the future issuance of capital stock, an event which may or may not happen. The person making a deposit on stock subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc., the Supreme Court held that those certificates of stocks temporarily subject to suspensive conditions shall be liable for DST only when released from said conditions, for then and only then shall they truly acquire any practical value for their owners. Hence, respondent is not liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and obligations between the Case Digests – Taxation II

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subscriber and the corporation. The petition was denied and the CTA en banc’s decision was affirmed. G.R. No. 180345

November 25, 2009

SAN ROQUE POWER CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner San Roque Corporation entered into a Power Purchase Agreement (PPA) with the National Power Corporation (NPC) to develop the hydro potential of the Lower Agno River, and to be able to generate additional power and energy for the Luzon Power Grid, by developing and operating the San Roque Multipurpose Project. The PPA provides that petitioner shall be responsible for the design, construction, installation, and completion and testing and commissioning of the Power Station and it shall operate and maintain the same, subject to the instructions of the NPC. During the cooperation period of 25 years commencing from the completion date of the Power Station, the NPC shall purchase all the electricity generated by the Power Plant. Because of the exclusive nature of the PPA between petitioner and the NPC, the former applied for and was granted five Certificates of Zero Rate by the BIR. For January to December 2002, petitioner filed with the respondent Commissioner of Internal Revenue its Monthly VAT Declaration and Quarterly VAT Returns. The latter showing excess input VAT payments on account of its importation and domestic purchases of goods and services. Petitioner filed with the BIR four separate administrative claims for refund of Unutilized Input VAT. Respondent failed to act on the request for tax refund or credit of petitioner, which prompted the latter to file with the CTA in Division, a Petition for Review. After a hearing on the merits, the CTA Second Division denied petitioner's claim for tax refund or credit. Issue: Whether or not petitioner may claim a tax refund or credit. Ruling: Yes. To claim refund or tax credit petitioner must comply with the following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in effectively zerorated or zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not transitional input taxes; (5) the input taxes have not been applied against output taxes during and in the succeeding quarters; (6) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (7) for zero-rated sales under Section 106 (A) (2) (1) and (2); 106 (B); and 108 (B) (1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; (8) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) the claim is filed within two years after the close of the taxable quarter when such sales were made. San Roque Corporation complied with the abovementioned requirements. It bears emphasis that effective zero-rating is not intended as a benefit to the Case Digests – Taxation II

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person legally liable to pay the tax, in this case the petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as to encourage the development of particular industries. G.R. No. 173594

February 6, 2008

SILKAIR (SINGAPORE) PTE, LTD. vs. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner, Silkair (Singapore) Pte. Ltd., a corporation organized under the laws of Singapore which has a Philippine representative office, is an online international air carrier operating domestic routes. Petitioner filed with the Bureau of Internal Revenue (BIR) a refund worth P 4,000,000.00 for excise taxes it claimed to have paid on its purchases of jet fuel from Petron Corporation (Petron). The Second Division of the CTA, however, denied the petition on the ground that the excise tax was imposed on Petron as manufacturer and that should any claim arise, it should be filed by the latter and that where the burden of tax is shifted to the purchaser (petitioner in this case), the amount passed on to it is no longer a tax but an added cost to the goods purchased. Issue: Whether or not petitioner Silkair is the proper party to claim for refund or tax credit. Ruling: No. The proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides that "unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.


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G.R. No. 166134

January 22, 2007

COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.

Facts: Respondent Burmeister is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines. A foreign consortium composed of Burmeister and Wain Scandinavian Contractor A/S (BWSCDenmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of NAPOCOR’s two power barges. The Consortium appointed BWSC-Denmark as its coordination manager. BWSC-Denmark established Burmeister (respondent) which subcontracted the actual operation and maintenance of NAPOCOR’s two power barges as well as the performance of other duties and acts which necessarily have to be done in the Philippines. NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly to the Consortium’s bank accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate and special designated bank account in the Philippines. On the other hand, the Consortium pays the respondent in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain the tax implications of the transactions, Burmeister sought a ruling from the BIR which responded that if Burmeister chooses to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at zero-rate. For 1996, Burmeister filed VAT Returns reflecting a total zero-rated sales of P147,000,000 with VAT input taxes of P3,300,000. The next year, it availed of the Voluntary Assessment Program (VAP) of the BIR, allegedly misrepresented certain regulations to be applicable to its case. Burmeister in 1999 secured a ruling from the VAT Committee that services provided by the former is VAT-free who then filed a claim for a tax credit certificate for the erroneously paid output VAT in 1996. Issue: Whether or not respondent is entitled to the refund of the erroneously paid output VAT for the year 1996. Ruling: No. Court declares that the denial of the instant petition is not on the ground that respondent’s services are subject to 0% VAT. Rather, it is based on the nonretroactivity of the prejudicial revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, which held that respondent’s services are subject to 0% VAT and which respondent invoked in applying for refund of the output VAT. The Tax Code enumerates which services are zero-rated, thus: Case Digests – Taxation II

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(1) Processing, manufacturing or repacking goods for other persons doing

business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (2) Services other than those mentioned in the preceding sub-paragraph, the

consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero rate; (4) Services rendered to vessels engaged exclusively in international shipping; and (5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production. Another essential condition for qualification to zero-rating under the tax code is that the recipient of such services is doing business outside the Philippines. Services other than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the Philippines. If the provider and recipient of the “other services” are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. In this case, the payer-recipient of respondent’s services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortium’s principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s power barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT.


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G.R. No. 168129

April 24, 2007

COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE HEALTH CARE PROVIDERS, INC.

Facts: Respondent Philippine Health Care Providers, Inc. is a domestic corporation which is a health care delivery system or a health maintenance organization (HMO) created to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization. On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No. 273, amending the National Internal Revenue Code of 1977 by imposing Value-Added Tax (VAT) on the sale of goods and services. Before the effectivity of E.O. No. 273, respondent wrote the Commissioner of Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the participants in its health care program are exempt from the payment of the VAT. Petitioner issued VAT Ruling No. 231-88 stating that respondent, as a provider of medical services, is exempt from the VAT coverage. On January 1, 1998, the National Internal Revenue Code of 1997 became effective. This new Tax Code provided for the following: “SEC. 102. Valueadded tax on sale of services and use or lease of properties. – (a) Rate and base of tax. – There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase “sale or exchange of service” means the performance of all kinds of services in the Philippines for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors”; and “SEC. 103. Exempt Transactions. – The following shall be exempt from the value-added tax: (l) Medical, dental, hospital and veterinary services except those rendered by professionals.” The BIR sent respondent a Preliminary Assessment Notice for deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997. Subsequently, the BIR sent a demand letter for the payment of VAT with 4 notice of assessments for the same years. On both instances, the respondent seasonably filed its protest for the assessments, which the BIR ignored. Via a petition for review, the CTA decided for the respondent however since it was not involve directly in providing health care, the CTA decided that it was not VAT exempt. Such decision was affirmed by the Court of Appeals. Issue: Whether or not respondent is liable for VAT. Ruling: No. The taxpayer is not subject to VAT for the years 1996 and 1997, relying on good faith on VAT Ruling No. 231-88, June8, 1988, pursuant to Section 246 of the NIRC on non-retroactivity of rulings prejudicial to the taxpayer. There is no misrepresentation by the mere fact that the taxpayer failed to describe itself as an HMO. Further, a health maintenance organization, which does not actually provide medical and/or hospital services, but merely arranges for the same, is not VAT-exempt under Sec. 103, NIRC. Case Digests – Taxation II

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G.R. No. 164365

June 8, 2007

COMMISSIONER OF INTERNAL REVENUE vs. PLACER DOME TECHNICAL SERVICES (PHILS.), INC.

Facts: At the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper), mine tailings from the Taipan Pit started to escape through the Makulapnit Tunneland Boac Rivers, causing the cessation of mining and milling operations, and causing potential environmental damage. To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered ValueAdded Tax (VAT) entity, to implement the project in the Philippines. PDTSL and respondent thus entered into an Implementation Agreement. Due to the urgency and potentially significant damage to the environment, respondent had agreed to immediately implement the project, and that PDTSL was to pay respondent "an amount of money, in U.S. funds, equal to all Costs incurred for Implementation Services as well as a fee agreed to one percent (1%) of such Costs." Respondent amended its quarterly VAT returns. In the amended returns, respondent declared a total input VAT payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period. Then respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the project it had contracted from PDTSL, amounting to P43,015,461.98. Respondent argued that the revenues it derived from services rendered to PDTSL qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines. When the CIR did not act on this claim, respondent duly filed a Petition for Review with the CTA. CTA ruled in favor of respondent but only the resulting input VAT of P17,178,373.12 could be refunded. The Court of Appeals affirmed such ruling. Issue: Whether Placer is entitled to the refund as the revenues qualified as zerorated sales. Ruling: Yes. Section 102(b) Transactions Subject to Zero Percent (0%) Rate ─ The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (2) Services other than those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP]. Case Digests – Taxation II

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It is Section 102(b)(2) which finds special relevance to this case. The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services" purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be regularly conducted in this country; undertaken in "pursuit of a commercial or an economic activity;" for a valuable consideration; and not exempt under the Tax Code, other special laws, or any international agreement. Yet even as services may be subject to VAT, our tax laws extend the benefit of zero-rating the VAT due on certain services. Under the last paragraph of Section 102(b), services performed by VAT-registered persons in the Philippines, when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. Petitioner invokes the "destination principle," citing that respondent’s services, while rendered to a non-resident foreign corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the revenue arising there from is also within the Philippines. The Court in American Express debunked this argument. As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed. Confusion in zero rating arises because petitioner equates the performance of a particular type of service with the consumption of its output abroad. The consumption contemplated by law does not imply that the service be done abroad in order to be zero-rated. Consumption is the use of a thing in a way that thereby exhausts it. Applied to services, the term means the performance or successful completion of a contractual duty, usually resulting in the performer's release from any past or future liability. Its services, having been performed in the Philippines, are therefore also consumed in the Philippines. Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined. Instead, there can only be a predetermined end of a course when determining the service location or position for legal purposes. However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for services that are performed in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Further, the cost of respondent's service to be zero-rated need not be tacked in as part of the cost of goods exported. The law neither imposes such requirement nor associates services with exported goods. It simply states that the services performed by VAT-registered persons in the Philippines if paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. The service rendered by respondent is clearly different from the product that arises from the rendition of such service. The activity that creates the income must not be confused with the main business in the course of which that income is realized. The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. Under this criterion, the place where the service is rendered determines the jurisdiction to impose the VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the State necessarily has to have "a substantial connection" to it, in order to enforce a zero rate. The place of payment is immaterial; much less is the place where the output of the service will be further or ultimately used. Case Digests – Taxation II

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G.R. No. 148380

December 9, 2005

OCEANIC WIRELESS vs. COMMISSIONER OF INTERNAL REVENUE

Facts: On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner. Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioner’s request for reinvestigation. Said letter likewise requested petitioner to pay within 10 days from receipt thereof, otherwise the case shall be referred to the Collection Enforcement Division of the BIR National Office for the issuance of a warrant of distraint and levy without further notice. Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment. Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the collection of the tax assessments. The CTA dismissed the petition for lack of jurisdiction. Petitioner filed a Motion for Reconsideration arguing that the demand letter cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere subordinate and not by the Commissioner himself. With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court of Appeals contending that there was no final decision to speak of because the Commissioner had yet to make a personal determination as regards the merits of petitioner’s case. The Court of Appeals denied the petition. Issue: Whether the demand letter for tax deficiency issued and signed by a subordinate officer who was acting in behalf of the CIR is deemed final and executor and subject to an appeal to the CTA. Ruling: Yes. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. In this case, the letter of demand, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioner’s request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result in the “issuance of a warrant of distraint and levy to enforce its collection without further notice.” In addition, the letter contained a notation indicating that petitioner’s request for reconsideration had been denied for lack of Case Digests – Taxation II

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supporting documents. The demand letter received by petitioner verily signified a character of finality. Therefore, it was tantamount to a rejection of the request for reconsideration. This now brings us to the crux of the matter as to whether said demand letter indeed attained finality despite the fact that it was issued and signed by the Chief of the Accounts Receivable and Billing Division instead of the BIR Commissioner. The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC). As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; (c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax deficiency: Provided, however, that assessments issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. It is clear from the above provision that the act of issuance of the demand letter by the Chief of the Accounts Receivable and Billing Division does not fall under any of the exceptions that have been mentioned as non-delegable. Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect.


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G.R. No. 168118

August 28, 2006

THE MANILA BANKING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

Facts: The Manila Banking Corp. was incorporated in 1961 and was engaged in commercial banking industry until 1987. On May 22, 1987, Bangko Sentral ng Pilipinas issued a resolution prohibiting the bank from engaging in business by reason of insolvency. The bank ceased to operate. Meanwhile, Comprehensive Tax Reform Act of 1987 became effective. One of the changes introduced by this law is the imposition of Minimum Corporate Income Tax (MCIT). On 1999, the bank was authorized by the BSP to operate as a thrift bank. Petitioner sent a request letter to the BIR on whether it is entitled to the four (4)-year grace period to pay its minimum corporate income tax as provided by the new law. The following year, it filed with the BIR its income tax return for taxable year 1999. The BIR then issued a ruling stating that the petitioner is entitled to the four (4)year grace period. Pursuant to the ruling, the bank filed with the BIR a claim for refund of the sum it earlier paid. Due to inaction of the BIR, the bank filed with the CTA a petition for review. The CTA denied the petition, finding that the bank’s payment of corporate income tax is in order, contending that the bank is not a new corporation. It is the same corporation registered with the SEC, there was merely an interruption of business operations. Issue: Whether the bank is entitled to a refund of its minimum corporate income tax paid to the BIR for taxable year 1999. Ruling: Revenue Regulation No. 4-95 implementing certain provisions of R.A. No. 7906 provides: “Sec. 6. Period of exemption. – All thrift banks created and organized under the provisions of the Act shall be exempt from the payment of all taxes, fees, and charges of whatever nature and description, except the corporate income tax imposed under Title II of the NIRC and as specified in Section 2(A) of these regulations, for a period of five (5) years from the date of commencement of operations; while for thrift banks which are already existing and operating as of the date of effectivity of the Act (March 18, 1995), the tax exemption shall be for a period of five (5) years reckoned from the date of such effectivity.” For purposes of these regulations, “date of commencement of operations” shall be understood to mean the date when the thrift bank was registered with the Securities and Exchange Commission or the date when the Certificate of Authority to Operate was issued by the Monetary Board of the Bangko Sentral ng Pilipinas, whichever comes later. As mentioned earlier, petitioner bank was registered with the BIR in 1961. However, in 1987, it was found insolvent by the Monetary Board of the BSP and was placed under receivership. After twelve (12) years, or on June 23, 1999, the BSP issued to it a Certificate of Authority to Operate as a thrift bank. Earlier, or on January 21, 1999, it registered with the BIR. Then it filed with the SEC its Articles of Incorporation which was approved on June 22, 1999. It is clear from the abovequoted provision of Revenue Regulations No. 4-95 that the date of commencement of operations of a thrift bank is the date it was registered with the Case Digests – Taxation II

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SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP, whichever comes later. G.R. Nos. 139786 & 140857

September 27, 2006

COMMISSIONER OF INTERNAL REVENUE vs. CITYTRUST INVESTMENT PHILS., INC. and ASIANBANK CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

Facts: In G.R. No. 139786, Citytrust, respondent, is a domestic corporation engaged in quasi-banking activities. In 1994, Citytrust reported the amount of P110, 788,542.30 as its total gross receipts and paid the amount of P5, 539,427.11 corresponding to its 5% GRT. Meanwhile, on January 30, 1996, the CTA, in Asian Bank Corporation v. Commissioner of Internal Revenue (ASIAN BANK case), ruled that the basis in computing the 5% GRT is the gross receipts minus the 20% FWT. In other words, the 20% FWT on a bank’s passive income does not form part of the taxable gross receipts. On July 19, 1996, Citytrust, inspired by the above-mentioned CTA ruling, filed with the Commissioner a written claim for the tax refund or credit in the amount ofP326, 007.01. It alleged that its reported total gross receipts included the 20% FWT on its passive income amounting to P32, 600,701.25. Thus, it sought to be reimbursed of the 5% GRT it paid on the portion of 20% FWT or the amount of P326, 007.01. On the same date, Citytrust filed a petition for review with the CTA, which eventually granted its claim. On appeal by the Commissioner, the Court of Appeals affirmed the CTA Decision, citing as main bases Commissioner of Internal Revenue v. Tours Specialist Inc. and Commissioner of Internal Revenue v. Manila Jockey Club holding that monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts. In G.R. No. 140857, for the taxable quarters ending June 30, 1994 to June 30, 1996, Asianbank filed and remitted to the Bureau of Internal Revenue (BIR) the 5% GRT on its total gross receipts. On the strength of the January 30, 1996 CTA Decision in the ASIAN BANK case, Asianbank filed with the Commissioner a claim for refund of the overpaid GRT amounting to P2,022,485.78. To toll the running of the two-year prescriptive period for filing of claims, Asianbank also filed a petition for review with the CTA. On February 3, 1999, the CTA allowed refund in the reduced amount of P1, 345,743.01, the amount proven by Asianbank. Unsatisfied, the Commissioner filed with the Court of Appeals a petition for review. On November 22, 1999, the Court of Appeals reversed the CTA Decision and ruled in favor of the Commissioner stating that: “It is true that Revenue Regulation No. 12-80 provides that the gross receipts tax on banks and other financial institutions should be based on all items of income actually received. Actual receipt here is used in opposition to mere accrual. Accrued income refers to income already earned but not yet received. (Rep. v. Lim Tian Teng Sons & Co., 16 SCRA 584).” Issue: Does the twenty percent (20%) final withholding tax (FWT) on a bank’s passive income form part of the taxable gross receipts for the purpose of computing the five percent (5%) gross receipts tax (GRT)? Case Digests – Taxation II

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Ruling: The issue of whether the 20% FWT on a bank’s interest income forms part of the taxable gross receipts for the purpose of computing the 5% GRT is no longer novel. As commonly understood, the term “gross receipts” means the entire receipts without any deduction. Deducting any amount from the gross receipts changes the result, and the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the law itself makes an exception. This interpretation has remained unchanged throughout the various re-enactments of the present Section 121 of the Tax Code. On the presumption that the legislature is familiar with the contemporaneous interpretation of a statute given by the administrative agency tasked to enforce the statute, the reasonable conclusion is that the legislature has adopted the BIR’s interpretation. In other words, the subsequent reenactments of the present Section 121, without changes in the term interpreted by the BIR, confirm that its interpretation carries out the legislative purpose. Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depositary bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the lending bank, the depositary bank deducts the final withholding tax and remits it to the government for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax. NOTE: There is no double taxation because The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other. This Court defined that a percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes.


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G.R. No. 159593

October 16, 2006

COMMISSIONER OF INTERNAL REVENUE vs. MIGRANT PAGBILAO CORPORATION

Facts: Migrant Pagbilao Corporation (MPC) is a corporation engaged in the business of power generation and distribution. It accumulated input taxes in the amount of 39,330,500.85 from April 1, 1996 to December 31, 1996. MPC claims that it paid these input taxes to the suppliers of capital goods and services for the construction and development of power plants. MPC applied for tax credit/refund on the unutilized VAT paid on capital goods. Without waiting for the BIR Commissioner to answer, MPC filed a petition for review to toll the running of the 2-year prescriptive period for claiming a refund under the law. The BIR in its answer denied MPC’s application citing that MPC’s claim for refund is still being investigated before the BIR, that the action is premature, and that tax credit laws are construed against MPC. Upon investigation, the Revenue Officer recommended for the approval of the tax credit but it reduced the amount from 39,330,500.85 to 28,745,502.40, as duly proven by valid invoices or official receipts. The CTA ruled that indeed, MPC is entitled to tax credit but the amount is reduced in line with the Revenue Officer’s findings. The BIR filed a motion for reconsideration that was subsequently denied. On appeal, the BIR raised that MPC being an electric utility is subject to franchise tax and not VAT and since it is VAT exempt, it can’t claim tax refund. The CA denied BIR’s appeal upholding that it is not allowed to change its theory on appeal. Issues: 1. Whether the BIR is allowed to change its theory on appeal. 2. Whether Input VAT on capital goods and services is allowed. Ruling: 1. The SC prohibited the BIR from changing its theory on the case and raising a new issue on appeal. As a rule, a party is never allowed to change its theory or raise a totally new issue on appeal. On exceptional cases, the rules may be relaxed allowing new issues on appeal but it is only done for good and sufficient causes in order to pave way for justice. The BIR has not shown any good or sufficient cause for relaxing the rules. 2. Input VAT on capital goods and services may be claimed as tax refund. The BIR is erroneous in stating that a VAT exempt or zero rated VAT payer is not allowed to claim tax credits. Pertinent provisions of the Tax Code allow that Input VAT on capital goods be claimed as tax credit. Sec 106 (b) of the Tax Code of 1986 as amended by RA 7716 expressly states that “A VAT- registered person may apply for the issued of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes.”


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G.R. No. 154126

October 11, 2005

ALLIED BANKING CORPORATION vs. THE QUEZON CITY GOVERNMENT, THE QUEZON CITY TREASURER, THE QUEZON CITY ASSESSOR AND THE CITY MAYOR OF QUEZON CITY

Facts: The Quezon City government enacted City Ordinance No. 357, Series of 1995 Section 3 of which reads: “The City Assessor shall undertake a general revision of real property assessments using as basis the newly approved schedule specified in Sections 1 and 2 hereof. He shall apply the new assessment level of 15% for residential and 40% for commercial and industrial classification, respectively as prescribed in Section 8 (a) of the 1993 Quezon City Revenue Code to determine the assessed value of the land. Provided; however, that parcels of land sold, ceded, transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is higher, as evidenced by the certificate of payment of the capital gains tax issued therefor.” Allied Banking Corporation, a purchaser of a parcel of land, questioned its validity. Issue: Whether section 3 can be the basis of collecting real property taxes? Ruling: No. The proviso in question is invalid as it adopts a method of assessment or appraisal of real property contrary to the Local Government Code, its Implementing Rules and Regulations and the Local Assessment Regulations No. 1-92 issued by the Department of Finance. Local Assessment Regulations No. 192 suggests three approaches in estimating the fair market value, namely: (1) the sales analysis or market data approach; (2) the income capitalization approach; and (3) the replacement or reproduction cost approach. The Code did not intend to have a rigid rule for the valuation of property, which is affected by a multitude of circumstances which no rule could foresee or provide for. Accordingly, this Court holds that the proviso directing that the real property tax be based on the actual amount reflected in the deed of conveyance or the prevailing BIR zonal value is invalid not only because it mandates an exclusive rule in determining the fair market value but more so because it departs from the established procedures stated in the Local Assessment Regulations No. 1-92 and unduly interferes with the duties statutorily placed upon the local assessor by completely dispensing with his analysis and discretion which the Code and the regulations require to be exercised. Using the consideration appearing in the deed of conveyance to assess or appraise real properties is not only illegal since “the appraisal, assessment, levy and collection of real property tax shall not be left to any private person,” but it will completely destroy the fundamental principle in real property taxation – that real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it. Necessarily, allowing the parties to a private sale to dictate the fair market Case Digests – Taxation II

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value of the property will dispense with the distinctions of actual use stated in the Code and in the regulations. G.R. No. 154993

October 25, 2005

LUZ R. YAMANE, IN HER CAPACITY AS THE CITY TREASURER OF MAKATI CITY vs. BA LEPANTO CONDOMINIUM CORPORATION

Facts: On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is “liable to pay the correct city business taxes, fees and charges,” computed as totaling P1,601,013.77 for the years 1995 to 1997. The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. The Corporation responded with a written tax protest dated 12 February 1999, addressed to the City Treasurer. The protest was rejected by the City Treasurer in a letter dated 4 March 1999. From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court of Makati. On 1 March 2000, the Makati RTC rendered a decision dismissing the appeal for lack of merit. From this decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Issue: Whether Rule 42 is the proper remedy? Ruling: No. The RTC, in reviewing denials of protests by local treasurers, exercises original jurisdiction, hence Rule 41 is the proper remedy. Rule 42 is proper when the RTC has rendered judgment in the exercise of its appellate jurisdiction. As defined in the case of Garcia vs. De Jesus(G.R. Nos. 88158 & 97108-09, 4 March 1992, 206 SCRA 779: “Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review.” With the definitions, the review taken by the RTC over the denial of the protest by the local treasurer would fall within that court’s original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local government official. NOTE: The doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA). Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases original decided or resolved by them in the exercise of their originally or appellate jurisdiction. Moreover, the provision also states that the review is triggered “by filing a petition Case Digests – Taxation II

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for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure.” G.R. No. 161997

October 25, 2005

COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE NATIONAL BANK

Facts: In April 1991, respondent Philippine National Bank (PNB) issued to the Bureau of Internal Revenue (BIR) PNB Cashier’s Check for P180,000,000.00. The check represented PNB’s advance income tax payment for the bank’s 1991 operations and was remitted in response to then President Corazon C. Aquino’s call to generate more revenues for national development. The BIR acknowledged receipt of the amount by issuing Payment Order and BIR Confirmation Receipt. Later, PNB requested the issuance of a tax credit certificate (TCC) to be utilized against future tax obligations of the bank. For the first and second quarters of 1991, PNB also paid additional taxes amounting to P6,096,150.00 and P26,854,505.80, respectively. Inclusive of the P180 Million aforementioned, PNB paid and BIR received in 1991 the aggregate amount of P212, 950,656.79. This final figure, if tacked to PNB’s prior year’s excess tax credit (P1,385,198.30) and the creditable tax withheld for 1991 (P3,216,267.29), adds up to P217,552,122.38. By the end of 1991, PNB’s annual income tax liability, per its 1992 annual income tax return, amounted to P144,253,229.78, which, when compared to its claimed total credits and tax payments of P217,552,122.38, resulted to a credit balance in its favor in the amount of P73,298,892.60. This credit balance was carried-over to cover tax liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to the bank’s negative tax position for the said inclusive years, having incurred losses during the 4-year period. On July 28, 1997, PNB wrote then BIR Commissioner to inform her about the above developments and to reiterate its request for the issuance of a TCC, this time for the “unutilized balance of its advance payment made in 1991 amounting to P73,298,892.60”. Replying, the BIR Commissioner denied PNB’s claim for tax credit on the reason, among others, that the same has already prescribed on the ground that it was filed beyond the two (2) year prescriptive period.

Issue: Can PNB claim for the issuance of TCC even beyond the two-year prescriptive period under Section 230(now Section 229) of the NIRC? Ruling: Yes.

PNB’s request for issuance of a tax credit certificate on the balance of its advance income tax payment cannot be treated as a simple case of excess payment as to be automatically covered by the two (2)-year limitation in Section 230. Section 230 of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully Case Digests – Taxation II

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collected. Considering the “special circumstance” that the tax credit PNB has been seeking is to be sourced not from any tax erroneously or illegally collected but from advance income tax payment voluntarily made in response to then President Aquino’s call to generate more revenues for the government, in no way can the amount of P180 million advanced by PNB in 1991 be considered as erroneously or illegally paid tax.


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Tax 2 Case Digests

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