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JURISTS BAR REVIEW CENTER

UPDATES IN TAXATION
July 2010
ATTY. RIZALINA V. LUMBERA

I. PART I ( JURISPRUDENCE)
A. 2007 Cases
(1). COMMISSIONER OF INTERNAL REVENUE versus ISABELA CULTURAL
CORPORATION (ICC)
(G.R. 172231 12 February 2007)
Facts: The ICC, received from the BIR an assessment for deficiency income
tax arising from the BIR‟s disallowance of ICC‟s claimed expense deductions for
professional and security services billed to and paid by ICC in 1986 in the amount
of P333,196.86, to wit:
(a) Expenses for the auditing services of SGV & Co., for the year ending
December 31, 1985;
(b) Expenses for the legal services [inclusive of retainer fees] of the law firm
Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson for the years 1984
and 1985.
(c) Expense for security services of El Tigre Security & Investigation Agency
for the months of April and May 1986.
(d) The alleged understatement of ICC‟s interest income on the three
promissory notes due from Realty Investment, Inc.
and for deficiency expanded withholding tax in the amount of P4,897.79, inclusive
of surcharges and interest, both for the taxable year 1986 for alleged failure of ICC
to withhold 1% expanded withholding tax on its claimed P244,890.00 deduction for
security services.
ICC sought a reconsideration of the subject assessments. However, it
received a final notice before seizure demanding payment of the amounts stated in
the said notices. ICC then went to the CTA which rendered a decision canceling
and setting aside the assessment notices issued against ICC. It held that the
claimed deductions for professional and security services were properly claimed by
ICC. BIR then filed a petition for review with the CA, which affirmed the CTA
decision, thus the present case before the SC.
Issue: Are these deductions allowed?
Decision:
(1). The requisites for the deductibility of ordinary and necessary trade,
business, or professional expenses, like expenses paid for legal and auditing
services, are: (a) the expense must be ordinary and necessary; (b) it must have
been paid or incurred during the taxable year; (c) it must have been paid or
incurred in carrying on the trade or business of the taxpayer; and (d) it must be
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supported by receipts, records or other pertinent papers. The requisite that it must
have been paid or incurred during the taxable year is further qualified by Section
45 of the National Internal Revenue Code (NIRC) which states that: "[t]he
deduction provided for in this Title shall be taken for the taxable year in which „paid
or accrued‟ or „paid or incurred‟, dependent upon the method of accounting upon
the basis of which the net income is computed x x x".
(2). ICC uses the accrual method of accounting and pursuant to Revenue
Audit Memorandum Order No. 1-2000, expenses not being claimed as deductions
by a taxpayer in the current year when they are incurred cannot be claimed as
deduction from income for the succeeding year. Thus, a taxpayer who is
authorized to deduct certain expenses and other allowable deductions for the
current year but failed to do so cannot deduct the same for the next year. The
accrual of income and expense is permitted when the all-events test has been met.
This test requires: (1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such income or liability. The
test does not demand that the amount of income or liability be known absolutely,
only that a taxpayer has at his disposal the information necessary to compute the
amount with reasonable accuracy. The all-events test is satisfied where
computation remains uncertain, if its basis is unchangeable; the test is satisfied
where a computation may be unknown, but is not as much as unknowable, within
the taxable year. The amount of liability does not have to be determined
exactly; it must be determined with "reasonable accuracy." Accordingly, the
term "reasonable accuracy" implies something less than an exact or
completely accurate amount.
(3). The expenses for legal services pertain to the 1984 and 1985 legal and
retainer fees of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna &
Bengson, and for reimbursement of the expenses of said firm in connection with
ICC‟s tax problems for the year 1984. From the nature of the claimed deductions
and the span of time during which the firm was retained since 1960, ICC can be
expected to have reasonably known the retainer fees charged by the firm as well
as the compensation for its legal services. The failure to determine the exact
amount of the expense during the taxable year when they could have been claimed
as deductions cannot thus be attributed solely to the delayed billing of these
liabilities by the firm. For one, ICC, in the exercise of due diligence could have
inquired into the amount of their obligation to the firm, especially so that it is using
the accrual method of accounting. For another, it could have reasonably
determined the amount of legal and retainer fees owing to its familiarity with the
rates charged by their long time legal consultant. The defense of delayed billing by
the firm and the company, which under the circumstances, is not sufficient to
exempt it from being charged with knowledge of the reasonable amount of the
expenses for legal and auditing services
(4). The professional fees of SGV & Co. for auditing the financial statements
of ICC for the year 1985 cannot be validly claimed as expense deductions in 1986.
This is so because ICC failed to present evidence showing that even with only
"reasonable accuracy," as the standard to ascertain its liability to SGV & Co. in the
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year 1985, it cannot determine the professional fees which said company would
charge for its services. ICC thus failed to discharge the burden of proving that the
claimed expense deductions for the professional services were allowable
deductions for the taxable year 1986. Hence, per Revenue Audit Memorandum
Order No. 1-2000, they cannot be validly deducted from its gross income for the
said year and were therefore properly disallowed by the BIR.

(5). As to the expenses for security services, the records show that these
expenses were incurred by ICC in 1986 and could therefore be properly claimed as
deductions for the said year.
(6). On the purported understatement of interest income from the promissory
notes of Realty Investment, Inc., findings of the CTA and the Court of Appeals that
no such understatement exists are sustained and that only simple interest
computation and not a compounded one should have been applied by the BIR.
There is indeed no stipulation between the latter and ICC on the application of
compounded interest. Under Article 1959 of the Civil Code, unless there is a
stipulation to the contrary, interest due should not further earn interest.
(7). The findings of the CTA and the Court of Appeals that ICC truly withheld
the required withholding tax from its claimed deductions for security services and
remitted the same to the BIR is supported by payment order and confirmation
receipts. Hence, the Assessment Notice for deficiency expanded withholding tax
was properly cancelled and set aside.

(2). FELS ENERGY INC. VS. PROVINCE OF BATANGAS (G.R. 168557 / 2-16-
2007)
NAPOCOR VS. LBAA OF BATANGAS (G.R. 170628 16 February 2007)
Facts:
NAPOCOR (NPC) entered into a lease contract with Polar Energy, Inc. over
diesel engine power barges moored in Batangas providing that NAPOCOR shall be
responsible for the payment of all taxes imposed by the National Government to
which POLAR may be or become subject to or in relation to the performance of
their obligations under the agreement and all real estate taxes and assessments,
rates and other charges in respect of the Power Barges. POLAR subsequently
assigned its rights under the Agreement to FELS.
FELS then received an assessment from the Provincial Assessor of
Batangas for real property taxes on the power barges. NPC acting on behalf of
FELS sought reconsideration of the Provincial Assessor‟s assessment to assess
real property taxes on the power barges which was denied by the Provincial
Assessor. NPC then filed a petition with the LBAA. The LBAA denied the petition.
The LBAA ruled that the power plant facilities, while they may be classified as
movable or personal property, are nevertheless considered real property for
taxation purposes because they are installed at a specific location with a character
of permanency. The LBAA also pointed out that the owner of the barges–FELS, a
private corporation–is the one being taxed, not NPC. A mere agreement making
NPC responsible for the payment of all real estate taxes and assessments will not
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justify the exemption of FELS; such a privilege can only be granted to NPC and
cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed
out of time. Aggrieved, FELS appealed to the CBAA. The CBAA rendered a
decided that the power barges exempt from real property tax. The Provincial
Assessor filed an MR which was opposed by FELS and NPC. The CBAA issued a
reversed its earlier decision. FELS and NPC filed separates petition for review
before the CA. The CA denied the petition of NPC for being prescribed.
Subsequently the petition of FELS was denied. Hence, these present petitions.
Issues:
(1). Are power barges, which are floating and movable, personal properties and
therefore, not subject to real property tax?
(2). Assuming that power barges are real properties, whether they are exempt from
real estate tax under Section 234 of the Local Government Code ("LGC")?
(3). Assuming that power barges are subject to real estate tax, whether or not it
should be NPC which should be made to pay the same under the law?
(4). What is the proper remedy for assailed assessments issued by Assessor‟s
Office and does it prescribe?

Ruling:
(1) (2) (3) :
Article 415 (9) of the New Civil Code provides that "[d]ocks and structures
which, though floating, are intended by their nature and object to remain at a fixed
place on a river, lake, or coast" are considered immovable property. Thus, power
barges are categorized as immovable property by destination, being in the nature
of machinery and other implements intended by the owner for an industry or work
which may be carried on in a building or on a piece of land and which tend directly
to meet the needs of said industry or work.
POLAR owns the power barges as stipulated in the agreement. It follows
then that FELS cannot escape liability from the payment of realty taxes by invoking
its exemption in Section 234 (c) of R.A. No. 7160, which reads: SECTION 234.
Exemptions from Real Property Tax. – The following are exempted from payment
of the real property tax:x x x(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; x x x Indeed, the law states that the
machinery must be actually, directly and exclusively used by the government
owned or controlled corporation. The mere undertaking of petitioner NPC under
Section 10.1 of the Agreement, that it shall be responsible for the payment of all
real estate taxes and assessments, does not justify the exemption. The privilege
granted to petitioner NPC cannot be extended to FELS. The covenant is between
FELS and NPC and does not bind a third person not privy thereto, in this case, the
Province of Batangas.
(5). Section 226 of R.A. No. 7160, otherwise known as the Local Government
Code of 1991, provides:SECTION 226. Local Board of Assessment Appeals. – Any
owner or person having legal interest in the property who is not satisfied with the
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action of the provincial, city or municipal assessor in the assessment of his
property may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or city by
filing a petition under oath in the form prescribed for the purpose, together with
copies of the tax declarations and such affidavits or documents submitted in
support of the appeal.
The last action of the local assessor on a particular assessment shall be the
notice of assessment; it is this last action which gives the owner of the property the
right to appeal to the LBAA. The procedure likewise does not permit the property
owner the remedy of filing a motion for reconsideration before the local assessor. If
the taxpayer fails to appeal in due course, the right of the local government to
collect the taxes due with respect to the taxpayer‟s property becomes absolute
upon the expiration of the period to appeal. It also bears stressing that the
taxpayer‟s failure to question the assessment in the LBAA renders the assessment
of the local assessor final, executory and demandable, thus, precluding the
taxpayer from questioning the correctness of the assessment, or from invoking any
defense that would reopen the question of its liability on the merits.

(3). THE COMMISIONER OF INTERNAL REVENUE versus ACESITE


(PHILIPPINES) HOTEL CORPORATION ( G.R. No. 147295/ February 16, 2007)

Facts:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel
along UN Avenue in Manila. It eases a portion of the hotel‟s premises to PAGCOR
for casino operations. It also caters food and beverages to PAGCOR‟s casino
patrons through the hotel‟s restaurant outlets. For the period January 1996 to April
1997, Acesite incurred VAT from its rental income and sale of food and beverages
to PAGCOR . Acesite tried to shift the said taxes to PAGCOR by incorporating it in
the amount assessed to PAGCOR but the latter refused to pay the taxes on
account of its tax exempt status. Thus, PAGCOR paid the amount due to Acesite
minus VAT while the latter paid the VAT to the CIR as it feared the legal
consequences of non-payment of the tax.
Acesite belatedly arrived at the conclusion that its transaction with PAGCOR
was subject to zero rate as it was rendered to a tax-exempt entity and eventually
filed fro refund with the CIR but the latter failed to resolve the same. It then filed a
petition with the CTA which ordered the refund. The CA affirmed in toto the
decision of the CTA holding that PAGCOR was not only exempt from direct taxes
but was also exempt from indirect taxes like the VAT and consequently, the
transactions between respondent Acesite and PAGCOR were "effectively zero-
rated" because they involved the rendition of services to an entity exempt from
indirect taxes. The CIR went to the SC on certiorari.
Issue:
(1). Is PAGCOR exempt from both direct and indirect taxes such as VAT?
(2). What is basis of tax refund?
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Ruling:
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the
latter an exemption from the payment of taxes. A close scrutiny thereof clearly
gives PAGCOR a blanket exemption to taxes with no distinction on whether the
taxes are direct or indirect. Although the law does not specifically mention
PAGCOR‟s exemption from indirect taxes, PAGCOR is undoubtedly exempt from
such taxes because the law exempts from taxes persons or entities contracting
with PAGCOR in casino operations. Although, differently worded, the provision
clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by
granting tax exempt status to persons dealing with PAGCOR in casino operations.
The unmistakable conclusion is that PAGCOR is not liable for VAT and neither is
Acesite as the latter is effectively subject to zero percent rate. VAT can either be
incorporated in the value of the goods, properties, or services sold or leased, in
which case it is computed as 1/11 of such value, or charged as an additional 10%
to the value. Verily, the seller or lessor has the option to follow either way in
charging its clients and customer. Acesite followed the latter method that is,
charging an additional 10% of the gross sales and rentals. Be that as it may, the
use of either method, does not denigrate the fact that PAGCOR is exempt from an
indirect tax, like VAT. Considering the foregoing discussion, there are undoubtedly
erroneous payments of the VAT pertaining to the effectively zero-rate transactions
between Acesite and PAGCOR. Verily, Acesite has clearly shown that it paid the
subject taxes under a mistake of fact, that is, when it was not aware that the
transactions it had with PAGCOR were zero-rated at the time it made the
payments.
(2). Tax refunds are based on the principle of quasi-contract or solutio indebiti.
Since an action for a tax refund partakes of the nature of an exemption, which
cannot be allowed unless granted in the most explicit and categorical language, it
is strictly construed against the claimant who must discharge such burden
convincingly. In the instant case, respondent Acesite had discharged this burden
as found by the CTA and the CA. The BIR must release the refund to respondent
without any unreasonable delay. Indeed, fair dealing is expected by our taxpayers
from the BIR and this duty demands that the BIR should refund without any
unreasonable delay what it has erroneously collected.
(4). DIGITAL TELECOMMUNICATIONS PHIL., INC. vs. PROVINCE OF
PANGASINAN ETC. (G. R. No. 152534/ February 23, 2007)
Facts:
On Nov 13, 1992, the Province of Pangasinan granted Digitel a provincial
franchise under Provincial Ordinance No 18-92 which required the grantee to pay
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franchise and real property taxes. Thereafter, DIGITEL was granted by Republic
Act No. 7678, a legislative franchise authorizing the grantee to install, operate and
maintain telecommunications systems, this time, throughout the Philippines. Under
its legislative franchise, DIGITEL is liable for the payment of a franchise tax "as
may be prescribed by law of all gross receipts of the telephone or other
telecommunications businesses transacted under it by the grantee," as well as real
property tax "on its real estate, and buildings "exclusive of this franchise."
The Province of Pangasinan, in its examination of its record found that
petitioner DIGITEL had a franchise tax deficiency for the years 1992-94 further
alleging that DIGITEL had never paid any franchise tax to the province since it
started its operation in 1992. Accordingly, the Sangguniang Panlalawigan passed
Resolution No. 364 on 14 October 1994, categorically directing petitioner DIGITEL
to pay the overdue franchise tax otherwise its franchise shall be inoperative.
On 16 March 1995, Congress passed Republic Act No. 7925, otherwise
known as "The Public Telecommunications Policy Act of the Philippines." Section
23 of this law entitled Equality of Treatment in the Telecommunications Industry,
provided for the ipso facto application to any previously granted
telecommunications franchises of any advantage, favor, privilege, exemption or
immunity granted under existing franchises, or those still to be granted, to
be accorded immediately and unconditionally to earlier grantees

The provincial franchise and real property taxes remained unpaid, thus, the
Province of Pangasinan filed a complaint for collection of sum of money against
Digitel for franchise tax and ad valorem tax based on Sec 137 and 232 of the Local
government Code (RA 7160). Digitel argues that under its legislative franchise, the
payment of a franchise tax to the Bureau of Internal Revenue (BIR) would be "in
lieu of all taxes" on said franchise or the earnings therefrom. It further maintains
that its legislative franchise is subject to the immediate and unconditional
application of the tax exemption found in the franchises of Globe, Smart and Bell,
i.e., in Section 9 (b) of Republic Act No. 7229 and RA 7925.

Issues:

(1). Is DIGITEL exempt from the payment of provincial franchise tax?

(2). If not exempt, are DIGITEL‟s real properties found within the territorial
jurisdiction of respondent Province of Pangasinan exempt from the payment of real
property taxes by virtue of the phrase "exclusive of this franchise" found in Section
5 of its legislative franchise, Republic Act No. 7678?

Ruling:

(1). No. The Supreme Court has already resolved this issue in the case of
Philippine Long Distance Telephone Company, Inc. v. City of Davao, where it
clarified the confusion brought about by the effect of Section 23 of Republic Act No.
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7925 – that the word "exemption" as used in the statute refer‟s or pertain‟s merely
to an exemption from regulatory or reporting requirements of the DOTC or the NTC
and not to the grantee‟s tax liability. In that case, the Court held that in approving
Section 23 of Republic Act No. 7925, Congress did not intend it to operate as a
blanket tax exemption to all telecommunications entities; thus, it cannot be
considered as having amended petitioner PLDT‟s franchise so as to entitle it to
exemption from the imposition of local franchise taxes.

The fact is that the term "exemption" in Sec 23 is too general. A cardinal rule
in statutory construction is that legislative intent must be ascertained from a
consideration of the statute as a whole and not merely of a particular provision. x x
x Hence, a consideration of the law itself in its entirety and the proceedings of both
Houses of Congress is in order.

Tax exemption are highly disfavored. The tax exemption must be expressed
in the statute in clear language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even if it is granted, the exemption must
be interpreted in strictissimi juris against the taxpayer.

R.A. No. 7925 is a legislative enactment designed to set the national policy
on telecommunications and provide the structures to implement it to keep up with
the technological advances in the industry and the needs of the public. The thrust
of the law is to promote gradually the deregulation of the entry, pricing, and
operations of all public telecommunications entities and thus promote a level
playing field in the telecommunications industry. There is nothing in the language
of nor in the proceedings of both the House of Representatives and the Senate in
enacting R.A. No. 7925 which shows that it contemplates the grant of tax
exemptions to all telecommunications entities, including those whose exemptions
had been withdrawn by the LGC.

The foregoing pronouncement notwithstanding, in view of the passage of


Republic Act No. 7716, abolishing the franchise tax imposed on
telecommunications companies effective 1 January 1996 and in its place is
imposed a 10 percent Value-Added-Tax (VAT), the "in-lieu-of-all-taxes"
clause/provision in the legislative franchises of Globe, Smart and Bell, among
others, has now become functus officio, made inoperative for lack of a franchise
tax. Therefore, taking into consideration the above, from 1 January 1996,
petitioner DIGITEL ceased to be liable for national franchise tax and in its
stead is imposed a 10% VAT in accordance with Section 108 of the Tax Code.

(2). The second issue boils down to a dispute between the inherent taxing power of
Congress and the delegated authority to tax of the local government borne by the
1987 Constitution. In the afore-quoted case of PLDT v. City of Davao, the Court
already sustained the power of Congress to grant exemptions over and above the
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power of the local government‟s delegated taxing authority notwithstanding the
source of such power. The fact that Republic Act No. 7678 was a later piece of
legislation can be taken to mean that Congress, knowing fully well that the Local
Government Code had already withdrawn exemptions from real property taxes,
chose to restore such immunity even to a limited degree. In view of the
unequivocal intent of Congress to exempt from real property tax those real
properties actually, directly and exclusively used by petitioner DIGITEL in the
pursuit of its franchise, respondent Province of Pangasinan can only levy real
property tax on the remaining real properties of the grantee located within its
territorial jurisdiction not part of the above-stated classification. Said exemption,
however, merely applies from the time of the effectivity of petitioner DIGITEL‟s
legislative franchise and not a moment sooner.

(5). REPUBLIC OF THE PHILIPPINES represented by the Commissioner of


Customs vs UNIMEX MICRO ELECTRONIC (G.R. Nos. 166309-10/ 09 March
2007)

Facts:

In a decision dated June 15, 1992, the CTA reversed the forfeiture decree
issued by the Bureau of Customs and ordered the release of the UNIMEX
shipment subject to the payment of customs duties. The said CTA decision
became final and executory on July 20, 1992. As such decision could not be
executed.
As counsel failed to file a motion for writ of execution, UNIMEX filed on September
5, 2001 in the CTA a petition for the revival of its June 15, 1992 decision. It prayed
for the immediate release by BOC of its shipment or, in the alternative, payment of
the shipment‟s value plus damages. The BOC Commissioner failed to file his
answer, hence, he was declared in default.

During the ex parte presentation of respondent‟s evidence, BOC informed


the court that the subject shipment could no longer be found at its warehouses.

In its decision of September 19, 2002, the CTA declared that its June 15,
1992 decision could no longer be executed due to the loss of respondent‟s
shipment so it ordered the BOC Commissioner to pay respondent the commercial
value of the goods based on the prevailing exchange rate at the time of their
importation which payment shall be taken from the sale or sales of the goods or
properties seized or forfeited by the Bureau of Customs.

The BOC Commissioner and the respondent then filed separate petitions in
the CA which were consolidated. In one case, the CA held that the BOC
Commissioner was liable for the value of the subject shipment as the same was
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lost while in its custody. In the other case however, it ruled that the CTA erred in
using as basis the prevailing peso-dollar exchange rate at the time of the
importation instead of the prevailing rate at the time of actual payment pursuant to
RA 4100. It added that respondent was also entitled to legal interest not at the rate
of 6% per annum but at 12% per annum for the actual damages awarded.

Issues:

(1). Is there modification of Decision? Can the CTA modify its earlier decision?

(2). Is UNIMEX guilty of laches?

(3). Is the Bureau of Customs liable for interest?

(4). Is the Bureau of Customs liable for actual damages?

Ruling:

(1). The general rule is that once a decision becomes final and executory, it cannot
be altered or modified. However, this rule is not absolute. Where facts or events
transpire after a decision has become executory, which facts constitute a
supervening cause rendering the final judgment unenforceable, said judgment may
be modified. Also, a final judgment may be altered when its execution becomes
impossible or unjust. In the case at bar, parties do not dispute the fact that after the
June 15, 1992 CTA decision became final and executory, respondent‟s goods were
inexplicably lost while under the BOC‟s custody. Certainly, this fact presented a
supervening event warranting the modification of the CTA decision. Even if the
CTA had maintained its original decision, still petitioner would have been unable to
comply with it for the obvious reason that there was nothing more to deliver to
respondent.

(2). Laches is the failure or negligence to assert a right within a reasonable time,
giving rise to a presumption that a party has abandoned it or declined to assert it. It
is not a mere question of lapse or passage of time but is principally a question of
the inequity or unfairness of permitting a right or claim to be asserted.It is clear
from the records that UNIMEX was not guilty of negligence or omission. Neither did
it abandon its claim against petitioner. There was never negligence or omission to
assert its right within a reasonable period of time on the part of UNIMEX. In fact,
from the moment it intervened in the proceedings before the Bureau of Customs up
to the present time, UNIMEX is diligently trying to fight for what it believes is right.
IT may have failed to secure a writ of execution with this court when the [CTA
decision] became final and executory due to wrong legal advice, yet it does not
mean that it was sleeping on its right for it filed a case against the shipping agent

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and/or the sub-agent. Therefore, there [was never] an occasion wherein petitioner
had abandoned or declined to assert its right.

Laches cannot stall respondent‟s right to recover what is due to it especially


where BOC‟s negligence in the safekeeping of the goods appears indubitable.
There is no denying that BOC exhibited gross carelessness and ineptitude in the
performance of its duty as it could not even explain why or how the goods vanished
while in its custody. With this, it is difficult to exonerate petitioner from liability;
otherwise, we would countenance a wrong and exacerbate respondent‟s loss
which to this day has remained unrecompensed.

(3). Interest may be paid either as compensation for the use of money (monetary
interest) referred to in Article 1956 of the New Civil Code or as damages
(compensatory interest) under Article 2209 above cited. As clearly provided in
[Article 2209], interest is demandable if: a) there is monetary obligation and b)
debtor incurs delay.

This case does not involve a monetary obligation to be covered by Article


2209. There is no dispute that this case was originally filed questioning the seizure
of the shipment by the Bureau of Customs. Our decision subject of this action for
revival [of judgment] did not refer to any monetary obligation by [petitioner] towards
the [respondent]. In fact, if there was any monetary obligation mentioned, it
referred to the obligation of [respondent] to pay the correct taxes, duties, fees and
other charges before the release of the goods can be had. In one case, the
Supreme Court held: "In a comprehensive sense, the term "debt" embraces not
merely money due by contract, but whatever one is bound to render to another,
either for contract or the requirement of the law, such as tax where the law
imposes personal liability therefor."

Therefore, the government was never a debtor to the petitioner in order that
[Article] 2209 could apply. Nor was it in default for there was no monetary
obligation to pay in the first place. There is default when after demand is made
either judicially or extrajudicially. In other words, for interest to be demandable
under Article 2209, there should be a monetary obligation and the debtor was in
default…

Interest is not chargeable against petitioner except when it has expressly


stipulated to pay it or when interest is allowed by the legislature or in eminent
domain cases where damages sustained by the owner take the form of interest at
the legal rate. Consequently, the CA‟s imposition of the 12% p.a. legal interest
upon the finality of the decision of this case until the value of the goods is fully paid
(as forbearance of credit) is likewise bereft of any legal anchor

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(4). Government Liability For Actual Damages

Although it may be gainsaid that the satisfaction of respondent‟s demand will


ultimately fall on the government, and that, under the political doctrine of "state
immunity," it cannot be held liable for governmental acts (jus imperii), we still hold
that petitioner cannot escape its liability. The circumstances of this case warrant its
exclusion from the purview of the state immunity doctrine.

The Court cannot turn a blind eye to BOC‟s ineptitude and gross negligence
in the safekeeping of respondent‟s goods. We are not likewise unaware of its
lackadaisical attitude in failing to provide a cogent explanation on the goods‟
disappearance, considering that they were in its custody and that they were in fact
the subject of litigation. The situation does not allow us to reject respondent‟s claim
on the mere invocation of the doctrine of state immunity. Succinctly, the doctrine
must be fairly observed and the State should not avail itself of this prerogative to
take undue advantage of parties that may have legitimate claims against it.

Accordingly, upon payment of the necessary customs duties by respondent,


petitioner‟s "payment shall be taken from the sale or sales of goods or properties
seized or forfeited by the Bureau of Customs."

6). ATLAS CONSOLIDATED MINING AND DEVELOPMENT


CORPORATION vs COMMISSIONER OF INTERNAL REVENUE
(G.R. No. 145526/ March 16, 2007)

Facts:

On March 31, 1993, petitioner Atlas Consolidated Mining and Development


Corporation presented to Commissioner of Internal Revenue applications for
refund or tax credit of excess input taxes. Petitioner attributed these claims to its
sales of gold to the Central Bank, copper concentrates to Philippine Associated
Smelting and Refining Corporation (PASAR) and pyrite to Philippine Phosphates,
Inc. (Philphos) on the theory that these were zero-rated transactions resulting in
refundable or creditable input taxes under Section 106(b) of the Tax Code of 1986.
Due to respondent‟s continuous inaction and the imminent expiration of the two-
year period for beginning a court action for tax credit or refund, petitioner brought
its claims to the Court of Tax Appeals (CTA) by way of a petition for review. The
CTA denied petitioner‟s claims on the grounds of prescription and insufficiency of
evidence. Petitioner appealed to the Court of Appeals (CA). The CA reversed the
CTA‟s ruling on the matter of prescription but affirmed the latter‟s decision in all
other respects. Petitioner‟s motion for reconsideration was denied for lack of merit.
Thereupon, petitioner filed this appeal by certiorari

12
Issues:

1. Whether or not the petitioner is entitled for the tax refund?

2. Whether or not the documentary requirements imposed by Revenue


Regulations 3-88 applied only to administrative claims for refund or tax credit,
should have had no bearing in a judicial claim for refund in the CTA which was
"entirely independent of and distinct from the administrative claim?

3. Whether or not the summary and certification of an independent certified


public accountant required by CTA Circular 1-95(1)12 "constitute the principal
evidence" and rendered superfluous the submission of VAT invoices and receipts?

Ruling:

1. The petitioner is not entitled to tax refund. It has always been the rule that
those seeking tax refunds or credits bear the burden of proving the factual bases of
their claims and of showing, by words too plain to be mistaken, that the legislature
intended to entitle them to such claims. The rule, in this case, required petitioner to
(1) show that its sales qualified for zero-rating under the laws then in force and (2)
present sufficient evidence that those sales resulted in excess input taxes. It
complied with the first requirement but failed in the second requirement.

2. A judicial claim for refund or tax credit in the CTA is not an original action
but an appeal by way of petition for review of a previous, unsuccessful
administrative claim. Therefore, as in every appeal or petition for review, a
petitioner has to convince the appellate court that the quasi-judicial agency did not
have any reason to deny its claims. In this case, it was necessary for petitioner to
show the CTA not only that it was entitled under substantive law to the grant of its
claims but also that it satisfied all the documentary and evidentiary requirements
for an administrative claim for refund or tax credit

3. There is nothing in CTA Circular No. 1-95, as amended by CTA Circular No.
10-97, which either expressly or impliedly suggests that summaries and schedules
of input VAT payments, even if certified by an independent CPA, suffice as
evidence of input VAT payments. The circular was promulgated to avoid the time-
consuming procedure of presenting, identifying and marking of documents before
the Court. It does not relieve respondent of its imperative task of pre-marking
photocopies of sales receipts and invoices and submitting the same to the court
after the independent CPA shall have examined and compared them with the
originals. Without presenting these pre-marked documents as evidence, the court
cannot verify the authenticity and veracity of the independent auditor‟s conclusions.

13
(7). BANCO FILIPINO SAVINGS & MORTGAGE BANK VS. COURT OF
APPEALS ET AL.
(G.R.No.155682 / March 27, 2007)

Facts :

In its BIR Form No. 1702 or Corporation/Partnership Annual Income Tax


Return for fiscal year 1995, Banco Filipino Savings and Mortgage Bank (petitioner)
declared a net operating loss of P211,476,241.00 and total tax credit of
P13,103,918.00, representing the prior year‟s excess tax credit of P11,481,342.00
and creditable withholding taxes of P1,622,576.00. On February 4, 1998,
petitioner filed with the Commissioner of Internal Revenue (CIR) an administrative
claim for refund of creditable taxes withheld for the year 1995 in the amount of
P1,622,576.00.

As the CIR failed to act on its claim, petitioner filed a Petition for Review with
the CTA on April 13, 1998. It attached to its Petition several documents, including:
1) Certificate of Income Tax Withheld on Compensation (BIR Form No. W-2) for
the Year 1995 executed by Oscar Lozano covering P720.00 as tax withheld on
rental income paid to petitioner (Exhibit "II"); and 2) Monthly Remittance Return of
Income Taxes Withheld under BIR Form No. 1743W issued by petitioner, indicating
various amounts it withheld and remitted to the BIR (Exhibits "C" through "Z"). In
his Answer, respondent CIR interposed special and affirmative defenses,
specifically that petitioner‟s claim is not properly documented.

The CTA issued the October 5, 1999 Decision granting only a portion of
petitioner‟s claim for refund. The CTA allowed the P18,884.40-portion of
petitioner‟s claim for refund as these are covered by Exhibits "AA" through "HH",
which are all in BIR Form No. 1743-750 (Certificate of Creditable Tax Withheld at
Source) issued by various payors and reflecting taxes deducted and withheld on
petitioner-payee‟s income from the rental of its real properties. However, the CTA
disallowed the P1,603,691.60-portion of petitioner‟s claim for tax refund on the
ground that its Exhibit "II" and Exhibits "C" through "Z" lack probative value as
these are not in BIR Form No. 1743.1, the form required under Revenue
Regulations No. 6-85 (as amended), to support a claim for refund. Petitioner filed
a Petition for Review with the CA but the CA dismissed the same. Its Motion for
Reconsideration was also denied, hence, the Petition for Review on Certiorari
under Rule 45 of the Rules of Court.

Issue:
Whether or not the CA erred in affirming the disallowance by the CTA of
P1,603,691.60 of petitioner‟s claim for tax refund on the ground that the latter‟s
Exhibit "II" and Exhibits "C" through "Z" lack probative value as not being in
accordance with BIR Form No. 7431.1.

14
Ruling:

There are three conditions for the grant of a claim for refund of creditable
withholding tax: the claim is filed with the CIR within the two-year period from the
date of payment of the tax; it is shown on the return of the recipient that the income
payment received was declared as part of the gross income; and, the fact of
withholding is established by a copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of the tax withheld therefrom. The
third condition is specifically imposed under Section 10 of Revenue Regulation No.
6-85 (as amended)

At the time material to this case, the requisite information regarding


withholding taxes from the sale of acquired assets can be found in BIR Form No.
1743.1. As described in Section 6 of Revenue Regulations No. 6-85, BIR Form
No. 1743.1 is a written statement issued by the payor as withholding agent
showing the income or other payments made by the said withholding agent during
a quarter or year and the amount of the tax deducted and withheld therefrom. It
readily identifies the payor, the income payment and the tax withheld. It is
complete in the relevant details which would aid the courts in the evaluation of any
claim for refund of creditable withholding taxes. Petitioner‟s Exhibits "C" through
"Z" cannot take the place of BIR Form No. 1743.1 and its Exhibit "II," of BIR
Form No. 1743-750.

(8). INT'L EXCHANGE BANK VS. COMMISSIONER OF INTERNATIONAL


REVENUE
(G.R. No. 171266 April 4, 2007 )

Facts:
On april 13, 1999, petitioner, CIR served a Letter of Authority to International
Exchange Bank (IBank) directing the examination of petitioner‟s books of accounts
and other accounting records for the year 1997 and "unverified prior years." IBank
subsequently received on November 16, 1999 a "Notice to Taxpayer" from the
Assistant Commissioner, Enforcement Service of the BIR, notifying it of the results
of the examination re its tax liabilities amounting to P465,158,118.31 for 1996 and
P17,033,311,974.23 for 1997, and requesting it to appear for an informal
conference to present its side. After discussions, the parties resolved issues
relating to transactions involving payment of final withholding and gross receipts
taxes.

On January 6, 2000, petitioner was personally served with an undated Pre-


Assessment Notice (PAN) assessing it of deficiency on:

15
(a). Purchases of securities from the BSP or Government Securities
Purchased-Reverse Repurchase Agreement (RRPA); and

(b). FSD for the taxable years 1996 and 1997, amounting to P25,180,492.15
and P75,383,751.55, respectively.

According to the PAN, Government Securities Purchased-RRP is subject to


DST under Section 180 of the NIRC, as amended, since this falls under the
classification of Deposits Substitutes as defined by RR 3-97 while Savings Deposit-
FSD should be treated as time deposits considering that its features are very much
the same as time deposits (interest rates; terms). In substance, these are
certificate[s] of deposits subject to Documentary Stamp Tax under Section 180 of
the NIRC which provides among others that certificate[s] of deposits bearing
interest and others not payable on sight or demand are subject to DST. The PAN
advised petitioner that in case it was not agreeable to the above-quoted findings, it
may "see the Assistant Commissioner-Enforcement Service to clarify issues arising
from the investigation and/or review," and its failure to do so within 15 days from
receipt of the PAN would mean that it was agreeable.

On January 12, 2000, petitioner received a Formal Assessment Notice (FAN)


for deficiency DST on its RRPA and FSD, including surcharges, in the amounts of
P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an accompanying
demand letter requesting payment thereof within 30 days.

Acting on the FAN, IBank filed on February 11, 2000 a protest letter
alleging that the assessments should be reconsidered on the grounds that:

(1). the assessments are null and void for having been issued without any authority
and due process, and were made beyond the prescribed period for making
assessments;

(2). there is no law imposing DST on RRPA, and assuming that DST was payable,
it is the BSP which is liable therefor;

(3). there is no law imposing DST on its FSD; and

(4). assuming the deficiency assessments for DST were proper, the imposition of
surcharges was patently without legal authority.

As the BIR failed to act on the protest, IBank filed a petition for review before
the CTA. CTA First Division ordered that the IBank‟s deficiency assessments
pertaining to the reverse purchase agreements in the amounts of P6,720,183.77
and P22,838,302.16 inclusive of surcharges, for the years 1996 and 1997,
respectively, be CANCELLED and WITHDRAWN. However, the deficiency
assessments pertaining to savings deposits-FSD were UPHELD and IBank was
16
ORDERED to PAY the amount of P71,005,757.77 representing deficiency DST for
the years 1996 and 1997 plus 20% delinquency interest from February 12, 2000
until fully paid pursuant to Section 249 of the 1997 NIRC. CTA En banc affirmed
the CTA Division, thus, the instant petition before the SC.

ISSUE: Whether or not petitioner‟s FSD is subject to DST for the years assessed.

RULING:

The applicable provision is Section 180 of the Tax Code, as amended by


R.A. 7660, which reads:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange,
drafts, instruments and securities issued by the government or any of its
instrumentalities, certificates of deposit bearing interest and others not payable on
sight or demand. - On all loan agreements signed abroad wherein the object of the
contract is located or used in the Philippines; bills of exchange (between points
within the Philippines), drafts, instruments and securities issued by the
Government or any of its instrumentalities or certificates of deposits drawing
interest, or orders for the payment of any sum of money otherwise than at sight or
on demand, or on all promissory notes, whether negotiable or non-negotiable,
except bank notes issued for circulation, and on each renewal of any such note,
there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on
each two hundred pesos, or fractional part thereof, of the face value of any such
agreement, bill of exchange, draft, certificate of deposit, or note: Provided, xxx.
(Emphasis and underscoring supplied)

In resolving the issue, it is necessary to determine whether petitioner‟s


Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and
characteristics as a time deposit. In this case, a depositor of a savings deposit-
FSD is required to keep the money with the bank for at least thirty (30) days in
order to yield a higher interest rate. Otherwise, the deposit earns interest pertaining
only to a regular savings deposit. The same feature is present in a time deposit. A
depositor is allowed to withdraw his time deposit even before its maturity subject to
bank charges on its pre-termination and the depositor loses his entitlement to earn
the interest rate corresponding to the time deposit. Instead, he earns interest
pertaining only to a regular savings deposit. Thus, petitioner‟s argument that the
savings deposit-FSD is withdrawable anytime as opposed to a time deposit which
has a maturity date, is not tenable. In both cases, the deposit may be withdrawn
anytime but the depositor gets to earn a lower rate of interest. The only difference
lies on the evidence of deposit, a savings deposit-FSD is evidenced by a
passbook, while a time deposit is evidenced by a certificate of time deposit."

17
(9). COMMISSIONER OF INTERNAL REVENUE VS. BANK OF THE PHILIPPINE
ISLANDS
(G.R. No. 134062/ April 17, 2007 )

Facts:

In two notices dated October 28, 1988, petitioner CIR assessed respondent
bank BPI‟s deficiency percentage and documentary stamp taxes for the year 1986
in the total amount of P129,488,656.63:

In a letter dated December 10, 1988, BPI repliedthe CIR‟s "deficiency


assessments" are no assessments at all. The taxpayer is not informed, even in the
vaguest terms, why it is being assessed a deficiency; that the alleged deficiency
documentary stamp tax has no basis as these are subject to a compromise
agreement between CIR and BAP; that as to the alleged deficiency percentage tax,
the assessment cannot be protested since the letter does not even tell the taxpayer
what particular percentage tax is involved and how the examiner arrived at the
deficiency. “As soon as this is explained and clarified in a proper letter of
assessment, we shall inform you of the taxpayer‟s decision on whether to pay or
protest the assessment.”

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991
explaining the basis of the assessments, although not obliged under existing laws
at that time and stating that “this constitutes the final decision of this office on the
matter.”

On July 6, 1991, BPI requested a reconsideration of the assessments stated


in the CIR‟s May 8, 1991 letter. This was denied in a letter dated December 12,
1991, received by BPI on January 21, 1992. On February 18, 1992, BPI filed a
petition for review in the CTA. In a decision dated November 16, 1995, the CTA
dismissed the case for lack of jurisdiction since the subject assessments had
become final and unappealable. The CTA ruled that BPI failed to file its protest on
time under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and
Section 7 in relation to Section 11 of RA 1125. It denied reconsideration in a
resolution dated May 27, 1996.

On appeal, the CA reversed the tax court‟s decision and resolution and
remanded the case to the CTA for a decision on the merits. It ruled that the
October 28, 1988 notices were not valid assessments because they did not inform
the taxpayer of the legal and factual bases therefor. It declared that the proper
assessments were those contained in the May 8, 1991 letter which provided the
reasons for the claimed deficiencies. Thus, it held that BPI filed the petition for
review in the CTA on time. The CIR elevated the case to this Court.

Issues:
18
(1). Are the October 28, 1988 notices valid assessments.

(2). Are the assessments issued to BPI for deficiency percentage and
documentary stamp taxes for 1986 final and unappealable? and

(3). Is BPI liable for the said taxes?

Ruling:

(1). On the first issue, assessments were made pursuant to the prevailing
law which was Section 270 (now renumbered Section 228) of the NIRC, the only
requirement was for the CIR to "notify" or inform the taxpayer of his "findings."
Nothing in the old law required a written statement to the taxpayer of the law and
facts on which the assessments were based. The Court cannot read into the law
what obviously was not intended by Congress. That would be judicial legislation,
nothing less. Jurisprudence, on the other hand, simply required that the
assessments contain a computation of tax liabilities, the amount the taxpayer was
to pay and a demand for payment within a prescribed period. Hence, there was no
doubt the October 28, 1988 notices sufficiently met the requirements of a valid
assessment under the old law and jurisprudence.

The provision that “the taxpayers shall be informed in writing of the law and
the facts on which the assessment is made; otherwise, the assessment shall be
void” was not in the old Section 270 but was only later on inserted in the
renumbered Section 228 in 1997. Evidently, the legislature saw the need to modify
the former Section 270 by inserting the aforequoted sentence. The fact that the
amendment was necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning. Furthermore, BPI‟s
theory that they were deprived of due process when the CIR failed to inform it of
the factual and legal bases of the assessments even if these were not called for
under the old law was debunked when BPI was given the opportunity to discuss
with the CIR the assessment when the latter issued the former a Pre-Assessment
Notice which BPI ignored and that the examiners themselves went to BPI and
talked to them.

(2). Under the former Section 270, there were two instances when an
assessment becomes final and unappealable: (1) when it was not protested within
30 days from receipt and (2) when the adverse decision on the protest was not
appealed to the CTA within 30 days from receipt of the final decision. Considering
that the October 28, 1988 notices were valid assessments, BPI should have
protested the same within 30 days from receipt thereof. The December 10, 1988
reply it sent to the CIR did not qualify as a protest since the letter itself stated that
"as soon as this is explained and clarified in a proper letter of assessment, we
shall inform you of the taxpayer‟s decision on whether to pay or protest the
19
assessment." Hence, by its own declaration, BPI did not regard this letter as a
protest against the assessments. As a matter of fact, BPI never deemed this a
protest since it did not even consider the October 28, 1988 notices as valid or
proper assessments.

(3). The inevitable conclusion is that BPI‟s failure to protest the assessments
within the 30-day period provided in the former Section 270 meant that they
became final and unappealable. Thus, the CTA correctly dismissed BPI‟s appeal
for lack of jurisdiction. BPI was, from then on, barred from disputing the
correctness of the assessments or invoking any defense that would reopen the
question of its liability on the merits. Even if we considered the December 10, 1988
letter as a protest, BPI must nevertheless be deemed to have failed to appeal the
CIR‟s final decision regarding the disputed assessments within the 30-day period
provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final
decision … on the matter." BPI therefore had 30 days from the time it received the
decision on June 27, 1991 to appeal but it did not. Instead it filed a request for
reconsideration and lodged its appeal in the CTA only on February 18, 1992, way
beyond the reglementary period. BPI must now suffer the repercussions of its
omission and be liable for the said taxes, thereby resolving the third issue of the
case.

(10) COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PHILIPPINE


HEALTH CARE PROVIDERS, INC., Respondent. (G.R. No. 168129/ 24 April
2007)

Facts:

The Philippine Health Care Providers, Inc., is a corporation organized to


establish, maintain, conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization 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, E.O. No. 273, imposing VAT was issued. Prior to
effectivity thereof, Healthcare wrote the CIR inquiring whether the services it
provides to the participants in its health care program are exempt from the
payment of the VAT. On June 8, 1988, CIR, through the VAT Review Committee
of the Bureau of Internal Revenue (BIR), issued VAT Ruling No. 231-88 stating that
as a provider of medical services, it is exempt from the VAT coverage. This Ruling
was subsequently confirmed by Regional Director Osmundo G. Umali of Revenue
Region No. 8 in a letter dated April 22, 1994.

20
On January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT
Law) took effect substantially adopting the provisions of EO 273 on VAT and RA
7716 on E-VAT.

On October 1, 1999, the BIR sent Preliminary Assessment Notice to


Healthcare for deficiency VAT and DST for the years 1996/1997. It was protested
by healthcare. CIR then sent a demand letter with attached four assessments for
the same taxes which were also protested by Healthcare.

Issues:

(1) Are the services subject to VAT?

(2) Does VAT Ruling No. 231-88 providing exemption from VAT have retroactive
application?

Ruling:

(1). Section 103 of the NIRC specifies the exempt transactions from the provision
of Section 102, thus: Medical, dental, hospital and veterinary services except those
rendered by professionals

The import of the above provision is plain. It requires no interpretation. It


contemplates the exemption from VAT of taxpayers engaged in the performance of
medical, dental, hospital, and veterinary services. Under the prepaid group practice
health care delivery system adopted by Health Care, individuals enrolled in Health
Care's health care program are entitled to preventive, diagnostic, and corrective
medical services to be dispensed by Health Care's duly licensed physicians,
specialists, and other professional technical staff participating in said group
practice health care delivery system established and operated by Health Care.
Such medical services will be dispensed in a hospital or clinic owned, operated, or
accredited by Health Care. To be entitled to receive such medical services from
Health Care, an individual must enroll in Health Care's health care program and
pay an annual fee. Enrollment in Health Care's health care program is on a year-to-
year basis and enrollees are issued identification cards.

We note that these factual findings of the CTA were neither modified nor
reversed by the Court of Appeals. It is a doctrine that findings of fact of the CTA, a
special court exercising particular expertise on the subject of tax, are generally
regarded as final, binding, and conclusive upon this Court, more so where these do
not conflict with the findings of the Court of Appeals. Perforce, as respondent
does not actually provide medical and/or hospital services, as provided
under Section 103 on exempt transactions, but merely arranges for the same,
its services are not VAT-exempt.
21
(2). Section 246 of the 1997 Tax Code, as amended, provides that rulings,
circulars, rules and regulations promulgated by the Commissioner of Internal
Revenue have no retroactive application if to apply them would prejudice the
taxpayer. The exceptions to this rule are: (1) where the taxpayer deliberately
misstates or omits material facts from his return or in any document required of him
by the Bureau of Internal Revenue; (2) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the facts on which the
ruling is based, or (3) where the taxpayer acted in bad faith. There is no showing
that respondent "deliberately committed mistakes or omitted material facts" when it
obtained VAT Ruling No. 231-88 from the BIR. The CTA held that respondent's
letter which served as the basis for the VAT ruling "sufficiently described" its
business and "there is no way the BIR could be misled by the said representation
as to the real nature" of said business.

It is thus apparent that when VAT Ruling No. 231-88 was issued in
respondent's favor, the term "health maintenance organization" was yet unknown
or had no significance for taxation purposes. Respondent, therefore, believed in
good faith that it was VAT exempt for the taxable years 1996 and 1997 on the
basis of VAT Ruling No. 231-88.

(11). RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,


vs.COMMISSIONER OF INTERNAL REVENUE, Respondent. (G.R. No. 168498/
24 April 2007)

Facts:

This involves a deficiency assessment for DST on special savings accounts


and gross onshore tax imposed on RCBC by the BIR. In an earlier SC Decision
dated June 16, 2006, the SC affirmed the Decision of the Court of Tax Appeals En
Banc dated June 7, 2005 in C.T.A. EB No. 50 and Resolutions of the Court of Tax
Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A.
Case No. 6475. The said resolutions of the CTA dismissed the petition for review
filed by RCBC on the ground that the same was beyond the 30 day period after the
expiration of the 180 day period of inaction on the part of the BIR. RCBC claims in
its motion for reconsideration that its former counsel‟s failure to file petition for
review with the Court of Tax Appeals within the period set by Section 228 of the
National Internal Revenue Code of 1997 (NIRC) was excusable

Issue: Is the petition for review filed out of time?

Ruling:

22
If indeed there was negligence, this is obviously on the part of petitioner‟s
own counsel whose prudence in handling the case fell short of that required under
the circumstances. He was well aware of the motion filed by the respondent for the
Court to resolve first the issue of this Court‟s jurisdiction on July 15, 2003, that a
hearing was conducted thereon on August 15, 2003 where both counsels were
present and at said hearing the motion was submitted for resolution. Petitioner‟s
counsel apparently did not show enthusiasm in the case he was handling as he
should have been vigilant of the outcome of said motion and be prepared for the
necessary action to take whatever the outcome may have been. Such kind of
negligence cannot support petitioner‟s claim for relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made
in good faith, and all presumptions are in favor of the correctness of a tax
assessment unless proven otherwise.4 Also, petitioner‟s failure to file a petition for
review with the Court of Tax Appeals within the statutory period rendered the
disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of
the Government‟s right to assess.

In case the Commissioner failed to act on the disputed assessment within


the 180-day period from date of submission of documents, a taxpayer can either:
1) file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or 2) await the final decision of the Commissioner
on the disputed assessments and appeal such final decision to the Court of Tax
Appeals within 30 days after receipt of a copy of such decision. However, these
options are mutually exclusive, and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed


assessment within 180 days from date of submission of documents. Thus, RCBC
opted to file a petition for review before the Court of Tax Appeals. Unfortunately,
the petition for review was filed out of time, i.e., it was filed more than 30 days after
the lapse of the 180-day period. Consequently, it was dismissed by the Court of
Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or
make an appeal; hence, the disputed assessment became final, demandable and
executory.

Based on the foregoing, petitioner can not now claim that the disputed
assessment is not yet final as it remained unacted upon by the Commissioner; that
it can still await the final decision of the Commissioner and thereafter appeal the
same to the Court of Tax Appeals. This legal maneuver cannot be countenanced.
After availing the first option, i.e., filing a petition for review which was however
filed out of time, petitioner can not successfully resort to the second option, i.e.,
awaiting the final decision of the Commissioner and appealing the same to the
Court of Tax Appeals, on the pretext that there is yet no final decision on the
disputed assessment because of the Commissioner‟s inaction.
23
(12). PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner,
vs.COURT OF APPEALS, OFFICE OF THE PRESIDENT, DEPARTMENT OF
FINANCE and the CITY OF ILOILO, respondents. (G.R. No. 169836/ 31 July
2007)

Facts:

Beginning October 31, 1981, the then Ministry of Public Works and
Highways reclaimed from the sea a 21-hectare parcel of land in Barangay Tanza,
Iloilo City, and constructed thereon the Iloilo Fishing Port Complex (IFPC),
consisting of breakwater, a landing quay, a refrigeration building, a market hall, a
municipal shed, an administration building, a water and fuel oil supply system and
other port related facilities and machineries. Upon its completion, the same was
turned over to the Philippine Fisheries Development Authority (PFDA) for its
operation. Notwithstanding said turn over, title to the land and buildings of the IFPC
remained with the Republic of the Philippines. PFDA in the meantime leased
portions of IFPC to private firms and individuals engaged in fishing related
businesses.

In May 1988, the City of Iloilo assessed the entire IFPC for real property
taxes. The assessment remained unpaid for the fiscal years 1988 and 1989
amounted to P5,057,349.67, inclusive of penalties and interests. To satisfy the tax
delinquency, the City of Iloilo scheduled on August 30, 1990, the sale at public
auction of the IFPC. The PFDA assailed such assessment on the ground that it is
exempt from payment of real estate tax.

Issues:

(1). Is PFDA liable to pay real property tax to the City of Iloilo?

(2). Can IFPC be sold at public auction to satisfy the tax delinquency?

Ruling:

To resolve said issues, the Court has to determine (1) whether the Authority
is a government owned or controlled corporation (GOCC) or an instrumentality of
the national government; and (2) whether the IFPC is a property of public
dominion.

PFDA is not a GOCC but an instrumentality of the national government


which is generally exempt from payment of real property tax. However, said
exemption does not apply to the portions of the IFPC which the PFDA leased to
24
private entities. With respect to these properties, PFDA is liable to pay real
property tax. Nonetheless, the IFPC, being a property of public dominion cannot be
sold at public auction to satisfy the tax delinquency.

The Court makes a distinction between a GOCC and an instrumentality. For


an entity to be considered as a GOCC, it must either be organized as a stock or
non-stock corporation. Two requisites must concur before one may be classified as
a stock corporation, namely: (1) that it has capital stock divided into shares, and (2)
that it is authorized to distribute dividends and allotments of surplus and profits to
its stockholders. If only one requisite is present, it cannot be properly classified as
a stock corporation. As for non-stock corporations, they must have members and
must not distribute any part of their income to said members.

PFDA is actually a national government instrumentality which is defined as


an agency of the national government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers. Thus, the Authority which is tasked with
the special public function to carry out the government‟s policy "to promote the
development of the country‟s fishing industry and improve the efficiency in
handling, preserving, marketing, and distribution of fish and other aquatic
products," exercises the governmental powers of eminent domain, and the power
to levy fees and charges. At the same time, the Authority exercises "the general
corporate powers conferred by laws upon private and government-owned or
controlled corporations."

On the basis of these parameters , PFDA should be classified as an


instrumentality of the national government. As such, it is generally exempt from
payment of real property tax, except those portions which have been leased to
private entities.

(2). PFDA is classified as an instrumentality of the national government which is


liable to pay taxes only with respect to the portions of the property, the beneficial
use of which were vested in private entities. When local governments invoke the
power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and
there must be clear language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government
instrumentalities.20
25
Thus, the real property tax assessments issued by the City of Iloilo should be
upheld only with respect to the portions leased to private persons. In case PFDA
fails to pay the real property taxes due thereon, said portions cannot be sold at
public auction to satisfy the tax delinquency. In Chavez v. Public Estates Authority
it was held that reclaimed lands are lands of the public domain and cannot,
without Congressional fiat, be subject of a sale, public or private, thus:

The salient provisions of CA No. 141, on government reclaimed, foreshore


and marshy lands of the public domain, provide that the only way the government
can sell to private parties government reclaimed and marshy disposable lands of
the public domain is for the legislature to pass a law authorizing such sale. CA No.
141 does not authorize the President to reclassify government reclaimed and
marshy lands into other non-agricultural lands under Section 59 (d). Lands
classified under Section 59 (d) are the only alienable or disposable lands for non-
agricultural purposes that the government could sell to private parties. In the same
vein, the port built by the State in the Iloilo fishing complex is a property of the
public dominion and cannot therefore be sold at public auction. Article 420 of the
Civil Code also provides that the following things are property of public
dominion: (1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores, roadsteads,
and others of similar character; (2) Those which belong to the State, without
being for public use, and are intended for some public service or for the
development of the national wealth.xxxx”

The Iloilo fishing port which was constructed by the State for public use
and/or public service falls within the term "port" in Article 420 of the Civil Code
and being a property of public dominion the same cannot be subject to execution
or foreclosure sale. In order to satisfy the tax, the City of Iloilo has to resort to other
means of satisfying such delinquency.

(13). COMMISSIONER OF INTERNAL REVENUE, vs. ROSEMARIE ACOSTA, as


represented by Virgilio A. Abogado, (G.R. No. 154068 / August 3, 2007)

Facts:

Acosta is an employee of Intel Manufacturing Phils., Inc. (Intel). For the


period January 1, 1996 to December 31, 1996, she was assigned in a foreign
country. During that period, Intel withheld the taxes due on her compensation
income and remitted to the Bureau of Internal Revenue (BIR) the amount of
P308,084.56. On March 21, 1997, Acosta and her husband filed with the BIR their
Joint Individual Income Tax Return for the year 1996. On June 17, 1997, Acosta,
26
through her representative, filed an amended return and a Non-Resident Citizen
Income Tax Return, and paid the BIR P17,693.37 plus interests in the amount of
P14,455.76. On October 8, 1997, she filed another amended return indicating an
overpayment of P358,274.63.

Claiming that the income taxes withheld and paid by Intel and Acosta
resulted in an overpayment of P340,918.92, she filed on April 15, 1999 a petition
for review with the Court of Tax Appeals (CTA) which was opposed by CIR for
alleged failure of respondent to file the mandatory written claim for refund before
the CIR.

Issue: Does the CTA have jurisdiction over petitions for review when there is
failure to file mandatory written claim for refund before the CIR.

Ruling:

A claimant must first file a written claim for refund, categorically demanding
recovery of overpaid taxes with the CIR, before resorting to an action in court. This
obviously is intended, first, to afford the CIR an opportunity to correct the action of
subordinate officers; and second, to notify the government that such taxes have
been questioned, and the notice should then be borne in mind in estimating the
revenue available for expenditure. Tax refunds are in the nature of tax exemptions
which are construed strictissimi juris against the taxpayer and liberally in favor of
the government. As tax refunds involve a return of revenue from the government,
the claimant must show indubitably the specific provision of law from which her
right arises; it cannot be allowed to exist upon a mere vague implication or
inference nor can it be extended beyond the ordinary and reasonable intendment
of the language actually used by the legislature in granting the refund. To repeat,
strict compliance with the conditions imposed for the return of revenue collected is
a doctrine consistently applied in this jurisdiction.

(14). ). PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY vs. THE


HONORABLE COURT OF APPEALS (G.R. No. 150301/ 02 October 2007)

Facts:

The controversy arose when respondent Municipality of Navotas assessed


the real estate taxes allegedly due from petitioner Philippine Fisheries
Development Authority (PFDA) for the period 1981-1990 on properties under its
jurisdiction, management and operation located inside the Navotas Fishing Port
Complex (NFPC). The assessed taxes remained unpaid despite the demands
made by the municipality which prompted it, through Municipal Treasurer Florante
M. Barredo, to give notice to petitioner on October 29, 1990 that the NFPC will be
27
sold at public auction on November 30, 1990 in order that the municipality will be
able to collect the delinquent realty taxes which, as of June 30, 1990, amounted to
P23,128,304.51, inclusive of penalties.

Petitioner sought the deferment of the auction sale claiming that the NFPC is
owned by the Republic of the Philippines, and pursuant to Presidential Decree
(P.D.) No. 977, it (PFDA) is not a taxable entity.

Issue: Is NFPC exempt from payment of real property tax?

Ruling:

Local government units, pursuant to the fiscal autonomy granted by the


provisions of Republic Act No. 7160 or the 1991 Local Government Code, can
impose realty taxes on juridical persons subject to the limitations enumerated in
Section 133 of the Code, to wit: – Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following “xxxxx” (o) taxes, fees, charges of any kind on
the national government, its agencies and instrumentalities, and local government
units.

The exemption does not apply when the beneficial use of the government
property has been granted to a taxable person. Section 234 (a) of the Code states
that real property owned by the Republic of the Philippines or any of its political
subdivisions is exempted from payment of the real property tax "except when the
beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person." As a rule, PFDA, being an instrumentality of the national
government, is exempt from real property tax but the exemption does not extend to
the portions of the NFPC that were leased to taxable or private persons and
entities for their beneficial use.

(15).ERICSSON TELECOMMUNICATIONS, INC., versus CITY OF PASIG,


represented by its City Mayor, Hon. Vicente P. Eusebio, et al. ( G.R. No.
176667 November 22, 2007)

Facts:

Ericsson Telecommunications, Inc. (ERICSSON), a corporation with principal office


in Pasig City, is engaged in the design, engineering, and marketing of
telecommunication facilities/system. In an Assessment Notice dated October 25,
2000 issued by the City Treasurer of Pasig City, it was assessed a business tax
deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and
P4,993,682.00, respectively, based on its gross revenues as reported in its
28
audited financial statements for the years 1997 and 1998. Protest dated December
21, 2000 was filed by ERICSSON claiming that the computation of the local
business tax should be based on gross receipts and not on gross revenue.

The City of Pasig issued another Notice of Assessment on November 19, 2001,
this time based on business tax deficiencies for the years 2000 and 2001,
amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross
revenues for the years 1999 and 2000. Again, a Protest was filed on January 21,
2002, reiterating its position that the local business tax should be based on gross
receipts and not gross revenue.

Issue: Is local business tax on contractors based on gross receipts or gross


revenue?

Ruling:

The applicable provision is subsection (e), Section 143 of the same Code covering
contractors and other independent contractors which provides that the municipality
may impose taxes on contractors and other independent contractors, in
accordance with the following schedule of gross receipts for the preceding
calendar year. The provision specifically refers to gross receipts which is defined
under Section 131 of the Local Government Code, as to include the total amount of
money or its equivalent representing the contract price, compensation or service
fee, including the amount charged or materials supplied with the services and the
deposits or advance payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person
excluding discounts if determinable at the time of sales, sales return, excise tax,
and value-added tax (VAT). The law is clear. Gross receipts include money or its
equivalent actually or constructively received in consideration of services rendered
or articles sold, exchanged or leased, whether actual or constructive.

In contrast, gross revenue covers money or its equivalent actually or constructively


received, including the value of services rendered or articles sold, exchanged
or leased, the payment of which is yet to be received. This is in consonance
with the International Financial Reporting Standards, which defines revenue as the
gross inflow of economic benefits (cash, receivables, and other assets) arising
from the ordinary operating activities of an enterprise (such as sales of goods,
sales of services, interest, royalties, and dividends), which is measured at the fair
value of the consideration received or receivable.

The audited financial statements of ERICSSON reflect income or revenue which


accrued to it during the taxable period although not yet actually or constructively
received or paid. This is because it uses the accrual method of accounting, where
income is reportable when all the events have occurred that fix the taxpayer's right
to receive the income, and the amount can be determined with reasonable
29
accuracy; the right to receive income, and not the actual receipt, determines when
to include the amount in gross income. The imposition of local business tax based
on petitioner's gross revenue will inevitably result in the constitutionally proscribed
double taxation – taxing of the same person twice by the same jurisdiction for the
same thing – inasmuch as petitioner's revenue or income for a taxable year will
definitely include its gross receipts already reported during the previous year and
for which local business tax has already been paid.

Thus, respondent committed a palpable error when it assessed petitioner's local


business tax based on its gross revenue as reported in its audited financial
statements, as Section 143 of the Local Government Code and Section 22(e) of
the Pasig Revenue Code clearly provide that the tax should be computed based on
gross receipts.

(16). ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC BAY MOTORS


CORPORATION, VS. HON. GUILLERMO L. PARAYNO,JR., in his capacity as
Commissioner of the Bureau of Internal Revenue (BIR), THE REGIONAL
DIRECTOR, BIR, Region III, THE REVENUE DISTRICT OFFICER, BIR,
Special Economic Zone, and OFFICE OF THE SOLICITOR GENERAL (
GR 163445/ 18 December 2007)

Facts:

Congress enacted Republic Act (R.A.) No. 7227 creating the Subic Special
Economic Zone (SSEZ) and extending a number of economic or tax incentives
therein. Subsequently the Secretary of Finance, through the recommendation of
then Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato, issued
several revenue regulations relating to the tax incentives of companies within the
zone. On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued Revenue
Memorandum Circular (RMC) No. 31-2003 setting the “Uniform Guidelines on the
Taxation of Imported Motor Vehicles through the Subic Free Port Zone and Other
Freeport Zones that are Sold at Public Auction.”

Asia International Auctioneers, Inc. (AIAI) and Subic Bay Motors Corporation
are corporations organized under Philippine laws with principal place of business
within the SSEZ. They are engaged in the importation of mainly secondhand or
used motor vehicles and heavy transportation or construction equipment which
they sell to the public through auction. They filed a complaint before the RTC of
Olongapo City, praying for the nullification of RMC No. 31-2003 and other revenue
regulations and RMC‟s for being unconstitutional and an ultra vires act.

Consequently, the CIR, the BIR Regional Director of Region III, the BIR
Revenue District Officer of the SSEZ, and the OSG filed with the CA a petition for
30
certiorari under Rule 65 of the Rules of Court with prayer for the issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin the trial
court from exercising jurisdiction over the case.

Issue: Does the trial court have jurisdiction over the subject matter of this case?

Ruling:

The assailed revenue regulations and revenue memorandum circulars are


actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at
public auction within the SSEZ to implement Section 12 of R.A. No. 7227 which
provides that “exportation or removal of goods from the territory of the [SSEZ] to
the other parts of the Philippine territory shall be subject to customs duties and
taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines.” They were issued pursuant to the power of the CIR under Section 4
of the National Internal Revenue Code. The power to decide disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals.

Petitioners contend that based on Section 7 of R.A. No. 1125 that the CTA
“shall exercise exclusive appellate jurisdiction to review by appeal…” decisions of
the CIR. They argue that in the instant case, there is no decision of the respondent
CIR on any disputed assessment to speak of as what is being questioned is
purely the authority of the CIR to impose and collect value-added and excise
taxes.

B. 2008 CASES

(17). STATE LAND INVESTMENT CORPORATION, Petitioner VS.


COMMISSIONER OF INTERNAL REVENUE, Respondent ( GR 171956/ 18
January 2008)

Facts:

State Land Investment Corporation, petitioner, is a corporation duly organized and


existing under the laws of the Republic of the Philippines. It is a real estate
developer engaged in the development and marketing of low, medium and high
cost subdivision projects in the cities of Manila, Pasay and Quezon; and in Cavite
and Bulacan.

31
On April 15, 1997, it its annual income tax return for the calendar year
ending December 31, 1997. reflecting taxable income of P27,723,328.00 with tax
due in the amount of P9,703,165.54. Its total tax credits for the same year
amounted to P23,632,959.05, inclusive of its prior year‟s excess tax credits of
P9,289,084.00. After applying its total tax credits of P23,632,959.05 against its
income tax liability of P9,703,165.54, the amount of P13,929,793.51 remained
unutilized. Petitioner opted to apply this amount as tax credit to the succeeding
taxable year 1998.

On April 15, 1999, petitioner again filed with the BIR its annual income tax
return for the calendar year ending December 31, 1998, declaring a minimum
corporate income tax due in the amount of P4,187,523.00. Petitioner charged the
said amount against its 1997 excess credit of P13,929,793.51, leaving a balance of
P9,742,270.51. Petitioner filed with the BIR a claim for refund of its unutilized tax
credit for the year 1997 in the amount P 9,742,270.51.

On April 13, 2000, in order to toll the running of the two-year prescriptive
period and there being no immediate action on the part of the CIR, petitioner filed a
petition for review with the Court of Tax Appeals (CTA) which denied the same,
thus, the instant petition to the SC.

Issue:

Is Stateland entitled to the refund of P9,742,270.51 representing the excess


creditable withholding tax for taxable year 1997?
.
Ruling:

Commissioner of Internal Revenue is ordered to refund to petitioner the


amount of P9,742,270.51 as excess creditable withholding taxes paid for taxable
year 1997

Under Section 69 (now Section 76) of the Tax Code then in force, a
corporation entitled to a refund of excess creditable withholding tax may either
obtain the refund or credit the amount to the succeeding taxable year, thus:

Section 69. Final Adjustment Return. – Every corporation liable to tax under
Section 24 shall file a final adjustment return covering the total net income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire taxable
net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.
32
In case the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on its final adjustment
return may be credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable year.

Section 69 clearly provides that a taxable corporation is entitled to a tax


refund when the sum of the quarterly income taxes it paid during a taxable year
exceeds its total income tax due also for that year. Consequently, the refundable
amount that is shown on its final adjustment return may be credited, at its option,
against its quarterly income tax liabilities for the next taxable year. Excess income
taxes paid in a year that could not be applied to taxes due the following year may
be refunded the next year. Thus, if the excess income taxes paid in a given
taxable year have not been entirely used by a taxable corporation against its
quarterly income tax liabilities for the next taxable year, the unused amount of the
excess may still be refunded, provided that the claim for such a refund is made
within two years after payment of the tax.

Substantial justice, equity and fair play are on the side of petitioner.
Technicalities and legalisms, however exalted, should not be misused by the
government to keep money not belonging to it, thereby enriching itself at the
expense of its law-abiding citizens. Under the principle of solutio indebiti provided
in Art. 2154, Civil Code, the BIR received something "when there [was] no right to
demand it," and thus, it has the obligation to return it. Heavily militating against
respondent Commissioner is the ancient principle that no one, not even the state,
shall enrich oneself at the expense of another. Indeed, simple justice requires the
speedy refund of the wrongly held taxes.

.
(18). EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners, vs. BATHALA
MARKETING INDUSTRIES, INC., respondent. (G.R. No. 150806/ 28 January
2008)

Facts:

In May 1997, Bathala Marketing Industries, Inc., as lessee, renewed its


Contract of Lease with Ponciano L. Almeda (Ponciano) representing the lessor
over a portion of the Almeda Compound, located at 2208 Pasong Tamo Street,
Makati City, consisting of 7,348.25 square meters, for a monthly rental of
P1,107,348.69, for a term of four (4) years from May 1, 1997 unless sooner
terminated.

SIXTH - It is expressly understood by the parties hereto that the


rental rate stipulated is based on the present rate of assessment
on the property, and that in case the assessment should
33
hereafter be increased or any new tax, charge or burden be
imposed by authorities on the lot and building where the leased
premises are located, LESSEE shall pay, when the rental herein
provided becomes due, the additional rental or charge
corresponding to the portion hereby leased; provided, however,
that in the event that the present assessment or tax on said
property should be reduced, LESSEE shall be entitled to
reduction in the stipulated rental, likewise in proportion to the
portion leased by him;

After the death of Ponciano and during effectivity of the contract, the lessors
advised Bathala that Value Added Tax (VAT) on its monthly rentals shall be
collected. In response, Bathala contends that VAT may not be imposed as the
rentals fixed in the contract of lease were supposed to include the VAT therein,
considering that their contract was executed on May 1, 1997 when the VAT law
had long been in effect.

Respondent refused to pay the VAT and adjusted rentals as demanded by


petitioners but continued to pay the stipulated amount set forth in their contract.

Issue: Is Bathala subject to VAT?

Ruling:

Clearly, the person primarily liable for the payment of VAT is the lessor who
may choose to pass it on to the lessee or absorb the same. Beginning January 1,
1996, the lease of real property in the ordinary course of business, whether for
commercial or residential use, when the gross annual receipts exceed
P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment of
the 10% VAT by the lessor, the actual shifting of the said tax burden upon the
lessee is clearly optional on the part of the lessor, under the terms of the statute.
The word "may" in the statute, generally speaking, denotes that it is directory in
nature. It is generally permissive only and operates to confer discretion. In this
case, despite the applicability of the rule under Sec. 99 of the NIRC, as amended
by R.A. 7716, granting the lessor the option to pass on to the lessee the 10% VAT,
to existing contracts of lease as of January 1, 1996, the original lessor, Ponciano L.
Almeda did not charge the lessee-appellee the 10% VAT nor provided for its
additional imposition when they renewed the contract of lease in May 1997. More
significantly, said lessor did not actually collect a 10% VAT on the monthly rental
due from the lessee-appellee after the execution of the May 1997 contract of lease.
The inevitable implication is that the lessor intended not to avail of the option
granted him by law to shift the 10% VAT upon the lessee-appellee.

In short, petitioners are estopped from shifting to respondent the burden of


paying the VAT.
34
(19). PLDT vs. Commissioner of Internal Revenue
(.R. No. 157264/ 31 January 2008)

FACTS:

In 1995, PLDT terminated several rank-and-file, supervisory and executive


employees due to redundancy. In compliance with labor law requirements, it paid
them separation and other benefits. As employer and withholding agent, it
deducted from the separation pay withholding taxes in the total amount of
P23,707,909.20 which it remitted to the Bureau of Internal Revenue (BIR). On
November 20, 1997, PLDT filed with the BIR a claim for tax credit or refund of the
P23,707,909.20,alleging that the separation pay received by the employees are
exempt from payment of income tax in accordance with Section 28(b)(7)(B) of the
1977 National Internal Revenue Code. As the BIR took no action on its claim,
PLDT filed a claim for judicial refund before the Court of Tax Appeals (CTA).

CIR,on the other hand, averred that PLDT failed to show proof of payment of
separation pay and remittance of the alleged withheld taxes. The CTA denied
PLDT‟s claim ruling that it failed to sufficiently prove that the terminated employees
received separation pays and that taxes were withheld therefrom and remitted to
the BIR. It was found that the cash salary vouchers [with respect to the rank-and-
file] for the final/terminal pay did not have acknowledgement receipts. Thus, it was
held to be good only as proofs of authorization for payment and not actual
payment. Neither that proofs of payment could be derived from the “Summary of
Gross Compensation and Tax Withheld for 1995,” which PLDT submitted to
support its claim, because it enumerated the amounts of income taxes withheld on
per district/area basis. And while there was a certification [pursuant to CTA circular
1-95) from SGV that it had been able to trace the remittance, the documents from
which said finding was made were not submitted.

Issues:

(1). Is PLDT entitled to the refund?

(2). Is it essential to prove that the employees received the income payments as
part of gross income and the fact of withholding?

Ruling:

(1). Tax refunds, like tax exemptions, are construed strictly against the taxpayer
and liberally in favor of the taxing authority, and the taxpayer bears the burden of
establishing the factual basis of his claim for a refund. Under then Section 28
(b)(7)(B) [NOW Section 32(B)6(b)] of the NIRC, it is incumbent on PLDT as a
35
claimant for refund on behalf of each of the separated employees to show that
each employee did x x x reflect in his or its own return the income upon which any
creditable tax is required to be withheld at the source. Only when there is an
excess of the amount of tax so withheld over the tax due on the payee‟s return can
a refund become possible.

(2). A taxpayer must thus do two things to be able to successfully make a claim for
the tax refund: (a) declare the income payments it received as part of its gross
income and (b) establish the fact of withholding. Claims for tax credit or refund of
income tax deducted and withheld on income payments shall be given due course
only when it is shown on the return that the income payment received was
declared as part of the gross income and the fact of withholding is established by a
copy of the statement duly issued by the payer to the payee (BIR Form No. 1743.1)
showing the amount paid and the amount of tax withheld therefrom.”

While SGV, the auditing firm hired by PLDT, certified that it had "been able
to trace the remittance of the withheld taxes summarized in the C[ash] S[alary]
V[ouchers] to the Monthly Remittance Return of Income Taxes Withheld for the
appropriate period covered by the final payment made to the concerned
executives, supervisors, and rank and file staff members of PLDT,"27 the same
cannot be appreciated in PLDT's favor as the courts cannot verify such claim.
While the records of the case contain the Alphabetical List of Employee from
Whom Taxes Were Withheld for the year 1995 and the Monthly Remittance
Returns of Income Taxes Withheld for December 1995, the documents from which
SGV "traced" the former to the latter have not been presented. Failure to present
these documents is fatal to PLDT's case

(20). SILKAIR (Singapore) PTE, Ltd. vs. Commissioner of Internal Revenue


(CIR)
(G.R. No. 173594, February 6, 2008]

Facts:

Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the laws
of Singapore which has a Philippine representative office, is an online international
air carrier operating the Singapore-Cebu-Davao-Singapore, Singapore-Davao-
Cebu-Singapore, and Singapore-Cebu-Singapore routes. On December 19, 2001,
Silkair filed with the BIR a written application for the refund of excise taxes it
claimed to have paid on its purchases of jet fuel from Petron Corporation from
January to June 2000.

When the BIR did not act on Silkair‟s application, it filed petition for review
36
before the CTA based on Section 135(b) of the NIRC and Article 4(2) of the Air
Transport Agreement between the RP and the Singapore (RP-Singapore
Agreement). Silkair argues that it is exempt from indirect taxes because the RP-
Singapore Agreement grants exemption “from the same customs duties, inspection
fees and other duties or taxes imposed in the territory of the first Contracting
Party.” It invokes Maceda v. Macaraig, Jr. [G.R. No. 88291, May 31, 1991, 197
SCRA 771] which upheld the claim for tax credit or refund by the National Power
Corporation (NPC) on the ground that the NPC is exempt even from the payment
of indirect taxes.

In its answer, the CIR alleged that Silkair failed to prove that the sale of the
petroleum products was directly made from a domestic oil company to the
international carrier. The excise tax on petroleum products is the direct liability of
the manufacturer/producer, and when added to the cost of the goods sold to the
buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain
the article.

Silkair lost its case before the CTA division and CTA en banc.

Issue:

Is Silkair entitled to tax refund or credit of excise taxes it claimed to have paid on its
purchases of jet fuel from Petron?

Held:

The exemption granted under Section 135 (b) of the NIRC of 1997 and the
RP-Singapore Agreement cannot, without a clear showing of legislative intent, be
construed as including indirect taxes. Statutes granting tax exemptions must be
construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority, and if an exemption is found to exist, it must not be enlarged by
construction.

(21). M.E. Holding Corporation versus The Hon. Court of Appeals, Court of
Tax Appeals, and the Commissioner of Internal Revenue ( GR 160193/ 03
March 2008)

Facts:

This case involves R.A. 7432, otherwise known as an Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special
Privileges and for other purposes, passed on April 23, 1992, granting, among
others, a 20% sales discount on purchases of medicines by qualified senior
citizens.
37
On April 15, 1996, M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual
Income Tax Return, claiming the 20% sales discount it granted to qualified senior
citizens. M.E. treated the discount as deductions from its gross income purportedly
in accordance with R.R. 2-94 Section 2 (i) of the BIR issued on August 22, 1993.

The deductions M.E. claimed amounted to Php 603, 424.00. However, it filed the
return under protest, arguing that the discount to Senior Citizens should be treated
as tax credit under Section 4(a) of R.A. 7432, and not as mere deductions from
M.E. as gross income as provided under R.R. 2-94. On December 27, 1996, M.E.
sent BIR a letter-claim dated December 6, 1996, stating that it overpaid its income
tax owing to the BIR‟s erroneous interpretation of Section 4(a) of R.A. 7432.

Due to the inaction of the BIR, and to toll the running of the two-year prescriptive
period in filing a claim for refund, M.E. filed an appeal before the CTA. On April 25,
2000, CTA rendered a decision in favor of M.E. However, CTA reduced M.E.‟s
claim for sales discount and consequently lowered the refundable amount. It filed a
Motion for Reconsideration, which was denied. M.E. went to the CA on a petition
for review. CA dismissed the petition and the Motion for Reconsideration. M.E. filed
a petition for review to the Supreme Court.

Issues:

(1). Is the 20% discount treated as tax credit or tax deduction on the part of the
establishment granting the discount?

(2). Is the term “cost” to be claimed as tax credit ( now tax deduction) equivalent to
acquisition cost.

Ruling:

(1). The 20% sales discount to senior citizens may be claimed by an


establishment owner as tax credit. RA 7432, the applicable law, is unequivocal on
this. The implementing RR 2-94 that considers such discount as mere deductions
to the taxpayer's gross income or gross sales clearly clashes with the clear
language of RA 7432, the law sought to be implemented.

However, on February 26, 2004, RA 9257, or The Expanded Senior Citizens


Act of 2003, amending RA 7432, was signed into law, ushering in, upon its
effectivity on March 21, 2004, a new tax treatment for sales discount purchases of
qualified senior citizens of medicines. Sec. 4(a) of RA 9257 provides:

SEC. 4. Privileges for the Senior Citizens. – The senior citizens shall be
entitled to the following:

38
(a) the grant of twenty percent (20%) discount from all establishments relative to
the utilization of services in hotels and similar lodging establishments, restaurants
and recreation centers, and purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, x x x;
xxxx

The establishment may claim the discounts granted under (a), (f), (g) and (h) as
tax deduction based on the net cost of the goods sold or services rendered:
Provided, That the cost of the discount shall be allowed as deduction from gross
income for the same taxable year that the discount is granted. Provided, further,
That the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall
be subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended.

Thus, starting taxable year 2004, the 20% sales discount granted by
establishments to qualified senior citizens is to be treated as tax deduction, no
longer as tax credit.

(2). In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v.


Commissioner of Internal Revenue, we interpreted the term "cost" found in Sec.
4(a) of RA 7432 as referring to the amount of the 20% discount extended by a
private establishment to senior citizens in their purchase of medicines. There
we categorically said that it is the Government that should fully shoulder the cost of
the sales discount granted to senior citizens. The word "cost" shall not mean the
theoretical acquisition cost of the medicines purchased by qualified senior citizens.
Accordingly, M.E. is entitled to a tax credit equivalent to the actual 20% sales
discount it granted to qualified senior citizens.

(22). Bank of Philippine Islands (formerly Far East Bank and Trust Company)
versus The Commissioner of Internal Revenue ( GR 174942/ 07 March 2008)

Facts:

BPI was issued a Pre-Assessment Plan (PAN) and it requested for the details of
the alleged deficiency taxes. On April 7, 1989, BIR issued an
“assessment/demand notices” for deficiency withholding tax at source (SWAP
transactions) and DST for the years 1982-1986.

On April 20, 1989, BPI filed a protest on the demand/assessment notices. It also
filed a supplemental protest on May 8, 1989. On March 12, 1993, BPI requested
for an opportunity to present or submit additional documentation on the SWAP

39
transactions. It also executed several waivers of the Statute of Limitations the last
of which was effective until December 31, 1994.
On August 9, 2002, CIR issued a final decision on BPI‟s protest ordering the
withdrawal and cancellation of the deficiency withholding tax assessment and
considering the same as closed and terminated. On the other hand, the deficiency
DST assessment was reiterated and BPI was ordered to pay the deficiency DST
within 30 days from receipt of such order. The petition for review was denied, thus,
the present action before the SC.

Issues: Does a motion for reinvestigation filed by a taxpayer, not acted upon by
the BIR, suspend the prescriptive period of assessment and collection?

Ruling:

In order to determine whether the prescriptive period for collecting the tax
deficiency was effectively tolled by BPI‟s filing of the protest letters dated 20 April
and 8 May 1989 as claimed by the CIR, we need to examine Section 320 of the
Tax Code of 1977, which states:

Sec. 320. Suspension of running of statute.—The running of the statute of


limitations provided in Sections 318 or 319 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner
is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests for
a re-investigation which is granted by the Commissioner; when the taxpayer
cannot be located in the address given by him in the return filed upon which a tax
is being assessed or collected: Provided, That if the taxpayer informs the
Commissioner of any change in address, the running of the statute of limitations
will not be suspended; when the warrant of distraint and levy is duly served upon
the taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the taxpayer is
out of the Philippines. (Emphasis supplied)

The above section is plainly worded. In order to suspend the running of the
prescriptive periods for assessment and collection, the request for
reinvestigation must be granted by the CIR. In this case, BPI‟s letters of protest
and submission of additional documents pertaining to its SWAP transactions,
which were never even acted upon, much less granted, cannot be said to have
persuaded the CIR to postpone the collection of the deficiency DST. There is
nothing in the records of this case which indicates, expressly or impliedly, that the
CIR had granted the request for reinvestigation filed by BPI. What is reflected in
the records is the piercing silence and inaction of the CIR on the request for
reinvestigation, as he considered BPI‟s letters of protest to be.

40
The inordinate delay of the CIR in acting upon and resolving the request for
reinvestigation filed by BPI and in collecting the DST allegedly due from the latter
had resulted in the prescription of the government‟s right to collect the deficiency.
As this Court declared in Republic of the Philippines v. Ablaza,
the law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because
tax officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse
to inspect the books of taxpayers, not to determine the latter‟s real liability, but to
take advantage of every opportunity to molest peaceful, law-abiding citizens.
Without such a legal defense taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment
by unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficent purpose
of affording protection to the taxpayer within the contemplation of the Commission
which recommend the approval of the law.

( 23) Commissioner of Internal Revenue versus Central Luzon Drug


Corporation (LUZON)
( GR No. 159610/ 12 June 2008)

Facts:

LUZON, operating eight drugstores under the business name and style "Mercury
Drug., granted 20% sales discount in the total amount of P 2.798 million to
qualified Senior Citizens on their purchases of medicines covering the calendar
year 1997. It subsequently filed under protest its 1997 Corporate Annual Income
Tax Return reflecting a nil income tax liability due to alleged net loss incurred from
business operations of P 2.4 million.
On 19 March 1999, LUZON filed a claim for refund or credit of alleged overpaid
income tax for the taxable year 1997 in the amount of P2,660,829.00 on the
ground that the overpaid tax was the result of the wrongful implementation of RA
7432. Respondent treated the 20% sales discount as a deduction from gross sales
in compliance with RR 2-94 instead of treating it as a tax credit as provided under
Section 4(a) of RA 7432.

Issues:

Is the 20% discount to senior citizens treated as tax credit deductible from future
tax liabilities OR tax deduction from the gross income or gross sales of the
establishment?

Ruling:
41
The 20% senior citizens' discount required by RA 7432 may be claimed as a
tax credit and not merely a tax deduction from gross sales or gross income. Under
RA 7432, Congress granted the tax credit benefit to all covered establishments
without conditions. The net loss incurred in a taxable year does not preclude the
grant of tax credit because by its nature, the tax credit may still be deducted from a
future, not a present, tax liability. However, the senior citizens' discount granted as
a tax credit cannot be refunded.

However, RR 2-94 on the said RA 7432 interpreted the tax credit provision
as the amount representing 20% discount granted to a qualified senior citizen
by all establishments relative to their utilization of transportation services, hotels
and similar lodging establishments, restaurants, drugstores, recreation centers,
theaters, cinema houses, concert halls, circuses, carnivals and other similar places
of culture, leisure and amusement, which discount shall be deducted by the
said establishments from their gross income for income tax purposes and
from their gross sales for value-added tax or other percentage tax purposes. For
recording/bookkeeping requirement, the amount of 20% discount shall be
deducted from the gross income for income tax purposes and from gross
sales of the business enterprise concerned for purposes of the VAT and other
percentage taxes.

Tax credit is defined as a peso-for-peso reduction from a taxpayer's tax


liability. It is a direct subtraction from the tax payable to the government. On the
other hand, RR 2-94 treated the amount of senior citizens' discount as a tax
deduction which is only a subtraction from gross income resulting to a lower
taxable income. RR 2-94 treats the senior citizens' discount in the same manner as
the allowable deductions provided in Section 34, Chapter VII of the National
Internal Revenue Code. RR 2-94 affords merely a fractional reduction in the taxes
payable to the government depending on the application. When the law says that
the cost of the discount may be claimed as a tax credit, it means that the amount-
when claimed ― shall be treated as a reduction from any tax liability, plain and
simple." The law (RA 7432) cannot be amended by a mere regulation because
"administrative agencies in issuing these regulations may not enlarge, alter or
restrict the provisions of the law it administers; it cannot engraft additional
requirements not contemplated by the legislature." Hence, there being a dichotomy
in the law and the revenue regulation, the definition provided in Section 2(i) of RR
2-94 cannot be given effect.

Prior payment of tax liability is not a pre-condition before a taxable entity can
avail of the tax credit. The Court declared, "Where there is no tax liability or where
a private establishment reports a net loss for the period, the tax credit can be
availed of and carried over to the next taxable year." It is irrefutable that under RA
7432, Congress has granted the tax credit benefit to all covered establishments
42
without conditions. Therefore, neither a tax liability nor a prior tax payment is
required for the existence or grant of a tax credit. Thus, LUZON is entitled to claim
the amount of P2,376,805.63 as tax credit despite incurring net loss from business
operations for the taxable year 1997.

NOTE: Contrary to the provision in RA 7432 (old law) where the senior citizens'
discount granted by all covered establishments can be claimed as tax credit, RA
9257 now specifically provides that this discount should be treated as tax
deduction. With the effectivity of RA 9257 on 21 March 2004, there is now a new
tax treatment for senior citizens' discount granted by all covered establishments.
This discount should be considered as a deductible expense from gross income
and no longer as tax credit.

(24). COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. FMF


DEVELOPMENT CORPORATION, respondent. ( G.R. No. 167765/ 30 June
2008)

Facts:

On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for
taxable year 1995 and declared a loss of P3,348,932. On May 8, 1996, it filed an
amended return and declared a loss of P2,826,541. The BIR then sent FMF pre-
assessment notices, all dated October 6, 1998, informing it of its alleged tax
liabilities. FMF filed a protest against these notices with the BIR and requested for
a reconsideration/reinvestigation.

On January 22, 1999, Revenue District Officer (RDO) Rogelio Zambarrano


informed FMF that the reinvestigation had been referred to Revenue Officer
Alberto Fortaleza. He also advised FMF of the informal conference set on February
2, 1999 to allow it to present evidence to dispute the BIR assessments. On
February 9, 1999, FMF President Enrique Fernandez executed a waiver of the
three-year prescriptive period for the BIR to assess internal revenue taxes, hence
extending the assessment period until October 31, 1999. The waiver was accepted
and signed by RDO Zambarrano.

On October 18, 1999, FMF received amended pre-assessment notices


dated October 6, 1999 from the BIR. FMF immediately filed a protest on November
3, 1999 but on the same day, it received BIR‟s Demand Letter and Assessment
Notice No. 33-1-00487-95 dated October 25, 1999 reflecting FMF‟s alleged
deficiency taxes and accrued interests
43
On November 24, 1999, FMF filed a letter of protest on the assessment
invoking the defense of prescription by reason of the invalidity of the waiver. In its
reply, the BIR insisted that the waiver is valid because it was signed by the RDO, a
duly authorized representative of petitioner. It also ordered FMF to immediately
settle its tax liabilities; otherwise, judicial action will be taken. Treating this as BIR‟s
final decision, FMF filed a petition for review with the CTA challenging the validity
of the assessment.

Issues:

(1). Is there a valid waiver?

(2). Has the three year period to assess prescribed?

Ruling:

The original three year period to assess maybe extended by the execution of
a valid waiver, where the taxpayer and the BIR agreed in writing that the period to
issue an assessment and collect the taxes due is extended to an agreed upon
date. Under RMO No. 20-90, which implements Sections 203 and 222 (b), the
following procedures should be followed:

1. The waiver must be in the prescribed form ;

2. The waiver shall be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials. Soon after the waiver is signed by the taxpayer, the
Commissioner of Internal Revenue or the revenue official authorized by him, as
hereinafter provided, shall sign the waiver indicating that the Bureau has accepted
and agreed to the waiver. The date of such acceptance by the Bureau should
be indicated. Both the date of execution by the taxpayer and date of acceptance
by the Bureau should be before the expiration of the period of prescription or
before the lapse of the period agreed upon in case a subsequent agreement is
executed.

3. The waiver should be signed by the designated BIR officers.

4. The waiver must be executed in three (3) copies, the original copy to
be attached to the docket of the case, the second copy for the taxpayer and the
third copy for the Office accepting the waiver. The fact of receipt by the taxpayer
of his/her file copy shall be indicated in the original copy.

44
5. The foregoing procedures shall be strictly followed. Any revenue
official found not to have complied with this Order resulting in prescription of the
right to assess/collect shall be administratively dealt with.

Applying RMO No. 20-90, the waiver in question here was defective and did
not validly extend the original three-year prescriptive period. Firstly, it was not
proven that respondent was furnished a copy of the BIR-accepted waiver.
Secondly, the waiver was signed only by a revenue district officer, when it should
have been signed by the Commissioner as mandated by the NIRC and RMO No.
20-90, considering that the case involves an amount of more than P1 million, and
the period to assess is not yet about to prescribe. Lastly, it did not contain the date
of acceptance by the Commissioner of Internal Revenue, a requisite necessary to
determine whether the waiver was validly accepted before the expiration of the
original three-year period. Bear in mind that the waiver in question is a bilateral
agreement, thus necessitating the very signatures of both the Commissioner and
the taxpayer to give birth to a valid agreement.

(2). In fine, Assessment Notice No. 33-1-00487-95 dated October 25, 1999, was
issued beyond the three-year prescriptive period. The waiver was incomplete and
defective and thus, the three-year prescriptive period was not tolled nor extended
and continued to run until April 15, 1999. Even if the three-year period be counted
from May 8, 1996, the date of filing of the amended return, assuming the amended
return was substantially different from the original return, a case which affects the
reckoning point of the prescriptive period, still, the subject assessment is definitely
considered time-barred.

(25) COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. PERF


REALTY CORPORATION, RESPONDENT ( GR No. 163345/ 04 July 2008)

Facts:

On April 14, 1998, PERF filed its Annual Income Tax Return (ITR) for the year
1997 showing a net taxable income in the amount of P6,430,345.00 and income
tax due of P2,250,621.00. For the year 1997, its tenants, Philamlife and Read-Rite,
withheld and subsequently remitted creditable withholding taxes in the total amount
of P3,531,125.00. After deducting the creditable withholding taxes from its total
income tax due of P2,250,621.00, PERF showed in its 1997 ITR an overpayment
of income taxes in the amount of P1,280,504.00.

On November 3, 1999, PERF filed an administrative claim with the appellate


division of the BIR for refund of overpaid income taxes in the amount of
P1,280,504.00. On December 3, 1999, due to the inaction of the BIR, PERF filed a
petition for review with the Court of Tax Appeals (CTA) seeking for the refund of
the overpaid income taxes in the amount of P1,280,504.00. The CTA denied the
petition, a motion for reconsideration was filed and likewise was denied. PERF filed
45
a petition for review with the CA. The CA ruled in favor of PERF ordering the CIR,
petitioner to refund the said overpayment. CIR filed a motion for reconsideration
which was denied by the CA. Hence, this petition.

Issues:

(1). Did PERF comply with the requisites for refund?

(2). Is the failure of the taxpayer to indicate in the return its option to claim for
refund or credit material?

Ruling:

The requisites for a claim for refund, are:

(a) That the claim for refund was filed within the two (2) year period as prescribed
under Section 230 of the National Internal Revenue Code;

(b) That the income upon which the taxes were withheld were included in the return
of the recipient;

(c ) That the fact of withholding is established by a copy of a statement (BIR Form


1743.1) duly issued by the payor (withholding agent) to the payee, showing the
amount paid and the amount of tax withheld therefrom.

PERF filed its administrative and judicial claims for refund on November 3,
1999 and December 3, 1999, respectively, which are within the two-year
prescriptive period under Section 230 (now 229) of the National Internal Tax Code.
Based on the records, PERF presented certificates of creditable withholding tax at
source reflecting creditable withholding taxes in the amount of P4,153,604.18
withheld from PERF's rental income of P83,072,076.81 (Exhibits B, C, D, E, and
H). In addition, it submitted in evidence the Monthly Remittance Returns of its
withholding agents to prove the fact of remittance of said taxes to the BIR.
Although the certificates of creditable withholding tax at source for 1997 reflected a
total amount of P4,153,604.18 corresponding to the rental income of
P83,072,076.81, PERF is claiming only the amount of P3,531,125.00 pertaining to
a rental income of P70,813,079.00. The amount of P3,531,125.00 less the income
tax due of PERF of P2,250,621.00 leaves the refundable amount of
P1,280,504.00.

It is settled that findings of fact of the CTA are entitled to great weight and
will not be disturbed on appeal unless it is shown that the lower courts committed
gross error in the appreciation of facts. We see no cogent reason not to apply the
same principle here.

46
(2). The failure of respondent to indicate its option in its annual ITR to avail itself of
either the tax refund or tax credit is not fatal to its claim for refund.

Section 76 of the NIRC offers two options: (1) filing for tax refund and (2) availing
of tax credit. The two options are alternative and the choice of one precludes the
other. Failure to indicate a choice, however, will not bar a valid request for a
refund, should this option be chosen by the taxpayer later on. The requirement is
only for the purpose of easing tax administration particularly the self-assessment
and collection aspects. In this case, PERF did not mark the refund box in its 1997
FAR. Neither did it perform any act indicating that it chose tax credit. In fact, in its
1998 ITR, PERF left blank the portion "Less: Tax Credit/ Payments."

That action coupled with the filing of a claim for refund indicates that PERF opted
to claim a refund. Under these circumstances, PERF is entitled to a refund of its
1997 excess tax credits in the amount of P1,280,504.00.

(26).SILKAIR (SINGAPORE) PTE. LTD., petitioner, vs. COMMISSIONER OF


INTERNAL REVENUE, respondent. (G.R. Nos. 171383 & 172379/ 14 November
2008)

Facts:
This pertains to the motion for reconsideration of the earlier decision of the
Supreme Court denying the claim for refund or issuance of TCC‟s for the excise
taxes paid by Silkair for the purchase of aviation jet fuel from Petron from 1
January 1999 to 30 June 1999.. In another case, Silkair claims for refund or
issuance of TCC‟s for the excise taxes for the period 1 July 1999 to 31 December
1999.

Issue: Who is entitled to claim for the refund of the excise taxes?

Ruling:

When Petron removes its petroleum products from its refinery in Limay,
Bataan, it pays the excise tax due on the petroleum products thus removed.
Petron, as manufacturer or producer, is the person liable for the payment of the
excise tax as shown in the Excise Tax Returns filed with the BIR. Stated otherwise,
Petron is the taxpayer that is primarily, directly and legally liable for the payment of
the excise taxes. However, since an excise tax is an indirect tax, Petron can
transfer to its customers the amount of the excise tax paid by treating it as part of
the cost of the goods and tacking it on to the selling price.

The excise tax is due from the manufacturers of the petroleum products and
is paid upon removal of the products from their refineries. Even before the aviation
jet fuel is purchased from Petron, the excise tax is already paid by Petron. Petron,
47
being the manufacturer, is the "person subject to tax." In this case, Petron, which
paid the excise tax upon removal of the products from its Bataan refinery, is the
"person liable for tax." Petitioner is neither a "person liable for tax" nor "a person
subject to tax." There is also no legal duty on the part of petitioner to pay the excise
tax; hence, petitioner cannot be considered the taxpayer.

Even if the tax is shifted by Petron to its customers and even if the tax is
billed as a separate item in the aviation delivery receipts and invoices issued to its
customers, Petron remains the taxpayer because the excise tax is imposed directly
on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is the
proper party that can claim the refund of the excise taxes paid to the BIR.

(27). CJH DEVELOPMENT CORPORATION, petitioner, vs. BUREAU OF


INTERNAL REVENUE, BUREAU OF CUSTOMS, and DISTRICT COLLECTOR
OF CUSTOMS EDWARD O. BALTAZAR, respondents. (G.R. No. 172457/ 24
December 2008)

Facts:

Proclamation No. 420 (the Proclamation) was issued by then President Fidel
V. Ramos to create a Special Economic Zone (SEZ) in a portion of Camp John
Hay (CJH) in Baguio City. Section 3 of the Proclamation granted to the newly
created SEZ the same incentives then already enjoyed by the Subic SEZ. Among
these incentives are the exemption from the payment of taxes, both local and
national, for businesses located inside the SEZ, and the operation of the SEZ as a
special customs territory providing for tax and duty free importations of raw
materials, capital and equipment.

In the previous case of John hay Peoples Alternative Coalition vs. Lim, the
Supreme Court in its decision dated October 24, 2003 declared the aforesaid
Section 3 of Proclamation No. 420 as null and void and of no legal force and effect.

In the meantime, Office of the City Treasurer of Baguio sent a demand letter
requiring payment of real estate tax. The Bureau of Customs followed suit by
requiring the payment of duties and taxes on all importations of Camp John Hay.
CJH filed a petition for declaratory relief questioning the assessment issued by the
BOC, the retroactive application by the BOC of the decision of the Supreme Court
in the earlier case and further claimed that the assessment was null and void
because it violated the non-retroactive principle under the Tariff and Customs
Code.

48
Issues:

(1). Is the remedy of declaratory relief proper?

(2). Can the decision in G.R. No. 119775 be applied retroactively?

Ruling:

(1). The requisites for a petition for declaratory relief to prosper are: (a) there must
be a justiciable controversy; (b) the controversy must be between persons whose
interests are adverse; (c) the party seeking declaratory relief must have a legal
interest in the controversy; and (d) the issue involved must be ripe for judicial
determination.

CJH alleges that CA No. 55 has already been repealed by the Rules of
Court; thus, the remedy of declaratory relief against the assessment made by the
BOC is proper. As a substantive law that has not been repealed by another statute,
CA No. 55 is still in effect and holds sway. Precisely, it has removed from the
courts‟ jurisdiction over petitions for declaratory relief involving tax assessments.
The Court cannot repeal, modify or alter an act of the Legislature.

Moreover, the proper subject matter of a declaratory relief is a deed, will,


contract, or other written instrument, or the construction or validity of statute or
ordinance. CJH hinges its petition on the demand letter or assessment sent to it by
the BOC. However, it is really not the demand letter which is the subject matter of
the petition.

(2). A petition for declaratory relief cannot properly have a court decision as its
subject matter. There are other remedies available to a party who is not agreeable
to a decision whether it be a question of law or fact. If it involves a decision of an
appellate court, the party may file a motion for reconsideration or new trial in order
that the defect may be corrected. In case of ambiguity of the decision, a party may
file a motion for a clarificatory judgment. One of the requisites of a declaratory relief
is that the issue must be ripe for judicial determination. This means that litigation is
inevitable or there is no adequate relief available in any other form or proceeding.

CJH is not left without recourse. The Tariff and Customs Code (TCC)
provides for the administrative and judicial remedies available to a taxpayer who is
minded to contest an assessment, subject of course to certain reglementary
periods. The TCC provides that a protest can be raised provided that payment first
be made of the amount due. The decision of the Collector can be reviewed by the
Commissioner of Customs who can approve, modify or reverse the decision or
action of the Collector.31 If the party is not satisfied with the ruling of the
Commissioner, he may file the necessary appeal to the Court of Tax Appeals. 32
Afterwards, the decision of the Court of Tax Appeals can be appealed to this Court.
49
( c ) 2009 CASES

(28). DAVAO ORIENTAL ELECTRIC COOPERATIVE, INC., Petitioner, vs. THE


PROVINCE OF DAVAO ORIENTAL, Respondent. (G.R. No. 170901/ 20 January
2009)

Facts:

Under PD 269, Davao Oriental Electric Cooperative, Inc. (DAVAO) an


electric cooperative, is granted a number of tax and duty exemption privileges to
electric cooperatives.Then Pres Marcos issued PD No. 1955, withdrawing all
exemptions from or any preferential treatment in the payment of duties, taxes, fees,
imposts, and other charges granted to private business enterprises and/or persons
engaged in any economic activity.

It then failed to declare the value of its properties and the Office of the
Provincial Assessor assessed its properties and in 1985, the Provincial Assessor
sent the Notice of Assessment to petitioner which duly received it.

In the same year of 1985, several memoranda were then issued reiterating
the withdrawal of the exemption. In 1986, then Pres. Marcos issued PD No. 2008,
requiring the Minister of Finance to immediately restore the tax exemption of all
electric cooperatives. However, in the same year of 1986, then Pres. Corazon C.
Aquino issued Executive Order (EO) No. 93 which withdrew all tax and duty
exemptions granted to private entities effective March 10, 1987.

In Memorandum Order No. 65, dated January 23, 1987, the implementation
of the EO 93 was suspended until June 30, 1987 and effective July 1, 1987, FIRB
No. 24-87 restored the tax and duty exemption privileges of electric cooperatives
under PD No. 269. FIRB Resolution No. 24-87 explicitly reads, among others that
the tax exemption of electric cooperatives is restored effective 01 July 1987.

In May 1990, the LGU filed a complaint for collection of delinquent real
property taxes against DAVAO for the years 1984 until 1989, amounting to one
million eight hundred twenty-five thousand nine hundred twenty-eight pesos and
twelve centavos (P1,825,928.12). DAVAO contends that it was exempt from the
payment of real estate taxes from 1984 to 1989 because the restoration of tax
exemptions under FIRB Resolution No. 24-87 retroacts to the date of withdrawal of
said exemptions. It further questions the classification made by the LGU of some of
its properties as real properties when it believes them to be personal properties,
hence, not subject to realty tax.

Issues:
50
(1). Is the cooperative exempt from payment of tax?

(2). How do we construe tax exemption?

(3). Are the assets of the electric cooperative real or personal properties?

Ruling:

(1). A cursory reading of the resolution restoring the exemption bares no indicia of
retroactivity of its application. FIRB Resolution No. 24-87 is crystal clear in stating
that "the tax and duty exemption privileges of electric cooperatives granted under
the terms and conditions of Presidential Decree No. 269 . . . are restored effective
July 1, 1987." There is no other way to construe it. The language of the law is plain
and unambiguous. When the language of the law is clear and unequivocal, the law
must be taken to mean exactly what it says.

(2). Taxes are the lifeblood of the nation, the court has always applied the doctrine
of strict interpretation in construing tax exemptions. A claim for exemption from tax
payments must be clearly shown and be based on language in the law too plain to
be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the
exception

(3). DAVAO contests the assessment of its properties claiming that the tax
declarations covering its properties were issued without prior consultation, and
without its knowledge and consent. In addition, it assails the classification of its
poles, towers and fixtures, overhead conductors and devices, station equipment,
line transformers, etc. as real properties "when by [their] nature, use, purpose, and
destination and by substantive law and jurisprudence, they are personal
properties." However, petitioner does not deny having duly received the two
Notices of Assessment dated October 8, 1985 on October 10, 1985. It also admits
that it did not file a protest before the Board of Assessment Appeals to question the
assessment.

Having failed to appeal the assessment of its properties to the Board of


Assessment Appeals within the period of 60 days in accordance with 30 PD 464,
from receipt of assessment, DAVAO cannot now assail the validity of the tax
assessment against it before the courts. It failed to exhaust its administrative
remedies, and the consequence for such failure is clear – the tax assessment, as
computed and issued by the Office of the Provincial Assessor, became final.
Petitioner is deemed to have admitted the correctness of the assessment of its
properties. In addition, Section 64 of PD No. 464 requires that the taxpayer must
first pay under protest the tax assessed against him before he could seek recourse
from the courts to assail its validity.

51
(29). COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. UNITED
INTERNATIONAL PICTURES, AB, Respondent. (G.R. No. 169565 January 21,
2009)

Issue: Findings of Facts by the CTA;


Facts:

On April 14, 1998, respondent United International Pictures filed a petition for
review in the Court of Tax Appeals (CTA) (CTA Case No. 5618) asking for the
refund of its excess income tax payments in 1996 amounting to P5,791,194.

While the said petition was pending, respondent filed an administrative claim
for refund of its excess income tax payments in 1997 amounting to P4,578,574 in
Revenue District Office No. 34 of the Bureau of Internal Revenue (BIR). Thus, as
of June 23, 1998, it‟s claim for refund totaled P10,369,768.

On October 1, 1999, the CTA rendered a decision in CTA Case No. 5618
ordering Commissioner of Internal Revenue to deduct respondent‟s 1996 tax
liability from the amount claimed and to refund (or to issue tax credit certificates) in
the amount of P4,007,357. Neither party assailed the decision; thus, it attained
finality. In view of the decision in CTA Case No. 5618, United Pictures revised its
pending administrative claim for refund. It added the amount of its 1996 tax liability
(or P1,748,669) and claimed the creditable tax withheld in 1997 (or P6,327,243) as
the amount of total refund. Because the BIR failed to act on its administrative
claim, it filed a petition for review in the CTA on March 15, 2000.7

After trial, the CTA found that United Pictures complied with all the
requirements for the refund of creditable withholding taxes. Nonetheless, in
comparing respondent‟s 1997 income tax return and the certificate of tax withheld
issued by its withholding agent, it found that United Pictures understated its
income. Thus, the CTA granted the petition but ordered the BIR to refund (or to
issue tax credit certificates) only to the extent of P6,285,892.05.

Aggrieved, BIR filed a petition for certiorari in the Court of Appeals (CA)
asserting that the CTA committed grave abuse of discretion when it granted United
Pictures a tax refund. However, the CA affirmed the findings of the CTA and
dismissed the petition.

Issue:

What is the treatment of CTA findings of facts?

Ruling:

52
Under our tax system, the CTA is a highly specialized body that reviews tax
cases. For this reason, its findings of fact are binding on the Court unless such
findings are not supported by substantial evidence. The CTA concluded that United
Pictures was entitled to refund but only to the extent of P6,285,892.05. As pointed
out by the CA, the CTA exhaustively explained why it granted the refund albeit less
than what respondent claimed. There is no reason to disturb the CTA‟s findings of
fact.

(30). NATIONAL POWER CORPORATION, Petitioner, vs.CENTRAL BOARD OF


ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT
APPEALS (LBAA) OF LA UNION, PROVINCIAL TREASURER, LA UNION and
MUNICIPAL ASSESSOR OF BAUANG, LA UNION, Respondents. ( G.R. No.
171470/ 30 January 2009)

Facts:

On January 11, 1993, First Private Power Corporation (FPPC) entered into a
BOT agreement with NAPOCOR for the construction of the 215 Megawatt Bauang
Diesel Power Plant in Payocpoc, Bauang, La Union. The BOT Agreement
provided, via an Accession Undertaking, for the creation of the Bauang Private
Power Corporation (BPPC) that will own, manage and operate the power
plant/station, and assume and perform FPPC‟s obligations under the BOT
agreement. For a fee, BPPC will convert NAPOCOR‟s supplied diesel fuel into
electricity and deliver the product to NAPOCOR.

The Municipal Assessor of Bauang then issued a Notice of Assessment and


Tax Bill to BPPC assessing/taxing the machineries and equipments. On October 5,
1998, NAPOCOR filed a petition (styled In Re Petition to Declare Exempt the
Revised and Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037)
with the LBAA. The petition asked that, retroactive to 1995, the machineries
covered by the tax declarations be exempt from real property tax under Section
234(c) of Republic Act No. 7160 (the Local Government Code or LGC); and, that
these properties be dropped from the assessment roll pursuant to Section 206 of
the LGC. Section 234(c) of the LGC.

The LBAA denied NAPOCOR‟s petition for exemption. NAPOCOR elevated


the issue to CBAA NAPOCOR appealed the LBAA ruling to the CBAA. BPPC
moved to intervene on the ground that it has a direct interest in the outcome of the
litigation. The CBAA subsequently dismissed the appeal based on its finding that
the BPPC, and not NAPOCOR, is the actual, direct and exclusive user of the
equipment and machineries; thus, the exemption under Section 234(c) does not
apply.

Issues:
53
(1). What is the Real property tax implications of a Build-Operate-Transfer (BOT)
agreement between a government-owned and controlled corporation (GOCC) that
enjoys tax exemption and a private corporation?

(2). Under the terms of the BOT Agreement, can the GOCC be deemed the actual,
direct, and exclusive user of machineries and equipment for tax exemption
purposes?

(3). If not, can it pass on its tax-exempt status to its BOT partner, a private
corporation, through the BOT agreement

Ruling:

NAPOCOR‟s basis for its claimed exemption – Section 234(c) of the LGC –
is clear and not at all ambiguous in its terms. Exempt from real property taxation
are: (a) all machineries and equipment; (b) [that are] actually, directly, and
exclusively used by; (c) [local water districts and] government-owned or –controlled
corporations engaged in the [supply and distribution of water and/or] generation
and transmission of electric power.

In FELS Energy, Inc. v. The Province of Batangas (that was consolidated


with NAPOCOR v. Local Board of Assessment Appeals of Batangas, et al.), the
Province of Batangas assessed real property taxes against FELS Energy, Inc. –
the owner of a barge used in generating electricity under an agreement with
NAPOCOR. Their agreement provided that NAPOCOR shall pay all of FELS‟ real
estate taxes and assessments. We concluded in that case that we could not
recognize the tax exemption claimed, since NAPOCOR was not the actual, direct
and exclusive user of the barge as required by Sec. 234 (c).

Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception. The law does not look with favor on tax exemptions
and the entity that would seek to be thus privileged must justify it by words too
plain to be mistaken and too categorical to be misinterpreted. Thus, applying the
rule of strict construction of laws granting tax exemptions, and the rule that doubts
should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the


Agreement, that it shall be responsible for the payment of all real estate taxes and
assessments, does not justify the exemption. The privilege granted to petitioner
NPC cannot be extended to FELS. The covenant is between FELS and NPC and
does not bind a third person not privy thereto, in this case, the Province of
Batangas.

54
Consistent with the BOT concept and as implemented, BPPC – the owner-
manager-operator of the project – is the actual user of its machineries and
equipment. BPPC‟s ownership and use of the machineries and equipment are
actual, direct, and immediate, while NAPOCOR‟s is contingent and, at this stage of
the BOT Agreement, not sufficient to support its claim for tax exemption.

(31). PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS


BANK, INC.), Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
Respondent.
(G.R. No. 170574/ 30 January 2009)

Facts:

PBCORP is a domestic corporation duly licensed as a banking institution


which offered for the taxable years 1996 and 1997 "Special/Super Savings Deposit
Account" SSDA to its depositors. The SSDA is a form of a savings deposit
evidenced by a passbook and earning a higher interest rate than a regular savings
account. CIR assessed the bank of deficiency documentary stamp taxes (DST) for
the taxable years 1996 and 1997, respectively, on SSDA.

The bank maintains that the tax assessments are erroneous because
Section 180 of the 1977 NIRC does not include deposits evidenced by a passbook
among the enumeration of instruments subject to DST. Petitioner asserts that the
language of the law is clear and requires no interpretation. Section 180 of the 1977
NIRC, as amended and in particular merely refers to certificates of deposits
drawing interest, It further insists that the SSDA, being issued in the form of a
passbook, cannot be construed as a certificate of deposit subject to DST under
Section 180 of the 1977 NIRC. Petitioner explains that the SSDA is a necessary
offshoot of the deregulated interest rate regime in bank deposits.

Issue:

Is the SSDA product considered as “certificate of deposit drawing interest " as used
in Section 180 of the 1977 NIRC and therefore subject to DST?

Ruling:

Based on these features, it is clear that the SSDA is a certificate of deposit


drawing interest subject to DST even if it is evidenced by a passbook and non-
negotiable in character:

1. Although the money placed in the SSDA can be withdrawn anytime, the money
is subject to a holding period in order to earn a higher interest rate. Otherwise, in
case of premature withdrawal, the depositor will not earn the preferred interest

55
ranging from 8% or higher but only the normal interest rate on regular savings
deposit.

2. In order to qualify for an SSDA, the depositor must place a substantial amount of
money of not less than P50,000. This amount is even larger than what is needed to
open a time deposit which is P20,000. Aside from the substantial amount of money
required, this amount must be maintained within a certain period just like a time
deposit.

3. On the issue of penalty, in an SSDA, if the depositor withdraws the money and
the balance falls below the "minimum balance" of P50,000, the interest is reduced.
This condition is identical to that imposed on a time deposit that is withdrawn
before maturity. 53

(32). Agencia Exquisite of Bohol, Inc. vs. Commissioner of Internal Revenue


(GR 150141/ 12 February 2009); Commissioner of Internal Revenue versus
Agencia Exquisite of Bohol, Inc. ( GR 157359/ 12 February 2009); Exquisite
Pawnshop and Jewelry, Inc. vs. Commissioner of Internal Revenue ( G.R No.
158644/ 12 February 2009)

Facts:

On March 11, 1991, then Commissioner of Internal Revenue Jose U. Ong issued
Revenue Memorandum Order (RMO) No. 15-91 classifying the pawnshop
business as akin to the lending investor‟s business activity "which is broad enough
to encompass the business of lending money at interest by any person whether
natural or juridical" and imposing on both a 5% lending investor's tax based on
their gross income, pursuant to then Section 116 of the National Internal Revenue
Code of 1977, as amended.

Pursuant to these issuances, the Bureau of Internal Revenue (BIR) issued


Assessment Notice No. 84-PT-13-95-98-5-0-63, dated April 20, 1998, against
Agencia Exquisite of Bohol, Inc. (AEBI) demanding payment in the sum of
P106,538.59 representing the 5% lending investors‟ tax for 1995, plus interest and
charges

On June 28, 1998, AEBI filed its Administrative Protest which the BIR Revenue
Regional Director denied in a Letter-Decision dated February 3, 1999.
Subsequently the issue reached the Supreme Court.

Issue:
56
Are pawnshops subject to 5% gross income lending investor‟s tax?

Ruling:

In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., this


Court held that pawnshops are not included in the term lending investors for the
purpose of imposing the 5% percentage tax under then Section 116 of the National
Internal Revenue Code of 1977, as amended by Executive Order No. 273. Thus,
while pawnshops are indeed engaged in the business of lending money, they
cannot be deemed "lending investors" for the purpose of imposing the 5% lending
investor‟s tax.

Again, in Commissioner of Internal Revenue v. Trustworthy Pawnshop, Inc., this


Court reiterated its ruling in Lhuillier that pawnshops are not included in the term
lending investors for the purpose of imposing the 5% percentage tax.

(33). LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE


LOS REYES, in their capacities as President, Treasurer and Secretary of
Adamson Management Corporation, Petitioners, vs. COURT OF APPEALS
and LIWAYWAY VINZONS-CHATO, in her capacity as Commissioner of the
Bureau of Internal Revenue, Respondents.
(G.R. No. 120935/May 21, 2009)

INTERNAL REVENUE, Petitioner, vs. COMMISSIONER OF COURT OF


APPEALS, COURT OF TAX APPEALS, ADAMSON MANAGEMENT
CORPORATION, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and
SARA S. DE LOS REYES, Respondents. (
G.R. No. 124557/May 21, 2009)

Facts:

On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares
of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC).
The shares were valued at P7,789,995.00.1 On June 22, 1990, P159,363.21 was
paid as capital gains tax for the transaction. On October 12, 1990, AMC sold to
APAC Philippines, Inc. another 229,870 common shares of stock in AAI for
P17,718,360.00. AMC paid the capital gains tax of P352,242.96.

On October 15, 1993, the CIR issued a "Notice of taxpayer" to AMC, Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them
of deficiencies on their payment of capital gains tax and Value Added Tax (VAT).
The notice contained a schedule for preliminary conference.
57
On October 22, 1993, the CIR filed with the Department of Justice (DOJ) her
Affidavit of Complaint against AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes for tax evasion in violation of Sections 45 (a)
and (d), and 110, in relation to Section 100, as penalized under Section 255, and
for violation of Section 253, in relation to Section 252 (b) and (d) of the National
Internal Revenue Code (NIRC). After the preliminary investigation, State
Prosecutor found probable cause.

On April 29, 1994, petitioners were charged before the RTC of Makati, in
Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or
Suspend the Proceedings. They invoked the grounds that there was yet no final
assessment of their tax liability, and there were still pending relevant Supreme
Court and CTA cases. Initially, the trial court denied the motion. A Motion for
Reconsideration was however filed, this time assailing the trial court‟s lack of
jurisdiction over the nature of the subject cases. On August 8, 1994, the trial court
granted the Motion. It ruled that the complaints for tax evasion filed by the CIR
should be regarded as a decision of the Commissioner regarding the tax liabilities
of the petitioners, and appealable to the CTA. It further held that the said cases
cannot proceed independently of the assessment case pending before the CTA,
which has jurisdiction to determine the civil and criminal tax liability of the
respondents therein.

On October 10, 1994, the Commissioner filed a Petition for Review with the
Court of Appeals assailing the trial court‟s dismissal of the criminal cases alleging
that a formal assessment is not a condition prerequisite prior to the filing of the
criminal complaints against taxpayers. She argued that the criminal complaints for
tax evasion may proceed independently from the assessment cases pending
before the CTA.

On March 21, 1995, the Court of Appeals reversed the trial court‟s decision
and reinstated the criminal complaints. The appellate court held that, in a criminal
prosecution for tax evasion, assessment of tax deficiency is not required because
the offense of tax evasion is complete or consummated when the offender has
knowingly and willfully filed a fraudulent return with intent to evade the tax. It ruled
that private respondents filed false and fraudulent returns with intent to evade
taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with the
Department of Justice, without an accompanying assessment of the tax deficiency
of private respondents, in order to commence criminal action against the latter for
tax evasion.

In parallel circumstances, the following events preceded G.R. No. 124557:

On December 1, 1993, AMC, Lucas G. Adamson, Therese June D.


Adamson and Sara S. de los Reyes filed a letter request for re-investigation with
58
the Commissioner of the "Examiner‟s Findings" earlier issued by the Bureau of
Internal Revenue (BIR), which pointed out the tax deficiencies.

On March 15, 1994 before the Commissioner could act on their letter-
request, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes filed a Petition for Review with the CTA. They assailed the Commissioner‟s
finding of tax evasion against them. The Commissioner moved to dismiss the
petition, on the ground that it was premature, as she had not yet issued a formal
assessment of the tax liability of therein petitioners. On September 19, 1994, the
CTA denied the Motion to Dismiss. It considered the criminal complaint filed by the
Commissioner with the DOJ as an implied formal assessment, and the filing of the
criminal informations with the RTC as a denial of petitioners‟ protest regarding the
tax deficiency.

The Commissioner appealed to the Court of Appeals on the ground that the
CTA acted with grave abuse of discretion. She contended that, with regard to the
protest provided under Section 229 of the NIRC, there must first be a formal
assessment issued by the Commissioner, and it must be in accord with Section 6
of Revenue Regulation No. 12-85. She maintained that she had not yet issued a
formal assessment of tax liability, and the tax deficiency amounts mentioned in her
criminal complaint with the DOJ were given only to show the difference between
the tax returns filed and the audit findings of the revenue examiner.

The Court of Appeals sustained the CTA‟s denial of the Commissioner‟s


Motion to Dismiss. Thus, the Commissioner filed the petition for review under G.R.
No. 124557

Issues:

(1). Is an “affidavit complaint” executed by the CIR providing for the


computation of tax considered as a valid assessment?

(2). Is the recommendation letter of the CIR addressed to the DOJ


considered as a valid assessment?

(3). Is assessment required before the filing of the criminal complaint?

(4). Does the CTA have jurisdiction over both civil and criminal cases
involving tax?

RULING:

(1). In the present case, the revenue officers‟ Affidavit merely contained a
computation of respondents‟ tax liability. It did not state a demand or a period for
payment. Worse, it was addressed to the justice secretary, not to the taxpayers. An
59
assessment, in relation to taxation, is simply understood to mean: "A notice to the
effect that the amount therein stated is due as tax and a demand for payment
thereof." "Fixes the liability of the taxpayer and ascertains the facts and furnishes
the data for the proper presentation of tax rolls." Even these definitions fail to
advance private respondents‟ case. That the BIR examiners‟ Joint Affidavit
attached to the Criminal Complaint contained some details of the tax liabilities of
private respondents does not ipso facto make it an assessment. The purpose of
the Joint Affidavit was merely to support and substantiate the Criminal Complaint
for tax evasion. Clearly, it was not meant to be a notice of the tax due and a
demand to the private respondents for payment thereof. The fact that the
Complaint itself was specifically directed and sent to the Department of Justice and
not to private respondents shows that the intent of the commissioner was to file a
criminal complaint for tax evasion, not to issue an assessment. Although the
revenue officers recommended the issuance of an assessment, the commissioner
opted instead to file a criminal case for tax evasion. What private respondents
received was a notice from the DOJ that a criminal case for tax evasion had been
filed against them, not a notice that the Bureau of Internal Revenue had made an
assessment.

(2). The Commissioner denied that she issued a formal assessment of the tax
liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes. She admits though that she wrote the recommendation letter addressed to
the Secretary of the DOJ recommending the filing of criminal complaints against
AMC and the aforecited persons for fraudulent returns and tax evasion.

In the context in which it is used in the NIRC, an assessment is a written notice and
demand made by the BIR on the taxpayer for the settlement of a due tax liability
that is there definitely set and fixed. A written communication containing a
computation by a revenue officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiner‟s findings is not an
assessment since it is yet indefinite. We rule that the recommendation letter of the
Commissioner cannot be considered a formal assessment. Even a cursory perusal
of the said letter would reveal three key points:

1. It was not addressed to the taxpayers.


2. There was no demand made on the taxpayers to pay the tax liability, nor a
period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for
filing criminal informations that the taxpayers had violated Section 45 (a) and (d),
and 110, in relation to Section 100, as penalized under Section 255, and for
violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.24

60
In fine, the said recommendation letter served merely as the prima facie basis for
filing criminal informations that the taxpayers had violated Section 45 (a) and (d),
and 110, in relation to Section 100, as penalized under Section 255, and for
violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.

(3). Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997)
provides: In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court after
the collection of such tax may be begun without assessment, at any time
within ten years after the discovery of the falsity, fraud or omission: Provided, That
in a fraud assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for collection
thereof. The law is clear. When fraudulent tax returns are involved as in the cases
at bar, a proceeding in court after the collection of such tax may be begun without
assessment.

The private respondents had already filed the capital gains tax return and the VAT
returns, and paid the taxes they have declared due therefrom. Upon investigation
of the examiners of the BIR, there was a preliminary finding of gross discrepancy in
the computation of the capital gains taxes due from the sale of two lots of AAI
shares, first to APAC and then to APAC Philippines, Limited. The examiners also
found that the VAT had not been paid for VAT-liable sale of services for the third
and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the
amounts actually declared by the private respondents constitutes badges of fraud.

An assessment of a deficiency is not necessary to a criminal prosecution for willful


attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to evade and defeat
the tax. The perpetration of the crime is grounded upon knowledge on the part of
the taxpayer that he has made an inaccurate return, and the government‟s failure
to discover the error and promptly to assess has no connections with the
commission of the crime.

(4). We now go to the issue of whether the CTA has no jurisdiction to take
cognizance of both the criminal and civil cases here at bar.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
amended, the rulings of the Commissioner are appealable to the CTA.The latest
statute dealing with the jurisdiction of the CTA is Republic Act No. 9282 which
expanded the jurisdiction of the CTA. However, they did not change the jurisdiction
of the CTA to entertain an appeal only from a final decision or assessment of the
Commissioner, or in cases where the Commissioner has not acted within the
period prescribed by the NIRC. In the cases at bar, the Commissioner has not
issued an assessment of the tax liability of private respondents.

61
(34). PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner, vs.
COMMISSIONER OF CUSTOMS, Respondent. ( G.R. No. 176380/June 18,
2009)

Facts:

Shell is a domestic corporation engaged in the importation of petroleum and


its by-products into the country. For these importations, Shell was assessed and
required to pay customs duties and internal revenue taxes. In 1997 and 1998, Shell
settled its liabilities for customs duties and internal revenue taxes using tax credit
certificates (TCCs) that were transferred to it for value by several Board of
Investment (BOI)-registered companies. On the belief that the TCCs were actually
good and valid, both the BIR and the BOC accepted and allowed Shell to use them
to pay and settle its tax liabilities.

On November 3, 1999, the Secretary of Finance on behalf of One Stop Shop


Inter-Agency Tax Credit and Duty Drawback Center (the Center), composed of the
following government agencies: the Department of Finance (DOF), the Bureau of
Internal Revenue (BIR), the Bureau of Customs (BOC), and the BOI. the Secretary
of the DOF, informed Shell that it was cancelling the TCCs transferred to and used
as payment by the oil company. After conducting a post-audit investigation, it
discovered that the TCCs had been fraudulently secured by the original grantees
who thereafter transferred them to Shell. No categorical finding however was made
regarding Shell‟s participation in the fraud. In view of the cancellation, Shell was
required to pay the BIR and BOC the amounts corresponding to the TCCs Shell
had used to settle its liabilities.

On the same date of November 3, 1999, Shell sent a letter objecting to the
cancellation of the TCCs claiming that it had been denied due process when
Shell‟s evenly dated letter-objection was not considered. Shell‟s November 3 letter
was not acted upon and instead, a letter dated November 19, 1999 was sent to
Shell requiring it to replace the amount equivalent to the amount of the cancelled
TCCs used by Shell to satisfy its customs duties and taxes. In its reply dated
December 23, 1999. Shell maintained that the cancellation was improper since
this was done without affording the corporation its right to due process. It further
claimed that the existence of fraud in the issuance and transfer of the TCCs, or
even Shell‟s participation in the alleged fraud, had not been sufficiently established.

Three years later, through letters dated February 15, February 20, and April
12, 2002 the respondent, through Atty. Valera, Deputy Commissioner for Revenue
Collections Monitoring Group, formally demanded from Shell payment of the
amounts corresponding to the listed TCCs previously cancelled. Except for the
amount due, the respondent‟s collection letters were worded, as follows:

62
In as much as the same [TCCs] were reported as having been utilized to pay
your government obligations earlier, formal demand is hereby being made upon
you to pay back the total amount of x x x within five (5) days from receipt thereof.
Failure on your part to settle your obligation would constrain the Bureau of
Customs to initiate legal action in the regular court. Please consider this as our last
and final demand. Before Shell could reply to the said letters, Shell received on
April 23, 2002 the summons in one of the three collection cases filed by
respondent against Shell before the Regional Trial Court (RTC) of Manila. In these
collection cases, the respondent sought to recover the amounts covered by the
cancelled TCCs.

The parties argue over which act serves as the decision of the respondent
which under the law, can be the subject of an appeal before the CTA, and from
which act the 30-day period to appeal shall be reckoned.

Issues:

(1). Is this a tax protest case appealable to the CTA?

(2). What is the proper remedy of Shell in invoking the validity of the TCC‟s?

RULING:

(1). The present case does not involve a tax protest case within the jurisdiction of
the CTA to resolve. Shell received three sets of letters:

a. the Center‟s November 3 letter, signed by the Secretary of Finance, informing it


of the cancellation of the TCCs;

b. the respondent‟s November 19 letter requiring it to replace the amount


equivalent to the amount of the cancelled TCCs used by Shell; and

c. the respondent‟s collection letters issued through Atty. Valera, formally


demanding the amount covered by the cancelled TCCs.

None of these letters, however, can be considered as liquidation or an assessment


of Shell‟s import tax liabilities that can be the subject of an administrative tax
protest proceeding before the respondent whose decision is appealable to the
CTA.

In fact, Shell‟s import tax liabilities had long been computed and ascertained in the
original assessments, and Shell paid these liabilities using the TCCs transferred to
it as payment. It is even an error to consider the letters as a "reassessment"
because they refer to the same tax liabilities on the same importations covered by
the original assessments. The letters merely reissued the original assessments
63
that were previously settled by Shell with the use of the TCCs. However, on
account of the cancellation of the TCCs, the tax liabilities of Shell under the original
assessments were considered unpaid; hence, the letters and the actions for
collection. When Shell went to the CTA, the issues it raised in its petition were all
related to the fact and efficacy of the payments made, specifically the genuineness
of the TCCs; the absence of due process in the enforcement of the decision to
cancel the TCCs; the facts surrounding the fraud in originally securing the TCCs;
and the application of estoppel. These are payment and collection issues, not tax
protest issues within the CTA‟s jurisdiction to rule upon.

(2). To be very precise, Shell‟s petition before the CTA principally questioned the
validity of the cancellation of the TCCs – a decision that was made not by the
respondent CIR , but by the Center. As the CTA has no jurisdiction over
decisions of the Center, Shell‟s remedy against the cancellation should have been
a certiorari petition before the regular courts, not a tax protest case before the
CTA. Records do not show that Shell ever availed of this remedy. Alternatively,
the appropriate forum for Shell under the circumstances of this case should be at
the collection cases before the RTC where Shell can put up the fact of its payment
as a defense.

A case becomes ripe for filing with the RTC as a collection matter after the
finality of the respondent‟s assessment. We hereby confirm that this assessment
has long been final, and this recognition of finality removes all perceived
hindrances, based on this case, to the continuation of the collection suits. We
declared on the matter of collection that: a suit for the collection of internal revenue
taxes, where the assessment has already become final and executory, the action
to collect is akin to an action to enforce the judgment. No inquiry can be made
therein as to the merits of the original case or the justness of the judgment relied
upon.

II. PART 2 ( REPUBLIC ACTS / REVENUE REGULATIONS/STATUTES)

A. 2007 Revenue Regulations

(1). REVENUE REGULATIONS NO. 1 – 2007 SUBJECT: Amending Revenue


Regulations No. 4-2006 Implementing the Tax Privileges Provisions of R.A.
No. 9257, Otherwise Known as the “ Expanded Senior Citizens Act of 2003 ”

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Salient Features:

“ Sec. 8. Availment by Establishments of Sales Discounts as Deduction from


Gross Income . –x x x

“(5) The business establishment giving sales discounts to qualified senior citizens
is required to keep separate and accurate record of sales, which shall include the
name of the senior citizen, OSCA ID, gross sales/receipts, sales discount granted,
date of transaction and invoice number for every sale transaction to senior citizen.

“ Sec. 10. Basis of Computation of Value-Added Tax on Sale to Senior


Citizens . – VAT on sales of goods or services with sales discounts granted by
establishments enumerated under Section 8 hereof shall be computed in
accordance with the following illustration:

Amount of sale (without the VAT) P100.00


Less: 20% sales discount 20.00

Vatable sale P 80.00


Plus: 12% VAT (based on P80) 9.60
Total amount to be paid by the senior citizen P89.60

(2). REVENUE REGULATIONS NO. 2-2007 Amending Certain Provisions of


Revenue Regulations No. 16- 2005, Otherwise Known as the Consolidated
Value-Added Tax Regulations of 2005.

Salient Features:

“ SEC. 4.110-7. VAT Payable (Excess Output) or Excess Input Tax . Xxx xxx
xxx.

“xxxx If the input tax inclusive of input tax carried over from the previous quarter
exceeds the output tax, the excess input tax shall be carried over to the succeeding
quarter or quarters; Provided, however, that any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded or applied for a tax
credit certificate which may be used in the payment of internal revenue taxes,
subject to the limitations as may be provided for by law, as well as, other
implementing rules.”

(3). REVENUE REGULATIONS NO. 14-2007: Tax on Non-governmental


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Organizations (NGOs) and Cooperatives Engaged in Microfinance Activities

Salient Features:

Microfinance - is a credit and savings mobilization program exclusively intended


for the poor to improve the asset base of households and expand the access to
savings of the poor. It involves the use of viable alternative credit schemes and
savings programs including the extension of small loans, simplified loan application
procedures, group character loans, collateral- free arrangements, alternative loan
repayments, minimum requirements for savings, and small denominated savers'
instruments;

Consistent with the provisions of RA 8425, the maximum individual loan amount
provided for microfinance loans is P150,000.00, subject to periodic determination of
the Department of Trade and Industry to reflect economic changes.

SECTION 4. Tax Treatment of Microfinance Services Rendered by


Cooperatives – Duly registered credit cooperatives dealing/transacting with
members only shall be exempt from paying the following taxes for which they are
directly liable:

a. Income tax from operations


b. Value -added tax (VAT),
c. 3% percentage tax under Section 116 of the Tax Code of 1997, and
d. Documentary stamp tax (DST) imposed under Title VII of the Tax Code of
1997, as amended, provided, however, that the other party to the taxable
document/transaction who is not exempt shall be the one directly liable for the
tax; and
e. Annual Registration Fee of P500.00

B. Duly registered cooperatives dealing/transacting business with both members


and nonmembers

a. For cooperatives with accumulated reserves and undivided net savings of


not more than Ten Million Pesos (P10,000.000.00) –

i. exemption from taxes for which they are directly liable, as


enumerated in paragraph A of this Section.

b. For credit cooperatives with accumulated reserves and undivided net


savings of more than Ten Million Pesos (P10,000.000.00) –

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i. Exemption from income tax for a period of 10 years from the date of
registration with the CDA, provided, that at least twenty five percent
of the net income of the cooperative is returned to the members in
the form of interest and/or patronage fund.

For cooperatives whose exemption were removed by Executive Order No.


93, the ten year period shall be reckoned from March 10, 1987 (i.e., the tax
exemption is valid only up to March 10, 1997)

After the lapse of such ten year period, they shall be subject to income tax at
the full rate on the amount allocated for interests on capital, provided that the same
is not consequently imposed on interest individually received by members.

The tax base for credit cooperatives liable to income tax shall be the net
surplus arising from business transactions with non-members, including those
arising from all microfinance activities, after deducting the amounts from the
statutory reserve funds as provided for in the Cooperative Code and other laws.

ii. Exemption from VAT under Section 109(M) and 3% tax under Section
116, both of the Tax Code, as amended.

iii. Subject to all other internal revenue taxes unless otherwise provided by
law.

Notwithstanding the foregoing, all income of cooperatives which undertake


microfinance activities in addition to their registered purpose except credit
cooperatives and multi-purpose cooperatives which have one of its business
activities as those performed by credit cooperatives, shall be subject to appropriate
taxes under the Tax Code of 1997, as amended. This is applicable to all
cooperatives, whether dealing purely with members or both members and non-
members. Moreover, all cooperatives, regardless of classification, are considered
as withholding agents and are required to file withholding tax returns and remit
withholding taxes on all income payments that are subject to withholding.

SECTION 5. Tax Treatment of Microfinance Services Rendered by Non-


governmental Organizations

All NGOs falling under the enumeration of Section 30 of the Tax Code of 1997, as
amended, are exempt from income taxes, in respect of income received by them as
such. However, income of such NGOs from microfinance activities, and which are
not in respect of their registered activities covered by Section 30 of the Tax Code of
1997, as amended, regardless of the disposition made of such income, shall be
subject to tax under the Tax Code of 1997, as amended.

67
Similarly, non- stock, non-profit NGOs, whether or not engaged in microfinance
activities, are still also required to file withholding tax returns and remit withholding
taxes on all income payments that are subject to withholding as specified in
Revenue Memorandum Circular No. 76-2003

B. 2008

(1). REVENUE REGULATIONS NO. 5-2008: Further Amendments to


Revenue Regulations Nos. 2-98 and 3-98, as Last Amended by Revenue
Regulations No. 10- 2000, With Respect to “De Minimis Benefits” .

Salient Features:

“xxxxx The following shall be considered as “de minimis” benefits not subject to
income tax as well as withholding tax on compensation income of both managerial
and rank and file employees: xxxxx”

“xxxxxxx The term “DE MINIMIS” benefits which are exempt from the fringe benefit
tax shall, in general, be limited to facilities or privileges furnished or offered by an
employer to his employees that are of relatively small value and are offered or
furnished by the employer merely as a means of promoting the health, goodwill,
contentment, or efficiency of his employees such as

(1). Rice subsidy of P1,500.00 or one (1) sack of 50 kg. rice per month
amounting to not more than P1 ,500.00 ;

(2) Uniform and Clothing allowance not exceeding P4,000.00 per annum.
Xxxxxx”

(2). REPUBLIC ACT NO 9504 “An Act Amending Sections 22, 24, 34, 35, 51, 79
of RA 8424 as amended “ (Effectivity Date: 06 July 2008)

REVENUE REGULATIONS NO. 10 - 2008 Implementing Pertinent Provisions


of Republic Act No. 9504, “An Act Amending Sections 22, 24, 34, 35, 51,
and 79 of Republic Act No. 8424, as Amended, Otherwise Known as The
National Internal Revenue Code ” Relative to the Withholding of Income Tax
on Compensation and Other Concerns”.

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Salient Features:

(A). DE MINIMIS BENEFITS

“XXXXX (2). The following shall be considered as "de minimis" benefits not
subject to income tax, hence, not subject to withholding tax on compensation
income of both managerial and rank and file employees:

(a) Monetized unused vacation leave credits of employees not exceeding


ten (10) days during the year and the monetized value of leave credits paid to
government officials and employees;

(b) Medical cash allowance to dependents of employees not exceeding


P750.00 per employee per semester or P125 per month;

(c) Rice subsidy of P1,500.00 or one (1) sack of 50-kg. rice per month
amounting to not more than P1,500.00;

(d) Uniforms and clothing allowance not exceeding P4,000.00 per annum;

(e) Actual yearly medical benefits not exceeding P10,000.00 per annum;

(f) Laundry allowance not exceeding P300.00 per month;

(g) Employees achievement awards, e.g., for length of service or safety


achievement, which must be in the form of a tangible personal property other than
cash or gift certificate, with an annual monetary value not exceeding P10,000.00
received by the employee under an established written plan which does not
discriminate in favor of highly paid employees;

(h) Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 .00 per employee per annum;

(i) Flowers, fruits, books, or similar items given to employees under special
circumstances, e.g., on account of illness, marriage, birth of a baby, etc.; and

(j) Daily meal allowance for overtime work not exceeding twenty five percent
(25%) of the basic minimum wage.

The amount of ‘de minimis’ benefits conforming to the ceiling herein prescribed
shall not be considered in determining the P30,000.00 ceiling of „other benefits‟
excluded from gross income under Section 32(b)(7)(e) of the Code. Provided that,
the excess of the „ de minimis’ benefits over the irrespective ceilings prescribed by
these regulations shall be considered as part of „other benefits‟ and the employee
receiving it will be subject to tax only on the excess over the P30,000.00 ceiling.
69
Provided, further , that MWEs receiving „other benefits‟ exceeding the
P30,000.00 limit shall be taxable on the excess benefits, as well as on his salaries,
wages and allowances, just like an employee receiving compensation income
beyond the SMW.

Any amount given by the employer as benefits to its employees, whether classified
as “ de minimis” benefits or fringe benefits, shall constitute as deductible expense
upon such employer. Where compensation is paid in property other than money,
the employer shall make necessary arrangements to ensure that the amount of the
tax required to be withheld is available for payment to the Bureau of Internal
Revenue .

(B). Minimum Wage Earners

The following income payments are exempted from the requirements of


withholding tax on compensation:

(13) Compensation income of MWEs who work in the private sector and
being paid the Statutory M inimum Wage (SMW), as fixed by Regional Tripartite
Wage and Productivity Board (RTWPB)/Natio nal Wages and Productivity
Commission (NWPC), applicable to the place where he/she is assigned.

The aforesaid income shall likewise be exempted from income tax.

„Statutory Minimum Wage‟ (SMW) shall refer to the rate fixed by the Regional
Tripartite Wage and Productivity Board (RTWPB), as defined by the Bureau of
Labor and Employment Statistics (BLES) of the Department of Labor and
Employment (DOLE). The RTWPB of each region shall determine the wage rates
in the different regions based on established criteria and shall be the basis of
exemption from income tax for this purpose.

Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the
aforementioned MWE shall likewise be covered by the above exemption. Provided,
however, that an employee who receives/earns additional compensation such as
commissions, honoraria, fringe benefits, benefits in excess of the allowable
statutory amount of P30,000.00, taxable allowances and other taxable income
other than the SMW, holiday pay, overtime pay, hazard pay and night shift
differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her
entire earnings are not exempt from income tax and, consequently, from
withholding tax.

MWEs receiving other income, such as income from the conduct of trade, business,
or practice of profession, except income subject to final tax, in addition to
compensation income are not exempted from income tax on their entire income
70
earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay,
overtime pay, night shift differential pay and hazard pay shall still be exempt from
withholding tax.

( C ). Personal Exemptions/Additional Exemptions

Individual taxpayers regardless of status are entitled to P50,000 personal


exemption. Additional exemption is at P 25,000.00 per child. Dependent pertains to
a child of whatever kind and status, not more than 21 years of age, not married, not
gainfully employed, chiefly dependent and living with the taxpayer, and regardless
of age, if incapable of self-support by reason of physical or mental defect.

The husband shall be the proper claimant of the additional exemption for qualified
dependent children unless he explicitly waives his rig ht in favor of his wife in the
Application for Registration (BIR Form No. 1902) or in the Certificate of Update of
Exemption and of Employer‟s and Employee‟s Information (BIR Form No. 2305),
whichever is applicable . Provided, however, that where the spouse of the
employee is unemployed or is a non-resident citizen deriving income from foreign
sources, the employed spouse within the Philippines shall be automatically entitled
to claim the additional exemptions for children.

(D). Optional Standard Deduction (OSD)

REVENUE REGULATIONS NO. 16 - 2008 IMPLEMENTING THE PROVISIONS


OF SECTION 34(L) OF THE TAX CODE OF 1997, AS AMENDED BY SECTION
3 OF REPUBLIC ACT NO. 9504, DEALING ON THE OPTIONAL STANDARD
DEDUCTION (OSD) ALLOWED TO INDIVIDUALS AND CORPORATIONS IN
COMPUTING THEIR TAXABLE INCOME

Salient Features:

SEC. 3. Section 34(L) of Republic Act No. 8424, as amended, otherwise known as
the National Internal Revenue Code of 1997, is hereby amended to read as
follows:

"SEC. 34. Deductions from Gross Income. - Except for taxpayers earning
compensation income arising from personal services rendered under an employer-
employee relationship where no deductions shall be allowed under this Section
other than under Subsection (M)hereof, in computing taxable income subject to
income tax under Sections 24(A); 25(A); 26; 27(A), (B), (C); and 28(A)(1), there
shall be allowed the following deductions from the gross income:
71
"(A) Expenses. -
"x x x.

"(L) Optional Standard Deduction. - In lieu of the deductions allowed under


the preceding Subsections, an individual subject to tax under Section 24, other
than a nonresident alien, may elect a standard deduction in an amount not
exceeding forty percent (40%) of his gross sales or gross receipts, as the case
may be. In the case of a corporation subject to tax under section 27(A) and
28(A)(1), it may elect a standard deduction in an amount not exceeding forty
percent (40%) of it gross income as defined in Section 32 of this Code. Unless the
taxpayer signifies in his return his intention to elect the optional standard
deduction, he shall be considered as having availed himself of the deductions
allowed in the preceding Subsections. Such election when made in the return shall
be irrevocable for the taxable year for which the return is made: Provided, That an
individual who is entitled to and claimed for the optional standard shall not be
required to submit with his tax return such financial statements otherwise required
under this Code: Provided, further, That except when the Commissioner otherwise
permits, the said individual shall keep such records pertaining to his gross sales or
gross receipts, or the said corporation shall keep such records pertaining to his
gross income as defined in Section 32 of this Code during the taxable year, as may
be required by the rules and regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner.
"(M) x x x."

SEC. 2. PERSONS COVERED. - The following may be allowed to claim OSD


in lieu of the itemized deductions (i.e. items of ordinary and necessary expenses
allowed under Sections 34 (A) to (J) and (M), Section 37, other special laws, if
applicable):

1. Individuals:
i. Resident Citizen
ii. Non-resident citizen
iii. Resident Alien
iv. Taxable estates and trusts

2. Corporations:
i. Domestic corporation
ii. Resident foreign corporation

( C ). 2009

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(1). REVENUE REGULATIONS NO. 1-2009 Rules and Regulations
Implementing Republic Act No. 9442, entitled “ An Act Amending Republic
Act 7277, Otherwise Known as the Magna Carta for Persons with Disability,”
Relative to the Tax Privileges of Persons with Disability and Tax Incentives
for Establishments Granting Sales Discount

Salient Features:

Person with disability – shall refer to an individual suffering from restriction or


different abilities, as a result of mental, physical or sensory impairment to perform
an activity in a manner or within the range considered normal for human being.

Disability – shall mean a physical or mental impairment that substantially limits one
or more psychological, physiological or anatomical function of an individual or
activities of such individuals; a record of such an impairment; or being regarded as
having such an impairment.

SEC. 3. SALES DISCOUNTS WHICH MAY BE CLAIMED BY PERSONS WITH


DISABILITY. -

Persons with disability shall be entitled to claim at least twenty percent (20%)
discount from the following establishments relative to the sale of goods or services
for their exclusive use or enjoyment, viz:

1. Hotels and similar lodging establishments and restaurants;


2. Sports and recreation centers;
3. Theaters, cinema houses, concert halls, circuses, carnivals and other similar
places of culture, leisure and amusement;
3. All drugstores regarding purchase of medicine;
4. Medical and dental privileges in government facilities, such as but not limited to
diagnostic and laboratory fees (e.g., x-rays, computerized tomography scans and
blood tests) subject to guidelines to be issued by the DOH, in coordination with the
Philippine Health Insurance Corporation (Philhealth);
5. Medical and dental privileges in private facilities, such as but not limited to
diagnostic and laboratory fees (e.g., x-rays, computerized tomography scans and
blood tests), including professional fees of attending doctors, subject to guidelines
to be issued by the DOH, in coordination with Philhealth; and
6. Domestic air and sea transportation based on the actual fare except promotional
fare. If the promotional fare discount is higher than the 20% discount privilege,
the person with disability may choose the promotional fare and should no longer
be entitled to the 20% discount privilege; and
7. Land transportation privileges in bus fares such as ordinary, aircon fares and on
public railways such as LRT, MRT, PNR, and such other similar infrastructure
73
that will be constructed, established and operated by public or private entity. Toll
fees of skyways and expressways are likewise subject to at least 20% discount,
however, this privilege can be availed only by a person with disability owning the
vehicle.

SEC. 4. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS


DEDUCTION FROM GROSS INCOME . - Establishments granting sales
discounts to persons with disability on their sale of goods and/or services specified
under Section 3 above shall be entitled to deduct the said sales discount from their
gross income.

(2). REVENUE REGULATIONS NO. 8-2009 Amending Further Secs. 2.57.2 and
2.57.3 of Revenue Regulations No. SUBJECT 2-98, as amended,
Subjecting to Creditable Withholding Tax the Income Payments Made by
Political Parties and Candidates of Local and National Elections of All
Their Campaign Expenditures and Income Payments Made by an
Individual or Juridical Person Forming Part of Their Campaign
Contributions to Candidates of Local and National Elections and to
Political Parties REVENUE REGULATIONS NO. 10-2009 Amending Further
Secs. 2.57.2 and 2.58 of Revenue Regulations No. 2- 98, as amended,
clarifying that sub-paragraph (W) as recently issued under Revenue
Regulations No. 8-2009 should be sub-paragraph (X), and Other Concerns

Salient Features:

Income payments made by political parties and candidates of local and


national elections of all their
campaign expenditures, and income payments made by individuals or juridical
persons for their purchases of goods and services intended to be given as
campaign contribution to political parties and candidates - Five percent (5%).

“Sec.2.57.3 Persons required to deduct and withhold – The following persons are
hereby constituted as withholding agents for purposes of the creditable tax
required to be withheld on income payments enumerated in Section 2.57.2:

xxx xxx xxx

“(D) All individuals, juridical persons and political parties, with respect to their
income payments made as campaign expenditures and/or purchase of goods
and services intended as campaign contributions.”

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