+
AMDG
… CDC imposed on Chevron a royalty fee of P0.50 per liter on fuel deliveries made
to customers inside the CSEZ. Chevron protested stating that the imposition is a
tax which CDC has no power to impose.
??? Is the royalty fee a tax or a regulatory measure?
!!! It is a REGULATORY FEE. The royalty fee was deemed imposed primarily for
regulatory purposes and not for generation of income which is the primary feature
of a tax levy. The Court mentioned that the oil industry is “greatly imbued with
public interest” and that the highly combustible product “poses serious threat to
life and property”. It also upheld the reasonable relation between the fee and the
regulation sought to be attained given the high volume of fuel entering the CSEZ
and the fact that the increasing administrative costs were triggered by security
risks arising from possible terrorist strikes. Thus, CDC was authorized to impose
the fee.
+
AMDG
… Petitioner is a non-stock, non-profit educational foundation. It received a
Building Permit Fee assessment for the construction of the AUF Medical Center
but claimed exemption from the same as well as from other permits and fees by
virtue of Republic Act 6055. Respondent disputed the claimed exemption by
stating that the impositions are regulatory in nature and not taxes from which
Petitioner is exempt under the said law.
??? Is the building permit fee a tax from which Petitioner is exempt?
!!! It is a REGULATORY FEE. The DPWH has in fact issued implementing rules which
provide the bases for the assessment of fees and Petitioner has failed to show that
they were arbitrarily determined or unrelated to the activity being regulated.
Neither has there been proof that the fee was unreasonable or in excess of the
cost of regulation or inspection. The Court added that even if there was incidental
revenue, the same is deemed not to change the nature of the charge. Thus, the
City of Angeles was justified in its assessment.
+
AMDG
… Shell filed a claim for refund for excise taxes it paid on sales of gas and fuel oils
to various international carriers. The Court initially denied the claims but the
Respondent filed a Motion for Reconsideration.
??? Is Shell entitled to refund the excise taxes?
!!! YES. Section 135 is concerned with the exemption of the article itself and not
the ostensible exemption of the international carrier-buyer. In addition, the failure
to grant exemption will cause adverse impact on the domestic oil industry (similar
to the practice of “tankering”) as well as result to violations of international
agreements on aviation. Thus, Respondent, as the statutory taxpayer who is
directly liable to pay the excise tax, is entitled to a refund or credit for taxes paid
on products sold to international carriers.
*** The subsequent sale of the taxable goods to international carriers confirms the
proper tax treatment of the goods previously subjected to the excise tax.
+
AMDG
… Caltex sold aviation fuel to PAL and included excise taxes in its billings. PAL filed
for a refund of the excise taxes passed-on to it by Caltex. The claim was based on
PAL’s franchise (P.D. 1590) which confers upon PAL tax exemption on purchases of
fuel. The CTA denied PAL’s claim using as basis the earlier decision in Silkair.
??? Does PAL have standing to refund the excise taxes passed-on by Caltex?
!!! YES. The case of Silkair is not applicable since PAL’s franchise provides it with tax
exemption privileges from both direct and indirect taxes. While there have been
previous cases discussing which party is entitled to a refund in the case of excise
taxes sold to exempt entities, the Court reiterated the statement in Silkair which
said that it is primarily the statutory taxpayer which has the right to file the claim.
However, the above rule was deemed not to apply in PAL’s case since the
law/franchise clearly grants the party to which the economic burden of the tax is
shifted (i.e., PAL) an exemption from both direct and indirect taxes, thus following
the principle laid down in the earlier case of Maceda.
+
AMDG
… BOCEA questions R.A. 9335 (Attrition Act of 2005) and states that the law
violates their rights to (1) due process; (2) equal protection of the laws; and (3)
security of tenure. They likewise claim that the same is an undue delegation of
legislative power and is a bill of attainder.
??? Is the law unconstitutional?
!!! NO.
(1) Given the clear parameters on revenue targets, rewards, removal levels, etc.,
R.A. 9335 is complete in all its essential terms and conditions and contains
sufficient standards that negate a claim of undue delegation.
(2) BOC and BIR are both revenue-generating agencies that are both under the
DOF. Such substantial distinction Is germane and related to the purpose of the
law.
(3) The law does not deny the BOC employees their right to be heard and they still
can not be arbitrarily removed.
(4) It is not a bill of attainder as the same does not seek to punish without a
judicial trial as all it does is lays down the grounds for possible termination.
+
AMDG
??? Is a deficiency VAT assessment tantamount to a an assessment for withholding
tax liabilities such that the taxpayer cannot avail of a tax amnesty program?
!!! NO. The CIR did not assess AIA as a withholding agent that failed to withhold or
remit the deficiency VAT and excise tax to the BIR under relevant provisions of the
Tax Code. Hence, the argument that AIA is “deemed” a withholding agent for
these deficiency taxes is fallacious. Indirect taxes, like VAT and excise tax, are
different from withholding taxes. To distinguish, in indirect taxes, the incidence of
taxation falls on one person but the burden thereof can be shifted or passed on to
another person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. On the other hand, in case of withholding
taxes, the incidence and burden of taxation fall on the same entity, the statutory
taxpayer. The burden of taxation is not shifted to the withholding agent who
merely collects, by withholding, the tax due from income payments to entities
arising from certain transactions and remits the same to the government.
+
AMDG
… Petitioner withheld a 15% tax on its remittances to its head office in Germany
using as basis the Tax Code provision on BPRT. Believing that it overpaid the BPRT
since the RP-Germany provides for a lower rate of 10% on branch remittances, the
Petitioner filed a refund with the BIR and subsequently with the CTA. Both the BIR
and the CTA denied stating that the branch office should have filed a tax treaty
relief application prior to availing of the preferential treaty rate in view of the
existing doctrine in the Mirant case.
??? Is Deutsche Bank entitled to the claim for refund even if it did not file a tax
treaty relief application with the BIR?
+
AMDG
!!! YES! The Court initially stated that the minute resolution upholding the
doctrine in Mirant is not a binding precedent specially since there are differences
in the parties, taxable period, etc. On the substantive issue, the Court said that the
principle of pacta sunt servanda requires the performance in good faith of treaty
obligations. Thus, to require that taxpayers must first comply with an
administrative requirement (under RMO 1-2000) is not in consonance with the
performance in good faith. The obligation to comply with a tax treaty must take
precedence over the objectives of the said RMO. In addition, it was pointed out
that the prior application becomes illogical if the premise of the claim was an
erroneous payment since the taxpayer could not have known it would be entitled
to the refund since precisely it was using a different basis when it paid the taxes
due.
+
AMDG
… The City of Manila sought to enforce both Sections 14 and 21 of the Manila
Revenue Code claiming that the former is a tax on manufacturers, etc. while the
latter applies to business subject to excise, VAT or percentage tax.
??? Will the imposition of both sections amount to invalid double taxation?
!!! YES. There is in fact double taxation since both sections are being imposed on
the same subject matter (privilege of doing business within the city), for the same
purpose, by the same taxing authority, within the same taxing jurisdiction, for the
same taxing period, and of the same kind or character (a local business tax
imposed on gross sales or receipts). The Court further said that the LGC provision
applicable (Section 143) clearly states that Section 143 (h) may be imposed only
on businesses that are subject to excise tax, VAT, and percentage tax “and that are
not otherwise specified in the preceding paragraphs”.
+
AMDG
… The Municipality of Agoo in La Union province passed a resolution authorizing
its mayor to obtain a loan from the Petitioner and mortgaging as collateral a
portion of the Agoo plaza. As additional security, the municipality assigned a
portion of its internal revenue allotment (IRA) in favor of the Petitioner. The loan
proceeds were used to construct a commercial center on the plaza which was
objected to by the local residents including the Respondent.
??? Did the Respondent have standing to file for the nullification of the loan?
!!! YES. The two requisites for a taxpayer’s suit have been complied with. First,
even if the construction of the commercial center would be sourced from the loan
proceeds from the Petitioner, the said funds were already converted into public
funds upon receipt by the municipality and the assignment of the IRA likewise
characterized the funds as public. Second, since the plaza is for public use, the
Respondent, like all other Agoo residents, is directly affected. Besides it has been
held that as long as taxes are involved, people have a right to question
government contracts even if they are not party to the contract/s.
+
AMDG
… After the PCGG filed cases to recover the ill-gotten wealth of the late husband of
the Respondent, a compromise agreement was reached wherein the parties
agreed that Swiss cases involving Respondent’s husband’s bank deposits would be
terminated in exchange for the PCGG unfreezing all of the deposits so that
Benedicto could get his 49% share from the deposits. The CIR assessed the
amount of the unfrozen accounts claiming that the same was income subject to
tax.
??? Did the Respondent’s husband realize income as a result of the compromise
agreement which led to him receiving 49% of the deposits?
!!! NO. The 49% was in no way income because the Respondent’s husband did not
gain any wealth nor did he become any richer than he was before as in fact his
wealth diminished to the extent of the 51% which he ceded to the PCGG. The 49%
was a mere return of capital not subject to income tax. The Court ruled that it is
only the interest income of the deposits which may be subjected to income tax as
the same is the only gain.
+
AMDG
… St. Luke’s is a non-stock non-profit hospital. The BIR assessed St. Luke’s based on
the argument that Section 27 (B) of the Tax Code should apply to it and hence all
of St. Luke’s income should be subject to the 10% tax therein as it is a more
specific provision and should prevail over Section 30 which is a general provision.
St. Luke’s countered by saying that its free services to patients was 65% of its
operating income and that no part of its income inures to the benefit of any
individual.
??? Does Section 27 (B) have the effect of taking proprietary non-profit hospitals
out of the income tax exemption under Section 30 of the Tax Code and should
instead be subject to a preferential rate of 10% on its entire income?
!!! NO. The enactment of Section 27 (B) does not remove the possible income tax
exemption of proprietary non-profit hospitals. The only thing that Section 27 (B)
captures (at 10% tax) in the case of qualified hospitals is in the instance where the
income realized by the hospital falls under the last paragraph of Section 30 such as
when the entity conducts any activity for profit. The revenues derived by St. Luke’s
from pay patients are clearly income from activities conducted for profit.
+
AMDG
PAY PATIENTS – 30%
CHARITY PATIENTS – 70%
RESTAURANTS, ETC.
INCOME TAX = SUBJECT INCOME TAX = EXEMPT
AT 10% (ST LUKE’S)
INCOME TAX = SUBJECT
AT 10%
RPT = STILL EXEMPT
(LUNG CENTER)
RPT = SUBJECT
RPT = EXEMPT
+
AMDG
!!! Some significant definitions ---
a. “Proprietary” – means a private entity maintained and administered by private
individuals or groups.
b. “Non-stock” – means that no part of the income is distributable as dividends
to its members, trustees, or officers
c. “Non profit” – means no net income or asset inures to or benefits any member
or specific person, with all the net income or asset devoted to the institution’s
purposes and all its activities conducted not for profit.
d. “Inurement” – means (i) any form of payment to its trustees; (ii) exorbitant
compensation to its employees; (iii) provision of financial assistance to its
members; (iv) donations to entities not having a similar purpose as its own; (v)
purchase of goods in its excess of its fair value from entities where its trustees
has an interest in; and (vi) distribution of its assets to its members upon
dissolution .
+
AMDG
… Petitioner was assessed for deficiency withholding taxes on interest from
savings and time deposits of its members. The CTA ruled against the Petitioner and
said that the withholding of tax on income payments subject to final withholding
tax includes the said interest as "interest from x x x similar arrangements . . ." .
??? Is Petitioner liable for the deficiency WT?
!!! NO. The BIR had earlier ruled without any qualification that since interest from
any Philippine currency bank deposit and yield or any other monetary benefit
from deposit substitutes are paid by banks, other entities such as cooperatives are
not required to withhold the corresponding tax on the interest from savings and
time deposits of their members. The fact that “similar arrangements” is preceded
by banking terms means that that those subject to withholding must have deposit
peculiarities. This is also consistent with the preferential treatment accorded to
members of cooperatives who are exempt in the same way as the cooperatives
themselves.
+
AMDG
… Filinvest Development Corporation extended advances in favor of its affiliates
and supported the same with instructional letters and cash and journal vouchers.
The BIR assessed Filinvest for deficiency income tax by unilaterally imputing an
“arm’s length” interest rate on its advances to affiliates. Filinvest disputed this by
saying that the CIR lacks the authority to impute theoretical interest and that the
rule is that interests cannot be demanded in the absence of a stipulation to that
effect.
??? Can the CIR unilaterally impute theoretical interest on the advances made by
Filinvest to its affiliates?
!!! NO. Despite the seemingly broad power of the CIR to distribute, apportion and
allocate gross income under (now) Section 50 of the Tax Code, the same does not
include the power to impute theoretical interests even with regard to controlled
taxpayers’ transactions. This is true even if the CIR is able to prove that interest
expense (on FDC’s own loans) was in fact claimed by FDC.
+
AMDG
The term in the definition of gross income that even those income “from whatever
source derived” is covered still requires that there must be actual or at least
probable receipt or realization of the item of gross income sought to be
apportioned, distributed, or allocated. Finally, the rule under the Civil Code that
“no interest shall be due unless expressly stipulated in writing” was also applied in
this case.
The Court also ruled that the instructional letters, cash and journal vouchers
qualify as loan agreements that are subject to DST.
+
AMDG
… Petitioner claimed losses as deductions arising from the auction sales it
conducted. To prove the same, Petitioner submitted in evidence its “Rematado”
book containing a record of items foreclosed and “Subasta” book containing a
record of the auction sale of pawned items foreclosed. Petitioner likewise claimed
the gain or loss on auction sale represents the difference between the capital
(amount loaned to the pawnee, unpaid interest, and other expenses) and the
price for which the pawned articles were sold.
??? Is Petitioner entitled to the losses as deductions?
!!! NO. Petitioner did not properly prove its losses since the Subasta books did not
reflect the true amounts of the proceeds and the Rematado books did not reflect
the capital since the only amounts therein were those given to the pawnees.
The losses claimed from fire and theft were also disallowed since while
certifications from the police and fire departments and a list of the properties lost
were submitted, the Petitioner did not submit sworn declarations describing the
loss.
+
AMDG
… CREBA assails the imposition of the minimum corporate income tax (MCIT) as
being violative of the due process clause as it levies income tax even if there is no
realized gain. They also question the creditable withholding tax (CWT) on sales of
real properties classified as ordinary assets stating that (1) they ignore the
different treatment of ordinary assets and capital assets; (2) the use of gross
selling price or fair market value as basis for the CWT and the collection of tax on a
per transaction basis (and not on the net income at the end of the year) are
inconsistent with the tax on ordinary real properties; (3) the government collects
income tax even when the net income has not yet been determined; and (4) the
CWT is being levied upon real estate enterprises but not on other enterprises,
more particularly those in the manufacturing sector.
??? Are the impositions of the MCIT on domestic corporations and CWT on income
from sales of real properties classified as ordinary assets unconstitutional?
+
AMDG
!!! NO. MCIT does not tax capital but only taxes income as shown by the fact that
the MCIT is arrived at by deducting the capital spent by a corporation in the sale of
its goods, i.e., the cost of goods and other direct expenses from gross sales.
Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only
imposed on the 4th year of operations; (2) the law allows the carry forward of any
excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can
suspend the imposition of MCIT in justifiable instances.
The regulations on CWT did not shift the tax base of a real estate business’ income
tax from net income to GSP or FMV of the property sold since the taxes withheld
are in the nature of advance tax payments and they are thus just installments on
the annual tax which may be due at the end of the taxable year. As such the tax
base for the sale of real property classified as ordinary assets remains to be the
net taxable income and the use of the GSP or FMV is because these are the only
factors reasonably known to the buyer, at the time of sale, in connection with the
performance of his duties as a withholding agent. The use of the GSP/FMV as basis
to determine the withholding taxes is evidently for purposes of practicality and
convenience.
Neither is there violation of equal protection even if the CWT is levied only on the
real industry as the real estate industry is, by itself, a class on its own and can be
validly treated differently from other businesses.
+
AMDG
??? Is the law providing that the 20% senior citizen discount may be claimed only
as a tax deduction unconstitutional?
!!! NO. The law is a legitimate exercise of police power which has general welfare
for its object. This is despite the claim of Petitioner that the law has the effect of
imposing upon private entities the burden of partly subsidizing a government
program. Even if the current rule does not provide the entities providing discounts
a peso for peso reimbursement, no payment of just compensation is warranted
for being an exercise of police power and not eminent domain, which is a similar
characterization for similar rules such as price control laws.
The law has also not been shown to be unreasonable, oppressive or confiscatory
and doe not necessarily affect companies’ rates of return since (1) not all
customers are senior citizens; (2) the level of profit margin of the goods and
services offered to the public varies; and (3) the entities’ ability to recoup the
discounts through higher mark-ups or from other products not subject to
discounts.
+
AMDG
… Mercury Drug granted 20% sales discount to qualified senior citizens on their
purchases of medicines. They subsequently filed a refund for taxable years 1993
and 1994 given that the then prevailing rule allowed that the sales discounts be
claimed as tax credits.
??? Is the claim for tax credit to be based on the full amount of the 20% senior
citizen discount or the acquisition cost of the item sold?
!!! The tax credit should be equivalent to the actual 20% sales discount granted to
the senior citizens. The previous ruling of the CTA that the tax credit is based only
on the “cost of the discount” which was interpreted to cover only direct
acquisition cost, excluding administrative and other incremental costs, was struck
down by the Court.
Note: The case of M.E. Holdings Corporation vs. CIR & CTA clarified that the rule
will be -- (i) prior to March 21, 2004 (effectivity of Expanded Senior Citizens Act)
the discounts are treated as tax credit; (ii) after March 21, 2004 the same are
+
treated as deductions.
AMDG
… Respondent’s charter entitled it to an incentive which would make it liable for
either the basic corporate income tax or the 2% franchise tax based on gross
revenue, whichever is lower, and that the payment under either of the
alternatives shall be in lieu of other taxes except real property tax. For the year
2000, it had zero taxable income. CIR assessed Petitioner for MCIT stating that the
Petitioner chose to be covered by the income tax provision (and not the franchise
tax) and the MCIT does not belong to the category of “other taxes”. Respondent
argued that MCIT is not the corporate income tax covered by its charter and is
thus part of “other taxes”.
??? Is MCIT considered similar to the corporate income tax such that Respondent’s
selection of the same will make it liable to MCIT?
+
AMDG
!!! NO. The taxable income which is the basis for basic corporate income tax and
the gross income which is the basis for MCIT have their respective technical
meanings and cannot be used interchangeably. The rates for the taxes are
different as well. Thus, the basis corporate income tax under Respondent’s charter
cannot cover MCIT and the only interpretation is that MCIT is included in “all other
taxes” from which Respondent is exempt.
Neither can CIR argue that the “in lieu of all other taxes” proviso is a mere proviso
that applies only when Respondent actually pays something. The Court ruled that
it is not the fact of tax payment that exempts it, but the exercise of the option.
+
AMDG
… Far East Bank filed a claim for refund of overpaid creditable withholding taxes
which included CWT on rental income allegedly earned by the Petitioner as lessor.
??? Can a claim for refund be granted notwithstanding claimant’s failure to show in
the return that that income upon which the creditable taxes withheld were based
was in fact reported?
!!! NO. The 3 essential requirements for a claim for refund of this nature to
prosper are (1) filing the same within the 2-year period; (2) establishing the fact of
withholding with copies of the CWT certificates; and (3) showing that the income
received was declared as part of gross income. Here the Petitioner failed to prove
(3) as the return in fact showed “Not Applicable” under the portion referring to
Rental Income. In addition, some certificates were likewise not submitted as
evidence.
+
AMDG
??? Is it necessary for the person who executed and prepared the withholding tax
certificates to be presented and to testify personally on the authenticity of the
certificates?
!!! NO. The copies of the withholding tax certificates when found by the duly
commissioned independent certified public accountant to be faithful
reproductions of the original copies would suffice to establish the fact of
withholding. This is in accordance with Rule 13 of the Revised Rules of the Court
of Tax Appeals. While the Rules further state that the documents may be subject
to verification and comparison, the CIR was not deprived of the opportunity to
examine the certificates since Respondent manifested that the original copies of
the documents are available at the Respondent’s office but the CIR made no effort
to examine the same and verify their authenticity.
+
AMDG
… Asiaworld filed its 2001 ITR stating that a portion of the amount representing
Prior Year’s Excess Credits was the 1999 excess creditable withholding tax which it
is now seeking to refund. The said 1999 excess payment was previously treated as
having been carried over to 2000. Asiaworld posits its claim on the portion of the
provision which states that the “such option shall be considered irrevocable for
that taxable period” in that the same refers to only a one-year prohibition for the
action of the claim for refund.
??? Is the irrevocability rule under Section 76 of the Tax Code only applicable to the
next taxable year which in this case was the year 2000?
!!! NO. The option to carry-over is not limited to the following taxable year of
2000 but will apply to the succeeding taxable years until the whole amount of the
1999 creditable withholding tax overpayment is fully utilized.
+
AMDG
… Smart entered into an Agreement with Prism, a nonresident foreign corporation
domiciled in Malaysia, whereby Prism will provide programming and consultancy
services to Smart. Thinking that the payments to Prism were royalties, Smart
withheld 25% under the RP-Malaysia Tax Treaty. Smart then filed a refund with the
BIR alleging that the payments were not subject to Philippine withholding taxes
given that they constituted business profits paid to an entity without a permanent
establishment in the Philippines.
??? Does Smart have the right to file the claim for refund?
!!! YES. The Court reiterated the ruling in Procter & Gamble stating that a person
“liable for tax” has sufficient legal interest to bring a suit for refund of taxes he
believes were illegally collected from him. Since the withholding agent is an agent
of the beneficial owner of the payments (i.e., nonresident), the authority as agent
is held to include the filing of a claim for refund. Smart was granted a refund given
that only a portion of its payments represented royalties since it is only that
portion over which Prism maintained intellectual property rights and the rest
involved full transfer of proprietary rights to Smart and were thus treated as
business profits of Prism.
+
AMDG
Smart was granted a refund given that only a portion of its payments represented
royalties since it is only that portion over which Prism maintained intellectual
property rights and the rest involved full transfer of proprietary rights to Smart
and were thus treated as business profits of Prism.
+
AMDG
… Supreme Transliner took out a loan from respondent but was unable to pay the
same. The respondent bank extrajudicially foreclosed the collateral and, before
the expiration of the one-year redemption period, the mortgagors notified the
bank of its intention to redeem the property.
??? Is the mortgagee-bank liable to pay the capital gains tax upon the execution of
the certificate of sale and before the expiry of the redemption period?
!!! NO. It is clear that in foreclosure sale there is no actual transfer of the
mortgaged real property until after the expiration of the one-year period and title
is consolidated in the name of the mortgagee in case of non-redemption. This is
because before the period expires there is yet no transfer of title and no profit or
gain is realized by the mortgagor.
Note: Remember that in extrajudicial foreclosures, the mortgagee-bank is the
statutory seller who is liable for the CGT.
+
AMDG
??? Is the 20% final tax withheld on a bank’s passive income included in the
computation of its GRT?
!!! YES. The claim of the Petitioner for the exclusion of the final withholding tax
from gross receipts operates as a tax exemption which the law must explicitly
grant. Also, the Court has held that the term “gross receipts” must be used in its
plain and ordinary meaning and should be taken to refer to total (without
deduction) and not the net amount.
+
AMDG
… Petitioner used to be an online carrier but ceased operating cargo flights
from the Philippines starting 2001. It is now an offline international air carrier
but has a general sales agent in the Philippines which sells passage
documents for its off-line flights for carriage of passengers and cargo. It filed
a claim for refund on the Gross Philippine Billings (GPB) tax it paid. The CTA
ruled that Petitioner was not liable for the GBP but was liable to pay 32% tax
on its net income derived from the sales of passage documents in the
Philippines.
??? Is Petitioner liable for either the GPB or the 32% tax?
+
AMDG
!!! 32% tax. The Court reiterated the ruling in South African Airways and BOAC
stating that it is the sale of tickets which is the revenue-generating activity subject
to Philippine tax. The correct interpretation of the applicable rules is that, if an
international air carrier maintains flights to and from the Philippines, it shall be
taxed at the rate of 2 1/2% 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 will be taxed at the rate of 32% of such
income.
The Court also ruled that “to avoid multiplicity of suits and unnecessary
difficulties and expenses” the issue of deficiency tax assessment be resolved
jointly with the its claim for refund – and doing so does not violate the rule against
offsetting of taxes.
+
AMDG
??? Is the requirement for a tax clearance provided under Section 52 of Tax
Code applicable to a bank subject of liquidation proceedings?
!!! NO. Closed banks placed under liquidation under the Central Bank law are not
“corporations contemplating liquidation” under the Tax Code over which the SEC
has jurisdiction. It is the Monetary Board, not the SEC, which has the power to
order and approve the closure and liquidation of banks. A tax clearance is not a
prerequisite to the approval of the project of distribution of the assets of a bank
under liquidation by the PDIC. Another reason is that, given the timelines involved,
it is unreasonable for the liquidation court to require that a tax clearance be first
secured as a condition for the approval of a project of distribution of bank under
liquidation. Lastly, to require that a tax clearance be secured first prior to
distribution ignores the preference of credits under the Civil Code where debts
and claims (of creditors) enjoy preference over taxes and assessments due to the
government if not in reference to a specific movable property.
+
AMDG
!!! international air carriers doing business in the Philippines may avail of a
preferential rate or exemption on the basis of a tax treaty or international
agreement to which the Philippines is a signatory or on the basis of reciprocity
such that an international carrier, whose home country grants income tax
exemption to Philippine carriers, shall likewise be exempt from the tax on Gross
Philippine Billings.
!!! Transport of passengers by international carriers are now exempt from VAT.
!!! International air and shipping carriers doing business in the Philippines are now
subject to the 3% percentage only on their gross receipts derived from the
transport of cargo and not on their transport of passengers.
+
AMDG
!!! Local water districts are now exempt from income taxes under Section 27
provided that the amount saved by virtue of the exemption is to be used for
capital equipment expenditure to expand water services coverage
!!! All unpaid taxes starting August 13, 1996 are condoned provided (1) the BIR
establishes financial incapacity of the LWD and (2) the LWD submits to Congress a
program of internal reforms.
+
AMDG
!!! Foreign governments, embassies, diplomatic missions, and international
organizations as employers in the Philippines are immune from being withholding
agents on the salaries of their employees based on international comity.
!!! However, this immunity does not translate into all employees of these entities
being exempt from income tax. Only the individuals specifically named in the
treaties, international agreements, and laws are exempt from income taxes while
those not covered are not relieved of their duty to report their income and pay
the taxes but must do so on their own.
+
AMDG
!!! Some examples of those exempted are diplomats (including family, staff,
servants if not nationals or permanent residents of the Philippines). All employees
of the following regardless of nationality and residence --- AUSAID / UN / ILO /
FAO-UN / UNESCO / WHO / UNDP. The following entities only exempt those that
are not Philippine nationals --- JICA (must be from Japan) Red Cross / AUSAID /
CIDA / ADB / IMF / IBRD / UNICEF / IRRI / Ford Foundation / Rockefeller
Foundation. Philippine nationals claiming exemptions under the above laws,
agreements must file an application for confirmation of tax exemption with the
ITAD of the BIR.
+
AMDG
!!! Critical features of the TP regulations --1) The rules apply to cross border and domestic transactions.
2) For purposes of applying the rules, the parties are considered related if
one participates directly or indirectly in the management, control or capital of
another. Control refers to any kind of control, direct or indirect, whether exercised
or not, and shall be assumed if income or deductions have been arbitrarily shifted.
3) The transactions between related parties must be at arm’s length otherwise BIR
will make adjustments on the basis of the rules.
4) Step 1 – comparability analysis (same goods, risks, commercial conditions / Step
2 – determine tested party and appropriate TP method (CUP, RPM, CPM, PSM,
TNMM) / Step 3 – determine arm’s length results
+
AMDG
!!! Critical features of the TP regulations --5) Advance Pricing Arrangement --- either unilateral (only the taxpayer and the
BIR) or bilateral/multilateral (involves the Philippines and one or more treaty
partner/s)
6) The documentation requirements need not be submitted to the BIR but must
be retained. The same must be contemporaneous which means it exists or is
brought into existence at the time the associated enterprises implement any
arrangement that might raise transfer pricing issues. The documentation will
contain the organizational structure, nature of business, assumptions,
comparability analysis, TP method, application, etc. The retention period follows
the rule in the Tax Code.
7) There are no safe harbor rates/rules in the TP regulations.
+
AMDG
!!! Critical features of the regulations ---
1) Interest income from government debt instruments/securities (T-bills, treasury
bonds, etc.) are subject to WT of --• 20% --- if received by citizens, RA, NRAETB, DC, RFC
• 25% --- NRANETB
• 30% --- NRFC
(Note: Government debt issuances are considered as deposit substitutes
regardless of the number of lenders at the time of origination as long as the same
will be traded in the secondary marked which thus upholds PEACE Bonds ruling)
2) Interest Income from Peso bank deposits, deposit substitutes, trust funds,
similar arrangements are subject to WT of --• 20% --- if received by citizens, RA, NRAETB, DC, RFC
• 25% --- NRANETB
• 30% --- NRFC except if interest income from foreign loan in which case
20%
+
AMDG
!!! Critical features of the regulations --3) Interest income from Long Term Deposits
• Exempt if term is 5 years or more, 5% if 4-5years, 12% if 3-4 years, 20% if
less than 3 years
• Conditions = all individuals covered except NRANETB which is at 25%/
certificate is in the name of the depositor and not the bank / issued by banks
/ denominations of P10,000 / etc.
• if any condition is absent, then same rates apply as any interest income
from bank deposit which is 20% for all individuals except NRANETB which is
25%.
4) Interest Income under FCDU/OBU account
• 7.5% --- if received by citizens, RA, DC, RFC
• exempt --- if received by nonresidents
• 50/50 (exempt/7.5%) --- if account is joint between resident citizen and
OFW
+
AMDG
!!! Critical features of the regulations ---
• exempt --- income derived BY depository banks from dealings (loans) with
nonresidents, OBUs, other FCDUs
• 10% --- income derived BY depository banks from dealings (loans) with
residents
• 30% --- income from other activities (ex. consulting)
5) Interest Income from all other instruments that are not deposit substitutes such
as interest earned by banks from loans extended by them, etc. are subject to the
following --• 2% CWT - if the borrower is a top 20,000 corporation
• 20% CWT - if the borrower is not a top 20,000 corporation
+
AMDG
!!! RMO 20-2013 --- Requires the issuance of Tax Exemption rulings to qualified
non-stock, non-profit corporations and associations under Section 30 of the Tax
Code. There must be submitted a certificate of utilization to prove compliance
with the law. The ruling is valid for 3 years and shall be subject to renewal
thereafter.
!!! RMC 35-2012 --- Clarifies that clubs organized and operated exclusively for
pleasure, recreation, and other non-profit purposes are subject to income tax and
VAT on all their income and gross receipts from whatever source including
membership fees, assessment dues, rental income, etc.
!!! RMC 9-2013 --- Provides for the possible income tax and VAT exemption of
association dues and income derived from rentals of homeowners’ association’s
properties if (i) constituted as an association under RA 9904; (ii) the LGU having
jurisdiction certifies that the basic services (i.e., security, street lights,
maintenance and repair of streets, garbage disposal, etc.) for which the dues are
being used cannot be provided by the said LGU; and (iii) the homeowners’
association presents proof that the dues are used for the aforesaid basic services.
+
AMDG
!!! RR 10-2012 --- States that joint ventures engaged in construction projects are
now considered not taxable as corporations only if the partners are local
contractors licensed by the Philippine Contractors Accreditation Board (PCAB);
otherwise the joint venture will be treated as a taxable corporation.
!!! RR 12-2012 --- For motor vehicles allowed for use of an employee, the company
providing the same can only take up as a deductible expense (via depreciation) the
amount representing one vehicle and the value of which should not exceed
P2,400,000.
!!! RR 016-2012 --- Requiring all publicly-listed companies to maintain at all times a
minimum public ownership of 10% of their issued and outstanding shares and
stipulating that failure to comply therewith will subject the sale of the said shares
to the capital gains tax due on unlisted shares.
!!! RMC 039-2012 --- Provides that in instances when the judgment award in a
labor dispute is enforced through garnishment of debts due to the employer or
other credits, the garnishee shall withhold 5% of the judgment amount released.
+
AMDG
… There were claims against the estate which the BIR contested stating that lower
amounts were paid as compromise payments during the settlement of the estate
and these are amounts that should be considered as deductions in arriving at the
net estate.
??? Will the compromise amounts be the amounts considered as deductions to the
gross estate?
!!! NO. The deductions allowable are the amounts determined at the time of
death. Post-death developments are not material in determining the amount of
deduction. Thus, the Court applied the “date-of-death valuation rule” which is the
US rule on deductions and which is applicable also in the Philippines. The amount
deductible is the debt which could have been enforced against the deceased in his
lifetime.
+
AMDG
… Petitioner sold its shares with a par value of P100 per share in Bonifacio Land
Corporation to a third party in the amount of P158 per share even while it was
established that the book value of the shares was at P332 per share. Petitioner
countered by saying that donor’s tax should not be imposed as it was “an ordinary
business transaction negotiated in good faith by unrelated parties for legitimate
business purposes”. It was also stated that the acquisition cost was higher than the
book value.
??? Is donor’s tax due on the sale?
!!! YES. The rules clearly define fair market value of unlisted shares as its book
value. Thus, a 30% donor’s tax is due on the difference between the selling price
and the BV/FMV. The par value and acquisition cost are irrelevant in determining
the imposition of the donor’s tax. Also, it was pointed out that the lack of any
exception/exemption under Section 100 deprives the Petitioner its basis in
claiming its aforesaid defense.
+
AMDG
??? Is the sale of a fully depreciated motor vehicle an isolated transaction which
should not be subject to VAT in the hands of a power generation company?
!!! NO. While the sale is admittedly an isolated transaction, it does not follow that
the same cannot be considered as an incidental transaction which satisfies the
requirement to attract VAT liability. The Court deemed that the sale of the motor
vehicle was in the course of its business of converting steam into electricity for
supply to NPC. The case of Magsaysay cannot apply since the sale of the vessels
therein was not in the course of business of NDC and the same was involuntary for
having been made pursuant to the Government’s policy of privatization. (Note: At
the time when Magsaysay was decided the Tax Code did not cover “incidental
transactions”.)
+
AMDG
… Sony Philippines was ordered examined for “the period 1997 and unverified
prior years” as indicated in the Letter of Authority . The audit yielded assessments
against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of
FWT on royalties for the period January to March 1998 and (2) deficiency VAT on
reimbursable received by Sony Philippines from its offshore affiliate, Sony
International Singapore (SIS).
??? (1) Is Petitioner liable for deficiency VAT?
(2) Was the investigation of its 1998 FWT return valid?
!!! (1) NO. Sony Philippines did in fact incur expenses supported by valid VAT
invoices when it paid for certain advertising costs. This is sufficient to accord it the
benefit of input VAT credits and where the money came from to satisfy said
advertising billings is another matter but does not alter the VAT effect. In the same
way, Sony Philippines can not be deemed to have received the reimbursable as a
fee for a VAT-taxable activity.
+
AMDG
The reimbursable was couched as an aid for Sony Philippines by SIS in view of the
company’s “dire or adverse economic conditions”. More importantly, the absence
of a sale, barter or exchange of goods or properties supports the non-VAT nature
of the reimbursement. This was distinguished from the COMASERCO case where
even if there was similarly a reimbursement-on-cost arrangement between
affiliates, there was in fact an underlying service. Here, the advertising services
were rendered in favor of Sony Philippines not SIS.
!!! (2) NO. A Letter of Authority should cover a taxable period not exceeding one
year and to indicate that it covers ‘unverified prior years’ should be enough to
invalidate it. In addition, even if the FWT was covered by Sony Philippines’ fiscal
year ending March 1998, the same fell outside of ‘the period 1997’ and was thus
not validly covered by the LOA.
+
AMDG
… Petitioner provides services to its members by arranging for the provision by the
affiliated hospitals and clinics of medical and/or hospital services. They also
provide, on their own, medical and laboratory services and only endorse to the
hospitals those that are beyond the competence of the doctors hired by Petitioner.
For their services, Petitioner is compensated in either of two ways – Cost-Plus
Program (CPP) which is an administrative expense over and above the covered
expenses of the members or Standard Corporate Program which imposes
management fee of 20% of the total premiums paid. For both cases, Petitioner
claims that the amounts eventually paid to the affiliated doctors and hospitals are
just funds held in trust and earmarked for such purpose and should not form part
of its gross receipts for VAT purposes as the same do not redound to their benefit.
??? Is Petitioner liable for VAT on the amounts which are paid by it to its affiliate
doctors and hospitals?
+
AMDG
!!! YES. The Court distinguished this from the earlier case of Tours Specialists Inc.
where the payments for hotel lodging by tourists where turned over/paid to travel
agents just for the convenience and economy of the said tourists. In short, the
travel agents merely accommodated the tourists and they (agents) had nothing to
do with the contract between the tourists and the hotels. This is different in the
case of HMOs since all the moneys are paid to them lump sum if exchange for the
provision of medical services. Thus, the arrangement negates the concept of
“money in trust”. Neither can the regulation stating that “amounts earmarked for
payment to unrelated 3rd parties” are excluded from the gross receipts be used as
basis since it is not the members who are obligated to the doctors and hospitals
but it is actually the HMOs since the contractual vinculum is between them (HMO
and hospitals).
+
AMDG
… Petitioner was engaged by DPWH for the construction of roads and bridges. In
turn, LVM subcontracted construction of one of the projects to Respondent’s Joint
Venture. After completing the project, the Joint Venture demanded full payment
to which Petitioner responded that they discovered that no deductions for EVAT
were made on previous payments and as such they were going to deduct 8.5%
from the payments still due. Respondent disputed this and said that all the
receipts issued to Petitioner would have made them (Respondent) subject to VAT
and, consequently, Petitioner can thus claim the input tax thereon.
??? Can Petitioner rightfully deduct the amount representing withholding VAT due
on its transaction with the DPWH?
!!! NO. As the entity which dealt directly with the government insofar as the main
contract was concerned, LVM was itself required by law to pay the 8.5% (now 5%)
VAT which was withheld by DPWH. Given that (1) the Joint Venture complied with
their own obligation when they paid their VAT from their own gross receipts and
+
AMDG
(2) the fact that the contract between LVM and Joint Venture did not stipulate any
obligation on LVM assuming the VAT, LVM has no basis to withhold payments .
Although the burden to pay an indirect tax like the VAT can be passed on, the
liability to pay the same remains with the seller. In this case, both LVM and Joint
Venture are liable for their respective VAT obligations as respective sellers.
+
AMDG
… Kepco filed a claim for refund of unutilized input VAT based on its zero-rated
sale of power to NPC. A substantial portion of the claim was disallowed for having
been supported by VAT invoices which only had the TIN-VAT stamped and not
printed. There were also certain sales by Kepco which failed to indicate the words
“zero-rated”. Lastly, they also alleged that invoices and receipts are
interchangeable and either should suffice as proof of purchase and consequently
as support for a claim for refund.
??? Is Petitioner entitled to the claim for refund on the disallowed portion?
!!! NO. The requirement that the TIN be imprinted and not merely stamped is a
reasonable requirement imposed by the BIR. More importantly, the requirement
of the appearance of the words “zero-rated” on the face of the invoice prevents
buyers from falsely claiming input VAT from their purchases when no VAT was
actually paid. The failure to adhere to the said rules will not only expose the
taxpayer to penalties but should also serve to disallow the claim. Finally, the Court
disagreed with the position that invoices and receipts are interchangeable since
the former clearly refers to sales of goods while the latter to services.
+
AMDG
… Petitioner was a real estate developer that bought from the national
government a parcel of land that used to be the Fort Bonifacio military
reservation. At the time of the said sale there was as yet no VAT imposed so
Petitioner did not pay any VAT on its purchase. Subsequently, Petitioner sold two
parcels of land to Metro Pacific Corp. In reporting the said sale for VAT purposes
(because the VAT had already been imposed in the interim), Petitioner claimed
transitional input VAT corresponding to its inventory of land. The BIR disallowed
the claim of presumptive input VAT and thereby assessed Petitioner for deficiency
VAT.
??? Is Petitioner entitled to claim the transitional input VAT on its sale of real
properties given its nature as a real estate dealer and if so (i) is the transitional
input VAT applied only to the improvements on the real property or is it applied on
the value of the entire real property and (ii) should there have been a previous tax
payment for the transitional input VAT to be creditable?
+
AMDG
!!! YES. Petitioner is entitled to claim transitional input VAT based on the value of
not only the improvements but on the value of the entire real property and
regardless of whether there was in fact actual payment on the purchase of the
real property or not.
The amendments to the VAT law do not show any intention to make those in the
real estate business subject to a different treatment from those engaged in the
sale of other goods or properties or in any other commercial trade or business. On
the scope of the basis for determining the available transitional input VAT, the CIR
has no power to limit the meaning and coverage of the term "goods" in Section
105 of the Tax Code without statutory authority or basis. The transitional input tax
credit operates to benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning inventory of goods,
materials and supplies.
+
AMDG
… Sekisui Jushi is a PEZA entity engaged in manufacture and export of strapping
bands and other packaging materials seeking for refund of unutilized input taxes.
??? Being a PEZA exporter, can Petitioner claim its unutilized input VAT?
!!! YES. PEZA entities can avail of two alternative or subsequent incentives of ITH
and 5% GIE. It is only in the latter where the VAT is not imposed on the PEZA entity
on its sales. Being under ITH, it will be subject to VAT on sales and should VATregister. However, (1) sales to the PEZA entity, regardless of incentive availed, is
zero-rated on the part of the seller since PEZA is considered “foreign soil” and thus
sales to them are considered as “export sales” and (2) if the PEZA entity is an
exporter, its input VAT are subject to refund not by virtue of its PEZA status (and
thus regardless of whether it’s at 5% GIE or ITH) but due to the nature of its
transactions (i.e., export sales).
+
AMDG
… Accenture filed a VAT claim for refund on unutilized input VAT premised on its
claim that its sales were zero-rated for being in connection with services rendered
to nonresident recipients. The CIR denied the claim stating that Accenture failed to
prove that its foreign clients did business outside the Philippines.
??? Is Accenture entitled to the VAT refund?
!!! NO. Accenture failed to prove that services were rendered for nonresident. The
Amex case did not rule that the services recipients need not be doing business
outside the Philippines but only that the consumption need not be abroad.
However, Accenture failed to prove that the clients/service recipients are doing
business outside the Philippines as they only submitted SEC certifications showing
that their clients have not established any branch offices in the Philippines and
billing statements issued to the said clients. The Court ruled that while it did prove
that its clients are foreign, there was no proof that they were doing business
outside the Philippines.
+
AMDG
… Petitioner filed a VAT claim for refund on unutilized input VAT arising from its
alleged zero-rated sales of electricity to NPC. The claims were denied since
Petitioner failed to show proof of the actual zero-rated sales since they did not
present as evidence the VAT official receipts and VAT returns.
??? Is Petitioner entitled to the VAT refund?
!!! NO. The Court reiterated the requirements for a valid input VAT refund from
zero-rated sales as follows: (a) the taxpayer is VAT-registered; (b) the taxpayer is
engaged in zero-rated sales; (c) the input taxes are paid; (d) input taxes are not
transitional input taxes; (e) the input taxes are attributable to zero-rated
transactions; (f) input taxes have been unapplied; (g) filing the claim within 2
years. In this case, the Petitioner’s failure to substantiate the fact of their zerorated sales with the VAT receipts was considered fatal and the submission of
financial statements as secondary proof of the zero-rated sales was deemed
insufficient.
+
AMDG
!!! RMC 057-2013 --- RECOVERY OF UNUILIZED INPUT VAT
Unutilized creditable input taxes attributable to zero-rated sales can only be
recovered through the application for refund or tax credit. The practice of claiming
as an outright (income tax) expense accumulated and unapplied input VAT credits
after the expiration of the 2-year period to process to claim does not have legal
basis.
!!! RR 013-12 --- VAT TREATMENT OF SALE OF ADJACENT LOTS
For purpose of determining whether the threshold on VAT exempt sales have been
breached, adjacent residential lots, house and lots or other residential dwellings
although covered by separate titles shall be presumed as a sale of just one
property when sold or disposed to one and the same buyer.
+
AMDG
… An investigation was conducted against LMCEC for taxable years 1997 to 1999.
The assessments that came out of the said investigation was disputed by the
taxpayers on the grounds that (i) the assessment notices issued were invalid for
not bearing serial numbers and (ii) the examinations made on the books of
accounts and other records were done more than once in the relevant taxable
years.
??? Are the assessments invalid?
!!! NO. The formality of a control number in the assessment notice is not a
requirement for its validity but rather it is the contents which should inform the
taxpayer of the deficiency and which should contain the facts and the laws on the
which the assessment is based. Likewise, this case is an exception to the general
rule of having the books examined only once in a year. Section 235 of the Tax
Code allows the multiple examinations when (a) there is fraud or irregularity; (b)
the taxpayer requests for reinvestigation; (c) there is a required verification of
compliance with withholding taxes and capital gains tax liabilities.
+
AMDG
??? Whether a taxpayer, by paying the other tax assessments covered by a Waiver
of the Statute of Limitations, is consider estopped from questioning the validity of
the said waiver (on the basis that the CIR did not sign it) with respect to the other
covered but unsettled assessments?
!!! YES. RCBC is considered estopped through its partial payment of the revised
assessments within the extended period provided in the said waivers. Thus, it had
impliedly admitted the validity of the said waivers. Had it believed that the waiver
was invalid and that the period to assess had effectively prescribed, RCBC could
have refused to make any payment based on any assessment against it.
+
AMDG
… Fluor Daniel was initially assessed for deficiency EWT on its software
maintenance fees paid to an offshore affiliate. In response to Petitioner’s protest,
the CIR issued a Final Decision on Disputed Assessment (FDDA) cancelling the
deficiency EWT assessment but issuing an assessment for FWT on the same
software fees albeit using a lower 15% rate under the RP-US Tax Treaty.
??? Was the Petitioner deprived of due process when the FDDA changed the
assessment from deficiency EWT to deficiency FWT?
!!! YES. The change of the assessment in the FDDA itself constituted a new
assessment. As such, the taxpayer should have been given the chance to dispute
the same via the process laid down in the Tax Code which is by way of filing a
protest. Given that this was not complied with as what was issued was already an
FDDA, the circumstances certainly deprived the Petitioner of a reasonable
opportunity to be heard and submit evidence in support of its defense which is a
clear violation of due process requirements.
+
AMDG
… The BIR assessed Enron which countered by filing a Petition for Review with the
CTA stating that the assessment disregarded the provisions of the Tax Code and of
RR No. 12-99, when the assessment failed to provide the legal and factual bases of
the assessment. The CTA and CA ruled that the assessment notice must not only
refer to the supporting revenue laws or regulations for the assessment but must
also justify their applicability to the factual milieu of the assessment.
??? Is the disputed assessment valid?
!!! NO. The assessment is not valid. Although the revenue examiners discussed
their findings with Respondent’s representative during the pre-assessment stage,
the same, together with the Preliminary Five-Day Letter and Petitioner’s Annex G,
were not sufficient to comply with the procedural requirement of due process.
The Tax Code provides that a taxpayer shall be informed (and not merely
“notified” as was the requirement before) in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be void. The use
of the word “shall” indicates the mandatory nature of the requirement.
+
AMDG
… CIR issued assessments against Respondent but when the same were disputed
before the CTA it failed to mark and formally introduce as evidence the PAN issued
to the taxpayer. It was claimed, however, that their existence and value were
properly established since the BIR records were forwarded by the CIR to the CTA.
??? Can the CTA consider the PAN even if the same were not formally offered in
evidence? Has the right to collect prescribe?
!!! NO. The Court said that the rule of requiring offer may be relaxed provided that
the same must have been (1) duly identified by testimony and (2) incorporated in
the records of the case. The CIR only said the PAN was anyway tackled in the
petitioner’s witnesses’ testimonies but did not (1) claim that the same were
positively identified and (2) explain why it failed to formally offer the same.
As the assessments were issued after January 1, 1998, the rules under the current
Tax Code were deemed applicable.
+
AMDG
!!! YES. While the Respondent did file a request for reinvestigation subsequent to
the assessment, there is no proof that the same was granted (or acted upon) to
cause the suspension of the period to collect. Neither can the CIR claim that
Respondent’s elevation of its dispute of the assessment to the CTA served to
interrupt the period since Respondent was merely exercising its right to resort to
the proper court and does not in any way deter CIR’s right to collect taxes from
Respondent. Since CIR did nothing to collect (i.e., distraint, levy, or court
proceeding), its right to do has prescribed.
+
AMDG
… CIR issued assessment notices against Respondent for deficiency income tax,
VAT and documentary stamp tax on deposit on subscription and on pawn tickets.
Respondent filed its written protest on the assessments. When the CIR did not act
on the protest during the 180-day period (reckoned from the filing of the protest),
respondent filed a petition before the CTA.
??? Has the assessment become final and unappealable given that no supporting
documents were submitted during the 60-day period?
!!! NO. The assessment against Respondent has not become final and
unappealable. It cannot be said that respondent failed to submit relevant
supporting documents that would render the assessment final because when
Respondent submitted its protest, Respondent attached all the documents it felt
were necessary to support its claim. Further, CIR cannot insist on the submission
of proof of DST payment because such document does not exist as Respondent
claims that it is not liable to pay (and in fact has not paid) the DST on the deposit
on subscription.
+
AMDG
!!! The term "relevant supporting documents" are those documents necessary to
support the legal basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit additional documents
and cannot demand what type of supporting documents should be submitted.
Otherwise, a taxpayer will be at the mercy of the BIR, which may require the
production of documents that a taxpayer cannot submit. Since the taxpayer is
deemed to have submitted all supporting documents at the time of filing of its
protest, the 180-day period likewise started to run on that same date.
+
AMDG
… Lascona Land appealed a decision by the CIR holding that the assessment
against it has become final and executory for failure to appeal to the CTA within 30
days from the lapse of the 180-day period provided for under the Tax Code.
??? In cases of inaction on disputed assessments, can the taxpayer still file an
appeal with the CTA even after the lapse of the 180-day period?
!!! YES. In case the CIR fails to act on a disputed assessment within the 180-day
period from the submission of documents, the taxpayer can either (a) file an
appeal with the CTA within 30 days after the expiry of the 180-day period or (b)
await the final decision of the CIR and then appeal the same within 30 days.
These options are mutually exclusive and resort to one bars the application of the
other. A taxpayer can not be prejudiced if he chooses to wait for the final decision
of the CIR as this is the normal expectation when a protest is filed. Thus, an appeal
filed within the 30-day period from the receipt of the decision, even if made after
the 180-day period, is still considered as having been filed on time.
+
AMDG
… Allied Banking Corporation received a PAN from the BIR which it timely
disputed. In response, the BIR issued a Formal Letter of Demand with Assessment
Notices. Instead of protesting the FAN, the petitioner filed a Petition for Review
with the CTA. The CTA dismissed the Petition stating that it is neither the
assessment nor the formal demand letter itself that is appealable before it but
instead it should be the decision of the CIR on the disputed assessment.
??? Can the Formal Letter of Demand be construed as the final decision of the CIR
appealable to the CTA under Republic Act 9282?
+
AMDG
!!! YES. This is considered an exception to the general rule on exhaustion of
administrative remedies since the CIR is considered estopped from claiming the
same principle applies in its case. The tenor of the demand letter is clear that the
CIR had already made a final decision and that the remedy of the Petitioner was to
appeal the same within 30 days of receipt. This can be gleaned from the use of the
terms “final decision” and “appeal” which were deemed unequivocal language
pointing to the finality of the decision. While the Court cited the rules relative to
(a) protesting the FAN and not the PAN and (b) counting the 30 day period to
appeal to the CTA from receipt of the decision of the CIR and not issuance of the
assessment, this particular case was deemed a clear exception in view of the CIR’s
own actions.
+
AMDG
… The assessment against Hambrecht & Quist had become final and unappelable
since there was a failure to protest the same within the 30-day period provided by
law. However, the CTA held that the BIR failed to collect within the prescribed time
and thus ordered the cancellation of the assessment notice. The CIR disputed the
jurisdiction of the CTA arguing that since the assessment had become final and
unappealable, the taxpayer can no longer dispute the correctness of the
assessment even before the CTA.
??? Can the CTA still take cognizance of an assessment case which has become
‘final and unappealable’ for failure of the taxpayer to protest within the 30-day
protest period?
+
AMDG
!!! YES. The appellate jurisdiction of the CTA is not limited to cases which involve
decisions of the CIR on matters relating to assessments or refunds. The CTA law
clearly bestows jurisdiction to the CTA even on “other matters arising under the
National Internal Revenue Code”. Thus, the issue of whether the right of the CIR to
collect has prescribed, collection being one of the duties of the BIR, is considered
covered by the term “other matters”. The fact that assessment has become final
for failure to protest only means that the validity or correctness of the assessment
may no longer be questioned on appeal. However, this issue is entirely distinct
from the issue of whether the right to collect has in fact prescribed.
The Court ruled that the right to collect has indeed prescribed since there was no
proof that the request for reinvestigation was in fact granted/acted upon by the
CIR. Thus, the period to collect was never suspended.
+
AMDG
… A deficiency tax assessment was issued against Petitioners relating to their
payment of capital gains tax and VAT on their sale of shares of stock and parcels of
land. Subsequent to the preliminary conference, the CIR filed with the Department
of Justice her Affidavit of Complaint against Petitioners. The Court of Appeals
ultimately ruled that, in a criminal prosecution for tax evasion, assessment of tax
deficiency is not required because the offense of tax evasion is complete or
consummated when the offender has knowingly and willfully filed a fraudulent
return with intent to evade the tax.
??? (1) Has the CIR issued an assessment?
(2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax
assessment?
(3) Does the CTA have jurisdiction on the case?
+
AMDG
!!! (1) NO. The recommendation letter of the Commissioner cannot be considered
a formal assessment as (a) it was not addressed to the taxpayers; (b) there was no
demand made on the taxpayers to pay the tax liability, nor a period for payment
set therein; (c) the letter was never mailed or sent to the taxpayers by the
Commissioner. It was only an affidavit of the computation of the alleged liabilities
and thus merely served as prima facie basis for filing a criminal information.
(2) NO. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without
assessment considering that upon investigation of the examiners of the BIR, there
was a preliminary finding of gross discrepancy in the computation of the capital
gains taxes due from the transactions. The Tax Code is clear that the remedies may
proceed simultaneously.
(3) NO. While the laws governing the CTA have expanded the jurisdiction of the
Court, they did not change the jurisdiction of the CTA to entertain an appeal only
from a final decision of the Commissioner, or in cases of inaction within the
prescribed period. Since in the cases at bar, the Commissioner has not issued an
assessment of the tax liability of the Petitioners, the CTA has no jurisdiction.
+
AMDG
… The spouses Kintanar were charged under Section 255 of the Tax Code for
alleged tax evasion and non-filing of income tax returns. Gloria Kintanar’s defense
was that she did not have personal knowledge of the actual filing of the said
returns since it was her husband who filed their ITRs. The husband in turn alleged
that their ITRs were in fact prepared by their accountant and that they necessarily
just relied on the said accountant. These facts supposedly contradicted the claim
that their failure to file the returns was willful.
??? Was the defendant guilty of tax evasion?
!!! YES. The elements of a violation under Section 255 have been satisfied. These
are (1) that the accused is a person required to make or file a return; (2) that the
accused failed to file the return at the time required by law; and (3) that the
failure to file was willful. For (1), as income-generating spouses, they were
obviously covered by the filing requirements. For (2), the BIR witnesses presented
showed sufficient proof that indeed no returns were filed in the RDOs where they
should have filed.
+
AMDG
For (3), the Court said that the mere fact of having an accountant prepare one’s
returns is not enough to show that that there was no voluntary, intentional or
deliberate failure to file. The Court added that the fact of her being a
businesswoman presupposes that she ought to know and understand all matters
concerning her business including the filing of returns, citing Rule 131 on the Rules
on Evidence which states that “it is presumed that a person takes ordinary care of
his concern”. More importantly, the Court found no affirmative acts on the part of
defendant to make sure her obligation to file ITRs had been fully complied with
given that she testified that she does not even know how much her tax liabilities
were. This neglect or omission was considered tantamount to “deliberate
ignorance” or “conscious avoidance”. Lastly, the Court noted that the accountant
himself was not even presented as witness.
+
AMDG
… The evidence presented against defendant showed discrepancies between the
income tax return filed and the documents which showed the amounts she earned
from various companies (ABS-CBN, Viva, Star Cinema, Century Tuna). The defense
forwarded was that she relied on her manager and CPA in the preparation of her
tax returns. The defendant likewise said that she had signed her contracts without
reading the same since she had put her trust and confidence in her manager.
??? Was the defendant guilty of tax evasion?
!!! NO. The element of willfulness to find defendant guilty of tax evasion is not
present in this case. At most, the accused was found guilty of being negligent and
there is thus no proof of guilt beyond reasonable doubt. The accused was merely
made to pay the deficiency assessment against her.
+
AMDG
… CIR assessed Kudos Metal Corporation for taxable year 1998. A Waiver of the
Statute of Limitations was executed on December 2001. The CTA issued a
Resolution canceling the assessment notices issued against Petitioner for having
been issued beyond the prescriptive period as the waiver purportedly failed to (a)
have the valid officer execute the same (i.e., only the Assistant Commissioner
signed it and not the CIR); (b) the date of acceptance was not indicated; (c) the
fact of receipt by the taxpayer was not indicated in the original copy.
??? Has the CIR’s right to assess prescribed?
+
AMDG
!!! YES. The requirements for a valid waiver as laid down in RMO 20-90 and RDAO
No. 5-01 are mandatory to give effect to Section 222 of the Tax Code. Specifically,
the flaws in the waiver executed by Kudos Metal were as follows: (a) there was no
notarized written authority in favor of the signatory for the company; (b) there is
no stated date of acceptance by the Commissioner or his representative; and (c)
the fact of the receipt of the copy was not indicated in the original waivers.
Neither can it be said that by merely executing the waiver the taxpayer is already
estopped from disputing an action by the CIR beyond the statutory 3-year period
since the exception under the Suyoc case (i.e., when the delays were due to
taxpayer’s acts) does not apply.
Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry date; (iii) signed
by authorized officer of taxpayer and BIR; (iv) notarized; (v) fact of receipt must be
indicated in the copies
+
AMDG
… Respondent obtained a loan from a Singapore branch of ING Barings and
withheld 10% on its interest payments. Subsequently, it discovered that the lender
is a foreign government-owned financing institution of Germany and then filed a
request for ruling with the BIR seeking confirmation of the tax exempt status of
the lender and consequently their non-liability to withholding taxes. After the BIR
issued the ruling confirming the exemption, Respondent filed a claim for refund
with the CIR. The CIR denied the claim stating that the claim has prescribed as 2
years have lapsed from the time the withholding taxes were paid.
??? Has the right to claim refund of the erroneously paid withholding taxes
prescribed?
+
AMDG
!!! YES. The 2-year period is applied regardless of any supervening cause that may
arise after payment. In this case, the issuance by the BIR of the ruling is merely
confirmatory in nature and is not the operative act from which an entitlement of
refund is determined. The period also cannot begin to run merely from the
discovery by the taxpayer of erroneous or excessive payment of taxes. Neither can
solution indebiti be used as basis since this legal concept presupposes that there
is no binding relationship between the payor and the payee. There is clearly a
binding relationship since Respondent is required by law to act as withholding
agent on its payment to the lender-bank.
+
AMDG
… On September 30, 2004, Aichi Forging filed a claim for refund/credit of input
VAT attributable to its zero-rated sales for the period July 1, 2002 to September 30,
2002 with the CIR through the DOF One-Stop Shop. On the same day, Aichi Forging
filed a Petition for Review with the CTA for the same action. The BIR disputed the
claim and alleged that the same was filed beyond the two-year period given that
2004 was a leap year and thus the claim should have been filed on September 29,
2004. The CIR also raised issues related to the reckoning of the 2-year period and
the simultaneous filing of the administrative and judicial claims.
??? (1) Was the Petitioner’s administrative claim filed out of time?
(2) Was the filing of the judicial claim premature?
+
AMDG
!!! (1) NO. The right to claim the refund must be reckoned from the “close of the
taxable quarter when the sales were made” – in this case September 30, 2004.
The Court added that the rules under Sections 204 (C) and 229 as cross-referred to
Section 114 do not apply as they only cover erroneous payments or illegal
collections of taxes which is not the case for refund of unutilized input VAT. Thus,
the claim was filed on time even if 2004 was a leap year since the sanctioned
method of counting is the number of months. The period of exception for this rule
is from June 8, 2007 to September 12, 2008 when the 2-year period is reckoned
from the date of the payment of output VAT (Visayas Geothermal Power Company
vs. CIR)
(2) YES. Section 112 mandates that the taxpayer filing the refund must either wait
for the decision of the CIR or the lapse of the 120-day period provided therein
before filing its judicial claim. Failure to observe this rule is fatal to a claim. Thus,
Section 112 (A) was interpreted to refer only to claims filed with the CIR and not
appeals to the CTA given that the word used is “application”. Finally, the Court said
that applying the 2-year period even to judicial claims would render nugatory
Section 112 (D) which already provides for a specific period to appeal to the CTA -- i.e., (a) within 30 days after a decision within the 120-day period and (b) upon
expiry of the 120-day without a decision.
+
AMDG
December 10, 2003
60 (pre-Tax Code) or
120 day waiting
period is MANDATOY
October 5, 2010
BIR ruling applies:
need not wait for
expiration of 120
days (but judicial
claim must be filed
within 120+30 from
the filing of
administrative claim)
120 day waiting
period is
MANDATORY
(Notes : (i) 120 days is reckoned from submission of complete documents which is to
be presumed to be simultaneous with the filing of the administrative claim if no
contrary proof is offered --- Section 112 (C) Tax Code and CIR vs. GST, Philippines, Inc.)
(ii) The CIR loses jurisdiction on the administrative claim once the judicial claim is filed
with the CTA.
+
AMDG
… Petitioner amended its administrative claims filed with the BIR claiming that it
had revised the amounts contained in the letter-claims. Given this claim, it also
argued that that the remedy to appeal the inaction of the BIR on the claims (using
the 120+30 rule) has not yet prescribed.
??? Will the amendment of the administrative claims serve to extend the period to
appeal the inaction with the CTA?
!!! NO and YES. The claims that merely relied on the same unamended VAT returns
cannot be used since both versions of the claim relied on the figures reflected in
the VAT returns. On the other hand, the claims that were revised relied as well on
amendments made to the VAT returns themselves and as such are considered as
validly justified amendments.
+
AMDG
… United Airlines was formerly an online carrier and stopped being such in 1998 at
which time it appointed a sales agent in the Philippines. They filed a claim for
refund in 2002 covering alleged overpaid income taxes on gross passenger
revenues arising from the years after it became an offline carrier. While the CTA
agreed that the Petitioner can no longer be taxed for gross passenger revenues
starting 1999, it also found that Petitioner erroneously deducted items from its
gross cargo revenues which was not consistent with the Tax Code. The CTA thus
disallowed the refund by pointing out that Petitioner in fact underpaid its taxes on
cargo revenues by P31 million which amount was higher than the P5 million being
claimed for refund.
??? Can the Court, without violating the general principle against offsetting of
taxes, disallow a claim for refund on the ground that its (Court’s) finding of a
deficiency assessment against the same claimant is even higher than that sought
to be refunded?
+
AMDG
!!! YES. Section 72 of the Tax Code states that “When an assessment is made in
case of any list, statement or return, which in the opinion of the Commissioner
was false or fraudulent or contained any statement or undervaluation, no tax
collected under such assessment shall be recovered by any suit, unless it is proved
that said list, statement or return was not false nor fraudulent and did not contain
any understatement or undervaluation”. While the Court reiterated and
recognized the rule against offsetting of tax claims upheld in previous cases, it
brought up the point that “the grant of a refund is founded on the assumption
that the tax return is valid”. It also said that the practical benefit of dispensing of
the issues on the proper assessment in the same claim for refund case likewise
avoids a multiplicity of proceedings or suits.
+
AMDG
…Petitioner received a closure order from the Respondent for the non-payment of
dues arising out of an ordinance regulating the establishment of special projects
which included Petitioner’s telecommunications tower. Petitioner protested and
upon denial of the protest appealed the same to the Regional Trial Court of
Tanauan questioning as well the validity of the ordinance. Thereafter, Petitioner
appealed the RTC’s decision to the CTA which dismissed the same for lack of
jurisdiction claiming that it cannot resolve cases where the constitutionality of a
law or rule is challenged.
??? Does the CTA have jurisdiction over a decision of the RTC on a purported tax
case?
!!! NO. The primary reason for the CTA’s lack of jurisdiction is that what was
imposed under the questioned ordinance are not taxes but are instead regulatory
fees, specifically to address the environmental depredation of the said special
projects. As such, the case that originated from the RTC is not considered a local
tax case over which the CTA has jurisdiction.
+
AMDG
??? Does the CTA have jurisdiction over a special civil action for certiorari assailing
an interlocutory order issued by the RTC in a local tax case?
!!! YES. While Republic Act 9282 does not contain a categorical statement which
vests to the CTA jurisdiction over petitions for certiorari on orders by the RTC on
local tax cases, the grant of appellate jurisdiction on local tax cases leads to an
assumption that the law intended to transfer also such power as is deemed
necessary if not indispensable in aid of such appellate jurisdiction. The Court
pointed out that to confer the power over certiorari petitions to the Court of
Appeals would create a “split-jurisdiction” situation which is anathema to the
orderly administration of justice. The doctrine that the authority to issue writs of
certiorari must be expressly conferred by the Constitution or by law is not deemed
abandoned as this doctrine only applies to quasi-judicial bodies.
+
AMDG
??? Does the CTA have jurisdiction to set aside a ruling issued by the CIR even if the
issuance of the same has not been appealed with the DOF?
!!! NO. While R.A. 9282 vests the CTA with jurisdiction over “decisions” of the CIR
on “other matters arising under the Tax Code”, the same Tax Code specifically
states that the CIR’s power to interpret provisions of the Tax Code is subject to
review by the Secretary of Finance. In addition, DOF Department Order 23-01
provides the guidelines with regard to appeals filed with the DOF on adverse
rulings issued by the CIR. The failure to observe the aforementioned processes
will be deemed as a failure to exhaust administrative remedies which affects the
taxpayer’s right of recourse with the CTA.
+
AMDG
??? Is a Motion for Reconsideration from the decision of a division of the CTA
mandatory prior to elevating the case to the CTA en banc
!!! YES. The use of the term “must” clearly indicates that the requirement is
mandatory and not merely directory. There is no exigent and persuasive reason
(such as relieving a litigant of injustice) to relax the rules in this case.
+
AMDG
… Petitioner was assessed for income tax, VAT and withholding tax. After CIR
issued a Final Decision on Disputed Assessment, Petitioner filed a Letter of
Reconsideration with the CIR instead of appealing the same to the CTA within 30
days. The CIR then issued a Preliminary Collection Letter which prompted the
Petitioner to file its Petition with the CTA. CIR argued that the Petition with the
CTA was filed out of time.
??? Did the filing of a Reconsideration toll the running of the 30-day period to
appeal to the CTA?
!!! NO. A Motion for Reconsideration of the denial of the administrative protest
filed with the CIR does not toll the 30-day period to appeal to the CTA.
+
AMDG
… Petitioner was subjected to an assessment by the CIR and while the case
disputing the assessment was pending in the CTA, the Petitioner availed of 2007
Tax Amnesty Law. The CIR objected to the availment and stated that the filing of
an application does not by itself entitle Petitioner to the benefits of the amnesty
law and that the BIR has one year to assess the taxpayer’s compliance, specifically
to dispute the correctness of the Statement of Assets, Liabilities, and Net Worth
(SALN).
??? Can Petitioner immediately enjoy the immunities under the amnesty law as
soon as they meet the requirements provided therein?
!!! YES. The completion of the requirements under the law is deemed full
compliance with the law and as such the taxpayers may immediately enjoy the
immunities provided therein (suspensive condition). The one year period provided
under the law is a period within which 3rd parties (those other than the BIR and its
agents) can question the SALN. Thus, if within the one year period a 3rd party
disputes the SALN on the basis of an understatement exceeding 30%, and the
privileges will then not apply (resolutory condition).
+
AMDG
!!! The Commissioner can now inquire into bank deposits and other related
information held by financial institutions of “a specific taxpayer or taxpayers
subject of a request for supply of tax information from a foreign tax authority
pursuant to an international convention or agreement on tax matters to which the
Philippines is a signatory or a party”. The information may be used by the BIR for
tax assessment, verification, audit, and enforcement purposes. The exchange of
information shall be done in a secure manner to ensure confidentiality.
!!! The provision of information to a foreign tax authority requires that the
requesting foreign tax authority has provided relevant information such as the
identity of the taxpayer, the tax purpose, statement that the foreign authority has
exhausted all means, etc.
!!! If the subject of the request are income tax returns, the same shall be open to
inspection upon the order of the President of the Philippines.
+
AMDG
!!! The authority to order the opening for inspection of the income tax returns of
specific taxpayers for exchange of information by a foreign tax authority is
delegated to the Secretary of Finance.
!!! Any information received by the foreign tax authority as a result of the opening
of the income tax returns are absolutely confidential and shall be disclosed only to
persons or authorities involved in the assessment or collection of, or enforcement
or prosecution in respect of the taxes covered by such conventions/agreements.
+
AMDG
!!! The significant provisions are as follows ---
1) The Notice of Informal Conference step has been removed. Thus, first step after
examination is the issuance of the PAN (unless not required)
2) The taxpayer must specify if what is being filed is a request for reinvestigation
or a request for reconsideration. If the appeal is from the decision of an
authorized representative to the CIR, the only mode of appeal allowed is a request
for reconsideration
3) The modes of service of the PAN, FAN, and FDDA have been defined --• personal service on registered or known address (where business is
conducted)
• substituted service (where the same is left with the clerk or person-incharge if in a place of business or with a person of legal age if in a house or if
there is nobody there or there is refusal to receive, then 2 barangay officials
will witness the service)
+
AMDG
• service by mail which is either registered or reputable professional courier
service, or, if neither is available, ordinary mail
4) The duly authorized representatives are Revenue Regional Directors, Assistant
Commissioners – LTS, and Assistant Commissioner for Enforcement (Note: This
upholds the case of Festo which held that Revenue District Officers are not
authorized representatives for assessment purposes)
5) The issuance of FLD/FAN reiterating immediate payment of assessment
previously made in the PAN is a denial of the PAN protest and is thus a decision on
disputed assessment which may be appealed (Note: This upholds the Allied
Banking decision that the FAN and not just the FDDA is appealable to the CTA)
6) The imposition of both the 50% and 25% surcharges in one assessment is no
longer sanctioned.
+
AMDG
!!! RR 17-2013 --- All taxpayers are required to preserve their books of accounts
and other accounting records (including invoices, receipts, vouchers, and other
source documents) for a period of ten (10) years reckoned from the day following
the deadline in filing a return or if filed after the deadline, from the date of actual
filing. If there is a pending examination due to an assessment or a filed refund
claim, the records are to be preserved until the case is finally resolved. (Amended
to now state that hard copies must be retained for the first 5 years and thereafter
the taxpayer may retain only an electronic copy.)
!!! RR 005-2012 & RMC 22-2012 --- RR 5-2012 revoked rulings prior to 1998 but
RMC 22-2012 clarified that they can still be cited and relied upon but only by the
taxpayer to whom it was issued and covering the specific transaction/s which is
the subject of the same ruling.
+
AMDG
??? Can Benguet province impose amusement taxes on admission fees for resorts,
swimming pools, bath houses, hot springs, tourist spots and other similar places
for recreation?
!!! NO. The Court stated that a valid local tax imposition must (1) be consistent
with the principles under Section 130 and (2) not breach the limitations imposed
under Section 133. Even while Petitioner disputed the imposition of the tax by
stating that Section 133 of the LGC prohibits LGUs to impose percentage taxes
(such as the amusement tax) and/or VAT, the Court ruled that provinces are not
barred from levying amusement taxes given that the LGC expressly allows them to
levy amusement taxes but only on theaters, cinemas, and other places of
amusement. The Court ruled, however, that resorts, pools, hot springs, etc. are
not covered by “other places of amusement” since the enumeration under
Section 140 are all venues primarily for “staging of spectacles” which cannot
encompass the facilities of Petitioner.
+
AMDG
… Lepanto Consolidated Mining had a mining lease contract for a mining claim in
Benguet. They used the sand and gravel mined to construct and maintain concrete
structures needed in its mining operations such as a tailings dam, access roads,
and offices. The provincial treasurer of Benguet then asked Lepanto Consolidated
Mining to pay sand and gravel tax for the quarry materials extracted from the
mining site. The counterargument was that the said tax applied only to
commercial extractions and since Lepanto did not supply other users for some
profit, the tax should not apply.
??? Is Lepanto liable for the tax imposed by Benguet on the sand and gravel that it
extracted from within the area of its mining claim used exclusively in its mining
operations?
+
AMDG
!!! YES. The CTA erred in applying the provision of the Local Government Code
(Section 138) since the basis of Benguet province emanates from the Revised
Benguet Revenue Code itself. This notwithstanding, the provincial revenue
measure still did not distinguish between commercial and non-commercial
extractions.
In addition, the Petitioner’s argument that when a company is taxed on its main
business it can no longer be taxable for engaging in an activity that is but part of,
incidental to, and necessary to such main business, was held to be inapplicable.
The Court said that the cases where the above principle has been applied involved
business taxes and thus the incidental activities could not be treated as separate
and distinct from the main business. Here the tax being imposed was an excise tax
levied on the privilege of extracting gravel and sand.
+
AMDG
… ABS-CBN was granted a franchise which provides that it “shall pay a 3%
franchise tax and the said percentage tax shall be “in lieu of all taxes on this
franchise or earnings thereof”. It thus filed a complaint against the imposition of
local franchise tax.
??? Does the “in lieu of all taxes” provision in ABS-CBN’s franchise exempt it from
payment of the local franchise tax?
!!! NO. The right to exemption from local franchise tax must be clearly established
beyond reasonable doubt and cannot be made out of inference or implications.
+
AMDG
!!! The uncertainty over whether the “in lieu of all taxes” provision pertains to
exemption from local or national taxes, or both, should be construed against
Respondent who has the burden to prove that it is in fact covered by the
exemption claimed. Furthermore, the “in lieu of all taxes” clause in Respondent’s
franchise has become ineffective with the abolition of the franchise tax on
broadcasting companies with yearly gross receipts exceeding P10 million as they
are now subject to the VAT.
+
AMDG
??? Can an injunction be issued to enjoin the collection of local taxes?
!!!YES. The Local Government Code does not specifically prohibit an injunction
enjoining the collection of taxes. This is different in the case of national taxes
where the Tax Code expressly provides that no court shall have the authority to
grant an injunction to restrain the collection on national internal revenue tax, fee
or charge with the sole exception of when the CTA finds that the collection thereof
may jeopardize the interest of the government and/or the taxpayer. Nevertheless,
there must still be proof of the existence of the requirements for injunction to be
issued under the Rules of Court (i.e., clear right to be protected and urgent
necessity to prevent serious damage).
+
AMDG
… The City Treasurer of Paranaque City issued Warrants of Levy on PRA’s reclaimed
properties within the city’s jurisdiction.
??? Is the PRA subject to real property tax?
!!! NO. PRA, much like MIAA, PPA, UP, PFDA, GSIS, and BSP, is considered a
government instrumentality exercising corporate powers but which are not
considered as GOCCs as they are neither a stock (for not having the authority to
distribute dividends) nor a non-stock (for not having members) corporation. In
addition, the Constitution likewise provides that a GOCC is created under two
conditions: (a) established for a common good and (b) meets the test of economic
viability. While test (a) is complied with, the PRA was undoubtedly not created to
engage in economic or commercial activities as it is the only entity engaged in
reclamation which was described as essentially a public service. Thus, the
exemptions under Sections 234 (a) and 133(o) of the LGC apply.
+
AMDG
… MPLDC owned two parcels of land in Pasig City. In 1986, Jose Y. Campos, the
registered owner of MPLDC, voluntarily surrendered MPLDC to the government.
From 2002-2005, Pasig City sent notices of assessment to MPLDC to demand
payment of real property taxes. PCGG filed with the RTC a petition for prohibition
with a prayer for issuance of a TRO claiming ownership over the said properties.
??? Are the properties owned by PCGG subject to real property taxes?
!!! Only those portions of the properties leased to taxable entities are subject to
real estate taxes for the period of such leases and may also be sold at public
auctioned to satisfy the tax delinquency. While it was established that the owner
of the properties is now clearly the Republic of the Philippines given the voluntary
surrender, the Local Government Code clearly states that the exemption will not
apply “when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person”. The Court cited several cases to support the
decision such as Philippine Fisheries, GSIS, MIAA, and Lung Center.
+
AMDG
… The Provincial Assessor issued an assessment against Marcopper for real
property taxes supposedly due on the siltation dam and decant system.
Respondent submitted a DENR certification stating that the dam is a structure
intended primarily for pollution control of silted materials and hence exempt from
real property taxes.
??? Are the properties exempt from real property tax?
!!! NO. While Section 234 (e) exempts from the real property tax “machinery and
equipment used for pollution control”, the Court found that during the period
covered by the assessment, no evidence was presented that the property was
used actually, directly, and exclusively for pollution control purposes. In addition,
the DENR itself characterized the property as a ‘structure’ rather than as
machinery or equipment which thus takes it away from the exempting provision.
+
AMDG
Note: The assessment was for years before the law expanded the definition of
“pollution control device” to include infrastructure or improvement. However, the
Court said that the owner can not get the benefit of a retroactive application of
the amendment.
+
AMDG
… NPC is a GOCC that entered into an Energy Conversion Agreement (ECA) under a
build-operate-transfer (BOT) arrangement with Mirant Pagbilao Corp. Under the
agreement, Mirant will build and finance a thermal power plant in Quezon, and
operate and maintain the same for 25 years, after which, Mirant will transfer the
power plant to the Respondent without compensation. NPC also undertook to pay
all taxes that the government may impose on Mirant. Quezon then assessed
Mirant real property taxes on the power plant and its machineries.
???(1) Can Petitioner (NPC) file the protest against the real property tax
assessment?
(2) Can Petitioner claim exemption from the RPT given the BOT arrangement
with Mirant?
(3) Is payment under protest required before an appeal to the LBAA is made?
+
AMDG
!!! (1) NO. The two entities vested with personality to contest an assessment are
(a) the owner or (b) the person with legal interest in the property. NPC is neither
the owner nor the possessor/user of the subject machineries even if it will acquire
ownership of the plant at the end of 25 years. The Court said that legal interest
should be an interest that is actual and material, direct and immediate, not simply
contingent or expectant. While the Petitioner does indeed assume responsibility
for the taxes due on the power plant and its machineries, the tax liability referred
to is the liability arising from law that the local government unit can rightfully and
successfully enforce, not the contractual liability that is enforceable between the
parties to a contract. The local government units cannot be compelled to
recognize the protest of a tax assessment from the Petitioner, an entity against
whom it cannot enforce the tax liability.
+
AMDG
!!! (2) NO. To successfully claim exemption under Section 234 (c) of the LGC, the
claimant must prove two elements: a) the machineries and equipment are
actually, directly, and exclusively used by local water districts and governmentowned or controlled corporations; and b) the local water districts and
government-owned and controlled corporations claiming exemption must be
engaged in the supply and distribution of water and/or the generation and
transmission of electric power. Since neither the Petitioner nor Mirant satisfies
both requirements, the claim for exemption must fall.
(3) YES. If a taxpayer disputes the reasonableness of an increase in a real property
tax assessment, he is required to "first pay the tax" under protest. The case of Ty
does not apply as it involved a situation where the taxpayer was questioning the
very authority and power of the assessor, acting solely and independently, to
impose the assessment and of the treasurer to collect the tax. A claim for tax
exemption, whether full or partial, does not question the authority of local
assessors to assess real property tax.
+
AMDG
… Petitioner was assessed by Baguio City for its buildings within the John Hay
Special Economic Zone. Petitioner protested the same and raised as defense its
alleged exemption from paying all taxes under the Bases Conversion Act. However,
there was no payment under protest made by the Petitioner.
??? Can the CBAA/CTA assume jurisdiction over a real property assessment case
even if the taxpayer did not pay under protest?
!!! NO. A claim for tax exemption, whether full or partial, does not deal with the
authority of local assessor to assess real property tax. Such claim questions the
correctness of the assessment and compliance with the provisions of the LGC and
as such payment under protest is mandatory. Neither can Petitioner use the
argument that the rule on paying under protest will not apply to it since it is not a
“taxpayer” as it is a tax-exempt entity. The Court replied by stating that the LGC
provides for a process by which an entity claiming exemption can comply with the
same and hence it becomes a question of fact which would require and
administrative determination.
+
AMDG
... Petron filed a petition with the LBAA contesting the revised assessment of its
properties on the grounds that the assessments covered more than 10 years, the
assessment included items which should properly be excluded, and that the
subject assessment should take effect on January 1st the following year. While the
appeal was pending, the Treasurer issued a warrant of levy. Petron asked the RTC
to stop the levy in view of the pending appeal and posting of a bond with the
LBAA
??? Can the RTC issue an injunction against the collection of real property taxes if
there is a pending appeal with the LBAA ?
!!! YES. Petron was granted the injunction which suspended the collection of taxes
given that it was able to show a clear and unmistakable right to refuse or hold in
abeyance the payment of taxes. The filing of a bond was also deemed to have
been in compliance not only with the LBAA rules but also with Section 11 of
Republic Act 9282.
+
AMDG
... Petitioner was assessed for non payment of real property tax as it was claiming
exemption on the basis of its legislative franchise which stated that “The grantee
shall be liable to pay the same taxes on its real estate, buildings, and personal
property exclusive of this franchise x x x “. While the Cease and Desist order
issued by the local government was set aside, the treasurer proceeded to collect
by issuing warrants of levy. Petitioner asked that the treasurer be cited for
contempt as the warrants were inconsistent with the previous decision and
reiterated its exemption.
??? Did the local treasurer commit reversible error when it issued warrants of levy?
+
AMDG
!!! NO. The Court ruled that Petitioner’s remedy if it claimed exemption was to
submit the requirements (within 30 days) provided under the LGC to establish
such grant. Alternatively, it could have availed the remedy of paying the assessed
real property tax under protest. If it had done so, it would have prevented the
issuance of the warrants but since it failed it cannot now fault the treasurer who
was just performing his ministerial function also under the LGC who himself would
have been subjected to the penalties prescribed for non-performance of
ministerial duties.
It was likewise pointed out that Petitioner’s franchise does not imply its assets that
are actually, directly, and exclusively used in its telecommunications business are
exempt from real property tax.
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AMDG
… An auction sale of the properties of RCBC was conducted in May 30, 2003. The
Certificate of Sale of Delinquent Property was registered with the Register of
Deeds of Quezon City on February 10, 2004. Respondent tendered payment on
June 10, 2004 but the Treasurer of Quezon City refused on the ground that the
one-year redemption period has lapsed.
??? Did the Respondent still have the right to redeem?
!!! YES. While the LGC provides that the one year begins from the date of sale on
which date the delinquent tax and other fees are paid (in this case May 30, 2003),
the local ordinance of Quezon City provides that the period is reckoned from the
date of annotation of the sale (in this case February 10, 2004). To reconcile the
conflicting provisions, the Court applied the rule laid down in the special law or
the Quezon City ordinance.
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AMDG
!!! Based on the case of NPC vs. Province of Quezon, Quezon Province was allowed
to impose RPT on machineries and equipment under a BOT agreement. Given that
the payment of the same RPT has been contractually assumed by NPC/PSALM
which are GOCCs, the President reduced all RPT liabilities based on an assessment
level of 15% .
!!! All fines, penalties, and interest on all deficiencies were likewise condoned.
!!! The reduction was made effective for all years up to 2011.
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AMDG
… On September 29, 2001, a shipment described as “agricultural product” arrived
at Subic Bay Freeport Zone. On October 23, the BOC issued a Memorandum
stating that upon examination the shipment was found to contain rice. The
representative of the importer then stated that there was a “misshipment” and
manifested willingness to pay appropriate duties and taxes. The BOC then issued a
Hold Order on October 25, 2001. Despite several certifications for its clearance,
Petitioner SBMA refused to allow the release of the rice shipment. Hence, on June
11, 2002, the respondent-importers filed with the RTC of Olongapo City a
complaint for Injunction and Damages against SBMA.
??? Did the RTC have jurisdiction over the case?
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AMDG
!!! NO. The Collector of Customs has exclusive jurisdiction over seizure and
forfeiture proceedings and the regular courts can not interfere nor can it enjoin
these proceedings. This is the rule the moment the imported goods are in the
possession or control of the Customs authorities even if no warrant for seizure or
detention had previously been issued. The actions of the BOC are then only
appealed to the CTA. The Court also said that this rule, which is anchored upon the
policy of placing no unnecessary hindrance on the government’s drive to prevent
smuggling and fraud and to collect correct duties, is absolute.
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AMDG
… Philippine British Assurance Company was an insurance company which
regularly issued customs bonds to its clients in favor of the BOC. The bonds secure
the release of imported goods in order that the goods may be released without
prior payment of duties and taxes. Under these bonds, Petitioner and its clients
jointly bind themselves to pay BOC the value of the bonds in the event that the
bonds expire without the imported goods being re-exported or the proper duties
being paid. BOC then filed a collection case alleging that Petitioner had
unliquidated customs bonds. The RTC decided in favor of BOC but the appeal filed
with the Court of Appeals was dismissed as the CA claimed lack of jurisdiction and
said that the appeal lies with the CTA as a case for collection of taxes.
??? Did the CA, not the CTA, have jurisdiction over the appeal filed from the RTC?
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AMDG
!!! YES. An action to collect on a bond used to secure the payment of taxes is not a
tax collection case but rather a simple case for enforcement of contractual liability.
This was the same ruling in Mambulao Lumber where to satisfy its deficiency sales
tax, the parties agreed for the taxpayer to pay in installments and as a security a
bond was executed. Upon default, the government proceeded against the bond
while the taxpayer argued that the 5-year period to collect had set in. The Court
also ruled that the prescription rules under the Tax Code do not apply and instead
those under the Civil Code apply.
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AMDG
!!! The significant provisions of the Order are as follows --1) Post-entry audit is now administered by Fiscal Intelligence Unit of the DOF and
no longer the BOC-PEAG.
2) Those that are audited are (1) the firms selected by computer-aided risk
management system which is based on the track record; (2) those whose
importations were subject to errors; and (3) those that volunteer.
3) Except in case of fraud, COC (upon approval by the DOF with the
recommendation of the FIU) may compromise with the erring importer but the
same has to be based to based on full disclosure that is made prior to the issuance
of the Audit Notification Letter.
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AMDG
!!! The significant provisions are as follows --4) All importers and brokers are required to keep at their principal place of
business for a period of 10 years (as amended by DOF Order 011-2014) from the
date of importation all the records of their importations and/or books of accounts,
business and computer systems and all customs commercial data including
payment records relevant to the verification of the accuracy of the transaction
value declared by the importers/customs brokers on the import entry.
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AMDG
GOOD
LUCK!