Advanced Taxation: 1st Batch Digests

8/13/2019 Advanced Taxation: 1st Batch Digests

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First Lepanto Taisho Insurance Corporation v. CIR

Facts:

P is a non-life insurance corporation; considered as a Large Taxpayer under the RR No. 6-85, as amended.

October 30, 1998 – P received a LOA from CIR to allow it to examine their books of account and other

accounting records for 1997 and other unverified prior years.

December 29, 1999 – CIR issued internal tax revenue assessments for deficiency income, withholding, expanded

withholding, final withholding, VAT and documentary stamp taxes for taxable year 1997; P protested (December

25, 2000)

P filed its Motion for Partial Withdrawal of Petition for Review of Assessment Notice in view of the tax amnesty

program it had availed.

CTA granted the petition; directed petitioner to pay CIR a reduced tax liability of P1,994,390.86

P filed a Motion for Partial Reconsideration and, when denied, a Petition for Review contending that it was not

liable to pay withholding tax on Compensation on the P500,000.00 Director’s Bonus to their directors because

they were not employees and the amount was already subjected to Expanded Withholding Tax.

As to transporation, subsistence and lodging, and representation expenses, P contended that they should not be

subjected to withholding ta as they were reimbursements for actual expenses of the company.

As to deficiency FWT, P said that it came from reinsurance activities and should not be subject to tax.

Issue(s)

WON P liable for deficiency withholding taxes on compensation on director’s bonuses

WON P liable for deficiency expanded withholding taxes on transportation, subsistence, lodging, and

representation expense, commission expense; direct loss expense; occupancy cost; and service/contractor and

purchases

WON P liable for deficiency FWT on payment of dividends and computerization expenses to foreign entities

WON P liable for delinquency interest under Sec. 249 (c)(3) of the NIRC

Ruling:

The Court finds no merit in the petition

For taxation purposes, a director is considered an employee under Sec. 5 of RR No. 12 – 86 to wit: An individual,

performing services for a corporation, whether as an officer and director or merely as a director whose duties

are confined to attendance at and participation in the meetings of the BOD, is an employee. The non-inclusion of

the names of some of the petitioner’s directors in the company’s Alpha List does not ipso facto create a

presumption that they are not employees of the corporation, because the imposition of withholding tax on

compensation hinges upon the nature of work performed by such individuals in the company.

As to the deficiency withholding tax on transportation, subsistence and lodging, and representation expense,commission expense, direct loss expense, occupancy cost, service/contractor and purchases, petitioner was not

able to sufficiently establish that the transportation expenses reflected in their book were reimbursement from

actual transportation expenses incurred by its employees in connection with their duties as the only document

presented was a Schedule of Transportation. Without pertinent supporting documents, such but not limited to,

receipts, transportation-related vouchers and/or invoices, there is no way of ascertaining whether the amounts

reflected in the schedule of expenses were disbursed for transportation.

With regar ds to commission expense, no additional documentary evidence that would support P’s allegation that

the expenditure originated from reinsurance activities that gave rise to reinsurance commissions.

As to occupancy costs, P failed to compute the correct total occupancy cost that should be subjected to

withholding tax; hence P is liable for the deficiency. As to service/ contractors and purchases, P contends that both parties already stipulated that it correctly

withheld taxes due. However, stipulations cannot defeat the right of the State to collect the correct taxes due on

an individual or juridical person because taxes are the lifeblood of our nation so its collection should be actively

pursued without unnecessary impediment.

As to the deficiency FWT assessments for payments of dividends and computerization expenses incurred by P to

foreign entities, particularly Matsui, P failed to present evidence to show the supposed remittance to Matsui.

Finally, the imposition of delinquency interest under the NIRC is proper because failure to pay deficiency tax

assessed within the time prescribed for its payment justifies the imposition of interest at the rate of 20% per



annum, which interest shall be assessed and collected from the date prescribed for its payment until full

payment is made.

Pelizloy Realty Corp. v. Province of Benguet

Facts:

P Pelizloy, located at Benguet, owns Palm Grove Resort, which is designed for recreation and which has facilities

like swimming pools, a spa and function halls.

December 8, 2005, the Provincial Board of the Province of Benguet approved a tax ordinance known as Benguet

Revenue Code of 2005 in which Section 59 of Article X thereof levied a 10% amusement tax on gross receipts

from admissions to “resorts, swimming pools, bath houses, hot springs and tourist spots.”

It was P’s position that the Tax ordinance’s imposition of a 10% amusement tax on gross receipts from admission

for resorts, swimming pools, bath houses, hot springs, and tourist spots is an ultra vires act on the part of the

Province of Benguet. Thus, it filed an appeal/petition before the Secretary of Justice on January 27, 2006.

When SOJ failed to decide on its petition, P filed a petition for declaratory relief and Injuction before the RTC.

P argued that Section 59, Article X of the tax ordinance imposed a percentage tax in violation of the limitation onthe taxing powers of the LGUs under Section 133 (i) of the LGC. Thus, it was null and void ab initio.

Issue(s)

WON Section 59, Article X of the Benguet Revenue Code of 2005 levies a percentage tax;

WON provinces are authorized to impose amusement taxes on admission fees to resorts, swimming pools, bath

houses, hot springs, and tourist spots for being “amusement places” under the LGC.

Ruling:

The power to tax is an “attribute of sovereignty,” and as such, inheres in the State. Such, however, is not true fr

provinces, cities, municipalities and barangays as they are not the sovereign; rather, they are mere “territorial

and political subdivisions of the RP”.

Icard v. City Council of Baguio: It is settled that a municipal corporation unlike a sovereign state is clothed with

no inherent power of taxation. The charter or statute must plainly show an intent to confer that power or

municipality, cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or

ambiguity out of th term used in granting that power must be resolved against the municipality. Inferences,

implications, deduction – all these – have no place in the interpretation of a municipal corporation.

Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the

Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point. Nevertheless, such

authority is “subject to such guidelines and limitations as the Congress may provide.” In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted RA 7160 or LGC of 1991.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of the LGUS: (1) Section

130 provides for the fundamental principles governing the taxing powers of LGUS, (2) Section 133 provides for

the common limitations on the taxing powers of LGUS. Section 133 (i) prohibits the levy by the LGUs of

percentage tax or VAT on sales, barters or exchanges or similar transactions on goods or services except as

otherwise provided by the LGC.

CIR v. Citytrust Investment Phils: Percentage tax is a tax measured by a certain percentage of the gross selling

price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earning derived by

any person engaged in the sales of services.”

NIRC, in Section 125, Title V, lists amusements taxes as among (other) percentage taxes which are leviedregardless of whether or not a taxpayer is already liable to pay VAT.

Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain specified

establishments. Thus, applying the definition in the CIR v. Citytrust and drawingfrom the treatment of

amusement taxes by the NIRC, amusement taxes are percentage taxes as correctly argued by Pelizloy.

However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of

percentage taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes “except as otherwise

provided” by the LGC.



Section 140 of the LGC provides “(a) The province may levy an amusement tax to be collected from the

proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, andother places of

amusement at a rate of not more than 30% of the gross receipts from admission fees. x x x”

Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i). However,

resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places expressly

mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination of whether

amusement taxes may be levied on admission to resorts, swimming pools, bath houses, hot springs, and tourist

spots hinges on whether the phrase “other places of amusement” encompasses resorts, swimming pools, bathhouses, hot springs, and tourist spots.

Applying the principle of ejusdem generis, one must refer to the prior enumeration of theaters, cinematographs,

concert halls and circuses with artistic expression as their common characteristic.

Section 131 of the LGC defines “amusement places” as those which include theaters, cinemas, concert halls,

circuses and other places of amusement where one seeks admission to entertain oneself be seeing or viewing

the show or performances. Indeed, theaters, cinemas, concert halls, circuses and boxing stadia are bound by a

common typifying characteristic in that they are all venues primarily for the staging of spectacles or the holding

of public shoes, exhibitions, performances, and other events meant to be viewed by an audience. Accordingly,

“other places of amusement” must be interpreted in light of the typifying characteristic of being venues “ where

one seeks admission to entertain oneself by seeing or viewing the show or performances” or being venues

primarily used to stage spectacles or hold public shoes, exhibitions, performances, and other events meant to be

viewed by an audience.

Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be

considered venues primarily “where one seeks admission to entertain oneself by seeing or viewing the show or

performances”.

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or

class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they cannot be considered as

among the “other places of amusement” contemplated by Section 140 of the LGC and which may properly be

subject to amusement taxes.

WHEREFORE, the petition for review on certiorari is GRANTED.

Nippon Express (Phil.) Corp. v. CIR

Facts:

P (Nippon Express Corp) is a corporation duly organized and registered with SEC. It is also a VAT-registered entity

with the Large Taxpayer District of the BIR. For the year of 2001, it regularly filed its amended quarterly VAT

returns. On April 24, 2003, it filed an administrative claim for refund of P20,345,824.29 representing excess

input tax attributable to its effectively zero-rated sales in 2001.

Pending review by the BIR, on April 24, 2003, P filed a petition for review with the CTA, requesting for the

issuance of a tax credit certificate in the amount of P20,345,824.29.

The First Division of the CTA denied the petition for insufficiency of evidence but it was later on amended

ordering respondent CIR to issue a tax credit certificate in favor of P in the amount of P10,928,607.31

representing excess or unutilized input tax for the 2nd

, 3rd

, and 4th

quarters of 2001.

CTA First division ruled that P’s immediate recourse to the court was a premature invocation of the court’s

jurisdiction due to the non-observance of the procedure in Section 112(D) of the NIRC providing that an appeal

may be made with the CTA within 30 days from the receipt of the decision of the CIR denying the claim or after

the expiration of the 120 day period without action on the part of the CIR. Considering that the CIR did not

register his objection when he filed his Answer, he is deemed to have waived his objection thereto.

CTA En Banc reversed and set aside the amended decision stating that P’s claim for refund or issuance of taxcredit was denied for lack of merit. The CTA En Banc ruled that the sales invoices issued by the P were

insufficient to establish zero-rated sale of services which was later on changed granting P’s motion for recon. In

view of the ruling of the court in AT&T v. CIR, that Section 113 of the NIRC did not distinguish between a sales

invoice and an official receipt, the CTA En Banc found petitioner’s sales invoices to be acceptable proof to

support its claim for refund or issuance of a tax credit certificate representing its excess or unutilized input VAT

arising from zero-rated or effectively zero-rated sales.

CTA En Banc later on reversed its opinion and dismissed the petition for review for lack of jurisdiction holding

that the 120-day period under Section 112(D) of the NIRC, which granted the CIR the opportunity to act on the



claim for refund, was jurisdictional in nature such that petitioner’s failure to observe the said period before

resoting to judicial action warranted the dismissal of its petition for review for having been prematurely filed.

Ruling:

Whether or not the CTA has no jurisdiction to entertain the instant case.

NO.

A simple reading of Sec 112 (D) (now subparagraph C) of the NIRC reveals that the taxpayer may appeal thedenial or the inaction of the CIR only within 30 days from receipt of the decision denying the claim or the

expiration of the 120-day period given to the CIR to decide the claim.

Moreover, contrary to petitioner’s position, the 120+30-day period is indeed mandatory and jurisdictional. Thus,

failure to observe the said period before filing a judicial claim with the CTA would not only make such petition

premature, but would also result in the non-acquisition by the CTA of jurisdiction to hear the said case.

Because the 120+30-day period is jurisdictional, the issue of whether P complied with the said time frame may

be broached at any stage, even on appeal. Well-settled is the rules that the question of jurisdiction over the

subject matter can be raised at any time during the proceedings.

PHILACOR Credit Corp v. CIR

Facts:

Philacor is a domestic corporation organized under the Phil laws and is engaged in the business of retail

financing. Through retail financing, a prospective buyer of a home appliance – with neither cash nor any credit

card – purchase appliances on installment basis from an appliance dealer. After Philacor conducts a CI and

approves the buyer’s application, the buyer executes a unilateral promissory note to in favor of the appliance

dealer.

Pursuant to LOA dated July 6, 1974, Revenue Officer Mejia examined Philacor’s books of accounts and other

accounting records for fiscal year August 1, 1992 to July 31, 1993. Philacor received tentative computations of

deficiency taxes for this year (totaling P20,037,013.83) which the corporation, through its Finance Manager

Pangan, contested.

July 18, 1996 – Philacor received PANs covering the alleged deficiency income, percentage and DSTs, including

increments.

February 3 , 1998 – Philacor received demand letters and assessment notices; which they protested with a

request for reconsideration and reinvestigation, alleging that the assessed deficiency income tax and deficiency

percentage tax were erroneously computed; thus, the total income reported that the BIR arrived at, was not

equal to the actual receipts of payment from the customers. As for the deficiency ST, Philacor claims that the

accredited appliance dealers were required by law to affix the documentary stamps on all PN purchased until

the enactment of RA 7660 (An Act Rationalizing Further the Structure and Administration of the DST)

CTA Division – concluded that Philacor was liable, though reduced, for deficiency income tax and percentage tax.

The CTA also ruled that Philacor is liable for DST on the issuance of the promissory notes and their subsequent

transfer or assignment. Nothing that Philacor failed to prove that the DST on its PN had been pait for these two

transactions, the CTA held Philacor liable for deficiency DSR (P678,633.88).

Acting on their MFR, CTA cancelled the assessment for deficiency income tax and deficiency percentage tax but

it sustained the assessment for deficiency DST.

Petition for review; CTA En Banc affirmed the resolution of CTA Division reiterating that Philacor is liable for the

DR due on transactions – the issuance of PNs and their subsequent assignment in favor of Philacor. With respect

to the issuance of PNs, Philacor is liable as a transferee which “accepted” the PNs from the appliance dealers in

accordance with the 1986 Tax Code. The CTA En Banc also held that a person “using” a PN is one of the persons

who can be held liable to pay the DST. And since the subject PNs do not bear documentary stamps, Philacor can

be held liable to pay the DST as the transferee and assignee of the PNs.

Issue(s)

WON Philacor is liable to pay DST.

Ruling:

The petition is meritorious.



Philacor is not liable for the DST on the issuance of the promissory notes.

Under Section 173 of the 1997 NIRC, the persons primarily liable for the payment of the DST are the person (1)

making; (2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable documents, instruments or papers.

Should these parties be exempted from paying tax, the other party who is not exempt would then be liable.

Philacor did not make, sign, issue, accept, or transfer the PNs. The acts of making, signing, issuing and

transferring are unambiguous. The buyers of the appliances made, signed and issued the documents subject to

tax while the appliance dealer transferred these documents to Philacor which likewise indisputable received or

“accepted” them. Acceptance, however, is an act that is not even applicable to PNs, but only to bills of exchange.Under Section 210 of the NIRC, the word “accepting” has reference to incoming foreign bills of exchange which

are accepted in the Philippines by the drawees thereof.

Under Sec. 2 of RR No. 9-2000, any of the parties thereto shall be liable for the full amount of the tax due; but

even under these terms, the liability of Philacor is not a foregone conclusion as from the face of the PN itself.

Philacor is not a party to the issuance of the PNs, but merely to their assignment. On the face of the documents,

the parties to the issuance of the PNs would be the buyer of the appliance, as the maker, and the appliance

dealer, as the payee.

Philacor is not liable for the DST on the assignment of promissory notes.

Philacor , as an assignee or transferee of the PNs, is not liable for the assignment or transfer of PNs as this

transaction is not taxed under the law.

The CIR argues that the DT is levied on the exercise of privileges through the execution of specific instruments,

or the privilege to tneter into a transaction. Therefore, the DST should be imposed on every exercise of the

privilege to enter into a transaction.

But, as philacor correctly points out, there are provisions in the 1997 NIRC that specifically impose the DT on the

transfer and/or assignment of documents evidencing transactions but these provisions pertains only to the

issuances of mortgages, leases and policies of insurance. Indeed, the law has set a pattern of expressly providing

for the imposition of DST on the transfer and/or assignment of documents evidencing certain transactions. Thus

the Court concluded that where the law did not specify that such transfer and/or assignment is to be taxed,

there would be no basis to recognize an imposition.

An assignment or transfer becomes taxable only in connection with mortgages, leases and policies of insurance.

The list does not include the assignment or transfer of evidences of indebtedness; rather, it is renewal of these

that is taxable. The present case does not involve a renewal, but amwew transfer or assignment of the

evidences of indebtedness or PNs. A renewal would involve an increase in the amount of indebtedness or an

extension of a period, and not the mere change in person of the payee.

Documents

Advanced Taxation: 1st Batch Digests