Professional Documents
Culture Documents
PIGA
Taxation I
In a meeting of the Petron PWC held on December 15, 1993 at 12:00 noon, it decided that Westmont Holdings
(WESTMONT) was disqualified from participating in the bidding for its alleged failure to comply with the technical and
financial requirements for a strategic partner.
At 6:30 P.M., the other two bids were opened. The bid of ARAMCO was for US$502 million while the bid of
PETRONAS was for US$421 million. The PNOC Board of Directors then passed Resolution No. 866, S. 1993,
declaring ARAMCO the winning bidder.
VINCENT Q. PIGA
Taxation I
On December 16, 1993, respondent Monico Jacob, in his capacity as President and Chief Executive Officer of PNOC,
endorsed to the COP the bid of ARAMCO for approval. The COP gave its approval on the same day. Also on the same
day, Manuel Estrella filed a complaint in behalf of WESTMONT with PNOC, questioning the award of the 40% block of
Petron shares to ARAMCO. The COP answered Estrella's letter on January 14, 1994, explaining why WESTMONT's
bid was returned unopened.
On February 3, 1994, PNOC and ARAMCO signed the Stock Purchase Agreement and on March 4, 1994, the two
companies signed the Shareholders' Agreement.
Issues:
(1) Does the petitioners have locus standi to file the present action?
(2) Can the subjects of privatization only be non-performing assets of the government?
(3) Can the courts review the act of privatization by PNOC?
(4) Is there a failure of a public bidding when only one bidder qualifies?
Ruling:
(1) Yes, the petitioners can bring the action in their capacity as taxpayers under the doctrine laid down
in Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994). Under said ruling, taxpayers may question contracts
entered into by the national government or government-owned or controlled corporations alleged to be in
contravention of the law. As long as the ruling in Kilosbayan on locus standi is not reversed, we have no
choice but to follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.
(2) No, To say that only non-performing assets should be the subject of privatization does not conform with the
realities of economic life. In the world of business and finance, it is difficult to sell a business in dire, financial
distress. As entrepreneur Don Eugenio Lopez used to advert to his younger executives: "Don't buy
headaches. Don't even accept them if they are offered to you on a silver platter." It is only in a fire sale that
the government can expect to get rid of its non-performing assets, more so if the sequencing pattern insisted
by petitioners (initial public offering of 10% block to small investors) is followed. While Proclamation No. 50
mandates that non-performing assets should promptly be sold, it does not prohibit the disposal of the other
kinds of assets, whether performing, necessary or appropriate.
(3) No, The decision of PNOC to privatize PETRON and the approval of the COP of such privatization, being
made in accordance with Proclamation No. 50, cannot be reviewed by this Court. Such acts are exercises of
the executive function as to which the Court will not pass judgment upon or inquire into their wisdom (Llamas
v. Orbos, 202 SCRA 844 [1991]).
(4) No, a failure of bidding takes place is defined in Circular No. 89-296 of the Commission on Audit, which
prescribes the "Audit Guidelines on the Divestment or Disposal of Property and other Assets of the National
Government Agencies and Instrumentalities, Local Government Units and Government-Owned or Controlled
Corporations and their Subsidiaries."
Under said COA Circular, there is a failure of bidding when: 1) there is only one offeror; or (2) when all the
offers are non-complying or unacceptable.
In the case at bench, there were three offerors: SAUDI ARAMCO, PETRONAS and WESTMONT.
While two offerors were disqualified, PETRONAS for submitting a bid below the floor price and WESTMONT
for technical reasons, not all the offerors were disqualified. To constitute a failed bidding under the COA
Circular, all the offerors must be disqualified.
VINCENT Q. PIGA
Taxation I
Issue: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the
petitioner?
Ruling: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are
the lifeblood of the government and so should be collected without unnecessary hindrance.
Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be
allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for
refund or credit against the government which has not yet been granted.Taxes cannot be subject
to compensation for the simple reason that the government and the taxpayer are not creditors
and debtors of each other. There is a material distinction between a tax and debt. Debts are due
to the Government in its corporate capacity, while taxes are due to the Government in its
sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer
may have against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The collection
of a tax cannot await the results of a lawsuit against the government.
3. Commissioner of Internal Revenue vs. Proctor and Gamble Phils. Corp. and
CTA
GR No. 66838, April 15, 1988
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend
remittances to non-resident corporate stockholders of a Philippine corporation. This rate goes
down to 15% ONLY IF the country of domicile of the foreign stockholder corporation shall allow
such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable against
the tax payable to the domiciliary country by the foreign stockholder corporation. However, such
tax credit for taxes deemed paid in the Philippines MUST, as a minimum, reach an amount
equivalent to 20 percentage points.
FACTS: Procter and Gamble Philippines declared dividends payable to its parent company and
sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35%
dividend withholding tax to the BIR which amounted to Php 8.3M It subsequently filed a claim with
the Commissioner of Internal Revenue for a refund or tax credit, claiming that pursuant to Section
24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369, the
applicable rate of withholding tax on the dividends remitted was only 15%.
VINCENT Q. PIGA
Taxation I
ISSUE: Whether or not P&G Philippines is entitled to the refund or tax credit.
Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 30) of the
NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption
does not apply to income derived from any of their properties, real or personal, or from any of their activities conducted
for profit, regardless of the disposition made of such income. "Rental income derived by a tax-exempt organization
from the lease of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income
is exclusively used for the accomplishment of its objectives."
ISSUE: Whether or not the income derived from rentals of real property owned by YMCA is subject to income tax.
VINCENT Q. PIGA
Taxation I
RULING: Yes.
Income of whatever kind and character of non-stock non-profit organizations from any
of their properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to the tax imposed
under the NIRC.
Rental income derived by a tax-exempt organization from the lease of its properties,
real or personal, is not exempt from income taxation, even if such income is
exclusively used for the accomplishment of its objectives.
Because taxes are the lifeblood of the nation, the Court has always applied the
doctrine of strict in interpretation in construing tax exemptions (Commissioner of
Internal Revenue v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997). Furthermore,
a claim of statutory exemption from taxation should be manifest and unmistakable
from the language of the law on which it is based. Thus, the claimed exemption must
expressly be granted in a statute stated in a language too clear to be mistaken
(Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue and Court of
Appeals, G.R. No. 117359, p. 15 July 23, 1998).
Verba legis non est recedendum. The law does not make a distinction. The rental
income is taxable regardless of whence such income is derived and how it is used or
disposed of. Where the law does not distinguish, neither should we.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution,
claiming that it is a non-stock, non-profit educational institution whose revenues and
assets are used actually, directly and exclusively for educational purposes so it is
exempt from taxes on its properties and income.
This is without merit since the exemption provided lies on the payment of property tax,
and not on the income tax on the rentals of its property. The bare allegation alone that
one is a non-stock, non-profit educational institution is insufficient to justify its
exemption from the payment of income tax.
For the YMCA to be granted the exemption it claims under the above provision, it must
prove with substantial evidence that (1) it falls under the classification non-stock, nonprofit educational institution; and (2) the income it seeks to be exempted from taxation
is used actually, directly, and exclusively for educational purposes. Unfortunately for
respondent, the Court noted that not a scintilla of evidence was submitted to prove
that it met the said requisites.
VINCENT Q. PIGA
Taxation I
In leasing its facilities to small shop owners and in operating parking spaces, YMCA
does not engage in any profit-making business. These activities conducted on YMCA's
property were aimed not only at fulfilling the needs and requirements of its members
as part of YMCA's youth program but, more importantly, at raising funds to finance the
multifarious projects of the Association.
The majority, if not all, of the income of the organizations covered by the exemption
provided in Sec. 27, pars. (g) and (h), of the NIRC are derived from their properties, real
or personal. If we are to interpret the last paragraph of Sec. 27 to the effect that all
income of whatever kind from the properties of said organization, real or personal, are
taxable, even if not conducted for profit, then Sec. 27, pars. (g) and (h), would be
rendered ineffective and nugatory. (so last paragraph applies only those income
derived from these properties for profit)
In YMCA of Manila v. Collector of Internal Revenue this Court categorically held and found YMCA to be an
educational institution exclusively devoted to educational and charitable purposes and not operated for profit. We ruled
therein that YMCA cannot be said to be an institution used exclusively for religious purposes or an institution devoted
exclusively for charitable purposes or an institution devoted exclusively to educational purposes, but it can be truthfully
said that it is an institution used exclusively for all three purposes (religious, charitable and educational) and that, as
such, it is entitled to be exempted from taxation.
As to the third ground, it is premised upon the fact that the tax in question is imposed
regardless of the class of lumber sold, although there are several categories thereof,
commanding different prices. Plaintiff has not proven, however, or even alleged the prices
corresponding to each category, so that, like the lower court, We have no means to ascertain
the accuracy of the conclusion drawn by him, and must, accordingly, rely upon the
presumption that the City Council had merely complied with its duty and that the ordinance is
valid, unless and until the contrary has been duly established.
VINCENT Q. PIGA
Taxation I
As to the fourth ground, is based upon Provincial Circular No. 24 of the Department of
Finance, dated March 31, 1960, suggesting that, "in the enactment of tax ordinances .. under
the Local Autonomy Act ... where practicable, public hearings be held wherein the views of
the public ... may be heard." This is, however, a mere suggestion, compliance with which is
not obligatory, so that failure to act in accordance therewith cannot and does not affect the
validity of the tax ordinance.
Petition appealed from affirmed with cost against plaintiff.