STATUTORY CONSTRUCTION
CASE DIGEST
KRIS BRYAN TANAY BARIA
BUCL JD1 – 2021-2022
Aids to Construction
CASES
Nestle Phils. Inc. vs CA
G.R. No. 86738
November 13, 1991
ABS-CBN vs CTA
G.R. No. L-52306
October 12, 1981
CIR vs American Express
G.R. No. 152609
June 29, 2005
CASE
01
Nestle Phils. Inc.
vs CA
G.R. No. 86738
November 13, 1991
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
FACTS
 On February 21, 1983, the Authorized Capital Stock (ACS) of petitioner Nestle was increased
from P300 million divided into 3 million shares with a par value of P100 per share, to P600
million divided into 6 million shares with a par value of P100 per share. Nestle underwent the
necessary procedures involving Board and stockholders approvals and the necessary filings
to secure the approval of the increase of ACS. It was approved by respondent SEC.
 Nestle issued 344,500 shares out of its previously authorized but unissued capital stock
exclusively to its principal stockholders San Miguel Corporation and to Nestle S.A. San Miguel
Corporation subscribed to and completely paid up 168,800 shares, while Nestle S.A.
subscribed to and paid up the balance of 175,700 shares of stock.
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
FACTS
 In 1985, petitioner Nestle filed a letter to SEC seeking exemption of its proposed issuance of
additional shares to its existing principal shareholders, from the registration requirement of
Section 4 of the Revised Securities Act and from payment of the fee referred to in Section 6(c)
of the same Act to wit:
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
FACTS
“Sec. 6. Exempt transactions. — a) The requirement of registration under subsection (a) of Section four of this
Act shall not apply to the sale of any security in any of the following transactions: xxx xxx xxx
(4) The distribution by a corporation, actively engaged in the business authorized by its articles of
incorporation, of securities to its stockholders or other security holders as a stock dividend or other
distribution out of surplus; or the issuance of securities to the security holder or other creditors of a
corporation in the process of a bona fide reorganization of such corporation made in good faith and not
for the purpose of avoiding the provisions of this Act, either in exchange for the securities of such security
holders or claims of such creditors or partly for cash and partly in exchange for the securities or claims of
such security holders or creditors; or the issuance of additional capital stock of a corporation sold or
distributed by it among its own stockholders exclusively, where no commission or other remuneration is
paid or given directly or indirectly in connection with the sale or distribution of such increased capital
stock.”
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
FACTS

Nestle argued that Section 6(a) (4) of the Revised Securities Act embraces “not only
an increase in the authorized capital stock but also the issuance of additional shares
to existing stockholders of the unissued portion of the unissued capital stock“.

SEC denied petitioner’s requests and ruled that the proposed issuance of shares did not
fall under Section 6 (a) (4) of the Revised Securities Act, since Section 6 (a) (4) is
applicable only where there is an increase in the authorized capital stock of a corporation.

MR was denied and appeal to CA was also denied. Thus this Petition for Review.
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
ISSUE
 WON petitioner Nestle’s application for exemptions should be granted.
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
RULING
 No. petitioner Nestle’s application for exemptions cannot be granted.
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
RATIO DECIDENDI
Phrases "Issuance Of Additional Capital Stock“ And "Increased Capital Stock," Construed.
The statutory phrases "issuance of additional capital stock“ and "increased capital stock" are indeed
infected with certain degree of ambiguity.
"issuance of additional capital stock“
"increased capital stock"
This phrase may refer either to:
a) the issuance of capital stock as part of and in the course of increasing
the authorized capital stock of a corporation; or
b) issuance of already authorized but still unissued capital stock
may refer either:
1) to newly or contemporaneously authorized capital stock issued in
the course of increasing the authorized capital stock of a
corporation; or
2) to previously authorized but unissued capital stock.
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
RATIO DECIDENDI
Phrases "Issuance Of Additional Capital Stock“ And "Increased Capital Stock," Construed.
Both the SEC and the Court of Appeals resolved the ambiguity by construing Section 6(a)(4) as
referring only to the issuance of shares of stock as part of and in the course of increasing
the authorized capital stock of Nestle
In the case at bar, since the 344,500 shares of Nestle capital stock are proposed to be issued
from already authorized but still unissued capital stock and since the present authorized
capital stock of 6,000,000 shares with a par value of P100.00 per share is not proposed to
be further increased, the SEC and the Court of Appeals rejected Nestle’s petition.
We believe and so hold that the construction thus given by the SEC and the Court of Appeals to
Section 6(a)(4) of the Revised Securities Act must be upheld.
Nestle Phils. Inc. vs CA | G.R. No. 86738 November 13, 1991
RATIO DECIDENDI
Interpretation given by administrative agency entitled to great respect.
It is a principle too well established to require extensive documentation that the construction
given to a statute by an administrative agency charged with the interpretation and
application of that statute is entitled to great respect and should be accorded great weight
by the courts, unless such construction is clearly shown to be in sharp conflict with the
governing statute or the Constitution and other laws. xxx.
The rationale for this rule relates not only to the emergence of the multifarious needs of a
modern or modernizing society and the establishment of diverse administrative agencies
for addressing and satisfying those needs; it also relates to accumulation of experience and
growth of specialized capabilities by the administrative agency charged with implementing
a particular statute.
CASE
02
ABS-CBN
vs CTA
G.R. No. L-52306
October 12, 1981
ABS-CBN vs CTA | G.R. No. L-52306 October 12, 1981
FACTS





Petitioner corporation was engaged in the business of telecasting local as well as foreign
films acquired from foreign corporations not engaged in trade or business within the
Philippines, for which petitioner paid rentals after withholding income tax of 30% of onehalf of the film rentals.
In so far as the income tax on non-resident corporations is concerned, section 24 (b) of the
National Internal Revenue Code
On April 12, 1961,... in implementation of the aforequoted provision... the Commissioner of
Internal Revenue... issued General Circular No. V-334
Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of
Internal Revenue the amount of 30% of one-half of the film rentals paid by it to foreign
corporations... not engaged in trade or business within the Philippines. The last year that
petitioner withheld taxes pursuant to the foregoing Circular was in 1968.
On June 27, 1968, Republic Act No. 5431 amended Section 24(b) of the Tax Code increasing
the tax rate from 30% to 35%... and revising the tax basis from "such amount" referring to
rents, etc. to "gross income,"
ABS-CBN vs CTA | G.R. No. L-52306 October 12, 1981
FACTS


On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum
Circular No. 4-71, revoking General Circular No. V-334, and holding that the latter was
"erroneous for lack of legal basis," because "the tax therein prescribed should be based on
gross income without deduction whatever... the tax therein prescribed should be based on
gross income without deduction... whatever. Consequently, the ruling in General Circular
No. V-334, dated April 12, 1961, allowing the deduction of the proportionate... cost of
production or exhibition of motion picture films from the rental income of non-resident
foreign corporations, is erroneous for lack of legal basis.
General Circular No. V-334, dated April 12, 1961, is hereby revoked and henceforth, local
films distributors and exhibitors shall deduct and withhold 35% of the entire... amount
payable by them to non-resident foreign corporations, as film rental or royalty, or whatever
such payment may be denominated, without any... deduction whatever, pursuant to
Section 24(b)
ABS-CBN vs CTA | G.R. No. L-52306 October 12, 1981
FACTS



On the basis of this new Circular, respondent Commissioner of Internal Revenue issued
against petitioner a letter of assessment and demand... received by petitioner on April 12,
1971, requiring them to pay deficiency withholding income tax on the remitted film rentals
for the years 1965 through 1968 and film royalty as of the end of 1968
On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the
assessment. However, without acting thereon, respondent, on April 6, 1976,... issued a
warrant of distraint and levy over petitioner's... properties...
Petitioner then filed its Petition for Review with the Court of Tax Appeals... the Court finds
the assessment issued by respondent... against petitioner... deficiency withholding
income... tax for the years 1965, 1966, 1967 and 1968... in accordance with law... dismissed
ABS-CBN vs CTA | G.R. No. L-52306 October 12, 1981
ISSUE
 Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be
retroactively applied.
ABS-CBN vs CTA | G.R. No. L-52306 October 12, 1981
RULING
 No. Revenue Memorandum Circular 4-71, revoking General Circular V-334, cannot be applied
retroactively.
ABS-CBN vs CTA | G.R. No. L-52306 October 12, 1981
RATIO DECIDENDI
BIR circulars or rulings have no retroactive effect where their application would be prejudicial to taxpayers
 The prejudice to petitioner of the retroactive application of Memorandum Circular No. 4-71 is
beyond question. It was issued only in 1971, or three years after 1968, the last year that
petitioner had withheld taxes under General Circular No. V-334. The assessment and
demand on petitioner to pay deficiency withholding income tax was also made three years
after 1968 for a period of time commencing in 1965. Petitioner was no longer in a position to
withhold taxes due from foreign corporations because it had already remitted all film rentals
and no longer had any control over them when the new Circular was issued.
CASE
03
CIR vs
American Express
G.R. No. 152609
June 29, 2005
CIR vs American Express| G.R. No. 152609 June 29, 2005
FACTS

Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with
servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK
receivables from card members situated in the Philippines and payment to service
establishments in the Philippines.

It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis
Section 110B of the 1997 Tax Code, which held that “xxx Any input tax attributable to the
purchase of capital goods or to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.”
CIR vs American Express| G.R. No. 152609 June 29, 2005
FACTS

In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply, please be

Petitioner claimed, among others, that the claim for refund should be construed strictly
against the claimant as they partake of the nature of tax exemption.
informed that, as a VAT registered entity whose service is paid for in acceptable foreign
currency which is remitted inwardly to the Philippine and accounted for in accordance with
the rules and regulations of the Central Bank of the Philippines, your service income is
automatically zero rated xxx”
CIR vs American Express| G.R. No. 152609 June 29, 2005
FACTS

CTA rendered a decision in favor of respondent, holding that its services are subject to
zero-rate. CA affirmed this decision and further held that respondent’s services were
“services other than the processing, manufacturing or repackaging of goods for persons
doing business outside the Philippines” and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of BSP.
CIR vs American Express| G.R. No. 152609 June 29, 2005
ISSUE
 WON AMEX Phils is entitled to refund.
CIR vs American Express| G.R. No. 152609 June 29, 2005
RULING
 Yes. AMEX Phils is entitled to refund.
CIR vs American Express| G.R. No. 152609 June 29, 2005
RATIO DECIDENDI
Services performed by VAT registered persons in the Philippines (other than the processing,
manufacturing or repacking of goods for persons doing business outside the Philippines) when paid in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP,
are zero-rated
 The prejudice to petitioner of the retroactive application of Memorandum Circular No. 4-71 is
beyond question. It was issued only in 1971, or three years after 1968, the last year that
petitioner had withheld taxes under General Circular No. V-334. The assessment and
demand on petitioner to pay deficiency withholding income tax was also made three years
after 1968 for a period of time commencing in 1965. Petitioner was no longer in a position to
withhold taxes due from foreign corporations because it had already remitted all film rentals
and no longer had any control over them when the new Circular was issued.
CIR vs American Express| G.R. No. 152609 June 29, 2005
RATIO DECIDENDI
Services rendered by respondent in the Philippines is not in the same category as “processing,
manufacturing or repacking of goods” and should be zero-rated
 Respondent is a VAT-registered person that facilitates the collection and payment of
receivables belonging to its nonresident foreign client, for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the Philippines is not in the same category as
“processing, manufacturing or repacking of goods” and should, therefore, be zero-rated. In
reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income
respondent earned from its parent company’s regional operating centers (ROCs) was
automatically
zero-rated
effective
January
1,
1988.
CIR vs American Express| G.R. No. 152609 June 29, 2005
RATIO DECIDENDI
The VAT is a tax on consumption “expressed as a percentage of the value added to goods or services”
purchased by the producer or taxpayer.
 As an indirect ax on services, its main object is the transaction itself or, more
concretely, the performance of all kinds of services conducted in the course of trade or
business in the Philippines. These services must be regularly conducted in
this country; undertaken in “pursuit of a commercial or an economic activity;” for a valuable
consideration; and not exempt under the Tax Code, other special laws, or any international
agreement.
CIR vs American Express| G.R. No. 152609 June 29, 2005
RATIO DECIDENDI
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of
the tax.
 Goods and services are taxed only in the country where they are consumed. Thus, exports
are zero-rated, while imports are taxed.
The law clearly provides for an exception to the destination principle
 that is, for a zero percent VAT rate for services that are performed in the Philippines, “paid
for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the [BSP].” Thus, for the supply of service to be zero-rated as an exception, the
law merely requires that first, the service be performed in the Philippines; second, the service
fall under any of the categories in Section 102(b) of the Tax Code; and, third, it be paid in
acceptable foreign currency accounted for in accordance with BSP rules and regulations.
CIR vs American Express| G.R. No. 152609 June 29, 2005
RATIO DECIDENDI
The place where the service is rendered determines the jurisdiction to impose the VAT; The place of
payment is immaterial; much less is the place where the output of the service will be further or ultimately
used
 The law neither makes a qualification nor adds a condition in determining the tax situs of a
zero-rated service. Under this criterion, the place where the service is rendered determines
the jurisdiction to impose the VAT. Performed in the Philippines, such service is necessarily
subject to its jurisdiction, for the State necessarily has to have “a substantial connection” to it,
in order to enforce a zero rate.
Thank you!
KRIS BRYAN TANAY BARIA
BUCL JD1 – 2021-2022