Professional Documents
Culture Documents
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.
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:
(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.
(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.
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.
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?
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.
(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.
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…
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(4). Government Liability For Actual Damages
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.
Facts:
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Issues:
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.
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(7). BANCO FILIPINO SAVINGS & MORTGAGE BANK VS. COURT OF
APPEALS ET AL.
(G.R.No.155682 / March 27, 2007)
Facts :
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.
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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)
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.
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.
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;
(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:
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:
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 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
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.
Facts:
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.
Issues:
(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
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.
Facts:
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.
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.
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.
Facts:
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.
Facts:
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.
Ruling:
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.
Facts:
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.
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.
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:
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
Facts:
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:
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:
(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.
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:
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.
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.
FACTS:
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:
(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
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:
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.
(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:
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.
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.
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.
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.
Issues:
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:
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.
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.
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.
Issues:
(2). Is the failure of the taxpayer to indicate in the return its option to claim for
refund or credit material?
Ruling:
(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;
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.
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.
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:
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.
(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
Facts:
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?
(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.
51
(29). COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. UNITED
INTERNATIONAL PICTURES, AB, Respondent. (G.R. No. 169565 January 21,
2009)
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:
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.
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.
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.
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.
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.
Facts:
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:
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
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.
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:
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.
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.
Issues:
(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:
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.
(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:
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:
(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:
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.
64
Salient Features:
“(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.
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.”
Salient Features:
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.
66
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.
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.
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
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)
68
Salient Features:
“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:
(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;
(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 .
(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.
„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.
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.
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.
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
72
(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:
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.
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:
(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:
“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:
“(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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