Tax Last Part

7/27/2019 Tax Last Part

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INSTANCES WHEN GAINS AND LOSSES ARE NOT RECOGNIZED FOR TAX

PURPOSES

CIR vs. FILINVESTG.R. No. 163653 July 19, 2011

The owner of 80% of the outstanding shares of respondent Filinvest Alabang, Inc(FAI), respondent FDC, is a holding company, which also owned 67.42% of theoutstanding shares of FAI. In November 1996, FDC and FAI entered into a Deed ofExchange with FLI, whereby the former both transferred in favor of the latter parcels oflands. In exchange, shares of stocks of FLI were issued to FDC and FAI. As a result,ownership structure of FLI was changed to some extent.

FLI requested a ruling from the BIR whether or not gain or loss should berecognized from the exchange. BIR ruled there is none. But CIR claimed that thetransfer of property should not be considered tax fee since there is the resultant

diminution of its shares in FLI, FDC did not gain further control of the corporation.

ISSUE:WON the exchange is one where there is non-recognition of gains or losses

Yes. The requisites for such under Section 34(c)(2), now 40(c)(2), are thefollowing:

a. the transferee is a corporationb. the transferee exchanges its share of stocks for properties of the transferorc. the transfer is made by a person acting alone, or with others not exceeding

fourd. as a result, such person/s gains control of the transfereeSince control is defined as ownership of stocks in a corporation possessing

atleast 51% of the total voting power of classes of stocks entitled to vote, the exchangeof property for stocks between the taxpayer, the affiliate and the transferee clearlyqualify as a tax free exchange under the NIRC , even though the percentage of FDCscontrolling interest decreased.


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CORPORATIONS ENJOYING PREFERENTIAL TAX RATES: GROSS PHILIPPINE

BILLINGS

BRITISH OVERSEAS AIRWAYS CORP. vs. CIR149 SCRA 395

BOAC is a 100% British government-owned corporation, organized and existingunder the laws of the United Kingdom. It is engaged in the international airline businessand is a member-signatory of the Interline Air Transport Association (IATA). As such, itoperates air transportation service and sells transportation tickets over the routes ofother airline members.

In May 1968, CIR assessed BOAC of deficiency income taxes of P2, 498, 358.56for the years 1959-1963. A subsequent investigation resulted in a new assessment forhe years 1959-1967 for P858,307.79. BOAC paid the new assessment under protest. Itclaims that due to the fact that it does not have any landing rights in the Philippines, its

ticket sales made through its agents in the country cannot be considered taxable.

ISSUE:WON the revenues of BOAC can be taxed

Yes, for it is a resident foreign corporation in the Philippines. The absence offlight operations to and from the Philippines is not determinative of the source of incomeor the situs of income taxation. Admittedly, BOAC was an off-line international airline atthe time pertinent to this case. The test of taxability is the source and such is thatactivity that produced the income.

Unquestionably, the passage documentations in these cases were sold in thePhilippines and the revenue thereon was derived from a business activity regularlypursued within the Philippines. Even if the BOAC tickets sold covered the transport ofpassengers and cargo to and from foreign cities, it cannot alter the fact that incomefrom sale of tickets was derived from the Philippines. The word source conveys oneessential idea, that of origin, and the origin of the income herein is the Philippines.


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BILLINGS

SOUTH AFRICAN AIRWAYS vs. CIRG.R. No. 180356 February 16, 2010

SAA is a foreign corporation organized and existing under the laws of theRepublic of South Africa. In the Philippines, it is an international air carrier having nolanding rights in the country. Petitioner has a general sales agent in the Philippines,

Aerotel Limited Corporation (Aerotel). Aerotel sells passage documents forcompensation or commission for petitioners offline flights for the carriage of passengersand cargo between ports or points outside the territorial jurisdiction of the Philippines.petitioner was not registered with the SEC as a corporation, branch office, orpartnership. It is not licensed to do business in the Philippines.

It filed with the BIR a claim for refund as erroneously paid tax on Gross Philippine

Billings for the taxable years 2000. It claims that it is not taxable because it does nothave landing rights nor maintain flights in the Philippines. Such claim was unheeded.The CTA then ruled that petitioner is liable to pay a tax of 32% on its income

derived from the sales of passage documents in the Philippines and denied the claim ofrefund.

ISSUE:WON SAA is liable for 32% tax on its income derived from ticket sales made inthe Philippines

Yes, as already ruled by the SC in the case of BOAC vis. CIR, offline air carriershaving general sales agents in the Philippines are engaged in doing business and thattheir income from sales of passage documents here is income from within the country.

As such, offline air carriers are liable for 32% tax on its income.Petitioner argues that the BOAC case was decided under the 1939 NIRC, and its

case must be decided under the 1997 NIRC. But there is no difference between what iswritten in both laws, even on their interpretation.


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BILLINGS

PASEO REALTY & DEVELOPMENT CORP. vs. CAG.R. No. 119286 October 13, 2004

PRDC, a domestic corporation engaged in the lease of two parcels of land atPaseo de Roxas, Makati City. On April 1990, it filed its Income Tax Return for 1989declaring its gross income, deductions, net income, income tax due, prior years excesscredit, and creditable taxes withheld and credit balance. It then filed a claim for refund ofexcess creditable withholding and income taxes for the years 1989 and 1990. Theappellate court dismissed the claim for refund as it did not specify in its return theamount to be refunded and the amount to be applied as tax credit to the succeedingtaxable year, but merely marked an Xto the box indication to be applied as tax creditto the succeeding taxable year. As such, instead of refund, petitioner will apply the

amount as tax credits for its liabilities in 1990. To grant the refund is tantamount togranting twice the refund, to the prejudice of the Government.s

ISSUE: WON the claimed refund was, by petitioners election in its Corporate AnnualIncome Tax Return for 1989 be applied against its tax liability in 1990

The grant of refund is founded on the assumption that the tax return is valid, thatthe facts therein are true and correct. Without the tax return, it is an error to grant arefund since it would be virtually impossible to determine whether the proper taxes havebeen assessed and paid.

Petitioners 1990 return could not be found. It failed to present such a vitalevidence. It could have attached a copy of its final adjustment return for 1990 when itclaimed the refund in November 1991.

Had petitioner presented its 1990 tax return in refutation of respondentsallegation that it did not present evidence to prove its claimed refund had already beenautomatically credited against its 1990 liability, the CTA would have not reconsidered itsearlier decision of granting the said refund.


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TAXATION OF ESTATES AND TRUSTS

MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED vs.COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE

G.R. No. 162175 June 28, 2010

Petitioner is a non-stock and non-profit corporation organized for the purpose ofholding title to and administering the employees trust or retirement funds establishedfor the benefit the employees of Victorias Milling Company, Incorporated. As trustee, itcalims that the income earned by the trust fund is tax exempt under Section 53(b) of theNIRC.

It decided to invest however, a part of the trust fund to purchase a lot in theMadrigal Business Park, its share equivalent to 49.59%. Since it needed to funds to paythe retirement and pension benefits of VMC employees, the Board authorized the saleof the lot. As the income tax was already paid, it insisted on refunds proportionate to its

share of the co-ownership of the land.The BIR however claimed that the income is not exempt.

ISSUE:WON petitioner should be taxed on its income from the sale of the lot

No. Petitioner was able to prove that it is a mere co-owner of the lot. The lawexpressly allows a co-owner (first) to register his proportionate share in the name of hisco-owner (second) in whose name the entire land is registered. The second co-ownerserves as a legal trustee of the first co-owner insofar as the proportionate share of thefirst co-owner is concerned. The first co-owner remains the owner of his proportionateshare.

As such, income derived from the sale of the land is tax exempt. It is evident thatthe tax exemption is enjoyed by the income of the pension trust. Otherwise, taxation ofthose earnings would result in diminution of accumulated income and reduce whateverthe trust beneficiaries would receive out of the trust fund. the petitioner exists for thepurpose of holding title to, and administering, the tax-exempt trust fund established forthe benefit of VMC employees.

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Tax Last Part