TAX ALERT
May 31, 2005
LEGISLATIONS:
PRESIDENT ARROYO SIGNS INTO LAW EXPANDED VAT BILL (REPUBLIC ACT
NO. 9337).
President Gloria Macapagal-Arroyo recently signed into law Republic Act No. 9337 restructuring
the VAT system. Some of the salient changes introduced by R.A. 9337 are as follows: (1) R.A.
9337 increases corporate income tax rate from 32% to 35%, but effective January 1, 2009, will be
reduced to 30%; (2) gives the President a “stand-by authority” to increase the VAT rate from 10%
to 12% under certain conditions; (3) ends the exemption of certain industries, such as sale of
power and electricity, air and sea transport services, sale of petroleum products, and sale of
services by doctors and lawyers; (4) grants taxpayers whose transactions are exempt from VAT
the option to be VAT-registered persons; (5) limits the application and carry-over of input tax
credits; (6) reinstates the practice of showing VAT as a separate item in the invoice or receipt.
The law takes effect on July 1, 2005. Republic Act No. 9337.
BIR RULINGS:
PAYMENT OF AMOUNT EQUIVALENT TO 1% OF FRANCHISEES’ REVENUES AS
SHARE FOR ADVERTISING EXPENSES IS NOT CONSIDERED INCOME OF
FRANCHISOR.
A Inc. is the owner of a certain trademark and has granted B Inc. a master license to use the said
trademark and operate “AA” Bakeshops and to license the same. Subsequently B Inc. was
merged with C Inc., with the latter as the surviving entity. Under the Franchise Agreement by B
Inc. with A Inc., which was passed on to C Inc. after the merger, A Inc. has the right to collect
from the franchisees the amount of not less than 1% of the franchisees’ revenues as advertising
expenses. The advances are on several occasions, advanced by A Inc., which is in turn
reimbursed by the franchisees on or before the 10th day of the following month. Any excess in
the remittance is treated as a deposit for advertising fees of the concerned franchisee. The BIR
held that reimbursement of the actual share of each franchisee in the advertising and promotional
expenses received by A Inc. is not considered as income derived by A Inc. in the pursuit of its
business. The funds are merely held in trust by A Inc. to be used solely for national advertising
and advertising related expenses for the benefit of all franchisees. Moreover, such payments are
also not subject to the expanded withholding tax and VAT. BIR Ruling DA-121-2005, April 6,
2005.
ALL EMPLOYEES, WHETHER FOREIGNERS OR FILIPINOS, EMPLOYED AND
ASSIGNED BY A FOREIGN SERVICE SUBCONTRACTOR ENGAGED IN
PETROLEUM OPERATIONS IN THE PHILIPPINES ARE SUBJECT TO THE
PREFERENTIAL TAX RATE OF 15%.
Inasmuch as the employees have technical proficiency and initiatives as well as specialized
knowledge and skills, prior to their employment, the same tax treatment is applicable to Filipinos
employed and occupying the same positions as aliens employed by foreign petroleum service
8/F Jollibee Centre, San Miguel Avenue, Ortigas Center, Pasig City, 1605 Philippines
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contractors and subcontractors, regardless of whether or not there is an alien executive occupying
the same position. BIR Ruling No. DA-116-2005, April 6, 2005.
REAL PROPERTY ACQUIRED WITH THE INTENTION OF BEING USED AS A
STORAGE HOUSE/WAREHOUSE, WHICH REAL PROPERTY WAS NEVER USED
AND HAD REMAINED IDLE SINCE IT WAS ACQUIRED MORE THAN 2 YEARS
AGO, IS A CAPITAL ASSET.
Consequently, the sale thereof is subject to 6% capital gains tax and 1.5% DST. It is likewise not
subject to 10% VAT since the subject real property was not held primarily for sale or for lease to
customers. BIR Ruling No. DA-168-2005, April 15, 2005.
REAL PROPERTIES TRANSFERRED BY A PARENT COMPANY ENGAGED IN THE
REAL ESTATE BUSINESS TO ITS SUBSIDIARY ENGAGED IN THE GAS BUSINESS
IN EXCHANGE FOR SHARES OF THE SUBSIDIARY UNDER A TAX-FREE
EXCHANGE TRANSACTION SHALL BE CLASSIFIED AS CAPITAL ASSETS IN THE
HANDS OF THE SUBSIDIARY.
Under its Articles of Incorporation, Sub Co. is primarily engaged in the manufacture, production,
purchase, sale and trade of all kinds of liquids, gases and other chemicals and allied products.
Parent Co. is Sub Co.’s mother company and is involved mainly in the real estate business. Sub
Co. is undergoing corporate rehabilitation and, under its court-approved rehabilitation plan,
Parent Co. shall invest up to P2.0 billion worth or real estate assets in Sub Co. as equity.
Considering that Sub Co. is not engaged in the real estate business, the real properties transferred
to it by Parent Co. shall be classified as capital assets. Since the real properties will not form part
of its trade inventory and will not be subjected to depreciation, they should not be considered
ordinary assets. BIR Ruling No. DA-163-2005, April 14, 2005.
CONDONATION OF DEBT DOES NOT RESULT IN TAXABLE INCOME ON THE
PART OF THE DEBTOR IF, AFTER CONDONATION, THE DEBTOR REMAINS
INSOLVENT.
A transaction whereby nothing of exchangeable value comes to or is received by the taxpayer
does not give rise to or create taxable income. Since the debtor remained insolvent
notwithstanding the write-off of accounts receivables, it did not derive any income as a result
thereof and, as such, should not be subject to income tax. BIR Ruling No. DA-136-2005, April
7, 2005.
PASSENGER AND FREIGHT CHARGES PAID TO AN OFFLINE AIRLINE ARE NOT
SUBJECT TO INCOME TAX, GROSS PHILIPPINE BILLINGS TAX AND COMMON
CARRIER’S TAX.
An off-line airline having a branch office or a sales agent in the Philippines which sells passage
documents for compensation or commission to cover off-line flights of its principal or head office
is not considered engaged in business as an international air carrier in the Philippines. It is,
therefore, not subject to Gross Philippine Billings Tax and to the three percent (3%) common
carrier’s tax. An international air carrier is subject to income tax only on income derived from
sources within the Philippines. It is only when flights originate in the Philippines that services
can be considered to have been rendered in the Philippines and the income therefrom derived
from Philippine sources. Since passenger and freight charges paid to an off-line airline are not
subject to income tax and, consequently, to the creditable withholding tax, an off-line airline
cannot be held liable for the 32% regular corporate income tax or the 2% MCIT in lieu of Gross
Philippine Billings Tax. BIR Ruling No. DA-158-2005, April 14, 2005.
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PAYMENTS FOR SERVICES TO BE PERFORMED OUTSIDE THE PHILIPPINES IN
CONNECTION WITH A SOFTWARE MAINTENANCE CONTRACT ARE EXEMPT
FROM INCOME TAX AND VAT.
R purchased CAD software from S. In relation to the purchased software, R and S entered into a
Software Maintenance Contract as supplemented by an Individual Software Maintenance
Contract. Under the Individual Software Maintenance Contract, S agreed to provide R certain
maintenance services to be performed outside the Philippines and transmitted electronically by
recorded media. The BIR ruled that since the subject services will be carried out entirely outside
the Philippines, service fees to be paid by R to S, being income not derived from sources within
the Philippines by a foreign corporation, are exempt from income tax. Similarly, the subject fees
are not subject to 10% VAT since the services will not be performed in the Philippines. BIR
Ruling No. DA-ITAD 13-05, February 16, 2005.
BIR DISTINGUISHES BETWEEN COMPENSATION FOR SERVICE AND ROYALTY.
Facts: Company D Philippines and Company D Japan, which is not engaged in business in the
Philippines, entered into a Service Agreement where Company D Japan shall send employees in
the Philippines to conduct the inspection and quality control of the machinery of Company D
Philippines. Held: To distinguish between compensation for service and royalty payments, one
must inquire on whether the payee has proprietary interest in the property that gives rise to the
income. If the payee has none, the payment is compensation for personal services; if the payee
has proprietary interest, the payment is royalty. There is nothing in the Agreement that requires
the transfer into the Philippines of technology, equipment, or other property where Company D
Japan has proprietary interest or would otherwise permit Company D Japan to impart to Company
D Philippines special knowledge and experience which remain unrevealed to the public.
Likewise, inasmuch as Company D Japan would render these services using customary skills,
then, the compensation to be received does not constitute consideration for the use of, or the right
to use, any copyright, patent, trademark, design or model, plan, secret formula or process, or for
the transfer of technology. BIR-ITAD Ruling No. 30-05, April 12, 2005, citing Philippine
Refining Company vs. Commissioner of Internal Revenue, CTA Case No. 2872, January 15,
1986.
STOCKHOLDERS ARE NOT OBLIGED TO FILE RETURNS ON DIVIDEND INCOME.
Dividends paid a company to its stockholders are subject to a final tax. The company, as the
payor/withholding agent, is under obligation to withhold the final tax due on the dividends prior
to distribution to the recipient stockholders. Because the dividends are subject to final
withholding tax, the recipient-stockholders are no longer obliged to file the corresponding returns
for the income received. BIR Ruling No. DA-142-2005, April 11, 2005.
EXISTING RETIREMENT FUNDS, WHEN TAKEN OVER BY SUCCESSOR
EMPLOYERS THROUGH AN INTERNAL REORGANIZATION, MAINTAIN THEIR
TAX-EXEMPT STATUS.
Also, the transfer of actuarial accrued benefits of former employees to the new employer is
exempt from tax. Moreover, any excess funds of the Retirement Plan (as assumed by the
successor employer), including proceeds from future sale or transfer of real property, after the
transfer of the actuarial accrued benefits from the old employer and after payment of any Plan
liabilities, will revert to the successor employer and not the former employer. BIR Ruling No.
DA-113-2005, April 5, 2005.
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DST ON PREMIUMS SHOULD BE COLLECTED EACH TIME A PREMIUM IS PAID
PUSUANT TO SECTION 183 OF THE TAX CODE, AS AMENDED BY RA 9243.
The Philippine Life Insurance Association (PLIA) sought reconsideration of the policy regarding
the collection of DST on life insurance policies which is being done every time the premium is
paid by the insured. According to the PLIA, there is only one DST (which is now based on the
premium) due on the entire life insurance policy and the amount of DST should be based on the
initial premium collected. Therefore, subsequent payments of the portion of the premium should
not be subject to DST anymore. The BIR ruled that the law simply provides that the DST shall be
based on the amount of premium collected. The BIR interpreted this to mean that each time a
premium is collected, DST will be paid. The premium may be payable annually or on installment,
thus, in the case of payment by installment, each time a portion of the premium is paid, DST will
be imposed thereon. BIR Ruling No. DA-182-205, April 20, 2005.
IN A MERGER, THE RE-ISSUANCE OF TREASURY SHARES OF THE SURVIVING
CORPORATION IS SUBJECT TO DST UNDER SECTION 175 OF THE TAX CODE.
The re-issuance of treasury shares of the surviving corporation to the stockholders of the absorbed
corporation in exchange for the absorbed corporation’s shares surrendered to the surviving
corporation is subject to DST under Section 175 of the 1997 Tax Code at the rate of P0.75 on
each P200.00 par value, or a fractional part thereof, of the total par value of the shares of stock
transferred. BIR Ruling No. S-40-038-2004, December 28, 2004.
A TAXPAYER’S BOOKS OF ACCOUNTS PREVIOUSLY REGISTERED WITH THE
BIR BUT WHOSE PAGES ARE NOT FULLY USED UP DO NOT NEED TO BE
CHANGED AND REGISTERED EVERY YEAR.
In other words, the taxpayer may use the same set of registered books of accounts for several
taxable years as long as the pages are not completely filled up. The registration of a new volume
of books of accounts for the continuation of entries for a particular taxable year should be done
before the period of first entry in such volume of books of accounts, and not necessarily before
the taxable year commences. BIR Ruling No. DA-114-2005, April 5, 2005.
ROYALTIES PAID IN CONSIDERATION OF TECHNICAL ASSISTANCE AND
TECHNICAL INFORMATION, WHICH ROYALTIES FORM PART OF GOODS IN
PROCESS OR FINISHED GOODS MANUFACTURED, IS DEDUCTIBLE FROM
GROSS SALES FOR PURPOSES OF COMPUTING GROSS INCOME SUBJECT TO 5%
PREFERENTIAL TAX IMPOSED ON PEZA-REGISTERED ENTERPRISES.
When royalties are connected with a product design, logo, formula or process, or are related to
the transfer of technical information and manufacturing know-how, such royalties should be
considered as part of the cost of manufacturing the products and, as such, capitalized as part of
inventories. Under Rev. Regs. No. 1-95, as implemented by Rev. Regs. No. 16-99, Goods in
Process (intermediate goods) and Finished Goods shall be allowed as deductions for purposes of
calculating gross income earned. Thus, royalties that form part of cost of sales, particularly,
Goods in Process or Finished Goods, may be deducted from Gross Sales for purposes of
computing Gross Income subject to the 5% final tax imposed on PEZA-registered enterprises.
BIR Ruling No. DA-178-2005, April 20, 2005.
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SUPREME COURT DECISIONS
ASSESSMENTS MUST BE BASED ON ACTUAL FACTS. PHOTOCOPIES OF
DOCUMENTS ARE MERE SCRAPS OF PAPER AND HAVE NO PROBATIVE VALUE,
HENCE, CANNOT BE USED AS BASIS FOR ANY DEFICIENCY TAXES AGAINST A
TAXPAYER.
Facts: BIR assessed the taxpayer for alleged deficiency taxes for the year 1987. The assessment
was based on the report of the Economic Intelligence and Investigation Bureau (EIIB) stating
that, based on photocopies of 77 Consumption Entries furnished by an informer, the taxpayer
understated its importations during 1987. The EIIB and the BIR, however, failed to secure
certified true copies of the subject Consumption Entries from the Bureau of Customs since,
according to the custodian, the originals had been eaten by termites. Held: The BIR cannot base
its assessment on mere photocopies of records/documents. Mere photocopies of the Consumption
Entries have no probative weight if offered as proof of the contents thereof. Such copies are mere
scraps of paper and have no probative value. While it is true that under the Tax Code, the BIR
can assess taxpayers based on the “best evidence obtainable” and that tax assessments are
presumed correct and made in good faith, it is elementary that the assessment must be based on
actual facts. The best evidence obtainable provided under the Tax Code does not include mere
photocopies of records or documents. The presumption of the correctness of an assessment,
being a mere presumption, cannot be made to rest on another presumption. The case was
remanded to the Tax Court for further proceedings to enable the BIR to adduce in evidence
certified true copies or duplicate originals of the Consumption Entries. Commissioner of
Internal Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005.
CTA DECISIONS
MORAL DAMAGES AND ATTORNEY’S FEES PAID FOR THE EXTRAJUDICIAL
SETTLEMENT OF A CASE IS NOT SUBJECT TO INCOME TAX.
Facts: BIR assessed the taxpayer for deficiency 20% final tax on the P450,000 award given to
Mr. G for moral damages and attorney’s fees for the extrajudicial settlement of a civil case filed
by Mr. G against the taxpayer. Held: The court held that the BIR has no basis in assessing the
taxpayer for deficiency 20% final tax on the award of damages. Exemplary and moral damages
awarded to a party-litigant are not considered taxable income. Likewise, the attorney’s fees
awarded as reimbursement of costs of litigation are also not subject to income tax. Bank of
America N.A. – Manila Branch vs. Commissioner of Internal Revenue, CTA Case No. 6144,
March 14, 2005.
CONVERSION OF UNREMITTED PROFITS TO PERMANENTLY ASSIGNED
CAPITAL PURSUANT TO CIRCULAR 51 OF THE BSP DOES NOT CONSTITUTE
CONSTRUCTIVE REMITTANCE OF PROFIT FOR PURPOSES OF BRANCH PROFIT
REMITTANCE TAX.
Facts: In 1995, the BSP approved the taxpayer’s request to transfer its previous year’s unremitted
profits, amounting to P39 million, to assigned capital in compliance with Section 5 Circular 51 of
BSP, which implements RA No. 7721. The BIR contends that the conversion of the unremitted
profits to permanently assigned capital upon BSP approval was a form of constructive remittance
on the part of the taxpayer to its head office and, as such, the same should be subject to 15%
BPRT. Held: The taxpayer is not subject to deficiency BPRT. A perusal of the correspondences
between the taxpayer and the BSP indicates that there was conversion of the unremitted earnings
to permanently assigned capital. This means that there was no remittance to the head office that
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happened, whether actual or constructive. The P39 million earnings of the taxpayer, which were
originally allotted to be remitted to its head office, were converted to permanently assigned
capital, pursuant to Section 5 Circular 51 of the BSP. Clearly, the amount was never remitted but
was retained in this country. Moreover, in an unnumbered BIR ruling dated July 31, 1978
involving the same issue, the Commissioner ruled that if the branch profits are actually converted
into capital and, therefore, are retained in this country, they will not be subject to the remittance
tax. Bank of America N.A. – Manila Branch vs. Commissioner of Internal Revenue, CTA
Case No. 6144, March 14, 2005.
THE TERM “GAIN” AS USED IN SECTION 32(B)(7)(g) OF THE TAX CODE DOES
NOT INCLUDE INTEREST.
M Co. filed a claim for refund of the alleged erroneous withholding of tax by the Bureau of
Treasury on interest payments paid to M Co. in connection with its purchase of treasury notes
with maturity of more than five (5) years. The court denied the claim on the ground that Section
32(B)(7)(g) of the Tax Code does not include interest income because the said section particularly
refers to “gains from sale of bonds, debentures or other certificates of indebtedness” in its title
and “gains realized from the sale or exchange or retirement of bonds, debentures or other
certificates of indebtedness with a maturity of more than five (5) years” in its body. Malayan
Insurance Co. Inc. v. Commissioner of Internal Revenue, CTA Case E.B. No. 8, March 31,
2005.
A TAXPAYER THAT IS NOT SUBJECT TO VAT BUT NONETHELESS ISSUES A VAT
INVOICE AUTOMATICALLY MAKES THE SALE SUBJECT TO THE 10% VAT.
Any person whose sale of goods or properties or services which are otherwise not subject to
VAT, but who issues a VAT invoice or receipt shall be liable to pay 10% VAT without the
benefit of input tax credit. Caterpillar Motoren GmbH & Co. KG (Philippine Branch) vs.
Commissioner of Internal Revenue, CTA E.B. No. 12 (CTA Case No. 6290), March 29, 2005.
TAX COURT REITERATES RULE THAT MEGA SAVINGS ACCOUNTS AND
SPECIAL SAVINGS ACCOUNTS ARE CERTIFICATES OF DEPOSIT SUBJECT TO
DST UNDER SECTION 180 OF THE TAX CODE. Traders Royal Bank v. Commissioner of
Internal Revenue, CTA Case E.B. No. 34, April 26, 2005.
WHERE THE TAXPAYER DENIES RECEIPT OF ANY ASSESSMENT NOTICE, THE
BIR HAS THE BURDEN OF PROVING THAT THE TAXPAYER RECEIVED THE
NOTICE OF ASSESSMENT.
A Co. received a letter from the BIR demanding payment of deficiency gross Philippine billings
and common carrier’s tax with a warning that in case of failure to pay, the BIR will enforce
collection through issuance of a warrant of distraint and levy and/or judicial action. A Co.
protested the assessment saying that the right of the BIR to assess had already prescribed and that
it did not receive any assessment notices of the alleged tax liabilities. The BIR claimed that the
assessment notices were sent through registered mail two days before expiration of the
prescriptive period and produced evidence of mailing the said notices. The CTA cancelled the
assessment on the ground that the right of the government to assess had already prescribed and
the BIR was not able to prove that A Co. actually received the assessment notices. Commissioner
of Internal Revenue v. Akitsu Shipping Co., Ltd., CTA Case E.B. No. 33, March 31, 2005.
CTA REITERATES RULING THAT AN ASSESSMENT WHETHER VALID OR VOID
BECOMES FINAL AND EXECUTORY WHEN NO ADMINISTRATIVE PROTEST IS
FILED WITHIN 30 DAYS FROM RECEIPT THEREOF.
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Petitioner argues that the requirement of filing an administrative protest presupposes a valid and
legal assessment issued within the time prescribed by law. Petitioner contends that since the
subject assessments were issued beyond the prescriptive period, they were void and illegal, and
there was nothing to protest. In denying petitioner’s motion for reconsideration, the Court held
that petitioner should have invoked the issue of prescription as a defense at the administrative
level, by filing a protest before respondent Commissioner of Internal Revenue, to prevent the
assailed assessments from becoming final and executory. Failing in this regard is procedurally
detrimental to petitioner. Petitioner’s argument that it is not duty-bound to file an administrative
protest against a void assessment is misplaced. Precisely, one of the grounds that a taxpayer can
raise in protesting an assessment is the defense of prescription, which, if found meritorious,
provides legal justification for the Commissioner of Internal Revenue to revoke an assailed
assessment. An assessment which is contrary to law, can attain finality, if the same is not
protested. Prescription is a mere defense that must be invoked at the proper time, otherwise, it
shall be considered waived. It is not jurisdictional. Singer Finance Corporation vs.
Commissioner of Internal Revenue, CTA EB No. 10 (CTA Case No. 6743), March 4, 2005.
A TAXPAYER IS BARRED FROM QUESTIONING THE VALIDITY OF WAIVERS
ONCE IT PAYS A PORTION OF THE AMOUNT OF TAX ASSESSED BY THE BIR.
Facts: Taxpayer B executed several waivers for the purpose of extending the prescriptive period
to assess deficiency business and income taxes for taxable years 1994 and 1995. The first waiver
that Taxpayer B executed was not signed by the Commissioner or by his duly authorized
representative. Notwithstanding such infirmity in the waiver, Taxpayer B paid the proposed
assessment for 1994 deficiency gross receipts tax. Held: The Tax Court declared that such
action barred Taxpayer B from questioning the validity of the waiver covering the other
deficiency tax assessments. Taxpayer B’s act of paying the 1994 GRT assessment constitutes an
admission on its part that the waiver was valid. Taxpayer B is estopped from questioning the
validity of the waivers. Bank of Commerce vs. Commissioner of Internal Revenue, CTA Case
No. 6332, April 29, 2005, citing Rizal Commercial Banking Corporation vs. Commissioner of
Internal Revenue, CTA Case No. 6201, December 15, 2004.
RECEIPTS BEARING A TAXPAYER’S UNAUTHORIZED NAME CANNOT BE USED
TO SUBSTANTIATE A CLAIM FOR REFUND.
Its change of name to XYZ, being unauthorized and without approval from the Securities and
Exchange Commission, Taxpayer X cannot seek a refund of input taxes that are supported by
official receipts under that name. The requisite that official receipts be issued showing the name,
business style, if any, and address of the purchaser, customer or client is precise so that when the
books of accounts are subjected to a tax audit examination, all entries could be shown as
adequately supported and proven as legitimate business transactions. The absence of official
receipts issued in the taxpayer’s name is tantamount to non-compliance with the substantiation
requirements provided by law. Bonifacio Vivendi Water Corporation [Formerly Bonifacio
Water Corporation] vs. Commissioner of Internal Revenue, CTA Case No. 6380, March 29,
2005.
TAX COURT UPHOLDS STRICT COMPLIANCE WITH THE REQUIREMENTS OF
RMO NO. 20-90 IN THE EXECUTION OF WAIVERS.
Citing the decision of the Supreme Court in Philippine Journalists, Inc. v. Commissioner of
Internal Revenue, G.R. No. 162852, December 16, 2004, the Tax Court invalidated a Waiver of
the Statute of Limitations on the following grounds: (i) the waiver failed to state the date of the
acceptance thereof by the BIR; (ii) the fact of receipt by the taxpayer of his/her file copy was not
indicated in the original of the waiver; and (iii) the waiver was not signed by the Commissioner
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himself. RMO 20-90 distinguishes waivers executed in relation to tax cases pending with the
National office and those pending with Regional offices. Generally, in the Regional offices, a
waiver need not be signed by the Commissioner if the period to assess is about to prescribe.
However, in the National office, the authority to sign a waiver depends on the amount involved,
irrespective of whether or not the period to assess is about to prescribe. Starpack Philippines
Corporation v. Commissioner of Internal Revenue, CTA Case No. 6486, April 21, 2005.
A DEFICIENCY TAX ASSESSMENT DOES NOT, IN ANY WAY, DISQUALIFY A
TAXPAYER FROM CLAIMING A TAX REFUND SINCE A REFUND CLAIM CAN
PROCEED INDEPENDENTLY OF A TAX ASSESSMENT.
While it is recognized that assessments are intimately related to and inextricably intertwined with
a refund claim, it is likewise true that when a taxpayer receives an assessment, he is accorded due
process of protesting the assessment and eventually appealing the same to the Tax Court. To rule
on the deficiency assessment at the raw stage of a judicial refund claim would result to injustice
on the part of the petitioner and confusion among taxpayers. Consequently, a deficiency tax
assessment should not be tackled in a case involving the refund of overpaid taxes. ATR Kim Eng
Financial Corporation (formerly Philtread Tire and Rubber Corporation and Philtread
Holdings Corporation) v. Commissioner of Internal Revenue, CTA Case No. 5598, April 21,
2005.
RULINGS AND CIRCULARS ISSUED BY THE COMMISSIONER ARE PROSPECTIVE
IN APPLICATION.
The Commissioner may or may not decide to give a ruling or a circular a retroactive application
and the sole prohibition is that it must not be prejudicial to the taxpayer. Its retroactive
application is not automatic even if the said ruling or circular will benefit a taxpayer. Unless the
Commissioner specifically states that the ruling or circular shall have retroactive effect, they will
have a prospective application. Caterpillar Motoren GmbH & Co. KG (Philippine Branch) vs.
Commissioner of Internal Revenue, CTA E.B. No. 12 (CTA Case No. 6290), March 29, 2005.
NOTE:
The information provided herein is general and may not be applicable in all situations. It should
not be acted upon without specific legal advice based on particular situations. If you have any
questions, please feel free to contact any of the following at telephone number (632) 633-9418,
facsimile number (632) 633-1911, or at the indicated e-mail address:
Atty. Carlos G. Baniqued
Atty. Laura Victoria A.S. Yuson-Layug
Atty. Terence Conrad H. Bello
Atty. Ma. Carlota Christina G. Laiño-Santiago
Atty. Suzette A. Celicious
Atty. Madeline L. Zialcita-Villapando
Atty. Kathleen L. Saga
cgbaniqued@baniquedlaw.com
lvyusonlayug@baniquedlaw.com
thbello@baniquedlaw.com
cglaino@baniquedlaw.com
sacelicious@baniquedlaw.com
mlzvillapando@baniquedlaw.com
klsaga@baniquedlaw.com