FUNDAMENTAL PRINCIPLES OF TAXATION

Chavez v Ongpin
GR No 76778, June 6, 1990
Facts:
On November 25, 1986, President Corazon Aquino issued EO 73 stating that
beginning January 1, 1987, the 1984 assessments shall be the basis of real property
taxes.
Francisco Chavez, a taxpayer and an owner of three parcels of land, questioned the
constitutionality of EO 74. He alleges that it accelerated the application of the
general revision of assessments to January 1, 1987 thereby mandating an excessive
increase in real property taxes by 100% to 400% on improvements, and up to 100%
on land; that any increase in the value of real property brought about by the
revision of real property values and assessments would necessarily lead to a
proportionate increase in real property taxes; that sheer oppression is the result of
increasing real property taxes at a period of time when harsh economic conditions
prevail; and that the increase in the market values of real property as reflected in
the schedule of values was brought about only by inflation and economic recession.
Issue:
Whether EO 73 Constitutional.
Held:
Yes. Without EO 73, the basis for collection of real property taxes will still be the
1978 revision of property values. Certainly, to continue collecting real property
taxes based on valuations arrived at several years ago, in disregard of the increases
in the value of real properties that have occurred since then is not in consonance
with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires
that sources of revenue must be adequate to meet government expenditures and
their variations.

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Diaz v. Secretary of Finance

GR 193007, July 19, 2011
Facts:
Petitioner assails the validity of the impending imposition of value-added tax (VAT)
by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
Petitioners assert that the substantiation requirements for claiming input VAT make
the VAT on tollway operations impractical and incapable of implementation. They
cite the fact that, in order to claim input VAT, the name, address and tax
identification number of the tollway user must be indicated in the VAT receipt or
invoice. The manner by which the BIR intends to implement the VAT by rounding of
the toll rate and putting any excess collection in an escrow account is also illegal,
while the alternative of giving change to thousands of motorists in order to meet the
exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on
tollway operations is not administratively feasible.
Issue:
Whether the imposition of VAT on tollway operators is not administratively feasible
and cannot be implemented.
Held:
No. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. The Court cannot preempt the BIRs discretion
on the matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 632010 which directs toll companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, the date when the VAT imposition was
supposed to take efect. The issuance allegedly violates Section 111(A)of the Code
which grants first time VAT payers a transitional input VAT of 2% on beginning
inventory.
Administrative feasibility is one of the canons of a sound tax system. It simply
means that the tax system should be capable of being efectively administered and
enforced with the least inconvenience to the taxpayer. Non-observance of the
canon, however, will not render a tax imposition invalid except to the extent that
specific constitutional or statutory limitations are impaired. Thus, even if the
imposition of VAT on tollway operations may seem burdensome to implement, it is
not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution.

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Ormoc Sugar vs. Treasurer of Ormoc City

GR L-23794, 17 February 1968
Facts:
In 1964, the Municipal Board of Ormoc City passed a municipal Tax Ordinance 4,
imposing on any and all productions of centrifugal sugar milled at the Ormoc Sugar
Inc. in Ormoc City a municpal tax equivalent to 1% per export sale to the United
States and other foreign countries.
Said company filed before the CFI of Leyte a complaint against the City of Ormoc, its
Treasurer, Municipal Board and Mayor, alleging sasid ordinance is violative of the
equal protection clause and the rule of uniformity of taxation, among other things.
Ormoc Sugar Company Inc. was the only sugar central in Ormoc City at the time.
Issue:
Whether constitutional limits on the power of taxation, were infringed. (EPC and
uniformity of taxation)
Held:
The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc
Sugar Co. Inc. and none other. At the time of the taxing ordinances enacted, the
company was the only sugar central in Ormoc City.
The classification, to be reasonable, should be in terms applicable to future
conditions as well. The taxing ordinance should not be singular and exclusive as to
exclude any subsequently established sugar central, of the same class as the
present company, from the coverage of the tax. As it is now, even if later a similar
company is set up, it cannot be subject to the tax because the ordinance expressly
points only to the company as the entity to be levied upon.

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PHILEX Mining Corporation v Commission on Internal Revenue

G.R. No. 125704. August 28, 1998
Facts:
BIR sent a letter to Philex asking it to settle its tax liabilities for 1991-1992 in the
total
amount of P123,821,982.52. Philex protested the demand for payment of the tax
liabilities stating that it has pending claims for VAT input credit/refund for the taxes
it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest.
Philex was able to obtain its VAT input credit/refund not only for the taxable year
1989 to 1991 but also for 1992and 1994
In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, of-set its excise tax liabilities, since both had already
become due and demandable, as well as fully liquidated; hence, legal
compensation can properly take place.
Issue:
Whether there should be a set-of.
Held:
No.
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.
Philexs 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.A taxpayer cannot refuse to pay his taxes when they fall due simply
because he has a claim against the government or that the collection of the tax is
contingent on the result of the lawsuit it filed against the government. Moreover,
Philexs theory that would automatically apply its VAT input credit/refund against its
tax liabilities can easily give rise to confusion and abuse, depriving the government
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of authority over the manner by which taxpayers credit and ofset their tax
liabilities.

Republic vs. Mambulao Lumber

GR L-17725, 28 February 1962
Facts:
Mambulao Lumber Company paid the Government a total of P9,127.50 as
reforestation charges. However, the company has been found liable for an
aggregate amount of P4,802.37 for forest charges, it then contended that since the
Republic (Government) has not made use of the reforestation charges for
reforesting the denuded area of the land covered by the companys license, it
demanded that the Republic should refund said amount or, if it cannot be refunded,
at least the company should be compensated with what it owed the Republic for
reforestation charges.
The director of Forestry answered Mambulao Lumber, to the efect that he has no
discretion to extend the time for paying the reforestation charges and also
explained why not all denuded areas are being reforested.
Issue:
Whether taxes may be subject of set-of or compensation.
Held:
Internal revenue taxes, such as forest charges, cannot be the subject of set-of or
compensation. A claim for taxes is not such a debt, demand, contract or judgment
as is allowed to be set-of under the statutes of set-of, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the State or municipality to one who is liable to the State or
municipality for taxes. Neither are they subject of recoupment since they do not
arise
out
of
the
contract
or
transaction
sued
on.
Taxes are not in the nature of contracts between the parties but grow out of a duty
to, and are the positive acts of the government, to the making and enforcing of
which, the personal consent of individual taxpayers is not required.
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Republic vs. Mambulao Lumber

GR L-17725, 28 February 1962
Facts:
Mambulao Lumber Company paid the Government a total of P9,127.50 as
reforestation charges. However, the company has been found liable for an
aggregate amount of P4,802.37 for forest charges, it then contended that since the
Republic (Government) has not made use of the reforestation charges for
reforesting the denuded area of the land covered by the companys license, it
demanded that the Republic should refund said amount or, if it cannot be refunded,
at least the company should be compensated with what it owed the Republic for
reforestation charges.
The director of Forestry answered Mambulao Lumber, to the efect that he has no
discretion to extend the time for paying the reforestation charges and also
explained why not all denuded areas are being reforested.
Issue:
Whether taxes may be subject of set-of or compensation.
Held:
Internal revenue taxes, such as forest charges, cannot be the subject of set-of or
compensation. A claim for taxes is not such a debt, demand, contract or judgment
as is allowed to be set-of under the statutes of set-of, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the State or municipality to one who is liable to the State or
municipality for taxes. Neither are they subject of recoupment since they do not
arise
out
of
the
contract
or
transaction
sued
on.
Taxes are not in the nature of contracts between the parties but grow out of a duty

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to, and are the positive acts of the government, to the making and enforcing of
which, the personal consent of individual taxpayers is not required.

SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. THE PHILIPPINE

CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE DEPARTMENT OF
TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE,
and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

G.R. No. 158540. July 8, 2004

FACTS:
Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic
corporation engaged in the business of cement manufacturing, production,
importation and exportation. Its principal stockholders are Taiheiyo Cement
Corporation and Tokuyama Corporation, purportedly the largest cement
manufacturers in Japan. Private respondent Philippine Cement Manufacturers
Corporation (Philcemcor) is an association of domestic cement manufacturers.

Respondent Department of Trade and Industry (DTI) accepted an application

from Philcemcor, alleging that the importation of gray Portland cement in increased
quantities has caused declines in domestic production, capacity utilization, market
share, sales and employment; as well as caused depressed local prices.
Philcemcor sought the imposition at first of provisional, then later, definitive
safeguard measures on the import of cement pursuant to the SMA. After preliminary
investigation, the Bureau of Import Services of the DTI, determined that critical
circumstances existed justifying the imposition of provisional measures. DTI issued
an Order, imposing a provisional measure
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The Tarif Commission, on 19 November 2001, received a request from the DTI for a
formal investigation to determine whether or not to impose a definitive safeguard
measure on imports of gray Portland cement, the Tarif Commission issued its
Formal Investigation Report stating that The elements of serious injury and
imminent threat of serious injury not having been established, it is hereby
recommended that no definitive general safeguard measure be imposed on the
importation of gray Portland cement. DTI Secretary disagreed with the conclusion of
the Tarif Commission, DTI requested an opinion from the Department of Justice ,
DOJ Secretary rendered an opinion stating that the DTI that it was bound by the
negative finding of the Tarif Commission. The DTI has no alternative but to abide by
the [Tarif] Commissions recommendations. Thus the DTI issued an order that the
application for safeguard measures against the importation of gray Portland cement
filed by PHILCEMCOR (Case No. 02-2001) is hereby denied.

Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it
filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus,
likewise applied for a Temporary Restraining Order/Injunction to enjoin the DTI and
the BOC from implementing the questioned Decision and Report. The CA granted
the writ sought. the two-hundred (200)-day period for the imposition of the
provisional measure expired. Despite the lapse of the period, the BOC continued to
impose the provisional measure on all importations of Portland cement made by
Southern Cross. Sothern cross file a MR Alleging that Philcemcor was not entitled to
provisional relief, Southern Cross likewise sought a clarificatory order as to whether
the grant of the writ of preliminary injunction could extend the earlier imposition of
the provisional measure beyond the two hundred (200)-day limit imposed by law. CA
render its decision held that the DTI Secretary is not bound by the factual findings of
the Tarif Commission since such findings are merely recommendatory and they fall
within the ambit of the Secretarys discretionary review. It determined that the
legislative intent is to grant the DTI Secretary the power to make a final decision on
the Tarif Commissions recommendation. But It refused to annul the findings of the
Tarif Commission, citing the rule that factual findings of administrative agencies are
binding upon the courts and its corollary, that courts should not interfere in matters
addressed to the sound discretion and coming under the special technical
knowledge and training of such agencies. Thus southern cross filed an appeal to
the Supreme court argues that the Court of Appeals has no jurisdiction over
Philcemcors petition, the proper remedy being a petition for review with the CTA
conformably with the SMA, and; that the factual findings of the Tarif Commission on
the existence or non-existence conditions warranting the imposition of general
safeguard measures are binding upon the DTI Secretary.

ISSUE:

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1. Whether or not the CA has jurisdiction over the case.

2. whether or not the DTI Secretary may impose general safeguard measures
in the absence of a positive final determination by the Tarif Commission.

Held :
As to the issue of jurisdiction the SC held that;
Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire
jurisdiction over the petition for review contemplated therein: (i) there must be a
ruling by the DTI Secretary; (ii) the petition must be filed by an interested party
adversely afected by the ruling; and (iii) such ruling must be in connection with the
imposition of a safeguard measure. The first two requisites are clearly present. The
third requisite deserves closer scrutiny.
This theoretical quandary need not come to pass. Section 29 of the SMA is worded
in such a way that it places under the CTAs judicial review all rulings of the DTI
Secretary, which are connected with the imposition of a safeguard measure. This is
sound and proper in light of the specialized jurisdiction of the CTA over tax matters.
In the same way that a question of whether to tax or not to tax is properly a tax
matter, so is the question of whether to impose or not to impose a definitive
safeguard measure.
On another note, the second paragraph of Section 29 similarly reveals the
legislative intent that rulings of the DTI Secretary over safeguard measures should
first be reviewed by the CTA and not the Court of Appeals. It reads: The petition for
review shall comply with the same requirements and shall follow the same rules of
procedure and shall be subject to the same disposition as in appeals in connection
with adverse rulings on tax matters to the Court of Appeals. This is the only
passage in the SMA in which the Court of Appeals is mentioned. The express wish of
Congress is that the petition conform to the requirements and procedure under Rule
43 of the Rules of Civil Procedure. Since Congress mandated that the form and
procedure adopted be analogous to a review of a CTA ruling by the Court of
Appeals, the legislative contemplation could not have been that the appeal be
directly taken to the Court of Appeals.
On the issue of Binding Effect of Tariff Commissions Factual Determination on DTI
Secretary.
Court of Appeals relied upon Section 13 of the SMA in ruling that the findings
of the Tarif Commission do not necessarily constitute a final decision. Section 13
details the procedure for the adoption of a safeguard measure, as well as the steps
to be taken in case there is a negative final determination. The implication of the
Court of Appeals holding is that the DTI Secretary may adopt a definitive safeguard
measure, notwithstanding a negative determination made by the Tarif Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions before
general safeguard measures may be imposed. However, the most fundamental
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restriction on the DTI Secretarys power in that respect is contained in

Section 5 of the SMA that there should first be a positive final
determination of the Tariff Commission which the Court of Appeals curiously all
but ignored. The plain meaning of Section 5 shows that it is the Tarif Commission
that has the power to make a positive final determination. This power lodged in the
Tarif Commission, must be distinguished from the power to impose the general
safeguard measure which is properly vested on the DTI Secretary.
Section 5 plainly evinces legislative intent to restrict the DTI Secretarys power to
impose a general safeguard measure by preconditioning such imposition on a
positive determination by the Tarif Commission. Such legislative intent should be
given full force and efect, as the executive power to impose definitive safeguard
measures is but a delegated power the power of taxation, by nature and by
command of the fundamental law, being a preserve of the legislature. Section 28(2),
Article VI of the 1987 Constitution confirms the delegation of legislative power, yet
ensures that the prerogative of Congress to impose limitations and restrictions on
the executive exercise of this power:
The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tarif rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government. This
delegation of the taxation power by the legislative to the executive is authorized by
the Constitution itself. At the same time, the Constitution also grants the delegating
authority (Congress) the right to impose restrictions and limitations on the taxation
power delegated to the President. The restrictions and limitations imposed by
Congress take on the mantle of a constitutional command, which the executive
branch is obliged to observe. The DTI Secretary authority is derived from the SMA; it
does not flow from any inherent executive power. Thus, the limitations imposed by
Section 5 are absolute, warranted as they are by a constitutional fiat.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals
is DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary
dated 25 June 2003 is also DECLARED NULL AND VOID and SET ASIDE. No Costs.

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994

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CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG,

MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A.
SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and
JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL
REVENUE, respondents.
FACTS:
Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income
Taxation Scheme ("SNIT"), which amended certain provisions of the NIRC, as well as
the Rules and Regulations promulgated by public respondents pursuant to said law.
Petitioners posit that RA 7496 is unconstitutional as it allegedly violates the
following provisions of the Constitution:
1. Article VI, Section 26(1) Every bill passed by the Congress shall embrace only
one subject which shall be expressed in the title thereof.
2.Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
3. Article III, Section 1 No person shall be deprived of . . . property without due
process of law, nor shall any person be denied the equal protection of the laws.
Petitioners contended that public respondents exceeded their rule-making authority
in applying SNIT to general professional partnerships. Petitioner contends that the
title of HB 34314, progenitor of RA 7496, is deficient for being merely entitled,
"Simplified Net Income Taxation Scheme for the Self-Employed and Professionals
Engaged in the Practice of their Profession" (Petition in G.R. No. 109289) when the
full text of the title actually reads, An Act Adopting the Simplified Net Income
Taxation Scheme For The Self-Employed and Professionals Engaged In The Practice
of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue
Code,' as amended. Petitioners also contend it violated due process.
ISSUE:
1. Whether or not the tax law is unconstitutional for violating due process
2. Whether or not public respondents exceeded their
promulgating the Section 6 of Revenue Regulation No. 2-93

authority

in

HELD:
In both issue the supreme court ruled in the negative
As to the 1st issue at hand the Supreme court stated that;

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The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax
power. No such transgression is so evident in herein case.
Uniformity of taxation, like the concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not violate classification as long as: (1) the
standards that are used therefor are substantial and not arbitrary, (2) the
categorization is germane to achieve the legislative purpose, (3) the law applies, all
things being equal, to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class.
What is apparent from the amendatory law is the legislative intent to increasingly
shift the income tax system towards the schedular approach in the income taxation
of individual taxpayers and to maintain, by and large, the present global
treatment on taxable corporations. The Court does not view this classification to be
arbitrary and inappropriate.
As to the 2nd issue the court held that
There is no evident intention of the law, either before or after the amendatory
legislation, to place in an unequal footing or in significant variance the income tax
treatment of professionals who practice their respective professions individually and
of those who do it through a general professional partnership.

TIO vs. VIDEOGRAM REGULATORY BOARD

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G.R. No. L-75697. June 18, 1987

Facts:
Valentin Tio is an operator of a videogram establishment which was adversely
afected by Presidential Decree No. 1987 entitled "An Act Creating the Videogram
Regulatory Board".
P.D. No. 1987 provides for the levy of a tax over each cassette sold (Sec. 134)
and a 30% tax on the gross receipts of a videogram establishment, payable to the
local government (Sec. 10).
Tio, assails the validity of PD 1987 citing especially Section 10 thereof.
Petitioner contends that aside from its being a rider and not germane to the subject
matter thereof, and such imposition was being harsh, confiscatory, oppressive
and/or unlawfully restraints trade in violation of the due process clause of the
Constitution.
Issue:
Whether or not PD 1987 a valid exercise of the taxing power of the state.
Held:
Yes.
It is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. The power to
impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions whatever, except
such as those rest in the discretion of the authority which exercises it. In imposing a
tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.

This is not a delegation of the power to legislate but merely a conferment of

authority or discretion as to its execution, enforcement, and implementation.

the true distinction is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring authority or
discretion as to its execution to be exercised under and in pursuance of the law. The
fist cannot be done; to the latter, no valid objection can be made.
Besides, in the very language of the decree, the authority of the Board to solicit
such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the Board."
The petition was DISMISSED.

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DOUBLE TAXATION
COMMISSIONER OF INTERNAL
INC., and COURT OF APPEALS

REVENUE vs. S.C.

JOHNSON

AND

SON,

309 SCRA 87 June 25, 1999

Facts:
SC. JOHNSON AND SON, INC., a domestic corporation organized and operating under
the Philippine laws, entered into a license agreement with SC Johnson and Son,
United States of America (USA), a non-resident foreign corporation was granted the
right to use the trademark, patents and technology owned by the latter including
the right to manufacture, package and distribute the products. License Agreement
was duly registered with the Technology Transfer Board of the Bureau of Patents,
Trade Marks and Technology Transfer under Certificate of Registration No. 8064. SC.
JOHNSON AND SON, INC was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the same to 25% withholding tax
on royalty payments which [respondent] paid from July 1992 to May 1993.
Respondent filed with the International Tax Afairs Division (ITAD) of the BIR a claim
for refund of overpaid withholding tax on royalties arguing that Since the agreement
was approved by the Technology Transfer Board, the preferential tax rate of 10%
should apply hence royalties paid by the [respondent] to SC Johnson and Son, USA
is only subject to 10% withholding tax pursuant to the most-favored nation clause of
the RP-US Tax Treaty.
The Commissioner did not act on said claim for refund. Respondent filed a petition
for review before the CTA to claim a refund of the overpaid withholding tax on
royalty payments. CTA decided for Respondent and ordered CIR to issue a tax credit
certificate in the amount of P963,266.00 representing overpaid withholding tax on
royalty payments, beginning July, 1992 to May, 1993. CIR filed a petition for review
with CA. CA upheld CTA.
CIR contends that under RP-US Tax Treaty, which is known as the "most favored
nation" clause, the lowest rate of the Philippine tax at 10% may be imposed on
royalties derived by a resident of the United States from sources within the
Philippines only if the circumstances of the resident of the United States are similar
to those of the resident of West Germany. Since the RP-US Tax Treaty contains no
"matching credit" provision as that provided in RP-West Germany Tax Treaty, the tax
on royalties under the RP-US Tax Treaty is not paid under similar circumstances as
those obtaining in the RP-West Germany Tax Treaty. Also petitioner argues that since
S.C. Johnson's invocation of the "most favored nation" clause is in the nature of a
claim for exemption from the application of the regular tax rate of 25% for royalties,
the provisions of the treaty must be construed strictly against it.
Respondent countered that the "most favored nation" clause under the RP-US Tax
Treaty refers to royalties paid under similar circumstances as those royalties subject
to tax in other treaties; that the phrase "paid under similar circumstances" does not
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refer to payment of the tax but to the subject matter of the tax, that is, royalties,
because the "most favored nation" clause is intended to allow the taxpayer in one
state to avail of more liberal provisions contained in another tax treaty wherein the
country of residence of such taxpayer is also a party thereto, subject to the basic
condition that the subject matter of taxation in that other tax treaty is the same as
that in the original tax treaty under which the taxpayer is liable; thus, the RP-US Tax
Treaty speaks of "royalties of the same kind paid under similar circumstances".

ISSUE:
Whether or not there is double taxation
HELD:
The Supreme court held in the negative
In the case at bar, the state of source is the Philippines because the royalties are
paid for the right to use property or rights, i.e. trademarks, patents and technology,
located within the Philippines. 17 The United States is the state of residence since
the taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax
Treaty, the state of residence and the state of source are both permitted to tax the
royalties, with a restraint on the tax that may be collected by the state of source.
The concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty
should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in
the RP-Germany Tax Treaty are paid under similar circumstances. This would mean
that private respondent must prove that the RP-US Tax Treaty grants similar tax
reliefs to residents of the United States in respect of the taxes imposable upon
royalties earned from sources within the Philippines as those allowed to their
German counterparts under the RP-Germany Tax Treaty. The RP-US and the RP-West
Germany Tax Treaties do not contain similar provisions on tax crediting.
Thus there being no double taxation respondent cannot be deemed entitled to the
10 percent rate granted under the RP-West Germany Tax Treaty for the reason that
there is no payment of taxes on royalties under similar circumstances in RP-US
treaty.

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INCOME TAXATION
SOUTH AFRICAN AIRWAYS vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 180356. February 16, 2010
Facts:
Petitioner South African Airways is a foreign corporation organized and existing
under and by virtue of the laws of the Republic of South Africa. In the Philippines, it
is an internal air carrier having no landing rights in the country. Petitioner has a
general sales agent in the Philippines, Aerotel. Aerotel sells passage documents for
compensation or commission for petitioner's of-line flights for the carriage of
passengers and cargo between ports or points outside the territorial jurisdiction of
the Philippines. Petitioner is not registered with the Securities and Exchange
Commission as a corporation, branch office, or partnership. It is not licensed to do
business in the Philippines.
For the taxable year 2000, petitioner filed separate quarterly and annual income tax
returns for its of-line flights. On 2003, petitioner filed with the Bureau of Internal
Revenue a claim for the refund of the amount of P1,727,766.38 as erroneously paid
tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such claim was
unheeded. Thus petitioner filed a petition for Review with the CTA for the refund of
the abovementioned amount.
Issue:
Whether or not petitioner, as an of-line international carrier selling passage
documents through an independent sales agent in the Philippines, is engaged in
trade or business in the Philippines subject to the 32% income tax.
Ruling:
Yes.
In Commissioner of Internal Revenue v. British Overseas Airways Corporation, which
was decided under similar factual circumstances, the Court ruled that of-line air
carriers having general sales agents in the Philippines are engaged in or doing
business in the Philippines and that their income from sales of passage documents
here is income from within the Philippines. Thus, in that case, we held the of-line air
carrier liable for the 32% tax on its taxable income.
Sec. 28 (A) (1) of the 1997 NIRC is a general rule that resident foreign corporations
are liable for 32% tax on all income from sources within the Philippines. Sec. 28 (A)
16 | P a g e

(3) is an exception to this general rule. In the instant case, the general rule is that
resident foreign corporations shall be liable for a 32% income tax on their income
from within the Philippines, except for resident foreign corporations that are
international carriers that derive income "from carriage of persons, excess baggage,
cargo and mail originating from the Philippines" which shall be taxed at 2 1/2% of
their Gross Philippine Billings. Petitioner, being an international carrier with no
flights originating from the Philippines, does not fall under the exception. As such,
petitioner must fall under the general rule. This principle is embodied in the Latin
maxim, exception firmat regulam in casibus non exceptis, which means, a thing not
being excepted must be regarded as coming within the purview of the general rule.
BUSINESS TAXATION
COMMISSIONER OF INTERNAL REVENUE vs. FIRST EXPRESS PAWNSHOP
COMPANY, INC.
G.R. Nos. 172045-46. June 16, 2009
Facts:
Petitioner Bureau of Internal Revenue (BIR) issued assessment notices against
respondent First Express Pawnshop Company, Inc., which included assessments for
deficiency documentary stamp tax (DST) of P12,328.45 on deposit on subscription
and for deficiency DST of P62,128.87 on pawn tickets. Respondent filed its written
protest on the assessments and when petitioner did not act on the protest during
the 180-day period, respondent petitioned before the Court of Tax Appeals (CTA).
Respondent alleged that no deficiency DST was due because the National Internal
Revenue Code (Tax Code) does not cover any document or transaction which relates
to respondent. The CTA First Division ruled that the assessments for deficiency DST
shall be cancelled. Both parties filed Motions for Reconsideration which were denied,
hence, both parties filed Petitions for Review with the CTA En Banc. The CTA En Banc
promulgated a Decision ordering respondent to pay DST on its pawnshop tickets but
found that respondents deposit on subscription was not subject to DST. Aggrieved,
petitioner elevated the case before this Court.
Issue:
Whether or not the subscription contracts are subject to DST.
Ruling:
Yes.
According to Section 175 of the Tax Code, DST is imposed on the original issue of
shares of stock. DST attaches upon acceptance of the stockholders subscription in
the corporations capital stock regardless of actual or constructive delivery of the
certificates of stock. Sections 175 and 176 of the Tax Code contemplate a
subscription agreement in order for a taxpayer to be liable to pay the DST. A stock
subscription is a contract by which the subscriber agrees to take a certain number
of shares of the capital stock of a corporation, paying for the same or expressly or
impliedly promising to pay for the same. Based on the testimony of respondents
17 | P a g e

auditor and respondents financial statements as of 1998, there was no agreement

to subscribe to the unissued shares. Here, the deposit on stock subscription refers
to an amount of money received by the corporation as a deposit with the possibility
of applying the same as payment for the future issuance of capital stock, an event
which may or may not happen. The person making a deposit on stock subscription
does not have the standing of a stockholder and he is not entitled to dividends,
voting rights or other prerogatives and attributes of a stockholder. In Commissioner
of Internal Revenue v. Construction Resources of Asia, Inc., the Supreme Court held
that those certificates of stocks temporarily subject to suspensive conditions shall
be liable for DST only when released from said conditions, for then and only then
shall they truly acquire any practical value for their owners. Hence, respondent is
not liable for the payment of DST on its deposit on subscription for the reason that
there is yet no subscription that creates rights and obligations between the
subscriber and the corporation. The petition was denied and the CTA en bancs
decision was affirmed.

TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 179085. January 21, 2010

Facts:
Respondent Commissioner of Internal Revenue sent petitioner Tambunting
Pawnshop, Inc. an assessment notice for P3,055,564.34 deficiency value-added tax,
P406,092.50 deficiency documentary stamp tax on pawn tickets, P7,201.55
deficiency withholding tax on compensation, and P21,723.75 deficiency expanded
withholding tax, all inclusive of interests and surcharges for the taxable year 1999.
Petitioner protested the assessment. As the protest merited no response, it filed a
Petition for Review with the Court of Tax Appeals the ground that Pawnshops are not
subject to Value Added Tax pursuant to Section 108 of the National Internal Revenue
Code, which states that a pawnshop is not enumerated as one of those engaged in
sale or exchange of services and Petitioner's pawn tickets are not subject to
documentary stamp tax pursuant to existing laws and jurisprudence. The First
Division of the CTA ruled that petitioner is liable for VAT and documentary stamp tax
but not for withholding tax on compensation and expanded withholding tax.

Issue:
What are tax liabilities of pawnshops?

Ruling:

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On the issue of whether pawnshops are liable to pay VAT, the Court finds that
pawnshops should have been treated as non-bank financial intermediaries from the
very beginning, subject to the appropriate taxes provided by law, thus

Under the National Internal Revenue Code of 1977, pawnshops should have
been levied the 5% percentage tax on gross receipts imposed on bank and
non-bank financial intermediaries under Section 119 (now Section 121 of the
Tax Code of 1997);

With the imposition of the VAT under R.A. No. 7716 or the EVAT Law,
pawnshops should have been subjected to the 10% VAT imposed on banks
and non-bank financial intermediaries and financial institutions under Section
102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);

This was restated by R.A. No. 8241, which amended R.A. No. 7716, although
the levy, collection and assessment of the 10% VAT on services rendered by
banks, non-bank financial intermediaries, finance companies, and other
financial intermediaries not performing quasi-banking functions, were made
efective January 1, 1998;

R.A. No. 8424 or the Tax Reform Act of 1997 likewise imposed a 10% VAT
under Section 108 but the levy, collection and assessment thereof were again
deferred until December 31, 1999;

The levy, collection and assessment of the 10% VAT was further deferred by
R.A. No. 8761 until December 31, 2000, and by R.A. No. 9010, until December
31, 2002;

With no further deferments given by law, the levy, collection and assessment
of the 10% VAT on banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing quasi-banking
functions were finally made efective beginning January 1, 2003;

Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks,
non-bank financial intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions were specifically
exempted from VAT, 28 and the 0% to 5% percentage tax on gross receipts
on other non-bank financial intermediaries was re-imposed under Section 122
of the Tax Code of 1997.

At the time of the disputed assessment, that is, for the year 2000, pawnshops were
not subject to 10% VAT under the general provision on "sale or exchange of
services" as defined under Section 108 (A) of the Tax Code of 1997, which states:
"'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration." Instead, due to the
specific nature of its business, pawnshops were then subject to 10% VAT under the
category of non-bank financial intermediaries.
Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the
tax years 1996 to 2002; however, with the levy, assessment and collection of VAT
19 | P a g e

from non-bank financial intermediaries being specifically deferred by law, then

petitioner is not liable for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial intermediaries starting
January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning
2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for
VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case
may be. Since the imposition of VAT on pawnshops, which are non-bank financial
intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable
for VAT for the tax year 1999.
In dodging liability for documentary stamp tax on its pawn tickets, petitioner argues
that such tickets are neither securities nor printed evidence of indebtedness. The
argument fails. True, the law does not consider said ticket as an evidence of security
or indebtedness. However, for purposes of taxation, the same pawn ticket is proof of
an exercise of a taxable privilege of concluding a contract of pledge. There is
therefore no basis in petitioner's assertion that a DST is literally a tax on a
document and that no tax may be imposed on a pawn ticket.

TAX ASSESSMENT
LASCONA LAND CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 171251. March 5, 2012

Facts:
Petitioner Lascona Land Co., Inc. was assessed for alleged deficiency income tax in
the amount of P753,266.56 for the taxable year 1993. Petitioner filed a protest with
the respondent Commissioner of the Internal Revenue (CIR), but it was denied on
the ground that it has become final, executory and demandable as is it was not
elevated to the Court of Tax Appeals (CTA) as required in the last paragraph of
Section 228 of the Tax Code. Petitioner appealed before the CTA alleging that the
CIR erred in ruling that the failure to appeal to the CTA within 30 days from the
lapse of the 180-day period rendered the assessment final and executory. However,
the CIR maintained its argument that petitioners failure to file an appeal after the

20 | P a g e

lapse of the 180-day reglementary period required by law resulted to the finality of
the assessment.
Issue:
Whether or not the subject assessment has become final and executory.
Ruling:
No.
When the law provided for the remedy to appeal the inaction of the CIR, it did not
intend to limit it to a single remedy of filing an appeal after the lapse of the 180-day
prescribed period. Precisely, when a taxpayer protested an assessment, he naturally
expects the CIR to decide either positively or negatively. A taxpayer cannot be
prejudiced if he chooses to wait for the final decision of the CIR on the protested
assessment. More so, because the law and jurisprudence have always contemplated
a scenario where the CIR will decide on the protested assessment.
It must be emphasized, however, that in case of the inaction of the CIR on the
protested assessment, the taxpayer has two options, either: (1) file a petition for
review with the CTA within 30 days after the expiration of the 180-day period; or (2)
await the final decision of the Commissioner on the disputed assessment and
appeal such final decision to the CTA within 30 days after the receipt of a copy of
such decision, these options are mutually exclusive and resort to one bars the
application of the other.
In the case at bar, petitioner opted to await the final decision of the Commissioner
on the protested assessment, it then has the right to appeal such final decision to
the Court by filing a petition for review within 30 days after receipt of a copy of such
decision or ruling, even after the expiration of the 180-day period fixed by law for
the Commissioner of Internal Revenue to act on the disputed assessments.

TAX EXEMPTION

Abra Valley College vs. Aquino

GR L-39086, 15 June 1988
Facts:
Abra Valley College rents out the ground floor of its college building to Northern
Marketing Corporation while the second floor thereof is used by the Director of the
College for residential purposes.

21 | P a g e

The municipal and provincial treasurers served upon the College a notice of
seizure and later a notice of sale due to the alleged failure of the College to pay
real estate taxes and penalties thereon. Said "Notice of Seizure" of the college lot
and building covered by Original Certificate of Title No. Q-83 duly registered in the
name of petitioner, plaintif below, on July 6, 1972, by respondents Municipal
Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction
of the said taxes thereon. The "Notice of Sale" was caused to be served upon the
petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction
of said college lot and building, which sale was held on the same date. Dr. Paterno
Millare, then Municipal Mayor of Bangued, Abra, ofered the highest bid of P6,000.00
which was duly accepted. The certificate of sale was correspondingly issued to him.
The school filed suit to annul said notices, claiming that it is tax-exempt.
Issue:
Whether the College is exempt from taxes.
Held:
While the Court allows a more liberal and non-restrictive interpretation of the phrase
exclusively used for educational purposes, reasonable emphasis has always been
made that exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes. While the second floors
use, as residence of the director, is incidental to education; the lease of the first
floor cannot by any stretch of imagination be considered incidental to the purposes
of education. The test of exemption from taxation is the use of the property for
purposes mentioned in the Constititution.

Abra vs. Hernando

GR L-49336, 31 August 1981
Facts:
The provincial assessor made a tax assessment on the properties of the Roman
Catholic Bishop of Bangued. The bishop claims tax exemption from real estate tax,
through an action for declaratory relief. A summary judgment was made granting
such exemption, without even hearing the side of petitioner.
22 | P a g e

The Acting Provincial Fiscal, as counsel for petitioner, respondent Judge contends
that it "virtually ignored the pertinent provisions of the Rules of Court; ... wantonly
violated the rights of petitioner to due process, by giving due course to the petition
of private respondent for declaratory relief, and thereafter without allowing
petitioner to answer and without any hearing, adjudged the case; all in total
disregard of basic laws of procedure and basic provisions of due process in the
constitution
Issue:
Whether the properties of the Bishop of Bangued are tax-exempt.
Held:
The 1935 and the 1973 Constitutions difer in language as to the exemption of
religious property from taxes as tehy should not only be exclusively but also
actually and directly used for religious purposes. Herein, the judge accepted at
its face the allegation of the Bishop instead of demonstrating that there is
compliance with the constitutional provision that allows an exemption. There was an
allegation of lack of jurisdiction and of lack of cause of action, which should have
compelled the judge to accord a hearing to the province rather than deciding the
case immediately in favor of the Bishop. Exemption from taxation is not favored and
is never presumed, so that if granted, it must be strictly construed against the
taxpayer. There must be proof of the actual and direct use of the lands, buildings,
and improvements for religious (or charitable) purposes to be exempted from
taxation.

Herrera vs. Quezon City Board of Assessment Appeals

GR L-15270, 30 September 1961
Facts:

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In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester
Ochangco Herrera to establish and operate the St. Catherines Hospital. In 1953, the
Herreras sent a letter to the Quezon City Assessor requesting exemption from
payment of real estate tax on the hospital, stating that the same was established
for charitable and humanitarian purposes and not for commercial gain. The
exemption was granted efective years 1953 to 1955. After an inspection of the
premises in question and after a careful study of the case, the exemption from real
property taxes was granted efective the years 1953, 1954 and 1955.
Subsequently, however, in a letter dated August 10, 1955, the Assessor reclassified
the properties from exempt to taxable efective 1956, as it was ascertained that
out 32 beds in the hospital, 12 of which are for pay-patients. A school of midwifery
is also operated within the premises of the hospital.
Issue:
Whether St. Catherines Hospital is exempted from realty tax.
Held:
Yes. the fact that it admits pay-patients does not bar it from claiming that it is
devoted exclusively to benevolent purposes, it being admitted that the income
derived from pay-patients is devoted to the improvement of the charity wards,
which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside
from "out-charity patients" who come only for consultation. The exemption in favor
of property used exclusively for charitable or educational purpose is not limited to
property actually indispensable therefore, but extends to facilities which are
incidental to and reasonably necessary for the accomplishment of said purpose,
such as in the case of hospitals a school for training nurses; a nurses home;
property used to provide housing facilities for interns, resident doctors,
superintendents and other members of the hospital staf; and recreational facilities
for student nurses, interns and residents. Within the purview of the Constitution, St.
Catherines Hospital is a charitable institution exempt from taxation.

TAX CREDIT
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SAN ROQUE POWER CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE
G.R. No. 180345. November 25, 2009

Facts:
Petitioner San Roque Corporation entered into a Power Purchase Agreement (PPA)
with the National Power Corporation (NPC) to develop the hydro potential of the
Lower Agno River, and to be able to generate additional power and energy for the
Luzon Power Grid, by developing and operating the San Roque Multipurpose Project.
The PPA provides that petitioner shall be responsible for the design, construction,
installation, and completion and testing and commissioning of the Power Station
and it shall operate and maintain the same, subject to the instructions of the NPC.
During the cooperation period of 25 years commencing from the completion date of
the Power Station, the NPC shall purchase all the electricity generated by the Power
Plant. Because of the exclusive nature of the PPA between petitioner and the NPC,
the former applied for and was granted five Certificates of Zero Rate by the BIR. For
January to December 2002, petitioner filed with the respondent Commissioner of
Internal Revenue its Monthly VAT Declaration and Quarterly VAT Returns. The latter
showing excess input VAT payments on account of its importation and domestic
purchases of goods and services. Petitioner filed with the BIR four separate
administrative claims for refund of Unutilized Input VAT. Respondent failed to act on
the request for tax refund or credit of petitioner, which prompted the latter to file
with the CTA in Division, a Petition for Review. After a hearing on the merits, the CTA
Second Division denied petitioner's claim for tax refund or credit.
Issue:
Whether or not petitioner may claim a tax refund or credit.
Ruling:
Yes.
To claim refund or tax credit petitioner must comply with the following criteria: (1)
the taxpayer is VAT registered; (2) the taxpayer is engaged in efectively zero-rated
or zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not
transitional input taxes; (5) the input taxes have not been applied against output
taxes during and in the succeeding quarters; (6) the input taxes claimed are
attributable to zero-rated or efectively zero-rated sales; (7) for zero-rated sales
under Section 106 (A) (2) (1) and (2); 106 (B); and 108 (B) (1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in
accordance with BSP rules and regulations; (8) where there are both zero-rated or
efectively zero-rated sales and taxable or exempt sales, and the input taxes cannot
be directly and entirely attributable to any of these sales, the input taxes shall be
proportionately allocated on the basis of sales volume; and (9) the claim is filed
within two years after the close of the taxable quarter when such sales were made.
25 | P a g e

San Roque Corporation complied with the abovementioned requirements. It bears

emphasis that efective zero-rating is not intended as a benefit to the person legally
liable to pay the tax, in this case the petitioner, but to relieve certain exempt
entities, such as the NPC, from the burden of indirect tax so as to encourage the
development of particular industries.

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TAX REFUND
THE MANILA BANKING CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 168118. August 28, 2006
Facts:
The Manila Banking Corp. was incorporated in 1961 and was engaged in commercial
banking industry until 1987. On May 22, 1987, Bangko Sentral ng Pilipinas issued a
resolution prohibiting the bank from engaging in business by reason of insolvency.
The bank ceased to operate. Meanwhile, Comprehensive Tax Reform Act of 1987
became efective. One of the changes introduced by this law is the imposition of
Minimum Corporate Income Tax (MCIT). On 1999, the bank was authorized by the
BSP to operate as a thrift bank. Petitioner sent a request letter to the BIR on
whether it is entitled to the four (4)-year grace period to pay its minimum corporate
income tax as provided by the new law. The following year, it filed with the BIR its
income tax return for taxable year 1999. The BIR then issued a ruling stating that
the petitioner is entitled to the four (4)-year grace period. Pursuant to the ruling, the
bank filed with the BIR a claim for refund of the sum it earlier paid. Due to inaction
of the BIR, the bank filed with the CTA a petition for review. The CTA denied the
petition, finding that the banks payment of corporate income tax is in order,
contending that the bank is not a new corporation. It is the same corporation
registered with the SEC, there was merely an interruption of business operations.
Issue:
Whether the bank is entitled to a refund of its minimum corporate income tax paid
to the BIR for taxable year 1999.
Ruling:
Revenue Regulation No. 4-95 implementing certain provisions of R.A. No. 7906
provides: Sec. 6. Period of exemption. All thrift banks created and organized
under the provisions of the Act shall be exempt from the payment of all taxes, fees,
and charges of whatever nature and description, except the corporate income tax
imposed under Title II of the NIRC and as specified in Section 2(A) of these
regulations, for a period of five (5) years from the date of commencement of
operations; while for thrift banks which are already existing and operating as of the
date of efectivity of the Act (March 18, 1995), the tax exemption shall be for a
period of five (5) years reckoned from the date of such efectivity. For purposes of
these regulations, date of commencement of operations shall be understood to
mean the date when the thrift bank was registered with the Securities and
Exchange Commission or the date when the Certificate of Authority to Operate was
issued by the Monetary Board of the Bangko Sentral ng Pilipinas, whichever comes
later. As mentioned earlier, petitioner bank was registered with the BIR in 1961.
27 | P a g e

However, in 1987, it was found insolvent by the Monetary Board of the BSP and was
placed under receivership. After twelve (12) years, or on June 23, 1999, the BSP
issued to it a Certificate of Authority to Operate as a thrift bank. Earlier, or on
January 21, 1999, it registered with the BIR. Then it filed with the SEC its Articles of
Incorporation which was approved on June 22, 1999. It is clear from the abovequoted provision of Revenue Regulations No. 4-95 that the date of commencement
of operations of a thrift bank is the date it was registered with the SEC or the date
when the Certificate of Authority to Operate was issued to it by the Monetary Board
of the BSP, whichever comes later.
TAX DEFICIENCY
OCEANIC WIRELESS vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 148380.December 9, 2005
Facts:
On March 17, 1988, petitioner received from
deficiency tax assessments for the taxable
P8,644,998.71. Petitioner filed its protest
requested a reconsideration or cancellation
Commissioner.

the Bureau of Internal Revenue (BIR)

year 1984 in the total amount of
against the tax assessments and
of the same in a letter to the BIR

Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable
and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while
denying petitioners request for reinvestigation. Said letter likewise requested
petitioner to pay within 10 days from receipt thereof, otherwise the case shall be
referred to the Collection Enforcement Division of the BIR National Office for the
issuance of a warrant of distraint and levy without further notice.

Upon petitioners failure to pay the subject tax assessments within the prescribed
period, the Assistant Commissioner for Collection, acting for the Commissioner of
Internal Revenue, issued the corresponding warrants of distraint and/or levy and
garnishment. Petitioner filed a Petition for Review with the Court of Tax Appeals
(CTA) to contest the issuance of the warrants to enforce the collection of the tax
assessments. The CTA dismissed the petition for lack of jurisdiction.
Petitioner filed a Motion for Reconsideration arguing that the demand letter cannot
be considered as the final decision of the Commissioner of Internal Revenue on its
protest because the same was signed by a mere subordinate and not by the
Commissioner himself. With the denial of its motion for reconsideration, petitioner
consequently filed a Petition for Review with the Court of Appeals contending that
there was no final decision to speak of because the Commissioner had yet to make
a personal determination as regards the merits of petitioners case. The Court of
Appeals denied the petition.
28 | P a g e

Issue:
Whether the demand letter for tax deficiency issued and signed by a subordinate
officer who was acting in behalf of the CIR is deemed final and executor and subject
to an appeal to the CTA.
Ruling:
Yes.
A demand letter for payment of delinquent taxes may be considered a decision on a
disputed or protested assessment. The determination on whether or not a demand
letter is final is conditioned upon the language used or the tenor of the letter being
sent to the taxpayer. In this case, the letter of demand, unquestionably constitutes
the final action taken by the Bureau of Internal Revenue on petitioners request for
reconsideration when it reiterated the tax deficiency assessments due from
petitioner, and requested its payment. Failure to do so would result in the issuance
of a warrant of distraint and levy to enforce its collection without further notice. In
addition, the letter contained a notation indicating that petitioners request for
reconsideration had been denied for lack of supporting documents. The demand
letter received by petitioner verily signified a character of finality. Therefore, it was
tantamount to a rejection of the request for reconsideration.
This now brings us to the crux of the matter as to whether said demand letter
indeed attained finality despite the fact that it was issued and signed by the Chief of
the Accounts Receivable and Billing Division instead of the BIR Commissioner.
The general rule is that the Commissioner of Internal Revenue may delegate any
power vested upon him by law to Division Chiefs or to officials of higher rank. He
cannot, however, delegate the four powers granted to him under the National
Internal Revenue Code (NIRC).
As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR
Commissioner to delegate the powers vested in him under the pertinent provisions
of the Code to any subordinate official with the rank equivalent to a division chief or
higher, except the following:
(a) The power to recommend the promulgation of rules and regulations by the
Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;
(c) The power to compromise or abate under Section 204(A) and (B) of this Code,
any tax deficiency: Provided, however, that assessments issued by the Regional
Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000)
or less, and minor criminal violations as may be determined by rules and
regulations to be promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner, discovered by regional and district officials,
may be compromised by a regional evaluation board which shall be composed of
the Regional Director as Chairman, the Assistant Regional Director, heads of the
29 | P a g e

Legal, Assessment and Collection Divisions and the Revenue District Officer having
jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments
where articles subject to excise tax are produced or kept.
It is clear from the above provision that the act of issuance of the demand letter by
the Chief of the Accounts Receivable and Billing Division does not fall under any of
the exceptions that have been mentioned as non-delegable.
Thus, the authority to make tax assessments may be delegated to subordinate
officers. Said assessment has the same force and efect.

ESTATE TAX

Domingo vs. Garlitos

GR L-18993, 29 June 1963
Facts:
It appears in Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as
final and executory, the order for the payment by the estate of the estate and
inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the
Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter
of the Intestate Estate of the Late Walter Scott Price."
The petition for execution filed by the fiscal, however, was denied by the lower
court, which held that the execution is not justifiable as the Government is indebted
to the estate under administration in the amount of P262,200; and ordered the
amount of inheritance taxes be deducted from the Governments indebtedness to
the Estate.
Issue:
Whether a tax and a debt may be compensated.
Held:
The court having jurisdiction of the Estate had found that the claim of the Estate
against the Government has been recognized and an amount of P262,200 has
already been appropriated by a corresponding law (RA 2700). Under the
circumstances, both the claim of the Government for inheritance taxes and the
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claim of the intestate for services rendered have already become overdue and
demandable as well as fully liquidated. Compensation, therefore, takes place by
operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and
both debts are extinguished to the concurrent amount.

VALUE ADDED TAX

COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE HEALTH CARE
PROVIDERS, INC.
G.R. No. 168129
April 24, 2007
Facts:
Respondent Philippine Health Care Providers, Inc. is a domestic corporation which is
a health care delivery system or a health maintenance organization (HMO) created
to take care of the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the
organization. On July 25, 1987, President Corazon C. Aquino issued Executive Order
(E.O.) No. 273, amending the National Internal Revenue Code of 1977 by imposing
Value-Added Tax (VAT) on the sale of goods and services. Before the efectivity of
E.O. No. 273, respondent wrote the Commissioner of Internal Revenue (CIR),
petitioner, inquiring whether the services it provides to the participants in its health
care program are exempt from the payment of the VAT. Petitioner issued VAT Ruling
No. 231-88 stating that respondent, as a provider of medical services, is exempt
from the VAT coverage.
On January 1, 1998, the National Internal Revenue Code of 1997 became efective.
This new Tax Code provided for the following: SEC. 102. Value-added tax on sale of
services and use or lease of properties. (a) Rate and base of tax. There shall be
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levied, assessed and collected, a value-added tax equivalent to 10% of gross

receipts derived from the sale or exchange of services, including the use or lease of
properties. The phrase sale or exchange of service means the performance of all
kinds of services in the Philippines for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
and SEC. 103. Exempt Transactions. The following shall be exempt from the
value-added tax: (l) Medical, dental, hospital and veterinary services except those
rendered by professionals. The BIR sent respondent a Preliminary Assessment
Notice for deficiency in its payment of the VAT and documentary stamp taxes (DST)
for taxable years 1996 and 1997. Subsequently, the BIR sent a demand letter for
the payment of VAT with 4 notice of assessments for the same years. On both
instances, the respondent seasonably filed its protest for the assessments, which
the BIR ignored. Via a petition for review, the CTA decided for the respondent
however since it was not involve directly in providing health care, the CTA decided
that it was not VAT exempt. Such decision was affirmed by the Court of Appeals.
Issue:
Whether or not respondent is liable for VAT.
Ruling:
No.
The taxpayer is not subject to VAT for the years 1996 and 1997, relying on good
faith on VAT Ruling No. 231-88, June8, 1988, pursuant to Section 246 of the NIRC on
non-retroactivity of rulings prejudicial to the taxpayer. There is no misrepresentation
by the mere fact that the taxpayer failed to describe itself as an HMO. Further, a
health maintenance organization, which does not actually provide medical and/or
hospital services, but merely arranges for the same, is not VAT-exempt under Sec.
103, NIRC.
COMMISSIONER
CORPORATION

OF

INTERNAL

REVENUE

vs.

MIGRANT

PAGBILAO

G.R. No. 159593. October 16, 2006

Facts:
Migrant Pagbilao Corporation (MPC) is a corporation engaged in the business of
power generation and distribution. It accumulated input taxes in the amount of
39,330,500.85 from April 1, 1996 to December 31, 1996. MPC claims that it paid
these input taxes to the suppliers of capital goods and services for the construction
and development of power plants. MPC applied for tax credit/refund on the
unutilized VAT paid on capital goods. Without waiting for the BIR Commissioner to
answer, MPC filed a petition for review to toll the running of the 2-year prescriptive
period for claiming a refund under the law. The BIR in its answer denied MPCs
application citing that MPCs claim for refund is still being investigated before the
BIR, that the action is premature, and that tax credit laws are construed against
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MPC. Upon investigation, the Revenue Officer recommended for the approval of the
tax credit but it reduced the amount from 39,330,500.85 to 28,745,502.40, as duly
proven by valid invoices or official receipts. The CTA ruled that indeed, MPC is
entitled to tax credit but the amount is reduced in line with the Revenue Officers
findings. The BIR filed a motion for reconsideration that was subsequently denied.
On appeal, the BIR raised that MPC being an electric utility is subject to franchise
tax and not VAT and since it is VAT exempt, it cant claim tax refund. The CA denied
BIRs appeal upholding that it is not allowed to change its theory on appeal.
Issues:
1. Whether the BIR is allowed to change its theory on appeal.
2. Whether Input VAT on capital goods and services is allowed.
Ruling:
1. The SC prohibited the BIR from changing its theory on the case and raising a new
issue on appeal. As a rule, a party is never allowed to change its theory or raise a
totally new issue on appeal. On exceptional cases, the rules may be relaxed
allowing new issues on appeal but it is only done for good and sufficient causes in
order to pave way for justice. The BIR has not shown any good or sufficient cause
for relaxing the rules.
2. Input VAT on capital goods and services may be claimed as tax refund. The BIR is
erroneous in stating that a VAT exempt or zero rated VAT payer is not allowed to
claim tax credits. Pertinent provisions of the Tax Code allow that Input VAT on capital
goods be claimed as tax credit. Sec 106 (b) of the Tax Code of 1986 as amended by
RA 7716 expressly states that A VAT- registered person may apply for the issued of
a tax credit certificate or refund of input taxes paid on capital goods imported or
locally purchased, to the extent that such input taxes have not been applied against
output taxes.

KEPCO PHILIPPINES CORPORATION vs.

REVENUE

COMMISSIONER

OF INTERNAL

G.R. No. 179961. January 31, 2011

Facts:
Petitioner Kepco Philippines Corporation, a domestic corporation engaged in the
production and sale of electricity, is a value-added tax (VAT) registered taxpayer. It
sells its electricity to the National Power Corporation (NPC). Petitioner filed with
respondent Commissioner of Internal Revenue (CIR) an application for efective
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zero-rating of its sales of electricity to the NPC. Petitioner alleged that for the
taxable year 1999, it incurred input VAT in the amount of P10,527,202.54 on its
domestic purchases of goods and services that were used in its production and sale
of electricity to NPC for the same period. Upon denial of its application, petitioner
elevated the case to the Court of Tax Appeals (CTA) and the CTA Second Division
denied petitioners claim for refund due to failure to properly substantiate its
efectively zero-rated sales. The tax court held that petitioner also failed to comply
with the invoicing requirements in clear violation of Section 4.108-1 of Revenue
Regulations (R.R.) No. 7-95, implementing Section 108(B)(3) in conjunction with
Section 113 of the 1997 NIRC. Petitioner filed an appeal but the CTA En Banc
dismissed such, reasoning out that petitioners failure to comply with the
requirement of imprinting the words "zero-rated" on its official receipts resulted in
non-entitlement to the benefit of VAT zero-rating and denial of its claim for refund of
input tax.
Issue:
Whether or not petitioners failure to imprint the words "zero-rated" on its official
receipts issued to NPC justifies an outright denial of its claim for refund of unutilized
input tax credits.
Ruling:
Yes.
It is the duty of petitioner to comply with the requirements, including the imprinting
of the words "zero-rated" in its VAT official receipts and invoices in order for its sales
of electricity to NPC to qualify for zero-rating. It must be emphasized that the
requirement of imprinting the word "zero-rated" on the invoices or receipts under
Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En Banc, citing
Tropitek International, Inc. v. Commissioner of Internal Revenue. The imprinting of
"zero-rated" is necessary to distinguish sales subject to 10% VAT, those that are
subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal
Revenue to properly implement and enforce the other provisions of the 1997 NIRC
on VAT.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales
that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable
to submit the proper invoices, petitioner Panasonic has been unable to substantiate
its claim for refund. Well-settled in this jurisdiction is the fact that actions for tax
refund, as in this case, are in the nature of a claim for exemption and the law is
construed in strictissimi juris against the taxpayer. The pieces of evidence
presented entitling a taxpayer to an exemption are also scrutinized and must be
duly proven.

MICROSOFT PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 180173. April 6, 2011
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Facts:
Petitioner Microsoft Philippines, Inc., a VAT-registered taxpayer, renders marketing
services to Microsoft Operations Pte. Ltd. (MOP) and Microsoft Licensing, Inc. (MLI),
both affiliated non-resident foreign corporations. The services are paid for in
acceptable foreign currency and qualify as zero-rated sales for VAT purposes.
Petitioner filed an administrative claim for tax credit of VAT input taxes in the
amount of P11,449,814.99 attributable to its zero-rated sales. Due to the Bureau of
Internal Revenues (BIR) inaction, petitioner filed a petition for review before the
Court of Tax Appeals (CTA), which denied the claim for tax credit of VAT input taxes.
The CTA explained that petitioner failed to comply with the invoicing requirements
of Sections 113 and 237 of the National Internal Revenue Code (NIRC) as well as
Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95). The CTA stated that
petitioners official receipts do not bear the imprinted word "zero-rated" on its face,
thus, the official receipts cannot be considered as valid evidence to prove zero-rated
sales for VAT purposes.
Issue:
Whether or not the petitioner is entitled to a refund of VAT input taxes.
Ruling:
No.
The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC
and revenue regulations are clear. A VAT-registered taxpayer is required to comply
with all the VAT invoicing requirements to be able to file a claim for input taxes on
domestic purchases for goods or services attributable to zero-rated sales. A "VAT
invoice" is an invoice that meets the requirements of Section 4.108-1 of RR 7-95.
Contrary to petitioner's claim, RR 7-95 expressly states that "All purchases covered
by invoices other than a VAT invoice shall not give rise to any input tax." Petitioner's
invoice, which lacks the word "zero-rated," is not a "VAT invoice," and thus cannot
give rise to any input tax.
It was ruled in several cases that the printing of the word "zero-rated" is required to
be placed on VAT invoices or receipts covering zero-rated sales in order to be
entitled to claim for tax credit or refund. In Panasonic v. Commissioner of Internal
Revenue, it was held that the appearance of the word "zero-rated" on the face of
invoices covering zero-rated sales prevents buyers from falsely claiming input VAT
from their purchases when no VAT is actually paid. Absent such word, the
government may be refunding taxes it did not collect. In the case at bar, both the
CTA Second Division and CTA En Banc found that Microsoft's receipts did not
indicate the word "zero-rated" on its official receipts.

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PANASONIC
COMMUNICATIONS
IMAGING
CORPORATION
OF
THE
PHILIPPINES (formerly MATSUSHITA BUSINESS MACHINE CORPORATION OF
THE PHILIPPINES) vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 178090. February 8, 2010
Facts:
Petitioner Panasonic Communications Imaging Corporation of the Philippines
produces and exports plain paper copiers and their sub-assemblies, parts, and
components. It is a registered value-added tax (VAT) enterprise. From 1998 to 1999,
petitioner generated export sales where it paid input VAT of P9,368,482.40 believing
that its sales are zero-rated sales. Claiming that the input VAT it paid remained
unutilized. Panasonic filed with the Bureau of Internal Revenue (BIR) two separate
applications for refund or tax credit of what it paid. When the BIR did not act on the
same, Panasonic filed a petition for review with the Court of Tax Appeals (CTA). The
CTA First Division denied the petition stating that while petitioners export sales
were subject to 0% VAT under the NIRC, the same did not qualify for zero-rating
because the word "zero-rated" was not printed on its export invoices. This omission
violates the invoicing requirements of Section 4.108-1 of Revenue Regulations (RR)
7-95. The motion for reconsideration was denied. On appeal, the CTA en banc
upheld the First Divisions decision.
Issue:
Whether or not the words "zero-rated" must appear in the sales invoice so that a
claim for refund of unutilized input VAT on zero-rated sales will be proper.
Ruling:
Yes.
Zero-rated transactions generally refer to the export sale of goods and services.
When applied to the tax base or the selling price of the goods or services sold, such
zero rate results in no tax chargeable against the foreign buyer or customer. But,
although the seller in such transactions charges no output tax, he can claim a
refund of the VAT that his suppliers charged him. The seller thus enjoys automatic
zero rating, which allows him to recover the input taxes he paid relating to the
export sales, making him internationally competitive. For the efective zero rating of
such transactions, however, the taxpayer has to be VAT-registered and must comply
with invoicing requirements. Interpreting these requirements, respondent CIR ruled
that under Revenue Memorandum Circular (RMC) 42-2003, the taxpayers failure to
comply with invoicing requirements will result in the disallowance of his claim for
refund.
If the claim for refund is based on the existence of zero-rated sales by the taxpayer
but it fails to comply with the invoicing requirements in the issuance of sales
invoices, its claim for tax credit/refund of VAT on its purchases shall be denied
considering that the invoice it is issuing to its customers does not depict its being a
36 | P a g e

VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless,

this treatment is without prejudice to the right of the taxpayer to charge the input
taxes to the appropriate expense account or asset account subject to depreciation,
whichever is applicable. Moreover, the case shall be referred by the processing
office to the concerned BIR office for verification of other tax liabilities of the
taxpayer.

RENATO V. DIAZ AND AURORA MA. F. TIMBOL vs. THE SECRETARY OF

FINANCE and THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. 193007. July 19, 2011

Facts:
Petitioners Renato Diaz and Aurora Ma. F. Timbol filed a petition for declaratory
relief assailing the validity of the impending imposition of value-added tax (VAT) by
the Bureau of Internal Revenue (BIR) on the collections of tollway operators. They
alleged that the Congress when it enacted the NIRC did not intend to include toll
fees within the meaning of "sale of services" that are subject to VAT; that a toll fee
is a "users tax," not a sale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that, since VAT was never factored into the
formula for computing toll fees, its imposition would violate the non-impairment
clause of the constitution. The government averred that the NIRC imposes VAT on all
kinds of services of franchise grantees, including tollway operations, except where
the law provides otherwise; that the Court should seek the meaning and intent of
the law from the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several BIR rulings and
circulars.
Issue:
Whether or not toll fees collected by tollway operators may be subjected to valueadded tax.
Ruling:
Yes.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so
strongly allege, then it would have been well for the law to clearly say so. Tax
exemptions must be justified by clear statutory grant and based on language in the
law too plain to be mistaken. The operation by the government of a tollway does not
change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the road through the
toll fees they pay upon using the road. The tollway system is even a more efficient
and equitable manner of taxing the public for the maintenance of public roads.
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The charging of fees to the public does not determine the character of the property
whether it is for public dominion or not. Article 420 of the Civil Code defines
property of public dominion as "one intended for public use." Even if the
government collects toll fees, the road is still "intended for public use" if anyone can
use the road under the same terms and conditions as the rest of the public. The
charging of fees, the limitation on the kind of vehicles that can use the road, the
speed restrictions and other conditions for the use of the road do not afect the
public character of the road.

SILICON PHILIPPINES, INC. (formerly INTEL PHILIPPINES MANUFACTURING,

INC.) vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 172378. January 17, 2011

Facts:
Petitioner Silicon Philippines, Inc., a Philippine corporation engaged in the business
of designing, developing, manufacturing and exporting advance and large-scale
integrated circuit components or "ICs.", is registered with the Bureau of Internal
Revenue (BIR) as a Value Added Tax (VAT) taxpayer. Petitioner filed with the
respondent Commissioner of Internal Revenue (CIR) an application for credit/refund
of unutilized input VAT for 1998 in the amount of P31,902,507.50. The CIR denied
this application. On appeal to the Court of Tax Appeals (CTA) Division, petitioners
claim for refund of unutilized input VAT on capital goods was granted. However, the
CTA Division reduced the amount which petitioner claimed from P15,170,082.00 to
P9,898,867.00 .With regard to petitioners claim for credit/refund of input VAT
attributable to its zero-rated export sales, the CTA Division denied the same. Upon
denial of its motion for reconsideration, petitioner elevated the case to the CTA En
Banc. The CTA En Banc denied petitioners claim for credit/ refund of input VAT
attributable to its zero-rated sales due to its failure to show that it secured an
Authorization-to-Print (ATP) invoices from the BIR and to indicate the same in its
export sales invoices; and failure to print the word "zero-rated" in its export sales
invoices. It also ruled that the items being claimed as capital goods (training
materials, office supplies, posters, banners, t-shirts, books and the like) purchased
by petitioner were not duly proven to have been used, directly or indirectly in the
production or sale of taxable goods or services. As such, they cannot be considered
as capital goods, and so the reduction decided by the CTA Division was upheld.

Issues:

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1. Whether or not petitioner can claim credit/refund of input VAT attributable to

its zero-rated sales.
2. Whether or not the petitioner can claim input VAT paid on capital goods.

Ruling:
1. No.

In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112
(A) of the NIRC lays down four requisites: (1) the taxpayer must be VAT-registered;
(2) the taxpayer must be engaged in sales which are zero-rated or efectively zerorated; (3) the claim must be filed within two years after the close of the taxable
quarter when such sales were made; and (4) the creditable input tax due or paid
must be attributable to such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output tax.

Under Section 112(A) of the NIRC, a claimant must be engaged in sales which are
zero-rated or efectively zero-rated. To prove this, duly registered invoices or
receipts evidencing zero-rated sales must be presented. However, since the ATP is
not indicated in the invoices or receipts, the only way to verify whether the invoices
or receipts are duly registered is by requiring the claimant to present its ATP from
the BIR. Without this proof, the invoices or receipts would have no probative value
for the purpose of refund. In the case of Intel, we emphasized that It is not
specifically required that the BIR authority to print be reflected or indicated therein.
Indeed, what is important with respect to the BIR authority to print is that it has
been secured or obtained by the taxpayer, and that invoices or receipts are duly
registered.

The non-presentation of the ATP and the failure to indicate the word "zero-rated" in
the invoices or receipts are fatal to a claim for credit/refund of input VAT on zerorated sales. The failure to indicate the ATP in the sales invoices or receipts, on the
other hand, is not. In this case, petitioner failed to present its ATP and to print the
word "zero-rated" on its export sales invoices. Thus, the CTA ruled correctly.

2. No.

To claim a refund of input VAT on capital goods, Section 112 (B) of the NIRC requires
that: (1) The claimant must be a VAT registered person; (2) The input taxes claimed
must have been paid on capital goods; (3) The input taxes must not have been
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applied against any output tax liability; and (4) The administrative claim for refund
must have been filed within two years after the close of the taxable quarter when
the importation or purchase was made. Section 4.106-1(b) of RR No. 7-95 defines
capital goods as goods or properties with estimated useful life greater that one
year and which are treated as depreciable assets under Section 29 (f), used directly
or indirectly in the production or sale of taxable goods or services. Based on this
definition, the Supreme Court affirmed the findings of the CTA that training
materials, office supplies, posters, banners, T-shirts, books, and the other similar
items reflected in petitioners Summary of Importation of Goods are not capital
goods. The reduction in the refundable input VAT on capital goods from
P15,170,082.00 to P9,898,867.00 is proper.

REAL ESTATE TAX

Francia vs. Intermediate Appellate Court
GR L-67649, 28 June 1988
Facts:
Engracio Francia was the registered owner of a residential lot and a two-story house
located in Pasay City. A portion of such property was expropriated by the Republic of
the Philippines for the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion, in 1977.
From 1963 to 1977 it appeared that Francia did not pay his real estate taxes. Thus,
his property was sold in a public auction by the City Treasurer of Pasay City.
Issue:
Whether the expropriation payment may compensate for the real estate taxes due.
Held:
There can be no of-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.
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The collection of a tax cannot wait the results of a lawsuit against the government.
Internal revenue taxes cannot be the subject of compensation. The Government and
the taxpayer are not mutually creditors and debtors of each other under Article
1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or
judgment as is allowed to be set-of.

LOCAL TAXATION
ANGELES CITY vs. ANGELES CITY ELECTRIC CORPORATION AND REGIONAL
TRIAL COURT BRANCH 57, ANGELES CITY
G.R. No. 166134. June 29, 2010
Facts:
Respondent Angeles City Electric Corporation (AEC), which was granted a legislative
franchise to generate and distribute electricity in Angeles City, Pampanga, pays a
franchise tax of two percent (2%) of its gross receipts to the BIR. When the Local
Government Code (LGC) of 1991 was passed into law, the Sangguniang Panlungsod
of Angeles City enacted a tax ordinance known as the Revised Revenue Code of
Angeles City (RRCAC) which imposed a local franchise tax upon AEC. Metro Angeles
Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a member filed a
petition seeking the reduction of the tax rates and a review of the provisions of the
RRCAC was filed by, claiming that the ordinance is oppressive. The petition was
referred to the Bureau of Local Government Finance (BLGF) and an indorsement was
issued to the City Treasurer of Angeles City, instructing the latter to make
representations with the Sanggunian for the appropriate amendment of the RRCAC.
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On 2004, the City Treasurer issued a Notice of Assessment to AEC for payment of
business tax, license fee and other charges for the period 1993 to 2004 amounting
to P94,861,194.10. AEC protested the assessment but the City Treasurer denied the
protest. AEC appealed to the RTC of Angeles City via a Petition for Declaratory Relief.
The City Treasurer however levied on the real properties of AEC and a Notice of
Auction Sale was published announcing that a public auction of the levied properties
would be held. This prompted AEC to file with the RTC an Urgent Motion for Issuance
of Temporary Restraining Order (TRO) and/or Writ of Preliminary Injunction. After
due notice and hearing, the RTC issued a TRO and a Writ of Preliminary Injunction.
Angeles City filed a motion for dissolution of preliminary injunction, contending that
the RTC cannot enjoin the collection of taxes pursuant to the LGC, but the RTC
denied such motion.
Issue:
Whether or not the RTC can enjoin the collection of local taxes.
Ruling:
No.
The LGC does not specifically prohibit an injunction enjoining the collection of taxes.
A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of
the government should be collected promptly, without unnecessary hindrance or
delay. In line with this principle, the National Internal Revenue Code of 1997 (NIRC)
expressly provides that no court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee or charge imposed
by the code. The situation, however, is diferent in the case of the collection of local
taxes as there is no express provision in the LGC prohibiting courts from issuing an
injunction to restrain local governments from collecting taxes. Unlike the National
Internal Revenue Code, the Local Tax Code does not contain any specific provision
prohibiting courts from enjoining the collection of local taxes. Nevertheless, it must
be emphasized that although there is no express prohibition in the LGC, injunctions
enjoining the collection of local taxes are frowned upon. Courts therefore should
exercise extreme caution in issuing such injunctions.
No grave abuse of discretion was committed by the RTC in the issuance of the writ
of preliminary injunction because the two requisites to warrant the issuance of such,
which are the existence of a clear and unmistakable right that must be protected
and an urgent and paramount necessity for the writ to prevent serious damage,
have been satisfied. The Court then had no other recourse but to grant the prayer
for the issuance of a writ of preliminary injunction considering that if the respondent
will not be restrained from doing the acts complained of, it will preempt the Court
from properly adjudicating on the merits the various issues between the parties,
and will render moot and academic the proceedings before the court. The petition
was dismissed.

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