Tax Digests III-V

8/11/2019 Tax Digests III-V

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PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 1

III. ESCAPE FROM TAXATION

a.) Shifting

Diago Philippines vs Commissioner

FACTS: Petitioner Diageo Philippines, Inc. (Diageo) is a

domestic corporation organized and existing under the lawsof the Republic of Philippines and is primarily engaged in the

business of importing, exporting, manufacturing, marketing,

distributing, buying and selling, by wholesale, all kinds ofbeverages and liquors and in dealing in any material, article,

or thing required in connection with or incidental to its

principal business.3rll It is registered with the Bureau ofInternal Revenue (BIR) as an excise tax taxpayer

November 1, 2003 to December 31, 2004, Diageo purchasedraw alcohol from its supplier for use in the manufacture of its

beverage and liquor products. The supplier imported the rawalcohol and paid the related excise taxes thereon before the

same were sold to the petitioner.5rll The purchase pricefor the raw alcohol included, among others, the excise taxes

paid by the supplierin the total amount of P12,007,528.83

Diageo exported its locally manufactured liquor products toJapan, Taiwan, Turkey and Thailand and received the

corresponding foreign currency proceeds

Diageo filed with the BIR Large Taxpayers Audit andInvestigation Division II applications for tax refund/issuance

of tax credit certificates corresponding to the excise taxes

which its supplier paid but passed on to it as part of the

purchase price of the subject raw alcohol invoking Section130(D) of the Tax Code

ISSUE: WON Diageo is entitled to the claim.

Held:No.

Tax Code Sec. 130 (1) Persons Liable to File a Return. Everyperson liable to pay excise tax imposed under this Title shall

file a separate return for each place of production settingforth, among others, the description and quantity or volume

of products to be removed, the applicable tax base and the

amount of tax due thereon

(D) Credit for Excise tax on Goods Actually Exported.- Whengoods locally produced or manufactured are removed and

actually exported without returning to the Philippines,

whether so exported in their original state or as ingredients

or parts of any manufactured goods or products, any excisetax paid thereon shall be credited or refunded upon

submission of the proof of actual exportation and upon

receipt of the corresponding foreign exchange payment

A reading of the foregoing provision, however, reveals thatcontrary to the position of Diageo, the right to claim a refund

or be credited with the excise taxes belongs to its supplier

The phrase "any excise tax paid thereon shall be credited orefunded" requires that the claimant be the same person

who paid the excise tax.

In Silkair (Singapore) Pte, Ltd. v. Commissioner of InternaRevenue, the Court has categorically declared that "[t]heproper party to question, or seek a refund of, an indirect tax

is the statutory taxpayer, the person on whom the tax is

imposed by law and who paid the same even if he shifts the

burden thereof to another."

Excise taxes imposed under Title VI of the Tax Code are taxeson property24rll which are imposed on "goodsmanufactured or produced in the Philippines for domestic

sales or consumption or for any other disposition and to

things imported."25rll Though excise taxes are paid by themanufacturer or producer before removal of domestic

products from the place of production26rll or by the

owner or importer before the release of imported articlesfrom the customshouse,27rll the same partake of thenature of indirect taxes when it is passed on to the

subsequent purchaser.

Indirect taxesare defined asthose wherein the liability for thepayment of the tax falls on one person but the burden

thereof can be shifted to another person. When the seller

passes on the tax to his buyer, he, in effect, shifts the tax

burden, not the liability to pay it, to the purchaser as part o

the price of goods sold or services rendered.

Accordingly, when the excise taxes paid by the supplier werepassed on to Diageo, what was shifted is not the tax per se

but anadditional cost of the goods sold. Thus, the supplier

remains the statutory taxpayer even if Diageo, the purchaser

actually shoulders the burden of tax.

the person entitled to claim a tax refund is the statutorytaxpayer or the person liable for or subject to tax.29rll Inthe present case, it is not disputed that the supplier of Diageoimported the subject raw alcohol, hence, it was the one

directly liable and obligated to file a return and pay the excise

taxes under the Tax Code before the goods or products are

removed from the customs house. It is, therefore, the

statutory taxpayer as contemplated by law and remains to beso, even if it shifts the burden of tax to Diageo. Consequently

the right to claim a refund, if legally allowed, belongs to it andcannot be transferred to another, in this case Diageo, withou

any clear provision of law allowing the same.

Silkair vs Commissioner


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Facts:

Silkair, a corporation organized under the laws of Singapore

which has a Philippine representative office, is an onlineinternational 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 P4,567,450.79 excise taxes itclaimed to have paid on its purchases of jet fuel from Petron

Corporation from January to June 2000.

CTA denied Silkairs petition on the ground that as the excisetax was imposed on Petron Corporation as the manufacturer

of petroleum products, any claim for refund should be filed

by the latter; and where the burden of tax is shifted to the

purchaser, the amount passed on to it is no longer a tax but

becomes an added cost of the goods purchased.

The liability for excise tax on petroleum products that arebeing removed from its refinery is imposed on the

manufacturer/producer (Section 130 of the NIRC of 1997).

The right to claim for the refund of excise taxes paid onpetroleum products lies with Petron Corporation who paidand remitted the excise tax to the BIR. Respondent, on the

other hand, may only claim from Petron Corporation the

reimbursement of the tax burden shifted to the former by the

latter. The excise tax partaking the nature of an indirect tax, isclearly the liability of the manufacturer or seller who has the

option whether or not to shift the burden of the tax to the

purchaser. Where the burden of the tax is shifted to the[purchaser], the amount passed on to it is no longer a tax but

becomes an added cost on the goods purchased whichconstitutes a part of the purchase price

Issue: WON the petitioner is the proper party to claim for

refund or tax credit NO

Held:Silkair bases its claim for refund or tax credit on Section 135

(b) of the NIRC of 1997 which reads

Sec. 135. Petroleum Products sold to International Carriers

and Exempt Entities of Agencies. Petroleum products soldto the following are exempt from excise tax:

x x x x

(b) Exempt entities or agencies covered by tax treaties,

conventions, and other international agreements for their use

and consumption: Provided, however, That the country ofsaid foreign international carrier or exempt entities or

agencies exempts from similar taxes petroleum products sold

to Philippine carriers, entities or agencies; x x x

x x x x,

and Article 4(2) of the Air Transport Agreement between theGovernment of the Republic of the Philippines and the

Government of the Republic of Singapore (Air Transport

Agreement between RP and Singapore)

The proper party to question, or seek a refund of, an indirecttax is the statutory taxpayer, the person on whom the tax is

imposed by law and who paid the same even if he shifts theburden thereof to another.

Section 130 (A) (2) of the NIRC provides that "unless

otherwise specifically allowed, the return shall be filed and

the excise tax paid by the manufacturer or producer beforeremoval of domestic products from place of production."

Thus, Petron Corporation, not Silkair, is the statutory

taxpayer which is entitled to claim a refund based on Section135 of the NIRC of 1997 and Article4(2) of the Air Transport

Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden ofthe tax, the additional amount billed to Silkair for jet fuel is

not a tax but part of the price which Silkair had to pay as a

purchaser.

The exemption granted under Section 135 (b) of the NIRC of

1997 and Article 4(2) of the Air Transport Agreementbetween RP and Singapore 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.

b.) Tax avoidance

c.) Tax evasion

Commissioner vs Estate of Toda Jr.

FACTS:

Cibeles Insurance Corporation (CIC) authorized Benigno Toda

Jr, president and owner of 99.991% of its issued andoutstanding capital stock, to sell the Cibeles Building and two

parcels of land on which the building stands for an amount of

not less than P90M.

On August 30, 1989, Toda purportedly sold the property fo

P100M to Rafael Altonaga, who in turn sold the same

property on the same day to Royal Match Inc. (RMI) fo

P200M.


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For the sale of property to RMI, Altonaga paid capital gains

tax of P10M. Then in April 1990, CIC filed its corporate annual

ITR for the year 1989, declaring, among other things, its gain

from the sale of the real property (which was only P75+M).

In 1994, BIR demanded to the CIC a deficiency income tax for

the year 1989. (Toda already died at this time.)

The Commissioner said that a fraudulent scheme was

deliberately perpetuated by the CIC wholly owned andcontrolled by Toda by covering up the additional gain

of P100M, which resulted in the change in the income

structure of the proceeds of the sale of the two parcels of

land and the building thereon to an individual capital gains(subject only to 5% tax), thus evading the higher corporate

income tax rate of 35%.

SC is now called upon to determine whether the tax planning

scheme adopted by CIC constitutes tax evasion that would

justify and assessment of deficiency income tax.

{Tax Planning Scheme/Flow of Transaction based on my

understanding

CIC (Corpo) sold to-> Altonaga (individual) for P90+M -> sold

to RMI (Corpo) for P200M (but allegedly, this P200M was

paid to CIC and not Altonaga. Pinadaan lang kunwari kay

Altonaga (simulated sale) so that sa individual capital gains

tax ma account ang 200M kay mas malaki man ang % ng

corpo tax.}

ISSUE: Is this case a tax evasion or tax avoidance? TAX

EVASION

Tax Evasion vs. Tax Avoidance

Tax avoidance and tax evasion are the two most common

ways used by taxpayers in escaping from taxation. Tax

avoidance is the tax saving device within the means

sanctioned by law. This method should be used by the

taxpayer in good faith and at arms length. Tax evasion, on theother hand, is a scheme used outside of those lawful means

and when availed of, it usually subjects the taxpayer to

further or additional civil or criminal liabilities.

This is a Tax Evasion Case

Tax evasion connotes the integration of three factors:

(1) the end to be achieved, i.e., the payment of less than that

known by the taxpayer to be legally due, or the non-paymentof tax when it is shown that a tax is due;

(2) an accompanying state of mind which is described as

being "evil," in "bad faith," "willfull," or "deliberate and notaccidental"; and

(3) a course of action or failure of action which is unlawful.

All these factors are present in the instant case.

1. Even prior to the purported sale of the Cibeles property

by CIC to Altonaga on August 30, 1989, CIC

received P40M from RMI, and not from AltonagaThat P40M was debited by RMI and reflected in its tria

balances as "other inv.Cibeles Bldg."2. Also, as of July 31, 1989, another P40M was debited and

reflected in RMIs trial balance. This would show that thereal buyer of the properties was RMI, and not the

intermediary Altonaga.3. That Altonaga was a mere conduit finds support in the

admission of the Toda Estate that the sale to him was

part of the tax planning scheme of CIC. That admission is

borne by the records. In its Memorandum, respondent

Estate declared:

Petitioner, however, claims there was a

"change of structure" of the proceeds of

sale. Admitted 100%. But isnt this preciselythe definition of tax planning? Change the

structure of the funds and pay a lower tax

Precisely, Sec. 40 (2) of the Tax Code exists

allowing tax free transfers of property forstock, changing the structure of the

property and the tax to be paid. As long as

it is done legally, changing the structure o

a transaction to achieve a lower tax is notagainst the law. It is absolutely allowed.

Tax planning is by definition to reduce, if

not eliminate altogether, a tax. Surely

petitioner cannot be faulted for wanting to

reduce the tax from 35% to 5%.

The scheme resorted to by CIC in making it appear that therewere two sales of the subject properties, i.e., from CIC to

Altonaga, and then from Altonaga to RMI cannot be

considered a legitimate tax planning. Such scheme is tainted

with fraud. Fraudin its general sense, "is deemed tocomprise anything calculated to deceive, including all acts

omissions, and concealment involving a breach of legal o

equitable duty, trust or confidence justly reposed, resulting in

the damage to another, or by which an undue and

unconscionable advantage is taken of another.

Here, it is obvious that the objective of the sale to Altonaga

was to reduce the amount of tax to be paid especially that

the transfer from him to RMI would then subject the incometo only 5% individual capital gains tax, and not the 35%

corporate income tax. Altonagas sole purpose of acquiringand transferring title of the subject properties on the same

day was to create a tax shelter. Altonaga never controlled


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the property and did not enjoy the normal benefits and

burdens of ownership. The sale to him was merely a tax ploy,

a sham, and without business purpose and economic

substance. Doubtless, the execution of the two sales was

calculated to mislead the BIR with the end in view of reducing

the consequent income tax liability.

In a nutshell, the intermediary transaction, i.e., the sale ofAltonaga, which was prompted more on the mitigation of tax

liabilities than for legitimate business purposes constitutesone of TAX EVASION.

d.) Tax Exemption

e.) Compensation

South African Airways vs CIR

FACTS:

South African Airways is a foreign corporation organizedunder South African laws. It is an internal air carrier with a

sales agent in the Philippines ( Aerotel Limited Corporation).

It is not registered with SEC as a corporation or partnership

and has no license to do business is the Philippines.

For the taxable year 2000, South African Airways filed

separate quarterly and annual income tax returns for its off-

line flights. On February 5, 2003, it filed with the BIR a claim

for the refund of the amount of PhP 1,727,766.38 as

erroneously paid tax on Gross Philippine Billings (GPB) for the

taxable year 2000. This payment was made on the basis ofSec. 28 (A) (3) (a) . The claim went unheeded. The petition for

review filed with the CTA was likewise denied.

The CTA denied the tax refund and held that that petitioner isan international air carrier that do not have flights to andfrom the Philippines but nonetheless earn income from other

activities in the country and thus taxable at the rate of 32% ofsuch income under Sec 28 (A) (1) of the NIRC 1997. Althoughpetitioner is right that it cannot be made to pay under Sec 28

(A) (3)(a), it is likewise liable under Sec 28 (A) (1). 1

In other words, the Court held that petitioner cannot claimrefund for what it paid under Sec 28 (A) (3) (a) because the

same was offset with its liability under Sec 28 (A)(1).

Petitioner argues that such offsetting is in the nature of legal

compensation2, which cannot be applied under the

circumstances present in this case.

ISSUE:WON the offsetting was proper in this case such that

petitioner cannot anymore claim a refund . Offsetting/

Compensation was not proper because there is a need to

assess the liability of the petitioner .

HELD:

As a general rule , taxes cannot be subject to compensation

for the simple reason that the government and the taxpayer

are not creditors and debtors of each other. There is a

material distinction between a tax and debt. Debts are due tothe Government in its corporate capacity, while taxes are due

to the Government in its sovereign capacity.

Taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of

taxes against the claims that the taxpayer may have againstthe government. A person cannot refuse to pay a tax on the

ground that the

government owes him an amount equal to or greater than

the tax being collected. The collection of a tax cannot awaitthe results of a lawsuit against the government.

Verily, petitioners argument is correct that the offsetting oits tax refund with its alleged tax deficiency is unavailing

under Art. 1279 of the Civil Code.

Commissioner of Internal Revenue v. Court of Tax Appeals

however, granted the offsetting of a tax refund with a tax

deficiency in this wise:

Further, it is also worth noting that the Court of Tax Appeals

erred in denying petitioners supplemental motion foreconsideration alleging bringing to said courts attention theexistence of the deficiency income and business tax

assessment against Citytrust. The fact of such deficiency

assessment is intimately related to and inextricablyintertwined with the right of respondent bank to claim for a

tax refund for the same year. To award such refund despite

the existence of that deficiency assessment is an absurdityand a polarity in conceptual effects. Herein private

respondent cannot be entitled to refund and at the same

time be liable for a tax deficiency assessment for the same

year.

The grant of a refund is founded on the assumption that the

tax return is valid, that is, the facts stated therein are trueand correct. The deficiency assessment, although not yet

final, created a doubt as to and constitutes a challenge

against the truth and accuracy of the facts stated in said

return which, by itself and without unquestionable evidencecannot be the basis for the grant of the refund.

Section 82, Chapter IX of the National Internal Revenue Code


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of 1977, which was the applicable law when the claim of

Citytrust was filed, provides that (w)hen an assessment ismade in case of any list, statement, or return, which in the

opinion of the Commissioner of Internal Revenue was false or

fraudulent or contained any understatement or

undervaluation, no tax collected under such assessment shall

be recovered by any suits unless it is proved that the said list,

statement, or return was not false nor fraudulent and did not

contain any understatement or undervaluation; but this

provision shall not apply to statements or returns made or tobe made in good faith regarding annual depreciation of oil or

gas wells and mines.

Moreover, to grant the refund without determination of the

proper assessment and the tax due would inevitably result in

multiplicity of proceedings or suits. If the deficiency

assessment should subsequently be upheld, the Government

will be forced to institute anew a proceeding for the recovery

of erroneously refunded taxes which recourse must be filed

within the prescriptive period of ten years after discovery of

the falsity, fraud or omission in the false or fraudulent return

involved. This would necessarily require and entail additionalefforts and expenses on the part of the Government, impose

a burden on and a drain of government funds, and impede or

delay the collection of much-needed revenue forgovernmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficultiesor expenses, it is both logically necessary and legally

appropriate that the issue of the deficiency tax assessment

against Citytrust be resolved jointly with its claim for tax

refund, to determine once and for all in a single proceedingthe true and correct amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretoforeconceded, it would be only just and fair that the taxpayer and

the Government alike be given equal opportunities to avail of

remedies under the law to defeat each others claim and todetermine all matters of dispute between them in one singlecase. It is important to note that in determining whether or

not petitioner is entitled to the refund of the amount paid, it

would [be] necessary to determine how much theGovernment is entitled to collect as taxes. This would

necessarily include the determination of the correct liability

of the taxpayer and, certainly, a determination of this case

would constitute res judicata on both parties as to all the

matters subject thereof or necessarily involved therein.

Here, petitioners similar tax refund claim assumes that thetax return that it filed was correct. Given, however, the

finding of the CTA that petitioner, although not liable under

Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1),

the correctness of the return filed by petitioner is now put indoubt. As such, we cannot grant the prayer for a refund.

Be that as it may, this Court is unable to affirm the assailed

decision and resolution of the CTA En Banc on the outright

denial of petitioners claim for a refund. Even thoughpetitioner is not entitled to a refund due to the question on

the propriety of petitioners tax return subject of the instantcontroversy, it would not be proper to deny such claim

without making a determination of petitioners liability underSec. 28(A)(1).

It must be remembered that the tax under Sec. 28(A)(3)(a) isbased on GPB, while Sec. 28(A)(1) is based on taxable income

that is, gross income less deductions and exemptions, if any

It cannot be assumed that petitioners liabilities under thetwo provisions would be the same. There is a need to make adetermination of petitioners liability under Sec. 28(A)(1) toestablish whether a tax refund is forthcoming or that a tax

deficiency exists. The assailed decision fails to mention having

computed for the tax due under Sec. 28(A)(1) and the recordsare bereft of any evidence sufficient to establish petitioner staxable income. There is a necessity to receive evidence to

establish such amount vis--vis the claim for refund. It is only

after such amount is established that a tax refund ordeficiency may be correctly pronounced.

1. Note: Sec 28 (A)(1) - resident foreign corporations shall be

liable for a 32% income tax on their income from within the

Philippines (applicable to petitioner)

Sec 28 (A)(3)(a)- resident foreign corporations that are

international carriers that derive income from carriage ofpersons, excess baggage, cargo and mail originating from thePhilippines which shall be taxed at 2 1/2% of their GrossPhilippine Billings. (not applicable to petitioner)

2. Article 1279 of the Civil Code contains the elements of lega

compensation, to wit:

Art. 1279. In order that compensation may be proper, it is

necessary:

(1) That each one of the obligors be bound principally, and

that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things

due are consumable, they be of the same kind, and also ofthe same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention orcontroversy, commenced by third persons and

communicated in due time to the debtor.


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Commissioner vs Esso Standard

FACTS:ESSO overpaid its 1959 income tax by P221,033.00. It

was accordingly granted a tax credit in this amount by the

Commissioner on August 5, 1964. However, ESSOs payment

of its income tax for 1960 was found to be short byP367,994.00. So, on July 10, 1964, the Commissioner wrote to

ESSO demanding payment of the deficiency tax, together

with interest thereon for the period from April 18, 1961 to

April 18, 1964. On August 10, 1964, ESSO paid under protest

the amount alleged to be due, including the interest as

reckoned by the Commissioner. It protested the computation

of interest, contending it was more than. that properly due. It

claimed that it should not have been required to pay interest

on the total amount of the deficiency tax, P367,994.00, but

only on the amount of P146,961.00 representing the

difference between said deficiency, P367,994.00, and ESSOsearlier overpayment of P221,033.00 (for which it had been

granted a tax credit). ESSO thus asked for a refund.

The Internal Revenue Commissioner denied the claim for

refund. ESSO appealed to the Court of Tax Appeals. As

aforestated, that Court ordered payment to ESSO of its

"refund-claim x x in the amount of P39,787.94 as overpaid

interest. Hence, this appeal by the Commissioner.

RULING:

The CTA justified its award of the refund as

follows:jgc:chanrobles.com.ph

". . . In the letter of August 5, 1964, . . . (the Commissioner)

admitted that . . (ESSO) had overpaid its 1959 income tax by

P221,033.00. Accordingly . . (the Commissioner) granted to . .

(ESSO) a tax credit of P221,033.00. In short, the said sum of

P221,033.00 of (ESSOs) money was in the Governments

hands at the latest on July 15, 1960 when it (ESSO) paid in full

its second installment of income tax for 1959. On July 10,

1964 x x (the Commissioner) claimed that for 1960, . . . (ESSO)

underpaid its income tax by P367,994.00. However, instead

of deducting from P367,994.00 the tax credit of P221,033.00

which . . . (the Commissioner) had already admitted was due .

. . (ESSO), . . . (the Commissioner) still insists in collecting the

interest on the full amount of P367,994.00 for the period

April 18, 1961 to April 18, 1964 when the Government had

already in its hands the sum of P221,033.00 of . . . (ESSOs

money even before the latters income tax for 1960 was due

and payable. If the imposition of interest does not amount to

a penalty but merely a just compensation to the State for the

delay in paying the tax, and for the concomitant use by the

taxpayer of funds that rightfully should be in the

Governments hand (Castro v. Collector, G.R. No. L-1274, Dec

28, 1962), the collection of the interest on the full amount of

P367,994.00 without deducting first the tax credit of

P221,033.00, which has long been in the hands of the

Government, becomes erroneous, illegal and

arbitrary.chanrobles lawlibrary : rednad

". . . (ESSO) could hardly be charged of delinquency in paying

P221,033.00 out of the deficiency income tax of P367,994.00

for which the State should be compensated by the payment

of interest because the said amount of P221,033.00 was

already in the coffers of the Government. Neither could . . .

(ESSO) be charged for the concomitant use of funds thatrightfully belong to the Government because as early as July

15, 1960, it was the Government that was using . . . (ESSOs

funds of P221,033.00. In the circumstances, we find it unfai

and unjust for . . . (the Commissioner) to exact the interest on

the said sum of P221,033.00 which, after all, was paid to and

received by the Government even before the incidence of the

deficiency income tax of P367,994.00. (Itogon-Suyoc Mines

Inc. v. Commissioner, C.T.A. Case No. 1327, Sept. 30, 1965)

On the contrary, the Government should be the first to blaze

the trail and set the example of fairness and honest dealing in

the administration of tax laws.

"Accordingly, we hold that the tax credit of P221,033.00 fo

1959 should first be deducted from the basic deficiency tax of

P367,994.00 for 1960 and the resulting difference o

P146,961.00 would be subject to the 18% interest prescribed

by Section 51 (d) of the Revenue Code. According to the

prayer of . . . (ESSO) . . . (the Commissioner) is hereby ordered

to refund to . . . (ESSO) the amount of P39,787.94 as overpaid

interest in the settlement of its 1960 income tax liability

However, as the collection of the tax was not attended witharbitrariness because . . . (ESSO) itself followed . . . (the

Commissioners) manner of computing the tax in paying the

sum of P213,189.93 on August 10, 1964, the prayer of . .

(ESSO) that it be granted the legal rate of interest on its

overpayment of P39,787.94 from August 10, 1964 to the time

it is actually refunded is denied. (See Collector of Interna

Revenue v. Binalbagan Estate, Inc., G.R. No. L-12752, Jan. 30


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1965)."cralaw virtua1aw library

The Commissioners position is that income taxes are

determined and paid on an annual basis, and that such

determination and payment of annual taxes are separate and

independent transactions; and that a tax credit could not be

so considered until it has been finally approved and the

taxpayer duly notified thereof. Since in this case, he argues,the tax credit of P221,033.00 was approved only on August 5,

1964, it could not be availed of in reduction of ESSOs earlier

tax deficiency for the year 1960; as of that year, 1960, there

was as yet no tax credit to speak of, which would reduce the

deficiency tax liability for 1960. In support of his position, the

Commissioner invokes the provisions of Section 51 of the Tax

Code pertinently reading as follows:jgc:chanrobles.com.ph

"(c) Definition of deficiency. As used in this Chapter in respect

of tax imposed by this Title, the term `deficiency

means:chanrob1es virtual 1aw library

(1) The amount by which the tax Imposed by this Title

exceeds the amount shown as the tax by the taxpayer upon

his return; but the amount so shown on the return shall first

be increased by the amounts previously assessed (or

collected without assessment) as a deficiency, and decreased

by the amount previously abated, credited, returned, or

otherwise in respect of such tax; . . .

x x x

(d) Interest on deficiency. Interest upon the amount

determined as deficiency shall be assessed at the same time

as the deficiency and shall be paid upon notice and demand

from the Commissioner of Internal Revenue; and shall be

collected as a part of the tax, at the rate of six per centum per

annum from the date prescribed for the payment of the tax

(or, if the tax is paid in installments, from the date prescribed

for the payment of the first installment) to the date the

deficiency is assessed; Provided, That the amount that may

be collected as interest on deficiency shall in no case exceed

the amount corresponding to a period of three years, the

present provision regarding prescription to the contrary

notwithstanding."cralaw virtua1aw library

The fact is that, as respondent Court of Tax Appeals has

stressed, as early as July 15, 1960, the Government already

had in its hands the sum of P221,033.00 representing excess

payment. Having been paid and received by mistake, as

petitioner Commissioner subsequently acknowledged, that

sum unquestionably belonged to ESSO, and the Government

had the obligation to return it to ESSO. That acknowledgmen

of the erroneous payment came some four (4) years

afterward in nowise negates or detracts from its actuality

The obligation to return money mistakenly paid arises from

the moment that payment is made, and not from the time

that the payee admits the obligation to reimburse. The

obligation of the payee to reimburse an amount paid to him

results from the mistake, not from the payees confession o

the mistake or recognition of the obligation to reimburse. In

other words, since the amount of P221,033.00 belonging to

ESSO was already in the hands of the Government as of July,

1960, although the latter hand not right whatever to the

amount and indeed was bound to return it to ESSO, it was

neither legally nor logically possible for ESSO thereafter to be

considered a debtor of the Government in that amount of

P221,033.00; and whatever other obligation ESSO mightsubsequently incur in favor of the Government would have to

be reduced by that sum, in respect of which no interest could

be charged. To interpret the words of the statute in such a

manner as to subvert these truisms simply can not and

should not be countenanced. "Nothing is better settled than

that courts are not to give words a meaning which would lead

to absurd or unreasonable consequences. That is a principle

that goes back to In re Allen (2 Phil. 630) decided on October

29, 1903, where it was held that a literal interpretation is to

be rejected if it would be unjust or lead to absurd results." 6

"Statutes should receive a sensible construction, suck as wilgive effect to the legislative intention and so as to avoid an

unjust or absurd conclusion.

f.) Equitable Recoupment

g.) Tax Amnesty

Asia International vs CIR

Facts:

AIA is a duly organized corporation operating within the Subic

Special Economic Zone. It is engaged in the importation of

used motor vehicles and heavy equipment which it sells tothe public through auction.

On August 25, 2004, AIA received from the CIR a Forma


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Letter of Demand, dated July 9, 2004, containing an

assessment for deficiency value added tax (VAT) and excise

tax in the amounts of P 102,535,520.00 and P 4,334,715.00,

respectively, or a total amount of P 106,870,235.00, inclusive

of penalties and interest, for auction sales conducted on

February 5, 6, 7, and 8, 2004.

AIA claimed that it filed a protest letter dated August 29,

2004 but the

CIR failed to act on the protest, prompting AIA to file a

petition for review before the CTA on June 20, 2005

AIA filed a Manifestation and Motion with Leave of theHonorable Court to Defer or Suspend Further

Proceedings20rll on the ground that it availed of the TaxAmnesty Program under Republic Act 948021rll(RA 9480),otherwise known as the Tax Amnesty Act of 2007. On

February 13, 2008, it submitted to the Court a Certification of

Qualification22rll issued by the BIR on February 5, 2008stating that AIA "has availed and is qualified for Tax Amnesty

for the Taxable Year 2005 and Prior Years" pursuant to RA

9480.

Issue:( in relation to the subject of exemption and exclusion)

Whether or not AIA can avail the tax amnestry program

under RA 9480.

RULING:

A tax amnesty is a general pardon or the intentionaloverlooking by the State of its authority to impose penalties

on persons otherwise guilty of violating a tax law. It partakes

of an absolute waiver by the government of its right to collectwhat is due it and to give tax evaders who wish to relent a

chance to start with a clean slate.23rll

A tax amnesty, much like a tax exemption, is never favored orpresumed in law. The grant of a tax amnesty, similar to a tax

exemption, must be construed strictly against the taxpayer

and liberally in favor of the taxing authority.

In 2007, RA 9480 took effect granting a tax amnesty to

qualified taxpayers for all national internal revenue taxes forthe taxable year 2005 and prior years, with or without

assessments duly issued therefor, that have remained unpaid

as of December 31, 2005.25rllThe Tax Amnesty Program under RA 9480 may be availed of

by any person except those who are disqualified underSection 8 thereof, to wit:

Section 8. Exceptions. The tax amnesty provided in Section 5

hereof shall not extend to the following persons or cases

existing as of the effectivity of this Act:

(a) Withholding agents with respect to their withholding tax

liabilities;

(b) Those with pending cases falling under the jurisdiction of

the Presidential Commission on Good Government;

(c) Those with pending cases involving unexplained or

unlawfully acquired wealth or under the Anti-Graft and

Corrupt Practices Act

(d) Those with pending cases filed in court involving violation

of the Anti-Money Laundering Law

(e) Those with pending criminal cases for tax evasion and

other criminal offenses under Chapter II of Title X of the

National Internal Revenue Code of 1997, as amended, and

the felonies of frauds, illegal exactions and transactions, and

malversation of public funds and property under Chapters IIand IV of Title VII of the Revised Penal Code; and

(f) Tax cases subject of final and executory judgment by the

courts.(Emphasis supplied

The CIR contends that AIA is disqualified under Section 8(a) ofRA 9480 from availing itself of the Tax Amnesty Program

because it is "deemed" a withholding agent for the deficiency

taxes. This argument is untenableThe CIR did not assess AIA as a withholding agent that failed

to withhold or remit the deficiency VAT and excise tax to the

BIR under relevant provisions of the Tax Code. Hence, the

argument that AIA is "deemed" a withholding agent for thesedeficiency taxes is fallacious

Indirect taxes, like VAT and excise tax, are different from

withholding taxes.

To distinguish, in indirect taxes, the incidence of taxation falls

on one person but the burden thereof can be shifted or

passed on to another person, such as when the tax is

imposed upon goods before reaching the consumer who

ultimately pays for it.26rll On the other hand, in case ofwithholding taxes, the incidence and burden of taxation fal

on the same entity, the statutory taxpayer. The burden of

taxation is not shifted to the withholding agent who merelycollects, by withholding, the tax due from income payments

to entities arising from certain transactions27and remits the

same to the government. Due to this difference, the

deficiency VAT and excise tax cannot be "deemed" as

withholding taxes merely because they constitute indirect

taxes. Moreover, records support the conclusion that AIA wasassessed not as a withholding agent but, as the one directly

liable for the said deficiency taxes.28

The CIR also argues that AIA, being an accreditedinvestor/taxpayer situated at the Subic Special Economic

Zone, should have availed of the tax amnesty granted under

RA 9399 and not under RA 9480. This is also untenable

RA 9399 was passed prior to the passage of RA 9480. RA 9399does not preclude taxpayers within its coverage from availing

of other tax amnesty programs available or enacted in futuro

like RA 9480. More so, RA 9480 does not exclude from its

coverage taxpayers operating within special economic zones

As long as it is within the bounds of the law, a taxpayer has

the liberty to choose which tax amnesty program it wants to


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avail.

Lastly, the Court takes judicial notice of the "Certification of

Qualification" issued by Eduardo A. Baluyut, BIR Revenue

District Officer, stating that AlA "has availed and is qualified

for Tax Amnesty for the Taxable Year 2005 and Prior Years"

pursuant to RA 9480. In the absence of sufficient evidence

proving that the certification was issued in excess of

authority, the presumption that it was issued in the regular

performance of the revenue district officer's official duty

stands'

Philippine Banking Corporation vs CIR

FACTS: Petitioner Philippine Banking Corp (now Global

Business Bank) is a domestic corporation duly licensed as abanking institution. For the taxable years 1996 and 1997,

petitioner offered its Special/Super Savings Deposit Account

(SSDA) to its depositors. The SSDA is a form of a savings

deposit evidenced by a passbook and earning a higherinterest rate than a regular savings account. Petitioner

believes that the SSDA is not subject to Documentary Stamp

Tax (DST) under Section 180 of the 1977 National Internal

Revenue Code (NIRC), as amended.

On 10 January 2000, the Commissioner of Internal Revenue(respondent) sent petitioner a Final Assessment Notice

assessing deficiency DST based on the outstanding balancesof its SSDA, including increments, in the total sum of

P17,595,488.75 for 1996 and P47,767,756.24 for 1997. These

assessments were based on the outstanding balances of the

SSDA appearing in the schedule attached to petitionersaudited financial statements for the taxable years 1996 and

1997.

Petitioner maintains that the tax assessments are erroneous

because Section 180 of the 1977 NIRC does not includedeposits 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.[8]

Section 180 of the 1977 NIRC, as amended,[9]provides:

Sec. 180. Stamp tax on all loan agreements, promissory notes,bills of exchange, drafts, instruments and securities issued by

the government or any of its instrumentalities, certificates ofdeposit bearing interest and others not payable on sight or

demand. On all loan agreements signed abroad whereinthe object of the contract is located or used in the

Philippines; bills of exchange (between points within thePhilippines), drafts, instruments and securities issued by the

Government or any of its instrumentalities or certificates of

deposits drawing interest, or orders for the payment of any

sum of money otherwise than at the sight or on demand, or

on all promissory notes, whether negotiable or non-

negotiable, except bank notes issued for circulation, and on

each renewal of any such note, there shall be collected a

documentary stamp tax of Thirty centavos (P0.30) on each

Two hundred pesos, or fractional part thereof, of the face

value of any such agreement, bill of exchange, draft

certificate of deposit, or note: provided, that only one

documentary stamp tax shall be imposed on either loan

agreement, or promissory note issued to secure such loan

whichever will yield a higher tax: provided, however, that

loan agreements or promissory notes the aggregate of which

does not exceed Two hundred fifty thousand pesos(P250,000) executed by an individual for his purchase on

installment for his personal use or that of his family and not

for business, resale, barter or hire of a house, lot, moto

vehicle, appliance or furniture shall be exempt from thepayment of the documentary stamp tax provided under this

section. (Boldfacing supplied)

Petitioner 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.

Petitioner alleges that prior to the passage of Republic ActNo. 9243[15] (RA 9243), there was no law subjecting SSDA to

DST during the taxable years 1996 and 1997. The amendatoryprovision in RA 9243 now specifically includes certificates orother evidences of deposits that are either drawing interest

significantly higher than the regular savings deposit taking

into consideration the size of the deposit and the risks

involved or drawing interest and having a specific maturity

date.*16+ Petitioner admits that with this new taxing clauseits SSDA is now subject to DST. However, the fact remains

that this provision was non-existent during the taxable years

1996 and 1997 subject of the assessments in the presentcase.[17]

Respondent, through the Office of the Solicitor General

contends that the SSDA is substantially the same andidentical to that of a time deposit account because in order to

avail of the SSDA, one has to deposit a minimum of P50,000

and this amount must be maintained for a required period oftime to earn higher interest rates.[18] In a time deposit

account, the minimum deposit requirement is P20,000 and

this amount must be maintained for the agreed period to

earn the agreed interest rate. If a time deposit is pre-terminated, a penalty will be imposed resulting in a lower

interest income. In a regular savings account, the interest

rate is fixed and there is no penalty imposed for as long as the

required minimum balance is maintained. Thus, respondentasserts that the SSDA is a time deposit account, albeit in the

guise of a regular savings account evidenced by a

passbook.[19]

Respondent explains that under Section 180 of the 1977NIRC, certificates of deposits deriving interest are subject to


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the payment of DST. Petitioners passbook evidencing itsSSDA is considered a certificate of deposit, and being very

similar to a time deposit account, it should be subject to the

payment of DST.[20]

On 24 May 2007, during the pendency of this case before thisCourt, Republic Act No. 9480 or An Act Enhancing RevenueAdministration and Collection by Granting an Amnesty on AllUnpaid Internal Revenue Taxes Imposed by the National

Government for Taxable Year 2005 and Prior Years (RA9480), lapsed into law.

The pertinent provisions of RA 9480 are:

Section 1. Coverage. There is hereby authorized and granteda tax amnesty which shall cover all national internal revenue

taxes for the taxable year 2005 and prior years, with or

without assessments duly issued therefor, that have

remained unpaid as of December 31, 2005: Provided,

however, That the amnesty hereby authorized and granted

shall not cover persons or cases enumerated under Section 8

hereof.

x x x

Sec. 6. Immunities and Privileges. Those who availedthemselves of the tax amnesty under Section 5 hereof, and

have fully complied with all its conditions shall be entitled to

the following immunities and privileges:

1. The taxpayer shall be immune from the payment of taxes,as well as addition thereto, and the appurtenant civil,

criminal or administrative penalties under the National

Internal Revenue Code of 1997, as amended, arising from thefailure to pay any and all internal revenue taxes for taxable

year 2005 and prior years.

x x x

Sec. 8. Exceptions. The tax amnesty provided in Section 5hereof shall not extend to the following persons or cases

existing as of the effectivity of this Act:

1. Withholding agents with respect to their withholding tax

liabilities;2. Those with pending cases falling under the jurisdiction of

the Presidential Commission on Good Government;

3. Those with pending cases involving unexplained orunlawfully acquired wealth or under the Anti-Graft and

Corrupt Practices Act;4. Those with pending cases filed in court involving violation

of the Anti-Money Laundering Law;

5. Those with pending criminal cases for tax evasion and

other criminal offenses under Chapter II of Title X of the

National Internal Revenue Code of 1997, as amended, and

the felonies of frauds, illegal exactions and transactions, and

malversation of public funds and property under Chapters III

and IV of Title VII of the Revised Penal Code; and

6. Tax cases subject of final and executory judgment by the

courts. (Emphasis supplied)

The BIR also issued Revenue Memorandum Circular No. 692007 (RMC 69-2007).[59] The pertinent portion provides:

Q-32 May surviving or new corporations avail of the taxamnesty in behalf of the corporations absorbed or dissolved

pursuant to a merger or consolidation that took effect prior

to Taxable Year 2005? Can they avail of the Tax Amnesty?A-32 Yes, these companies can avail of the tax amnesty fo

purposes of obtaining tax clearances for the dissolved orabsorbed corporations. (Emphasis supplied)

On 21 September 2007, Metropolitan Bank and TrustCompany (Metrobank), the surviving entity that absorbed

petitioners banking business, filed a Tax Amnesty Return,*60paid the amnesty tax and fully complied with all the

requirements[61] of the Tax Amnesty Program under RA

9480. Petitioner alleges that by virtue of this availmentpetitioner is now deemed immune from the payment otaxes as well as additions thereto, and is statutorilydischarged from paying all internal revenue tax liabilities fo

the taxable year 2005 and prior years. Petitioner contends

that the availment includes all deficiency tax assessments of

the BIR subject of this petition.

ISSUE 1: WON petitioner is deemed immune from the

payment of taxes?

HELD 1: YES. A tax amnesty is a general pardon or the

intentional overlooking by the State of its authority to impose

penalties on persons otherwise guilty of violation of a tax lawIt partakes of an absolute waiver by the government of its

right to collect what is due it and to give tax evaders whowish to relent a chance to start with a clean slate. A tax

amnesty, much like a tax exemption, is never favored nopresumed in law. The grant of a tax amnesty, similar to a tax

exemption, must be construed strictly against the taxpayer

and liberally in favor of the taxing authority.[62]

The DST is one of the taxes covered by the Tax AmnestyProgram under RA 9480.[63] As discussed above, petitioner is

clearly liable to pay the DST on its SSDA for the years 1996

and 1997. However, petitioner, as the absorbed corporationcan avail of the tax amnesty benefits granted to Metrobank.

Records show that Metrobank, a qualified tax amnestyapplicant,[64] has duly complied with the requirements

enumerated in RA 9480, as implemented by DO 29-07 and

RMC 19-2008.[65] Considering that the completion of these

requirements shall be deemed full compliance with the tax

amnesty program,[66] the law mandates that the taxpaye

shall thereafter be immune from the payment of taxes, and

additions thereto, as well as the appurtenant civil, criminal o

administrative penalties under the NIRC of 1997, as


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amended, arising from the failure to pay any and all internal

revenue taxes for taxable year 2005 and prior years.[67]

The BIRs inclusion of issues and cases which were ruled byany court (even without finality) in favor of the BIR prior to

amnesty availment of the taxpayer as one of the exceptionsin RMC 19-2008 is misplaced. RA 9480 is specifically clear that

the exceptions to the tax amnesty program include tax casessubject of final and executory judgment by the courts. The

present case has not become final and executory whenMetrobank availed of the tax amnesty program.

Banas vs CA

FACTS:

On February 20, 1976, petitioner, Bibiano V. Baas Jr. sold toAyala Investment Corporation (AYALA), 128,265 square

meters of land located at Bayanan, Muntinlupa,

P2,308,770.00. The Deed of Sale provided that upon the

signing of the contract AYALA shall pay four P461,754.00.

The same day, petitioner discounted the promissory note

with AYALA, for its face value of P1,847,016.00, evidenced by

a Deed of Assignment signed by the petitioner and AYALA.

AYALA issued nine (9) checks to petitioner, all dated February

20, 1976, drawn against Bank of the Philippine Islands with

the uniform amount of P205,224.00.

In the succeeding years, until 1979, petitioner reported auniform income of P230,877.00 as gain from sale of capital

asset. In his 1980 income tax amnesty return, petitioner also

reported the same amount of P230,877.00 as the realized

gain on disposition of capital asset for the year.On April 11, 1978, then Revenue Director Calaguio authorized

examiners to examine the books and records of petitioner forthe year 1976. They discovered that petitioner had no

outstanding receivable from the 1976 land sale to AYALA andconcluded that the sale was cash and the entire profit should

have been taxable in 1976 since the income was wholly

derived in 1976.Examiners filed their audit report and declared a discrepancy

of P2,095,915.00 in petitioner's 1976 net income. They

recommended deficiency tax assessment P2,473,673.00.

Meantime, Aquilino Larin succeeded Calaguio as RegionalDirector. After reviewing the examiners' report, Larin reduced

deficiency tax assessment to P936,598.50, inclusive of

surcharges and penalties for the year 1976.

On June 27, 1980, respondent Larin sent a letter to petitionerinforming of the income tax deficiency that must be settled

him immediately.

On September 26, 1980, petitioner acknowledged receipt ofthe letter but insisted that the sale of his land to AYALA was

on installment.

On June 17, 1981, Larin filed a criminal complaint for tax

evasion against the petitioner.

On July 2, 1981, petitioner filed an Amnesty Tax Return under

P.D. 1740 and paid the amount of P41,729.81. On November

2, 1981, petitioner again filed an Amnesty Tax Return unde

P.D. 1840 and paid an additional amount of P1,525.62. In

both, petitioner did not recognize that his sale of land to

AYALA was on cash basis

Reacting to the complaint for tax evasion petitioner filed with

the RTC of Manila an action against respondents. He claimed

that the filing of criminal complaints against him for violation

of tax laws were improper because he had already availed of

two tax amnesty decrees, Presidential Decree Nos. 1740 and1840.

ISSUE:Whether P.D. 1740 and 1840 granting tax amnesties

granted petitioner immunity from tax suits. NO

RULING:P.D. No. 1740. CONDONING PENALTIES FOR CERTAIN

VIOLATIONS OF THE INCOME TAX LAW UPON VOLUNTARY

DISCLOSURE OF UNDECLARED INCOME FOR INCOME TAXPURPOSES AND REQUIRING PERIODIC SUBMISSION OF NET

WORTH STATEMENT

Sec. 1. Voluntary Disclosure of Correct Taxable Income. Any individual who, for any or all of the taxable years 1974 to1979, had failed to file a return is hereby, allowed to file a

return for each of the aforesaid taxable years and accurately

declare therein the true and correct income, deductions and

exemptions and pay the income tax due per return. Likewise,any individual who filed a false or fraudulent return for any

taxable year in the period mentioned above may amend his

return and pay the correct amount of tax due after deductingthe taxes already paid, if any, in the original declaration

(emphasis ours

Sec. 5. Immunity from Penalties. Any individual whovoluntarily files a return under this Decree and pays theincome tax due thereon shall be immune from the penalties,

civil or criminal, under the National Internal Revenue Code

arising from failure to pay the correct income tax with respectto the taxable years from which an amended return was filedor for which an original return was filed in cases where no

return has been filed for any of the taxable years 1974 to

1979: Provided, however, That these immunities shall not

apply in cases where the amount of net taxable income

declared under this Decree is understated to the extent of

25% or more of the correct net taxable income. (emphasis

ours)

P.D. NO. 1840 GRANTING A TAX AMNESTY ON UNTAXEDINCOME AND/OR WEALTH EARNED OR ACQUIRED DURING

THE TAXABLE YEARS 1974 TO 1980 AND REQUIRING THEFILING OF THE STATEMENT OF ASSETS, LIABILITIES, AND NET

WORTH.

Sec. 1. Coverage. In case of voluntary disclosure opreviously untaxed income and/or wealth such as earnings

receipts, gifts, bequests or any other acquisition from any

source whatsoever, realized here or abroad, by any individua

taxpayer, which are taxable under the National Interna

Revenue Code, as amended, the assessment and collection of


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all internal revenue taxes, including the increments or

penalties on account of non-payment, as well as all civil,

criminal or administrative liabilities arising from or incident

thereto under the National Internal Revenue Code, are

hereby condoned provided that the individual taxpayer shall

pay. (emphasis ours) . . .

Sec. 2. Conditions for Immunity. The immunity grantedunder Section one of this Decree shall apply only under the

following conditions:

a) Such previously untaxed income and/or wealth must havebeen earned or realized in any of the years 1974 to 1980; b)

The taxpayer must file an amnesty return on or before

November 30, 1981, and fully pay the tax due thereon; c) The

amnesty tax paid by the taxpayer under this Decree shall notbe less than P1,000.00 per taxable year; and d) The taxpayer

must file a statement of assets, liabilities and net worth as of

December 31, 1980, as required under Section 6 hereof.(emphasis ours)

It will be recalled that petitioner entered into a deed of sale

purportedly on installment. On the same day, he discounted

the promissory note covering the future installments. The

discounting seems questionable because ordinarily, when a

bill is discounted, the lender (e.g. banks, financial institution)

charges or deducts a certain percentage from the principal

value as its compensation. Here, the discounting was done by

the buyer.

On July 2, 1981, two weeks after the filing of the tax evasion

complaint against him by respondent Larin on June 17, 1981,

petitioner availed of the tax amnesty under P.D. No. 1740. His

amended tax return for the years 1974 - 1979 was filed with

the BIR office of Valenzuela, Bulacan, instead of Manila wherethe petitioner's principal office was located. He again availed

of the tax amnesty under P.D. No. 1840.

His disclosure, however, did not include the income from hissale of land to AYALA on cash basis. Instead he insisted that

such sale was on installment. He did not amend his income

tax return. He did not pay the tax which was considerablyincreased by the income derived from the discounting. He did

not meet the twin requirements of P.D. 1740 and 1840,

declaration of his untaxed income and full payment of tax

due thereon.

Clearly, the petitioner is not entitled to the benefits of P.D.

Nos. 1740 and 1840. The mere filing of tax amnesty return

under P.D. 1740 and 1840 does not ipso facto shield him fromimmunity against prosecution.

Tax amnesty is a general pardon to taxpayers who want to

start a clean tax slate. It also gives the government a chanceto collect uncollected tax from tax evaders without having to

go through the tedious process of a tax case.

To avail of a tax amnesty granted by the government, and to

be immune from suit on its delinquencies, the tax payer musthave voluntarily disclosed his previously untaxed income and

must have paid the corresponding tax on such previously

untaxed income.

It also bears noting that a tax amnesty, much like a taxexemption, is never favored nor presumed in law and if

granted by statute, the terms of the amnesty like that of a taxexemption must be construed strictly against the taxpayer

and liberally in favor of the taxing authority.11 Hence, on this

matter, it is our view that petitioner's claim of immunity from

prosecution under the shield of availing tax amnesty isuntenable.

IV. CONSTRUCTION AND INTERPRETATION OF TAX LAWS

a.)

Tax laws

CIR vs Fortune Tobacco

NATURE: After much wrangling in the CTA and the CA,Fortune Tobacco was granted a tax refund or tax credit

representing specific taxes erroneously collected from its

tobacco products. The tax refund is being re-claimed by the

Commissioner of Internal Revenue (Commissioner) in thispetition.

FACTS:

CAG.R. SP No. 80675

Petitioner is a domestic corporation duly organized and

existing under and by virtue of the laws of the Republic of the

Philippines, with principal address at Fortune Avenue, Parang

Marikina City. Petitioner is the manufacturer/producer ovarious cigarette brands.

Immediately prior to January 1, 1997, the cigarette brands of

Fortune Tobacco were subject to ad valorem tax pursuant to

then Section 142 of the Tax Code of 1977, as

amended. However, on January 1, 1997, R.A. No. 8240 tookeffect whereby a shift from the ad valoremtax (AVT) system

to the specific tax system was made and subjecting the

cigarette brands to specific tax under [S]ection 142 thereof,

now renumbered as Sec. 145 of the Tax Code of 1997

pertinent provisions of which are quoted thus:

Section 145. Cigars and Cigarettes-

(A) Cigars.There shall be levied, assessed and collected on


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cigars a tax of One peso (P1.00) per cigar.

(B) Cigarettes packed by hand. There shall be levied,assessesed and collected on cigarettes packed by hand a taxof Forty centavos (P0.40) per pack.

(C) Cigarettes packed by machine. There shall be levied,assessed and collected on cigarettes packed by machine a tax

at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the

value-added tax) is above Ten pesos (P10.00) per pack, the

tax shall be Twelve (P12.00) per pack;


value added tax) exceeds Six pesos and Fifty centavos

(P6.50) but does not exceed Ten pesos (P10.00) per pack, the

tax shall beEight Pesos (P8.00) per pack.


value-added tax) is Five pesos (P5.00) but does not exceed Six

Pesos and fifty centavos (P6.50) per pack, the tax shall be Five

pesos (P5.00) per pack;


value-added tax) is below Five pesos (P5.00) per pack, the tax

shall be One peso (P1.00) per pack;

Variants of existing brands of cigarettes which areintroduced in the domestic market after the effectivity of

R.A. No. 8240 shall be taxed under the highest classification

of any variant of that brand.

The excise tax from any brand of cigarettes within the next

three (3) years from the effectivity of R.A. No. 8240 shall notbe lower than the tax, which is due from each brandon October 1, 1996. Provided, however, that in cases were

(sic) the excise tax rate imposed in paragraphs (1), (2), (3) and

(4) hereinabove will result in an increase in excise tax of more

than seventy percent (70%), for a brand of cigarette, theincrease shall take effect in two tranches: fifty percent (50%)

of the increase shall be effective in 1997 and one hundred

percent (100%) of the increase shall be effective in 1998.

The rates of excise tax on cigars and cigarettes under

paragraphs (1), (2) (3) and (4) hereof, shall be increased by

twelve percent (12%) on January 1, 2000.

New brands shall be classified according to their current netretail price.

For the above purpose, net retail price shall mean the priceat which the cigarette is sold on retail in twenty (20) major

supermarkets in Metro Manila (for brands of cigarettesmarketed nationally), excluding the amount intended to

cover the applicable excise tax and value-added tax. For

brands which are marketed only outside Metro [M]anila, the

net retail price shall mean the price at which the cigarette issold in five (5) major supermarkets in the region excluding

the amount intended to cover the applicable excise tax and

the value-added tax.

The classification of each brand of cigarettes based on its

average retail price as of October 1, 1996, as set forth inAnnex D, shall remain in force until revised by Congress.

Variant of a brandshall refer to a brand on which a modifie

is prefixed and/or suffixed to the root name of the brandand/or a different brand which carries the same logo or

design of the existing brand.

To implement the provisions for a twelve percent (12%)

increase of excise tax on, among others, cigars and cigarettes

packed by machines by January 1, 2000, the Secretary o

Finance, upon recommendation of the respondent

Commissioner of Internal Revenue, issued Revenue

Regulations No. 17-99, dated December 16, 1999, which

provides the increase on the applicable tax rates on cigar and

cigarettes

Revenue Regulations No. 17-99 likewise provides in the lastparagraph of Section 1 thereof, (t)hat the new specific taxrate for any existing brand of cigars, cigarettes packed by

machine, distilled spirits, wines and fermented liquor shal

not be lower than the excise tax that is actually being paid

prior to January 1, 2000.

For the period covering January 1-31, 2000, petitione

allegedly paid specific taxes on all brands manufactured andremoved in the total amounts of P585,705,250.00.

CA G.R. SP No. 83165

The petition contains essentially similar facts, except that the

said case questions the CTAs December 4, 2003 decision inCTA Case No. 6612 granting respondents claim for refund ofthe amount of P355,385,920.00 representing erroneously or

illegally collected specific taxes covering the period January 1

2002 to December 31, 2002, as well as its March 17, 2004Resolution denying a reconsideration thereof.

This entire controversy revolves around the interplay

between Section 145 of the Tax Code and Revenue

Regulation 17-99.

ON TAX LAWS ISSUE (1): Whether or not the last paragraph

of Section 1 of Revenue Regulation[s] [No.] 17-99 is in

accordance with the pertinent provisions of Republic Act

[No.] 8240, now incorporated in Section 145 of the Tax Code

of 1997.

HELD:


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Section 145 states that during the transition period, i.e.,

within the next three (3) years from the effectivity of the Tax

Code, the excise tax from any brand of cigarettes shall not belower than the tax due from each brand on 1 October 1996.

This qualification, however, is conspicuously absent as

regards the 12% increase which is to be applied on cigars and

cigarettes packed by machine, among others, effective on 1January 2000. Clearly and unmistakably, Section 145

mandates a new rate of excise tax for cigarettes packed bymachine due to the 12% increase effective on 1 January 2000without regard to whether the revenue collection starting

from this period may turn out to be lower than that collected

prior to this date.

By adding the qualification that the tax due after the 12%increase becomes effective shall not be lower than the tax

actually paid prior to 1 January 2000, Revenue Regulation No.

17-99 effectively imposes a tax which is the higher amountbetween the ad valorem tax being paid at the end of the

three (3)-year transition period and the specific tax under

paragraph C, sub-paragraph (1)-(4), as increased by 12%asituation not supported by the plain wording of Section 145of the Tax Code.

As we have previously declared, rule-making power must be

confined to details for regulating the mode or proceedings in

order to carry into effect the law as it has been enacted, andit cannot be extended to amend or expand the statutory

requirements or to embrace matters not covered by the

statute. Administrative regulations must always be inharmony with the provisions of the law because any resulting

discrepancy between the two will always be resolved in favor

of the basic law.

The OSGs argument that by 1 January 2000, the excise tax oncigarettes should be the higher tax imposed under the

specific tax system and the tax imposed under the ad

valorem tax system plus the 12% increase imposed by

paragraph 5, Section 145 of the Tax Code, is an unsuccessful

attempt to justify what is clearly an impermissible incursion

into the limits of administrative legislation. Such an

interpretation is not supported by the clear language of thelaw and is obviously only meant to validate the OSGs thesisthat Section 145 of the Tax Code is ambiguous and admits of

several interpretations.

The foregoing leads us to conclude that Revenue RegulationNo. 17-99 is indeed indefensibly flawed. The Commissioner

cannot seek refuge in his claim that the purpose behind the

passage of the Tax Code is to generate additional revenues

for the government. Revenue generation has undoubtedly

been a major consideration in the passage of the Tax Code.

However, as borne by the legislative record, the shift from

the ad valorem system to the specific tax system is likewisemeant to promote fair competition among the players in

the industries concerned, to ensure an equitable distribution

of the tax burden and to simplify tax administration by

classifying cigarettes, among others, into high, medium and

low-priced based on their net retail price and accordingly

graduating tax rates.

b.) Exemption and Exclusion

Panasonic vs CIR

FACTS: Petitioner Panasonic Communications Imaging

Corporation of the Philippines (Panasonic) is registered with

the Board of Investments as a preferred pioneer enterpriseunder the Omnibus Investments Code of 1987. It is also a

registered value-added tax (VAT) enterprise.

Believing that the export sales from April 1 to

September 30 1998 and from Oct 1 1998 to march 31, 1999

were zero-rated for VAT under Section 106(A)(2)(a)(1) of the

1997 National Internal Revenue Code as amended

by Republic Act (R.A.) 8424 (1997 NIRC), Panasonic paid inputVAT of P4,980,254.26 and P4,388,228.14 for the two periods

or a total ofP9,368,482.40 attributable to its zero-rated sales.

Claiming that the input VAT it paid remained

unutilized or unapplied, Panasonic filed two separateapplications for refund or tax credit of what it

paid. Panasonic filed on December 16, 1999 a petition foreview with the CTA, averring

the inaction of the respondent Commissioner of Internal

Revenue (CIR) on its applications.

CTA denied the petition for lack of merit. While petitione

Panasonics export sales were subject to 0% VAT underSection 106(A)(2)(a)(1) of the 1997 NIRC, the same did not

qualify for zero-rating because the word zero-rated was not

printed on Panasonics export invoices. This omission, saidthe First Division, violates the invoicing requirements o

Section 4.108-1 of Revenue Regulations (RR) 7-95.

Panasonic appealed to the CTA en banc. CTA en

bancupheld the First Divisions decision and resolution anddismissed the petition. Panasonic filed a MFR but this wasdenied.


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ISSUE: Whether or not the CTA en banccorrectly denied

petitioner Panasonics claim for refund of the VAT it paid as azero-rated taxpayer on the ground that its sales invoices did

not state on their faces that its sales were zero-rated. YESTHE CTA CORRECTLY DENIED.

HELD:

The VAT is a tax on consumption, an indirect tax that

the provider of goods or services may pass on to his

customers. Under the VAT method of taxation, which

is invoice-based, an entity can subtract from the VAT charged

on its sales or outputs the VAT it paid on its purchases, inputs

and imports.

Related to topic of Exemption:

For the effective zero rating of such transactions,

however, the taxpayer has to be VAT-registered and must

comply with invoicing requirements. Interpreting these

requirements, respondent CIR ruled that under Revenue

Memorandum Circular (RMC) 42-2003, the taxpayers failure

to comply with invoicing requirements will result in the

disallowance of his claim for refund. RMC 42-2003 provides:

A-13. Failure by the supplier to comply with the invoicingrequirements on the documents supporting the sale of

goods and services will result to the disallowance of the

claim for input tax by the purchaser-claimant.

If the claim for refund/TCC is based on the existence of zero-

rated sales by the taxpayer but it fails to comply with the

invoicing requirements in the issuance of sales invoices (e.g.,

failure to indicate the TIN), its claim for tax credit/refund of

VAT on its purchases shall be denied considering that the

invoice it is issuing to its customers does not depict its being

a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment is without

prejudice to the right of the taxpayer to charge the input

taxes to the appropriate expense account or asset account

subject to depreciation, whichever is applicable. Moreover,

the case shall be referred by the processing office to the

concerned BIR office for verification of other tax liabilities of

the taxpayer.

Petitioner points out that in requiring the printing on its

sales invoices of the word zero-rated, the Secretary oFinance unduly expanded, amended, and modified by a mere

regulation (Section 4.108-1 of RR 7-95) the letter and spirit of

Sections 113 and 237 of the 1997 NIRC, prior to thei

amendment by R.A. 9337.

Petitioner Panasonic points out that Sections 113

and 237 did not require the inclusion of the word zerorated for zero-rated sales covered by its receipts oinvoices. The BIR incorporated this requirement only afte

the enactment of R.A. 9337 on November 1, 2005, a law that

did not yet exist at the time it issued its invoices.

But when petitioner Panasonic made the export

sales subject of this case, i.e., from April 1998 to March 1999

the rule that applied was Section 4.108-1 of RR 7-95

otherwise known as the Consolidated Value-Added Tax

Regulations, which the Secretary of Finance issued on

December 9, 1995 and took effect on January 1, 1996. It

already required the printing of the word zero-rated on

the invoices covering zero-rated sales. When R.A. 9337

amended the 1997 NIRC on November 1, 2005, it made this

particular revenue regulation a part of the tax code. This

conversion from regulation to law did not diminish thebinding force of such regulation with respect to acts

committed prior to the enactment of that law.

The requirement is reasonable and is in accord with the

efficient collection of VAT from the covered sales of goods

and services. As aptly explained by the CTAs First Divisionthe appearance of the word zero-rated on the face oinvoices covering zero-rated sales prevents buyers from

falsely claiming input VAT from their purchases when no VAT

was actually paid. If, absent such word, a successful claim fo

input VAT is made, the government would be refundingmoney it did not collect.

Further, the printing of the word zero -rated on theinvoice helps segregate sales that are subject to 10% (now

12%) VAT from those sales that are zero-rated. Unable to

submit the proper invoices, petitioner Panasonic has been

unable to substantiate its claim for refund.

.


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This Court held that, since the BIR authority to printis notone of the items required to be indicated on the

invoices or receipts, the BIR erred in denying the claim for

refund. Here, however, the ground for denial of petitioner

Panasonics claim for tax refundthe absence of the wordzero-rated on its invoicesis one which is specifically and

precisely included in the above enumeration. Consequently,the BIR correctly denied Panasonics claim for tax refund.

This Court will not set aside lightly the conclusions

reached by the CTA which, by the very nature of its functions,

is dedicated exclusively to the resolution of tax problems and

has accordingly developed an expertise on the subject, unlessthere has been an abuse or improvident exercise of

authority. Besides, statutes that grant tax exemptions are

construed strictissimi jurisagainst the taxpayer and liberally infavor of the taxing authority. Tax refunds in relation to the

VAT are in the nature of such exemptions. The general rule is

that claimants of tax refunds bear the burden of proving the

factual basis of their claims. Taxes are the lifeblood of thenation. Therefore, statutes that allow exemptions are

construed strictly against the grantee and liberally in favor of

the government.

CIR vs Fortune Tobacco

ON EXEMPTON AND EXCLUSION ISSUE (2):Whether or not

petitioner is entitled to a refund of P35,651,410.00 as allegedoverpaid excise tax for the month of January 2000.

The Commissioners contention that a tax refund partakesthe nature of a tax exemption does not apply to the tax

refund to which Fortune Tobacco is entitled. There is parity

between tax refund and tax exemption only when the formeris based either on a tax exemption statute or a tax refund

statute. Obviously, that is not the situation here. Quite the

contrary, Fortune Tobaccos claim for refund is premised onits erroneous payment of the tax, or better still the

governments exaction in the absence of a law.

Tax exemption is a result of legislative grace. And he whoclaims an exemption from the burden of taxation must justifyhis claim by showing that the legislature intended to exempt

him by words too plain to be mistaken. The rule is that tax

exemptions must be strictly construed such that the

exemption will not be held to be conferred unless the termsunder which it is granted clearly and distinctly show that such

was the intention.

The rule of strict interpretation against the taxpayer is

applicable as the claim for refund partakes of the nature of an

exemption, a legislative grace, which cannot be allowedunless granted in the most explicit and categorical language

The taxpayer must show that the legislature intended to

exempt him from the tax by words too plain to be mistaken.

Under the Tax Code itself, apparently in recognition of the

pervasive quasi-contract principle, a claim for tax refund maybe based on the following: (a) erroneously or illegally

assessed or collected internal revenue taxes; (b) penaltiesimposed without authority; and (c) any sum alleged to have

been excessive or in any manner wrongfully collected.

What is controlling in this case is the well-settled doctrine of

strict interpretation in the imposition of taxes, not the simila

doctrine as applied to tax exemptions. The rule in the

interpretation of tax laws is that a statute will not be

construed as imposing a tax unless it does so clearly

expressly, and unambiguously. A tax cannot be imposed

without clear and express words for that purpose

Accordingly, the general rule of requiring adherence to the

letter in construing statutes applies with peculiar strictness to

tax laws and the provisions of a taxing act are not to be

extended by implication. In answering the question of who is

subject to tax statutes, it is basic that in case of doubt, such

statutes are to be construed most strongly against thegovernment and in favor of the subjects or citizens because

burdens are not to be imposed nor presumed to be imposed

beyond what statutes expressly and clearly import. Asburdens, taxes should not be unduly exacted nor assumed

beyond the plain meaning of the tax laws.

Commissioner vs Central Luzon

Facts:

"Respondent is a domestic corporation primarily engaged inretailing of medicines and other pharmaceutical products. In

1996, it operated six (6) drugstores under the business name

and style Mercury Drug."From January to December 1996, respondent granted

twenty (20%) percent sales discount to qualified senior

citizens on their purchases of medicines pursuant to R.A.7432

and its Implementing Rules and Regulations. For the said

period, the amount allegedly representing the 20% sales

discount granted by respondent to qualified senior citizens

totaled P904,769.00

"On April 15, 1997, respondent filed its Annual Income Tax

Return for taxable year 1996 declaring therein that it incurred

net losses from its operations

"On January 16, 1998, respondent filed with petitioner aclaim for tax refund/credit in the amount of P904,769.00

allegedly arising from the 20% sales discount granted by

respondent to qualified senior citizens in compliance with

R.A. 7432. Unable to obtain affirmative response from


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petitioner, respondent elevated its claim to the CTA via a

Petition for Review.

The Tax Court rendered a decision dismissing respondentspetition for lack of merit. Respondent lodged a Motion for

Reconsideration. The CTA, in its assailed resolution, granted

respondents motion for reconsideration and ordered herein

petitioner to issue Tax Credit Certificate in favor of

respondent.

The CA affirmed in toto the resolution of the CTA ordering

petitioner to issue a tax credit certificate in favor ofrespondent in the reduced amount of P903,038.39. It

reasoned that RA 7432 required neither a tax liability nor a

payment of taxes by private establishments prior to the

availment of a tax credit. Moreover, such credit is nottantamount to an unintended benefit from the law, but

rather a just compensation for the taking of private property

for public use.

Issue:WON respondent, despite incurring a net loss, may stillclaim the 20 percent sales discount as tax credit?

Held:

Section 4a) of RA 743210 grants to senior citizens theprivilege of obtaining a 20 percent discount on their purchase

of medicine from any private establishment in the country.

The latter may then claim the cost of the discount as a tax

credit.12 But can such credit be claimed, even though anestablishment operates at a loss?

We answer in the affirmative.

Although the term is not specifically defined in our Tax

Code,13 tax credit generally refers to an amount that is

"subtracted directly from ones total tax liability.It is an"allowance against the tax itself" or "a deduction from what is

owed by a taxpayer to the government. Examples of tax

credits are withheld taxes, payments of estimated tax, andinvestment tax credits.

Tax credit should be understood in relation to other tax

concepts. One of these is tax deduction -- defined as a

subtraction "from income for tax purposes, or an amount

that is "allowed by law to reduce income prior to [the]

application of the tax rate to compute the amount of taxwhich is due. An example of a tax deduction is any of the

allowable deductions enumerated in Section 3420 of the Tax

Code.

A tax credit differs from a tax deduction. On the one hand, a

tax credit reduces the tax due, including -- whenever

applicable -- the income tax that is determined after applying

the corresponding tax rates to taxable income.21 Atax

deduction, on the other, reduces the income that is subject totax22 in order to arrive at taxable income.23 To think of the

former as the latter is to avoid, if not entirely confuse, the

issue. A tax credit is used only after the tax has beencomputed; a tax deduction, before.

Sections 2.i and 4 of RR 2-94 are erroneous as it deny the

exercise by the State of its power of eminent domain. Be it

stressed that the privilege enjoyed by senior citizens does not

come directly from the Sta

Documents

Tax Digests III-V