TAX CASE DIGESTS COMPILATION (1).docx

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016

Table of Contents GENERAL PRINCIPLES & LIMITATIONS ....................................................................................................................................... 6 Republic vs Cocofed ....................................................................................................................................................................... 6 Osmena vs Orbos............................................................................................................................................................................. 7 Tan vs Del Rosario ........................................................................................................................................................................... 9 Shell Co. vs Vano ........................................................................................................................................................................... 10 Tolentino vs Sec. of Finance ..................................................................................................................................................... 12 ABAKADA vs Ermita ..................................................................................................................................................................... 14 Coconut Oil vs Torres .................................................................................................................................................................. 16 John Hay Alternative vs Lim...................................................................................................................................................... 18 CIR vs Lincoln ................................................................................................................................................................................. 19 Philex Mining vs CIR .................................................................................................................................................................... 21 Southern Cross vs CMAP ........................................................................................................................................................... 22 CIR vs Marubeni ............................................................................................................................................................................ 24 Republic vs CA & Precision ....................................................................................................................................................... 25 CIR vs Santos .................................................................................................................................................................................. 27 Pepsi vs Municipality of Tanauan ........................................................................................................................................... 29 Kilosbayan, Inc. et al vs Guingona .......................................................................................................................................... 30 MCIAA vs Marcos—ARCIDE ...................................................................................................................................................... 32 Republic vs ICC .............................................................................................................................................................................. 33 CIR vs Benguet Corp. ................................................................................................................................................................... 35 CIR vs Benguet Corp. ................................................................................................................................................................... 37 Planters Products vs Fertiphil ................................................................................................................................................... 39 Gerochi vs DOE .............................................................................................................................................................................. 40 CIR vs Central Luzon Drug ........................................................................................................................................................ 41 Carlos Superdrug vs DSWD ...................................................................................................................................................... 42 Diaz vs Sec. of Finance ................................................................................................................................................................ 44 TAX REMEDIES CASES...................................................................................................................................................................... 46 CIR vs CTA & Citytrust ................................................................................................................................................................ 46 South African Airways vs CIR.................................................................................................................................................... 48 Procter & Gamble vs Municipality of Medina ................................................................................................................... 50

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 CIR vs Solidbank ............................................................................................................................................................................ 52 CIR vs Wyeth ................................................................................................................................................................................... 53 CIR vs Pascor Realty ..................................................................................................................................................................... 54 Ungab vs Cusi ................................................................................................................................................................................. 55 CIR vs CA .......................................................................................................................................................................................... 57 Vda. de San Agustin vs CIR ....................................................................................................................................................... 59 Calamba Steel vs CIR ................................................................................................................................................................... 61 Phil Journalists vs CIR .................................................................................................................................................................. 63 CIR vs Tulio ...................................................................................................................................................................................... 65 CIR vs PNB ....................................................................................................................................................................................... 67 CIR vs BPI.......................................................................................................................................................................................... 68 CIR vs Reyes .................................................................................................................................................................................... 71 Barcelon vs CIR .............................................................................................................................................................................. 72 CIR vs BPI.......................................................................................................................................................................................... 73 CIR vs Phil Global .......................................................................................................................................................................... 74 Silkair PTE, Ltd. vs CIR.................................................................................................................................................................. 77 CIR vs Fortune Tobacco Corp................................................................................................................................................... 79 CIR vs Acosta .................................................................................................................................................................................. 82 Filinvest Dev. Corp. vs CIR & CTA ........................................................................................................................................... 84 ME Holding Corp vs CA & CIR ................................................................................................................................................. 85 CIR vs FMF Dev. Corp. ................................................................................................................................................................. 87 CIR vs PERF Realty Corp ............................................................................................................................................................. 90 Pilipinas Shell vs CIR .................................................................................................................................................................... 92 State Land Inv. Corp vs CIR ....................................................................................................................................................... 94 Allied Bank vs CIR ......................................................................................................................................................................... 95 CIR vs Kudos Metal ...................................................................................................................................................................... 97 CIR vs Far East Bank/BPI ........................................................................................................................................................... 100 Lascona Land vs CIR................................................................................................................................................................... 101 CTA CASES.......................................................................................................................................................................................... 102 Meralco vs Savellano ................................................................................................................................................................. 102 Yamane vs BA Lepanto ............................................................................................................................................................. 104 P vs Sandiganbayan 467 SCRA 137—LENTORIO ........................................................................................................... 105

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 PPA vs Fuentes ............................................................................................................................................................................. 106 TFS Inc. vs CIR ............................................................................................................................................................................... 109 CIR vs Fort Bonifacio Dev. Corp ............................................................................................................................................ 111 INCOME TAX CASES ....................................................................................................................................................................... 112 Conwi vs CTA ................................................................................................................................................................................ 112 CIR vs British Airways ................................................................................................................................................................ 114 CIR vs CA & Soriano .................................................................................................................................................................. 115 CIR vs Solidbank .......................................................................................................................................................................... 117 Mobil vs City Treasurer ............................................................................................................................................................. 119 CIR vs CA & Castaneda ............................................................................................................................................................. 121 Abello vs CIR ................................................................................................................................................................................. 122 CIR vs BPI 492 SCRA 551 .......................................................................................................................................................... 124 Cyanamid vs CA ........................................................................................................................................................................... 125 Republic vs Meralco ................................................................................................................................................................... 126 Esso vs CIR ..................................................................................................................................................................................... 129 Aguinaldo vs. CIR ........................................................................................................................................................................ 130 PRC vs. CA ...................................................................................................................................................................................... 132 China Bank vs CA ........................................................................................................................................................................ 133 CIR vs General Foods ................................................................................................................................................................. 136 Gancayco vs CIR .......................................................................................................................................................................... 137 CIR vs CA & YMCA ..................................................................................................................................................................... 139 CIR vs CTA ...................................................................................................................................................................................... 141 FEBTC vs CIR 488 SCRA 473 .................................................................................................................................................... 142 CIR vs Trustworthy Pawnshop Inc. ....................................................................................................................................... 143 Lhuillier Pawnshop vs CIR ........................................................................................................................................................ 145 Systra vs CIR .................................................................................................................................................................................. 146 Philam Asset Mgt vs CIR .......................................................................................................................................................... 148 Delpher Trades vs IAC.............................................................................................................................................................. 151 Campagnie vs CIR ....................................................................................................................................................................... 153 B. Van Zuiden Bros vs GTVL .................................................................................................................................................... 155 CIR vs Tulio .................................................................................................................................................................................... 157 CIRvs Citytrust .............................................................................................................................................................................. 158

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 CIR vs Baier-Nickel ..................................................................................................................................................................... 159 PDIC vs BIR .................................................................................................................................................................................... 162 Pansacola vs CIR .......................................................................................................................................................................... 163 Intercontinental vs Amarillo.................................................................................................................................................... 165 Security Bank 499 SCRA 453 (DST)--ARCIDE ............................................................................................................... 168 Manila Banking Corp vs CIR ................................................................................................................................................... 169 Bicolandia Drug Corp vs CIR .................................................................................................................................................. 170 Reyes vs. NLRC ............................................................................................................................................................................. 172 Phil. Health Care Providers vs CIR ........................................................................................................................................ 174 Dizon vs CTA & CIR .................................................................................................................................................................... 176 PNB vs CIR ..................................................................................................................................................................................... 177 Sunlife 473 SCRA 129 (coops)—LENTORIO .................................................................................................................... 179 Tambunting Pawnshop Inc. vs CIR ....................................................................................................................................... 180 MJOPFI vs CA & CIR................................................................................................................................................................... 182 CIR vs PHILAMGEN..................................................................................................................................................................... 183 CIR vs McGeorge GR174157 Oct20/10 (sec 76 irrevocable but unused...)—DONGGAY ............................... 185 Belle Corp vs CIR ......................................................................................................................................................................... 186 CIR vs Aquafesh GR170389 Oct20/10 (sec 27 (1,5) CGT, Sec 196 DST)—LENTORIO ...................................... 187 CIR vs Sony Philippines, Inc. ................................................................................................................................................... 188 CIR vs CA & Commonwealth Management & Services Corp ................................................................................... 190 Exxon vs CIR ................................................................................................................................................................................. 192 V.A.T. CASES....................................................................................................................................................................................... 193 CIR vs Seagate 451 SCRA 132—KHIO ................................................................................................................................ 193 Atlas vs CIR GR 146221, 25 Sep 2007 (proof of excess input VAT)—YBIO .......................................................... 193 CIR vs Cebu Toyo ........................................................................................................................................................................ 194 CIR vs American Express 462 SCRA2197 (destination principle)—ARCIDE ......................................................... 195 CIR vs Toshiba .............................................................................................................................................................................. 196 CIR vs Manila Mining 468 SCRA 571--MALCAMPO ...................................................................................................... 198 Phil. Geothermal vs CIR 465 SCRA 308—CATACUTAN................................................................................................ 198 CIR vs Philhealth 6R 168129 24 April 07 (VAT on Sale of svcs; BIR rutings not retro.)—ACAS ................... 198 CIR vs Burmeister GR 153205 22 J an 07—CRUZ ........................................................................................................... 198 CIR vs Global 499 S 53 [evat; franchise tx]—GAMO .................................................................................................... 198

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 CIR vs PhilGlobal 499 SCRA 53—LIU ................................................................................................................................. 198 Magsaysay Lines 497 SCRA 63—BANQUERIGO............................................................................................................ 198 Sekisui 496 SCRA 206 (exports)—DELOS SANTOS ...................................................................................................... 198 Contex 433 SCRA 376 (effects re VAT exempt status)—GANIR .............................................................................. 198 Atlas 546 SCRA 150 (invoices, rcpts for proving input VAT)—FILIPINAS ............................................................. 198 First Planters Pawnshop 560 SCRA 606 (non-bank instns; DST)—GANIR ............................................................ 198 Panasonic G.R. 178090, Feb 8, 2010 (refund of VAT) –MONTEJO ........................................................................... 198 Toshiba G.R. 157594, March 9, 2010 (cr/ref of input VAT)—BANQUERIGO ...................................................... 198 TFS Inc. , G.R. 166829, Apr 19, 2010 (CTA law; VAT on pawnshops)—LIU ........................................................... 198 CIR vs Eastern Telecom, GR 163835, July 7, 2010 (sec 104 (a))—GAMO .............................................................. 198 AT&T vs CIR, GR182364, Aug 3/10 (req for tx refund in 0 rated tranxs)—CRUZ .............................................. 198 JRA vs CIR GR 177127 Oct 11/10 (eff failure to print ―0 rated‖ on invoice)—CULMINAS ............................. 198 Tambunting vs CIR GR172394 Oct13/10 (pawnshops)—CATACUTAN ................................................................. 198 Hitachi vs CIR ................................................................................................................................................................................ 199 CIR vs CA & Commonwealth Mg‘t ....................................................................................................................................... 201 Kepco vs CIR GR181858 Nov24/10 (fail to indicate ―0 rated‖; inv vs rcpt)—PORCINA .................................. 202 Silicon vs CIR GR172378 Jan17/11 (req 0 rated sales, Sec112 A & B)—KHIO .................................................... 202 BEST EVIDENCE RULE ..................................................................................................................................................................... 203 Mindanao Bus vs CIR ................................................................................................................................................................. 203 CIR vs Hantex Trading Co., Inc. .............................................................................................................................................. 204 Sy Po vs CTA & CIR .................................................................................................................................................................... 206

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GENERAL PRINCIPLES & LIMITATIONS Republic vs Cocofed GR 147062-64, 14 December 2001

Elements of a tax; coco-levy as tax

FACTS: R.A 6260 was enacted creating the Coconut Investment Company (CIC) to administer the Coconut Investment Fund (CIF) which was to be sourced from a fund levied based upon every sale of copra. Charged with the collection of the fund is the PCA. One of the purposes of the law was to acquire a commercial bank in order to provide readily available credit to coconut farmers at a preferential rate. Because of this, PCA acquired a commercial bank (which we now know as UCPB) and deposited the cocolevy funds and collections in the said bank. In addition, it is also provided in the law that the funds shall not be construed as special and/or fiduciary funds, or as part of the general funds of the National Government. ISSUE: What are the elements of taxation? Is the coco-levy fund a tax? RULING: The court ruled that the coconut levy was imposed in the exercise of the State's power to tax. Coconut levy funds partake of the nature of taxes, which, in general, are enforced proportional contributions from persons and properties, exacted by the State for the support of the government and the public. A tax has three elements: a) It is an enforced proportional contributions from persons and properties; b) It is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. The coconut levy funds fall squarely into the elements. The funds were imposed for a public purpose and were collected to advance the government's policy of protecting the coconut industry. The court further pointed that taxes are thus imposed only for a public purpose and cannot be used for purely private purposes.

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Osmena vs Orbos GR 99886, 31 March 1993 Tax if primary purpose is revenue generation; requisites of valid delegation of legislative power FACTS: Petitioner Osmena challenges the constitutionality of the PD 1956, which created a special account in the general fund for the Oil Price Stabilization Fund (OSPF) as buffer mechanism to protect the domestic oil industry from frequent fluctuations of crude oil prices in the world market. PD 1529 created a ―trust account‖ in the books of the Ministry of Energy. He alleges that the law is unconstitutional because: 1.

The monies collected are supposed to treated as a special fund, not a trust fund considering that it is a ―special tax collected for a specific purpose‖

2.

PD 1529 unduly delegates legislative power by conferring the Energy Regulatory Board the authority to impose additional amounts on petroleum products without a sufficient standard by which such authority may be exercised.

ISSUES: 1) Was the Oil Price Stabilization Fund (OSPF) a tax? 2) What are the requisites for a valid delegation of the taxation power? Was there undue delegation of such power? RULING: 1) No. Petitioner assumed that PD 1956 was enacted to collect taxes for a fund for a special purpose. The purpose for the fund, however, is not to generate revenue. The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil.

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As such,

establishment and maintenance of the OPSF is well within that pervasive and non-waivable power and responsibility of the government to secure the physical and economic survival and well-being of the community, that comprehensive sovereign authority we designate as the police power of the State, because its purpose is to regulate the oil industry pursuant to public policy. That a portion of the fund is taken from collections of ad valorem taxes and the increases thereon does not change its primary purpose. Hence, if the primary purpose of the law is to regulate but has incidental taxing effects, then it is legislated by virtue of the police power. If the primary purpose of the law is to generate revenue but has incident regulatory effects, then it is legislated by virtue of the power to tax. The OSPF law falls under the first type. 2) The power to tax is reposed in the legislative, but the latter may delegate it to the executive provided that the law delegating the power: i. is complete in itself, that is, it must set forth the policy to be executed by the delegate

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The OPSF acts as a buffer mechanism into which a portion of the purchase price of oil and petroleum products paid by consumers as well as some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil companies, when appropriate situations arise, for increases in, as well as underrecovery of, costs of crude importation.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 ii. fixes a standard, the limits of which are sufficiently determinate or determinable to which the delegate must conform. There was no undue delegation in this case because a standard was fixed, albeit impliedly, as when the law intended to permit the additional impositions as long as there exists a need to protect the general public and the petroleum industry from price fluctuations.

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Tan vs Del Rosario GR 109290, 3 October 1994 Uniformity rule

FACTS: These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income Taxationn Scheme (―SNIT‖), amending certain provisions of the National Internal Revenue Regulations No. 293, promulgated by public respondents pursuant to said law. Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation ―shall be uniform and equitable‖ in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation. ISSUE: Does Republic Act No. 7496 violate the Constitution for imposing taxes that are not uniform and equitable.

RULING: The Petition is dismissed. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 771). What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards the schedular approach in the income taxation of individual taxpayers and to maintain, by and large, the present global treatment on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate. Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power.

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Shell Co. vs Vano GR L-6093, 24 February 1954 Occupational tax via local ordinance; non-discrimination rule; uniformity rule; specific tax; percentage tax

FACTS: The municipality of Cordova in Cebu adopted the following ordinances: 1.

No. 10, series of 1946, which imposes an annual tax of P150 on occupation or the exercise of the privilege of installation manager;

2.

No. 9, series of 1947, which imposes an annual tax of P40 for local deposits in drums of combustible and inflammable materials and an annual tax of P200 for tin can factories; and

3.

No. 11, series of 1948, which imposes an annual tax of P150 on tin can factories having a maximum output capacity of 30,000 tin cans.

Shell Co. of P.I. Ltd., a foreign corporation, filed suit for the refund of the taxes paid by it, on the ground that the ordinances imposing such taxes are ultra vires. Defendant, as Municipal Treasurer, denies such allegation. ISSUES: 1.

WON Ordinance No. 10 is ultra vires considering that ―installation manager‖ is merely a designation created by plaintiff and the same is a salaried employee which may not be taxed by the municipality under CA No. 472?

2.

WON Ordinance No. 10 is discriminatory and hostile because there is no other person in the locality who is an ―installation manager‖?

3.

WON Ordinance No. 9 is ultra vires considering that the same is in violation of Sec. 2244 of the Revised Administrative Code limiting the amount of the permit to P10 per annum?

4.

WON Ordinance No. 11 is ultra vires?

RULING: 1. The ordinance is not ultra vires. The municipal ordinance was enacted in pursuance of CA 472 which authorizes municipal councils and municipal district councils "to impose license taxes upon persons engaged in any occupation or business, or exercising privileges in the municipality or municipal district, by requiring them to secure licenses at rates fixed by the municipal council or municipal district council, xxx." Even if the ―installation manager‖ is a salaried employee, it does not take away the fact that it is an occupation. Further, the fact that the occupation is exercised in relation to another occupation which pays an occupation tax does not exempt an individual exercising the occupation to pay a separate occupation tax. 2. No, it is not discriminatory and hostile. The fact that there is no other person in the locality who exercises such a "designation" or calling does not make the ordinance discriminatory and hostile for the

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 ordinance is and will be applicable to any person or firm who exercises such calling or occupation named or designated as "installation manager." 3. The ordinance is not ultra vires. It was enacted by the municipality in the exercise of its regulative authority as supported by the aforementioned provision of CA 472 and as long as they are just and uniform and not ―percentage taxes and taxes on specified articles‖. 4. The ordinance is not ultra vires. It is neither a percentage tax nor a tax on specified articles. Specific tax under the NIRC are those imposed on things manufactured or produced in the Philippines for domestic sale or consumption" and upon "things imported from the United States and foreign countries," such as distilled spirits, domestic denatured alcohol, fermented liquors, products of tobacco, cigars and cigarettes, matches, mechanical lighters, firecrackers, skimmed milk, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine. Tin can factories do not fall under any of these as enumerated. It is also not a percentage tax as it is tax on business and the maximum annual output capacity is not a percentage, because it is not a share or a tax based on the amount of the proceeds realized out of the sale of the tin cans manufactured [Not x% of the total gross sales of the business] but on the business of manufacturing tin cans having a maximum annual output capacity of 30,000 tin cans.

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Tolentino vs Sec. of Finance GR 115455, 30 October 1995 VAT vs license tax; tax exemption is a privilege; equality and uniformity

FACTS: The Value Added Tax (VAT) is levied on the sale, barter, or exchange of goods as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. Among the petitioners was the Philippine Press which claims RA 7716 violates their press freedom and liberty having removed them from the exemption to pay Value Added Tax. They maintain that by withdrawing the exemption granted to print media transactions involving printing, publication, importation or sale of newspapers, R.A.

No. 7716 is a license tax which

singled out the press for

discriminatory treatment and that within the class of mass media the law discriminates against print media by giving broadcast media favoured treatment.

ISSUE: Whether or not the purpose of the VAT is similar to a license tax.

RULING: No. A license tax, unlike any ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah' s Witnesses, in connection with the latter' s sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a preacher. I t is quite another thing to ex act a tax on him for delivering a sermon." In withdrawing the exemption, the law

merely subjects the press to the same tax

burden to which other businesses have long ago been subject. The VAT is, however, different. It is not a license tax, it is not a tax on the exercise of a privilege, much less than a constitutional right. It is imposed on the sale, barter, lease, or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its pay its income tax or subject it to general regulation is not to violate its freedom under the Constitution. The exemption of the press was a privilege granted by the State, which has the right to revoke it by including the Press under the VAT system without offending press freedom under the Constitution. “Equality and uniformity of taxation” means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. The VAT is “regressive,” because it is indirect—in other words, its imposition may be transferred to a person other than it is directed to. In comparison, income tax is “progressive,” because it is direct—it is imposed directly on a person and his ability to pay, which accordingly puts him in the proper bracket on a previously-fixed scale.

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ABAKADA vs Ermita GR 168056, 1 September 2005 Delegation of taxation power; input and output tax; uniform and equitability of EVAT

FACTS: Before R.A. No. 9337 took effect (July 1, 2005, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition. Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution. They further contend that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax. It states… . . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

ISSUE: Do Sections 4, 5 and 6 of R.A. No. 9337, giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax? RULING: There is no undue delegation of legislative power but only of the discretion as to the execution of a law. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. A (permissible delegation) is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate; and (b) fixes a standard — the limits of which are sufficiently determinate and determinable — to which the delegate must conform in the performance of his functions. In this case, the legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the executive. No discretion would be exercised by the President. Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. Notes: There was no delegation of legislative power at all, because the legislature merely specified factual conditions that must concur before the executive may apply the provision of the law. Fact-finding processes

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 may be delegated by the Congress to the Executive. The phrase ―upon the recommendation of the Sec. of Finance‖ makes the latter an agent of the Legislature, so his functions as an alter-ego of the Executive are not necessarily affected by the provision. FISCAL ADEQUACY—the sources of tax should coincide with the needs of government expenditures. This is a question of wisdom, which the judiciary cannot take cognizance of.

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Output vs Input Tax

OUTPUT VAT—tax paid when selling a product INPUT VAT—tax paid when buying the materials of the thing sold; it is not a property, it is a statutory privilege which the legislative may remove at any time VAT Payable = Output VAT - Input VAT 

Is the EVAT uniform and equitable? Yes. A uniform rate of 0%, 12%, or exemption, are respectively imposed on the same class of goods.

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Coconut Oil vs Torres GR 132527, 29 July 2005 Delegation of taxation power to the executive

FACTS: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special economic zones in order to promote the economic and social development of Central Luzon in particular and the country in general. The law contains provisions on tax exemptions for importations of raw materials, capital and equipment. After which the President issued several Executive Orders as mandated by the law for the implementation of RA 7227. Herein petitioners contend the validity of the tax exemption provided for in the law. ISSUE: Whether or not the Executive Orders issued by President for the implementation of the tax exemptions constitutes executive legislation. RULING: To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the ―free flow of goods or capital within, into, and out of the zones‖ is insured. The phrase ―tax and duty-free importations of raw materials, capital and equipment‖ was merely cited as an example of incentives that may be given to entities operating within the zone. Public respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictive interpretation, does not apply when words are mentioned by way of example. It is obvious from the wording of RA No. 7227, particularly the use of the phrase ―such as,‖ that the enumeration only meant to illustrate incentives that the SSEZ is authorized to grant, in line with its being a free port zone. The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12 of RA No. 7227 that ―. . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments.‖ However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of RA No. 7227. Said Section clearly provides that ―exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.‖ It is public policy that the zones have a different tax policy with the rest of the country. This classification is valid, as long as it is:

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 1.

Germane to the purpose of the law, RA 7227

2.

Not limited to the existing conditions

3.

Apply equally to all retailers found within the ―secured area,‖ i.e the SEZ

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John Hay Alternative vs Lim GR 119775, 19 March 2002 Strict application of tax exemption; power to exempt comes from power to tax

FACTS: Then President Ramos issued Proclamation No. 420 which created the John Hay Special Economic Zone pursuant to Republic Act No. 7227 entitled Bases and Development Act of 1992. Said Republic Act created the Subic Special Economic Zone and also granting it exemptions from local and national taxes. Proclamation No. 420 also grants tax exemptions similar to that which is granted to the Subic SEZ by RA 7227. ISSUE: Is this constitutional? 2

RULING: No. Under RA 7227 it is only the Subic SEZ which was granted by Congress with tax exemptions, investment incentives and the like. The grant of economic incentives to John Hay SEZ cannot be sustained. The incentives under RA 7227 are exclusive only to Subic SEZ, hence the extension of the same to the John Hay SEZ finds no support. More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature—unless limited by the provision of the state Constitution—that has full power to exempt any person or corporation or class of property from taxation, its power to 3

exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinance on exemption only from local taxes. The challenged grant of tax exemption would circumvent the Constitution‘s imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress. Tax exempt character of an SEZ proceeds from statutory provision; hence, an SEZ may not necessarily be tax exempt

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Special Economic Zones are made to encourage investment. They are considered separate tax customs territory and follow different rules. Buying in SEZs has a similar effect of importing into the Philippines. 3 In the same way that the imposition of a tax must be explicit, the provisions for a tax exemption must also be explicit. ―No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of Congress.‖ Art VI, Sec. 28, 1987 Charter

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CIR vs Lincoln GR 119176, 19 March 2002 Documentary stamp tax

FACTS: Private respondent Lincoln Philippine Life Insurance Co., Inc. is a domestic corporation engaged in life insurance business. In the years prior to 1984, private respondent issued a special kind of life insurance policy known as the "Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. The clause was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid by petitioner only on the initial sum assured. Sec173 of the National Internal Revenue Code provides that for any documents, instruments, and papers, there there shall be levied, collected and paid for the corresponding documentary stamp taxes. Section183 of the same code also imposes tax on life insurance policies.

ISSUE 1: Whether or not the automatic increase clause is distinct and separate from that of the original agreement, and thus the payment of documentary stamp taxes should also be imposed.

RULING: No, the SC affirmed the ruling of the Court of Tax Appeals which stated that there was only one transaction involved, and that the automatic increase clause is an integral part of the policy. It is clear from Section 49 and 50, Title VI of the Insurance Code that any rider, clause, warranty or endorsement pasted or attached to the policy is considered part of such policy or contract of insurance. Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase clause" already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age. ISSUE 2: How should the documentary stamp tax be computed? RULING: Section 183 states that it is to be computed in the amount fixed in the policy. However, there was no fixed amount computed on the additional increase based on the automatic increase clause since it is a suspensive condition. The SC ruled that Although the automatic increase in the amount of life insurance coverage was to take effect later on, the date of its effectivity, as well as the amount of the increase, was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy.

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Philex Mining vs CIR GR 125704, 28 August 1998 No off-setting in tax collection

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should

be

applied

against

the

tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner? RULING: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. There can be no off-setting of taxes against the claims that the taxpayer may have against

the

government.

A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

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Southern Cross vs CMAP GR 158540, 3 August 2005 Jurisdiction of Court on Tax Appeals; Delegability of tariff power to President

FACTS: Philcemcor, an association of at least eighteen (18) domestic cement manufacturers filed with the Department of Trade and Industry (DTI) a petition seeking the imposition of safeguard measures on gray Portland cement, in accordance with the Safeguard Measures Act (SMA). After the (DTI) issued a provisional safeguard measure, the application was referred to the Tariff Commission for a formal investigation pursuant to Section 9 of the SMA and its Implementing Rules and Regulations, in order to determine whether or not to impose a definitive safeguard measure on imports of gray Portland cement. The Tariff Commission held public hearing and conducted its own investigation and issued its Formal Investigation Report that ―no definitive general safeguard measure be imposed on the importation of gray Portland cement.‖ The DTI Secretary then promulgated a decision expressing its disagreement with the conclusions of the Tariff Commission but at the same time denying Philcemcor‘s application for safeguard measures in light of the Tariff Commission‘s negative findings. Philcemcor challenged this decision of the DTI Secretary by filing with the Court of Appeals a petition for certiorari, Prohibition and Mandamus seeking to set aside the DTI Decision as sell as the Tariff Commission‘s Report. The appellate court partially granted the petition and ruled that it had jurisdiction over the petition for certiorari since it alleged grave abuse of discretion and also held that DTI Secretary was not bound by the factual findings of the Tariff Commission. The Southern Cross then filed the present petition, arguing that the Court of Appeals has no jurisdiction over Philcemcor‘s petition. Despite the fact the Court of Appeal‘s Decision had not yet became final, its binding force was cited by the DTI Secretary when he issued a new Decision, wherein he imposed a definitive safeguard measure on the importation of gray Portland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three years on imported gray Portland Cement. Southern Cross filed a Temporary Restraining Order and/or A Writ of Preliminary Injunction with the Court, seeking to enjoin the DTI Secretary from enforcing his new issued Decision. Philcemcor then filed its opposition stating that it is not the CA but the Court of Tax Appeals (CTA) that has jurisdiction over the application under the law. Southern Cross then filed with the CTA a Petition for Review against the Decision which imposed the definite safeguard measure but did not promptly inform CA about the filing. Philcemcor argued with the CTA that Southern Cross resorted to forum shopping. The Court in its decision granted Southern Cross‘s Petition which nullified the Decision of the DTI secretary and declared the Decision of the Court of Appeals null and void, and also concluded that the same had not committed forum shopping for there was no malicious intent to subvert procedural rules. Philcemcor and the DTI Secretary then promptly filed their respective motions for reconsideration. The Court En Banc then resolve the two central issues pertaining to the jurisdictional aspect and to the substantive aspect of whether the DTI Secretary may impose a general safeguard measure despite a

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 negative determination by the Tariff Commission and whether the Tariff Commission could validly exercise quasi-judicial powers in the exercise of its mandate under the SMA. In its resolution, the Court directed the parties to maintain the status quo and until further orders from this Court. ISSUES: I. Jurisdiction to Review the Secretary‘s Decisions II. Reviewability of the Tariff Commission‘s Report

RULING: I. On the Issue of jurisdiction, the DTI secretary‘s decisions - whether imposing safeguard measures or not – are subject to review by the Court of Tax Appeals pursuant to Section 29 of RA 8800. Under section 29, there are three requisites to enable the CTA to acquire jurisdiction over the petition for review contemplated therein (1) there must be a ruling by the DTI Secretary (2) the petition must be filed by an interested party adversely affected by the ruling and (3) such ruling must be in ―in connection with the imposition of a safeguard measure.‖ Obviously, there are differences between ―a ruling for the imposition of a safeguard measure,‖ and one issued ―in connection with imposition of a safeguard measure.‖ The first adverts to a singular type of ruling, namely one that imposes a safeguard measure. The second does not contemplate only one kind of ruling, but a myriad of rulings issued ―in connection with the imposition of a safeguard measure. II. The DTI Secretary is not bound by the Tariff Commission‘s recommendations. The Power to impose Tariffs is essentially legislative; it is delegable only to the president. The application of safeguard measures, while primarily intended to protect domestic industries, is essentially in the nature of a tariff imposition. Pursuant to the Constitution, the imposition of tariffs and taxes is a highly prized legislative prerogative. Pursuant also to the Constitution, such power to fix tariffs may as an exception, be delegated by Congress to the President. Section 28 of Article VI of the Constitution provides for that exception. *The motivation behind many taxation measures is the implementation of police power goals. Progressive income taxes alleviate the margin between the rich and the poor. Taxation is distinguishable from police power as to the means employed to implement these public good goals. Those doctrines that are unique to taxation arose from peculiar considerations such as those especially punitive effects of taxation, and the belief that taxes are the lifeblood of the state. These considerations necessitated the evolution of taxation as a distinct legal concept from police power. Yet at the same time, it has been recognized that taxation may be made the implement of the state‘s police power.*

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CIR vs Marubeni GR 137377, 18 December 2001 Situs rule/taxing jurisdiction

FACTS: On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes. CIR claims that the income respondent derived were income from Philippine sources, hence subject to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for review with CTA: the first, questioned the deficiency income, branch profit remittance and contractor‘s tax assessments and second questioned the deficiency commercial broker‘s assessment.

ISSUE: W/N Marubeni should be exempted from tax.

RULING: Yes. CIR argues that since the two agreements are turn-key, they call for the supply of both materials and services to the client, they are contracts for a piece of work and are indivisible. The situs of the two projects is in the Philippines, and the materials provided and services rendered were all done and completed within the territorial jurisdiction of the Philippines. Accordingly, respondent‘s entire receipts from the contracts, including its receipts from the Offshore Portion, constitute income from Philippine sources. The total gross receipts covering both labor and materials should be subjected to contractor‘s tax (a tax on the exercise of a privilege of selling services or labor rather than a sale on products). Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in the Philippines because some of them were completed in Japan (and in fact subcontracted) in accordance with the provisions of the contracts. All services for the design, fabrication, engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. These services were rendered outside Philippines‘ taxing jurisdiction and are therefore not subject to contractor‘s tax. Petition denied.

24


Republic vs CA & Precision GR 109193, 1 February 2000 Tax amnesty

FACTS: On June 10, 1985, the BIR issued an assessment notice and letter against Precision Printing, Inc., demanding payment of the sum of P248, 406.11. Despite repeated demands, however, the latter failed to pay within the period prescribed by law and as a result the tax assessment became final and demandable. But pursuant to Executive Order No. 41, on October 31, 1986, Precision Printing, Inc. filed a Tax Amnesty Return together with the Statements of Net Worth, covering the period for which taxes were demanded. The same was certified. As a result, BIR filed a case for collection in the RTC which was ruled in favor of the Precision Printing, Inc. On appeal in the CA, the lower court‘s decision was affirmed. Hence, this present petition for review on the ground that the respondent corporation was already assessed of its tax deficiency on June 10, 1985 prior to the promulgation of Revenue Memorandum 4-87 which implemented E.O. 41 that only covers tax assessments after August 21, 1986. ISSUE: Whether or not the respondent court erred in affirming the trial court's finding that private respondent's tax liability was extinguished when it availed of tax amnesty under Executive Order no. 41? RULING: No. The decision of the respondent court is correct. Executive Order No. 41 declaring a tax amnesty on unpaid income taxes which was promulgated on August 22, 1986 covers estate and donor's taxes and taxes on business, for the taxable years 1981-1985. This was later amended by Revenue Memorandum 4-87 stating: 1.02. A certification by the Tax Amnesty Implementation Officer of the fact of availment of the said tax amnesty shall be a sufficient basis for: xxx

xxx

xxx

1.02.3. In appropriate cases, the cancellation/withdrawal of assessment notice and letters of demand, issued after August 21, 1986 for the collection of income, business, estate or donor's taxes during the taxable years. It is therefore decisively clear that R.O. 4-87 reckoned the applicability of the tax amnesty from August 22, 1986 — the date when E.O. 41 took effect. However, Executive Order No. 41 contained no limitation whatsoever delimiting its applicability to assessments made prior to its effectivity. Rather, the said E.O. 41 merely provided for a general statement covering all tax liabilities incurred from 1981-1985. If Executive Order No. 41 had not been intended to include 1981-1985 tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to cases specifically excepted by it. Indeed,

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 administrative issuances seeking to carry into effect an act of Congress must be in harmony with the provisions of the law, it cannot modify nor supplant the same.

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CIR vs Santos GR 119252, 18 August 1997 Wisdom of tax policy not a justiciable issue

FACTS: On August 5, 1988, the then Regional Director of Region 4-A, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission Order directing BIR officers to conduct surveillance, monitoring, and inventory of all imported articles of Hans Brumann, Inc., a member of the Guild of Philippine Jewelers, Inc., and place the same under preventive embargo. This was to see if the proper taxes have been paid. The duration of the mission was from August 8-20, 1988. The BIR officers inventoried the articles, requested for proof of necessary payments for excise and VAT taxes on said articles, and requested not to sell the articles until it can be proven that the necessary taxes thereon have been paid. The owner, Brumann, signed a receipt acknowledging that the articles inventoried have been seized and left in his possession, and promising not to dispose of the same without authority of the CIR pending investigation. The BIR requested that certain documents be presented for ―stocktaking investigation for excise tax purposes‖ but Brumann did not produce them. Other members of the Guild (Miladay Jewels, Mercelles, Solid Gold, Diagem Traders) were also subjected to the same request. On Nov. 29, 1988, private respondents prayed that Sec. 126, 127(a)(b), 150(a) of the National Internal Revenue Code and Hdg. No 71.01, 71.02, 71.03, 71.04, Chapter 71 of the Tariff and Customs Code be declared unconstitutional and void, and that the CIR and Customs be prevented or enjoined from issuing mission orders and other orders of similar nature. The RTC declared Sec 104 of the Tariff and Custom Code of the Philippines, Hdg, 71.01, 71.02,71.03,71.04, Chapter 71 as amended by EO 470, imposing 3%-10% tariff and customs duty on natural and cultured pearls and precious or semi-precious stones, and Sec. 150(1) of the National Internal Revenue Code of 1977, as amended, renumbered and rearranged by EO 273, imposing 20% excise tax on jewelry, pearls, and other precious stones, as inoperative and without force and effect insofar as petitioners are concerned.

ISSUE: Whether or not the RTC has authority to pass judgment upon taxation policy of the government.

RULING: Passing judgment on the wisdom of the laws is a matter on which the RTC is not competent to rule. It is a matter for the legislature to decide. ―The Judiciary does not pass upon question of wisdom, justice or expediency of legislation‖ (Angara vs. Electoral Commission). Judicial power only allows ―to settle actual controversies involving rights which are legally demandable and enforceable‖ and may not annul an act of the political departments simply because the judiciary feel it unwise or impractical.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Respondent RTC judge encroached upon matters properly falling within the province of legislative functions. In citing as basis for his decision unproven comparative data pertaining to differences between tax rates of various Asian countries, and concluding that the jewelry industry in the Philippines suffers as a result, the respondent judge took it upon himself to supplant legislative policy regarding jewelry taxation. In advocating the abolition of local tax and duty on jewelry simply because other countries have adopted such policies, the respondent judge overlooked the fact that such matters are not for him to decide. There are reasons why jewelry, a non-essential item, is taxed as it is and these reasons are deliberated by our legislature, are beyond the reach of judicial questioning. As held in Macasiano vs. National Housing Authority: ―The policy of our courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain, this presumption is based on the doctrine of separation of powers…The theory is that as the joint act of Congress and the President of the Philippines, a law has been carefully studied and determined to be in accordance with the fundamental law before it was finally enacted.‖ BUT, this is not to say that the RTCs have no power to declare a law unconstitutional. ―The Constitution contemplates that the inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior courts in cases where such constitutionality happens to be in issue.‖ But this authority does not extend to deciding questions which pertain to legislative policy. The RTC can only look into the validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its existence. Judges can only interpret and apply the law, they cannot repeal or amend it.

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Pepsi vs Municipality of Tanauan GR L-31156, 27 February 1976 Double taxation; delegation of tax powers

FACTS: In 1963 Pepsi-Cola Bottling Company of the Philippines, Inc., (herein petitioner) commenced a complaint with preliminary injunction before the CFI Leyte to declare Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. Municipal Ordinance No. 23 levies and collects ―on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of volume capacity‖ while Municipal Ordinance No. 27 levies and collects ―on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of volume capacity.‖ The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.‖ It was also alleged by petitioner that the aforementioned municipal ordinances constitute double taxation in two instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances impose percentage or specific taxes. The CFI of Leyte dismissed the complaint and upheld the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional. From this judgment, Pepsi-Cola Bottling Company appealed to the CA which, in turn elevated the case to the SC. ISSUES: a. Whether or not there is undue delegation of taxing powers b. Whether or not there is double taxation. RULING: A. No. The Constitution even allows such delegation. Legislative powers may be delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: ―Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law.‖ Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 B.

No. The argument of the Municipality is well taken. Further, Pepsi Cola‘s assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law unlike in other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or municipality.

Kilosbayan, Inc. et al vs Guingona GR 113375, 5 May 1994

FACTS: Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the authority to hold and conduct ―charity sweepstakes races, lotteries and other similar activities,‖ the PCSO decided to establish an on-line lottery system for the purpose of increasing its revenue base and diversifying its sources of funds. The Philippine Gaming Management Corporation (PGMC) which is organized by Berhad group, a multinational company and one of the ten largest public companies in Malaysia, was granted to provide the technical and management services for the needed for project in the form of a lease contract approved by the President. KILOSBAYAN sent an open letter to President Fidel V. Ramos strongly opposing the setting up of the on-line lottery system on the basis of serious moral and ethical considerations. The protest was denied by the Office of the President, contemplating that ―only a court injunction can stop Malacañang‖ . Hence, this petition. ISSUES: 1. Whether or not the petitioners have locus standi. 2. Whether or not the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries ―in collaboration, association or joint venture with any person, association, company or entity, whether domestic or foreign.‖ is legal and valid. RULING: 1.

The Court ruled that petitioners have legal standing considering that the ramifications of such issues immeasurably affecting the social, economic, and moral well-being of the people even in the remotest barangays of the country and the counter-productive and retrogressive effects of the envisioned on-line lottery system are as staggering as the billions in pesos it is expected to raise. The legal standing then of the petitioners deserves recognition, setting aside its procedural technicality.

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Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, prohibits the PCSO from holding and conducting lotteries ―in collaboration, association or joint venture with any person, association, company or entity, whether domestic or foreign.‖ There is undoubtedly a collaboration between PCSO and PGMC and not merely a contract of lease. The relations between PCSO and PGMC cannot be defined simply by the designation they used, i.e., a contract of lease.

The contract‘s

nature can be understood to form the intent of the parties as evident in the provisions of the contract. Article 1371 of the CC provides that the intent of contracting parties are determined in part through their acts. The only contribution PCSO will be giving is the authority to operate. PCSO bears no risk and all it does is to provide its franchise. Pursuant to the wordings of their agreement, PGMC at its own expense shall build, operate, and manage the network system including its facilities needed to operate a nationwide online lottery system. Indeed, PCSO cannot share the franchise in any way. Clearly, the challenged Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law.

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MCIAA vs Marcos—ARCIDE

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Republic vs ICC GR 141667, 17 July 2006 Regulatory nature of permit fees

FACTS: On April 4, 1995, respondent ICC, holder of a legislative franchise under Republic Act (RA) No. 7633 to operate domestic telecommunications, filed with the NTC an application for a Certificate of Public Convenience and Necessity to install, operate, and maintain an international telecommunications leased circuit service between the Philippines and other countries, and to charge rates therefor, with provisional authority for the purpose. Respondent ICC filed a motion for partial reconsideration of the Order insofar as the same required the payment of a permit fee. In a subsequent Order dated June 25, 1997, the NTC denied the motion. Therefrom, ICC went to the CA on a petition for certiorari with prayer for a temporary restraining order and/or writ of preliminary injunction, questioning the NTC's imposition against it of a permit fee of P1,190,750.50 as a condition for the grant of the provisional authority applied for. In its original decision, dated January 29, 1999, the CA ruled in favor of the NTC whose challenged orders were sustained, and accordingly denied ICC's certiorari petition. In time, ICC moved for a reconsideration. This time, the CA, in its Amended Decision dated September 30, 1999, reversed itself, granting ICC its motion for reconsideration. Petitioner NTC filed a motion for reconsideration, but its motion was denied by the CA.

ISSUES: 1.

Whether the fee in question is in the nature of a tax, or is merely a regulatory measure.

2.

Whether or not there is a repeal of Section 40 of the Public Service Act.

RULING: 1.

Section 40(g) of the Public Service Act is not a tax measure but a simple regulatory provision for the collection of fees imposed pursuant to the exercise of the State‘s police power. A tax is imposed under the taxing power of government principally for the purpose of raising revenues. The law in question, however, merely authorizes and requires the collection of fees for the reimbursement of the Commission's expenses in the authorization, supervision and/or regulation of public services. There can be no doubt then that petitioner NTC is authorized to collect such fees. However, the amount thereof must be reasonably related to the cost of such supervision and/or regulation.

2.

The CA ratiocinated that while Section 40(g) of the Public Service Act (CA 146, as amended), supra, allowed NTC to impose fees as reimbursement of its expenses related

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 to, among other things, the ―authorization‖ of public services, Section 5(g), above, of R.A. No. 7921 no longer speaks of ―authorization‖ but only of ―regulation‖ and supervision.‖ To the CA, the omission by Section 5(g) of R.A. No. 7921 of the word ―authorization‖ found in Section 40(g) of the Public Service Act, as amended, meant that the fees which NTC may impose are only for reimbursement of its expenses for regulation and supervision but no longer for authorization purposes. We find, however, that NTC is correct in saying that there is no showing of legislative intent to repeal, even impliedly, Section 40(g), supra, of the Public Service Act, as amended. An implied repeal is predicated on a substantial conflict between the new and prior laws. In the absence of an express repeal, a subsequent law cannot be construed as repealing a prior one unless an irreconcilable inconsistency and repugnancy exist in the terms of the new and old laws. The two laws must be absolutely incompatible such that they cannot be made to stand together.

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CIR vs Benguet Corp. GR 134587-77, 8 July 2006 Prospective application of VAT

FACTS: Benguet Corp. (―Benguet‖) is a domestic corporation engaged in mining. It is a VAT-registered enterprise. Benguet filed an application for zero-rating of its sales of mine products. The application was approved. The CIR issued the 1st VAT Ruling which declared that the sale of gold to the Central Bank (―CB‖) is considered an export sale and therefor subject to 0% VAT. In reliance to the CIR‘s position, Benguet sold gold to the CB and treated these sales as 0% VAT rated. In this same period, Benguet incurred input taxes attributable to its sale of gold to the CB. Consequently, Benguet filed with the CIR applications for the issuance of Tax Credit Certificates for input VAT Credits attributable to its export sales. The CIR issued the second VAT Ruling declaring that the sales of gold to the CB are considered domestic sales subject to 10% VAT (instead of 0% in the 1ST VAT RULING). Subsequently, the CIR issued another VAT Ruling. It stated the retroactive application of the 2ND VAT RULING to all such prior sales. Hence, Benguet prayed for the issuance of Tax Credit Certificates with the CTA. ISSUES: Whether or not the 2

nd

VAT RULING (subjecting sales of gold to the CB to 10% VAT) would be

prejudicial to Benguet since it retroacts to prior sales. RULING: Benguet‘s claim of the tax credit of input tax amounting to P50M represents the costs or expenses incurred by Benguet in connection with its gold production. Relying on the 1ST VAT RULING (sales of gold to the CB are considered export sales subject to 0%), Benguet sold gold to the CB without passing on CB its input VAT costs, obviously intending to obtain a refund or credit thereof from the BIR at the end of the taxable period. However, by the time Benguet applied for credit of its input VAT costs, the 2ND VAT RULING treated sales of gold to the CB as domestic sales subject to 10% VAT. And the 3RD VAT RULING retroactively applied the 2ND VAT RULING to such prior sales made. By reason of the denial of its claim for credit, Benguet has been precluded from recovering its input VAT costs. (1) Benguet has clearly shown that it has no ―other transactions‖ subject to 10% VAT and CIR has failed to prove the existence of such ―other transactions‖ against which to set off Benguet‘s input VAT. (2) Treating the input VAT as an income tax deduction will yield only to a partial benefit. The use of input VAT as a tax deductions results in a loss of 65% of the input VAT which could have otherwise fully utilized

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 as a tax credit. There is substantial difference between a tax credit and a tax deduction. A tax credit reduces tax liability, while a tax deduction only reduces taxable income Prejudice is all the more highlighted by the fact that it has been issued assessments for deficiency output VAT. Benguet relied on the formal assurances of the BIR‘s 1st VAT RULING. To retroact a later ruling revoking the grant of 0% rating status and applying a new and contrary position that such sales are now subject to 10% is inconsistent with justice and fair play.

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CIR vs Benguet Corp. GR 145559, 14 July 2006 Non-retroactive application of taxes; ―Passing on‖ of indirect taxes like VAT

FACTS: Since the inception of the VAT in 1988, sale of gold to Central Bank has been considered by the BIR to be zero-rated. (VAT Ruling 378-88 and RMC No. 59—88). On January 23, 1992, Commissioner Ong issued VAT Ruling No. 008-92 declaring and holding that the sale of gold to the CB are considered domestic sales subject to the 10% VAT. Subsequently, VAT Ruling No. 59-92 dated April 28, 1992 was issued reiterating the treatment of sales of gold to CB and expressly countenancing the retroactive application of VAT Ruling No. 008-92 to all such sales made starting January 1, 1988. ISSUES: (1) Can a ruling, changing the tax treatment of a transaction from one subject to 0% to one subject to 10%, be given a retroactive application? (2) Is there really an actual and imminent injury to the taxpayer if the ruling is given a retroactive application? RULING: (1) The SC ruled in the negative. Well-entrenched is the rule that rulings and circulars, rules and regulations, promulgated by the Commissioner of Internal Revenue, would have no retroactive application if to so apply them would be prejudicial to the taxpayers. There is no question, therefore, as to the prohibition against the retroactive application of the revocation, modification or reversal, as the case maybe, of previously established Bureau on Internal Revenue (BIR) Rulings when the taxpayer's interest would be prejudiced thereby. The CIR is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom, or when there has been a misrepresentation to the taxpayer. (citing ABS-CBN Broadcasting Corp. vs. CTA and CIR, 108 SCRA 142) (2) While the CTA said there is none, the CA had taken a contrary view which was affirmed by the SC. The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either by (1) passing on the 10% output VAT on the gross selling price or gross receipts, as the case may be, to its buyer, or (2) if the input tax is attributable to the purchase of capital goods or to zero-rated sales, by filing a claim for refund or tax credit with the BIR. Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and services may recover its input VAT costs by passing on said costs as output VAT to its buyers of goods and services but it cannot claim the same as a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services may only recover its input costs by filing a refund or tax credit with the BIR.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 The SC is correct in holding that a retroactive imposition of the VAT on the sale of gold to Central Bank will definitely result to substantial economic prejudice to respondent. First, the respondent could no longer pass-on to CB the 10% output VAT which would be retroactively imposed on said transactions, and second, it will also be prevented from claiming the refund because the sale is no longer zero rated. If this happens the entire cost of the input VAT will be borne by respondent Benguet without any avenue for recovery. Indeed, respondent stands to suffer substantial economic prejudice by the retroactive application of the VAT Ruling in question.

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Planters Products vs Fertiphil GR 166006, 14 March 2008 Police power and power to tax distinguished; tests to determine which power is used

FACTS: On June 3, 1985, for the purpose of rehabilitating Philippine Planters, Inc., the then President Ferdinand E. Marcos issued Letter of Instruction (LOI) No. 1465 which imposed a charge of P10.00 per bag of fertilizer on all domestic sales of fertilizer in the Philippines. Respondent Fertiphil Corporation, a domestic entity engaged in the fertilizer business, questioned the constitutionality of LOI NO. 1465 and brought an action to recover its accumulated payment thereunder in the amount of P6,698,144.00, the case docketed as Civil Case No. 17835 before Branch 147 of the Regional Trial Court of Makati. ISSUE: Whether or not, LOI 1465 constitutes valid legislation pursuant to the exercise of the power of taxation and police power of the state RULING: No. Court said, "It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI. We cannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer industry in the country. The letter of understanding and the plain text of the LOI clearly indicate that the levy was exacted for the benefit of a private corporation, therefore not for public purpose. Also, even if We consider LOI No. 1465 enacted under the police power of the State, it would still be invalid for failing to comply with the test of ―lawful subjects‖ and ―lawful means.‖ Jurisprudence states the test as follows: (1) the interest of the public generally, as distinguished from those of particular class, requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. For the same reasons as discussed, LOI No. 1465 is invalid because it did not promote public interest. The law was enacted to give undue advantage to a private corporation."

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Gerochi vs DOE GR 159796, 17 July 2007

Regulatory exactions are not taxes

FACTS: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), which sought to impose a universal charge on all end-users of electricity for the purpose of funding NAPOCOR‘s projects, was enacted and took effect in 2001. Petitioners contest the constitutionality of the EPIRA, stating that the imposition of the universal charge on all end-users is oppressive and confiscatory and amounts to taxation without representation for not giving the consumers a chance to be heard and be represented. ISSUE: Whether or not the universal charge is a tax. RULING: NO. The assailed universal charge is not a tax, but an exaction in the exercise of the State‘s police power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates the policies of the State regarding electrification. Moreover, the Special Trust Fund feature of the universal charge reasonably serves and assures the attainment and perpetuity of the purposes for which the universal charge is imposed (e.g. to ensure the viability of the country‘s electric power industry), further boosting the position that the same is an exaction primarily in pursuit of the State‘s police objectives If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. The taxing power may be used as an implement of police power. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

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CIR vs Central Luzon Drug GR 148512, 26 June 2006 Tax credit and tax deductions in Senior Citizens Act

FACTS: Central Luzon Drug Corporation is a retailer of medicines and other pharmaceutical products. Pursuant to the mandate of Section 4(a) of Republic Act No. 7432, otherwise known as the Senior Citizens Act, it granted a twenty percent (20%) discount on the sale of medicines to qualified senior citizens amounting to P219,778.00 (for the period January 1995 - December 1995). It then deducted the same amount from its gross income for the taxable year 1995, pursuant to Revenue Regulations No. 2-94 implementing the Senior Citizens Act, which states that the discount given to senior citizens shall be deducted by the establishment from its gross sales for value-added tax and other percentage tax purposes. For the said taxable period, Central Luzon Drug reported a net loss of P20, 963.00 in its corporate income tax return, and as a result, it did not pay income tax for 1995. Central Luzon Drug filed a claim for refund in the amount of P150,193.00, claiming that according to Sec. 4(a) of the Senior Citizens Act, the amount of P219,778.00 should be applied as a tax credit.

ISSUE: Whether or not the 20% discount granted by the respondent to qualified senior citizens may be claimed as tax credit or as deduction from gross sales?

RULING: ―Tax credit‖ is explicitly provided for in Sec4 of RA 7432. Nothing in the provision suggests for it to mean a ―deduction‖ from gross sales. Thus, the 20% discount required by the law to be given to senior citizens is a tax credit, not a deduction from the gross sales of the establishment concerned. As a corollary to this, the definition of ‗tax credit‘ found in Sect. 2(1) of Revenue Regulations No. 2-94 is erroneous as it refers to tax credit as the amount representing the 20% discount that ―shall be deducted by the said establishment from their gross sales for value added tax and other percentage tax purposes.‖ When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount, when claimed, shall be treated as a reduction from any tax liability. The law cannot be amended by a mere regulation. Sec. 229 of the Tax Code does not apply to cases that fall under Sec. 4 of the Senior Citizens Act. Under the Senior Citizens Act, tax credit is considered a form of just compensation, not a remedy for taxes that were erroneously or illegally assessed and collected. In the same vein, prior payment of any tax liability is not a precondition before a taxable entity can benefit from the tax credit. The credit may be availed of upon payment of the tax due, if any. Where there is no tax liability or where a private establishment reports a net loss for the period, the tax credit can be availed of and carried over to the next taxable year.

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Carlos Superdrug vs DSWD GR 166494, 29 June 2007 Tax credits vs tax deductions; superiority of general welfare over property rights

FACTS: This is a petition for Prohibition with Prayer for Preliminary Injunction assailing the constitutionality of Sec. 4(a) of RA 9257 (Expanded Senior Citizens Act of 2003) based on the grounds that (1) the law is confiscatory; (2) it violates the equal protection clause; and, (3) the 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that makes "essential goods, health and other social services available to all people at affordable cost." Sec. 4(a) of the Act states that the senior citizens shall be entitled to 20% discount from all establishments relative to the utilization of services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior citizens; and, the establishment may claim the discounts as tax deduction based on the net cost of the goods sold or services rendered. ISSUES: 1) What is a tax credit and what are its effects 2) What is a tax deduction and what are its effects 3) Whether the State, in promoting the health and welfare of a special group of citizens, can impose upon private establishments the burden of partly subsidizing a government program RULING: 1)

Under RA 7432 (the old Senior Citizens Act) the 20% discount may be claimed by the private establishments concerned as tax credit. A tax credit is a peso-for-peso deduction from a taxpayer‘s tax liability due to the government of the amount of discounts such establishment has granted to a senior citizen. The establishment recovers the full amount of discount given to a senior citizen and hence, the government shoulders 100% of the discounts granted. A tax credit scheme under the Philippine tax system, necessitates that prior payments of taxes have been made and the taxpayer is attempting to recover this tax payment from his/her income tax due.

2)

Under RA No. 9257, the establishment concerned may claim the 20% discounts as tax deduction from gross income, based on the net cost of goods sold or services rendered. Under this scheme, the establishment concerned is allowed to deduct from gross income, in computing for its tax liability, the amount of discounts granted to senior citizens. Effectively, the government loses in terms of foregone revenues an amount equivalent to the marginal tax rate the said establishment is liable to pay the government. This will be an amount equivalent to 32% of the 20% discounts so granted. The establishment shoulders the remaining portion of the granted discount

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 3)

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just compensation. However, the Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to grant benefits and privileges to them for their improvement and well-being as the State considers them an integral part of our society, as provided for in Art. XV, Sec. 4 of the Constitution. The law is a legitimate exercise of police power which has general welfare for its object. When the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare.

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Diaz vs Sec. of Finance GR 193007, 19 July 2011

FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this 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. Court treated the case as one of prohibition. Petitioners hold the view that Congress did not, when it enacted the NIRC, 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 avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations; 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. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read into contracts.

ISSUE: May toll fees collected by tollway operators be subjected to VAT (Are tollway operations a franchise and/or a service that is subject to VAT)?

RULING: When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the service providers under Section108 who allow others to use their properties or facilities for a fee. Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.

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TAX REMEDIES CASES CIR vs CTA & Citytrust GR 106611, 21 July 1994

FACTS: City Trust filed its claim of tax refunds for its income tax overpayments for years 1983, 1984 and 1985. The case was submitted for decision based solely on the pleadings and evidence submitted by City Trust. Herein petitioner could not present any evidence by reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the records of the case to the Solicitor General. CTA ruled that petitioner is entitled to a refund but only for the overpaid taxes incurred in 1984 and 1985. The refundable amount in its 1983 income tax return was denied on the ground of prescription. An MR was thereafter filed, wherein it was contended for the first time that City Trust had outstanding unpaid deficiency income taxes for 1984. The MR was denied. On Appeal, the CA affirmed CTA‘s ruling.

ISSUES: 1.

Is the government bound by the errors of its agents/employees?

2.

Is City Trust entitled tax refund when it was found out that it has unpaid tax liabilities?

RULING: 1.

No. It is a settled rule of law that the Government is not bound by the errors committed by its agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. This rule is especially true in the field of taxation. It is axiomatic that the Government cannot be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position.

2.

No. The fact of such deficiency assessment is intimately related to with the right of City Trust to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an absurdity. City Trust cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the same year. The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund.

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47


South African Airways vs CIR GR 180356, 16 February 2010

Income tax liability of international carriers; off-setting of tax deficiency and tax refund

FACTS: Petitioner is a foreign corporation duly established under the laws of South Africa, having its principal office at Johannesburg International Airport. It has no landing rights in the Philippines, being merely an internal carrier. It is not registered with the SEC and is not licensed to do business in the Philippines, but has a general sales agent in the Philippines, Aerotel Ltd. Corp, which 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 Philippine territory. In 2000, petitioner paid about Php 1.7 million in taxes as 2.5% of its GPB (Gross Philippine Billings). The definition of GPB has changed over the years. Under the 1939 NIRC, 2.5% tax on GPB was imposed on international carriers existing under foreign laws but engaged in business within the Philippines. Under the 1977 NIRC, it was imposed on international carriers selling passage documents in the Philippines provided the cargo/mail is of Philippine origin. Under the 1986 and 1993 NIRC, it was imposed on gross revenue realized from uplifts of passengers anywhere in the world and excess baggage, cargo, and mail of Philippine origin covered by passage documents sold in the Philippines. Under the 1997 NIRC, it refers to gross revenue from carriage of persons, excess baggage, cargo and mail of Philippine origin in a continuous and uninterrupted flight irrespective of where the passage document for such was sold. In 2003, petitioner filed for a tax refund with the BIR, claiming that Php 1.7 million was erroneously paid on the ground that it is not liable for tax on its GPB or for any other income tax. The claim, however, was not answered, prompting petitioner to file for a review before the CTA. The CTA denied the petition on the ground that although petitioner was not liable for 2.5% of GPB, it was liable to pay 32% income tax because it was engaged in a business in the Philippines. Hence, petitioner appeals before the SC, arguing that granting that it is liable for the 32% income tax, it is nevertheless has the right to be refunded of the taxes it wrongly paid for 2.5% of its GPB or that such amount should be offset from its 32% income tax liability as a matter of legal compensation. ISSUES: 1.

What tax is petitioner liable for?

2.

Can there be off-setting where taxpayer, who has not paid taxes it is liable for (tax deficiency), has paid taxes it is not liable for (tax refund)?

RULING: 1.

Petitioner is not liable for the 2.5% tax on GPB because it does not maintain flights to or from the Philippines—it is merely selling passage documents for the transfer of such on flights outside Philippine territory. However, it is liable for the 32% income tax because off-line air carriers having

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 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 (CIR vs British Overseas Airways). The general rule is that under Sec. 28 (A) (1) of the 1997 NIRC, resident foreign corporations are liable for 32% tax on all income from sources within the Philippines. The exception is that under Sec. 28 (A) (3) of the 1997 NIRC, they are only liable for 2.5% on their GBP if such foreign corporation is an international carrier maintaining flights to and from the Philippines lifting persons, excess baggage, cargo, or mail, originating from the Philippines. Petitioner does not belong to the latter category; hence the general rule applies to it. 2.

Yes. The general rule is that taxes cannot be subject to compensation because the government and the taxpayer are not creditors and debtors of each other. Taxes are not debts to the government. Debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. There can be no off-setting of taxes against the claims that the taxpayer may have against the government in its corporate capacity. A person cannot refuse to pay taxes on the ground that the government owes him an amount equal to or greater than the tax to be collected. The collection of a tax cannot await the results of a lawsuit against the government. However, in CIR vs CTA (GR 106611, 21 July 1994), a tax refund may be off-set with a tax deficiency to avoid multiplicity of suits and for efficiency‘s sake, provided that no doubt is created as the accuracy of the facts in the tax return since a refund assumes a valid tax return. In this case, there is doubt to the validity of petitioner‘s tax return as it has been found that it is liable for one tax but not for another. Hence, the case was remanded for retrial to establish the correct amount that should have been in petitioner‘s tax return for year 2000.

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Procter & Gamble vs Municipality of Medina GR L-29125, 31 January 1972

FACTS: Procter & Gamble Trading Company and Union Import & Export Corporation, herein appellants, engaged in an occupation or business of copra in the Municipality of Medina question the decision of the lower court upholding the validity of Ordinance No. 13 of the Municipality of Medina, which was approved pursuant to Commonwealth Act No. 472. The subject provision reads: "The following taxes, charges, and fees are imposed in the Municipality upon the businesses, occupations, and privileges, specific hereunder, and shall be collected in accordance with the following schedule of rates: ... ." Both appellants seek to annul or at least to obtain a judicial declaration of their being outside the scope of Ordinance No. 13 on the contention that they are not merchants within the meaning of the ordinance and that what is imposed by the ordinance is an export tax expressly prohibited by law. ISSUE: 1) Whether or not the appellants are not merchants within the meaning of Ordinance No. 13 of the Municipality of Medina and hence the ordinance is inapplicable to them? 2) Whether or not Ordinance No. 13 of the Municipality of Medina is an export tax expressly prohibited by law? RULING: 1) No. Undoubtedly, the plaintiffs are engaged in an occupation or business in the municipality. This fact is evidenced by the existence in Medina of plaintiffs‘ branch offices or buying agencies, manned by their branch managers and clerical forces; their establishments like bodegas and equipment necessary in the buying, storing and shipping of copra; actual purchase of millions of kilos of copra in Medina and its environs in terms of millions of pesos every year and round the year; and direct exportation and shipment of this commodity by the plaintiffs to foreign countries thru foreign vessels that periodically and regularly call in defendant's municipal wharf at the instance of plaintiff. Certainly, these series of activities of plaintiffs constitute business in every essence of the word for it could not deny that the same is carried for profit or gain. It is explicitly provided in the ordinance in question that defendant Municipality would collect taxes, charges and fees on businesses conducted therein. The conferment of such competence under Commonwealth Act No. 472 is in accordance with the well-settled principle that a public corporation may tax a business or profession conducted within its territorial jurisdiction. There should be greater awareness on the part of firms and entities conducting business within a municipality that the exercise of such a privilege could be subject to the appropriate exercise of the prerogative to tax. Hence, said ordinance is applicable to appellants Procter & Gamble Trading Company and Union Import & Export Corporation.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 2) No. The appellants were unsuccessful in convincing the Court that what is imposed by the ordinance is an export tax expressly prohibited by law. The case of Ormoc Sugarcane Planters Association, Inc. v. Municipal Board of Ormoc City leaves no doubt that only where there is a clear showing that what is being taxed is an export to any foreign country would the prohibition come into play. The ordinance in question is not susceptible to such a reproach.

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CIR vs Solidbank GR 148191, 25 November 2003

FACTS: Solid Bank declared gross receipts included the amount from passive income which was already subjected to 20% final withholding tax (FWT). CTA affirmed that the 20% FWT should not form part of its taxable gross receipts for purpose of computing the gross receipts tax on such basis; Solid Bank filed a request for refund. CTA ordered the refund while CA held that indeed, the 20% FWT on a bank‘s interest income does not form part of the taxable gross receipts in computing the 5% Gross Receipt tax (GRT) because the FWT was not actually received by the bank, but was directly remitted to the government.

ISSUE: Whether or not the 20% FWT on a bank‘s interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax? And whether there is a double taxation?

RULING: Yes. The amount of interest income, withheld in payment of the 20% Final Withholding Tax (FWT), forms part of gross receipts in computing for the GRT on banks. Although the 20% FWT on respondent‘s interest income was not actually received by respondent because it was remitted directly to the government the fact that the amount redounded to the bank‘s benefit makes it part of the taxable gross receipts in computing the 5% GRT. The argument that there is double taxation cannot be sustained, as the two taxes are different. The one is a business tax which is not subject to withholding while the other is an income tax subject to withholding. In China Banking vs. CA, the Court ruled that the amount of interest income withheld in payment of 20% FWT forms part of the gross receipts in computing for the GRT on banks. 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 is national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. In a withholding tax system, the payee is the taxpayer, the person on whom tax is reposed, the payer, a separate entity, acts as no more than an agent of the government for the collection of taxes. Possession is acquired by the payer as the withholding agent of the government because the taxpayer ratifies the very act of possession for the government. There is constructive receipt, of such income and is included as part of the tax base.

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CIR vs Wyeth GR 76281, 30 September 1991

FACTS: WYETH is a domestic corporation business engaged in manufacturing and selling pharmaceutical and nutritional products. CIR conducted several investigations and allegedly claimed that WYETH failed to remit its withholding tax during the fourth quarter of 1973. WYETH contended that it was not liable in paying the withholding tax because they have yet to be remitted or paid abroad. Also, they insisted that withholding tax on dividends and royalties only becomes due and payable only upon their actual payment or remittance. A case was filed against WYETH by CIR but was later on dismissed for the reason that the right of the petitioner to collect has already prescribed. Hence, this petition.

ISSUE: Whether or not petitioner's right to collect deficiency withholding tax is barred by prescription? RULING: The right to collect by the petitioner did not prescribe. The period of prescription was interrupted when a letter sent by SGV & CO in behalf of its client WYETH to request for a reinvestigation by the BIR of such allege default of payments by the latter. It was only upon the receipt of WYETH of the final assessment by the BIR that the five year prescriptive period started to run again.

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CIR vs Pascor Realty GR 128315, 29 June 1999

FACTS: Upon the examination of its books, Pascor Realty was found to have failed to pay more than Php 10 million in taxes for the years 1986 and 1987, prompting the CIR to file a criminal complaint for tax evasion on March 1, 1995 before the DOJ. The complaint alleged the amount that Pascor Realty failed to pay as found by its revenue officers. Having denied by the CIR of its Urgent Motion for Reconsideration, respondent elevated the matter to the CTA. The CIR filed a motion to dismiss on the ground that the CTA has no jurisdiction over the subject matter of the petition as there was no formal assessment issued against the petitioners. The CTA, however, dismissed the CIR‘s motion to dismiss. The CTA stated that the criminal complaint is already considered an assessment because the affidavits of the revenue officers attached thereto included the kind and amount of tax due and the period covered. The CTA said that an assessment is merely the ―laying of a tax‖ and that ―the ultimate purpose of an assessment… is to ascertain the amount that each taxpayer is to pay‖—and this was achieved by the mere filing of the complaint. On appeal, the CA affirmed the CTA‘s position. Hence this appeal to the SC. Petitioner claims that based on Sec. 205 and 223 (a) of the NIRC, civil or criminal actions may be instituted even without an assessment; hence, an assessment is different from a complaint. Respondent, meanwhile, claims that an assessment is merely a notice of the amount to be paid as taxes— and that such notification was made when the complaint, with the attached affidavits of the revenue officers, was filed against it. ISSUE: What constitutes a tax assessment? Does the criminal complaint qualify as a tax assessment? RULING: An assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of tax liabilities can be deemed assessments. An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period. As inferred from Sec. 228, it is necessary that the taxpayer knows which specific document is the tax assessment so that he may protest it within thirty days. An assessment is deemed made only when the collector of internal revenue releases, mails, or sends such notice to the taxpayer. In the present case, the revenue officers‘ affidavits did not state a demand or period for payment, and it was addressed to the DOJ, not the taxpayer. The complaint and the affidavits, therefore, do not constitute as tax assessments.

54


Ungab vs Cusi GR 41919-24, 30 May 1980

FACTS: The BIR examined the income tax returns filed by petitioner Ungab for the calendar year ending December 31, 1973. The examination revealed that the petitioner failed to report his income derived from sales of banana saplings. As a result, the BIR RDO sent a "Notice of Taxpayer" to the petitioner informing him that petitioner owes P104,981, representing income, business tax and forest charges for the year 1973 and invited petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. Upon receipt of the notice, the petitioner wrote the BIR RDO protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. However, the BIR was fully convinced that petitioner filed a fraudulent return. Thus, it submitted a fraud report to the BIR‘s Fraud Unit and consequently, an endorsement was issued to the Chief Prosecution Division carrying the BIR Commissioner‘s approval to prosecute.

ISSUE: 1. WON the respondent State Prosecutor is without authority to initiate and prosecute the cases of tax evasion and fraud against petitioner? 2. WON the filing of the informations was precipitate and premature since the Commissioner of Internal Revenue has not yet resolved his protests against the assessment of the RDO and WON petitioner was denied recourse to the Court of Tax Appeals?

RULING: 1. The State Prosecutor had authority and acted within his boundaries when he initiated and prosecuted the subject tax evasion and fraud cases against petitioner. The State Prosecutor had been designated to assist all Provincial and City Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the National Internal Revenue Code, as amended, and other related laws, in Administrative Order No. 116 dated December 5, 1974. Further, the State Prosecutor sought permission from the City Fiscal of Davao City before he started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 and prosecution of all violations of the National Internal Revenue Code, as amended, and other related laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal. 2. No, they were not and No, petitioner was not denied recourse to the CTA. The Court ruled that what was involved was not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which was within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. The Court stated that an assessment of the deficiency tax due is NOT necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. Further, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. Obviously, the protest of the petitioner against the assessment of the RDO cannot stop his prosecution for violation of the National Internal Revenue Code.

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CIR vs CA GR 128315, 29 June 1999

FACTS: On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate the tax liabilities of manufacturers engaged in tax evasion scheme, such as selling products through dummy marketing corporations to avoid payment of correct internal revenue tax, to collect from them any tax liabilities discovered from such investigation, and to file the necessary criminal actions against those who may have violated the tax code. The task force was composed of the Commissioner of Internal Revenue as Chairman, a representative of the Department of Justice and a representative of the Executive Secretary. In July 1993, the CIR issued a revenue memorandum circular reclassifying best selling cigarettes bearing the brands "Hope," "More," and "Champion" as cigarettes of foreign brands subject to a higher rate of tax. In August 1993, respondent Fortune questioned the validity of the reclassification of said brands of cigarettes as violative of its right to due process and equal protection of law. Consequently, the CTA by resolution ruled that the reclassification made by the Commissioner "is of doubtful legality" and enjoined its enforcement. In August 1993, the CIR Commissioner assessed against Fortune approximately P7.7 million as deficiency for the year 1992 and requested that the same be paid within 30 days from receipt. Fortune moved for reconsideration of the assessments. In September 1993, the CIR filed a complaint with the DOJ against Fortune for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of income tax, ad valorem tax and value-added tax for the year 1992.

ISSUE: WON the filing of the criminal action against Fortune for tax evasion and the wilful filing of fraudulent tax returns was premature considering that no resolution from the BIR regarding Fortune‘s tax assessment has been received?

RULING: Yes, it was. The Court ruled that before Fortune and the other private respondents could be prosecuted for tax evasion under Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad valorem and value-added taxes were due from Fortune for the year 1992 should first be established. Fortune received form the Commissioner of Internal Revenue the deficiency assessment notices on August 24, 1993. However, under Section 229 of the Tax Code, the taxpayer has the right to move for reconsideration of the assessment issued by the Commissioner of Internal Revenue within 30 days from receipt of the assessment; and if the motion for reconsideration is denied, it may appeal to the Court of Appeals within 30 days from receipt of the Commissioner's decision. Here, Fortune received the

57

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Commissioner's assessment notice dated August 13, 1993 on August 24, 1993 asking for the payment of the deficiency taxes. Within 30 days from receipt thereof, Fortune moved for reconsideration. The Commissioner has not resolved the request for reconsideration up to the present. The Court reiterated that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that private respondents have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. In plain words, before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax code, the fact that a tax is due must first be proved. In reconciling the present ruling with that of in Ungab vs. Cusi, where the Court stated that an assessment of the deficiency tax due is NOT necessary before the taxpayer can be prosecuted criminally for tax evasion, the Court ruled that for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. In Ungab, it was demonstrated by Ungab‘s nondisclosure of his income derived from banana sapplings. In the present case, no such non-disclosure was made, especially considering the involvement of the CIR in Fortune‘s operations, when the CIR approves the registered wholesale price of the goods before the same can be taken out of Fortune‘s production plants. Unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution.

58


Vda. de San Agustin vs CIR GR 138485, 10 September 2001

FACTS: Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all his estate to his widow, and naming retired Justice Jose Y. Feria as Executor thereof. On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an extension of two years for the payment of the tax, inasmuch as the decedent‘s widow (did) not personally have sufficient funds, and that the payment (would) have to come

from

the

estate.

In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under Sections 248 and 249 of the National Internal Revenue Code, as amended. On October 1, 1991, within the ten-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof, but, requesting that the surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the extension period. On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand in the preassessment notice and requesting payment on or before thirty (30) days upon receipt thereof. In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc. On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount of P538,509.50 through its Receivable Accounts Billing Division. The request for reconsideration was not acted upon until January 21, 1993, when the executor received a letter, dated September 21, 1992, signed by the Commissioner, stating that there is no legal justification for the waiver of the interests, surcharge and compromise penalty in this case, and requiring full payment of P438,040.38 representing such charges within ten (10) days from receipt thereof. In view thereof, the respondent estate paid the amount of P438,040.38 under protest on January 25, 1993. ISSUES:

59


Whether the imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is not in accord with the law and therefore illegal.

2.

Whether the the need for an authority from the probate court in the payment of the deficiency estate tax can negate the application of the tax code?

RULING: 1.

The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed on petitioner, a compromise being, by its nature, mutual in essence. The payment made under protest by petitioner could only signify that there was no agreement that had effectively been reached between the parties.

2.

Regrettably for petitioner, the need for an authority from the probate court in the payment of the deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that can negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions. (In sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or

a

total

of

P148,090.00.

WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge, interest and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37 and interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38. No costs.

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Calamba Steel vs CIR GR 151857, 28 April 2005

FACTS: Petitioner is a domestic corporation engaged in the manufacture of steel blanks for use by manufactures of automotive, electrical, electronics in industrial and household appliances. Petitioner filed amended corporate annual income tax return on 1996, petitioner also reported payments for the 2

nd

and

rd

3 quarter of 1995. On 1997, petitioner proposed that it is entitled to a refund because they were unable to use their excess or unused credit for the year 1995. Respondent challenged the petition. The Court of Tax Appeals ruled in favor of the respondent, stating that respondent corporation failed to present it 1996 tax return as formal evidence, making it difficult to determine whether such excess tax payments were utilized in 1996. Hence, this petition.

ISSUE: May excess income taxes paid in 1995 that could not be applied to taxes due in 1996 be refunded in 1997?

RULING: The Supreme Court found the petition partly meritorious citing the following grounds: 1. Claim of Tax Refund beyond the succeeding taxable year The unused amount of the excess may still be refunded, provided that the claim for such refund is made within two years after the payment of the tax. Petitioner filed its claim in 1997, well within the two year prescriptive period. Thus, its unused tax credits in 1995 may still be refunded. The limitation in Section 69 applies only to tax credit and not tax refunds. Petitioner seeks a tax refund, thus, the limitation does not apply to them. 2. Income payments merely declared part of gross income Second, to be able to claim a tax refund, the income payment it received as part of its gross income must be declared, and the fact of withholding established. 3. Tax Refund Provisions: Question of Law Generally, interpretations of the provisions of tax refunds are regarded as questions of law. However, in the present case, the veracity or falsity of the contents of the 1996 Final Adjustment Return has not been formally presented as evidence in the CTA proceedings. Although the Court believes that the petitioners are entitled to a refund, the amount is for the CTA to determine. 4. Liberal construction of rules

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Even if the CTA ruled against the petitioners, there are some cases where the Court, by analogy or in a suppletory character, and whenever practicable and convenient, shall liberally construed in order to promote their objective of securing a just and speedy inexpensive disposition of every action and proceeding. 5. Judicial notice of attached return The CTA, instead of asking the respondent to verify if the petitioner really suffered any net loss in 1996, it applied strict technicalities and did not take judicial notice of the facts that were contested in another case that was filed by the same parties, which could have ascertained how much the refund was due to the petitioner. It dismissed the case without asking the BIR to challenge the petitioner‘s final adjustment return. The appellate Court failed to require the filing of other responsive pleadings from respondent, as was necessary for it to rule upon how much was the return due. 6. Admissibility vs. weight It would not be proper to allow petitioner to compel a refund without affording the government an opportunity to contest the claim. Since the petitioner failed to present its 1996 tax refund to disclose its total tax liability, liberal construction of rules does not apply to them. Petitioner still bears the burden of proving the amount of its claim for tax refund. After all, tax refunds are in the nature of tax exemptions, and are to be construed strict issimi juris against the taxpayer. In brief, the Court ruled that petitioner is entitled to a refund, however the amount must still be proved in proper proceedings before the CTA.

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Phil Journalists vs CIR GR 162852, 16 December 2004

FACTS: Petitioner Philippine Journalists, Incorporated (PJI) filed an Income Tax Return for the calendar year which ended on December 31 1994. The same ITR presented a net income of P30, 877,387 and the tax due of P10,807,086. After deducting tax credits for the year, petitioner paid the amount of P10,247,384.00. On August 25,1995, petitioner‘s books of account and other accounting records for internal revenue taxes for the period of January 1, 1994 to December 31, 1994 were examined through a Letter of Authority from the BIR Revenue District Office. From the examination, the petitioner was told that there were deficiency taxes ,inclusive of surcharges , interest and compromise penalty with a total of P 127,980,433.20 from the Value Added Tax, Income Tax, and Witholding Tax respectively. In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to send a representative to an informal

conference on September 15, 1997 for an

opportunity to object and present documentary evidence relative to the proposed assessment. On September 22, 1997, petitioner‘s Comptroller, Lorenza Tolentino, executed a ―Waiver of the Statute of Limitation Under the National

Internal Revenue Code (NIRC)‖. The document ―waived the running of

the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed] to the assessment and collection of taxes which may be found due after the examination at any time after the l aps e of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation. On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-046 signed by Deputy Commissioner Romeo Panganiban for the BIR was received by the petitioner. Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) which was

amended on May 12, 2000. The CTA

ruled that the petition for review filed on April 26,2000 with it was neither timely filed nor the proper remedy and that only

decisions of

the BIR, denying t h e request for reconsideration or

reinvestigation may be appeal ed t o t h e CTA.

Mere assessment notices which have become

final after t h e l apse of t h e thirty (30)- day reglementary period are not appealable.

Thus,

the CTA should not have entertained the petition at all.

ISSUE: Is the Court Of Tax Appeals‘ ruling correct?

RULING: No. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides for the jurisdiction of that special court: SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided – (1) Decisions of the Commissioner of Internal Revenue in cases involving

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue;

The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected. This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed assessment or a claim for refund. In Pantoja v. David, we upheld the jurisdiction of the CTA to act on a petition to invalidate and annul the distraint orders of the Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals, the decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by the BIR, was upheld by this Court.

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CIR vs Tulio GR 139858, 25 October 2005

FACTS: Arturo Tulio is engaged in the construction business. The CIR sent him a demand letter with two final assessment notices requesting payment of his deficiency percentage taxes of P188,585.76 and P245,669.53 for the taxable years 1986 and 1987. However, despite receipt, Tulio failed to act on the assessment notices. Hence, the same became final and executor pursuant to Section 229 of the 1996 NIRC. CIR, petitioner sent letters to respondent giving him the last opportunity to settle his deficiency tax liabilities. But respondent was obstinate. Thus, on October 29, 1997, petitioner filed with the RTC, Branch 60, Baguio City a civil action for the collection of the deficiency percentage taxes, docketed as Civil Case No. 3853-R. Incidentally, it bears emphasis that it is the RTC which has jurisdiction over this case, not the Court of Tax Appeals. It is the ordinary courts, not the tax court, which can entertain BIR money claims based on assessments that have become final and executory. On March 22, 1999, the RTC issued an Order directing respondent to file his answer to the complaint. Three days thereafter, respondent filed a motion to dismiss alleging that the complaint was filed beyond the three-year prescriptive period provided by Section 203 of the National Internal Revenue Code. The RTC issued its first challenged Order dismissing Civil Case No. 3853-R by reason of prescription. Petitioner filed a motion for reconsideration but was denied on August 25, 1999. Hence, this petition for review on certiorari. ISSUE: Whether petitioner‘s cause of action for the collection of deficiency percentage taxes against respondent has prescribed. RULING: The petition is GRANTED. Petitioner‘s cause of action for the collection of deficiency percentage taxes against respondent has not prescribed. The lower court erroneously applied Section 203 of the same Code providing for the three-year prescriptive period from the filing of the tax return within which internal revenue taxes shall be assessed. It held that such period should be counted from the day the return was filed, or from August 15, 1990 up to August 15, 1993. However, as shown by the records, respondent failed to file a tax return, forcing petitioner to invoke the powers of his office in tax administration and enforcement. Respondent‘s failure to file his tax returns is thus covered by Section 223 providing for a ten-year prescriptive period within which a proceeding in court may be filed. Section 223 (now Section 222) of the National Internal Revenue Code provides: "Section 223. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. – (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which had become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 (c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within three (3) years following the assessment of the tax." Section 223 specifies three (3) instances when the running of the three-year prescriptive period does not apply. These are: (1) filing a false return, (2) filing a fraudulent return with intent to evade tax or (3) failure to file a return. The period within which to assess tax is ten years from discovery of the fraud, falsification or omission. Here, respondent failed to file his tax returns for 1986 and 1987. On September 14, 1989, petitioner found respondent‘s omission. Hence, the running of the ten-year prescriptive period within which to assess and collect the taxes due from respondent commenced on that date until September 14, 1999. The two final assessment notices were issued on February 28, 1991, well within the prescriptive period of three (3) years. When respondent failed to question or protest the deficiency assessments thirty (30) days therefrom, or until March 30, 1991, the same became final and executory. As we held in Marcos II vs. Court of Appeals,the omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal, considering that under Section 223 of the NIRC, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax (as was done here). Since the estate tax assessment had become final and unappealable, there is now no reason why petitioner should not enforce its authority to collect respondent‘s deficiency percentage taxes for 1986 and 1987.

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CIR vs PNB GR 161997, 25 October 2005

FACTS: In 1991, PNB issued to the BIR PNB Cashier‘s Check for P180M which represented PNB‘s advance income tax payment for the bank‘s 1991 operations and was remitted in response to then President Corazon Aquino‘s call to generate more revenues for national development. PNB then requested the issuance of a tax credit certificate (TCC) to be utilized for future tax obligations. By the end of 1991, PNB had credit balance in its favor in the amount of P73.3M. This credit balance was carried-over to cover tax liability for the years 1992 to 1996, but 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 1997, PNB requested for the issuance of a TCC for the unutilized balance of its advance payment made in 1991 amounting to P73.3M. BIR denied PNB‘s claim for tax credit on the ground that it has already prescribed having been filed beyond the 2-year period provided in the Tax Code.

ISSUE: Is the two-year prescriptive period as provided for in the Tax Code applicable?

RULING: No. 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 2year limitation. The tax credit sought by PNB is not simply a case of excess payment, but rather for the application of the balance of advance income tax payment for subsequent taxable years after failure or impossibility to make such application over the preceding 4-year period when no tax liability was incurred by petitioner due to losses in its operations. It is truly inequitable to strictly impose the 2-year prescriptive period as to legally bar any request for such TCC. Thus, PNB is entitled an issuance of a TCC.

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CIR vs BPI GR 134062, 17 April 2007

FACTS: On 28 October 1988 petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine Islands‘ (BPI) deficiency percentage and documentary stamp taxes in the total amount of P129,488,656.63. In a letter dated 10 December 1988, BPI requested for the CIR to state or to inform the taxpayer why he is being assessed a deficiency, and as to what particular percentage tax the assessment refers to. Subsequently, BPI received a letter on 27 June 1991 dated May 8, 1991 from CIR stating that it constitutes the final decision on the matter, and the basis of the assessments. BPI filed a petition for review in the CTA but the latter dismissed the case for lack of jurisdiction since the subject assessments had become final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the National Internal Revenue Code (NIRC) and Section 7 in relation to Section 11 of RA 1125. On appeal, the CA reversed the tax court‘s decision and resolution and remanded the case to the CTA for a decision on the merits. It ruled that the October 28, 1988 notices were not valid assessments because they did not inform the taxpayer of the legal and factual bases. It declared that the proper assessments were those contained in the May 8, 1991 letter which provided the reasons for the claimed deficiencies. Thus, it held that BPI filed the petition for review in CTA on time. Hence, CIR filed this case. ISSUES: 1) Were the October 28, 1988 notices valid assessments? RULING: Yes the notices sufficiently met the requirements of a valid assessment under the old law and jurisprudence. The CIR merely relied on the provisions of the former Section 270 prior to its amendment by RA 8424 (Tax Reform Act of 1997). Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement was for the CIR to ―notify‖ or inform the taxpayer of his ―findings.‖ Nothing in the old law required a written statement to the taxpayer of the law and facts on which the assessments were based. Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed period. The sentence ―The taxpayers shall be informed in writing of the law and the facts on which the assessments is made; otherwise, the assessments shall be void‖ was not in the old Section of 270 but was later on inserted in the renumbered Section 228 in 1997. Evidently, the legislature saw the need to modify the

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 former Section 270 by inserting the aforequoted sentence. The fact that the amendment was necessary showed that, prior to the introduction of the amendment, the statute had an entirely different meaning. The amendment introduced by RA 8424 was an innovation and could not be reasonably inferred from the old law. Clearly, the legislature intended to insert a new provision regarding the form and substance of assessments issued by the CIR. Under the former Section 270, there were two instances when an assessment became final and unappealable: 1) when it was not protested within 30 days and 2) when the adverse decision on the protest was not appealed to the CTA within 30 days from receipt of the final decision. 2) Whether or not the assessments made by the CIR were valid, final, and unappealable? Failure to protest within the 30-day period: 1)final and unappealable; 2) presumption of correctness RULING: Yes, BPI should have protested within 30 days from receipt of the notices dated October 28, 1988. BPI‘s failure to protest meant that the assessments made are final and unappealable. The December 10, 1988 reply it sent to the CIR did not qualify as a protest since BPI did not even consider the October 28, 1988 notices as valid or proper assessments. Moreover, BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits. Presumption of Correctness. There arose a presumption of correctness when BPI failed to protest the assessments: Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities … an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. Even if we consider the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to have failed to appeal the CIR‘s final decision within the 30-day period. The CIR, in his May 8, 1991 response, stated that it was his ―final decision on the matter.‖ BPI therefore had 30 days from the time it received the decision on June 27, 1991 to appeal but it did not. Instead, it filed a request for reconsideration and lodged its appeal in the CTA. BPI is still liable under the subject tax assessments: That state will be deprived of the taxes validly due it and the public will suffer if taxpayers will not be held liable for the proper taxes assessed against them: Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, 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 common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting general welfare and well-being of the people.

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70


CIR vs Reyes GR 159594, 27 January 2006

FACTS: In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estate‘s liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment.

ISSUE: Whether or not the formal assessment notice is valid.

RULING: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the case at bar, the FAN merely stated the amount of liability to be shouldered by the estate and the law upon which such liability is based. However, the estate was not informed in writing of the facts on which the assessment of estate taxes had been made. The estate was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax investigation was conducted prior to the law‘s passage. Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the invalid FAN is void including the issuance of the warrant of distraint and/or levy.

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Barcelon vs CIR GR 157064, 7 August 2006

FACTS: Petitioner Barcelon, Roxas Securities Inc., is a corporation engaged in the trading of securities. It filed its Annual Income Tax Return for taxable year on April 14, 1988. After the BIR conducted its audit, respondent CIR issued an assessment for deficiency income tax in the amount of Php 826,698.31. This assessment was covered by Formal Assessment Notice No. FAN-1-87-91-000649 dated February 1, 1991, which respondent alleges, was sent to petitioner through registered mail on February 6 1991. However, petitioner denies receiving the formal assessment notice. Petitioner filed a formal protest which the respondent denied with finality. Petitioner then filed a petition for review with the CTA that rendered a decision in favor of the former on the primary issue of prescription. Respondent moved for reconsideration but was denied, thereafter it appealed to the CA which granted its petition. Hence this Petition for Review on Certiorari. ISSUE: Whether or not respondent‘s right to assess petitioner‘s alleged deficiency income tax is barred by prescription. RULING: Respondent failed to discharge its duty. No substantial evidence was ever presented to prove that the assessment notice or other supposed notices subsequent thereto were in fact issued or sent to the taxpayer. Evidence presented is insufficient to give rise to the presumption that the assessment notice was received in the regular course of mail. Consequently, the right of the government to assess and collect the alleged deficiency tax is barred by prescription.

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CIR vs BPI GR 134062, 17 April 2007

FACTS: In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine Islands‘ (BPI ‘s) deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63. BPI sent a reply letter. in its reply, BPI stated that, ―As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may be protested since your letter does not even tell the tax payer what

particular

percentage tax is involved and how your examiner arrived at the deficiency. As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of t h e tax payer‘ s decision on whether to pay or protest the assessment .

ISSUE: Whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had already become final and unappealable and

RULING: BPI contends that it was not properly informed and notified of how the assessment was arrived at and what legal basis the CIR had for those assessments. The ruling of the CTA, which was agreed by the Supreme court, stated that BPI was not only sent a notice regarding the assessment, but examiners from the CIR themselves went to BPI in order to talk with them regarding the issue and find a solution. From this, the SC ruled that ―From all the foregoing discussions, We can now conclude that [BPI ] was indeed aware of the nature and basis of the assessments, and was given all the opportunity to contest the same but ignored it despite the notice conspicuously written on the assessments which states that "this ASSESSMENT becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the cause of his client .‖

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CIR vs Phil Global GR 167146, 31October 2006

FACTS:

Philippine

Global

Communications,

Inc.

(respondent),

a

corporation

engaged

in

telecommunications, filed its Annual Income Tax Return for taxable year 1990 on April 15, 1991. On April 13, 1992, the CIR authorized the appropriate BIR officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondent‘s 1990 income tax liability. BIR sent a letter to respondent requesting the latter to present for examination certain records and documents, but respondent failed to present any document. Respondent received a Preliminary Assessment Notice dated April 13, 1994 for deficiency income tax of P 118,271,672.00 inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the following day, April 22, 1994, respondent received a Formal Assessment Notice dated April 14, 1994 for deficiency income tax. Respondent then filed two letters of protests requesting for the cancellation of the tax assessment. More than 8 years after the assessment was presumably issued, respondent received from the CIR a Final Decision dated October 8, 2002 denying the respondent‘s protest against Assessment and affirming the said assessment in toto. In the petition for review, the CTA rendered a decision in favor or respondent. It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation which could suspend the running of the prescriptive period to collect the assessed deficiency income tax. Thus, since more than three years had lapsed from the time the Assessment Notice was issued, the CIR‘s right to collect the same has prescribed in conformity with Section 269 of the National Internal Revenue Code of 1977.

ISSUES: 1) Whether or not CIR‘s right to collect respondent‘s alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977? 2) Whether or not the prescription on assessment was suspended by virtue of the alleged request of reinvestigation by Philippine Global Communication, Inc.?

RULING: 1) Yes, CIR is now prescribed to collect the assessed tax. The law prescribed 3-year period from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 without an assessment to 10 years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all. In such cases, the 10-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission. If the BIR issued this assessment within the 3-year period or the 10-year period, whichever was applicable, the law provided another 3 years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The 3-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.

In this case, the Assessment was presumably issued on April 14, 1994 since the respondent did not dispute the CIR‘s claim. Therefore, the BIR had until April 13, 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondent nor any judicial proceedings initiated by the BIR. The earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer on January 9, 2003 several years beyond the 3-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court.

2) No, the prescription on assessment was not suspended because the protest letters filed by the respondent were request for reconsideration and not requests for reinvestigation. The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver. Among the exceptions (which are the basis of CIR‘s petition) is when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. Section 6 of Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue defines the two types of protest, the request for reconsideration and the request for reinvestigation. (a) Request for reconsideration- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 (b) Request for reinvestigation - refers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. A reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. The distinction between a request for reconsideration and a request for reinvestigation is significant. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable. On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament that the law on the statute of limitations seeks to prevent. In the present case, the protest letters filed by respondent are requests for reconsideration. CIR‘s allegation is inconceivable since BIR could not have conducted a reinvestigation because no new or additional evidence was submitted, hence, the running of statute of limitations cannot be interrupted. The tax which is the subject of the Decision issued by the CIR on October 8, 2002 affirming the Formal Assessment issued on April 14, 1994 can no longer be the subject of any proceeding for its collection. Consequently, the right of the government to collect the alleged deficiency tax is barred by prescription.

76


Silkair PTE, Ltd. vs CIR GR 173594, 6 February 2008

FACTS: Silkair Pte. Ltd., a corporation organized under the laws of Singapore which has a Philippine representative office, is an online international air carrier. On Dec. 19, 2001, Silkair filed with the BIR a written application for the refund of P4,567,450.79 excise taxes it claimed to have paid on its purchase of jet fuel from Petron Corporation from January-June 2000. Silkair then filed a petition for review before the CTA since the BIR had not acted on the application yet. The Commission on Internal Revenue (CIR) opposed Silkair‘s petition on the ground that the excise tax on petroleum products once added to the cost of the goods sold to the buyer, is no longer a tax but part of the price which the buyer has to pay to obtain the article. CTA ruled that any claim for refund of the subject excise taxes should be filed by Petron Corporation as taxpayer since the excise tax was imposed upon it as the manufacturer of petroleum products, and not petitioner Silkair since it cannot be considered as the taxpayer because it merely shouldered the burden of the excise tax and not the excise tax itself; but Silkair may only claim from Petron the reimbursement of the tax burden shifted to the former by the latter; the amount passed on to purchaser Silkair is no longer a tax but an added cost on the goods purchased which constitutes a part of the purchase price.

ISSUE: (a) Is Silkair entitled to a refund? (b) Whether or not Silkair is exempt from indirect taxes. RULING: (a) No. The proper party to question or seek 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. Sec. 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 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. (b) No. The exemption granted under Section 135(b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes. Statutes granting tax exemptions must be construed in

77

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 strictissimi juris against the taxpayer ad liberally in favour of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction.

78


CIR vs Fortune Tobacco Corp. GR 157274-75, 21 July 2008

FACTS: Fortune Tobacco Corporation is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines andis the manufacturer/producer of, among others, the cigarette brands, Champion, Salem, Camel, and Winston. However, on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT) system to the specific tax system was made and subjecting the aforesaid cigarette brands to specific tax under Section 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions of which are quoted thus: Section 145. Cigars and Cigarettes(A) Cigars. – There shall be levied, assessed and collected on cigars a tax of One peso (P1.00) per cigar. (B) Cigarettes packed by hand. – There shall be levied, assessed and collected on cigarettes packed by hand a tax of Forty centavos (P0.40) per pack. (C) Cigarettes packed by machine. – There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below: (1) If the net retail price is above Ten pesos (P10.00) per pack, the tax shall be Twelve (P12.00) per pack; (2) If the net retail price exceeds Six pesos and Fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be Eight Pesos (P8.00) per pack. (3) If the net retail price is Five pesos (P5.00) but does not exceed Six Pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack; (4) If the net retail price is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack; xxx The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1, 1996. xxx The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000. Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, ―(t)hat the new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits,

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 wines and fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.” For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands manufactured and removed in the total amounts of P585,705,250.00. On February 7, 2000, petitioner filed with respondent‘s Appellate Division a claim for refund or tax credit of its purportedly overpaid excise tax for the month of January 2000 in the amount ofP35,651,410.00. The Tax Court granted the refund.

ISSUES: 1. Whether or not Fortune Tobacco (respondent) is granted a tax refund. 2. Whether or not a tax refund partakes the nature of a tax exemption. 3. Whether or not the Government is exempt from the application of solutio indebiti.

RULING: 1. Yes. Section 145 states that during the transition period, i.e., within the next three (3) years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and unmistakably, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date. By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1 January 2000, Revenue Regulation No. 17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12%—a situation not supported by the plain wording of Section 145 of the Tax Code. As we have previously declared, rule-making power must be confined to details for regulating the mode or proceedings in order to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute. Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved in favor of the basic law.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed indefensibly flawed. The Commissioner cannot seek refuge in his claim that the purpose behind the passage of the Tax Code is to generate additional revenues for the government. Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code. However, as borne by the legislative record, the shift from the ad

valorem system

to

the

specific

tax

system

is likewise meant to promote fair competition among the players in the industries concerned, to ensure an equitable distribution of the tax burden and to simplify tax administration by classifying cigarettes, among others, into high, medium and low-priced based on their net retail price and accordingly graduating tax rates. At any rate, this advertence to the legislative record is merely gratuitous because, as we have held, the meaning of the law is clear on its face and free from the ambiguities that the Commissioner imputes. We simply cannot disregard the letter of the law on the pretext of pursuing its spirit. Fortune Tobacco was granted a P680,387,025.00 tax refund.

2. No. A tax refund does not partake the nature of a tax exemption. There is parity between tax refund and tax exemption only when the former is based either on a tax exemption statute or a tax refund statute. Obviously, that is not the situation here. Quite the contrary, Fortune Tobacco‘s claim for refund is premised on its erroneous payment of the tax, or better still the government‘s exaction in the absence of a law. Tax exemption is a result of legislative grace. And he who claims an exemption from the burden of taxation must justify his claim by showing that the legislature intended to exempt him by words too plain to be mistaken. The rule is that tax exemptions must be strictly construed such that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention. Tax refunds (or tax credits), on the other hand, are not founded principally on legislative grace but on the legal principle which underlies all quasi-contracts abhorring a person‘s unjust enrichment at the expense of another. The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact but also mistake in law. 3. No. The Government is not exempt from the application of solutio indebiti. Indeed, the taxpayer expects fair dealing from the Government, and the latter has the duty to refund without any unreasonable delay what it has erroneously collected. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, it must hold itself against the same standard in refunding excess (or erroneous) payments of such taxes. It should not unjustly enrich itself at the expense of taxpayers. And so, given its essence, a claim for tax refund necessitates only preponderance of evidence for its approbation like in any other ordinary civil case.

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CIR vs Acosta GR 154068, 3 August 2007

FACTS: Respondent is an employee of Intel Manufacturing Phils., Inc and was assigned in a foreign country. For the period January 1, 1996 to December 31, 1996, Intel withheld the taxes due on respondent‘s compensation income and remitted to the BIR the amount ofP308,084.56. On March 21, 1997, respondent and her husband filed with the BIR their Joint Individual Income Tax Return for the year 1996. Later, on June 17, 1997, respondent, through her representative, filed an amended return and a Non-Resident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests. On October 8, 1997, she filed another amended return indicating an overpayment of P358,274.63. Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment, respondent filed on April 15, 1999 a petition for with the CTA. In its Resolution, the CTA dismissed respondent‘s petition. The CTA ruled that respondent failed to file a written claim for refund with the CIR, a condition precedent to the filing of a petition for review before the CTA. Upon review, the CA reversed the CTA and directed the latter to resolve respondent‘s petition for review. Petitioner sought reconsideration, but it was denied. Hence, this instant petition.

ISSUE: Whether or not the amended return filed by respondent indicating an overpayment constitute the written claim for refund required by law.

RULING: The requirements under Section 230 for refund claims are as follows: 1. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner; 2. The claim for refund must be a categorical demand for reimbursement; 3. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be commenced in court within two (2) years from date of payment of the tax or penalty regardless of any supervening cause.

The Court ruled in the negative. In its view, Section 230 of the Tax Code is clear. A claimant must first file a written claim for refund, categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action in court. This obviously is intended, first, to afford the CIR an opportunity to correct the action of subordinate officers; and second, to notify the government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure. Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government. As tax refunds involve a return of revenue from the government, the claimant must show

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 indubitably the specific provision of law from which her right arises; it cannot be allowed to exist upon a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund. Moreover, under the circumstances of this case, the Court cannot agree that the amended return filed by respondent constitutes the written claim for refund required by the old Tax Code, the law prevailing at that time.

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Filinvest Dev. Corp. vs CIR & CTA GR 146941, 9 August 2007

FACTS: Petitioner Filinvest filed for a claim for refund, or in the alternative the issuance of a tax credit certificate (TCC) with respondent CIR in the amount of P 4,178,134.00 representing excess creditable withholding taxes for taxable years 1994, 1995 and 1996. CIR had not resolved petitioner‘s claim for refund and the two-year prescriptive period lapsed. Filinvest then filed a petition before the CTA which the latter dismissed due to insufficiency of evidence because of the former‘s failure to present its 1997 income tax return. CA assailed the decision of CTA and denied petition of Filinvest. The SC initially denied petition for review but on April 3, 2002, case was re-filed on a petition for reconsideration. ISSUE: Whether or not petitioner is entitled to tax credit even without a written claim. RULING: Yes. It is worth nothing that under Section 230 of NIRC and Section 10 of Revenue Regulation No. 12-84, the CIR is given the power to grant a tax credit or refund even without a written claim therefore, if the former determines from the face of the return that payment had clearly been erroneously made. The CIR‘s function is not merely to receive the claims for refund but it is also given the positive duty to determine the veracity of such claim. Simply by exercising the CIR‘s power to examine and verify petitioner‘s claim for tax exemption as granted by law, respondent CIR could have easily verified petitioner‘s claim by presenting the latter‘s 1997 Income Tax Return, the original of which it has in its files. Moreover, in the field of taxation where the State exacts strict compliance upon its citizens, the State must likewise deal with taxpayers with fairness and honesty. Hence, under the principle of solutio indebiti the Government has to restore to petitioner the sums representing erroneous payments of taxes.

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ME Holding Corp vs CA & CIR GR 160193, 3 March 2008

FACTS: This case involves Republic Act No. (RA) 7432, otherwise known as An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for Other Purposes, granting, among others, a 20% sales discount on purchases of medicines by qualified senior citizens. On April 15, 1996, petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual Income Tax Return, claiming the 20% sales discount it granted to qualified senior citizens. M.E. declared that the deduction in the form of refund, amounted to PhP 603,424 in pursuance to RA 7432 and not under BIRRR No. 2-94. Since BIR disregarded the request of M.E. Holding Corp., M.E. filed an appeal before the Court of Tax Appeals (CTA), reiterating its position that the sales discount should be treated as tax credit, and that RR 2-94, particularly Section 2(i), was without effect for being inconsistent with RA 7432. CTA then rendered a Decision partially granting the petition and ordering the respondent(CIR) to refund in favor of petitioner the amount of P122,195.74 representing overpaid income tax for the year 1995. Aggrieved with the amount, M.E. went to the CA on a petition for review, but CA dismissed it. Hence, this petition arise. ISSUE: Whether or not the term ―cost‖ under par.(a), Sec. 4 of RA 7432 is equivalent only to acquisition cost. RULING: RA 7432 expressly provides that the sales discount may be claimed as tax credit, not as tax refund. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. Commissioner of Internal Revenue, the Court interpreted the term "cost" found in Sec. 4(a) of RA 7432 as referring to the amount of the 20% discount extended by a private establishment to senior citizens in their purchase of medicines. The Court categorically said that it is the Government that should fully shoulder the cost of the sales discount granted to senior citizens. Thus, CA's Decision in CA-G.R. SP No. 49946, which construed the same word "cost" to mean the theoretical acquisition cost of the medicines purchased by qualified senior citizens was reversed and set aside. Accordingly, M.E. is entitled to a tax credit equivalent to the actual 20% sales discount it granted to qualified senior citizens.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 With the disallowance of PhP 241,348.89 for being unsupported, and the net amount of PhP 362,574.57 for the actual 20% sales discount granted to qualified senior citizens properly allowed by the CTA and fully appreciated as tax credit, the amount due as tax credit in favor of M.E. Holding Corporation is PhP 151,201.71.

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CIR vs FMF Dev. Corp. GR 167765, 30 June 2008

FACTS: On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for taxable year 1995 and declared a loss of P3,348,932. The BIR sent FMF pre-assessment notices informing it of its alleged tax liabilities.

FMF

filed

a

protest

against

these

notices

with

the

BIR

and

requested

for

a

reconsideration/reinvestigation. RDO Rogelio Zambarrano informed FMF that the reinvestigation had been referred to Revenue OfficerAlberto Fortaleza. On February 9, 1999, FMF President executed a waiver of the three-year prescriptive period for the BIR to assess internal revenue taxes to extend the assessment period until October 31, 1999. The waiver was accepted and signed by RDO Zambarrano. On October 18, 1999, FMF received amended pre-assessment notices dated October 6, 1999 from the BIR. FMF immediately filed a protest on November 3, 1999 but on the same day, it received BIR‘s Demand Letter and Assessment Notice dated October 25, 1999reflecting FMF‘s alleged deficiency taxes and accrued interests the total of which amounted to P2,053,698.25. FMF filed a letter of protest on the assessment invoking the defense of prescription by reason of the invalidity of the waiver. The BIR insisted that the waiver is valid. It ordered FMF to immediately settle its tax liabilities, otherwise, judicial action will be taken. Treating this as BIR‘s final decision, FMF filed a petition for review with the CTA. The CTA granted the petition and cancelled Assessment Notice made by the BIR because it was already time-barred. The CTA ruled that the waiver did not extend the three-year prescriptive period within which the BIR can make a valid assessment because it did not comply with the procedures laid down in Revenue Memorandum Order (RMO) No. 20-90. On appeal, the Court of Appeals affirmed the decision of the CTA. ISSUES: 1.

Was the waiver valid?

2.

Did the three-year period to assess internal revenue taxes already prescribe?

RULING: 1.

Petitioner contends that the waiver was validly executed mainly because it complied with Section 222 (b) of the National Internal Revenue Code (NIRC). On the other hand, respondent counters that the waiver is void because it did not comply with RMO No. 20-90Moreover, a waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription. Petition lacks merit. Under Section 203 of the NIRC, internal revenue taxes must be assessed within three years counted from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later. This mandate governs the question of prescription of the government‘s right to assess internal revenue taxes primarily to safeguard the interests of taxpayers from

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 unreasonable investigation. Accordingly, the government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurancethat it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time. An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC, which provides:

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. The above provision authorizes the extension of the original three-year period by the execution of a valid waiver. Under RMO No. 20-90, which implements Sections 203 and 222 (b), the following procedures should be followed: 1. The waiver must be in the form identified as Annex "A" hereof…. 2. The waiver shall 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. Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. 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. 2.

Firstly, it was not proven that respondent was furnished a copy of the BIR-accepted waiver. Secondly, the waiver was signed only by a revenue district officer, when it should have been signed by the Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the case involves an amount of more than P1 million, and the period to assess is not yet about to prescribe. Lastly, it did not contain the date of acceptance by the Commissioner of Internal Revenue, a requisite necessary to determine whether the waiver was validly accepted before the expiration of the original three-year period. Bear in mind that the waiver in question is a bilateral agreement, thus necessitating the very signatures of both the Commissioner and the taxpayer to give birth to a valid agreement.

The waiver of the statute of limitations under the NIRC, to a certain extent being a derogation of the taxpayer‘s right to security against prolonged and unscrupulous investigations, must be

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 carefully and strictly construed. The waiver of the statute of limitations does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally, particularly where the language of the document is equivocal. Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding effect on respondent because there was no consent by the Commissioner. On this basis, no implied consent can be presumed, nor can it be contended that the concurrence to such waiver is a mere formality. Consequently, petitioner cannot rely on its invocation of the rule that the government cannot be estopped by the mistakes of its revenue officers in the enforcement of RMO No. 20-90 because the law on prescription should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law.

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CIR vs PERF Realty Corp GR 163345, 4 July 2008

FACTS: Respondent PERF is a domestic corporation engaged in the business of leasing properties to various clients including the Philippine American Life and General Insurance Company (Philamlife) and Read-Rite Philippines (Read-Rite). On April 14, 1998, PERF filed its Annual Income Tax Return (ITR) for the year 1997 which showed that its tenants, Philamlife and Read-Rite, withheld and subsequently remitted creditable withholding taxes. After deducting such creditable withholding taxes in from its total income tax due, PERF showed in its 1997 ITR an overpayment. PERF filed an administrative claim with the appellate division of the BIR for the refund of said overpaid income taxes and further filed a Petition for Review with the Court of Tax Appeals (CTA) when said claim remained unheeded. The CTA denied the claim on the ground of insufficiency of evidence, noting that PERF did not indicate in its 1997 ITR the option to either claim the excess income tax as a refund or tax credit. In addition, the CTA likewise found that PERF failed to present in evidence its 1998 annual ITR.

ISSUES: (a)

WON the respondent substantially complied with the requisites for claim of refund.

(b)

WON the failure of respondent to indicate its option in its annual ITR to avail itself of either the tax refund or tax credit is fatal to its claim for refund.

(c)

WON the failure of respondent to present in evidence the 1998 ITR is fatal to its claim for refund.

RULING: (a)

Yes. PERF had complied with the requirements set forth by law through Section 10 of the Revenue Regulations. It was found that PERF filed its administrative and judicial claims for refund within the two-year prescriptive period under Section 230 (now 229) of the National Internal Tax Code. Also, PERF presented certificates of creditable withholding tax at source reflecting creditable withholding taxes withheld from PERF's rental income. In addition, it submitted in evidence the Monthly Remittance Returns of its withholding agents to prove the fact of remittance of said taxes to the BIR.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 (b)

No. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. However, failure to signify one's intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. This requirement is only for the purpose of facilitating tax collection.

The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR. Despite the failure of petitioner to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify one's intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period. In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed on September 11, 1998, an administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits. (c)

No. PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR became part of the records of the case then and it clearly showed that income taxes were not claimed as tax credit in 1998. Moreover, technicalities should not be used to defeat substantive rights, especially those that have been held as a matter of right. Thus, it was held that petitioner has complied with all the requirements to prove its claim for tax refund. It was also pointed out that, simply by exercising the CIR's power to examine and verify petitioner's claim for tax exemption as granted by law, respondent CIR could have easily verified petitioner's claim by presenting the latter's 1997 Income Tax Return, the original of which it has in its files. However, records show that in the proceedings before the CTA, respondent CIR failed to comment on petitioner's formal offer of evidence, waived its right to present its own evidence, and failed to file its memorandum. Neither did it file an opposition to petitioner's motion to reconsider the CTA decision to which the 1997 Income Tax Return was appended.

91


Pilipinas Shell vs CIR GR 172598, 21 December 2007

FACTS: Respondent is engaged in the business of processing, treating and refining petroleum for the purpose of producing marketable products and the subsequent sale thereof. On July 18, 2002, respondent filed with the Large Taxpayers Audit & Investigation Division II of the Bureau of Internal Revenue (BIR) a formal claim for refund or tax credit in the total amount of P28,064,925.15, representing excise taxes it allegedly paid on sales and deliveries of gas and fuel oils to various international carriers during the period October to December 2001. Subsequently, on October 21, 2002, a similar claim for refund or tax credit was filed by respondent with the BIR covering the period January to March 2002 in the amount of P41,614,827.99. Again, on July 3, 2003, respondent filed another formal claim for refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June 2002. ISSUE: Whether or not respondent is entitled to a tax refund because allegedly, those petroleum products it sold to international carriers are not subject to excise tax, hence the excise taxes it paid upon withdrawal of those products were erroneously or illegally collected and should not have been paid in the first place. Since the excise tax exemption attached to the petroleum products themselves, the manufacturer or producer is under no duty to pay the excise tax thereon. RULING: No. Court said, ―We disagree. Under Chapter II ―Exemption or Conditional Tax-Free Removal of Certain Goods‖ of Title VI, Sections 133, 137, 138, 139 and 140 cover conditional tax-free removal of specified goods or articles, whereas Sections 134 and 135 provide for tax exemptions.

While the

exemption found in Sec. 134 makes reference to the nature and quality of the goods manufactured (domestic denatured alcohol) without regard to the tax status of the buyer of the said goods, Sec. 135 deals with the tax treatment of a specified article (petroleum products) in relation to its buyer or consumer. Respondent‘s failure to make this important distinction apparently led it to mistakenly assume that the tax exemption under Sec. 135 (a) ―attaches to the goods themselves‖ such that the excise tax should not have been paid in the first place. Thus, if an airline company purchased jet fuel from an unregistered supplier who could not present proof of payment of specific tax, the company is liable to pay the specific tax on the date of purchase. Since the excise tax must be paid upon withdrawal from the place of production, respondent cannot anchor its claim for refund on the theory that the excise taxes due thereon should not have been collected or paid in the first place. Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An ―erroneous or illegal tax‖ is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal.

Respondent‘s locally manufactured

petroleum products are clearly subject to excise tax under Sec. 148. Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous or excess payment of tax. Respondent‘s claim is premised on what it determined as a tax exemption ―attaching to the goods themselves,‖ which must be based on a statute granting tax exemption, or ―the result of legislative grace.‖

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Such a claim is to be construed strictissimi juris against the taxpayer, meaning that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute.

93


State Land Inv. Corp vs CIR GR 171956, 18 January 2008

FACTS: State Land Investment Corporation is a real estate developer corporation engaged in the development and marketing of low, medium and high cost subdivision projects in the different cities of the Philippines. It filed with BIR its annual income tax return for the calendar year ending December 31, 1997. Its taxable income was P27,723,328.00 with tax due in the amount ofP9,703,165.54. Its total tax credits for the same year amounted to P23,632,959.05, inclusive of its prior year‘s excess tax credits of P9,289,084.00. Thus, after applying its total tax credits of P23,632,959.05 against its income tax liability of P9,703,165.54, the amount of P13,929,793.51 remained unutilized. State Land Investment Co. chose to apply the amount as tax credit to the next taxable year, 1998. On April 1998, it again filed with the BIR its annual income tax return for the calendar year ending December 31, 1998, declaring a minimum corporate income tax due in the amount of P4,187,523.00. Petitioner charged the said amount against its 1997 excess credit of P13,929,793.51, leaving a balance ofP9,742,270.51. Subsequently on April 7, 2000, it filed with the BIR a claim for refund of its unutilized tax credit for the year 1997 in the amount P9,742,270.51.

ISSUE: Whether petitioner is entitled to the refund of P9,742,270.51 representing the excess creditable withholding tax for taxable year 1997.

RULING: Yes. Section 69 (now Section 76) of the Tax Code clearly provides that a taxable corporation is entitled to a tax refund when the sum of the quarterly income taxes it paid during a taxable year exceeds its total income tax due also for that year. Consequently, the refundable amount that is shown on its final adjustment return may be credited, at its option, against its quarterly income tax liabilities for the next taxable year. Excess income taxes paid in a year that could not be applied to taxes due the following year may be refunded the next year. Thus, if the excess income taxes paid in a given taxable year have not been entirely used by a taxable corporation against its quarterly income tax liabilities for the next taxable year, the unused amount of the excess may still be refunded, provided that the claim for such a refund is made within two years after payment of the tax.

94


Allied Bank vs CIR GR 175097, 5 February 2010

FACTS: In April 2004, the Bureau of Internal Revenue (BIR) issued a preliminary assessment notice (PAN) to Allied Banking Corporation (ABC) demanding payment of P50 million in taxes. ABC then filed a protest in May 2004. In July 2004, the BIR issued a formal assessment notice (FAN). The FAN included a formal demand as well as this phrase: This is our final decision based on investigation. If you disagree, you may appeal this final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable. Instead of filing a protest an administrative protest on the formal letter demand Allied Banking Corporation appealed on the court of tax appeals (CTA). Respondent CIR filed a motion to dismiss for lack of jurisdiction, were the court granted the dismissal of the case. Petitioner ABC files a motion for reconsideration but was denied. Petitioner ABC appealed the dismissal to the CTA en banc. The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a taxpayer in challenging the legality or validity of an assessment. According to the CTA En Banc, although there are exceptions to the doctrine of exhaustion of administrative remedies, the instant case does not fall in any of the exceptions.

ISSUE: Whether or not, the formal letter of demand issued by the BIR can be construed as final decision of the CIR appealable to CTA under RA 9282?

RULING: Yes. A careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned. In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Formal Letter of Demand with Assessment Notices, respondent used the word "appeal" instead of "protest", "reinvestigation", or "reconsideration". Although there was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the word "appeal" under prevailing tax laws refers to the filing of a Petition for Review with the CTA. Under Section 228 of the NIRC, the terms "protest", "reinvestigation" and "reconsideration" refer to the administrative remedies a taxpayer may take before the CIR, while the term "appeal" refers to the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section 11 of RA 1125. The Supreme Court said that, the Formal Letter of Demand with Assessment Notices which was not administratively protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the words used, specifically the words "final decision" and "appeal", taken together led petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the same to the CTA.

96


CIR vs Kudos Metal GR 178087, 5 May 2010

FACTS: On April 15, 1999, Kudos Metal Corporation filed its Annual Income Tax Return for the taxable year 1998. The BIR served upon respondent 3 Notices of Presentation of Records which the latter failed to comply. The BIR issued a Subpeona Duces Tecum which was acknowledged by respondent‘s President on October 20, 2000. On December 10, 2001 and February 18, 2003, respondent‘s accountant, executed two Waiver of the Defense of Prescription, respectively. 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 which was received by respondent on November 12, 2003. Respondent challenged the assessments arguing that the government‘s right to assess has already prescribed. Petitioner, on the other hand, does not deny that the assessment notices were issued beyond the three-year prescriptive period but claims that the period was extended by such two waivers.

ISSUES: 1.

Whether or not the government‘s right to assess unpaid taxes of the respondent has already prescribed despite the Waiver of Prescription executed by the respondent

2.

Whether or not respondent is estopped from claiming prescription since by executing the waivers, it was the one which asked for additional time to submit the required documents

RULING: 1.

Yes. Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are provided under Section 222 of the NIRC, to wit, ―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 20-90 (April 4, 1990) and RDAO 05-01 (August 2, 2001) lay down the procedure for the proper execution of the waiver, to wit:

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 i.

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.

ii.

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.

iii.

The waiver should be duly notarized.

iv.

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.

v.

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.

vi.

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.

19

In the case at bar, the waivers executed by respondent‘s accountant, however, were (1) executed without the notarized written authority of the latter to sign the waiver in behalf of respondent; (2) failed to indicate the date of acceptance; and, (3) 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.

98


The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. As such, the doctrine cannot give validity to an act that is prohibited by law or one that is against public policy. The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 2090 and RDAO 05-01. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayer‘s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed. As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond the three-year period because with or without the required documents, the CIR has the power to make assessments based on the best evidence obtainable.

99


CIR vs Far East Bank/BPI GR 173852, 15 March 2010

FACTS: Far East filed Corporate Annual Income Tax Return for 1994 for Corporate Banking Unit and Foreign Currency Deposit Unit with reflected refundable income tax of P12M. The P12M refund was carried over and applied for the1995 income tax return. In 1995, Far East claimed that it overpaid tax payments by P17M. P13M is being sought for refund and chose that the remaining will be carried over. FarEast then claimed for the refund of the P13.6M, which the CIR did not act upon. Far East filed a claim for refund.CTA denied claim for refund. CA reversed the CTA, ruling that Far East duly proved that the income derived from rentals and sale of real property upon which the taxes were withheld were included in the return as part of the gross income.

ISSUE: WON respondent is entitled to the refund. RULING: NO, The burden of proof for the claim is with the claimant which it failed to establish. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax;2) It must be shown on the return that the income received was declared as part of the gross income; and3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld. Moreover, the fact that the petitioner failed to present any evidence or to refute the evidence presented by respondent does not ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a Taxpaye‘s claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the taxpayer. And while the petitioner has the power to make an examination of the returns and to assess the correct amount of tax, his failure to exercise such powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still present substantial evidence to prove his claim for refund. As we have said, there is no automatic grant of a tax refund.

100


Lascona Land vs CIR GR 171251, 5 March 2012

FACTS: On March 27, 1998, CIR issued Assessment Notice No. 0000047-93-407 against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount of P753,266.56. Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio, Officer-in-Charge , Regional Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati City, stating that by virtue of the last paragraph of Section 228 of the Tax Code, the assessment notice has become final, executory and demandable. ISSUE: Whether or not the subject assessment has become final, executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC.

RULING: No, Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals, maintains that in case of inaction by the CIR on the protested assessment, it has the option to either: (1) appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment even beyond the 180-day period − in which case, the taxpayer may appeal such final decision within 30 days from the receipt of the said decision. Corollarily, petitioner posits that when the Commissioner failed to act on its protest within the 180-day period, it had the option to await for the final decision of the Commissioner on the protest. 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 of an appeal after the lapse of the 180-day prescribed period. . A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. It must be emphasized, however,

these options are mutually exclusive and resort to one bars the

application of the other.

101


CTA CASES Meralco vs Savellano

FACTS: These are original actions for certiorari to set aside and annul the writ of mandamus issued by Judge Victorino A. Savellano of the Court of First Instance of Manila in Civil Case No. 80830 ordering petitioner Meralco Securities Corporation (now First Philippine Holdings Corporation) to pay, and petitioner Commissioner of Internal Revenue to collect from the former, the amount of P51,840,612.00, by way of alleged deficiency corporate income tax, plus interests and surcharges due thereon and to pay private respondents 25% of the total amount collectible as informer's reward. Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which he found and held that no deficiency corporate income tax was due from the Meralco Securities Corporation on the dividends it received from the Manila Electric Co., since under the law then prevailing (section 24[a] of the National Internal Revenue Code) "in the case of dividends received by a domestic or foreign resident corporation liable to (corporate income) tax under this Chapter . . . .only twenty-five per centum thereof shall be returnable for the purposes of the tax imposed under this section." The Commissioner accordingly rejected Maniago's contention that the Meralco from whom the dividends were received is "not a domestic corporation liable to tax under this Chapter." In a letter dated April 5, 1968, the Commissioner informed Maniago of his findings and ruling and therefore denied Maniago's claim for informer's reward on a non-existent deficiency. This action of the Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated May 11, 1971. ISSUE: Whether or not the appeal to and corresponding decision made by the respondent judge was valid RULING: No. Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments previously cognizable by courts of first instance, and even those already pending in said courts. The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue Code . . . .

102

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 In the case of Blaquera vs. Rodriguez, et al, the Court ruled that "the determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review, on appeal, any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue."

103


Yamane vs BA Lepanto GR 154993

FACTS:

In 1998, BA Lepanto Condominium Corporation (Lepanto) received a tax assessment in the

amount of P1.6 million from Luz Yamane, the City Treasurer of Makati, for business taxes. Lepanto protested the assessment as it averred that Lepanto, as a corporation, is not organized for profit; that it merely exists for the maintenance of the condominium. Yamane denied the protest. Lepanto then appealed the denial to the RTC of Makati. RTC Makati affirmed the decision of Yamane. Lepanto then filed a petition for review under Rule 42 with the Court of Appeals. The Court of Appeals reversed the RTC. Yamane now filed a petition for review under Rule 45 with the Supreme Court. Yamane avers that a.) Lepanto is liable for local taxation because its act of maintaining the condominium is an activity for profit because the end result of such activity is the betterment of the market value of the condominium which makes it easier to sell it; that Lepanto is earning profit from fees collected from condominium unit owners; and that b.) Lepanto‘s petition for review of the decision of the RTC to the CA is erroneous because when the RTC decided on the appeal brought to it by Lepanto, the RTC was exercising its original jurisdiction and not its appellate jurisdiction; that as such, what Lepanto should have done is to file an ordinary appeal under Rule 41. ISSUE: Whether or not a RTC deciding an appeal from the decision of a city treasurer on tax protests is exercising original jurisdiction. RULING: Yes. Although the LGC (Section 195) provides that the remedy of the taxpayer whose protest is denied by the local treasurer is ―to appeal with the court of competent jurisdiction‖ or in this case the RTC (considering the amount of tax liability is P1.6 million), such appeal when decided by the RTC is still in the exercise of its original jurisdiction and not its appellate jurisdiction. This is because appellate jurisdiction is defined as 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. Here, the City Treasurer is not a lower court. The Supreme Court however clarifies that this ruling is only applicable to similar cases before the passage of Republic Act 9282 (effective April 2004). Under RA 9282, the Court of Tax Appeals (CTA), not CA, exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases whether originally decided or resolved by them in the exercise of their original or appellate jurisdiction.

104


P vs Sandiganbayan 467 SCRA 137—LENTORIO

105


PPA vs Fuentes GR 91259, 16 April 1991

FACTS: This petition for review with prayer for a writ of preliminary injunction and/or restraining order filed by petitioners, Philippine Ports Authority ("PPA" for brevity), Port Manager Bienvenido Basco and the Port District Manager, Ernesto Fernando of Davao City, challenges the jurisdiction of the Regional Trial Court of Davao City, Branch 17, in a case involving the legality of port charges imposed by the PPA on the respondent Terminal Facilities and Services Corporation ("TEFASCO" for brevity). The port charges in question include: (1) 100% wharfage dues and berthing fees and (2) the 10% government share in arrastre/stevedoring revenues and/or privilege fee, pursuant to Section 1213 of the Tariff and Customs Code. On July 11, 1974, P.D. No. 505 was promulgated, creating the Philippine Ports Authority (PPA). The Decree was later amended by P.D. No. 857 dated December 23, 1975 (otherwise known as the Revised PPA Charter). Under the Decree, the PPA is entrusted with the function of carrying out an integrated program for the planning, development, financing and operation of ports and port districts throughout the country. The powers, duties and jurisdiction of the Bureau of Customs concerning arrastre operations were transferred to and vested in the petitioner PPA (Philippine Ports Authority vs. Mendoza, 138 SCRA 496, 503). Pursuant to said decree, PPA was authorized to "regulate the rates or charges for port services or port related services so that, taking one year with another, such rates or charges furnish adequate working capital and produce an adequate return on the assets of the Authority" (PPA) (Section 20[b] and "to levy dues, rates, or charges for the use of the premises, works, appliances, facilities, or for services provided by or belonging to the Authority or any other organization concerned with port operations" (Section 6[b] [IX]). Furthermore, the PPA was authorized to impose a ten percent (10%) charge on the monthly gross earnings of the operators of arrastre and stevedoring services (also known as Government Share). In its Board Resolution No. 7 dated April 21, 1976 embodying the "Memorandum Agreement," PPA laid down the terms and conditions under TEFASCO was allowed to construct specialized port and terminal facilities for incoming and outgoing foreign and domestic vessels and authorized to render port services, particularly, arrastre and stevedoring services on incoming and outgoing cargoes loaded on or unloaded from foreign and domestic vessels. On August 30, 1988, TEFASCO filed in the trial court a complaint for "declaration of nullity, prohibition, mandamus and damages with writ of preliminary injunction" against PPA. In an order dated December 14, 1988 , the trial court granted TEFASCO's application for a writ of preliminary injunction. In an order dated June 21, 1989, Judge Fuentes denied the motion. On September 11, 1989, PPA filed an "Urgent Motion to Dismiss" the case on the ground among others that the trial court has no jurisdiction over the subject matter of the action which is essentially an action

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 for injunction to restrain the collection of dues, fees, and other assessments in the nature of taxes or charges under the Customs law TEFASCO opposed the Motion to Dismiss, alleging mainly that it is the trial court, not the Court of Tax Appeals, which has jurisdiction over its causes of action In an order dated October 5, 1989, Judge Fuentes denied the Motion to Dismiss for lack of merit. On December 15, 1989, PPA filed this petition for certiorari and prohibition with prayer for the issuance of a writ of preliminary injunction and/or restraining order. On December 21, 1989, the First Division of this Court, without giving due course to the petition, required TEFASCO to comment (not to file a motion to dismiss) and issued a temporary restraining order, effective immediately and until further orders from this Court, enjoining the trial court from enforcing and/or implementing the Orders dated December 14, 1988, June 21, 1989, and October 5, 1989, and the writ of preliminary injunction dated January 10, 1989.The petition is without merit. PPA anchors its petition on Sections 39 and 29 of PD 857, in conjunction with Sections 7, 11 and 18 of Title VII, Book II of Republic Act 1125 to support its theory that wharfage dues, berthing fees, and the socalled "government share" are customs charges that fall under the exclusive appellate jurisdiction of the Court of Tax Appeals.

ISSUE: WON Jurisdiction is upon the Court of Tax Appeals to review appeals from decisions or rulings of the Philippine Ports Authority?

RULING: Since jurisdiction is conferred by law (Commissioner of Internal Revenue vs. Villa, 22 SCRA 4); and under P.D. 857, the collection of port charges ceased to be an administrative function of the Bureau of Customs and was transferred to the PPA; that neither P.D. 857 nor R.A. 1125 contains a provision for an appeal to the Court of Tax Appeals from decisions of the PPA; and further considering that the Court of Tax Appeals is a specialized court of limited jurisdiction, no appellate jurisdiction over PPA decisions may be vested in the Court of Tax Appeals by mere implication. This issue was set at rest by the decision of this Court in Victorias Milling Co., Inc. vs. Court of Tax Appeals (CTA Case No. 3466, Victorias Milling Co., Inc. vs. PPA), G.R. No. 66381, February 29, 1984, where we ruled: There is no law or statute which expressly vests jurisdiction upon the Court of Tax Appeals to review appeals from decisions or rulings of the Philippine Ports Authority . . . . The jurisdiction of a court to take cognizance of a case, we believe, should be clearly conferred and should not be deemed to exist on mere implication, specifically with respect to the Court of Tax Appeals which is a specialized court of limited jurisdiction. (Emphasis supplied.) In view of the foregoing, we deem it unnecessary to discuss the other issues raised in the petition. WHEREFORE, the petition for certiorari and prohibition is DENIED for lack of merit, with costs against the petitioners. The temporary restraining order.

107


108


TFS Inc. vs CIR GR 166829, 19 April 2010

FACTS: Petitioner TFS, engaged in the pawnshop business, received a Preliminary Assessment Notice for deficiency VAT, EWT and compromise penalty for the taxable year 1998. It requested the BIR to withdraw and set aside the assessments. However, CIR informed TFS that a Final Assessment Notice was issued. TFS protested the FAN. There being no action taken by the CIR, TFS filed a Petition for Review with the CTA. During trial, petitioner offered to compromise and to settle the assessment for deficiency EWT with the BIR, leaving only the issue of VAT on pawnshops to be threshed out. Since no opposition was made by the CIR to the Motion, the same was granted by the CTA but the latter rendered a Decision upholding the assessment for the deficiency VAT for 1998, inclusive of 25% surcharge and 20% deficiency interest, plus 20% delinquency interest. The CTA ruled that pawnshops are subject to VAT under Section 108(A) of the NIRC as they are engaged in the sale of services for a fee, remuneration or consideration. TFS filed before the Court of Appeals a Motion for Extension of Time to File Petition for Review, but it was dismissed by the CA for lack of jurisdiction in view of the enactment of RA 9282. TFS then filed a Petition for Review with the CTA En Banc, but was dismissed for having been filed out of time. Hence, this petition.

ISSUES: 1) Whether the CTA en banc should have given due course to the petition for review and not strictly apply the technical rules of procedure to the detriment of justice 2) Whether or not petitioner is subject to the 10% VAT

RULING: 1) Jurisdiction to review decisions or resolutions issued by the Divisions of the CTA is no longer with the CA but with the CTA En Banc, as embodied in Section 11 of RA 9282. An appeal must be perfected within the reglementary period provided by law; otherwise, the decision becomes final and executory. In the instant case, RA 9282 took effect on April 23, 2004, while petitioner filed its Petition for Review on Certiorari with the CA on August 24, 2004. By then, petitioner‘s counsel should have been aware of and familiar with the changes introduced by RA 9282. Petitioner likewise cannot validly claim that its erroneous filing of the petition with the CA was justified by the absence of the CTA rules and regulations and the incomplete membership of the CTA En Banc as these did not defer the effectivity and implementation of RA 9282.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 However, the court overlooks such procedural lapse in the interest of substantial justice. Although a client is bound by the acts of his counsel, including the latter‘s mistakes and negligence, a departure from this rule is warranted where such mistake or neglect would result in serious injustice to the client. Procedural rules may thus be relaxed for persuasive reasons to relieve a litigant of an injustice not commensurate with his failure to comply with the prescribed procedure. Procedural rules can be disregarded because the court cannot, in conscience, allow the government to collect deficiency VAT from petitioner considering that the government has no right at all to collect or to receive the same. Besides, dismissing this case on a mere technicality would lead to the unjust enrichment of the government at the expense of petitioner, which the court cannot permit. Technicalities should never be used as a shield to perpetrate or commit an injustice. Imposition of VAT on pawnshops for the tax years 1996 to 2002 was deferred. Petitioner is not liable for VAT for the year 1998. Consequently, the VAT deficiency assessment issued by the BIR against petitioner has no legal basis and must therefore be cancelled. In the same vein, the imposition of surcharge and interest must be deleted.

110


CIR vs Fort Bonifacio Dev. Corp GR 167606, 11 August 2010

FACTS: Commissioner of Internal Revenue (CIR) filed a petition for review under Rule 45 of the Rules of Court against Fort Bonifacio Development Corporation (FBDC), challenging the Resolutions of the Court of Appeal as follows: (1) January 27, 2003, denying the prayer of petitioner CIR and the Revenue District Officer, Revenue District No. 44, Taguig and Pateros, Bureau of Internal Revenue (BIR), to admit the Amended Petition for Review; and (2) March 18, 2005, denying their motion for the reconsideration thereof. In its assailed January 27, 2003 Resolution, the CA denied the prayer of petitioners to admit the amended petition for review, thus, reiterating the dismissal of the petition for review. The second motion for extension was filed after the expiration of the first extension; hence, no more period to extend. When petitioners received the Resolution dismissing the petition for review, they did not file a motion for reconsideration. Said resolution, therefore, had already become final and executory. The last day of filing of the petition for review was beyond the extension prayed for; the timeliness of the appeal is jurisdictional caveat. The proper officer that should have filed the case was the Solicitor General, citing the case of not an officer of the BIR (CIR v. La Suerte Cigar and Cigarette Factory).

ISSUE: Whether or not the Court of Appeals correctly dismissed the original Petition for Review, and denied admission of the Amended Petition for Review.

RULING: Yes. The failure to timely perfect an appeal cannot simply be dismissed as a mere technicality, for it is jurisdictional and it becomes a problem as it deprives the appellate court of jurisdiction over the appeal. The failure to file the notice of appeal within the reglementary period is akin to the failure to pay the appeal fee within the prescribed period. In both cases, the appeal is not perfected in due time. It bears emphasizing that the dismissal of the petition for review and the denial of the amended petition were premised rather on (January 27, 2003 Resolution): (1) the late filing of the original petition for review by the CIR; (2) the absence of a motion for reconsideration of the January 29, 2002 Resolution; and (3) lack of authority of Atty. Alberto R. Bomediano, Jr., legal officer of the BIR Region 8, Makati City, to pursue the case on behalf of petitioner CIR.

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INCOME TAX CASES Conwi vs CTA GR 48532-33, 31 August 1992

FACTS: Petitioners (Conwi, et al.) were Filipino citizens who were employees of P & G Philippines. From 1970 to 1971, they were temporarily assigned to other subsidiaries of P & G outside RP – specifically in the US, and were thus paid in US dollars as compensation for services in their foreign assignments. So when they filed their income tax returns (ITR) for 1970, they computed the tax due by applying the dollarto-peso conversion on the basis of the floating rate ordained under BIR Ruling No. 70-27 (rates under Revenue Memorandum Circulars Nos. 7-71 and 41-71) dated May 14, 1970. The same conversion rate was used for their 1971 ITR. However, on February 8, 1973, the petitioners filed with CIR an amended ITR for 1970 & 1971 which used par value of the peso as prescribed in RA 265, Sec.48 in relation to CA 699, Sec.6 for converting their dollar income into pesos for purposes of computing and paying the corresponding income tax due from them. Petitioners claimed that since the dollar earnings did not fall within the classification of foreign exchange transactions, there occurred no actual inward remittances, and, therefore, they are not included in the coverage of Central Bank Circular No. 289 which provides for the specific instances when the par value of the peso shall not be the conversion rate used. They concluded that their earnings should be converted for income tax purposes using the par value of the Philippine peso. The amended ITR resulted into alleged overpayments/refund and/or tax credit. Therefore, the petitioners claimed for refund from CIR. CTA ruled that the proper conversion rate for the purpose of reporting and paying the Philippine income tax on the dollar earnings of petitioners are the rates prescribed under RMC Nos. 7-71 and 41-71. Consequently, the claim for refund was denied. ISSUE: WON the petitioners are entitled to a refund. (What exchange rate should be used to determine the peso equivalent of the foreign earnings of petitioners for income tax purposes.) RULING: No. ―Income‖ may be defined as ―an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest, or profit from investment. ‗Income‘ can also be thought of as a flow of the fruits of one‘s labor.‖ The dollar earnings of Conwi et al. are fruits of their labor in the foreign subsidiaries of Procter & Gamble. They were given a definite amount of money which came to them within a specified period of time as payment for their services. Sec. 21, NIRC, states: ―A tax is hereby imposed upon the taxable net income received from all sources by every individual, whether a citizen of the Philippines residing therein or abroad.‖ As such, their income is taxable even if there were no inward remittances during the time they were earning in dollars abroad. Moreover, a careful reading of said CB Circular No. 289 shows that the subject matters involved therein are export products, invisibles, receipts of foreign exchange, foreign exchange payments, new foreign

112

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 borrowing and investments — nothing by way of income tax payments. Thus, petitioners are in error by concluding that since C.B. Circular No. 289 does not apply to them, the par value of the peso should be the guiding rate used for income tax purposes. The ruling and the circulars are a valid exercise of power on the part of the Secretary of Finance by virtue of Sec. 338, NIRC, which empowers him ―to promulgate all needful rules and regulations‖ to effectively enforce its provisions. Besides, they have already paid their taxes using the prescribed rate of conversion. There is no need for the CIR to give them a tax refund and/or credit.

113


CIR vs British Airways

FACTS:

Private respondent BOAC is a 100% British Government-owned corporation organized and

existing under the laws of the UK.

Engaged in the international airline business, it operates air

transportation service and sells transportation tickets over the routes of the other airline members. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines. Moreover, it did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the assessments, it maintained a general sales agent in the Philippines. In May 1968, petitioner CIR assessed BOAC for deficiency income taxes covering the years 1959 to 1963. This was protested by BOAC. Subsequent investigation resulted in the issuance of a new assessment, for the years 1959 to 1967 which BOAC paid under protest. In 1970, BOAC filed a claim for refund which claim was denied by the CIR. On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. However, the CIR not only denied the BOAC request for refund in the First Case but also re-issued in the Second Case the deficiency income tax assessment. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines do not constitute BOAC income from Philippine sources "since no service of carriage of passengers or freight was performed by BOAC within the Philippines" and, therefore, said income is not subject to Philippine income tax. With the adverse decision of the tax court, hence, this Petition for Review on certiorari. ISSUE: Whether or not the revenue derived by BOAC from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources. RULING: Yes. The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that activity ... which produced the income. Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from an activity regularly pursued within the Philippines. And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin and the origin of the income herein is the Philippines. It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. Pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now taxed. The 2-½ % tax on gross Philippine billings is an income tax. If it had been intended as an excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on Business.

114


CIR vs CA & Soriano GR 108576

FACTS: Don Andres Soriano (American), founder of A. Soriano Corp. (ASC) had a total shareholdings of 185,154 shares. Broken down, the shares comprise of 50,495 shares which were of original issue when the corporation was founded and 134,659 shares as stock dividend declarations. So in 1964 when Soriano died, half of the shares he held went to his wife as her conjugal share (wife‘s ―legitime‖) and the other half (92,577 shares, which is further broken down to 25,247.5 original issue shares and 82,752.5 stock dividend shares) went to the estate. For sometime after his death, his estate still continued to receive stock dividends from ASC until it grew to at least 108,000 shares. In 1968, ASC through its Board issued a resolution for the redemption of shares from Soriano‘s estate purportedly for the planned ―Filipinization‖ of ASC. Eventually, 108,000 shares were redeemed from the Soriano Estate. In 1973, a tax audit was conducted. Eventually, the Commissioner of Internal Revenue (CIR) issued an assessment against ASC for deficiency withholding tax-at-source. The CIR explained that when the redemption was made, the estate profited (because ASC would have to pay the estate to redeem), and so ASC would have withheld tax payments from the Soriano Estate yet it remitted no such withheld tax to the government. ASC averred that it is not duty bound to withhold tax from the estate because it redeemed the said shares for purposes of ―Filipinization‖ of ASC and also to reduce its remittance abroad. ISSUE: Whether or not ASC‘s arguments are tenable. RULING: No. The reason behind the redemption is not material. The proceeds from a redemption is taxable and ASC is duty bound to withhold the tax at source. The Soriano Estate definitely profited from the redemption and such profit is taxable, and again, ASC had the duty to withhold the tax. There was a total of 108,000 shares redeemed from the estate. 25,247.5 of that was original issue from the capital of ASC. The rest (82,752.5) of the shares are deemed to have been from stock dividend shares. Sale of stock dividends is taxable. It is also to be noted that in the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate property, in whole or in part, is made out of corporate profits such as stock dividends. It cannot be argued that all the 108,000 shares were distributed from the capital of ASC and that the latter is merely redeeming them as such. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine — wherein the capital stock, property and other assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended for the protection of corporate creditors.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Redemption of stock dividends is taxable income (considering that a dividend is only made possible by income, although such is not yet realized because the surplus is retained as stock dividends). See Sec. 73, NIRC.

116


CIR vs Solidbank

Reynil’s Digest FACTS: Under the Tax Code, the earnings of banks from ―passive‖ income are subject to a twenty percent final withholding tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by the banks, because it is paid directly to the government by the entities from which the banks derived the income. Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the Tax Code on their gross receipts, including the ―passive‖ income. Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in satisfaction of their withholding taxes. That they do notactually receive the amount does not alter the fact that it is remitted for their benefit in satisfaction of their tax obligations. Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent portion of the ―passive‖ income of banks would actually be paid to the banks and then remitted by them to the government in payment of their income tax. The institution of the withholding tax system does not alter the fact that the 20 percent portion of their ―passive‖ income constitutes part of their actual earnings, except that it is paid directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their ―passive‖ incomes. The trial court rendered judgment against the petitioner. Hence, this petition.

ISSUE: Whether or not the 20% final withholding tax on [a] bank‘s interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax

RULING: We agree with petitioner. In fact, the same issue has been raised recently in China Banking Corporation v. CA where this Court held that the amount of interest income withheld in payment of the 20% FWT forms part of gross receipts in computing for the GRT on banks.

Francis’ Digest (reproduced) FACTS: Solid Bank declared gross receipts included the amount from passive income which was already subjected to 20% final withholding tax (FWT). CTA affirmed that the 20% FWT should not form part of its taxable gross receipts for purpose of computing the gross receipts tax on such basis; Solid Bank filed a request for refund. CTA ordered the refund while CA held that indeed, the 20% FWT on a bank‘s interest income does not form part of the taxable gross receipts in computing the 5% Gross Receipt tax (GRT) because the FWT was not actually received by the bank, but was directly remitted to the government.

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ISSUE: Whether or not the 20% FWT on a bank‘s interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax? And whether there is a double taxation?

RULING: Yes. The amount of interest income, withheld in payment of the 20% Final Withholding Tax (FWT), forms part of gross receipts in computing for the GRT on banks. Although the 20% FWT on respondent‘s interest income was not actually received by respondent because it was remitted directly to the government the fact that the amount redounded to the bank‘s benefit makes it part of the taxable gross receipts in computing the 5% GRT. The argument that there is double taxation cannot be sustained, as the two taxes are different. The one is a business tax which is not subject to withholding while the other is an income tax subject to withholding. In China Banking vs. CA, the Court ruled that the amount of interest income withheld in payment of 20% FWT forms part of the gross receipts in computing for the GRT on banks. 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 is national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. In a withholding tax system, the payee is the taxpayer, the person on whom tax is reposed, the payer, a separate entity, acts as no more than an agent of the government for the collection of taxes. Possession is acquired by the payer as the withholding agent of the government because the taxpayer ratifies the very act of possession for the government. There is constructive receipt, of such income and is included as part of the tax base.

118


Mobil vs City Treasurer

FACTS: Mobil Philippines Inc is a domestic corporation engaged in the manufacturing, importing, exporting and wholesaling of petroleum products, while respondents are the local government officials of the City of Makati charged with the implementation of the Revenue Code of the City of Makati, as well as the collection and assessment of business taxes, license fees and permit fees within said city. Prior to September 1998, petitioner‘s principal office was in Makati City. On August 20, 1998, petitioner filed an application with the City Treasurer of Makati for the retirement of its business within the City of Makati as it moved its principal place of business to Pasig City. The OIC of the License Division issued a billing slip of business taxes amounting to P 1,898,106.96 which the petitioner paid under protest on September 1998. In 1999, petitioner filed a claim for refund but was denied. The trial court rules that the payments made by the petitioner in 1998 are payments for the business taxes in 1997. ISSUE: Are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998? RULING: The trial court erred when it said that the payments made by petitioner in 1998 are payments for business tax incurred in 1997 which only accrued in January 1998. Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of carrying on a business in the year the tax was paid. It is paid at the beginning of the year as a fee to allow the business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business. Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person‘s income, emoluments, profits and the like. It is tax on income, whether th

th

net or gross realized in one taxable year. It is due on or before the 15 day of the 4 month following the close of the taxpayer‘s taxable year . Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the previous year‘s figures. In computing the amount of tax due for the first quarter of operations, the business‘ capital investment is used as the basis. For the subsequent quarters of the first year, the tax is based on the gross sales/receipts for the previous quarter. The business taxes paid in the year 1998 is for the privilege of engaging in business for the same year, and not for having engaged in business for 1997. Under the same Code, on the year an establishment retires or terminates its business within the municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous year‘s gross sales or receipts, is less than the actual tax due based on the current year‘s gross sales or receipts. For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998. The amount of tax as computed based on petitioner‘s gross

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on petitioner‘s actual gross sales for 1998, petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus, the Court ruled that the respondent erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998. Therefore, respondents City Treasurer and Chief of the License Division of Makati City are ordered to refund to petitioner business taxes paid in the amount of P1,331,638.84.

120


CIR vs CA & Castaneda GR 96016, 17 October 1991

FACTS: Private respondent Efren P. Castaneda retired from the government service as Revenue Attache in the Philippine Embassy in London, England, on December 10, 1982 under the provisions of Section 12(c) of CA 186. Upon retirement, he received terminal leave pay from which petitioner CIR withheld P12,557.13 allegedly representing income tax thereon. Castanada filed with the CTA a petition for review, seeking refund of income tax withheld from his terminal leave pay, within the two-year prescriptive period within which claims for refund may be filed. The CTA ordered the CIR to refund Castaneda the P12,557.13.

ISSUE: Whether or not terminal leave pay received by a government official of employee on the occasion of his compulsory retirement from the government service is subject to withholding income tax.

RULING: No. The Court has already ruled that the terminal leave pay received by a government official or employee is not subject to withholding income tax. In the recent case of Jesus N. Borromeo vs. The Hon. Civil Service Commission, et al., GR NO. 96032, July 31, 1991, the Court explained the rationale behind the employee‘s entitlement to an exemption from withholding income tax on his terminal leave pay as follows: . . . commutation of leave credits, more commonly known as terminal leave, is applied for by an officer or employee who retires, resigns or is separated from the service through no fault of his own. (Manual on Leave Administration Course for Effectiveness published by the Civil Service Commission, pages 16-17). In the exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The Government recognizes that for most public servants, retirement pay is always less than generous if not meager and scrimpy. A modest nest egg which the senior citizen may look forward to is thus avoided. Terminal leave payments are given not only at the same time but also for the same policy considerations governing retirement benefits. In fine, not being part of the gross salary or income of a government official or employee but a retirement benefit, terminal leave pay is not subject to income tax.

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Abello vs CIR 452 SCRA 162, 23 February 2005

FACTS: During the 1987 national elections, petitioners, who are partners in the ACCRA law firm, contributed P882, 661.31 each to the campaign funds of Senator Edgardo Angara, then running for the Senate. BIR assessed each of the petitioners P263, 032.66 for their contributions. Petitioners questioned the assessment to the BIR, claiming that political or electoral contributions are not considered gifts under the NIRC so they are not liable for donor‘s tax. The claim for exemption was denied by the Commissioner. The CTA ruled in favor of the petitioners, but such ruling was overturned by the CA, thus this petition for review.

ISSUE: Whether or not political contributions are subject to donor‘s tax?

RULING: Yes. The Supreme Court laid down several reasons why political contributions are subject to donor‘s tax: 

Section 91 of the NIRC levies tax to the transfer of property by gift. Though transfer of property by gift was not defined by the NIRC, Article 725 of the Civil Code supplements the deficiency of the NIRC (by virtue of Article 18 of the Civil Code stating: ―In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied by the provisions of this Code.‖) which defines donation as: ―… an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.‖ Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi. The present case falls squarely within the definition of a donation. All three elements of a donation are present. a) The patrimony of the four petitioners was reduced by P 882,661.31 each. b) Correspondingly, Senator Angara‘s patrimony was increased by P 3,530,645.24. c) There was intent to do an act of liberality since each of the petitioners gave their contributions without any consideration. Thus being a donation, the political contributions are subject to donor‘s tax.



Petitioners’ contribution of money without any material consideration evinces animus donandi. Donative intent is presumed present when one gives a part of one‘s patrimony to another without consideration. Furthermore, donative intent is not negated when the person donating has other intentions, motives or purposes which do not contradict donative intent. The fact that petitioner‘s purpose for donating was to aid in the election of the donee does not negate the presence of donative intent.



The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute, in no way amounts to a valuable material consideration so as to

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 remove political contributions from the purview of a donation. Senator Angara was under no obligation to benefit the petitioners. The proper performance of his duties as a legislator is his obligation as an elected public servant of the Filipino people and not a consideration for the political contributions he received. In fact, as a public servant, he may even be called to enact laws that are contrary to the interests of his benefactors, for the benefit of the greater good. 

BIR is not precluded from making a new interpretation of the law, especially when the old interpretation was flawed. The fact that since 1939 when the first Tax Code was enacted, up to 1988 the BIR never attempted to subject political contributions to donor‘s tax does not block the subsequent correct application of the statute.



Section 91 of the N I RC is clear construction. The rule that tax

and unambiguous, thereby leaving no room for

laws are construed liberally in favor of the taxpayer and

strictly against the government only applies when the statute is doubtful and ambiguous. 

Republic Act No.

7166 enacted on November 25, 1991, which exempts political/electoral

contributions, duly reported to the Commission on Elections, from tax has no retroactive effect. Only political contributions made subsequent to this exempting legislation are covered. The political contributions in this case were made in 1987. Thus, they are still subject to donor‘s tax.

123


CIR vs BPI 492 SCRA 551

FACTS: In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine Islands‘ (BPI ‘s) deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63. BPI sent a reply letter. in its reply, BPI stated that, ―As t o t h e alleged deficiency percentage tax , we are completely at a loss on how such assessment may be protested since y our letter does not even tell t h e tax payer what particular percentage tax is involved an d how y our examiner arrived at t h e deficiency . As soon as this is explained an d clarified in a proper letter of assessment , we shall inform you of t h e tax payer‘ s decision on whether to pay or protest t h e assessment .

ISSUE: Whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had already become final and unappealable and

RULING: BPI contends that it was not properly informed and notified of how the assessment was arrived at and what legal basis the CIR had for those assessments. The ruling of the CTA, which was agreed by the Supreme court, stated that BPI was not only sent a notice regarding the assessment, but examiners from the CIR themselves went to BPI in order to talk with them regarding the issue and find a solution. From this, the SC ruled that ―From al l t h e f oregoi n g di scu ssi on s, We can n ow con cl u de t h at [BPI ] was i n deed aware of t h e n at u re an d basi s of t h e assessmen t s, an d was gi v en al l t h e opport u n i t y t o con t est t h e same bu t i gn ored i t despi t e t h e n ot i ce con spi cu ou sl y wri t t en on t h e assessments which st at es t h at "t h i s ASSESSMENT becomes f i n al an d u n appeal abl e i f n ot prot est ed wi t h i n 30 day s af t er recei pt . " Cou n sel resort ed t o di l at ory t act i cs an d dan gerou sl y pl ay ed wi t h t i me. Un f ort u n at el y , su ch st rat egy prov ed f at al t o t h e cau se of h i s cl i en t .‖

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Cyanamid vs CA

FACTS: Petitioner is a corporation organized under Philippine laws and is a wholly owned subsidiary of American Cyanamid Co. based in Maine, USA. It is engaged in the manufacture of pharmaceutical products and chemicals, a wholesaler of imported finished goods and an imported/indentor. In 1985 the CIR assessed on petitioner a deficiency income tax of P119,817) for the year 1981. Cyanamid protested the assessments particularly the 25% surtax for undue accumulation of earnings. It claimed that said profits were retained to increase petitioner‘s working capital and it would be used for reasonable business needs of the company. The CIR refused to allow the cancellation of the assessments, petitioner appealed to the CTA. The CTA denied the petition stating that the law permits corporations to set aside a portion of its retained earnings for specified purposes. It found that there was no need to set aside such retained earnings as working capital as it had considerable liquid funds. Those corporations exempted from the accumulated earnings tax are found under Sec. 25 of the NIRC, and that the petitioner is not among those exempted. The CA affirmed the CTA‘s decision.

ISSUE: Whether or not the accumulation of income was justified.

RULING: In order to determine whether profits are accumulated for the reasonable needs of the business to avoid the surtax upon the shareholders, it must be shown that the controlling intention of the taxpayer is manifested at the time of the accumulation, not intentions subsequently, which are mere afterthoughts. The accumulated profits must be used within reasonable time after the close of the taxable year. In the instant case, petitioner did not establish by clear and convincing evidence that such accumulated was for the

immediate

needs

of

the

business.

To determine the reasonable needs of the business, the United States Courts have invented the ―Immediacy Test‖ which construed the words ―reasonable needs of the business‖ to mean the immediate needs of the business, and it is held that if the corporation did not prove an immediate need for the accumulation of earnings and profits such was not for reasonable needs of the business and the penalty tax would apply. The working capital needs of a business depend on the nature of the business, its credit policies, the amount of inventories, the rate of turnover, the amount of accounts receivable, the collection rate,

the

availability

of

credit

and

other

similar

factors.

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Republic vs Meralco

FACTS: On December 23, 1993, MERALCO filed with ERB an application for the revision of its rate schedules. The application reflected an average increase of 21 centavos per kilowatt-hour (kwh) in its distribution charge. On January 28, 1994, the ERB issued an Order granting a provisional increase of P0.184 per kwh, subject to the following condition: ―In the event, however, that the Board finds, after hearing and submission by the Commission on Audit of an audit report on the books and records of the applicant that the latter is entitled to a lesser increase in rates, all excess amounts collected from the applicant‘s customers as a result of this Order shall either be refunded to them or correspondingly credited in their favor for application to electric bills covering future consumptions.‖ In the same Order, the ERB requested the Commission on Audit (COA) to conduct an audit and examination of the books and other records of account and to submit a copy to the ERB immediately upon completion. On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07 (the COA Report) which contained the recommendation: 1.

not to include income taxes paid by MERALCO as part of its operating expenses for purposes of rate determination and

2.

not to include the use of the net average investment method for the computation of the proportionate value of the properties used by MERALCO during the test year for the determination of the rate base.

ERB rendered its decision adopting COA‘s recommendations and authorized MERALCO to implement a rate adjustment in the average amount of P0.017 per kwh, and the provisional relief in the amount of P0.184 per kilowatt-hour is superseded and modified and the excess average amount of P0.167 be refunded to the customers or correspondingly credited in their favor for future consumption (from February 1994 to February 1998). ERB held that income tax should not be treated as operating expense as this should be borne by the stockholders who are recipients of the income or profits realized from the operation of their business hence, should not be passed on to the customers. ERB also adopted COA‘s recommendation in computing the rate base which should only include the proportionate value of the property, determined in accordance with the number of months the same was actually used in service during the test year.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 ISSUE: 1) Whether or not the income tax paid by MERALCO should be treated as part of its operating expenses (and thus considered in determining the amount of increase in rates imposed by MERALCO)? 2) Whether or not the net average method used by COA and the ERB should be adopted, and not the average investment method used by MERALCO? RULING: 1) No, income tax should not be included in the computation of operating expenses of public utility. Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general, operating expenses are those which are reasonably incurred in connection with business operations to yield revenue or income. They are items of expenses which contribute or are attributable to the production of income or revenue. As correctly put by the ERB, operating expenses ―should be a requisite of or necessary in the operation of a utility, recurring, and that it redounds to the service or benefit of customers.‖ Income tax is imposed on an individual or entity as a form of excise tax or a tax on the privilege of earning income. In exchange for the protection extended by the State to the taxpayer, the government collects taxes as a source of revenue to finance its activities. Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should be Meralco‘s alone and should not be shifted to the consumers by including the same in the computation of its operating expenses. The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the service it provides. It does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof, i.e., whether or not the expense if attributable to the production of services by the public utility. To charge consumers for expenses incurred by a public utility which are not related to the service or benefit derived by the customers from the public utility is unjustified and inequitable. Explanation given by the Court: The regulation of rates to be charged by public utilities is founded upon the police powers of the State. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati and becomes subject to regulation. In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates. However, the power to regulate rates does not give the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return on investment. The rates must be one that yields a fair return and one that is reasonable to the public for the services rendered. In the case of Southwestern Bell Tel Co. v. Public Service Commission, it was held that charges to the public shall be reasonable since the company is the substitute for the State in the performance of the public service, thus becoming a public servant.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Who determines whether rates fixed are reasonable? The judiciary; it is purely judicial question and is subject to the review of the courts. Implied standard in fixing rates: rate be reasonable and just. The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive. In determining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility. Three (3) major factors in determining the just and reasonable rates to be charged by a public utility: 1.

rate of return – judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use of its property for service to the public. Prescribed by administrative and judicial pronouncements.

2.

rate base – evaluation of the property devoted by the utility to the public service or the value of invested capital or property which the utility is entitled to a return.

3.

return itself or the computed revenue to be earned by the public utility based on the rate of return and rate base

In determining whether or not a rate yields a fair return to the utility, the operating expenses of the utility must be considered. The return must be sufficient to provide for the payment of such reasonable operating expenses incurred by the public utility. 2) The Net Average Investment Method used by the ERB and COA should be adopted. In the determination of the rate base, property used in the operation must be subject to appraisal and evaluation. Under the net average investment method, properties and equipment used in the operation are entitled to a return only on the actual number of months they are in service. In contrast, the average investment method computes the proportionate value of the property by adding the value of the property at the beginning and at the end of the test year with the resulting sum divided by two. By using the net average investment method, the ERB and COA considered for determination of the rate base the value of properties and equipment used by MERALCO in proportion to the period that the same were actually used during the period in question. This treatment is consistent with the rule that the determination of the rate base of a public utility must be based on properties and equipment actually being used or are useful to the operation of the public utility. Further, computing the proportionate value of assets used in service in accordance with the actual number of months the same is used during the test year is a more accurate method of determining the value of the properties of a public utility entitled to a return. If the Court sustains the application of the trending method or the average investment method, the public utility may easily manipulate the valuation of its property entitled to a return by simply including a highly capitalized assed even if the same was used for a limited period of time. With the inexactness of the trending method and the possibility that the valuation may be subject to the control of and abuse by the public utility, the Court finds no reasonable basis to overturn the recommendation of COA and ERB.

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Esso vs CIR

FACTS: The case is an appeal on the decision of the Court of Tax Appeals denying petitioner‘s claims for refund of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251 and 1558 respectively. ISSUE: Whether or not the margin fees paid by the petitioner be considered necessary and ordinary business expenses and therefore still deductible from its gross income. RULING: The court ruled in the negative. In the case of Atlas Consolidated Mining and Development 4

Corporation v. Commissioner of Internal Revenue, the Court laid down the rules on the deductibility of business expenses. To be deductible as a business expense, three conditions are imposed mainly. (1) The expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. The petitioner merely presumed that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires. This is error. The public respondent is correct when it asserts that "the paramount rule is that claims for deductions are a matter of legislative grace and do not turn on mere equitable considerations… The taxpayer in every instance has the burden of justifying the allowance of any deduction claimed." It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this as an ordinary and necessary expense paid or incurred in carrying on its own trade or business.

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Aguinaldo vs. CIR

FACTS: Aguinaldo Industries is engaged in the manufacture of fishing nets (a tax exempt industry), which is handled by its Fish Nets Division. It is also engaged in the manufacture of furniture which is operated by its Furniture Division. Each division is provided with separate books of accounts. The income from the Fish Nets Division, miscellaneous income of the Fish Nets Division, and and the income from the Furniture Division are computed individually. Petitioner acquired a parcel of land in Muntinlupa Rizal as site for its fishing net factory. The transaction was entered in the books of the Fish Nets Division. The company then found another parcel of land in Marikina Heights, which was more suitable. They then sold the Muntinlupa property and the profit derived from the sale was entered in the books of the Fish Nets Division as miscellaneous income to separate it from its tax exempt income. For 1957, petitioner filed 2 separate ITRs (one for Fish Nets and one for Furniture). After investigation, BIR examiners found that the Fish Nets Div deducted from its gross income PhP 61k as additional remuneration paid to the company‘s officers. Such amount was taken from the sale of the land and was reported as part of the selling expenses. The examiners recommended that such deduction be disallowed. Petitioner then asserted in its letter that it should be allowed because it was paid as bonus to its officers pursuant to Sec.3 of its by-laws: ―From the net profits shall be deducted for allowance of the Pres. - 3%, VP - 1%, members of the Board - 10%.‖ CTA imposed a 5% surcharge and 1% monthly interest for the deficiency assessment. Petitioner then stressed that the profit derived from the sale of the land is not taxable because the Fish Nets Div enjoys tax exemption under RA 901. ISSUES: (1) Whether the bonus given to the officers of the petitioner upon the sale of its Muntinlupa land is an ordinary and necessary business expense deductible for income tax purposes; and (2) Whether petitioner is liable for surcharge and interest for late payment. RULING: 1)

YES. These extraordinary and unusual amounts paid by petitioner to these directors in the guise and form of compensation for their supposed services as such, without any relation to the measure of their actual services, cannot be regarded as ordinary and necessary expenses within the meaning of the law. This posture is in line with the doctrine in the law of taxation that the taxpayer must show that its claimed deductions clearly come within the language of the law since allowances, like exemptions, are matters of legislative grace.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Moreover, petitioner cannot now claim that the profit from the sale is tax exempt. At the administrative level, the petitioner implicitly admitted that the profit it derived from the sale of its Muntinlupa land, a capital asset, was a taxable gain — which was precisely the reason why for tax purposes the petitioner deducted therefrom the questioned bonus to its corporate officers as a supposed item of expense incurred for the sale of the said land, apart from the P51,723.72 commission paid by the petitioner to the real estate agent who indeed effected the sale. The BIR therefore had no occasion to pass upon the issue. To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the court — which is supposed to review administrative determinations — would not review, but determine and decide for the first time, a question not raised at the administrative forum. The requirement of prior exhaustion of administrative remedies gives administrative authorities the prior opportunity to decide controversies within its competence, and in much the same way that, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal. Up to the time the questioned decision of the respondent Court was rendered, the petitioner had always implicitly admitted that the disputed capital gain was taxable, although subject to the deduction of the bonus paid to its corporate officers. It was only after the said decision had been rendered and on a motion for reconsideration thereof, that the issue of tax exemption was raised by the petitioner for the first time. It was thus not one of the issues raised by petitioner in his petition and supporting memorandum in the CTA. 2)

YES. Interest and surcharges on deficiency taxes are imposable upon failure of the taxpayer to pay the tax on the date fixed in the law for the payment thereof, which was, under the unamended Section 51 of the Tax Code, the 15th day of the 5th month following the close of the fiscal year in the case of taxpayers whose tax returns were made on the basis of fiscal years. A deficiency tax indicates non-payment of the correct tax, and such deficiency exists not only from the assessment thereof but from the very time the taxpayer failed to pay the correct amount of tax when it should have been paid and the imposition thereof is mandatory even in the absence of fraud or willful failure to pay the tax is full.

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PRC vs. CA GR 118794

FACTS: This is an appeal by certiorari from the decision of respondent Court of Appeals affirming the decision of the Court of Tax Appeals which disallowed petitioner‘s claim for deduction as bad debts of several accounts in the total sum of P395,324.27, and imposing a 25% surcharge and 20% annual delinquency interest on the alleged deficiency income tax liability of petitioner.

ISSUE: Was PRC able to establish the ―worthlessness ― of the debts thereby qualifying these debts as ―bad debts‖ making them deductible?

RULING: No. For debts to be considered as ―worthless,‖ and thereby qualify as ―bad debts‖ making them deductible, the taxpayer should show that 1) there is a valid and subsisting debt; 2) the debt must be actually ascertained to be worthless and uncollectible during the taxable year; 3) the debt must be charged off during the taxable year; and 4) the debt must arise from the business or trade of the taxpayer. Additionally, before a debt can be considered worthless, the taxpayer must also show that it is indeed uncollectible even in the future. Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent efforts to collect the debts: 1) sending of statement of accounts; 2) sending of collection letters; 3) giving the account to a lawyer for collection; and 4) filing a collection case in court. Petitioner did not satisfy the requirements of ―worthlessness of a debt‖ as to the accounts disallowed as deductions. There was no documentary evidence to give support to the testimony of an employee of the Petitioner. Mere allegations cannot prove the worthlessness of such debts. Hence, the claim for deduction of these debts should be rejected.‖

132


China Bank vs CA

FACTS: CBC is a universal banking corporation organized and existing under Philippine law. CBC paid P12,354,933.00 as gross receipts tax in 1994. On 2006 CTA in Asian Bank Corporation v. Commissioner of Internal Revenue ruled that the 20% final withholding tax on a bank‘s passive interest income does not form part of its taxable gross receipts.CBC now claims for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts tax that CBC paid. Citing Asian Bank, CBC argued that it was not liable for the gross receipts tax on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on CBC‘s passive interest income in 1994.Commissioner claims that CBC paid the gross receipts tax pursuant to Section 119 (now Section 121) of the NIRC. The Commissioner argued that the final withholding tax on a bank‘s interest income forms part of its gross receipts in computing the gross receipts tax. The Commissioner contended that the term ―gross receipts‖ means the entire income or receipt, without any deduction. CTA ruled in favor of CBC and held that 20% Final withholding tax on interest income does not form part of CBC‘s taxable gross income based on the Asian Bank ruling. ISSUE: Whether the 20% final withholding tax on interest income should form part of CBC‘s gross receipts in computing the gross receipts tax on banks? RULING: The amount of interest income withheld in payment of the 20% final withholding tax forms part of CBC‘s gross receipts in computing the gross receipts tax on banks. Principles in Taxation Definition of Gross Receipts The Tax Code does not define the term ―gross receipts‖ for purposes of the gross receipts tax on banks. Absent a statutory definition, the BIR has applied the term in its plain and ordinary meaning. In ordinary terms ―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. Under Revenue Regulations Nos. 12-80 and 17-84, as well as in several numbered rulings, the BIR has consistently ruled that the term ―gross receipts‖ does not admit of any deduction. The interpretation has yet to be changed until the present tax code. The legislature has adopted the BIR‘s interpretation, following the principle of legislative approval by re-enactment. The tax code does not define for gross receipts except for the amusement tax which is also a business tax. It defines it as it ―embraces all receipts of the proprietor, lessee or operator of the amusement place.‖ The Tax Code further adds that ―[s]aid gross receipts also include income from television, radio and motion picture rights, if any.‖ This definition merely confirms that the term ―gross receipts‖ embraces the entire receipts without any deduction or exclusion, as the term is generally and commonly understood.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Interest income forms part of Gross Receipts In Asian Bank, the Court of Tax Appeals held that the final withholding tax is not part of the bank‘s taxable gross receipts. In Collector of Internal Revenue v. Manila Jockey Club, which held that ―gross receipts of the proprietor should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some person other than the proprietor.‖ The tax court adopted the Asian Bank ruling in succeeding cases involving the same issue. CTA reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v. Commissioner,it ruled that the final withholding tax forms part of the bank‘s gross receipts in computing the gross receipts tax. The tax court held that Section 4(e) of Revenue Regulations No. 12-80 did not prescribe the computation of the gross receipts but merely authorized ―the determination of the amount of gross receipts on the basis of the method of accounting being used by the taxpayer.‖ Section 121 of the Tax Code includes ―interest‖ as part of gross receipts, it refers to the entire interest earned and owned by the bank without any deduction. ―Interest‖ means the gross amount paid by the borrower to the lender as consideration for the use of the lender‘s money. This definition does not allow any deduction. The entire interest paid by the depository bank, without any deduction, is what forms part of the lending bank‘s gross receipts. CBC’s reliance of Collector of Internal Revenue v. Manila Jockey Club CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the final withholding tax on interest income does not form part of a bank‘s gross receipts because the final tax is ―earmarked by regulation‖ for the government. Manila Jockey Club paid amusement tax on its commission in the total amount of bets called wager funds from the period November 1946 to October 1950. But such payment did not include the 5 ½ % of the funds which went to the Board on Races and to the owners of horses and jockeys. We ruled that the gross receipts of the Manila Jockey Club should not include the 5 ½% because although delivered to the Club, such money has been especially earmarked by law or regulation for other persons. The Manila Jockey Club does not apply to the cases at bar because what happened there is earmarking and not withholding. Earmarking is not the same as withholding. Amounts earmarked do not form part of gross receipts because these are by law or regulation reserved for some person other than the taxpayer, although delivered or received. On the contrary, amounts withheld form part of gross receipts because these are in constructive possession and not subject to any reservation In the instant case, CBC owns the interest income which is the source of payment of the final withholding tax. The government subsequently becomes the owner of the money constituting the final tax when CBC pays the final withholding tax to extinguish its obligation to the government. This is the consideration for the transfer of ownership of the money from CBC to the government. Thus, the amount constituting the final tax, being originally owned by CBC as part of its interest income, should form part of its taxable gross receipts. CBC‘s reliance on Asian Bank ruling CBC also relies on the Tax Court‘s ruling in Asian Bank that Section 4(e) of Revenue Regulations No. 12-80 authorizes the exclusion of the final tax from the bank‘s taxable gross receipts. Section 4(e) states that the gross receipts ―shall be based on all items of income actually received.‖ The Tax Court erred in interpreting Section 4(e) of Revenue Regulations No. 12-80. Income may be taxable either at the time of its actual receipt or its accrual, depending on the accounting method of the taxpayer.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 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. CBC‘s claim amount to a tax exemption CBC‘s contention that it can deduct the final withholding tax from its interest income amounts to a claim of tax exemption. The cardinal rule in taxation is exemptions are highly disfavored and whoever claims an exemption must justify his right by the clearest grant of organic or statute law. CBC must point to a specific provision of law granting the tax exemption. The tax exemption cannot arise by mere implication and any doubt about whether the exemption exists is strictly construed against the taxpayer and in favor of the taxing authority. CBC failed to cite any provision of law allowing the final tax as an exemption, deduction or exclusion

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CIR vs General Foods GR 143672, 24 April 2003

FACTS: On June 14, 1985, respondent corporation filed its income tax return for the fiscal year ending Feb 28, 1985. In the application, the amount of 9,461,246 as advertising expense for ―Tang‖ was claimed as deduction. The Commissioner disallowed 50% of the deduction claimed and as a consequence, the respondent corporation was assessed deficient in income taxes in the amount of 2,635,141.42. Respondent corporation filed an MOR but was denied. Their appeal to the CTA was also dismissed. The decision stated that the expense incurred was to create ―goodwill‖ for the company. Aggrieved, respondent corporation filed a petition for review at the Court of Appeals which rendered a decision reversing and setting aside the decision of the Court of Tax Appeals. Hence this petition. ISSUES: Whether or not the subject media advertising expense for ―Tang‖ incurred by respondent corporation was an ordinary and necessary expense fully deductible under the National Internal Revenue Code (NIRC) RULING: No. To be deductible from gross income, the subject advertising expense must comply with the following requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers. The Court agreed with the Commissioner that the subject advertising expense was not ordinary on the ground that it failed the two conditions set by U.S. jurisprudence: first, ―reasonableness‖ of the amount incurred and second, the amount incurred must not be a capital outlay to create ―goodwill‖ for the product and/or private respondent‘s business. The subject expense for the advertisement of a single product is inordinately large. Therefore, even if it is necessary, it cannot be considered an ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC. The Court agreed with the CTA that the expense was intended to generate future sale of the merchandise or use of services in order to protect the corporation‘s brand franchise.

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Gancayco vs CIR

FACTS: On May 10, 1950, Gancayco filed his income tax return for the year 1949. Two (2) days later, respondent Collector of Internal Revenue issued the corresponding notice advising him that his income tax liability for that year amounted P9,793.62, which he paid on May 15, 1950. A year later, on May 14, 1951, respondent wrote the communication Exhibit C, notifying Gancayco, inter alia, that, upon investigation, there was still due from him, a efficiency income tax for the year 1949 amounting to P16,860.31. Gancayco argues that the CIR failed to deduct two items from his return, namely: a. Farming expenses amounting to P27,459.00; and b.For representation expenses amounting to P8,933.45.

ISSUE: WON the farming and representation expenses deductible from his gross income tax?

RULING: Farming expenses are not deductible, not being an ordinary expense, but a capital expenditure. Representation expenses are partially deductible only to the extent receipts were presented Section 30 of the Tax Code partly reads: (a) Expenses: (1) In General — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for the purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity . (Emphasis supplied.)

•On farming expenses: 1) No evidence has been presented as to the nature of the said "farming expenses" other than the bare statement of petitioner that they were spent for the "development and cultivation of (his) property". No specification has been made as to the actual amount spent for purchase of tools, equipment or materials, or the amount spent for improvement. Respondent claims that the entire amount was spent exclusively for clearing and developing the farm which were necessary to place it in a productive state. It is not, therefore, an ordinary expense but a capital expenditure. Accordingly, it is not deductible but it may be amortized, in accordance with section 75 of Revenue Regulations No. 2, cited above.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 2) See also, section 31 of the Revenue Code which provides that in computing net income, no deduction shall in any case be allowed in respect of any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate. 3) Authorities on the subject state: 

The cost of farm machinery, equipment and farm building represents a capital investment and is not an allowable deduction as an item of expense. Amounts expended in the development of farms, orchards, and ranches prior to the time when the productive state is reached may be regarded as investments of capital. (Merten'sLaw of Federal Income Taxation, supra, sec. 25.108, p. 525.)



Expenses for clearing off and grading lots acquired is a capital expenditure, representing part of the cost of the land and was not deductible as an expense.(Liberty Banking Co. v. Heiner 37 F [2d] 703 [8AFTR 100111] [CCA 3rd]; The B.L.Marble Chair Company v. U.S., 15 AFTR 746).



An item of expenditure, in order to be deductible under this section of the statute providing for the deduction of ordinary and necessary business expenses must fall squarely within the language of the statutory provision. This section is intended primarily, although not always necessarily, to cover expenditures of a recurring nature where the benefit derived from the payment is realized and exhausted within the taxable year.

138


CIR vs CA & YMCA GR 124043, 14 October 1998

FACTS: YMCA earned income from leasing a portion of its premises for shop owners and from collecting parking fees. The CIR issued an assessment on YMCA for P400,000+ of tax liability which the latter formally protested against. YMCA bases its claim for exemption on both NIRC and the Constitution. The case reached the CTA, which ruled in YMCA‘s favour on the ground that the amount YMCA receive the rentals are only enough to pay the operational costs for such and that it is not engaged in the business of contracting or operating a parking lot. The CA initially ruled in favour of the CIR, following the jurisprudence in Province Abra vs. Abra Volley College that leasing facilities to shop owners and the operation of a parking lot produce taxable income. In its motion for reconsideration, YMCA claimed that the CA departed from the ―factual findings‖ of the CTA by declaring that the incomes were tax exempt. The CA reversed itself on the reason that, although there is income produced, such were not made for profitable purposes considering the nature of the YMCA and affirmed the finding of the CTA that such amounts were made only to keep the YMCA‘s head ―above the water.‖ Hence, this appeal by the CIR, claiming that the CA committed reversible error in departing from the factual findings of the CTA and that the YMCA‘s income from the aforementioned sources are indeed taxable. ISSUES: 1) Did the CA depart from the CTA‘s factual finding? 2) Is YMCA‘s rental income taxable? 2) How are constitutional precepts regarding taxation of charitable institutions applied?

RULING: 1) No. What the CA reversed was not the factual finding of the CTA, which is generally binding upon the appellate court. The question of whether an income is exempted from tax is not a factual finding—it is a legal conclusion, which the CA has power to reverse or modify upon appeal. The distinction between a question of law and a question of fact is clear-cut. It has been held that ―[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts.‖ 2) Yes. In spite of Sec. 26 (g) & (h) which would exempt YMCA as a non-profit civic organization, the last paragraph of Sec. 26 of the NIRC is worded such that YMCA is still taxable in two circumstances: i.

its properties, whether real or personal, produces income; and/or

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 ii.

its activities, conducted for profit, produces income.

As such, applying the verbal egis rule in statutory construction, the rentals YMCA gained from leasing their premises as well as the parking fees are considered taxable income. 2) Sec. 28, par. 3, Art. VI, of the 1987 Constitution, according to the intent of the framers does not exempt the charitable institution per se. What it exempts from real estate taxes are lands, buildings, and improvements thereon used for religious, charitable, or educational purposes. At issue, however, is income taxes, not property taxes. Hence, the said constitutional provision does not apply. YMCA‘s argument grounded on Sec. 4, par. 3, Art. XIV, of the 1987 Constitution does not convince either. For there to be a tax exemption based on that provision, two conditions must be met: i.

the institution in question is a non-stock, non-profit educational institution; and

ii.

the income it seeks to be exempted from taxation is used actually, directly, or exclusively for educational purposes.

YMCA, however, has failed to present evidence proving either requisite. Considering the strictissimi juris approach on tax exemptions, YMCA‘s claim without evidence that it is a non-stock, non-profit educational institution does not enough to warrant a tax exemption. It has not proven that its income are used actually, directly, or exclusively for educational purposes. Moreover, YMCA cannot be considered an educational constitution, which has a technical meaning under the law as referring to institutions that provide ―hierarchically structured and chronological graded learnings organized and provided by [a] formal school system for which certification is required in order for the learner to progress through the grades or move to the higher levels.‖ YMCA‘s articles on incorporation and by-laws, however, do not contain anything that would hint at that technical meaning.

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CIR vs CTA 127 SCRA 9

FACTS: Smith Kline and French Overseas Company is a multinational firm based in Pennsylvania which is licensed to do business in the Philippines and is engaged in the importation, manufacture and sale of pharmaceuticals drugs and chemicals. Because of an audit received from its international auditors, the said firm found out that overhead costs were understated which led to the overpayment of income tax. Hence, the latter filed for a tax refund as there was an alleged underdeduction of home office overhead which resulted to such overpayment.

ISSUE: Whether Smith Kline and French Overseas Company is entitled to the requested tax refund?

RULING: Where an expense is clearly related to the production of Philippine-derived income or to Philippine operations, that expense can be deducted from the gross income acquired in the Philippines without resorting to apportionment. The overhead expenses incurred by the parent company in connection with finance administration, and research and development, all of which directly benefit its branches all over the world, including the Philippines, fall under a different category however. These are items which cannot be definitely allocated or identified with the operations of the Philippine branch. Under section 37(b) of the Revenue Code and section 160 of the regulations, Smith Kline can claim its deductible share a ratable part of such expenses based upon the ratio of the local branch's gross income to the total gross income, worldwide, of the multinational corporation. The firm presented a statement that the declared overhead of the local branch as per audit was based on the ratable share of the company as a whole, which the court recognized. Hence, tax refund was granted to the Smith Kline and French Overseas Company.

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FEBTC vs CIR 488 SCRA 473 488 SCRA 473

FACTS: Petitioner (Far East Bank and Trust Company) FEBTC, is the trustee of various retirement plans established by several companies for its employees. Petitioner FEBTC had the authority to invest the retirement funds in various money market placements, bank deposits, deposit substitute instruments and government securities. These investments earned interest income of which tax was withheld for payment to the CIR. FEBTC and Private Petitioners (depositors of the retirement plans) claimed for a tax refund for such withheld tax from the earned interest income. The claim of refund was denied by the lower courts and the CTA. Hence, this petition for review on Certiorari.

ISSUE: Whether Employees' Trusts are exempted from income tax? Whether a tax refund should be granted to the petitioner (FEBTC and private petitioners)?

RULING: The court had first recognized the exemption in the case of CIR vs. CA, arising as it did from the enactment of RA. No. 4917 which granted exemption from income tax to employees' trusts. The same exemption was provided in RA. No. 8424 and may now be found under Sec. 60(b) of the NIRC. Admittedly, such interest income of the petitioner was not subject to income tax. Tax refunds partake the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption. The burden in proving the claim for refund necessarily falls on the taxpayer, and petitioner in this case failed to discharge the necessary burden of proof. A taxpayer must thus do two things to be able to successfully make a claim for the tax refund:(a) declare the income payments it received as part of its gross income and (b) establish the fact of withholding. We must emphasize that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in favor of the taxing authority. In the event, petitioner has not met its burden of proof in establishing the factual basis for its claim for refund and we ﬁnd no reason to disturb the ruling of the lower courts.

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CIR vs Trustworthy Pawnshop Inc. GR 149834, 2 May 2006

FACTS: In March 1991, the CIR issued a memorandum order classifying the pawnshop business as ―akin to the lending investor‘s business activity‖ and on that basis subjected pawnshops to the 5% lending investor‘s tax on their gross income pursuant to the 1977 NIRC. A memorandum circular was then issued. The circular provided for the following: 1.

that pawnshops had until June 30, 1991 to pay the said tax considering that the usual period for payment for the first quarter had already lapsed.

2.

that failure to pay by June 30, 1991 will cause penalties to be computed from April 21, 1991.

3.

that pawnshops, as lending investors, are also subject to the documentary stamp tax.

As such, an assessment was issued to Trustworthy Pawnshop Inc., who protested against the memorandum order and circular. The CTA ruled that for tax purposes, a pawnshop are not in the same class as lending investors since they are subject to different tax treatments; hence, the 5% lending investors tax does not apply to pawnshops. The CA dismissed the CIR‘s appeal. Hence, this petition before the SC. ISSUE: Were the CIR memorandum order and circular legally valid? RULING: No. The Court ruled that pawnshops cannot be subject to the 5% lending investor‘s tax because it cannot be considered a lending investor for four reasons: 1.

Sec. 192 of 1986 NIRC places lending investors and pawnshops in different paragraphs (dd) and (ff) respectively, providing different fixed taxes for reach.

2.

The congressional intent of the 1977 and 1986 NIRC was not to treat lending investors and pawnshops in the same way.

3.

Sec. 116 of the 1997 NIRC only mentions two classes that are subject to percentage tax: dealers in securities and lending investors. Pawnshops apparently do not fall under either class and as such, excluded.

4.

The BIR itself, in its rulings, that pawnshops were not subject to the % percentage tax.

The aforementioned reasons show that no legislation has ever indicated that pawnshops are to be treated in the same way as lending investors for tax purposes. As such, there is legislative fiat that serves as basis for the memorandum order and circular.

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Lhuillier Pawnshop vs CIR GR 166786, 3 May 2006

FACTS: Petitioner corporation received an Assessment Notice from the Chief Assessment Division for deficiency VAT for the year 1997. Petitioner filed a motion for reconsideration of said assessment notices but was denied by respondent Commissioner of Internal Revenue (CIR). On petition, the CTA reversed and ruled in favor with the petitioner, holding that, the subject of a Documentary Stamp Tax (DST) does not include the pawn ticket because it is neither a security or evidence of indebtedness. Respondent filed a petition for review with the CA which reversed the CTA decision holding that although the pawn ticket is not, per se, subject to DST, the transaction involved in the ticket is the one being taxed. Hence the assessment was proper.

ISSUE: Whether or not petitioner‘s pawnshop transactions are subject to DST.

RULING: Yes. It is clear from Sections 173 and 195 from the NIRC that the DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. Pledge, which is the business of a pawnshop, is among the exercises subject to DST. Even if the law does not consider the pawn ticket as an evidence of security or indebtedness, for purposes of taxation, the same ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said ticket that creates the pawnshop‘s obligation to pay DST but the exercise of the privilege to enter into 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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Systra vs CIR 533 SCRA 776

FACTS: Petitioner filed with the BIR its Annual ITR for the taxable year 2000 declaring revenues in the amount of around P18.2 million, the bulk of which consists of income from management consultancy services rendered to the Philippine Branch of Group Systra SA, France. Such income was subjected to 5% CWT, consequently, an amount of around P4.7 million was declared by petitioner as CWTs for the taxable year 2000. Same period reflected also total gross income of P3.7 million, net loss of P17.9 thousand and MCIT of P75 thousand. The MCIT was offset against the reported CWTs for the year and as such, the remaining unutilized CWTs amounted to P4.6 million. Petitioner then opted to carry over the said excess tax credit to the succeeding taxable year 2001. In year 2001, petitioner reported taxable income of P1.9 million with P619.7 thousand as the corresponding normal income tax due. Considering the same, petitioner utilized its prior year excess tax credits to pay for its current year tax due. By the end of 2001, petitioner‘s unutilized tax credits amounted to around P5.4 million (both from the 2000 and 2001 revenues). Petitioner indicated in the 2001 ITR the option "To be issued a Tax Credit Certificate" relative to its tax overpayments. In August 2002, petitioner filed a claim for tax refund on its unused tax credits. The BIR failed to act on the same. Thus, petitioner filed a petition for review with the CTA to protect its right to claim. The CTA then partially granted the petition and ordered the issuance of a tax credit certificate amounting to P1.1 million which represented the unused tax credits generated by the 2001 revenues. The other P4.6 million was denied the issuance of tax credit certificate as petitioner exercised its option of carry over.

ISSUE: WON the exercise of the option to carry over excess income tax credits under Section 76 of the National Internal Revenue Code of 1997, as amended (Tax Code) bars a taxpayer from claiming the excess tax credits for refund even if the amount remains unutilized in the succeeding taxable year?

RULING: Yes, it does. Section 76 of the Tax Code provides: ―SEC. 76. Final Adjustment Return. – Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 (C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund. Section 76 of the present Tax Code formulates an irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits "may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years" until fully utilized. Since petitioner elected to carry over its excess credits for the year 2000 in the amount of P4.6 million as tax credits for the following year, it could no longer claim a refund. Again, at the risk of being repetitive, once the carry over option was made, actually or constructively, it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized. Nevertheless, as held in Philam Asset Management, Inc., the amount will not be forfeited in favor of the government but will remain in the taxpayer‘s account. Petitioner may claim and carry it over in the succeeding taxable years, creditable against future income tax liabilities until fully utilized.

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Philam Asset Mgt vs CIR 477 SCRA 761

Doctrine: Under Section 76 of the National Internal Revenue Code, a taxable corporation with excess quarterly income tax payments may apply for either a tax refund or a tax credit, but not both. The choice of one precludes the other. Failure to indicate a choice, however, will not bar a valid request for a refund, should this option be chosen by the taxpayer later on.

FACTS: In April 1998, petitioner filed its 1997 annual ITR with the BIR reflecting a net loss of P2.6 million. Consequently, it was unable to use its CWTs amounting to P522,092 which arose out of professional fees. It filed a claim for refund but the same was left unacted by the BIR. Thus, it filed a petition for review before the CTA which denied the same.

In April 1999, petitioner filed its 1998 annual ITR and declared a net loss of P1.5 million. Its unused CWT for that year amounted to P459,756. In the 2000, petitioner declared in its 1999 annual ITR tax due amounting to P80,042 and unused CWT amounting to P915,995 plus the P459,756 1998 CWTs.

In November 2000, petitioner filed a claim for tax refund with respect to the 1998 CWTs amounting to P459,756. No action was done by the BIR, thus a Petition for Review was filed before the CTA. Such petition was denied by the CA.

ISSUE: 1. WON the failure of the petitioner to indicate in its annual ITR the option to refund its creditable withholding tax is fatal to its claim for refund? 2. WON petitioner is entitled to a refund of its creditable taxes withheld for taxable years 1997 and 1998?

RULING: (Section 76 offers two options to a taxable corporation, whose total quarterly income tax payments in a given taxable year, exceeds its total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit. The first option means that any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention -- whether to request a tax refund or claim a tax credit -- by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid.

)

1. No, it is not. Failure to signify one‘s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight. In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed on September 11, 1998, an administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits in the amount of P522,092. 2. Petitioner is entitled to tax refund for the 1997 CWTs but not for the 1998. For the 1997, refer to No.1 above. The carry-over option under Section 76 is permissive. A corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed. According to petitioner, it neither chose nor marked the carry-over option box in its 1998 FAR. As this option was not chosen, it seems that there is nothing that can be considered irrevocable. In other words, petitioner argues that it is still entitled to a refund of its 1998 excess income tax payments. The court disagreed and considered the subsequent acts of petitioner, which revealed that it has effectively chosen the carry-over option.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the government‘s favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years.

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Delpher Trades vs IAC

FACTS: Pacheco siblings co-owned a piece of land in Bulacan. In 1974, they leased it Construction Components International, Inc., granting the latter the right of first refusal should the Pachecos choose to sell. CCII then assigned its rights to Hydro Pipes Phils., Inc. with the consent of the Pachecos. In 1976, the Pachecos and petitioner Delpher Trades executed a deed of exchange whereby the former exchanged the land for 2,500 no-par value shares of stock in the latter corporation. It appears that Delpher Trade is a family corporation organized by the children of the Pacheco siblings. By virtue of the exchange, the siblings gained 55% control of the corporation. Hydro objected to the exchange, claiming it to be actually a sale. Therefore, it should‘ve been given the first option to buy. The trial court ruled in favor of Hydro and ordered the Delpher to convey the property to Hydro. On appeal, IAC affirmed the decision. Hence, this petition. ISSUE: WON the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the Hydro Phil‘s right of first refusal over the leased property included in the ―deed of exchange‖? RULING: By their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. The ―Deed of Exchange‖ of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract. Principles - The Pachecos remained in control of the property being 55% stockholders of Delpher - The fact that they tool no-par value shares is significant because they are owners of an aliquot part of the assets, including the land. - In effect, Delpher is a business conduit of the Pachecos. All the deed of exchange did was change the nature of ownership from unincorporated to incorporated form.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 - One of the reasons for this is to save on income tax. Sec, 35 of the NIRC exempts from taxes an exchange of a person‘s property for stock in a corporation as a result of such exchange said person (or persons not exceeding 4) gains control of the corporation. - Another benefit would be that the corporation could hold on to the property instead of it being tied down in succession proceedings and the consequential payment of estate and inheritance taxes. - There is nothing objectionable with the ―estate planning‖ that the Pachecos resorted to. - ―The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.

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Campagnie vs CIR GR 133834

FACTS: Compagnie Corp., petitioner, sold and transferred its interest in Makati Shangri-La Hotel and Resort Inc. to Kerry Holdings Ltd. Petitioner paid the documentary stamps tax and capital gains tax on protest. Subsequently, it filed with the CIR for refund. It alleges that the transfer of deposits on stock subscriptions is not a sale/assignment of shares of stock subject to documentary stamps tax and capital gains tax. CIR did not act on petitioner‘s claim so petitioner filed a petition for review with the CTA, which denied petitioner‘s claim. The CTA held that it is clear from Sec. 176 of the Tax Code that sales "to secure the future payment of money or for the future transfer of any bond, due-bill, certificates of obligation or stock" are taxable. Furthermore, petitioner admitted that it profited from the sale of shares of stocks. Such profit is subject to capital gains tax. On appeal, CA affirmed CTA‘s decision.

ISSUE: Whether the assignment of deposits on stock subscriptions is subject to documentary stamps tax and capital gains tax?

RULING: No. Tax refunds are a derogation of the State‘s taxing power. Hence, like tax exemptions, they are construed strictly against the taxpayer and liberally in favor of the State. He who claims a refund or exemption from taxes has the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted. Significantly, petitioner cannot point to any specific provision of the National Internal Revenue Code authorizing its claim for an exemption or refund. Rather, Sec. 176 of the National Internal Revenue Code applicable to the issue provides that the future transfer of shares of stocks is subject to documentary stamp tax, thus: SEC. 176. Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of due-bills, certificates of obligation, or shares or certificates of stock. – On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of obligation, or shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such due bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any due-bill, certificates of obligation or stock, there shall be collected a documentary stamp tax of fifty centavos (P1.50) on each two hundred pesos(P200.00), or fractional part thereof, of the par value of such due-bill, certificates of obligation or stock: Provided, That only one tax shall be collected on each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer; and Provided, further, That in case of stock without par value the amount of the documentary stamp tax

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 herein prescribed shall be equivalent to twenty-five percentum (25%) of the documentary stamp tax paid upon the original issue of the said stock. Clearly, under the above provision, sales to secure "the future transfer of due-bills, certificates of obligation or certificates of stock" are liable for documentary stamp tax. No exemption from such payment of documentary stamp tax is specified therein. Petitioner contends that the assignment of its "deposits on stock subscription" is not subject to capital gains tax because there is no gain to speak of. In the Capital Gains Tax Return on Stock Transaction, which petitioner filed with the BIR, the acquisition cost of the shares it sold, including the stock subscription is P69,143,630.28. The transfer price to Kerry Holdings, Ltd. is P70,332,869.92. Obviously, petitioner has a net gain in the amount of P1,189,239.64. As the CTA aptly ruled, " a tax on the profit of sale on net capital gain is the very essence of the net capital gains tax law. To hold otherwise will ineluctably deprive the government of its due and unduly set free from tax liability persons who profited from said transactions."

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B. Van Zuiden Bros vs GTVL

FACTS: A petition for review on certiorari of a decision of the Court of Appeals dismissing the complaint for sum of money filed by B. Van Zuiden Bros., (petitioner) against GTVL Manufacturing Industries, Inc. (respondent). ZUIDEN is a corporation, incorporated under the laws of Hong Kong. It is not engaged in business in the Philippines, but is suing before the Philippine Courts. On several occasions, GTVL purchased lace products from ZUIDEN. However, GTVL has failed and refused to pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN. Respondent then filed a Motion to Dismiss against the complaint filed by the petitioner on the ground that petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines without securing the required license. Accordingly, petitioner cannot sue before Philippine courts. ISSUE: Whether or not the petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts. The resolution of this issue depends on whether petitioner is doing business in the Philippines. RULING: The court ruled in the affirmative. Section 133 of the Corporation Code provides: Doing business without license. — No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the Philippines can sue before Philippine courts. An essential condition to be considered as "doing business" in the Philippines under Section 3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign Investments Act of 1991," is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Considering that petitioner is not doing business in the Philippines, it does not need a license in order to initiate and maintain a collection suit against respondent for the unpaid balance of respondent‘s purchases.

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CIR vs Tulio

FACTS: On February 28, 1991, Arturo Tulio, respondent taxpayer, received from CIR a demand letter with two final assessment notices requesting payment of his deficiency percentage taxes for the taxable years 1986 and 1987; taxpayer failed to act on the assessment notices. On October 15, 1991, to enforce the collection of the taxes, CIR issued a warrant of distraint and/or levy against Tulio. However, he has no properties which can be placed under distraint and/or levy. On 3 different dates, CIR sent letters to taxpayer giving him the last opportunity to settle his deficiency tax liabilities; But the latter was obstinate. Thus, on October 29, 1997, petitioner filed with the RTC of Baguio City a civil action for the collection of the deficiency percentage taxes. Taxpayer filed a motion to dismiss alleging that the complaint was filed beyond the three-year prescriptive period provided by Section 203 of the NIRC.

ISSUE: Whether the complaint in the said civil case may be dismissed on the ground of prescription.

RULING: The lower court erroneously applied Section 203 of the same Code providing for the three-year prescriptive period from the filing of the tax return within which internal revenue taxes shall be assessed. It held that such period should be counted from the day the return was filed, or from August 15, 1990 up to August 15, 1993. However, as shown by the records, respondent failed to file a tax return, forcing petitioner to invoke the powers of his office in tax administration and enforcement. Respondent‘s failure to file his tax returns is thus covered by Section 223 providing for a ten-year prescriptive period within which a proceeding in court may be filed. Here, respondent failed to file his tax returns for 1986 and 1987. On September 14, 1989, petitioner found respondent‘s omission. Hence, the running of the ten-year prescriptive period within which to assess and collect the taxes due from respondent commenced on that date until September 14, 1999. The two final assessment notices were issued on February 28, 1991, well within the prescriptive period of three (3) years. When respondent failed to question or protest the deficiency assessments thirty (30) days therefrom, or until March 30, 1991, the same became final and executory.

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CIRvs Citytrust

FACTS: 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, the CTA in Asianbank case ruled that the 20% FWT on a bank‘s passive income does not form part of the taxable gross receipts. CityTrust filed a claim for refund with the BIR and CTA claiming the refund of its income tax overpayments. CTA granted its claim. CIR appealed to the CA which also affirmed the decision of the CTA; citing two cases, held that monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts. The 20% final tax on the Respondent‘s passive income was already deducted and withheld by various withholding agents. Hence, the actual or the exact amount received by the Respondent, as its passive income was less the 20% final tax already withheld. Accordingly, the 20% final tax withheld against the Respondent‘s passive income was already remitted to the Bureau of Internal Revenue. Thus, to include the same to the Respondent‘s gross receipts for the year 1994 would be to tax twice the passive income derived by Respondent for the said year, which would constitute double taxation anathema to our taxation laws (Tours Specialist Inc. and Manila Jockey Club case)

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)?

RULING: Yes. Gross receipts is defined as the entire receipt without any deduction. ----Citytrust and Asianbank simply anchor their argument on Section 4(e) of Revenue Regulations No. 1280 stating that ―the rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received.‖ They contend that since the 20% FWT is withheld at source and is paid directly to the government by the entities from which the banks derived the income, the same cannot be considered actually received, hence, must be excluded from the taxable gross receipts. -- superseded by Revenue Regulations No. 17-84 Section 7(c) of Revenue Regulations No. 17-84 includes all interest income in computing the GRT.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 the current Revenue Regulations require interest income, whether actually received or merely accrued, to form part of the bank‘s taxable gross receipts. No double taxation: Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes.

Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of character of tax. 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. Reliance of Manila Jockey Club ruling: not applicable. The Manila Jockey Club does not apply to the cases at bar because what happened there is earmarking and not withholding. Earmarking is not the same as withholding. Amounts earmarked do not form part of gross receipts because these are by law or regulation reserved for some person other than the taxpayer, although delivered or received. On the contrary, amounts withheld form part of gross receipts because these are in constructive possession and not subject to any reservation, the withholding agent being merely a conduit in the collection process.

CIR vs Baier-Nickel

Arman’s Digest FACTS: The Juliane Baier-Nickel, a non-resident German citizen, was appointed and engaged as commission agent of a domestic corporation -JUBANITEX. It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected through her efforts. In 1995, respondent received the amount of P1,707,772.64, representing her sales commission income from which JUBANITEX

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 withheld the corresponding 10% withholding tax amounting to P170,777.26, and remitted the same to the Bureau of Internal Revenue (BIR). On April 14, 1998, respondent filed a claim to refund the amount of P170,777.26. Juliane contends that her sales commission income is not taxable in the Philippines because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines.

ISSUE: Whether or not respondent‘s sales commission income is taxable in the Philippines?

RULING: Yes. It is taxable in the Philippines. The important factor which determines the source of income of personal services is not the residence of the payor, or the place where the contract for service is entered into, or the place of payment, but the place where the services were actually rendered. The rule is that ―source of income‖ relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. There is no merit in the interpretation which equates source of income in labor or personal service with the residence of the payor or the place of payment of the income. The decisive factual consideration here is not the capacity in which Juliane BaierNickel received the income, but the sufficiency of evidence to prove that the services she rendered were performed in Germany to entitle her to tax exemption since she is a non-resident German citizen. Juliane did not prove by substantial evidence. She thus failed to discharge the burden of proving that her income was from sources outside the Philippines and exempt from the application of our income tax law. Gesta’s Digest FACTS: CIR appeals the CA decision, which granted the tax refund of respondent and reversed that of the CTA. Juliane Baier-Nickel, a non-resident German, is the president of Jubanitex, a domestic corporation engaged in the manufacturing, marketing and selling of embroidered textile products. Through Jubanitex‘s general manager, Marina Guzman, the company appointed respondent as commission agent with 10% sales commission on all sales actually concluded and collected through her efforts. In 1995, respondent received P1, 707, 772. 64 as sales commission from w/c Jubanitex deducted the 10% withholding tax of P170, 777.26 and remitted to BIR. Respondent filed her income tax return but then claimed a refund from BIR for the P170K, alleging this was mistakenly withheld by Jubanitex and that her sales commission income was compensation for services rendered in Germany not Philippines and thus not taxable here. She filed a petition for review with CTA for alleged non-action by BIR. CTA denied her claim but decision was reversed by CA on appeal, holding that the commission was received as sales agent not as President and that the ―source‖ of income arose from marketing activities in Germany. ISSUE: W/N respondent is entitled to refund RULING: No. Pursuant to Sec 25 of NIRC, non-resident aliens, whether or not engaged in trade or business, are subject to the Philippine income taxation on their income received from all sources in the Philippines. In determining the meaning of ―source‖, the Court resorted to origin of Act 2833 (the first Philippine income tax law), the US Revenue Law of 1916, as amended in 1917. US SC has said that income

160

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 may be derived from three possible sources only: (1) capital and/or (2) labor; and/or (3) the sale of capital assets. If the income is from labor, the place where the labor is done should be decisive; if it is done in this country, the income should be from ―sources within the United States.‖ If the income is from capital, the place where the capital is employed should be decisive; if it is employed in this country, the income should be from ―sources within the United States.‖ If the income is from the sale of capital assets, the place where the sale is made should be likewise decisive. ―Source‖ is not a place, it is an activity or property. As such, it has a situs or location, and if that situs or location is within the United States the resulting income is taxable to nonresident aliens and foreign corporations. The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the taxpayer. To those therefore, who claim a refund rest the burden of proving that the transaction subjected to tax is actually exempt from taxation. In the instant case, respondent failed to give substantial evidence to prove that she performed the incoming producing service in Germany, which would have entitled her to a tax exemption for income from sources outside the Philippines.

161


PDIC vs BIR GR 158261, 18 December 2006

FACTS: Petitioner (Far East Bank and Trust Company) FEBTC, is the trustee of various retirement plans established by several companies for its employees. Petitioner FEBTC had the authority to invest the retirement funds in various money market placements, bank deposits, deposit substitute instruments and government securities. These investments earned interest income of which tax was withheld for payment to the CIR. FEBTC and Private Petitioners (depositors of the retirement plans) claimed for a tax refund for such withheld tax from the earned interest income. The claim of refund was denied by the lower courts and the CTA. Hence, this petition for review on Certiorari.

ISSUE: Whether Employees' Trusts are exempted from income tax? Whether a tax refund should be granted to the petitioner (FEBTC and private petitioners)?

RULING: The court had first recognized the exemption in the case of CIR vs. CA, arising as it did from the enactment of RA. No. 4917 which granted exemption from income tax to employees' trusts. The same exemption was provided in RA. No. 8424 and may now be found under Sec. 60(b) of the NIRC. Admittedly, such interest income of the petitioner was not subject to income tax.

Tax refunds partake the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption. The burden in proving the claim for refund necessarily falls on the taxpayer, and petitioner in this case failed to discharge the necessary burden of proof.

A taxpayer must thus do two things to be able to successfully make a claim for the tax refund:(a) declare the income payments it received as part of its gross income and (b) establish the fact of withholding. We must emphasize that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in favor of the taxing authority. In the event, petitioner has not met its burden of proof in establishing the factual basis for its claim for refund and we ﬁnd no reason to disturb the ruling of the lower courts.

162


Pansacola vs CIR GR 159991, 16 November 2006

FACTS: On April 13, 1998, Pansacola filed his income tax return for the taxable year 1997 that reflected an overpayment of P5,950. In it he claimed the increased amounts of personal and additional exemptions under Section 35 of the NIRC, although his certificate of income tax withheld on compensation indicated the lesser allowed amounts on these exemptions. He claimed a refund of P5,950 with the BIR, which was denied. Later, the CTA also denied his claim because according to the tax court, ―it would be absurd for the law to allow the deduction from a taxpayer's gross income earned on a certain year of exemptions availing on a different taxable year.‖ CA denied his petition for lack of merit, ruling that the NIRC took effect on January 1, 1998, thus te increased exemptions were effective only to cover taxable year 1998 and cannot be applied retoractively.

ISSUE: Could the exemptions under Section 35 of the NIRC, which took effect on January 1, 1998, be availed of for the taxable year 1997?

RULING: No. The petition for refund should be denied. Section 35 (A) and (B) allow the basic personal and additional exemptions ad deductions from gross or net income, as the case maybe, to arrive at the correct taxable income of certain individual taxpayers. Section 24 (A)(1)(a) imposed income tax on a resident citizen's taxable income derived for each taxable year. Taxable income is the pertinent items of gross income specified in the NIRC, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income by the NIRC or other special laws (Section 31, NIRC). Taxable year means the calendar year, upon the basis of which the net income is computed under Title II of the NIRC [Section 22(P)]. Section 43 also supports the rule that the taxable income of an individual shall be computed on the basis of the calendar year. Section 45 provides that the deductions provided for under Title II of the NIRC shall be taken for the taxable year in which they are ―paid or accrued‖ or ―paid or incurred.‖ Moreover, Section 79(H) requires the employer to determine, on or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the tax due from each employee's taxable compensation income for the entire taxable year in accordance with Section 24 (A).

163

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 This is for the purpose of witholding from the employee's December salary, or refunding to him not later than January 25 of the succeeding year, the difference between the tax due and the tax withheld. Therefore, as provided in Section 24 (A)(1)(A) in relation to Sections 31 and 22(P) and Sections 43, 45, and 79(H) of the NIRC, the income subject to income tax is the taxpayer's income as derived and computed during the calendar year, his taxable year. It is clear from the cited provisions that what the law should consider for the purpose of determining the tax due from an individual taxpayer is his status and qualified dependendts at the close of the taxable year and not at the time the return is filed and the tax due thereon is paid. Section 35(C) of the NIRC allows a taxpayer to still claim the corresponding full amount of exemption for a taxable year, e.g. if he marries; have additional dependents; he, his spouse, or any of his dependents die; and if any of his dependents marry, turn 21, or become gainfully employed. It is as if the changes in his or his dependents' status took place at the close of the taxable year. Consequently, his correct taxable income and his corresponding allowable deductions e.g. personal and additional deductions, if any, had already been determined as of the end of the calendar year. In the case of petitioner, the availability of the aforementioned deductions if he is thus entitled, would be reflected on his tax return filed on or before the 15th day of April 1999 as mandated by Section 51 (C) (1). Since the NIRC took effect on , the increased amounts of personal and additional exemptions under Section 35, can only be allowed as deductions from the individual taxpayer’s gross or net income, as the case maybe, for the taxable year 1998 to be filed in 1999.The NIRC made no reference that the personal and additional exemptions shall apply on income earned before January 1, 1998. There is nothing in the NIRC that express any such intent. The policy declarations in its enactment do not indicate it was a social legislation that adjusted personal and additional exemptions according to the povery threshold level (as in the case of RA 7167, as authorized by Section 29(1)(4) of the NIRC) nor is there any indication that its application should retoract. At the time petitioner filed his 1997 return and paid the tax due thereon in April 1998, the increased amounts of personal and additional exemptions in Section 35 were not yet available. It has not yet accrued as of December 31, 1997, the last day of his taxable year. Petitioner's taxable income covers his income for the calendar year 1997. The law cannot be given retoractive effect. It is established that tax laws are prospective in application, unless it is expressly provided to apply retroactively. In the NIRC, there is no specific mention that the increased amounts of personal and additional exemptions under Section 35 shall be given retroactive effect. Personal and additional exemptions are considered as deductions from gross income. Deductions for income tax purposes partake of the nature of tax exemptions, hence strictly construed against the taxpayer and cannot be allowed unless expressly granted.

164


Intercontinental vs Amarillo GR 162775, 27 October 2006

FACTS: Petitioner IBC employed the following persons at its Cebu station: Candido C. Quiñones, Jr., Corsini R. Lagahit, as Studio Technician, Anatolio G. Otadoy, as Collector, and Noemi Amarilla, as Traffic Clerk. On March 1, 1986, the government sequestered the station, including its properties, funds and other

assets,

and

took

over

its

management

and

operations

from

its

owner,

Roberto

Benedicto. On November 3, 1990, the Presidential Commission on Good Government (PCGG) and Benedicto executed a Compromise Agreement, where Benedicto transferred and assigned all his rights, shares and interests in petitioner station to the government. The four (4) employees retired from the company and received, on staggered basis, their retirement benefits under the 1993 Collective Bargaining Agreement (CBA) between petitioner and the bargaining unit of its employees. In the meantime, a P1,500.00 salary increase was given to all employees of the company, current and retired, effective July 1994. However, when the four retirees demanded theirs, petitioner refused and instead informed them via a letter that their differentials would be used to offset the tax due on their retirement benefits in accordance with the National Internal Revenue Code (NIRC). The four retirees filed separate complaints which averred that the retirement benefits are exempt from income tax under Article 32 of the NIRC. For its part, petitioner averred that under Section 21 of the NIRC, the retirement benefits received by employees from their employers constitute taxable income. While retirement benefits are exempt from taxes under Section 28(b) of said Code, the law requires that such benefits received should be in accord with a reasonable retirement plan duly registered with the Bureau of Internal Revenue (BIR). Since its retirement plan in the 1993 CBA was not approved by the BIR, complainants were liable for income tax on their retirement benefits. In reply, complainants averred that the claims for the retirement salary differentials of Quiñones and Otadoy had not prescribed because the said CBA was implemented only in 1997. They pointed out that they filed their claims with petitioner on April 3, 1999. They maintained that they availed of the optional retirement because of petitioner‘s inducement that there would be no tax deductions. Petitioner countered that under Sections 72 and 73 of the NIRC, it is obliged to deduct and withhold taxes determined in accordance with the rules and regulations to be prepared by the Secretary of Finance. The NLRC held that the benefits of the retirement plan under the CBAs between petitioner and its union members were subject to tax as the scheme was not approved by the BIR. However, it had also been the practice of petitioner to give retiring employees their retirement pay without tax deductions and there was no justifiable reason for the respondent to deviate from such practice.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 ISSUES: 1. Whether the retirement benefits of respondents are part of their gross income. 2. Whether petitioner is estopped from reneging on its agreement with respondent to pay for the taxes on said retirement benefits.

RULING: 1. Yes. Under the NIRC, the retirement benefits of respondents are part of their gross income subject to taxes. Thus, for the retirement benefits to be exempt from the withholding tax, the taxpayer is burdened to prove the concurrence of the following elements: (1) a reasonable private benefit plan is maintained by the employer; (2) the retiring official or employee has been in the service of the same employer for at least 10 years; (3) the retiring official or employee is not less than 50 years of age at the time of his retirement; and (4) the benefit had been availed of only once. Respondents were

qualified

to

retire

optionally from

their

employment

with

petitioner. However, there is no evidence on record that the 1993 CBA had been approved or was ever presented to the BIR; hence, the retirement benefits of respondents are taxable. Under Section 80 of the NIRC, petitioner, as employer, was obliged to withhold the taxes on said benefits and remit the same to the BIR. However, the Court agrees with respondents‘ contention that petitioner did not withhold the taxes due on their retirement benefits because it had obliged itself to pay the taxes due thereon. This was done to induce respondents to agree to avail of the optional retirement scheme.

2. Yes. Petitioner is estopped from doing so. It must be stressed that the parties are free to enter into any contract stipulation provided it is not illegal or contrary to public morals. When such agreement freely and voluntarily entered into turns out to be advantageous to a party, the courts cannot ―rescue‖ the other party without violating the constitutional right to contract. Courts are not authorized to extricate the parties from the consequences of their acts. An agreement to pay the taxes on the retirement benefits as an incentive to prospective retirees and for them to avail of the optional retirement scheme is not contrary to law or to public morals. Petitioner had agreed to shoulder such taxes to entice them to voluntarily retire early, on its belief that this would prove advantageous to it. Respondents agreed and relied on the commitment of petitioner. For petitioner to renege on its contract with respondents simply because its new management had found the same disadvantageous would amount to a breach of contract. The well-entrenched rule is that estoppel may arise from a making of a promise if it was intended that the promise should be relied upon and, in fact, was relied upon, and if a refusal to sanction

166

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 the perpetration of fraud would result to injustice. The mere omission by the promisor to do whatever he promises to do is sufficient forbearance to give rise to a promissory estoppel.

167


Security Bank 499 SCRA 453 (DST)--ARCIDE

168


Manila Banking Corp vs CIR GR 168118, 28 August 2006

FACTS: The Manila Banking Corporation was incorporated in 1961 and since then had engaged in the commercial banking industry until 1987. On May 22, 1987, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) issued Resolution No. 505, pursuant to Section 29 of Republic Act (R.A.) No. 265 (the Central Bank Act), prohibiting petitioner from engaging in business by reason of insolvency.

Thus,

petitioner ceased operations that year and its assets and liabilities were placed under the charge of a government-appointed receiver. On June 23, 1999, after 12 years since petitioner stopped its business operations, the BSP authorized it to operate as a thrift bank, which allows it a period of four(4) year suspension of tax payment. Pursuant to the above ruling, petitioner filed with the BIR a claim for refund of the sum of P33,816,164.00 erroneously paid as minimum corporate income tax for taxable year 1999. ISSUE: Whether or not petitioner is entitled to a refund of its minimum corporate income tax paid to the BIR for taxable year 1999. RULING: Yes, Manila Banking Corporation is entitled to a refund. Clearly, under Revenue Regulations No. 4-95, being a thrift bank, the date of commencement of operations is the date it was registered with the 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. The intent of Congress relative to the minimum corporate income tax is to grant a four (4)-year suspension of tax payment to newly formed corporations.

Corporations still starting their business

operations have to stabilize their venture in order to obtain a stronghold in the industry. It does not come as a surprise then when many companies reported losses in their initial years of operations. Apparently, it was shown in the case at bar that indeed, Manila Banking Corporation is at a point of recovery from their insolvency in the previous years. BSP is only giving it a chance to revive its business by granting the authority to operate with a new identity under the classification of a ―thrift bank‖ registered in the SEC, and venture anew under such regulations. Consequently, it should only pay its minimum corporate income tax after four(4) years from year 1999.

169


Bicolandia Drug Corp vs CIR

FACTS: Petitioner Bicolandia Drug Corporation is a domestic corporation principally engaged in the retail of pharmaceutical products. Pursuant to the provisions of R.A. No. 7432 otherwise known as the ―Senior Citizens Act,‖ and Revenue Regulations No. 2-94, petitioner granted to qualified senior citizens a 20% sales discount on their purchase of medicines covering the period from July 19, 1993 to December 31, 1994. When petitioner filed its corresponding corporate annual income tax returns for taxable years 1993 and 1994, it claimed as a deduction from its gross income representing the 20% sales discount it granted to senior citizens. On March 28, 1995, however, alleging error in the computation and claiming that the aforementioned 20% sales discount should have been treated as a tax credit pursuant to R.A. No. 7432 instead of a deduction from gross income, petitioner filed a claim for refund or credit of overpaid income tax for 1993 and 1994. On December 29, 1995, petitioner filed a Petition for Review with the CTA in order to toll the running of the two-year prescriptive period for claiming for a tax refund under Section 230, now Section 229, of the Tax Code. The CTA ordered the refund but on lesser amount. The CTA made a re-computation of the income tax liability of the petitioner by allowing as tax credit the ―cost of the discount‖ only which is computed by getting the percentage of cost of sales to total sales and multiplying it with total discounts granted. This ruling was affirmed by the CA.

ISSUES: a.) What is the amount allowed as tax credit? b.) Can the discount be claimed by the taxpayer as a tax refund? RULING: Reading of the provisions of Section 4(a) of R.A. No. 7432, is as follows: A. ―Sec. 4. Privilege for the Senior Citizens – The senior citizens shall be entitled to the following: The grant of twenty percent (20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, restaurants and recreations centers and purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost as tax credit.‖ The term ―cost‖ in the above provision refers to the amount of the 20% discount extended by a private establishment to senior citizens in their purchase of medicines. This amount shall be applied as a tax credit, and may be deducted from the tax liability of the entity concerned. This is in line with the interpretation of this Court in Commissioner of Internal Revenue v. Central Luzon Drug Corporation wherein it affirmed that R.A. No. 7432 allows private establishments to claim as tax credit the amount of discounts they grant to senior citizens.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 B.

As regards the second issue, the SC ruled that the remedy of refund is not available. The law expressly provides that the discount given to senior citizens may be claimed as a tax credit, and not a refund. Thus, where the words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. Accordingly, the SC directed issuance of tax credit certificates to petitioner instead of the refund prayed for.

171


Reyes vs. NLRC GR 160233, 8 August 2007

FACTS: Petitioner was employed as a salesman at Universal Robina‘s Grocery Division in Davao City on August 12, 1977. He was eventually appointed as unit manager of Sales Department of the Southern Mindanao District, a position he held until his retirement on November 30, 1997. Thereafter, he received a letter regarding his separation pay – the computation therein incongruent with petitioner‘s suggested basis therefor. Also, the company denied petitioner‘s claim for Sales Commission and Tax Refund. Insisting that his retirement benefits and 13th month pay must be based on the average monthly salary of P42,766.19, which consists of P10,919.22 basic salary and P31,846.97 average monthly commission, petitioner refused to accept the check issued by private respondent. Instead, he filed a complaint before the arbitration branch of the NLRC for retirement benefits, 13th month pay, tax refund, earned sick and vacation leaves, financial assistance, service incentive leave pay, damages and attorney‘s fees.

On March 15, 1999, the Labor Arbiter rendered a decision holding that sales commission is part of the basic salary of a unit manager, ordering respondent Universal Robina Corporation-Grocery Division to pay complainant the net amount representing his retirement benefits, 13th month pay for 1997, 13th month pay differential for 1996 and 1995, VL and SL Cash conversion, withheld commission for 1997, financial assistance and tax refund plus attorney‘s fees equivalent to 5% of the total award. On appeal, the NLRC modified the decision of the Labor Arbiter by excluding the overriding commission in the computation of the retirement benefits and 13th month pay and deleted the award of attorney‘s fees.

ISSUE: WON the average monthly sales commission should be included in the computation of the th

petitioner‘s retirement benefits and 13 month pay. RULING: No. The basis in computing petitioner‘s retirement benefits is his latest salary rate of P10,919.22 as the commissions he received are in the form of profit-sharing payments specifically excluded by the existing rules regarding retirement plans. The Court, citing Boie-Takeda and Philippine Duplicator, particularize the types of earnings and remuneration that should or should not properly be included or integrated in the basic salary and which questions are to be resolved or determined on a case-to-case basis, in the light of the specific and detailed facts of each case. In other words, when these earnings and remuneration are closely akin to fringe benefits, overtime pay or profit-sharing statements, they are properly excluded in computing retirement pay. However, sales commissions which are effectively an integral portion of the basic salary structure of an employee shall be included in determining the retirement pay.

172

Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 At bar, petitioner Rogelio J. Reyes was receiving a monthly sum of P10,919.22 as salary corresponding to his position as Unit Manager. Thus, as correctly ruled by public respondent NLRC, the "overriding commissions" paid to him by Universal Robina Corp. could not have been ‗sales commissions‘ in the same sense that Philippine Duplicators paid its salesmen sales commissions. Unit Managers are not salesmen; they do not effect any sale of article at all. Therefore, any commission which they receive is certainly not the basic salary which measures the standard or amount of work of complainant as Unit Manager. Accordingly, the additional payments made to petitioner were not in fact sales commissions but rather partook of the nature of profit-sharing business. Certainly, from the foregoing, the doctrine in BoieTakeda Chemicals and Philippine Fuji Xerox Corporation, which pronounced that commissions are additional pay that does not form part of the basic salary, applies to the present case. Insofar as what constitutes "basic salary," the foregoing discussions equally apply to the computation of petitioner‘s 13th month pay. ADDITIONAL INFO: Aside from the fact that as unit manager petitioner did not enter into actual sale transactions, but merely supervised the salesmen under his control, the disputed commissions were not regularly received by him. Only when the salesmen were able to collect from the sale transactions can petitioner receive the commissions. Conversely, if no collections were made by the salesmen, then petitioner would receive no commissions at all. In fine, the commissions which petitioner received were not part of his salary structure but were profit-sharing payments and had no clear, direct or necessary relation to the amount of work he actually performed. The collection made by the salesmen from the sale transactions was the profit of private respondent from which petitioner had a share in the form of a commission. It may be argued that petitioner may have exerted efforts in pushing the salesmen to close more sale transactions; however, it is not the criterion which would entitle him to a commission, but the actual sale transactions brought about by the individual efforts of the salesmen. Finally, considering that the computations, as well as the propriety of the awards, are unquestionably factual issues that have been discussed and ruled upon by NLRC and affirmed by the Court of Appeals, we cannot depart from such findings. Findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but finality when affirmed by the Court of Appeals. Such findings deserve full respect and, without justifiable reason, ought not to be altered, modified or reversed.

173


Phil. Health Care Providers vs CIR GR 167330, 18 September 2009

FACTS: The deficiency documentary stamp tax (DST) assessment was imposed on petitioner‘s (Phil Health) health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code. Petitioner protested the assessment in a letter; however, respondent CIR ignored such. Subsequently, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments. In turn, Respondent CIR appealed the CTA decision to the Court of Appeals insofar as it cancelled the DST assessment. CIR claimed that petitioner‘s health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code. The CA later on that petitioner‘s health care agreement was in the nature of a non-life insurance contract subject to DST.

ISSUE: Whether Philippine Health Care Providers, Inc. is an Health Maintenance Organization (HMO) or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health care agreements.

RULING: Philippine Health Care Providers, Inc is an HMO. It undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance companies. Furthermore, petitioner‘s objective is to provide medical services at reduced cost, not to distribute risk like an insurer. In sum, an examination of petitioner‘s agreements with its members leads us to conclude that it is not an insurance contract within the context of our Insurance Code. There was no legislative intent to impose DST on health care agreements of HMOs. The fact that the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such, disproves any legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a decade in the business as an HMO. Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly included in its coverage.

174


175


Dizon vs CTA & CIR GR 140944, 30 April 2008

FACTS: On November 7, 1987, Jose P. Fernandez died and an administrator was appointed. Atty. Gonzales, as authorized by Special Administrator (Justice) Dizon, wrote a letter to the BIR Regional Director and filed the estate tax return, showing therein a NIL estate tax liability. The BIR Regional Director issued Certifications stating that the taxes due on the transfer of real and personal properties of the deceased had been fully paid and said properties may be transferred to his heirs. Atty. Dizon, succeeding appointed administrator, requested the probate court's authority to sell several properties forming part of the Estate, for the purpose of paying its creditors excluding Manila Bank (as it did not file a claim with the probate court having security over several real estate properties forming part of the Estate). However, the BIR issued Estate Tax Assessment Notice demanding the payment of deficiency estate tax.

ISSUES: Whether actual claims of creditors, which were reduced or condoned through compromise agreements entered into with the Estate, may be fully allowed as deductions from the gross estate of the decedent

RULING: Yes. The court agrees with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States. First. There is no law, nor any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or activity is taxable is generally resolved against taxation. Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions. Wherefore, the instant petition is granted and the assailed decision and resolution of the CA are reversed and set aside. The BIR‘s deficiency estate tax assessment against the estate of Jose P. Fernandez is hereby nullified.

176


PNB vs CIR 536 SCRA 628

FACTS: Petitioner‘s motion to quash a notice of garnishment was denied for lack of merit. What was sought to be garnished was the money of the People's Homesite and Housing Corporation deposited at petitioner's branch in Quezon City, to satisfy a decision of respondent Court which had become final and executory. A writ of execution in favor of private respondent Gabriel V. Manansala had previously been issued. He was the counsel of the prevailing party, the United Homesite Employees and Laborers Association. The validity of the order assailed is challenged on two grounds: (1) that the appointment of respondent Gilbert P. Lorenzo as authorized deputy sheriff to serve the writ of execution was contrary to law and (2) that the funds subject of the garnishment "may be public in character." The order of August 26, 1970 of respondent Court denying the motion to quash, subject of this certiorari proceeding, reads as follows: "The Philippine National Bank moves to quash the notice of garnishment served upon its branch in Quezon City by the authorized deputy sheriff of this Court. It contends that the service of the notice by the authorized deputy sheriff of the court contravenes Section11 of Commonwealth Act No. 105, as amended which reads:" 'All writs and processes issued by the Court shall be served and executed free of charge by provincial or city sheriffs, or by any person authorized by this Court, in the same manner as writs and processes of Courts of First Instance.' Following the law, the Bank argues that it is the Sheriff of Quezon City, and not the Clerk of this Court who isits Ex-Officio Sheriff, that has the authority to serve the notice of garnishment, and that the actual service by the latter officer of said notice is therefore not in order. The Court finds no merit in this argument. Republic Act No. 4201 has, since June 19, 1965, already repealed Commonwealth Act No. 103, and under this law, it is now the Clerk of this Court that is at the same time the Ex-Officio Sheriff. As such Ex-Officio Sheriff, the Clerk of this Court has therefore the authority to issue writs of execution and notices of garnishment in an area encompassing the whole of the country, including Quezon City, since his area of authority is coterminous with that of the Court itself, which is national in nature. ... At this stage, the Court notes from the record that the appeal to the Supreme Court by individual employees of PHHC which questions the award of attorney's fees to Atty. Gabriel V. Manansala, has already been dismissed and that the same became final and executory on August 9, 1970. There is no longer any reason, therefore, for withholding action in this case. [Wherefore], the motion to quash filed by the Philippine National Bank is denied for lack of merit. The said Bank is therefore ordered to comply within five days from receipt with the 'notice of Garnishment' dated May 6, 1970."

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 There was a motion for reconsideration filed by petitioner, but in a resolution dated September 22, 1970, it was denied. Hence, this certiorari petition. ISSUE: WON the funds mentioned may be garnished

RULING: No. National Shipyard and Steel Corporation v. court of Industrial Relations is squarely in point. As was explicitly stated in the opinion of the then Justice, later Chief Justice, Concepcion: "The allegation to the effect that the funds of the NASSCO are public funds of the government, and that, as such, the same may not be garnished, attached or levied upon, is untenable for, as a government owned and controlled corporation. the NASSCO has a personality of its own, distinct and separate from that of the Government. It has pursuant to Section 2 of Executive Order No. 356, dated October 23, 1950 ..., pursuant to which the NASSCO has been established — 'all the powers of a corporation under the Corporation Law ...' Accordingly, it may sue and be sued and may be subjected to court processes just like any other corporation (Section 13, Act No. 1459), as amended."In a 1941 decision,

Manila Hotel Employees

Association v. Manila Hotel Company this Court, through Justice Ozaeta, held: "On the other hand, it is well settled that when the government enters into commercial business, it abandons its sovereign capacity and is to be treated like any other corporation. (Bank of the United States v. Planters' Bank, Wheat, 904, 6 L. ed. 244). By engaging in a particular business thru the instrumentality of a corporation, the government divests itself pro hac vice of its sovereign character, so as to render the corporation subject to the rules of law governing private corporations."Both the Palacio and the Commissioner of Public Highways decisions, insofar as they reiterate the doctrine that one of the coronaries of the fundamental concept of non-suability is that governmental funds are immune from garnishment. It is an entirely different matter if, according to Justice Sanchez in Ramos v. Court of Industrial Relations , the office or entity is "possessed of a separate and distinct corporate existence." Then it can sue and be sued. Thereafter, its funds may be levied upon or garnished

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Sunlife 473 SCRA 129 (coops)—LENTORIO

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Tambunting Pawnshop Inc. vs CIR GR 179085, 21 January 2010

FACTS: Tambunting, the petitioner in this case protested on an assessment.

Without response, the

petitioner filed a petition for review with the CTA. One of the arguments raise was that: the 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.

Petitioner is ordered to pay the

respondent the amount of P3,055,564.34 and P406,092.50 representing deficiency Value-Added Tax and Documentary Stamp Tax, respectively, for the taxable year 1999, plus 20% delinquency interest from February 18, 2003 up to the time such amount is fully paid pursuant to Section 249 (c) of the 1997 NIRC. Thus, petitioner moved to file a petition for review. ISSUE: Whether or not, pawn tickets are subjected to documentary stamp tax. RULING: 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. Section 195 of the National Internal Revenue Code provides: On every mortgage or pledge of lands, estate or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax. The Court held in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue: ―A Documentary stamp tax is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto.‖ Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or to the third person. This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans. Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 "Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a security nor a printed evidence of indebtedness." 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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MJOPFI vs CA & CIR GR 162175, 28 June 2010

FACTS: Petitioner alleges that on 25 March 1992, petitioner decided to invest part of the Employees‘ Trust Fund to purchase a lot in the Madrigal Business Park (MBP lot) in Alabang, Muntinlupa. Petitioner bought the MBP lot through VMC. Petitioner alleges that its investment in the MBP lot came about upon the invitation of VMC, which also purchased two lots. Petitioner claims that its share in the MBP lot is 49.59%. Petitioner‘s investment manager, the Citytrust Banking Corporation (Citytrust), in submitting its Portfolio Mix Analysis, regularly reported the Employees‘ Trust Fund‘s share in the MBP lot. The MBP lot is covered by Transfer Certificate of Title

No. 183907 (TCT 183907) with VMC as the registered owner. Petitioner

further contends that there is no dispute that the Employees‘ Trust Fund is exempt from income tax. Since petitioner, as trustee,

purchased 49.59% of the MBP lot using funds of the Employees‘ Trust Fund,

petitioner asserts that the Employees‘ Trust Fund's 49.59% share in the income tax paid (or P3,037,697.40 rounded off to P3,037,500) should be refunded. ISSUE: If petitioner or the Employees‘ Trust Fund is not estopped, whether they have sufficiently established that the Employees‘ Trust Fund is the beneficial owner of 49.59% of the MBP lot, and thus entitled to tax exemption for its share in the proceeds from the sale of the MBP lot. RULING: Yes. Petitioner is a corporation that was formed to administer the Employees' Trust Fund. Petitioner invested P5,504,748.25 of the funds of the Employees' Trust Fund to purchase the MBP lot. When the MBP lot was sold, the gross income of the Employees‘ Trust Fund from the sale of the MBP lot was P40,500,000. The 7.5% withholding tax of P3,037,500 and broker‘s commission were deducted from the proceeds. In Commissioner of Internal Revenue v. Court of Appeals, the Court explained the rationale for the tax-exemption privilege of

income derived from employees‘ trusts: It is evident that tax-

exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law. The taxexempt character of the Employees' Trust Fund has long been settled.

It is also settled that petitioner

exists for the purpose of holding title to, and administering, the tax-exempt Employees‘ Trust Fund established for the benefit of VMC‘s employees. As such, petitioner has the personality to claim tax refunds due the Employees' Trust Fund.

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CIR vs PHILAMGEN GR 175124, 29 September 2010

FACTS: On 15 April 1998, The Philippine American Life and General Insurance Company (respondent) filed with the Bureau of Internal Revenue (BIR) its Annual Income Tax Return (ITR) for the taxable year 1997,

6

declaring a net loss of P165,701,508. On 16 December 1999, respondent filed with the BIR-Appellate Division a claim for refund in the amount of P9,326,979.35, representing a portion of its represented a portion of its overpaid and unapplied creditable taxes for the calendar year 1997. When the BIR-Appellate Division failed to act on respondent‘s claim, respondent filed with the CTA a petition for review on 23 December 1999. Respondent attached its 7

1998 ITR to its Memorandum dated 7 January 2002. CTA denied the respondent‘s motion stating that the 1997 overpaid tax was carried over and now forms part of the 1998 total overpaid tax which petitioner opted again to carry over to the next taxable year 1999. This further refutes its claim that the 1997 claimed amount was unutilized. The respondent, appealed to the CA, where the CTA decision was reversed and a new decision was rendered in favor of the petitioner. ISSUE: Whether respondent is entitled to a refund of its excess income tax credit in the taxable year 1997 even if it had already opted to carry-over the excess income tax credit against the tax due in the succeeding taxable years. RULING: Once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years. The unutilized excess tax credits will remain in the taxpayer‘s account and will be carried over and applied against the taxpayer‘s income tax liabilities in the succeeding taxable years until fully utilized. The resolution of the case involves the application of Section 76 of the National Internal Revenue Code (NIRC) of 1997. Section 76 of the NIRC of 1997 clearly states: "Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore." The words "the option shall be considered irrevocable for that taxable period," refers to the period comprising the "succeeding taxable years." Section 76 further states that "no application for cash refund or issuance of a tax credit

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 certificate shall be allowed therefore" – referring to "that taxable period" comprising the "succeeding taxable years."

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CIR vs McGeorge GR174157 Oct20/10 (sec 76 irrevocable but unused...)—DONGGAY

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Belle Corp vs CIR GR 181298, 10 January 2011

FACTS: Petitioner Belle Corporation is a domestic corporation engaged in the real estate and property business. On May 30, 1997, petitioner filed with the BIR its Income Tax Return for the first quarter of 1997, showing a gross income of 741, 607, 495, a deduction of 65, 381, 054, a net taxable income of 676, 226, 441 and an income tax due of 236, 679, 254, which petitioner paid on even date through PCI Bank, an Authorized Agent Bank of the BIR. On August 14, 1997, petitioner filed with the BIR its second quarter ITR, declaring an overpayment of income taxes in the amount of P66, 634,290.00.

In view of the

7

overpayment, no taxes were paid for the second and third quarters of 1997. Petitioner‘s ITR for the taxable year ending December 31, 1997 thereby reflected an overpayment of income taxes in the amount of 132, 043, 528. Instead of claiming the amount as a tax refund, petitioner decided to apply it as a tax credit to the succeeding taxable year by marking the tax credit option box in its 1997 ITR. For the taxable year 1998, petitioner‘s amended ITR showed an overpayment of 106, 447, 318. Thus, petitioner filed with the BIR an administrative claim for refund of its unutilized excess income tax payments for the taxable year 1997. ISSUE: Whether or not, unutilized tax credits may be refunded as long as the claim is filed within the twoyear prescriptive period under section 69 of the old NIRC.

RULING: No. Section 76 of the 1997 NIRC applies in this case. The option to carry over excess income tax payments is irrevocable under Section 76 of the 1997 NIRC. Section 76. Final Adjustment Return: Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Under the new law, in case of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still precludes the other. But unlike Section 69 of the old NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried over to the succeeding taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable. Therefore, unutilized excess income tax payments may no longer be refunded.

CIR vs Aquafesh GR170389 Oct20/10 (sec 27 (1,5) CGT, Sec 196 DST)—LENTORIO

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CIR vs Sony Philippines, Inc. GR 178697, 17 November 2010

FACTS: LOA was issued. The LOA issued by the BIR covered the period ―1997 and unverified prior years. However, the LOA was invalidated by a prior Court of Tax Appeals (CTA) en banc decision (CTA EB 90,July 5, 2007) because the taxpayer commenced business operations only on Oct. 1, 1997, indicating that the taxpayer was not yet operating during the period covered by the examination. On Dec. 6, 1999 CIR issued a preliminary assessment for 1997 deficiency taxes and penalties to Sony, which it protested. A petition for review was filed by Sony before the CTA, within 30 days after the lapse of the 180 days from the submission of the supporting documents to the CIR.CTA-1st Division disallowed the deficiency VAT assessment the subsidized advertising expense paid by Sony was duly covered by a VAT invoice resulted in an input VAT credit. However, for the EWT, the deficiency assessment was upheld.CIR sought reconsideration on the ground that Sony should be liable for the deficiency VAT. It contends that Sony‗s advertising expense cannot be considered as an input VAT credit because the same was eventually reimbursed by Sony International Singapore (SIS). As a result, Sony is not entitled to a tax credit and that the said advertising expense should be for the account of SIS.

ISSUE: 1. W/N the source of the payment of tax is relevant to determine 2. WON the assessment is valid

RULING: 1. NO. Sony‗s deficiency VAT assessment derived from the CIR‗s allowance of the input VAT credits that should have been realized from advertising expense of the latter. Under Sec. 110 of the 1997 Tax Code, an advertising expense duly covered by a VAT invoice is a legitimate business expense. It cannot be denied that Sony incurred advertising expense. CIR‗s own witness Aluquin even testified that advertising companies issued invoices in the name of Sony and the latter paid for the same. Hence, Sony incurred and paid for advertising expense services. Where the money came from is another matter all together. Before any VAT is levied, there must be sale, barter or exchange of goods or property. In this case, there was no sale, barter, exchange in the subsidy given by SIS to Sony. It was but a dole out and not in payment for the goods or properties sold, bartered or exchanged by Sony. 2. The revenue examiner went beyond the authority conferred by LOA. A LOA authorizes or empowers a designated revenue officer to examine, verify and scrutinize a taxpayer‗s books and records in

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 relation to his internal revenue tax liability for a particular period. The LOA, the examiners were authorize to examine Sony‗s book of accounts and other accounting records for the period ―1997 band unverified prior years. However, CIR‗s basis for deficiency vat for 1997was 1998. They acted without authority in arriving at the deficiency vat assessment. It should be considered without force and effect- a nullity. Furthermore, the period ―1997 and unverified prior years‖ violates Revenue Memorandum Order (RMO) No. 43-90, which states that a LOA should cover a taxable period not exceeding one taxable year. It also prohibits the issuance of LOAs covering the audit of ―unverified prior years. Hence, the SC held that the deficiency assessment against the taxpayer was canceled.

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CIR vs CA & Commonwealth Management & Services Corp GR 125355, 30 March 2000

FACTS: Commonwealth Management and Services Corporation (COMASERCO), an affiliate of Philamlife, is organized to perform collection, consultative and other technical services, including functioning as an internal auditor of Philamlife and its other affiliates. The BIR issued an assessment to COMASERCO for deficiency VAT for taxable year 1988. COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations. It filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT, but the CIR sent a collection letter to COMASERCO demanding payment of the deficiency VAT. COMASERCO filed with the CTA a petition for review contesting the Commissioner's assessment asserting that the services it rendered to Philamlife and its affiliates were on a "no-profit, reimbursement-of-costonly" basis. It averred that it was not engaged in the business of providing services to Philamlife and its affiliates; not profit-motivated, thus not engaged in business; and, it did not generate profit but suffered a net loss in taxable year 1988. It averred that since it was not engaged in business, it was not liable to pay VAT.

ISSUE: Whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon

RULING: Contrary to COMASERCO's contention, Sec. 105 of the National Internal Revenue Code of 1997 clarifies that even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity regardless of whether or not the entity is profit-oriented. The definition applies to all transactions even to those made prior to its enactment. Sec. 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project." BIR Ruling No. 010-98 12 emphasizes that a domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. Any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom. In the case of VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from VAT. The services rendered by COMASERCO do not fall within the exemptions.

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Exxon vs CIR GR 180909, 19 January 2011

FACTS: Petitioner Exxon is a foreign corporation duly organized and existing under the laws of the State of Delaware, United States of America. It is authorized to do business in the Philippines through its Philippine Branch. Exxon is engaged in the business of selling petroleum products to domestic and international carriers. In pursuit of its business, Exxon purchased from Caltex Philippines, Inc. and Petron Corporation Jet A-1 fuel and other petroleum products, the excise taxes on which were paid for and remitted by both Caltex and Petron. Said taxes, however, were passed on to Exxon which ultimately shouldered the excise taxes on the fuel and petroleum products. Exxon filed a petition for review with the CTA claiming a refund or tax credit.

ISSUE: Whether or not Exxon was the proper party to ask for a refund of excise taxes.

RULING: Exxon is not entitled to claim a refund of excise taxes paid. The Court has ruled that the proper party to question, or to seek a refund of, an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden thereof to another. Therefore, as Exxon is not the party statutorily liable for payment of excise taxes under Section 130, in relation to Section 129 of the NIRC, it is not the proper party to claim a refund of any taxes erroneously paid.

The exemption granted under Section 135 attaches to the petroleum products and not to the seller, the exemption will apply regardless of whether the same were sold by its manufacturer or its distributor for two reasons, as follows: (1) Section 135 does not require that to be exempt from excise tax, the products should be sold by the manufacturer or producer. (2) The legislative intent was precisely to make Section 135 independent from Sections 129 and 130 of the NIRC, stemming from the fact that unlike other products subject to excise tax, petroleum products of this nature have become subject to preferential tax treatment by virtue of either specific international agreements or simply of international reciprocity

NOTE: The confusion here stems from the fact that excise taxes are of the nature of indirect taxes, the liability for payment of which may fall on a person other than he who actually bears the burden of the tax.

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V.A.T. CASES CIR vs Seagate 451 SCRA 132—KHIO Atlas vs CIR GR 146221, 25 Sep 2007 (proof of excess input VAT)— YBIO

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CIR vs Cebu Toyo 451 SCRA 447

FACTS: Cebu Toyo Corp. (Cebu) is a domestic subsidiary of Toyo Lens Corporation Japan, engaged in the manufacture of lenses and various optical components used in TV set, cameras, CDs, etc. Its principal office is located at the Mactan Export Processing Zone (MEPZ) as a zone export enterprise registered with the PEZA. It is also registered with the BIR as a VAT taxpayer. Cebu sells 80% of its products to its mother corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing business in the MEPZ. On March 30, 1998, it filed an application for tax credit/refund of VAT paid for the period April 1996 to December 1997 amounting to about P4.4 million representing excess VAT input payments. Cebu argues that as a VAT-registered exporter of goods, it is subject to VAT at the rate of 0% on its export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods and services related to such zero-rated activities are available as tax credits or refund. The BIR opposed this on the following grounds: It failed to show that the tax was erroneously or illegally collected; the taxes paid and collected are presumed to have been made in accordance with law; and that claims for refund are strictly construed against the claimant. The CTA ruled that not the entire amount claimed for refund by Toyo were actually offset against its related accounts. It determined that the refund/credit amounted only to P2.1M. The same was affirmed by the CA.

ISSUE: Whether the CA erred in affirming the CTA granting a refund representing unutilized input VAT on goods and services.

RULING: The petition is denied. Cebu is entitled to the P2.1M tax refund/credit. Petitioner‘s contention that respondent is not entitled to refund for being exempt form VAT is untenable. This argument turns a blind eye to the fiscal incentives given to PEZA registered enterprises under RA 7916. Under this statute, Cebu has to options with respect to its tax burden. It could avail of an income tax holiday pursuant to EO 226, thus exempting it from income taxes for a number of years (in this case, 4 years) but not from other internal revenue taxes such as VAT; or it could avail of the tax exemption on all taxes, including VAT under PD 66 and pay only the preferential rate of 5% under RA 7916. Thus, availing of the first option, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in a taxable rather than exempt transactions. In taxable transactions, the seller (Cebu) shall be entitled to tax credit for the VAT paid on purchases and leases of goods properties or services.

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CIR vs American Express 462 SCRA2197 (destination principle)— ARCIDE

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CIR vs Toshiba GR 150154, 9 August 2005

FACTS: Respondent Toshiba was organized and established as a domestic corporation, duly-registered with the SEC, with the primary purpose of engaging in the business of manufacturing and exporting of electrical and mechanical machinery, equipment, systems. Respondent Toshiba also registered with the Philippine Economic Zone Authority (PEZA) as an ECOZONE Export Enterprise, with principal office in Laguna Technopark, Biñan, Laguna, Finally, on 1995, it registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer and a withholding agent. Toshiba filed its VAT returns for the first and second quarters of taxable year 1996. It alleged that the said input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet engaged in any business activity or transaction for which it may be liable for any output VAT. Consequently, on 1998, respondent Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF) applications for tax credit/refund of its unutilized input VAT. ISSUE: Whether respondent Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services. RULING: Yes. In the case of Commissioner of Internal Revenue v. Seagate Technology (Philippines), this Court said – An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status – VAT-exempt or not – of the party to the transaction… An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from VAT… This Court agrees, that PEZA-registered enterprises, located within ECOZONES, are VAT-exempt entities, because Rep. Act No. 7916, as amended, establishes the fiction that ECOZONES are foreign territory. An ECOZONE or a Special Economic Zone has been described as – . . . Selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. Since ECOZONES are a separate customs territory, sales made by a supplier in the Customs Territory to a purchaser in the ECOZONE shall be treated as an exportation from the Customs Territory. Conversely,

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 sales made by a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the Customs Territory. The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while, those destined for use or consumption within the Philippines shall be imposed with ten percent (10%) VAT. If the VAT-registered supplier from the Customs Territory did not charge any output VAT to respondent Toshiba believing that it is exempt from VAT or it is subject to zero-rated VAT, then respondent Toshiba did not pay any input VAT on its purchase of capital goods and it could not claim any tax credit/refund thereof. Applying said doctrine to the sale of goods, properties, and services to and from the ECOZONES, the BIR issued Revenue Memorandum Circular (RMC) No. 74-99 in 1999 which established that any sale by a VATregistered supplier from the Customs Territory to a PEZA-registered enterprise shall be considered an export sale and subject to zero percent (0%) VAT. However, before the issuance of the RMC, the old rule is different because it did not take into consideration the Cross Border Doctrine essential to the VAT system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice of fiscal incentives of the PEZA-registered enterprise. The old VAT rule was based on their choice of fiscal incentives: (1) If the PEZA-registered enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the income tax holiday under Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent (10%). The sale of capital goods by suppliers from the Customs Territory to respondent Toshiba was made before the issuance of the RMC. Since respondent Toshiba opted to avail itself of the income tax holiday, then it was deemed subject to the ten percent (10%) VAT. It was very likely therefore that suppliers from the Customs Territory had passed on output VAT to respondent Toshiba, and the latter, thus, incurred input VAT. The amount of the input tax is therefore the amount that Toshiba can claim as credit/refund.

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CIR vs Manila Mining 468 SCRA 571--MALCAMPO Phil. Geothermal vs CIR 465 SCRA 308—CATACUTAN CIR vs Philhealth 6R 168129 24 April 07 (VAT on Sale of svcs; BIR rutings not retro.)—ACAS CIR vs Burmeister GR 153205 22 J an 07—CRUZ CIR vs Global 499 S 53 [evat; franchise tx]—GAMO CIR vs PhilGlobal 499 SCRA 53—LIU Magsaysay Lines 497 SCRA 63—BANQUERIGO Sekisui 496 SCRA 206 (exports)—DELOS SANTOS Contex 433 SCRA 376 (effects re VAT exempt status)—GANIR Atlas 546 SCRA 150 (invoices, rcpts for proving input VAT)—FILIPINAS First Planters Pawnshop 560 SCRA 606 (non-bank instns; DST)— GANIR Panasonic G.R. 178090, Feb 8, 2010 (refund of VAT) –MONTEJO Toshiba G.R. 157594, March 9, 2010 (cr/ref of input VAT)— BANQUERIGO TFS Inc. , G.R. 166829, Apr 19, 2010 (CTA law; VAT on pawnshops)— LIU CIR vs Eastern Telecom, GR 163835, July 7, 2010 (sec 104 (a))—GAMO AT&T vs CIR, GR182364, Aug 3/10 (req for tx refund in 0 rated tranxs)—CRUZ JRA vs CIR GR 177127 Oct 11/10 (eff failure to print ―0 rated‖ on invoice)—CULMINAS Tambunting vs CIR GR172394 Oct13/10 (pawnshops)—CATACUTAN

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Hitachi vs CIR GR 174212, 10 October 2010

Facts: Hitachi is a domestic corporation engaged in the business of manufacturing and exporting computer products. On August 4, 2000, Hitachi filed an administrative claim for refund or issuance of a tax credit certificate before the BIR. The claim involved P25,023,471.84 representing excess input VAT attributable to Hitachi‘s zero-rated export sales for the four taxable quarters of 1999. Hitachi then filed a petition for review with the CTA on July 2, 2001 due to BIR‘s inaction. CTA denied Hitachi‘s petition for refund. On January 26, 2005, Hitachi filed a petition for review with the CTA En Banc, which affirmed the resolution of the CTA first division, which resolution is based on Hitachi‘s failure to comply with the mandatory invoicing requirements under the NIRC and Section 4.108-1 of RR 7-95 and to substantiate its alleged zero-rated sales because its export sales invoices were not duly registered with the BIR. Neither did the export sales invoices indicate Hitachi‘s TIN nor did they state that Hitachi was a VAT registered person. Likewise, the word ―zero-rated‖ was not imprinted on Hitachi‘s export sales invoices. CTA En Banc ruled that the VAT law is clear that only transactions evidenced by VAT official receipts or sales invoices will be considered as VAT transactions for purposes of the input and output tax. ISSUE: Whether or not Hitachi can claim for refund of the VAT it paid as a zero-rated taxpayer?

RULING: No. Hitachi‘s export sales invoices did not indicate Hitachi‘s Tax Identification Number (TIN) followed by the word VAT. The word ―zero-rated‖ was also not imprinted on the invoices. Also, as found by the CTA and CTA En Banc, the invoices were not duly registered with the BIR. The issue of printing the word ―zero-rated‖ on the sales invoices is already settled by the Court in Panasonic v. CIR, where Panasonic‘s claim for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their face that its sales were ―zero-rated.‖ The Court said: ―…the Consolidated Value Added Tax Regulations…which took effect on January 1, 1996. It already required the printing of the word ―zero-rated‖ on invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law.‖ As aptly explained by the CTA‘s First Division, the appearance of the word ―zero-rated‖ on the face of the invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect. Also, Section 4.108-1 of RR 7-95 provides:

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Sec.4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration. Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any input tax.

Besides, tax refunds, like tax exemptions, are construed strictly against the taxpayer. The claimants have the burden of proof to establish the factual basis of their claim for refund or tax credit. In this case, Hitachi failed to establish the factual basis of its claim for refund or tax credit.

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CIR vs CA & Commonwealth Mg’t GR 125355, 30 March 2000

FACTS: Commonwealth Management and Services Corporation (COMASERCO), is a corporation duly organized and existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the latter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates. On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988. COMASERCO's annual corporate income tax return in 1988 indicated a net loss in its operations in the amount of P6,077.00. On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT. COMASERCO stressed that it was not profit-motivated, thus not engaged in business. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT. ISSUE: Whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon. RULING: Yes. Sec 105 paragraph 3 of the NIRC of 1997 states that: "The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members of their guests), or government entity. Jjjä uris The definition of the term "in the course of trade or business" incorporated in the present law applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. Section 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project." It is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. Private respondent is ordered to pay Commissioner of Internal Revenue the amount of P335,831.01 inclusive of the 25% surcharge and interest plus 20% interest from January 24, 1992 until fully paid pursuant to Section 248 and 249 of the Tax Code.

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Kepco vs CIR GR181858 Nov24/10 (fail to indicate ―0 rated‖; inv vs rcpt)—PORCINA Silicon vs CIR GR172378 Jan17/11 (req 0 rated sales, Sec112 A & B)— KHIO

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BEST EVIDENCE RULE Mindanao Bus vs CIR GR L-12873, 24 February 1961

FACTS: Petitioner is a common carrier engaged in transporting passengers and freight by means of autobuses in Northern Mindanao, under certificates of public convenience issued by the Public Service Commission. In September, 1953, an agent of the respondent Collector of Internal Revenue examined the books of accounts of the petitioner and found that the freight tickets used by it do not contain the required documentary stamp tax. CIR assessed against petitioner the sum of about P15 thousand as deficiency documentary stamps tax (6% per freight ticket). Upon petitioner's motion for reconsideration, the court resolved to reopen the case, for the sole purpose of allowing the petitioner to present as evidence the 500 booklets and 17 sackful, respectively, of passenger and freight tickets of the petitioner. Petitioner failed to do so and instead presented stub tickets, which were already in its possession during the first hearing. The CTA denied such motion. Petitioner claims that the computation made by the respondent is not based upon the best available evidence, but on mere presumptions.

ISSUE: WON CIR‘s assessment was arbitrary and without factual basis as the same was obtained using estimates rather than the actual freight tickets?

RULING: No, it is not arbitrary and without factual basis as the BIR agent who made the assessment clearly arrived at the same using the best available evidence. The agent of the BIR employed reasonable methods in arriving at the assessments considering the voluminous freight tickets. The agent could not have been expected to count each ticket one by one. Employing the average method in ascertaining the total number of freight tickets used during the period was reasonable. Requiring that the agent actually count the freight tickets issued is practically impossible. Further, the P5 assumption used by the agent as the minimum rate for all goods covered in each freight ticket is reasonable considering the normal practice of passengers in rural areas of not demanding receipts when they only bring small value cargoes. Lastly, it was the duty of the petitioner to present evidence to show inaccuracy in the above method of assessment, but it failed to do so. Principle:

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 Section 6 (B) of the National Internal Revenue Code (NIRC) of 1997, as amended, which provides that when a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules or regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

CIR vs Hantex Trading Co., Inc. GR 136975, 31 March 2005

FACTS: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic products, it imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a subpoena to present its books of account which it failed to do. The bureau cannot find any original copies of the products Hentex imported since the originals were eaten by termites. Thus, the Bureau relied on the certified copies of the respondent‘s Profit and Loss Statement for 1987 and 1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIR

investigators.

ISSUE: Whether or not the final assessment of the petitioner against the respondent for deficiency income tax and sales tax for the latter‘s 1987 importation of resins and calcium bicarbonate is based on competent evidence and the law. RULING: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and enforcement. Among such powers are those provided in paragraph (b), which provides that ―Failure to submit required returns, statements, reports and other documents. – When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.‖ This provision applies when the Commissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 return in case of a taxpayer‘s failure to file one, or to amend a return already filed in the BIR. The ―best evidence‖ envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data, document and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer.

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Sy Po vs CTA & CIR GR 81446, 18 August 1988

FACTS: Petitioner is the widow of Po Bien Sing, who was the sole proprietor of Silver Cup Wine Factory from 1964-1972. In 1972, alleging tax evasion, the Sec. of Finance formed a multi-agency team, which conducted an investigation and through a letter and subpoena duces tecum, requested that Po Bien produce the accounting records of Silver Cup. On the basis of the results of the investigation, the CIR issued an assessment on Po Bien an income tax deficiency of around P7 million from 1966 to 1970 which the latter protested. An reinvestigation ensued, culminating in a 1981 report which recommended the reiteration of the CIR‘s assessment in view of Po Bien‘s persistent failure to present the accounting books for examination. By 1981, however, Po Bien had already died, and the warrants of distraint and levy were received by petitioner instead. Petitioner protested the assessment, but such was dismissed by the CIR. Hence, this petition, claiming that the assessment are invalid, although petitioner still refuses to hand over the accounting books. ISSUE: Was the tax assessment valid even if it was made without consideration of Silver Cup‘s records? How does the rule on ―best evidence obtainable‖ apply in this case? CASES: The tax assessment is still valid. Sec 16 (b) of the then 1977 NIRC provides that if the taxpayer fails to file a required return or other document, then the CIR may make the tax return based on information that he can obtain based on testimony or otherwise. Such a return shall be prima facie correct and sufficient for all legal purposes. In this case, petitioner‘s refusal to show the records left the CIR no other legal option except to resort to the power conferred upon him by Sec 16 (b) which manifests the rule on ―best evidence obtainable.‖ Should petitioner challenge such a tax return, it is incumbent upon her to provide contrary evidence. Where the taxpayer is appealing to the tax court on the ground that the Collector's assessment is erroneous, it is incumbent upon him to prove there what is the correct and just liability by a full and fair disclosure of all pertinent data in his possession. Otherwise, if the taxpayer confines himself to proving that the tax assessment is wrong, the tax court proceedings would settle nothing, and the way would be left open for subsequent assessments and appeals in interminable succession. CIR vs. Reyes, GR L-11534 & GR L-11558, 25 Nov. 1958. Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessment.

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Taxation I Case Digest Compilation College of Law, Silliman University JD Class 2016 In this case, that there is unrebutted testimonial evidence referring to the wilful entry of false records constitutes fraud that further bars the court from ruling in favour of petitioner.

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