1. Ferrer v. Bautista, G.R. No. 210551, June 30, 2015 (SOCIALIZED HOUSING TAX AS A POLICE
POWER)
FACTS:
The LGU of QC enacted two ordinances. One imposes socialized housing tax (SHT) based
on the assessed value of realty, to be paid by landowners. The other imposes a garbage fee
(GF) to be paid by landowners based on the floor area or land area of their property. Ferrer,
a landowner in QC, want to question the validity of these two (2) ordinances since it would
constitute double taxation. On the first ordinance that there is already a property tax and
the second ordinance the garbage fee is a basic and essential public service that it should paid
out on business tax, RPT, transfer tax and amusement tax.
HELD:
The SHT is valid. The general rule is that LGUS have no inherent power to tax except to
the extent of such power might be delegated to them either by the basic law or by the statute.
The ordinance draws its authority on the Urban Development and Housing Act which
empower LGU;s programs and projects for low costs housing and facilities. Property
ownership bears a social function. Also, the SHT will improve the status of property owners
by increasing investment, raising land value, etc., after the relocation of informal settlers. The
foundation is police power.
The Garbage Fee on the other hand is not valid not on the basis of double taxation since
it is a fee and the main purpose of the ordinance is to regulate and not raise revenue thereby
making a fee rather than a tax. The purpose of which is to manage wastes. It is a charge fixed
for the regulation of an activity. It is not valid for failure to comply with the substantive due
process which requires reasonable means and reasonable purpose. Although the purpose of
the GF is reasonable and admirable, the means employed is unreasonable and oppressive.
Rather than basis on actual waste output or estimate garbage use, the ordinance uses as a
yardstick the people’s land or floor area which has nothing to do with how much waste they
produce.
2. Diaz v. Secretary of Finance, G.R. No. 193007, July 19, 2011 (TOLL WAY IS A FEE FOR SERVICE
RENDERED OF ALLOWING USE FOR TOLLWAY FACILITIES HENCE SUBJECT TO VAT)
FACTS
• Petitioner Renato Diaz and Aurora Timbol filed the petition for declaratory relief assailing
the validity if the impending imposition of the VAT by the BIR on the collection of tollway
operators
• 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 a toll fee is a user’s tax not a sale of services.
ISSUES
• W/N the government is unlawfully expanding VAT coverage by including tollway
operators and operations in the terms franchise grantees and sale of services?
HELD
• No, sale of exchange of service means the performance of all kinds of services in the
Philippines for others for a fee including those performed by construction and service
contractors.
• The law imposes Vat on all kinds of services rendered in the Philippines for a fee including
those specified in the list.
• By qualifying “services” with the words “all kinds” Congress has given the term services
an all-encompassing meaning.
• The listing of services of specific services are intended to illustrate how pervasive and
broad is the Vat reach rather than establish the concrete limits of its application.
• Thus, every activity that can be imagined as a form of service rendered for a fee should
be deemed included unless some provision of law especially excludes it.
• Tollway operators operate expressways.
• 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 the private propriety
rights
• The tollway operator is no different from the following service providers under section
108 who allows others to use their properties or facilities for a fee.
• In the matter of administrative feasibility where the thousands of name address and tax
identification number of the tollway users must be indicated in the VAT receipt of invoice
• Administrative feasibly is one of the canons of a sound tax system
• Non-observance of the canon, however will not render a tax imposition invalid except
to the extent that specific constitutional of statutory limitations are impaired.
• Thus, the BUR did not usurp legislative prerogative Sec 108 A of the Code states that
services of all other franchises grantees are subject to VAT except as may be provided
under the latter provision
• The grant of tax exemption is a matter of legislative policy that is within the exclusive
prerogative of congress. The Court role is to merely uphold this legislative policy as
reflected first and foremost in the language of tax. The court has no discretion on the
matter but simply applies the law
3. Manila Memorial v. Secretary, G.R. No. 175356, December 3, 2013 (SENIOR CITIZEN
DISCOUNT IS AN ACT OF POLICE POWER NOT EMININENT DOMAIN)
FACTS: On April 23, 1992, RA 7432 or the Seniors Citizens Act was passed into law granting
20% discounts from all establishments relative to utilization of transportation services, hotels
and similar lodging establishments, restaurants and recreation centers and purchase of
medicine anywhere in the country, Provided, That private establishments may claim the cost
as tax credit.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432.
Sections 2(i) of which provides for the definition of a Tax credit which refers to the amount
representing the 20% discount granted to a qualified senior citizen by all establishments which
discount shall be deducted by the said establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or other percentage tax purposes and
Section 4 of RR No. 02-94 which provides for the recording/bookkeeping requirements for
private establishments requiring them to keep separate and accurate records of sales made
to senior citizens.
In CIR v. Central Luzon Drug Corp, 496 Phil 307 (2005), the Court declared Sections 2(i) and 4
of RR No. 02-94 as erroneous because these contravene RA 7432 that specifically allow private
establishments to claim a tax credit the amount of discounts they grant. In turn the IRR issued
pursuant thereto provide for the procedures for its availment. To deny such credit, despite the
plain mandate of the law and the regulations carrying out that mandate, is indefensible.
In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived
definition is improper, considering that the latter has to be deducted from gross sales in order
to compute the gross income in the income statement and cannot be deducted again, even
for purposes of computing the income tax. 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, plain and simple. The option to avail of the tax credit benefit
depends upon the existence of a tax liability, but to limit the benefit to a sales discount which
is not even identical to the discount privilege that is granted by law does not define it at all
and serves no useful purpose. The definition must, therefore, be stricken down.
The law cannot be amended by a mere regulation. In fact, a regulation that "operates to
create a rule out of harmony with the statute is a mere nullity;" it cannot prevail. It is a cardinal
rule that courts "will and should respect the contemporaneous construction placed upon a
statute by the executive officers whose duty it is to enforce it x x x."
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of
RR 2-94 a meaning utterly in contrast to what RA 7432 provides. The intent of Congress in
granting a mere discount privilege, not a sales discount.
In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law."
Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and has
neither the force nor the effect of law.
On February 26, 2004, RA 9257 or the Expanded Senior Citizens Actamended certain provisions
of RA 7432, granting 20% discount to qualified senior citizens and the establishments may
claim the discounts granted as tax deduction based on the net cost of the goods sold or
services rendered: Provided, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted. Provided, further, That
the total amount of the claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as amended.
The Secretary of Finance issued RR No. 4-2006 and the DSWD issued its own IRR for their
implementation of the tax provision of RA 9257.
Petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic
corporations engaged in the business of providing funeral and burial services, feeling
aggrieved by the tax deduction scheme, petitioners prayed that Section 4 of RA 9257 and the
IRR issued by DSWD and the DOF be declared unconstitutional insofar as these allow business
establishments to claim the 20% discount given to senior citizens as a tax deduction; that the
DSWD and the DOF be prohibited from enforcing the same; and that the tax credit treatment
of the 20% discount under the former Section 4 (a) of RA 7432 be reinstated.
ISSUES
Whether the petition presents an actual case or controversy
Whether Section 4 of RA No. 9257 and its Implementing Rules and Regulations, insofar as they
provide that the 20% discount to Senior Citizens may be claimed as tax deduction by the
private establishments are invalid and unconstitutional.
HELD: The Petition lacks merit. We shall first resolve the procedural issue. When the
constitutionality of a law is put in issue, judicial review may be availed of only if the following
requisites concur: "(1) the existence of an actual and appropriate case; (2) the existence of
personal and substantial interest on the part of the party raising the question of
constitutionality; (3) recourse to judicial review is made at the earliest opportunity; and (4)
the question of constitutionality is the lis mota of the case." General v. Urro, G.R. No. 191560,
March 29, 2011
In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on
them. Thus, there exists an actual case or controversy.
Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to senior citizens. This is because the discount
is treated as a deduction, a tax-deductible expense that is subtracted from the gross income
and results in a lower taxable income. Being a tax deduction, the discount does not reduce
taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income of the
private establishments concerned. The discounts given would have entered the coffers and
formed part of the gross sales of the private establishments, were it not for R.A. No. 9257. The
permanent reduction in their total revenues is a forced subsidy corresponding to the taking of
private property for public use or benefit. This constitutes compensable taking for which
petitioners would ordinarily become entitled to a just compensation. Just compensation is
defined as the full and fair equivalent of the property taken from its owner by the expropriator.
The measure is not the takers gain but the owners loss. The word just is used to intensify the
meaning of the word compensation, and to convey the idea that the equivalent to be rendered
for the property to be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it
would not meet the definition of just compensation. Having said that, this raises the question
of 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.
The Court believes so.
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.
The priority given to senior citizens finds its basis in the Constitution as set forth in the law
itself.
As a form of reimbursement, the law provides that business establishments extending the
twenty percent discount to senior citizens may claim the discount as a tax deduction. The law
is a legitimate exercise of police power which, similar to the power of eminent domain, has
general welfare for its object.
While the Constitution protects property rights, petitioners must accept the realities of
business and the State, in the exercise of police power, can intervene in the operations of a
business which may result in an impairment of property rights in the process.
Undeniably, the success of the senior citizens program rests largely on the support imparted
by petitioners and the other private establishments concerned. This being the case, the means
employed in invoking the active participation of the private sector, in order to achieve the
purpose or objective of the law, is reasonably and directly related. Without sufficient proof
that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the
same would be unconscionably detrimental to petitioners, the Court will refrain from quashing
a legislative act. Carlos Superdrug Corp v. DSWD, 553 Phil. 120 (2007).
When we ruled that petitioners in Carlos Superdrug case failed to prove that the 20% discount
is arbitrary, oppressive or confiscatory. We noted that no evidence, such as a financial report,
to establish the impact of the 20% discount on the overall profitability of petitioners was
presented in order to show that they would be operating at a loss due to the subject regulation
or that the continued implementation of the law would be unconscionably detrimental to the
business operations of petitioners.
In the case at bar, petitioners proceeded with a hypothetical computation of the alleged loss
that they will suffer similar to what the petitioners in Carlos Superdrug Corporation did.
We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise
of the police power of the State. Hence, the Law is valid and constitutional.
4. Nursery Care v. Acevedo, G.R. No. 180651, July 30, 2014 (TAX IMPOSED AS WHOLESALERS
AND RETAILERS SEPARATELT PLUS TAX FOR THE RENEWWAL OF BUSINESS LICENSES
GENERALLY CONSTITUTES DOUBLE TAXATION)
FACTS
The City of Manila assessed and collected taxes from the individual petitioners pursuant to
Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of
the Revenue Code of Manila. At the same time, the City of Manila imposed additional taxes
upon the petitioners pursuant to Section 21 of the Revenue Code of Manila, as amended, as
a condition for the renewal of their respective business licenses for the year 1999. Section 21
of the Revenue Code of Manila stated:
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes under
the NIRC - On any of the following businesses and articles of commerce subject to the excise,
value-added or percentage taxes under the National Internal Revenue Code, hereinafter
referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per
annum on the gross sales or receipts of the preceding calendar year is hereby imposed:
On person who sells goods and services in the course of trade or businesses; x x x PROVIDED,
that all registered businesses in the City of Manila already paying the aforementioned tax
shall be exempted from payment thereof.
To comply with the City of Manila’s assessmentof taxes under Section 21, supra, the
petitioners paid under protest the following amounts corresponding to the first quarter of
1999.
By letter, the petitioners formally requested the Office of the City Treasurer for the tax credit
or refund of the local business taxes paid under protest. However, then City Treasurer
Anthony Acevedo (Acevedo) denied the request as well as the reconsideration.
Thereafter, petitioners filed their respective petitions for certiorari in the Regional Trial Court
(RTC) in Manila which dismissed the petitions. Upon appeal, the Court of Appeals dismissed
the instant petition for lack of jurisdiction. The petitioners moved for reconsideration, but the
CA denied their motion.
ISSUE
Whether the additional business tax under Section 21 of Ordinance No. 7794 is constitutive
of double taxation.
Double taxation means taxing the same property twice when it should be taxed only once;
that is, "taxing the same person twice by the same jurisdiction for the same thing." It is
obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described
as "direct duplicate taxation," the two taxes must be imposed on the same subject matter,
for the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and the taxes must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No.
7794, since these are being imposed: (1) on the same subject matter – the privilege of doing
business in the City of Manila; (2) for the same purpose – to make persons conducting
business within the City of Manila contribute tocity revenues; (3) by the same taxing
authority – petitioner Cityof Manila; (4) within the same taxing jurisdiction – within the
territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar
year; and (6) of the same kind or character – a local business tax imposed on gross sales or
receipts of the business.
The elements of Double Taxation concurred upon the City of Manila’s assessment on and
collection from the petitioners of taxes for the first quarter of 1999 pursuant to Section 21 of
the Revenue Code of Manila.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who
sold goods and services in the course of trade or business based on a certain percentage of
his gross sales or receipts in the preceding calendar year, while Section 15 and Section 17
likewise imposed the tax on a person who sold goods and services in the course of trade or
business but only identified such person with particularity, namely, the wholesaler,
distributor or dealer (Section 15), and the retailer (Section 17), all the taxes being imposed
on the privilege of doing business in the City of Manila in order to make the taxpayers
contribute to the city’s revenues were imposed on the same subject matter and for the same
purpose.
Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within
the same jurisdiction in the same taxing period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of local business taxes. Under Section 21 of the
Revenue Code of Manila constituted double taxation , and the taxes collected pursuant
thereto must be refunded.
5. La Suerte Cigar v. Court of Appeals, G.R. No. 125346, November 11, 2014 (Taxation is the
Rule and exemption is the exception, the mere fact that the stem or midrib from the leaf
tobacco is remove makes it a partially manufactured tobacco subject to specific tax. It
cannot allow exemption for the payment of tax under the Tax Code which allows the sale
of stemmed leaf tobacco as raw material by one manufacturer directly to another without
payment of the excise tax; by reason that it loses its nature of it being raw since it was
partieally prepared. Further there is no double taxation since the subject matter pertains
to two articles first is the stemmed leaf tobacco second is the cigar or cigar rete itself.
Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially
prepared tobacco. The removal of the stem or midrib from the leaf tobacco makes the
resulting stemmed leaf tobacco a prepared or partially prepared tobacco. Since the Tax Code
contained no definition of “partially prepared tobacco,” then the term should be construed
in its general, ordinary, and comprehensive sense. However, importation of stemmed leaf
tobacco is not included in the exemption under Section 137. The transaction contemplated
in Section 137 does not include importation of stemmed leaf tobacco for the reason that the
law uses the word “sold” to describe the transaction of transferring the raw materials from
one manufacturer to another. Finally, excise taxes are essentially taxes on property because
they are levied on certain specified goods or articles manufactured or produced in the
Philippines for domestic sale or consumption or for any other disposition, and on goods
imported. In this case, there is no double taxation in the prohibited sense despite the fact
that they are paying the specific tax on the raw material and on the finished product in which
the raw material was a part, because the specific tax is imposed by explicit provisions of the
Tax Code on two different articles or products: (1) on the stemmed leaf tobacco; and (2) on
cigar or cigarette.
Facts:
In G.R. No. 125346, La Suerte received on January 3, 1990 a letter from then Commissioner
Jose U. Ong demanding the payment of P34,934,827.67 as deficiency excise tax on La Suerte’s
entire importation and local purchase of stemmed leaf tobacco for the period covering
January 1, 1986 to June 30, 1989.
On January 12, 1990, La Suerte protested the excise tax deficiency assessment but was denied
by the Commissioner. The Court of Appeals Sixth Division ruled against La Suerte. This
prompted La Suerte to file a motion for reconsideration, which was denied by the Court of
Appeals.
In G.R. No. 136328–29, a letter dated November 24, 1989 was received by Fortune
demanding the payment of deficiency excise tax in the amount of P28,938,446.25 for its
importation of tobacco strips from January 1, 1986 to June 30, 1989. Fortune requested for
reconsideration, which was denied by the Commissioner. Undaunted, Fortune appealed to
the Court of Tax Appeals which ruled in its favor.
In G.R. No. 144942, La Suerte imported on April 1995, stemmed leaf tobacco from various
sellers abroad. The Commissioner assessed specific taxes on the stemmed leaf tobacco in the
amount of P175,909.50, which La Suerte paid under protest. Consequently, La Suerte filed a
claim for refund with the Commissioner, who failed to act on the same. Undeterred, La Suerte
appealed to the Court of Tax Appeals, which in its March 9, 1999 decision, ruled in its favor.
The Commissioner appealed to the Court of Appeals Third Division, which affirmed the
decision of the Court of Tax Appeals. The Commissioner then filed the instant petition for
review.
In G.R. No. 148605, Sterling received on January 12, 1990 a pre-assessment notice for alleged
deficiency excise tax on its importation and local purchase of stemmed-leaf tobacco for
P5,187,432.00 covering the period from November 1986 to January 1989.” Sterling filed its
protest. The Commissioner denied the protest with finality.
The Court of Tax Appeals rendered its decision ordering the cancellation of the assessment
for deficiency excise tax. The CA Ninth Division, rendered a decision reversing the Court of
Tax Appeals.
In G.R. No. 158197, the Commissioner sent a pre-assessment notice to La Suerte demanding
payment of P11,757,275.25 as deficiency specific tax on its local purchases and importations
and on the sale of stemmed leaf tobacco during the period from September 14, 1989 to
November 20, 1990. On February 8, 1991, La Suerte received the formal assessment letter of
the Commissioner. La Suerte filed its protest which was denied by the Commisioner with
finality. The Court of Appeals reversed the decision of the Court of Tax Appeals. Finally, in
G.R. No. 165499, the Commissioner of Internal Revenue on various dates in March 1995,
collected from La Suerte the aggregate amount of P325,410.00 for specific taxes on La
Suerte’s bulk purchases of stemmed-leaf tobacco from foreign tobacco manufacturers. La
Suerte paid the said amount under protest. On September 27, 1996 and October 2, 1996, La
Suerte instituted with the Commissioner of Internal Revenue and with Revenue District No.
52, a claim for refund of specific taxes said to have been erroneously paid on its importations
of stemmed-leaf tobacco for the period of November 1994 up to May 1995. Inasmuch as its
claim for refund was not acted upon by Lasuerte and in order to toll the running of the twoyear reglementary period within which to file a judicial claim for such refund as provided
under Section 229 of the 1997 National Internal Revenue Code, as amended, La Suerte filed
on February 8, 1997 a petition for review with the CTA which granted its petition. On appeal,
the Court of Appeals Fourth Division reversed the Court of Tax Appeals’ ruling. It also denied
La Suerte’s motion for reconsideration. Hence, this petition was filed. The cigarette
manufacturers argues that since Section 137 of the 1986 Tax Code and Section 20(a)
of RR No. V-39 do not distinguish “as to the type of manufacturer that may sell stemmed-leaf
tobacco without the prepayment of specific tax[,] [t]he logical conclusion is that any kind of
tobacco manufacturer is entitled to this treatment. The authority of the Secretary of Finance
to prescribe the “conditions” refers only to procedural matters and should not curtail or
modify the substantive right granted by the law.
Moreover, the cigarette manufacturers contend that Section 132 does not operate as a
tax exemption because prepayment means payment of obligation in advance or before it is
due. Consequently, the rules of construction on tax exemption do not apply.
On the other hand, PAL argues that under Section 141(b), partially prepared or
manufactured tobacco is subject to specific tax.” The definition of “partially manufactured
tobacco” in Section 2(m) of RR No. 17-67 includes stemmed leaf tobacco; hence, stemmed
leaf tobacco is subject to specific tax.. Imported stemmed leaf tobacco is also subject to
specific tax under Section 141(b) in relation to Section 128 of the 1977 Tax Code. Also, PAL
posits that there is no double taxation in the prohibited sense even if specific tax is also
imposed on the finished product of which stemmed leaf tobacco is a raw material.. Finally,
PAL contends that under Section 127, if domestic products are removed from the place of
production without payment of the excise taxes due thereon, it is not required that the tax
be collected first from the manufacturer or producer before the possessor thereof shall be
liable.
Issues:
1. Whether stemmed leaf tobacco is subject to excise (specific) tax under Section 141 of the
1986 Tax Code. (YES)
2. Whether stemmed leaf tobacco imported by La Suerte, Fortune, and Sterling is exempt
from specific tax under Section 137 of the 1986 Tax Code. (YES)
3Whether the imposition of excise tax on stemmed leaf tobacco under Section 141 of the
1986 Tax
Code constitutes double taxation. (NO)
4. Whether or not La Suerte are doubly taxed? (NO)
Ruling:
1. Yes, Section 141 subjects partially prepared tobacco, such as stemmed leaf tobacco, to
excise tax. It is evident that when tobacco is harvested and processed either by hand or by
machine, all itsproducts become subject to specific tax. Section 141 reveals the legislative
policy to tax all forms of manufactured tobacco — in contrast to raw tobacco leaves —
including tobacco refuse or all other tobacco which has been cut, split, twisted, or pressed
and is capable of being smoked without further industrial processing. Stemmed leaf tobacco
is subject to the specific tax under Section 141(b). It is a partially prepared tobacco. The
removal of the stem or midrib from the leaf tobacco makes the resulting stemmed leaf
tobacco a prepared or partially prepared tobacco.
Since the Tax Code contained no definition of “partially prepared tobacco,” then the term
should be construed in its general, ordinary, and comprehensive sense. RR No. 17-67, as
amended, supplements the law by delineating what products of tobacco are “prepared or
manufactured” and “partially prepared or partially manufactured.” We do not agree with the
argument of petitioner that while RR No. 17-67 defines stemmed leaf tobacco as
handstripped tobacco of clean, good, partially broken leaf only, free from mold and dust,
Section 137 defines it as leaf tobacco which has had the stem or midrib removed; that the
term does not include broken leaf tobacco. Different definitions of the term “stemmed leaf”
are unavoidable, especially considering that Section 2(m)(1) is an implementing regulation of
Act No. 2613, which was enacted in 1916 for purposes of improving the quality of Philippine
tobacco products, while Section 137 defines the tobacco product only for the purpose of
exempting it from the specific tax. Whichever definition is adopted, there is no doubt that
stemmed leaf tobacco is a partially prepared tobacco.
The onus of proving that stemmed leaf tobacco is not subject to the specific tax lies with the
cigarette manufacturers. Taxation is the rule, exemption is the exception. Accordingly,
statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority. The cigarette manufacturers must justify their
claim by a clear and categorical provision in the law. Otherwise, they are liable for the specific
tax on stemmed leaf tobacco found in their possession pursuant to Section 127163 of the
1986 Tax Code, as amended.
2. Yes, stemmed leaf tobacco transferred in bulk between cigarette manufacturers are
exempt from excise tax. In the instant case, an exemption on the taxability of stemmed leaf
tobacco is found in Section 137, which provides the following SEC. 137. Removal of tobacco
products without prepayment of tax. – Products of tobacco entirely unfit for chewing or
smoking may be removed free of tax for agricultural or industrial use, under such conditions
as may be prescribed in the regulations of the Ministry of Finance. Stemmed leaf tobacco,
fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or
midribs, and sweepings of tobacco may be sold in bulk as raw material by one manufacturer
directly to another, without payment of the tax under such conditions as may be prescribed
in the regulations of the Ministry of Finance.
Stemmed leaf tobacco,' as herein used, means leaf tobacco which has had the stem or midrib
removed. The term does not include broken leaf tobacco.
Section 137 authorizes a tax exemption subject to the following: (1) that the stemmed leaf
tobacco is sold in bulk as raw material by one manufacturer directly to another; and (2) that
the sale or transfer has complied with the conditions prescribed by the Department of
Finance. Moreover, under Section 3(h) of RR No. 17-67, entities that were issued by the
Bureau of Internal Revenue with an L-7 permit refer to "manufacturers of tobacco products."
Hence, the transferor and transferee of the stemmed leaf tobacco must be an L-7 tobacco
manufacturer.
Such construction is consistent with the rule that tax exemptions, deemed to be in derogation
of the state’s sovereign right of taxation, are strictly applied and may be granted only under
clear and unmistakable terms of the law and not merely upon a vague implication or
inference.
3. No, importation of stemmed leaf tobacco is not included in the exemption under Section
137. The transaction contemplated in Section 137 does not include importation of stemmed
leaf tobacco for the reason that the law uses the word “sold” to describe the transaction of
transferring the raw materials from one manufacturer to another.
The Tax Code treats an importer and a manufacturer differently. Section 123 clearly
distinguishes between goods manufactured or produced in the Philippines and things
imported. Whenever the Tax Code refers to importers and manufacturers, they are
separately mentioned as two distinct persons or entities.
Moreover, foreign manufacturers of tobacco products not engaged in trade or business in
the Philippines cannot be designated as L-7 since these are beyond the pale of Philippine law
and regulations. The factories contemplated are those located or operating only in the
Philippines.
4. No, Petitioners are not doubly taxed.
Contrary to the contention of the manufacturers, the fact that they are paying the specific
tax on the raw material and on the finished product in which the raw material was a part does
not mean that they are doubly taxed.
For double taxation in the objectionable or prohibited sense to exist, the same property must
be taxed twice, when it should be taxed but once. Both taxes must be imposed on the same
property or subject- matter, for the same purpose, by the same . . . taxing authority, within
the same jurisdiction or taxing district, during the same taxing period, and they must be the
same kind or character of tax.
At all events, there is no constitutional prohibition against double taxation in the Philippines.
In the case at hand, excise taxes are essentially taxes on property because they are levied on
certain specified goods or articles manufactured or produced in the Philippines for domestic
sale or consumption or for any other disposition, and on goods imported. In this case, there
is no double taxation in the prohibited sense because the specific tax is imposed by explicit
provisions of the Tax Code on two different articles or products: (1) on the stemmed leaf
tobacco; and (2) on cigar or cigarette
6. Republic v. City of Paranaque, G.R. No. 191109, July 18, 2012 (PRA CANNOT BE SUBJECT TO
REAL PROPERTY TAX SINCE IT IS AN INSTRUMENTALITY OF THE GOVERNMENT WHICH IS
NOT INTEGRATED WITHIN THE DEPARTMENT FRAMEWORK BUT EXERCISE SPECIAL
FUNCTIONS (EVEN PROPRIETARY)FOR PUBLIC PURPOSE WHICH IN THIS TO SELL AND
RECLAIMED LANDS. HENCE ANY PROPERTY ACQUIRE IS NOT SUBJECT TO PROPERTY TAX.
THE only exception is that if the beneficial use is granted to a taxable person or that a
specific law empowers them to do so; the LGU I mean,
The Philippine Reclamation Authority (PRA)'s properties were levied by the City
Treasurer of Paranaque on account of PRA's delinquency in the payment of real property
taxes on its reclaimed lands, some of which were located in Paranaque. PRA's petition for a
TRO was dismissed by the RTC, so the levied properties were sold at a public auction. The SC
held that the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the subject reclaimed properties; the
assailed auction sale; and the Certificates of Sale subsequently issued by the Parañaque City
Treasurer in favor of the City of Parañaque, were all void. The SC ruled that the PRA is not a
GOCC subject to real property taxes but is instead an instrumentality of the government
vested with corporate powers and performing essential public services. PRA is not a GOCC
because:
(a) it is neither a stock nor a non-stock corporation; and
(b) it fails to pass the test of economic viability under Sec. 16, Art. XII of the 1987 Constitution.
As an instrumentality of the national government, it cannot therefore be taxed by the City of
Paranaque. This is in keeping with Sec. 234 of the LGC, which provides that real property
owned by the Republic is exempt from real property tax unless the beneficial use thereof has
been granted to a taxable person.
Furthermore, the SC held that the reclaimed lands managed by the PRA are of public
dominion and are reserved for public use, and whose ownership remains with the State.
Properties of public dominion are not subject to execution or foreclosure sale. Consequently,
the certificates of sale on PRA's properties are void.
7. CIR v. St. Luke’s Medical Center, G.R. No. 195909, September 26, 2012 (ST LUKE CANNOT
DERIVED BENEFIT UNDER SEC 30 EXEMPTION FROM TAXES ON CORPORATION SINCE IT
WAS NOT OPERATED EXCLUSIVELY FOR CHARITABLE PURPOSE, 34% WAS USED
EQUIPMENT AND FACULRTY USED FOR SERVICES FOR NON PAYING PATIENTS. HOWEVER
THEY CAN DERIVED UNDER SEC 27)B) THE 10% PREFERENTIAL RATE TO PROPRIETARY
EDUCATIONAL INSTITUTIONS AND HOSPITALS as long as it does not distribute any of its
profits to its members and such profits are reinvested pursuant to its corporate purposes.
FACTS
• This court resolves this case on a pure question of law which involves the
interpretation of Sec 27 vs Sec 80 (E) and (G) of the NIRC on the income tax treatment
of proprietary non-profit hospitals.
• St. Luke’s is a hospital organized as non-stock and non-profit corporation
• On Dec 16,2002 the BIR assessed Luke deficiency taxes amounting to Php. 76,036,116
for 1998 comprised of deficiency income tax, VAT, withholding tax on
compensation/expanded withholding tax. The BIR reduced the amount to Php.
63,935,531 during the trial in the first division of the CTA
• St Luke’s filed an administrative protest with the BIR against the deficiency tax
assessments
• The BIR argued before the CTA that Section 27(b) of the NIRC which imposes 10%
preferential tax rate on the income of the proprietary non-profit hospitals should be
applicable to St. Luke’s
• St. Luke’s was actually operating for profit in 1998 because only 13% of its revenues
came form charitable purposes. Moreover the hospital BOT, directly benefit from its
profits/assets’ Luke’s has 1.73 billion from patient services in 1998.
• St Luke’s contended that the BIR should not consider its total revenues because its
free services to patients were Php 218 mil or 65.20% of its 1998 operating income
(total revenue of expenses). St Luke also claimed that its income does not inure to
the benefit of any individual.
• St Luke maintained that it is a non-stock corporation organized and operated
exclusively for charitable and social purpose exempted from tax under Sec 30 (E)/(G)
• The petition raises the sole issue if whether the enactment of Sec 27 (b) Propriety
Educational Institutions/ hospitals which are nonprofit shall pay a tax of ten percent
on their taxable income, imposing a preferential rate of 10%. The BIR prays that
St.Luke be ordered to pay 57,659,981 as deficiency income and expanded withholding
tax for 1998 with surcharges and interest for late payment
The CTA en banc petition by St Luke is partially granted the 1998 VAT assessment issued
by respondent against petitioner in the amount of 110,000 is hereby cancelled and
withdrawn, petitioner is ordered to pay deficiency income tax/deficiency withholding tax
for the taxable year 1998 in the respective amount of 54 mil. 778 thousand in the sum of
6,275,370
• The deficiency income tax of Php. 5,496 million ordered by the CTA to be paid arose
from the failure of St Luke to prove that of its income in 1998 (declared as other
income) came from charitable activities
• The CTA cancelled the remainder of the 63 113 952 deficiency assessed by the BIR
based on the 10% tax rate under Sec 27(b) of the NIRC which the CTA en banc held
was not applicable to ST. Luke since it falls under the Sec 30 (e) that it is a non-stock
non-profit hospital operated exclusively for charitable purpose.
ISSUES:
• W/N St. Luke is liable for deficiency income tax in 1998 under Sec 27 (b) of the NIRC
which imposes a preferential tax rate of 10% on the income of propriety non-profit
hospital.
HELD:
• YES. St. Luke is liable on Sec 27 (b) of the NIRC which imposes a preferential tax rate
of 10% on the income of (1) propriety nonprofit educational institutions and (2) nonprofit hospitals. Proprietary means private following the definition of a proprietary
educational institutions as “any private school maintained and administered by
private individual or groups with a government permit. Non-profit means no net
income or asset to or benefit any member of specific person, with all the net income
or asset devoted to the institutions purpose and all its activities conducted not for
profit. Non-profit does not necessarily mean charitable. Charitable is a gift to be
applied consistently with existing laws for the benefit of an indefinite number of
persons either by bringing their minds and hearts under the influence of education
and religion by existing themselves in life or by otherwise lessening the burden of the
government. The rationale in exempting charitable institutions is that the loss of taxes
funded by the government is compensated by its relief from doing public works which
would have been funded by appropriations from treasury.
• As a general principle a charitable institution does not lose its character as such and
its exemption from taxes simply because it derives income from paying patients
whether our patient or confined in the hospital or receives subsidies from the
government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve and no money insure to the benefit
of the persons managing or operating the institutions. The test for an institution to be
charitable requires that the use of property is used in a certain way, charitable
purpose. That Section 30 (e) NIRC provides that a charitable institution to be
exempted must be:
o Non-stock corporation association
o Organized exclusively for charitable purposes
o Operated exclusively for charitable purposes
o No part of its net income or asset shall belong to or inure to the benefit of any
member, organizer, officer
•
•
In the case at bar there is no dispute that St. Luke was organized as a non-stock and
non-profit charitable institution. However, this does not automatically exempt St.
Luke from paying tax Sec 30. Of the NIRC requires that the institution be operated
exclusively for social welfare. Exclusively is defined as possessed and enjoyed to the
exclusion of others. And that the Court cannot expand the meaning of the words. In
the case of St. Luke that its charity expenditure of Php. 218,187,48 is 65.20% of its
operating income in 1998. However, if a part of the remaining 34.80% of the operating
income is reinstated in property equipment, faculty used for services to paying and
non-paying patients, then it cannot be said that the income is devoted used for
services for charitable object.
Thus St. Luke fails to meet the requirement under Sec 30 of the NIRC to be completely
tax exempt from all its income. However, it remains a proprietary non-profit hospital
under Sec 27 (b) of the NIRC as long as it does not distribute any of its profits to its
members and such profits are reinvested pursuant to its corporate purposes. St. Luke
as a proprietary non-profit hospital is entitled to the preferential tax rate of 10% on
its net income from its for-profit activities.
8. CIR v. De La Salle University, G.R. No. 196596, November 9, 2016.
•
All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties.
•
Charitable institutions, churches and parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation
FACTS
• BIR issued to DLSU a letter of authority, authorizing its revenue officers to examine
the letters, books and accounts for the period fiscal year ending 2003 and unverified
prior years.
• BIR issued a preliminary assessments.
• BIR through a formal letter demand assessed DLSU the following deficiency tax:
o Income tax as rental earnings from restaurants and canteens
o Value added tax in business income
o Documentary stamp tax on loans/ loan agreements (taxable year 2001,2002
and 2003)
• DLSU protested the assessment
• Due to the exemption of
o “All revenue and assests of non-stock and non-profit institutions and actually,
directly and exclusively shall be exempt from taxes and duties.
•
The commissioner posits that a tax-exempt like DLSU is exempt only from property
tax but not from income tax under the tax code which must be harmonized in the
constitution to wit; “regardless of the disposition made of such income”, it shall be
subject to tax.
ISSUES
• W/N DLSU income/ revenue proved to have been used actually, directly and
exclusively for educational purposes are exempt from duites/taxes.
HELD:
• YES. The income and revenue of DLSU is proven to have been used actually, directly
and exclusively for educational purposes are exempt from duties and taxes to the
extent of the rental income from its concessionaires were used for the payment to
build the university sports complex
• The SC differentiates 2 kinds of educational institutions that the constitution provided
tax incentives which are:
o Non-stock, non-profit educational institutions
o Propriety educational institutions
• Tax exemptions granted to propriety educational institutions may be subject to
limitaitns imposed by Congress such as in the tax code, a propriety educational
institution is entitled only to the reduced 10% Corporate income tax. The reduced rate
is applicable only if
o The propriety institutions is non-profit
o Its gross income from unrelated trade, business or activity does not exceed
50% of the total gross income
• But nonprofit, non-stock institutions are not subject to limitations imposed by
congress ART 14 Section 4(3) does not require that the revenue and income must have
also been sourced from educational activities related to the purpose of educational
institutions. The phrase all revenue is unqualified by any reference to the source of
revenues. So long as the revenues and income are used actually, directly and
exclusively for educational purposes then said revenue/ income shall be exempt from
taxes /duties.
• The only requisites are:
o Taxpayer falls under the classification of non-stock non-profit educational
institutions
o The income it seeks to be exempted from taxation is used actually, directly
and exclusively. DLSU is a non-stock, non-profit educational institutions
• Revenues- consist of the amount earned by a person or entity from the conduct of
business
• Assets- are tangible and intangible properties owned by an entity.
• Thus the crucial point of inquiry, then is on the use of assets or on the use of revenues.
These are the two things that must be viewed and treated separately. But so long as
the assets or revenues are used actually, directly and exclusively for educational
purposes. They are exempted from duties/taxes.
• When a non-stock, non-profit educational institutions proves that it uses its revenues
actually, directly and exclusively for educational purposes, it shall be exempted from
income tax, VAT and LBT, on the other hand, when it also shows that it uses its assets
in the form of real property for educational purposes it shall be exempt from real
property tax
• To be clear proving the actual use of the taxable item will be result in the exemption,
but the specific tax from which the entity shall be exempted depend whether the item
is an item of revenue or asset.
• LOA issued to DLSU is not entirely void. The assessment for taxable year 2003 is valid.
The assessment for taxable year is valid 2003 because this taxable period is specified
in the LOA. However, the assessment for taxable year 2001 and 2002 are void for
having been unspecified on separate LOA’s under RMO NO-43-90. “ A LOA should
cover a taxable period not exceeding 1 year. The practice of issuing LOA covering audit
of unverified prior years is hereby prohibited.
• The CTA correctly admitted the supplemental evidence formerly offered by the DLSU
to wit:
o The Commissioner failed to timely object to the formal offer supplemental
evidence.
o The CTA is not governed strictly by duties the technical rules of evidence.
It is doctrinal that the court will not lightly set aside the conclusion reached by the CTA
which by the very nature of its function of being dedicated exclusively to the resolution
of tax problem has developed an expertise on the subject unless there has been an abuse
or improvident exercise of authority or if the findings are not supported by substantial
evidence, a showing of gross error.
9. LG Electronics v. CIR, G.R. No. 165451, December 3, 2014 (A tax amnesty is a general pardon
or the intentional overlooking by the State of its authority to impose penalties on persons
otherwise guilty of violation of a tax law. It partakes of an absolute waiver by the
government of its right to collect what is due it and to give tax evaders who wish to relent
a chance to start with a clean slate. Atax amnesty, much like a tax exemption, is never
favored or presumed in law.)
FACTS
On March 21, 1998, LG received a formal assessment notice and demand letter from the
Bureau of Internal Revenue. On April 17, 1998 an administrative protest with the Bureau of
Internal Revenue against the tax assessment. Without waiting for the Commissioner of
Internal Revenue’s resolution of the protest, LG filed a Petition for Review before the Court
of Tax Appeals on January 11, 1999. In its Decision dated May 11, 2004, the Court of Tax
Appeals ruled that LG was liable for the payment, representing deficiency income tax for
taxable year 1994, including 20% delinquency interest computed from March 18, 1998. LG
filed a Motion for Partial Reconsideration on June 4, 2004. On September 22, 2004, the Court
of Tax Appeals partially granted the Motion. It reduced LG’s liability. On November 18, 2004,
LG filed the present Petition for Review on Certiorari. On January 19, 2005, the Commissioner
of Internal Revenue was required to file its Comment Petitioner manifested that it availed
itself of the tax amnesty provided under Republic Act No. 9480. According to the BIR,
petitioner cannot claim the tax amnesty provided under Republic Act No. 9480 for the
following reasons: (1) accounts receivable by the Bureau of Internal Revenue as of the
dateof amnesty are not covered since these constitute government property; (2) cases
that have already been favorably ruled upon by the trial court or appellate courts
prior to the availment of tax amnesty are not covered; and(3) petitioner’s case involves
withholding taxes that are not covered by the Tax Amnesty Act.
Issue: whether or not the petitioner is entitled for the tax amnesty?
Ruling: Taxpayers who availed themselves of the tax amnesty program are entitled to
the immunities and privileges under Section 6 of NIRC. In several cases, this court
explained the nature of a tax amnesty. A tax amnesty is a general pardon or the intentional
overlooking by the State of its authority to impose penalties on persons otherwise guilty of
violation of a tax law. It partakes of an absolute waiver by the government of its right to
collect what is due it and to give tax evaders who wish to relent a chance to start with a
clean slate. Atax amnesty, much like a tax exemption, is never favored or presumed in law.
The grant of a tax amnesty, similar to a tax exemption, must be construed strictly against
the taxpayer andliberally in favor of the taxing authority.UnderRepublic Act No. 9480
and BIR Revenue Memorandum CircularNo. 55-2007, the qualified taxpayer may
immediately avail of theimmunities and privileges upon submission of the
requireddocuments.WHEREFORE, in view of petitioner LG ElectronicsPhilippines, Inc.’s
availment of the tax amnesty programunder Republic Act No. 9480, the petition is DENIED
forbeing MOOT and ACADEMIC. Petitioner’s deficiencytaxes for taxable year 2005 and prior
years are deemedfully settled.
10. China Banking v. CIR, G.R. No. 172509, February 4, 2015 (12 Years of no Ruling of the
Protest. The BIR Has 3 years to collect the deficient tax from the date of assessment
otherwise it may prescribed.While estoppel does not bar the government from collecting
taxes since it is not bound by the mistake or negligence of its agents. The exception is that
if it would cause untold prejudice to the taxpayer for failure to collect for a span of 12 years.
Facts:
China Banking Corporation (“CBC”) is a universal bank duly organized under the laws of the
Philippines. It is engaged in transactions involving sales of foreign exchange to the Central
Bank of the Philippines, commonly known as SWAP Transactions. CBCdid not pay tax on the
SWAP transactions for the years 1982-1986. On 19 April 1989, CBC was assessed by the BIR
for deficiency DST on the salesof foreign bills of exchange to the Central Bank amounting to
P 11,383, 165.50. CBCprotested asserting five defenses: double taxation, absence of liability,
due processviolation, validity of assessment and tax exemption. On 6 December 2001, more
than 12 years after the filing of the protest, theCommissioner of Internal Revenue (CIR)
rendered a decision reiterating the deficiencyDST assessment and ordered the payment
thereof plus increments within 30 days fromreceipt of the Decision.The CIR replied to the
CBC’s protest only on 06 December 2001 in which itordered CBC to pay its tax deficiency.
Thereafter, CBC filed a Petition for Review withthe CTA. The CTA denied CBC’s petition ruling
that the SWAP transaction is a telegraphictransfer subject to DST; thus, CBC is liable to pay
the alleged deficiency. On appeal, CBC raised for the first time the issue of prescription. The
BIR did notaddress the issue of prescription in its Comment.
Issue: Whether the right of the BIR to collect the assessed DST from CBC is barred by
prescription.
Held:Yes, the BIR’s claim is barred by prescription. Following Sec. 319(c) of the 1977NIRC (the
Tax Code applicable at the time of assessment), assessed tax must becollected by distraint or
levy and/or court proceeding within three years from the datewhen the BIR
mails/releases/sends the assessment notice to the taxpayer. In this case, the records do not
show when the assessment notice was mailed,released or sent to CBC. Nevertheless, the
latest possible date that the BIR could havereleased, mailed or sent the assessment notice
was on the same date that CBCreceived it, 19 April 1989. Assuming therefore that 19 April
1989 is the reckoning date,the BIR had three years to collect the assessed DST. However, the
records of this caseshow that there was neither a warrant of distraint or levy served on CBC's
properties nora collection case filed in court by the BIR within the three-year period.The
attempt of the BIR to collect the tax through its Answer with a demand forCBC to pay the
assessed DST in the CTA on 11 March 2002 did not comply withSection 319(c) of the 1977 Tax
Code, as amended. The demand was made almostthirteen years from the date from which
the prescriptive period is to be reckoned. Thus,the attempt to collect the tax was made way
beyond the three-year prescriptive period.
11. Air Canada v. CIR, G.R. No. 169507, January 11, 2016 (A resident foreign corporation is
taxable of its income derived from sources within the Philippines. Air Canada cannot avail
the tax treaty since since the treaty expressly excludes Canadian carriers with "permanent
establishment." Through the appointment of Aerotel as its local sales agent, petitioner is
deemed to have created a "permanent establishment" in the Philippines as defined under
the Republic of the Philippines-Canada Tax Treat. Further the alleged refund cannot offset
the tax due. A claim for taxes is not a debt,demand contract or judgment as is allowed to
be set-off under statutes of set-off which are construed uniformly, in light of public policy,
to exclude the remedy in an action or any indebtedness of the state munincipality to one
who is liable to the state for taxes. Neither are they aprooper subject for equitable
recoupment since they do not arise out of the contract or transaction sued on.
An offline international air carrier selling passage tickets in the Philippines, through a general
sales agent, is a resident foreign corporation doing business in the Philippines. As such, it is
taxable under Section 28(A)(l), and not Section 28(A)(3) of the Tax Code, subject to any
applicable tax treaty to which the Philippines is a signatory. Pursuant to Article 8 of the
Republic of the Philippines-Canada Tax Treaty, Air Canada may only be imposed a maximum
tax of 1 ½% of its gross revenues earned from the sale of its tickets in the Philippines.
FACTS:
Air Canada is a foreign corporation organized and existing under the laws of Canada. It was
granted an authority to operate as an offline carrier by the Civil Aeronautics Board. As an offline carrier, Air Canada does not have flights originating from or coming to the Philippines
and does not operate any airplane in the Philippines. Air Canada engaged the services of
Aerotel Ltd., Corp. (Aerotel) as its general sales agent in the Philippines. Aerotel sells Air
Canada’s passage documents in the Philippines.
For the period ranging from the third quarter of 2000 to the second quarter of 2002, Air
Canada, through Aerotel, filed quarterly and annual income tax returns and paid the income
tax on Gross Philippine Billings in the total amount of ₱5,185,676.77. On November 28, 2002,
Air Canada filed a written claim for refund of alleged erroneously paid income taxes. It found
basis from the revised definition of Gross Philippine Billings under Section 28(A)(3)(a) of the
Tax Code.
To prevent the running of the prescriptive period, Air Canada filed a Petition for Review
before the Court of Tax Appeals on November 29, 2002. On December 22, 2004, the Court of
Tax Appeals First Division rendered its Decision denying the Petition for Review and, hence,
the claim for refund. Air Canada seasonably filed a Motion for Reconsideration, but the
Motion was denied. On May 9, 2005, Air Canada appealed to the Court of Tax Appeals En
Banc. In the Decision dated August 26, 2005, the Court of Tax Appeals En Banc affirmed the
findings of the First Division. Hence, this Petition for Review.
ISSUE:
Whether Air Canada is subject to the 2½% tax on Gross Philippine Billings pursuant to Section
28(A)(3) of the Tax Code.
RULING:
An offline international air carrier selling passage tickets in the Philippines, through a general
sales agent, is a resident foreign corporation doing business in the Philippines. As such, it is
taxable under Section 28(A)(l), and not Section 28(A)(3) of the Tax Code, subject to any
applicable tax treaty to which the Philippines is a signatory. Pursuant to Article 8 of the
Republic of the Philippines-Canada Tax Treaty, Air Canada may only be imposed a maximum
tax of 1 ½% of its gross revenues earned from the sale of its tickets in the Philippines.
Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the
Philippines. Aerotel performs acts or works or exercises functions that are incidental and
beneficial to the purpose of petitioner’s business. The activities of Aerotel bring direct
receipts or profits to petitioner. There is nothing on record to show that Aerotel solicited
orders alone and for its own account and without interference from, let alone direction of,
petitioner. On the contrary, Aerotel cannot "enter into any contract on behalf of [petitioner
Air Canada] without the express written consent of [the latter,]" and it must perform its
functions according to the standards required by petitioner. Through Aerotel, petitioner is
able to engage in an economic activity in the Philippines.
Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived
from sources within the Philippines. International air carrier[s] maintaining flights to and from
the Philippines shall be taxed at the rate of 2½% of its Gross Philippine Billings while
international air carriers that do not have flights to and from the Philippines but nonetheless
earn income from other activities in the country [like sale of airline tickets] will be taxed at
the regular income tax rate.
However, the application of the regular tax rate under Section 28(A)(1) of the Tax Code must
consider the existence of an effective tax treaty between the Philippines and the home
country of the foreign air carrier. In this case, there is a tax treaty that must be taken into
consideration to determine the proper tax rate. While petitioner is taxable as a resident
foreign corporation under Section 28(A)(1) of the Tax Code on its taxable income from sale
of airline tickets in the Philippines, it could only be taxed at a maximum of 1½% of gross
revenues, pursuant to Article VIII of the Republic of the PhilippinesCanada Tax Treaty that
applies to petitioner as a "foreign corporation organized and existing under the laws of
Canada.
The P5,185,676.77 Gross Philippine Billings tax paid by petitioner was computed at the rate
of 1 ½% of its gross revenues amounting to P345,711,806.08. It is quite apparent that the tax
imposable under Section 28(A)(l) of the Tax Code will exceed the maximum ceiling of 1 ½% of
gross revenues as decreed in Article VIII of the Republic of the Philippines-Canada Tax Treaty.
Hence, no refund is forthcoming. WHEREFORE, the Petition is DENIED.
12. CIR v. Toledo Power Company, G.R. No. 196415, December 2, 2015 (TAX REFUND IS NEVER
PRESUMED AND COMPENSATION) Offsetting can be allowed if the determination of the
taxpayer’s liability is intertwined with the resolution of the claim for tax refund of
erroneously or illegally collected taxes under Section 229 of the NIRC
As a rule, taxes cannot be subject to compensation because the government and the taxpayer
are not creditors and debtors of each other. However, in several cases, The Court have
allowed the determination of a taxpayer's liability in a refund case, thereby allowing the
offsetting of taxes. It was clarified though that while offsetting may be allowed, the BIR can
no longer assess the taxpayer for deficiency taxes in excess of the amount claimed for refund
if prescription has already set in.
FACTS
Toledo Power Corporation (TPC) is a general partnership principally engaged in the business
of power generation and sale of electricity to National Power Corporation (NPC), Cebu Electric
Cooperative III (CEBECO), Atlas Consolidated Mining and Development Corporation (ACMDC),
and Atlas Fertilizer Corporation (AFC).
TPC filed with the BIR an administrative claim for refund or credit of its unutilized input VAT
for the taxable year 2002 under EPIRA Law and NIRC.
Since NPC is exempt from the payment of all taxes, including VAT, the CTA Division allowed
TPC to claim a refund or credit of its unutilized input VAT attributable to its zero- rated sales
of electricity to NPC for the taxable year 2002. The CTA Division, however, denied the claim
attributable to TPC's sales of electricity to CEBECO, ACMDC and AFC due to the failure of TPC
to prove that it is a generation company under the EPIRA.
Petitioner argues that since TPC failed to present all relevant documents, it failed to prove
that it did not apply its unutilized input VAT against output VAT. Moreover, since TPC's sales
of electricity to companies other than NPC were denied VAT zero-rating, TPC should be held
liable for deficiency VAT in the amount of P4,015,731.63. On the other hand, TPC argues that
, it is already agreed that TPC is a generation company under the EPIRA. In addition, it is not
liable for deficiency VAT, even if, for the sake of argument, its sales of electricity to CEBECO,
ACMDC, and AFC are not zero-rated, as an assessment cannot be issued in a refund case, not
to mention that the BIR's period to assess had already prescribed.
ISSUE: Whether TPC is liable for deficiency VAT. (NO)
RULING:
As a rule, taxes cannot be subject to compensation because the government and the taxpayer
are not creditors and debtors of each other. However, in several cases, The Court have
allowed the determination of a taxpayer's liability in a refund case, thereby allowing the
offsetting of taxes. It was clarified though that while offsetting may be allowed, the BIR can
no longer assess the taxpayer for deficiency taxes in excess of the amount claimed for refund
if prescription has already set in. The Court allowed offsetting of taxes only because the
determination of the taxpayer's liability is intertwined with the resolution of the claim for tax
refund of erroneously or illegally collected taxes under Section 229 of the NIRC
In the case at bar, TPC filed a claim for tax refund or credit under Section 112 of the NIRC
where the issue to be resolved is whether TPC is entitled to a refund or credit of its unutilized
input VAT for the taxable year 2002. Since it is not a claim for refund under Section 229 of the
NIRC, the correctness of TPC s VAT returns is not an issue. Thus, there is no need for the court
to determine whether TPC is liable for deficiency VAT. It would be unfair to allow the CIR to
use a claim for refund under Section 112 of the NIRC as a means to assess a taxpayer for any
deficiency VAT, especially if the period to assess had already prescribed.
13. People v. Kintanar, CTA EB Crim. No. 006, December 3, 2010 (Tax Evasion NON-FILING OF
RETURN)
DOCTRINE
An experienced business is a factor to determine whether or not there is deliberate
ignorance or conscious avoidance on the duty to file an ITR, failure of which gives rise to a
criminal Violation of Section 255 of the NIRC of 1997, as amended, for failure to make or
file a return, which the following requisites are as follows:
1) The accused is a person required to make or file a return;
2) The accused failed to make or file the return at the time required
by law; and
3) That failure to make or file the return was willful.
FACTS:
The facts of the case, as culled from the records, are as follows: In two (2) separate
Information’s, both dated February 7, 2006, Gloria V. Kintanar (hereafter "petitioner") was
charged with Violation of Section 255 of RA No. 8424 “SEC. 255. Failure to File Return, Supply
Correct and Accurate Information, Pay Tax, Withhold and Remit Tax, and Refund Excess Taxes
Withheld on Compensation in the amount exceeding Php. 1,000,000.
That on or about the 16th day of April, 2002, in Paranaque City, Philippines, and within
the jurisdiction of this Honorable Court, the above-named accused, a Filipino citizen residing
in the Philippines, who is engaged in business and earning income as distributor of Forever
Living Products Philippines, Inc., with obligation under the law to file her Income Tax Return
{ITR) for the taxable years 2000 and 2001 willfully, unlawfully and feloniously fail to file her
ITR with the Bureau of Internal Revenue
Petitioner Gloria V. Kintanar, the first witness for the defense, substantially testified
that she filed her ITRs for taxable years 2000 and 2001 on March 28, 2001 and April 5, 2002
respectively, and denies having willfully, unlawfully and feloniously failed to file her ITRs on
said years; that she has no personal knowledge of actual filing of said returns because it was
her husband who filed their ITRs.
Benjamin G. Kintanar Jr., the second witness for the defense, substantially testified
that he is the husband of petitioner that he was the one who filed their ITRs; that they filed
joint ITRs from years 1997 to 2004, through their hired accountant, Marina Mendoza; that it
was Mendoza who prepared the ITRs; that he gave all the documents necessary for filing the
ITRs,
ISSUE: W/N THE DEFENCES WERE PROPER?
HELD:
NO. For violation of Sec 225 of the NIRC 1997. Failure to make or file a return the following
requisites must concur:
1)
The accused is a person required to make or file a return;
2)
The accused failed to make or file the return at the time required by law; and
3)
That failure to make or file the return was willful.
Considering that petitioner earned a substantial income, as distributor/independent
contractor of FLPPI; she is, therefore, required to make or file her annual income tax return
As regards the second element, the testimonial and documentary evidence adduced
by the prosecution shows that petitioner failed to make or
file her ITRs for taxable years 2000 and 2001.
As regards the third element of "willfulness", the prosecution has sufficiently proven beyond
reasonable doubt that petitioner deliberately failed to make or file a return. Willful in the tax
crimes statutes means voluntary, intentional violation of a known legal duty, and bad faith or
bad purpose need not be
An act or omission is "willfully" done if done voluntarily and intentionally and with
specific intent to do something the law forbids, or with specific intent to fail to do something
the law requires to be done; that is, with bad purpose to either disobey or disregard the law.
A willful act may be described as one done intentionally, knowingly and purposely, without
justifiable excuse.
Petitioner claims that she did not actively participate in the filing of her joint ITRs with her
husband in the years 2000 and 2001 and entrusted the fulfillment of such duty to her
husband; that her husband hired a certain Marina Mendoza, an accountant, who was tasked
by her husband to handle the filing and payment of their tax obligations; thus, there was no
voluntary, intentional, deliberate, or malicious failure to file a return on her part.
Petitioner's contention cannot be sustained. First, the prosecution has clearly
established that under the law, petitioner and her husband, as married individuals, who do
not derive income purely from compensation, are obliged to file their ITRs for taxable years
2000 and 2001 for the income they earned, as distributors/independent contractors of FLPPI.
Thus, petitioner's sole reliance on her husband to file their ITRs is not a valid reason to justify
her non-filing, considering that she knew from the start that she and her husband are
mandated by law to file their ITRS.
Second, being an experienced businesswoman, and having been an independent
distributor/contractor of FLPPI since 1996, petitioner ought to know and understand all the
matters concerning her business. This includes knowledge and awareness of her tax
obligation in connection with her business. Petitioner should know how much are her tax
dues, the details stated on the ITRs, where the same are filed, and other important facts
related to the filing of her ITRs; after all, these matters concern her finances.
Under Rule 131, Section (3) (d) of the Rules on Evidence, it is presumed that a person takes
ordinary care of his concern.
Hence, the natural presumption is that petitioner knows what are her tax obligations
under the law. As a businesswoman, she should have taken ordinary care of her tax duties
and obligations and she should know that their ITRs should be filed, and she should have
made sure that their ITRs were filed. She cannot just leave entirely to her husband the filing
of her ITRs.
Petitioner cannot find solace on her claim that her husband hired an accountant, who
was tasked to handle the filing and payment of their tax obligations. This allegation was a
bare testimony of petitioner's husband, and yields nothing, but mere uncorroborated
statements. Mere allegations are definitely not evidence (Coronel vs Court of Appeals, 263
SCRA 35); thus, it cannot be used as basis for a court's decision.
Furthermore, the Court finds no affirmative acts on the part of the petitioner to make sure
that her obligation to file her ITRs had been fully complied with. Petitioner testified that she
does not even know how much was her tax obligation, nor did she bother to inquire or
determine the facts surrounding the filing of her ITRs. Such neglect or omission, as aptly found
by the Former Second Division, is tantamount to "deliberate ignorance" or "conscious
avoidance". The evidence adduced by the prosecution has also established that petitioner
was duly informed that no ITRs were filed, nor recorded under her name. There were several
notices sent to her by the BIR to comply with her tax obligations, but she opted not to comply.
14. People v. Judy Anne Santos, CTA Crim. Case No. O-012, January 16, 2013 (TAX EVASION
FRAUDULENT RETRUN)
DOCTRINE:
It is well-settled that mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion. Tax evasion connotes the integration of three factors:
(1)
the end to be achieved,
(2)
an accompanying state of mind which is described as being evil," in "bad faith,"
"willful," or "deliberate and not accidental"; and
(3)
a course of action or failure of action which is unlawful.
The element of willful failure to supply correct and accurate information must be fully
established as a positive act or stale of mind; it cannot be presumed nor attributed to mere
inadvertent or negligent acts.
FACTS:
That on or about the 15th day of April 2003, at Quezon City, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused did then there, willfully,
unlawfully, and feloniously filed a false and
fraudulent income tax return for taxable
year 2002.
She denied the allegations on the Information against her that she willfully filed a false
and fraudulent Income Tax Return for the taxable year 2002.
She counters that since she started working, it is her Manager who is in charge of filing the
relevant returns and paying the corresponding taxes, which makes her Manager the
custodian of her records.
Accused Judy Anne Santos testified that she started in the industry at a young age of eight
(8) years old in 1986; that, at the age of twelve (12), she had engaged the services of Mr.
Alfonso Lorenzo, as her Manager, thus, she has entrusted all her transactions, i.e., contract
negotiations, contract signing, handling of fees, to him.
She admitted, however, the absence of a written contract on the engagement of her
Manager, out of trust and confidence to the latter, whom she considered a member of her
family. She testified as well that out of that trust and confidence on her Manager, she had
signed contracts without reading the same, since her Manager assured her that he already
made a read through of it.
ISSUE:
W/N THERE IS WILLFUL INTENTION TO COMMIT TAX EVASION?
HELD:
NO. It only finds the accused negligent; and such is not enough to convict her in the case
at bench. Negligence, whether slight or gross, is not equivalent to the fraud with intent to
evade the tax contemplated by the law.
Fraud must amount to intentional wrongdoing with the sole object of avoiding the tax.
The Court also notes the intention of the accused to settle the case were it not for the
opposition of her Manager and then counsel, which negates any motive of the accused to
commit fraud.
Based on the records of the case, the accused testified that as early as twelve (12) years
old, she had engaged the services of Mr. Alfonso Lorenzo as her manager, without any written
contract, considering that the same was also the Manager of her older brother, and that she
has considered him a family member.
Further, she maintains that the set-up of their Manager-Talent relationship is that the
former shall handle all her transactions such as contract negotiations, contract signing,
handling of fees, including the collection thereof, and that out of trust, respect and
confidence on her Manager, she had signed contracts upon his mere assurances, even
without reading the same, and that her fees, were most of the tune, issued in the name of
her Manager, who collects the same, and thus, she has no knowledge of how much she was
earning per project.
As earlier discussed, the prosecution was able to prove that the accused failed lo supply
correct and accurate information in her ITR for the year 2002 for her failure to declare her
other income payments received from other sources.
However, it is well-settled that mere understatement of a tax is not itself proof of fraud for
the purpose of tax evasion.
The burden of proof is on the prosecution to prove beyond reasonable doubt that accused
willfully failed to supply correct and accurate information.
15. Saguisag v. Ochoa, G.R. No. 212426, January 12, 2016 (TAXPAYERS SUIT)
FACTS
EDCA or Enhanced Defense Cooperation Agreement is an agreement between the Philippines
and America wherein it authorizes the U.S. military forces to have access to and conduct
activities within certain "Agreed Locations" in the country. After eight rounds of negotiations
for two years, the Secretary of National Defense and the U.S. Ambassador to the Philippines
signed the agreement on 28 April 2014. President Benigno S. Aquino III ratified EDCA on 6
June 2014. It was not transmitted to the Senate on the executive's understanding that to do
so was no longer necessary. Senators file Senate Resolution No. (SR) 105.91. The resolution
expresses the "strong sense" of the Senators that for EDCA to become valid and effective, it
must first be transmitted to the Senate for deliberation and concurrence.
ISSUE:
The question before us is a question of of locus standi or legal standing focuses on the
determination of whether those assailing the governmental act have the right of appearance
to bring the matter to the court for adjudication specifically, those in the Congress and private
citizens. Whether they can claim they have legal standing on the basis of a taxpayer suit.
HELD:
NO. A taxpayer's suit concerns a case in which the official act complained of directly involves
the illegal disbursement of public funds derived from taxation.125 Here, those challenging
the act must specifically show that they have sufficient interest in preventing the illegal
expenditure of public money, and that they will sustain a direct injury as a result of the
enforcement of the assailed act.126 Applying that principle to this case, they must establish
that EDCA involves the exercise by Congress of its taxing or spending powers.
We emphasize that a taxpayers' suit contemplates a situation in which there is already an
appropriation or a disbursement of public funds.128 A reading of Article X(l) of EDCA would
show that there has been neither an appropriation nor an authorization of disbursement of
funds.
This provision means that if the implementation of EDCA would require the disbursement of
public funds, the money must come from appropriated funds that are specifically authorized
for this purpose. Under the agreement, before there can even be a disbursement of public
funds, there must first be a legislative action. Until and unless the Legislature appropriates
funds for EDCA, or unless petitioners can pinpoint a specific item in the current budget that
allows expenditure under the agreement, we cannot at this time rule that there is in fact an
appropriation or a disbursement of funds that would justify the filing of a taxpayers' suit.
They have legal standing however by reason of Transcendental importance when paramount
interest is involved