Tax Updates 2015

General Principles

La Suerte Cigar & Cigarette Factory vs. CIR

The cigarette manufacturers contend that for a long time prior to the transactions involved in the case, the CIR had never subjected their purchases and importations of stemmed leaf tobacco to excise taxes.

??? Will an erroneous interpretation by a BIR officer based on a misapprehension of law put the government in estoppel?

!!! NO. Prolonged practice of the BIR in not collecting specific tax on stemmed leaf tobacco cannot validate what is an otherwise erroneous application and enforcement of the law. The government is never estopped from collecting legitimate taxes because of the error committed by its agents. The BIR is not precluded from making a new interpretation of the law, especially when the old interpretation was flawed.

Angeles University Foundation vs. City of Angeles

Petitioner is a non-stock, non-profit educational foundation. It received a Building Permit Fee assessment for the construction of the AUF Medical Center but claimed exemption from the same as well as from other permits and fees. Respondent disputed the claimed exemption by stating that the impositions are regulatory in nature and not taxes from which Petitioner is exempt under the said law.

??? Is the building permit fee a tax from which Petitioner is exempt?

!!! It is a REGULATORY FEE. The DPWH has in fact issued implementing rules which provide the bases for the assessment of fees and Petitioner has failed to show that they were arbitrarily determined or unrelated to the activity being regulated. Neither has there been proof that the fee was unreasonable or in excess of the cost of regulation or inspection. The Court added that even if there was incidental revenue, the same is deemed not to change the nature of the charge. Thus, the City of Angeles was justified in its assessment.

CIR vs. Pilipinas Shell Petroleum Corporation

Shell filed a claim for refund for excise taxes it paid on sales of gas and fuel oils to various international carriers. The Court initially denied the claims but the Respondent filed a Motion for Reconsideration

??? Is Shell entitled to refund the excise taxes?

!!! YES. Section 135 is concerned with the exemption of the article itself and not the ostensible exemption of the international carrier-buyer. In addition, the failure to grant exemption will cause adverse impact on the domestic oil industry (similar to the practice of tankering) as well as result to violations of international agreements on aviation. Thus, Respondent, as the statutory taxpayer who is directly liable to pay the excise tax is entitled to a refund or credit for taxes paid on products sold to international carriers.

Philippine Airlines, Inc. vs. CIR

Caltex sold aviation fuel to PAL and included excise taxes in its billings. PAL filed for a refund of the excise taxes passed-on to it by Caltex. The claim was based on PALs franchise which confers upon PAL tax exemption on purchases of fuel. The CTA denied PALs claim using as basis the earlier decision in Silkair.

??? Does PAL have standing to refund the excise taxes passed-on by Caltex?

!!! YES. The case of Silkair is not applicable since PALs franchise provides it with tax exemption privileges from both direct and indirect taxes. While there have been previous cases discussing which party is entitled to a refund in the case of excise taxes sold to exempt entities, the Court reiterated the statement in Silkair which said that it is primarily the statutory taxpayer which has the right to file the claim. However, the above rule was deemed not to apply in PALs case since the law/franchise clearly grants the party to which the economic burden of the tax is shifted (i.e., PAL) an exemption from both direct and indirect taxes, thus following the principle laid down in the earlier case of Maceda.

Deutsche Bank AG Manila Branch vs. CIR

Petitioner withheld a 15% tax on its remittances to its head office in Germany using as basis the Tax Code provision on BPRT. Believing that it overpaid the BPRT since the RP-Germany provides for a lower rate of 10% on branch remittances, the Petitioner filed a refund with the BIR and subsequently with the CTA. Both the BIR and the CTA denied the claim stating that the branch office should have filed a tax treaty relief application prior to availing of the preferential treaty rate in view of the existing doctrine in the Mirant case.

??? Is Deutsche Bank entitled to the claim for refund even if it did not file a tax treaty relief application with the BIR?

Deutsche Bank AG Manila Branch vs. CIR

!!! YES. The Court said that the principle of pacta sunt servanda requires the performance in good faith of treaty obligations. Thus, to require that taxpayers must first comply with an administrative requirement (under RMO 1-2000) is not in consonance with the performance in good faith. The obligation to comply with a tax treaty must take precedence over the objectives of the said RMO. In addition, it was pointed out that the prior application becomes illogical if the premise of the claim was an erroneous payment since the taxpayer could not have known it would be entitled to the refund since precisely it was using a different basis when it paid the taxes due.

Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila

The City of Manila sought to enforce both Sections 14 and 21 of the Manila Revenue Code claiming that the former is a tax on manufacturers, etc. while the latter applies to business subject to excise, VAT or percentage tax.

??? Will the imposition of both sections amount to invalid double taxation?

!!! YES. There is in fact double taxation since both sections are being imposed on the same subject matter (privilege of doing business within the city), for the same purpose, by the same taxing authority, within the same taxing jurisdiction, for the same taxing period, and of the same kind or character (a local business tax imposed on gross sales or receipts). The Court further said that the LGC provision applicable (Section 143) clearly states that Section 143 (h) may be imposed only on businesses that are subject to excise tax, VAT, and percentage tax and that are not otherwise specified in the preceding paragraphs.

Land Bank of the Philippines vs. Cacayuran

The Municipality of Agoo, La Union passed a resolution authorizing its mayor to obtain a loan from the Petitioner and mortgage as collateral a portion of the Agoo plaza. As additional security, the municipality assigned a portion of its internal revenue allotment (IRA) in favor of the Petitioner. The loan proceeds were used to construct a commercial center on the plaza which was objected to by the local residents including the Respondent.

??? Did the Respondent have standing to file for the nullification of the loan?

!!! YES. The two requisites for a taxpayers suit have been complied with. First, even if the construction of the commercial center would be sourced from the loan proceeds from the Petitioner, the said funds were already converted into public funds upon receipt by the municipality, and the assignment of the IRA likewise characterized the funds as public. Second, since the plaza is for public use, the Respondent, like all other Agoo residents, is directly affected. Besides it has been held that as long as taxes are involved, people have a right to question government contracts even if they are not party to the contract/s.

II.INCOME TAX

CIR vs. Julia Campos Benedicto

After the PCGG filed cases to recover the ill-gotten wealth of the late husband of the Respondent, a compromise agreement was reached wherein the parties agreed that Swiss cases involving Respondents husbands bank deposits would be terminated in exchange for the PCGG unfreezing all of the deposits so that Benedicto could get his 49% share from the deposits. The CIR assessed the amount of the unfrozen accounts claiming that the same was income subject to tax.

??? Did the Respondents husband realize income as a result of the compromise agreement which led to him receiving 49% of the deposits?

!!! NO. The 49% was in no way income because the Respondents husband did not gain any wealth nor did he become any richer than he was before as in fact his wealth diminished to the extent of the 51% which he ceded to the PCGG. The 49% was a mere return of capital not subject to income tax. The Court ruled that it is only the interest income of the deposits which may be subjected to income tax as the same is the only gain.

CIR vs. Spouses Manly

The CIR filed criminal charges against the spouses claiming that there was unreported income after applying the expenditure method of reconstructing income which is done by reconstructing a taxpayers income by deducting the aggregate yearly expenditures from the declared yearly income. This method is resorted to when the records submitted by taxpayers are inadequate or inaccurate.

??? Did the CIR erroneously base the criminal charges on its use of the expenditure method?

!!! NO. The Court ruled that there is probable cause to indict respondent for tax evasion since the method clearly yielded a huge disparity between respondents reported income and their cash acquisitions. The use of the expenditure method was thus upheld.

Officemetro Philippines, Inc. vs. CIR

??? Are condominium dues, membership fees and other assessment/charges considered as income?

!!! NO. The said payments which are merely held in trust and which are to be used solely for administrative expenses in implementing their purposes (i.e., safeguard the welfare of the owners, provide utilities and amenities, etc.) and from which the corporation could not realize any gain or profit as a result of their receipt thereof, must not be included in said corporations gross income. As such, payments of the said dues are not subject to withholding taxes.

SMI-Ed Philippines Technology, Inc. vs. CIR

Petitioner constructed buildings and purchased machineries for its microprocessor factory within the PEZA zone. However, the company failed to commence operations and it then sold its machineries to another PEZA entity, subjecting the sale to the 5% preferential tax applicable to some PEZA enterprises. Petitioner thereafter filed for a refund of the taxes paid on the sale but the BIR failed to act on the claim and thus an appeal was filed with the CTA. The CTA then decided that the Petitioner was liable for capital gains tax (CGT) on the sale. The company objected to the CTAs finding claiming that it cannot on its own make the assessment against the Petitioner.

???(1) Was the sale subject to CGT?

(2) Did the CTA commit an error when it made anassessment?

(3) Has the right to assess by the BIR prescribed?

SMI-Ed Philippines Technology, Inc. vs. CIR

!!!(1) The sale was subject to both CGT and ordinary income tax. As the Petitioner did not do business, it was not entitled to the incentives under the PEZA law. The Court also pointed out that the CGT imposed on individuals and corporations is different in that the CGT for individuals is imposed on all real properties while CGT on corporations is imposed only on sale of lands and/or buildings. The income from the sale of machineries was thus subject to the regular corporate income tax.

(2) The CTA acquired jurisdiction because of the inaction of the BIR. As such, the CTA was not making an assessment but was merely determining the proper category of tax the petitioner should have paid which became an incidental matter.

(3) YES. The filing of the refund by the taxpayer was not a bar to the BIRs exercise of its assessment powers. Since, more than 10 years have lapsed from the filing of the returns, the right to assess has lapsed.

DPWH vs. Soriano

??? In expropriation proceedings, which party is liable for the taxes due on the transfer of the property taken?

!!! The buyer-owner is still the party liable for the CGT in expropriation proceedings, although the said liability is enforced is via a withholding tax obligation imposed on DPWH as the withholding agent. However, the DST is a liability of the government since the DPWHs guide in acquiring property through expropriation clearly provides that the government should shoulder this tax.

Banco de Oro vs. CIR

The BIR initially issued a BIR ruling in 2001to CODE-NGO confirming that the PEACe Bonds are not deposit substitutes and as such were not subject to withholding tax. In 2011, another ruling was issued in reply to the query of the Secretary of Finance this time stating that the bonds are in fact deposit substitutes since the determination of the 20 or more lenders is at any one time which means that it is the entire term of the bond and not merely the point of origination or issuance.

???(1) Does the Supreme Court have jurisdiction?

(2) At what point is the 20 lender rule determined?

(3) Is the interest from the bonds exempt under theexclusion provision on trading gains?

Banco de Oro vs. CIR

!!! (1) YES. While BIR rulings are generally reviewable by the Secretary of Finance, the rule on exhaustion of administrative remedies does not apply since (1) it involved a pure question of law and (2) an appeal to the SOF is deemed futile because the request for ruling in 2011 was filed by the SOF himself.

(2) The phrase at any one time for purposes of determining the 20 or more lenders would mean every transaction executed in the primary and secondary market in connection with the sale of the bonds. The Court also mentioned that income from debt instruments that are not deposit substitutes are nevertheless subject to the regular income tax rates.

(3) NO. The term gains as used in Section 32 does not include interests which represents forbearance for the use of money. The exclusion covers gains representing the difference between the selling price and the purchase price of the bonds in cases where the said securities are transferred/sold.

CIR vs. St. Lukes Medical Center, Inc.

St. Lukes is a non-stock non-profit hospital. The BIR assessed St. Lukes based on the argument that Section 27 (B) of the Tax Code should apply to it and hence all of St. Lukes income should be subject to the 10% tax therein as it is a more specific provision and should prevail over Section 30 which is a general provision. St. Lukes countered by saying that its free services to patients was 65% of its operating income and that no part of its income inures to the benefit of any individual.

??? Does Section 27 (B) have the effect of taking proprietary non-profit hospitals out of the income tax exemption under Section 30 of the Tax Code and should instead be subject to a preferential rate of 10% on its entire income?

!!! NO. The enactment of Section 27 (B) does not remove the possible income tax exemption of proprietary non-profit hospitals. The only thing that Section 27 (B) captures (at 10% tax) in the case of qualified hospitals is in the instance where the income realized by the hospital falls under the last paragraph of Section 30 such as when the entity conducts any activity for profit. The revenues derived by St. Lukes from pay patients are clearly income from activities conducted for profit.

ING Bank N.V. vs. CIR

Petitioner accrued some bonuses to be paid to its employees in 1996 and 1997 and claimed the same as deductible expenses but did not withhold taxes claiming that the same were only paid in 1997 and 1998.

??? Is Petitioner liable for deficiency withholding tax on accrued bonuses for taxable years 1996 and 1997?

!!! YES. The Tax Code expressly requires as a condition for deductibility of an expense that the tax required to be withheld on the amount paid or payable is shown to have been remitted to the BIR by the withholding agent. The obligation of the payor-employer to deduct and withhold the related withholding tax arises at the time the income was paid or accrued or recorded as an expense in the payor-employers books, whichever comes first. As Petitioner accrued or recorded the bonuses as a deduction in 1996 and 1997, its obligation to withhold arose in those years and not later (1997 and 1998) when it actually paid the bonuses.

Tambunting Pawnshop vs. CIR

Petitioner claimed losses as deductions arising from the auction sales it conducted. To prove the same, Petitioner submitted in evidence its Rematado book containing a record of items foreclosed and Subasta book containing a record of the auction sale of pawned items foreclosed.

??? Is Petitioner entitled to the losses as deductions?

!!! NO. Petitioner did not properly prove its losses since the Subasta books did not reflect the true amounts of the proceeds and the Rematado books did not reflect the capital since the only amounts therein were those given to the pawnees. The losses claimed from fire and theft were also disallowed since while certifications from the police and fire departments and a list of the properties lost were submitted, the Petitioner did not submit sworn declarations.

Manila Memorial Park, Inc. vs. Secretaries of DSWD & DOF

??? Is the law providing that the 20% senior citizen discount may be claimed only as a tax deduction unconstitutional?

!!! NO. The law is a legitimate exercise of police power which has general welfare for its object. This is despite the claim of Petitioner that the law has the effect of imposing upon private entities the burden of partly subsidizing a government program. Even if the current rule does not provide the entities providing discounts a peso for peso reimbursement, no payment of just compensation is warranted for being an exercise of police power and not eminent domain, which is a similar characterization for similar rules such as price control laws.

The law has also not been shown to be unreasonable, oppressive or confiscatory and doe not necessarily affect companies rates of return since (1) not all customers are senior citizens; (2) the level of profit margin of the goods and services offered to the public; and (3) the entities ability to recoup the discounts through higher mark-ups or from other products not subject to discounts.

PAGCOR vs. BIR

??? Did Republic Act 9337 have the effect of totally withdrawing the income tax exemption of PAGCOR?

!!! NO. The income of PAGCOR from its gaming operations conducted under its franchise is still subject only to the 5% franchise tax under PD 1869 while its income from other related services (such as licensing income, private internet casino gaming, etc.) is subject to corporate income tax based on R.A. 9337. The Court ruled that the grant of exemption under R.A. 8424 was unnecessary since PAGCORs exemption under its franchise was retained as having emanated from a special law. It was only Petitioners income from other related services that was affected by the provisions of both R.A. 8424 (grant of exemption) and 9337 (withdrawal of exemption).

CIR vs. Far East Bank & Trust Company

Far East Bank filed a claim for refund of overpaid creditable withholding taxes which included CWT on rental income allegedly earned by the Petitioner as lessor.

??? Can a claim for refund be granted notwithstanding claimants failure to show in the return that that income upon which the creditable taxes withheld were based was in fact reported?

!!! NO. The 3 essential requirements for a claim for refund of this nature to prosper are (1) filing the same within the 2-year period; (2) establishing the fact of withholding with copies of the CWT certificates; and (3) showing that the income received was declared as part of gross income. Here the Petitioner failed to prove (3) as the return in fact showed Not Applicable under the portion referring to Rental Income. In addition, some certificates were likewise not submitted as evidence.

Weinbrenner & Inigo Insurance Brokers, Inc. vs. CIR

??? Is the submission and presentation of the quarterly ITRs of the succeeding quarters of a taxable year indispensable in a claim for refund?

!!! NO. While presenting the succeeding quarterly ITRs significantly help claimants cause in proving that it did not carry-over the excess income tax, they are not absolutely needed as Section 76 of the Tax Code does not mandate it. Also, the 3 requirements (discussed in the Far East Bank case) for a claim of overpaid income tax does not include presenting the subsequent quarterly returns. The Court said that the presentation of the annual ITR would suffice in proving that prior years excess credits were not utilized for the current taxable year.

CIR vs. Smart Communications, Inc.

Smart entered into an Agreement with Prism, a nonresident foreign corporation domiciled in Malaysia, whereby Prism will provide programming and consultancy services to Smart. Thinking that the payments to Prism were royalties, Smart withheld 25% under the RP-Malaysia Tax Treaty. Smart then filed a refund with the BIR alleging that the payments were not subject to Philippine withholding taxes given that they constituted business profits paid to an entity without a permanent establishment in the Philippines.

??? Does Smart have the right to file the claim for refund?

!!! YES. The Court reiterated the ruling in Procter & Gamble stating that a person liable for tax has sufficient legal interest to bring a suit for refund of taxes he believes were illegally collected from him. Since the withholding agent is an agent of the beneficial owner of the payments (i.e., nonresident), the authority as agent is held to include the filing of a claim for refund. The Silkair case was held inapplicable as it involved excise taxes and not withholding taxes.

United Airlines, Inc. vs. CIR

Petitioner used to be an online carrier but ceased operating cargo flights from the Philippines starting 2001. It is now an offline international air carrier but has a general sales agent in the Philippines which sells passage documents for its off-line flights for carriage of passengers and cargo. It filed a claim for refund on the Gross Philippine Billings (GPB) tax it paid. The CTA ruled that Petitioner was not liable for the GBP but was liable to pay 32% tax on its net income derived from the sales of passage documents in the Philippines.

???Is Petitioner liable for either the GPB or the 32% tax?

United Airlines, Inc. vs. CIR

!!! 32% tax. The Court reiterated the ruling in South African Airways stating that it is the sale of tickets which is the revenue-generating activity subject to Philippine tax. The correct interpretation of the applicable rules is that, if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of such income.

The Court also ruled that to avoid multiplicity of suits and unnecessary difficulties and expenses the issue of deficiency tax assessment be resolved jointly with the its claim for refund and doing so does not violate the rule against offsetting of taxes.

Republic Act 10653 Increasing the 13th month pay exclusion

!!! The 13th month pay and other benefits exclusion from gross income has been increased from P30,000 to P82,000.

!!! This will cover other benefits such as productivity incentives and Christmas bonus.

!!! The increased amount applies to bonuses and other benefits paid or accrued beginning January 1, 2015.

Republic Act 10378 Exemption of International Air Carriers

!!! international air carriers doing business in the Philippines may avail of a preferential rate or exemption on the basis of a tax treaty or international agreement to which the Philippines is a signatory or on the basis of reciprocity such that an international carrier, whose home country grants income tax exemption to Philippine carriers, shall likewise be exempt from the tax on Gross Philippine Billings.

!!! Transport of passengers by international carriers are now exempt from VAT.

!!! International air and shipping carriers doing business in the Philippines are now subject to the 3% percentage only on their gross receipts derived from the transport of cargo and not on their transport of passengers.

Republic Act 10026 Exemption of Local Water Districts

!!! Local water districts are now exempt from income taxes under Section 27 provided that the amount saved by virtue of the exemption is to be used for capital equipment expenditure to expand water services coverage

!!! All unpaid taxes starting August 13, 1996 are condoned provided (1) the BIR establishes financial incapacity of the LWD and (2) the LWD submits to Congress a program of internal reforms.

RR 01-2015 Amendment to De Minimis Benefits

!!! Benefits received by an employee under a CBA and productivity incentive schemes with a combined maximum amount of P10,000 per employee.

RMC 51-2014 Inurement Prohibition under Section 30

!!! Non-profit under Section 30 means that no net income or asset accrues to or benefits any member or specific person. Thus, the earnings or assets shall not inure to the benefit of any of its trustees, organizers, officers, members, or any specific person.

!!! The following are considered inurements:

payment of compensation, salaries, or honorarium to its trustees or organizers

payment of exorbitant or unreasonable compensation to its employees

provision of welfare aid and financial assistance to its members

donation to any person or entity (except those to other entities with similar purposes)

purchase of goods or services for amounts in excess of fair market value from an entity which one of its trustees or officers has an interest

Where upon dissolution its assets are distributed to its trustees, organizers, officers, or members

RMC 79-2014 Tax Treatment of Stock Option Plans

!!! The difference between book value/fair market value of the shares at the time of the exercise of the option and the price fixed on the grant date is subject to ---

income tax and withholding tax on compensation if the grantee is a rank-and-file employee

fringe benefits tax if the grantee occupies a supervisory or managerial position

!!! The transfer of the option is subject to ---

CGT if the same is transferred for a consideration

donors tax if transferred without any consideration

RMC 31-2013 --- Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Embassies, International Organizations, etc.

!!! Foreign governments, embassies, diplomatic missions, and international organizations as employers in the Philippines are immune from being withholding agents on the salaries of their employees based on international comity.

!!! However, this immunity does not translate into all employees of these entities being exempt from income tax. Only the individuals specifically named in the treaties, international agreements, and laws are exempt from income taxes while those not covered are not relieved of their duty to report their income and pay the taxes but must do so on their own.

RMC 31-2013 --- Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Embassies, International Organizations, etc.

!!! Some examples of those exempted are diplomats (including family, staff, servants if NOT nationals or permanent residents of the Philippines).

All employees of the following REGARDLESS of nationality and residence --- AUSAID / UN / ILO / FAO-UN / UNESCO / WHO / UNDP.

Philippine nationals claiming exemptions under the above laws, agreements must file an application for confirmation of tax exemption with the ITAD of the BIR.

The following entities only exempt those that are not Philippine nationals --- JICA (must be from Japan) Red Cross / AUSAID / CIDA / ADB / IMF / IBRD / UNICEF / IRRI / Ford Foundation / Rockefeller Foundation.

RR 2-2013 Transfer Pricing Guidelines

!!! Critical features of the TP regulations ---

1) The rules apply to cross border and domestic transactions.

2) For purposes of applying the rules, the parties are considered related if one participates directly or indirectly in the management, control or capital of another. Control refers to any kind of control, direct or indirect, whether exercised or not, and shall be assumed if income or deductions have been arbitrarily shifted.

3) The transactions between related parties must be at arms length otherwise BIR will make adjustments on the basis of the rules.

RR 2-2013 Transfer Pricing Guidelines

4) Advance Pricing Arrangement --- either unilateral (only the taxpayer and the BIR) or bilateral/multilateral (involves the Philippines and one or more treaty partner/s)

5) The documentation requirements need not be submitted to the BIR but must be retained. The same must be contemporaneous which means it exists or is brought into existence at the time the associated enterprises implement any arrangement that might raise transfer pricing issues. The documentation will contain the organizational structure, nature of business, assumptions, comparability analysis, TP method, application, etc.

6) There are no safe harbor rates/rules in the TP regulations.

Other Significant Issuances

!!! RMC 9-2013 --- Provides for the possible income tax and VAT exemption of association dues and income derived from rentals of homeowners associations properties if (i) constituted as an association under RA 9904; (ii) the LGU having jurisdiction certifies that the basic services (i.e., security, street lights, maintenance and repair of streets, garbage disposal, etc.) for which the dues are being used cannot be provided by the said LGU; and (iii) the homeowners association presents proof that the dues are used for the aforesaid basic services.

!!! RR 12-2012 --- For motor vehicles allowed for use of an employee, the company providing the same can only take up as a deductible expense (via depreciation) the amount representing one vehicle and the value of which should not exceed P2,400,000.

III.ESTATE TAX

Dizon vs. CIR

There were claims against the estate which the BIR contested stating that lower amounts were paid as compromise payments during the settlement of the estate and these are amounts that should be considered as deductions in arriving at the net estate.

??? Will the compromise amounts be the amounts considered as deductions to the gross estate?

!!! NO. The deductions allowable are the amounts determined at the time of death. Post-death developments are not material in determining the amount of deduction. Thus, the Court applied the date-of-death valuation rule which is the US rule on deductions and which is applicable also in the Philippines. The amount deductible is the debt which could have been enforced against the deceased in his lifetime.

IV.DONORS TAX

Metro Pacific Corporation vs. CIR

Petitioner sold its shares in Bonifacio Land Corporation for around P400M when the book value of the unlisted shares was at around P850M. The BIR assessed the Petitioner for donors tax on the difference between the consideration and the book value citing Section 100 of the Tax Code. The parties claimed that the donors tax is not due since it was an ordinary commercial transaction negotiated in good faith between unrelated parties and motivated by legitimate business reasons.

??? Is the transfer of the shares subject to donors tax?

!!! YES. The Court upheld the use of the book value of the shares as the fair market value for purposes of applying Section 100 of the Tax Code. Likewise, the same provision shows that no exemption/exception is permitted. The Court also pointed out that the ruling upholding the Petitioners position cannot be relied upon since it was a ruling of first impression which was issued by the Assistant Commissioner and not the CIR herself, in violation of Section 7 on the non-delegability of the power to issue rulings of first impression.

V.VALUE-ADDED TAX

Mindanao II Geothermal Partnership vs. CIR

??? Is the sale of a fully depreciated motor vehicle an isolated transaction which should not be subject to VAT in the hands of a power generation company?

!!! NO. While the sale is admittedly an isolated transaction, it does not follow that the same cannot be considered as an incidental transaction which satisfies the requirement to attract VAT liability. The Court deemed that the sale of the motor vehicle was in the course of its business of converting steam into electricity for supply to NPC. The case of Magsaysay cannot apply since the sale of the vessels therein was not in the course of business of NDC and the same was involuntary for having been made pursuant to the Governments policy of privatization. (Note: At the time when Magsaysay was decided the Tax Code did not cover incidental transactions.)

CIR vs. Sony Philippines, Inc.

Sony Philippines was ordered examined for the period 1997 and unverified prior years as indicated in the Letter of Authority . The audit yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of FWT on royalties for the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony International Singapore (SIS).

??? (1) Is Petitioner liable for deficiency VAT?

(2) Was the investigation of its 1998 FWT return valid?

!!! (1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain advertising costs. This is sufficient to accord it the benefit of input VAT credits and where the money came from to satisfy said advertising billings is another matter but does not alter the VAT effect. In the same way, Sony Philippines can not be deemed to have received the reimbursable as a fee for a VAT-taxable activity.

CIR vs. Sony Philippines, Inc.

The reimbursable was couched as an aid for Sony Philippines by SIS in view of the companys dire or adverse economic conditions. More importantly, the absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the reimbursement. This was distinguished from the COMASERCO case where even if there was similarly a reimbursement-on-cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines not SIS.

!!! (2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers unverified prior years should be enough to invalidate it. In addition, even if the FWT was covered by Sony Philippines fiscal year ending March 1998, the same fell outside of the period 1997 and was thus not validly covered by the LOA.

Maxicare Healthcare Corporation vs. CIR

Petitioner claims that the portion of the enrollment fees (80%) which is earmarked for medical/hospital utilization expenses does not belong nor does it redound to its benefit and should thus not be considered as part of its gross receipts for VAT purposes.

??? Is the total amount of enrollment fees collected by Petitioner subject to VAT?

!!! YES. The difference of this case with that of Tours Specialists where the tourists asked the local tour agency to pay for their lodging accommodations is that in that case the local agency had nothing to do at all with contract between the payors (tourists) and the payees (hotels) and was only making the payment as an accommodation. On the other hand, in the instant case, the alleged amounts earmarked

for payment form part and parcel of the entire package offered to its members. Thus, there is no portion of the funds that go into the hands of the petitioner is delineated for delivery to a third party. The members are deemed to have prepaid only the HMO and not the doctors or hospitals. All these negate the concept of money in trust as used in Tours Specialists.

Kepco Philippines Corporation vs. CIR

Kepco filed a claim for refund of unutilized input VAT based on its zero-rated sale of power to NPC. A substantial portion of the claim was disallowed for having been supported by VAT invoices which only had the TIN-VAT stamped and not printed. There were also certain sales by Kepco which failed to indicate the words zero-rated. Lastly, they also alleged that invoices and receipts are interchangeable and either should suffice as proof of purchase and consequently as support for a claim for refund.

??? Is Petitioner entitled to the claim for refund on the disallowed portion?

!!! NO. The requirement that the TIN be imprinted and not merely stamped is a reasonable requirement imposed by the BIR. More importantly, the requirement of the appearance of the words zero-rated on the face of the invoice prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. The failure to adhere to the said rules will not only expose the taxpayer to penalties but should also serve to disallow the claim. Finally, the Court disagreed with the position that invoices and receipts are interchangeable since the former clearly refers to sales of goods while the latter to services.

Fort Bonifacio Development Corporation vs. CIR

Petitioner was a real estate developer that bought from the national government a parcel of land that used to be the Fort Bonifacio military reservation. At the time of the said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on its purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had already been imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of land. The BIR disallowed the claim of presumptive input VAT and thereby assessed Petitioner for deficiency VAT.

??? Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a real estate dealer and if so (i) is the transitional input VAT applied only to the improvements on the

real property or is it applied on the value of the entire real property and (ii) should there have been a previous tax payment for the transitional input VAT to be creditable?

Fort Bonifacio Development Corporation vs. CIR

!!! YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the improvements but on the value of the entire real property and regardless of whether there was in fact actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real estate business subject to a different treatment from those engaged in the sale of other goods or properties or in any other commercial trade or business. On the scope of the basis for determining the available transitional input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105 of the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.

Accenture, Inc. vs. CIR

Accenture filed a VAT claim for refund on unutilized input VAT premised on its claim that its sales were zero-rated for being in connection with services rendered to nonresident recipients. The CIR denied the claim stating that Accenture failed to prove that its foreign clients did business outside the Philippines.

??? Is Accenture entitled to the VAT refund?

!!! NO. Accenture failed to prove that services were rendered for nonresident. The Amex case did not rule that the services recipients need not be doing business outside the Philippines but only that the consumption need not be abroad. However, Accenture failed to prove that the clients/service recipients are doing business outside the Philippines as they only submitted SEC certifications showing that their clients have not established any branch offices in the Philippines and billing statements issued to the said clients. The Court ruled that while it did prove that its clients are foreign, there was no proof that they were doing business outside the Philippines.

Luzon Hydro Corporation vs. CIR

Petitioner filed a VAT claim for refund on unutilized input VAT arising from its alleged zero-rated sales of electricity to NPC. The claims were denied since Petitioner failed to show proof of the actual zero-rated sales since they did not present as evidence the VAT official receipts and VAT returns.

??? Is Petitioner entitled to the VAT refund?

!!! NO. The Court reiterated the requirements for a valid input VAT refund from zero-rated sales as follows: (a) the taxpayer is VAT-registered; (b) the taxpayer is engaged in zero-rated sales; (c) the input taxes are paid; (d) input taxes are not transitional input taxes; (e) the input taxes are attributable to zero-rated transactions; (f) input taxes have been unapplied; (g) filing the claim within 2 years.

Significant issuances

!!! RMC 057-2013 --- Unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit. The practice of claiming as an outright (income tax) expense accumulated and unapplied input VAT credits after the expiration of the 2-year period to process to claim does not have legal basis.

!!! RR 08-2015 --- Only raw cane sugar (natural sugar extracted from sugarcane through simple mechanical process by pressing the juice, boiled to crystallize, filtered using centrifuge)and muscovado shall be considered as being entitled to VAT exemption.

VI.REMEDIES

CIR vs. Gonzalez

An investigation was conducted against LMCEC for taxable years 1997 to 1999. The assessments that came out of the said investigation was disputed by the taxpayers on the grounds that (i) the assessment notices issued were invalid for not bearing serial numbers and (ii) the examinations made on the books of accounts and other records were done more than once in the relevant taxable years.

??? Are the assessments invalid?

!!! NO. The formality of a control number in the assessment notice is not a requirement for its validity but rather it is the contents which should inform the taxpayer of the deficiency and which should contain the facts and the laws on the which the assessment is based. Likewise, this case is an exception to the general rule of having the books examined only once in a year. Section 235 of the Tax Code allows the multiple examinations when (a) there is fraud or irregularity; (b) the taxpayer requests for reinvestigation; (c) there is a required verification of compliance with withholding taxes and capital gains tax liabilities.

Rizal Commercial Banking Corporation vs. CIR

??? Whether a taxpayer, by paying the other tax assessments covered by a Waiver of the Statute of Limitations, is considered estopped from questioning the validity of the said waiver (on the basis that the CIR did not sign it) with respect to the other covered but unsettled assessments?

!!! YES. RCBC is considered estopped through its partial payment of the revised assessments within the extended period provided in the said waivers. Thus, it had impliedly admitted the validity of the said waivers. Had it believed that the waiver was invalid and that the period to assess had effectively prescribed, RCBC could have refused to make any payment based on any assessment against it.

(Note: In the more recent case of CIR vs. Standard Chartered Bank, the Court said that the taxpayer did not waive the defense of prescription based on a defective waiver as it continued to raise the issue of prescription.)

Samar-I Electric Cooperative vs. CIR

The FAN and demand letter issued to Petitioner were not accompanied by a written explanation of the legal and factual bases of the deficiency taxes assessed against the Petitioner. However, the CIRs response to Petitioners protest of the FAN did explain at length the factual and legal bases of the deficiency tax assessments in denying the protest.

??? Was the Petitioner accorded the required due process?

!!! YES. Considering the exchange of correspondence and documents between the parties, the Court found that the requirement of Section 228 was substantially complied with. The CIR had fully informed the company in writing of the factual and legal bases of the assessment which enabled the taxpayer to file an effective protest, much unlike the taxpayers situation in Enron. Thus, there was no finding of any violation of due process.

The Court likewise upheld the application of the Aznar doctrine in saying that the substantial under declaration of withholding taxes constituted falsity in the subject returns which this justified the use of the 10-year period to assess.

Fluor Daniel Philippines, Inc. vs. CIR

Fluor Daniel was initially assessed for deficiency EWT on its software maintenance fees paid to an offshore affiliate. In response to Petitioners protest, the CIR issued a Final Decision on Disputed Assessment (FDDA) cancelling the deficiency EWT assessment but issuing an assessment for FWT on the same software fees albeit using a lower 15% rate under the RP-US Tax Treaty.

??? Was the Petitioner deprived of due process when the FDDA changed the assessment from deficiency EWT to deficiency FWT?

!!! YES. The change of the assessment in the FDDA itself constituted a new assessment. As such, the taxpayer should have been given the chance to dispute the same via the process laid down in the Tax Code which is by way of filing a protest. Given that this was not complied with as what was issued was already an FDDA, the circumstances certainly deprived the Petitioner of a reasonable opportunity to be heard and submit evidence in support of its defense which is a clear violation of due process requirements.

Lascona Land Co., Inc. vs. CIR

Lascona Land appealed a decision by the CIR holding that the assessment against it has become final and executory for failure to appeal to the CTA within 30 days from the lapse of the 180-day period provided for under the Tax Code.

??? In cases of inaction on disputed assessments, can the taxpayer still file an appeal with the CTA even after the lapse of the 180-day period?

!!! YES. In case the CIR fails to act on a disputed assessment within the 180-day period from the submission of documents, the taxpayer can either (a) file an appeal with the CTA within 30 days after the expiry of the 180-day period or (b) await the final decision of the CIR and then appeal the same within 30 days. These options are mutually exclusive and resort to one bars the application of the other. A taxpayer can not be prejudiced if he chooses to wait for the final decision of the CIR as this is the normal expectation when a protest is filed. Thus, an appeal filed within the 30-day period from the receipt of the decision, even if made after the 180-day period, is still considered as having been filed on time.

Allied Banking Corporation vs. CIR

Allied Banking Corporation received a PAN from the BIR which it timely disputed. In response, the BIR issued a Formal Letter of Demand with Assessment Notices. Instead of protesting the FAN, the petitioner filed a Petition for Review with the CTA. The CTA dismissed the Petition stating that it is neither the assessment nor the formal demand letter itself that is appealable before it but instead it should be the decision of the CIR on the disputed assessment.

??? Can the Formal Letter of Demand be construed as the final decision of the CIR appealable to the CTA under Republic Act 9282?

Allied Banking Corporation vs. CIR

!!! YES. This is considered an exception to the general rule on exhaustion of administrative remedies since the CIR is considered estopped from claiming the same principle applies in its case. The tenor of the demand letter is clear that the CIR had already made a final decision and that the remedy of the Petitioner was to appeal the same within 30 days of receipt. This can be gleaned from the use of the terms final decision and appeal which were deemed unequivocal language pointing to the finality of the decision. While the Court cited the rules relative to (a) protesting the FAN and not the PAN and (b) counting the 30 day period to appeal to the CTA from receipt of the decision of the CIR and not issuance of the assessment, this particular case was deemed a clear exception in view of the CIRs own actions.

V.Y. Domingo Jewellers, Inc. vs. CIR

Petitioner initially received a PAN which it protested. Subsequent to the filing of the protest and instead of serving a FAN on the taxpayer, the CIR sent Petitioner a Preliminary Collection Letter (PCL) informing the Petitioner of the existence of two assessment notices the details of which may be viewed in the BIRs office. Subsequently, the taxpayer filed a petition with the CTA attaching the assessment notices. The CIR moved to dismiss the petition claiming lack of jurisdiction since it is neither the assessment nor the PCL that is appealable to the CTA but the decision of the CIR on the disputed assessment.

??? Did the CTA have jurisdiction on the petition filed by the taxpayer?

!!! YES. The contention of the CIR that the taxpayer should have appealed the decision of the CIR on the disputed assessment cannot hold water since there was no assessment notice issued by the BIR in the first place. In fact, the burden is on the CIR to prove that the taxpayer received the FAN required under Section 228 of the Tax Code. Thus, the Court allowed the CTA to take cognizance of the case as it falls under other matters given the peculiarity of the case.

CIR vs. Hambrecht & Quist Philippines, Inc.

The assessment against Hambrecht & Quist had become final and unappelable since there was a failure to protest the same within the 30-day period provided by law. However, the CTA held that the BIR failed to collect within the prescribed time and thus ordered the cancellation of the assessment notice. The CIR disputed the jurisdiction of the CTA arguing that since the assessment had become final and unappealable, the taxpayer can no longer dispute the correctness of the assessment even before the CTA.

??? Can the CTA still take cognizance of an assessment case which has become final and unappealable for failure of the taxpayer to protest within the 30-day protest period?

CIR vs. Hambrecht & Quist Philippines, Inc.

!!! YES. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The CTA law clearly bestows jurisdiction to the CTA even on other matters arising under the National Internal Revenue Code. Thus, the issue of whether the right of the CIR to collect has prescribed, collection being one of the duties of the BIR, is considered covered by the term other matters. The fact that assessment has become final for failure to protest only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, this issue is entirely distinct from the issue of whether the right to collect has in fact prescribed.

The Court ruled that the right to collect has indeed prescribed since there was no proof that the request for reinvestigation was in fact granted/acted upon by the CIR. Thus, the period to collect was never suspended.

Festo Holdings, Inc. vs. CIR

??? Is the FDDA issued by the Revenue District Officer (RDO) appealable to the CTA?

!!! NO. The RDOs decision can not be considered as the CIRs decision appealable to the CTA in the absence of any proof that the RDO was authorized to decide and act on behalf of the CIR on the protest of a taxpayer. This is notwithstanding the fact that Section 7 of the Tax Code allows the CIR to delegate her vested powers (except those specifically enumerated as non-delegable) to any subordinate official with the rank equivalent to a division chief or higher. Lastly, Sections 11 and 13 of the Tax Code which enumerate the duties and authority of the RDO do not, by themselves, provide that an RDO can issue decisions that are appealable to the CTA.

Note: The RDO has a rank of Division Chief.

CIR vs. BASF Coating + Inks Phils., Inc.

??? Is the period to assess suspended if the taxpayer failed to formally notify of the BIR of its change of address even if the BIR is in fact aware of the said change?

!!! NO. The rule that the periods to assess and collect are suspended if the taxpayer cannot be located does not apply even if the taxpayer failed to follow the process for the notification on the change of address as long as there is proof that the BIR in fact was aware of the whereabouts of the taxpayer. In this case, all indications point to the fact that the CIR knew of the change in address given that several submissions of various records already show the new address and, more importantly, the BIR already conducted an inspection in the taxpayers new address.

China Banking Corporation vs. CIR Bank of the Philippine Islands vs. CIR

??? Will the filing of an Answer in the case filed before the CTA by the taxpayer being assessed be considered as collection on the part of the BIR?

!!! While previous cases have in fact upheld the rule that the filing of an Answer by the CIR may constitute the collection contemplated by law required to be done within the prescribed period, the same must have been done properly to be effective. In this case, the Answer was deemed ineffective since the case was filed with the CTA at the time (i.e., before 2004 or the effective date of R.A. 9282) when the judicial actions for collection of internal revenue taxes was within the jurisdiction of the regular courts. Thus, the right to collect had indeed prescribed.

People of the Philippines vs. Kintanar

The spouses Kintanar were charged for alleged tax evasion and non-filing of income tax returns. Gloria Kintanars defense was that she did not have personal knowledge of the actual filing of the said returns since it was her husband who filed their ITRs. The husband in turn alleged that their ITRs were in fact prepared by their accountant and that they necessarily just relied on the said accountant. These facts supposedly contradicted the claim that their failure to file the returns was willful.

??? Was the defendant guilty of tax evasion?

!!! YES. The elements of a violation under Section 255 have been satisfied. These are (1) that the accused is a person required to make or file a return; (2) that the accused failed to file the return at the time required by law; and (3) that the failure to file was willful. For (1), as income-generating spouses, they were obviously covered by the filing requirements. For (2), the BIR witnesses presented showed sufficient proof that indeed no returns were filed in the RDOs where they should have filed.

People of the Philippines vs. Kintanar

For (3), the Court said that the mere fact of having an accountant prepare ones returns is not enough to show that that there was no voluntary, intentional or deliberate failure to file. The Court added that the fact of her being a businesswoman presupposes that she ought to know and understand all matters concerning her business including the filing of returns, citing Rule 131 on the Rules on Evidence which states that it is presumed that a person takes ordinary care of his concern. More importantly, the Court found no affirmative acts on the part of defendant to make sure her obligation to file ITRs had been fully complied with given that she testified that she does not even know how much her tax liabilities were. This neglect or omission was considered tantamount to deliberate ignorance or conscious avoidance. Lastly, the Court noted that the accountant himself was not even presented as witness.

People of the Philippines vs. Judy Anne Santos

The evidence presented against defendant showed discrepancies between the income tax return filed and the documents which showed the amounts she earned from various companies (ABS-CBN, Viva, Star Cinema, Century Tuna). The defense forwarded was that she relied on her manager and CPA in the preparation of her tax returns. The defendant likewise said that she had signed her contracts without reading the same since she had put her trust and confidence in her manager.

??? Was the defendant guilty of tax evasion?

!!! NO. The element of willfulness to find defendant guilty of tax evasion is not present in this case. At most, the accused was found guilty of being negligent and there is thus no proof of guilt beyond reasonable doubt. The accused was merely made to pay the deficiency assessment against her.

CIR vs. Kudos Metal Corporation

CIR assessed Kudos Metal Corporation for taxable year 1998. A Waiver of the Statute of Limitations was executed on December 2001. The CTA issued a Resolution canceling the assessment notices issued against Petitioner for having been issued beyond the prescriptive period as the waiver purportedly failed to (a) have the valid officer execute the same (i.e., only the Assistant Commissioner signed it and not the CIR); (b) the date of acceptance was not indicated; (c) the fact of receipt by the taxpayer was not indicated in the original copy.

??? Has the CIRs right to assess prescribed?

CIR vs. Kudos Metal Corporation

!!! YES. The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No. 5-01 are mandatory to give effect to Section 222 of the Tax Code. Specifically, the flaws in the waiver executed by Kudos Metal were as follows: (a) there was no notarized written authority in favor of the signatory for the company; (b) there is no stated date of acceptance by the Commissioner or his representative; and (c) the fact of the receipt of the copy was not indicated in the original waivers.

Neither can it be said that by merely executing the waiver the taxpayer is already estopped from disputing an action by the CIR beyond the statutory 3-year period since the exception under the Suyoc case (i.e., when the delays were due to taxpayers acts) does not apply.

Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry date; (iii) signed by authorized officer of taxpayer and BIR; (iv) notarized; (v) fact of receipt must be indicated in the copies

CIR vs. MERALCO

Respondent obtained a loan from a Singapore branch of ING Barings and withheld 10% on its interest payments. Subsequently, it discovered that the lender is a foreign government-owned financing institution of Germany and then filed a request for ruling with the BIR seeking confirmation of the tax exempt status of the lender and consequently their non-liability to withholding taxes. After the BIR issued the ruling confirming the exemption, Respondent filed a claim for refund with the CIR. The CIR denied the claim stating that the claim has prescribed as 2 years has lapsed from the time the withholding taxes were paid.

??? Has the right to claim refund of the erroneously paid withholding taxes prescribed?

CIR vs. MERALCO

!!! YES. The 2-year period is applied regardless of any supervening cause that may arise after payment. In this case, the issuance by the BIR of the ruling is merely confirmatory in nature and is not the operative act from which an entitlement of refund is determined. The period also cannot begin to run merely from the discovery by the taxpayer of erroneous or excessive payment of taxes. Neither can solution indebiti be used as basis since this legal concept presupposes that there is no binding relationship between the payor and the payee. There is clearly a binding relationship since Respondent is required by law to act as withholding agent on its payment to the lender-bank.

CIR vs. Aichi Forging Company of Asia, Inc.

On September 30, 2004, Aichi Forging filed a claim for refund/credit of input VAT attributable to its zero-rated sales for the period July 1, 2002 to September 30, 2002 with the CIR through the DOF One-Stop Shop. On the same day, Aichi Forging filed a Petition for Review with the CTA for the same action. The BIR disputed the claim and alleged that the same was filed beyond the two-year period given that 2004 was a leap year and thus the claim should have been filed on September 29, 2004. The CIR also raised issues related to the reckoning of the 2-year period and the simultaneous filing of the administrative and judicial claims.

??? (1) Was the Petitioners administrative claim filed out of time?

(2) Was the filing of the judicial claim premature?

CIR vs. Aichi Forging Company of Asia, Inc.

!!! (1) NO. The right to claim the refund must be reckoned from the close of the taxable quarter when the sales were made in this case September 30, 2004. The Court added that the rules under Sections 204 (C) and 229 as cross-referred to Section 114 do not apply as they only cover erroneous payments or illegal collections of taxes which is not the case for refund of unutilized input VAT. Thus, the claim was

filed on time even if 2004 was a leap year since the sanctioned method of counting is the number of months. The period of exception for this rule is from June 8, 2007 to September 11, 2008 when the 2-year period is reckoned from the date of the payment of output VAT (Atlas Consolidated Mining vs. CIR)

(2) YES. Section 112 mandates that the taxpayer filing the refund must either wait for the decision of the CIR or the lapse of the 120-day period provided therein before filing its judicial claim. Failure to observe this rule is fatal to a claim. Thus, Section 112 (A) was interpreted to refer only to claims filed with the CIR and not appeals to the CTA given that the word used is application. Finally, the Court said that applying the 2-year period even to judicial claims would render nugatory Section 112 (D) which already provides for a specific period to appeal to the CTA --- i.e., (a) within 30 days after a decision within the 120-day period and (b) upon expiry of the 120-day without a decision.

CIR vs. Mindanao II Geothermal Partnership

Aichi, Mirant, Atlas, San Roque, etc.

Aichi, Mirant, Atlas, San Roque, etc.

Miramar Fish Company, Inc. vs. CIR

Petitioner amended its administrative claims filed with the BIR claiming that it had revised the amounts contained in the letter-claims. Given this claim, it also argued that that the remedy to appeal the inaction of the BIR on the claims (using the 120+30 rule) has not yet prescribed.

??? Will the amendment of the administrative claims serve to extend the period to appeal the inaction with the CTA?

!!! NO and YES. The claims that merely relied on the same unamended VAT returns cannot be used since both versions of the claim relied on the figures reflected in the VAT returns. On the other hand, the claims that were revised relied as well on amendments made to the VAT returns themselves and as such are considered as validly justified amendments.

United Airlines, Inc. vs. CIR

United Airlines was formerly an online carrier and stopped being such in 1998 at which time it appointed a sales agent in the Philippines. They filed a claim for refund in 2002 covering alleged overpaid income taxes on gross passenger revenues arising from the years after it became an offline carrier. While the CTA agreed that the Petitioner can no longer be taxed for gross passenger revenues starting 1999, it also found that Petitioner erroneously deducted items from its gross cargo revenues which was not consistent with the Tax Code. The CTA thus disallowed the refund by pointing out that Petitioner in fact underpaid its taxes on cargo revenues by P31 million which amount was higher than the P5 million being claimed for refund.

??? Can the Court, without violating the general principle against offsetting of taxes, disallow a claim for refund on the ground that its (Courts) finding of a deficiency assessment against the same claimant is even higher than that sought to be refunded?

United Airlines, Inc. vs. CIR

!!! YES. Section 72 of the Tax Code states that When an assessment is made in case of any list, statement or return, which in the opinion of the Commissioner was false or fraudulent or contained any statement or undervaluation, no tax collected under such assessment shall be recovered by any suit, unless it is proved that said list, statement or return was not false nor fraudulent and did not contain any understatement or undervaluation. While the Court reiterated and recognized the rule against offsetting of tax claims upheld in previous cases, it brought up the point that the grant of a refund is founded on the assumption that the tax return is valid. It also said that the practical benefit of dispensing of the issues on the proper assessment in the same claim for refund case likewise avoids a multiplicity of proceedings or suits.

Note: The Court apparently did not find it relevant that the Tax Code provision refers to the Commissioner having such an opinion/finding since in this case it was the CTA which first brought up the issue of the tax return not being relied upon.

Smart Communications, Inc. vs. Municipality of Malvar

Petitioner received a closure order from the Respondent for the non-payment of dues arising out of an ordinance regulating the establishment of special projects which included Petitioners telecommunications tower. Petitioner protested and upon denial of the protest appealed the same to the Regional Trial Court of Tanauan questioning as well the validity of the ordinance. Thereafter, Petitioner appealed the RTCs decision to the CTA which dismissed the same for lack of jurisdiction claiming that it cannot resolve cases where the constitutionality of a law or rule is challenged.

??? Does the CTA have jurisdiction over a decision of the RTC on a purported tax case?

!!! NO. The primary reason for the CTAs lack of jurisdiction is that what was imposed under the questioned ordinance are not taxes but are instead regulatory fees, specifically to address the environmental depredation of the said special projects. As such, the case that originated from the RTC is not considered a local tax case over which the CTA has jurisdiction.

Philippine American Life and General Insurance Company vs. CIR

??? To whom are adverse rulings of the Secretary of Finance appealed?

!!! The CTA. The power of the CTA to rule on decisions of the SOF is covered by the phrase other matters arising under the NIRC in Section 7 of R.A. 9282. This decision now resolves the apparent split jurisdiction where if what is being questioned are administrative issuances, the same is appealed to the regular courts (British American Tobacco), while if is assailed are rulings of the Commissioner, then the CTA has jurisdiction (Asia International Auctioneers). The Court very clearly said that the CTA can now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which said assessment is based.

Clark Investors and Locators Association, Inc. vs. CIR

??? Can a taxpayer file a petition for certiorari under Rule 65 direct to the Supreme Court to question a revenue regulation?

!!! NO. The CIR and the Secretary of Finance issued the regulations on the excise tax on importation of petroleum products into the BCDA in the exercise of their quasi-legislative or rule-making powers, not judicial or quasi-judicial functions. Thus, the same is outside the scope of a petition for certiorari. The Court lastly ruled that it shall not entertain a direct resort to them unless there are exceptional and compelling circumstances which is not present in this case.

Commissioner of Customs vs. Marina Sales, Inc.

??? Is a Motion for Reconsideration from the decision of a division of the CTA mandatory prior to elevating the case to the CTA en banc

!!! YES. The use of the term must clearly indicates that the requirement is mandatory and not merely directory. There is no exigent and persuasive reason (such as relieving a litigant of injustice) to relax the rules in this case.

CIR vs. CBK Power Company Limited

??? May an interlocutory order (Order of Default) issued by a division of the CTA be brought directly on certiorari to the Supreme Court even without appealing the same to the CTA en banc?

!!! YES. The CTA en banc has clear jurisdiction over final orders or judgments but not over interlocutory orders issued by the CTA in division. As no appeal can be taken from the questioned order to declare in default, Petitioners filing of the instant petition for certiorari with the Supreme Court is in conformity with the rules.

Note: As a general rule, decisions of the CTA in division are still only appealable to the CTA en banc and not to the Supreme Court. (Duty Free Philippines vs. BIR)

Republic Act 10021 --- Exchange of Information by the Bureau of Internal Revenue on Internationally-agreed Tax Standards

!!! The Commissioner can now inquire into bank deposits and other related information held by financial institutions of a specific taxpayer or taxpayers subject of a request for supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party. The information may be used by the BIR for tax assessment, verification, audit, and enforcement purposes. The exchange of information shall be done in a secure manner to ensure confidentiality.

!!! The provision of information to a foreign tax authority requires that the requesting foreign tax authority has provided relevant information such as the identity of the taxpayer, the tax purpose, statement that the foreign authority has exhausted all means, etc.

!!! If the subject of the request are income tax returns, the same shall be open to inspection upon the order of the President of the Philippines.

Executive Order 56 --- Opening of Income Tax Returns to Implement Republic Act 10021

!!! The authority to order the opening for inspection of the income tax returns of specific taxpayers for exchange of information by a foreign tax authority is delegated to the Secretary of Finance.

!!! Any information received by the foreign tax authority as a result of the opening of the income tax returns are absolutely confidential and shall be disclosed only to persons or authorities involved in the assessment or collection of, or enforcement or prosecution in respect of the taxes covered by such conventions/agreements.

RR 18-2013 & RMC 11-2014 --- Amending RR 12-99

!!! The significant provisions are as follows ---

1) The Notice of Informal Conference step has been removed. Thus, first step after examination is the issuance of the PAN (unless not required)

2) The taxpayer must specify if what is being filed is a request for reinvestigation or a request for reconsideration. If the appeal is from the decision of an authorized representative to the CIR, the only mode of appeal allowed is a request for reconsideration

3) The modes of service of the PAN, FAN, and FDDA have been defined ---

personal service on registered or known address (where business is conducted)

RR 18-2013 & RMC 11-2014 --- Amending RR 12-99

substituted service (where the same is left with the clerk or person-in-charge if in a place of business or with a person of legal age if in a house or if there is nobody there or there is refusal to receive, then 2 barangay officials will witness the service)

service by mail which is either registered or reputable professional courier service, or, if neither is available, ordinary mail

4) The duly authorized representatives are Revenue Regional Directors, Assistant Commissioners LTS, and Assistant Commissioner for Enforcement (Note: This upholds the case of Festo which held that Revenue District Officers are not authorized representatives for assessment purposes)

5) The issuance of FLD/FAN reiterating immediate payment of assessment previously made in the PAN is a denial of the PAN protest and is thus a decision on disputed assessment which may be appealed

(Note: This upholds the Allied Banking decision that the FAN and not just the FDDA is appealable to the CTA)

Other Significant Issuances

!!! RR 17-2013 --- All taxpayers are required to preserve their books of accounts and other accounting records (including invoices, receipts, vouchers, and other source documents) for a period of ten (10) years reckoned from the day following the deadline in filing a return or if filed after the deadline, from the date of actual filing. If there is a pending examination due to an assessment or a filed refund claim, the records are to be preserved until the case is finally resolved.

VII.LOCAL BUSINESS TAX

Pelizloy Realty Corporation vs. Province of Benguet

??? Can Benguet province impose amusement taxes on admission fees for resorts, swimming pools, bath houses, hot springs, tourist spots and other similar places for recreation?

!!! NO. The Court stated that a valid local tax imposition must (1) be consistent with the principles under Section 130 and (2) not breach the limitations imposed under Section 133. Even while Petitioner disputed the imposition of the tax by stating that Section 133 of the LGC prohibits LGUs to impose percentage taxes (such as the amusement tax) and/or VAT, the Court ruled that provinces are not barred from levying amusement taxes given that the LGC expressly allows them to levy amusement taxes but only on theaters, cinemas, and other places of amusement. However, it was ruled that resorts, pools, hot springs, etc. are not covered by other places of amusement since the enumeration under Section 140 are all venues primarily for staging of spectacles which cannot encompass the facilities of Petitioner.

City of Manila vs. Colet

??? Can LGUs impose local business tax on transportation contractors?

!!! NO. Section 133 clearly proscribes LGUs from imposing any tax on the gross receipts of transportation contractors engaged in the transport of passengers or freight by hire, and common carriers by air, land, or water. The supposed omnibus grant of power to cities and municipalities under Section 143 (h) of the LGC cannot overcome the specific exception/exemption in Section 133. This does not result in Section 143 (h) being a hollow decorative provision since there are still other businesses subject to excise tax, VAT, or percentage tax which the LGUs can still tax under Section 143 such as hotels, caterers, dealers in securities, franchise holders, banks, finance companies, amusement places, etc.

Lepanto Consolidated Mining Company vs. Ambanloc

Lepanto Consolidated Mining had a mining lease contract for a mining claim in Benguet. They used the sand and gravel mined to construct and maintain concrete structures needed in its mining operations such as a tailings dam, access roads, and offices. The provincial treasurer of Benguet then asked Lepanto Consolidated Mining to pay sand and gravel tax for the quarry materials extracted from the mining site. The counterargument was that the said tax applied only to commercial extractions and since Lepanto did not supply other users for some profit, the tax should not apply.

??? Is Lepanto liable for the tax imposed by Benguet on the sand and gravel that it extracted from within the area of its mining claim used exclusively in its mining operations?

Lepanto Consolidated Mining Company vs. Ambanloc

!!! YES. The CTA erred in applying the provision of the Local Government Code (Section 138) since the basis of Benguet province emanates from the Revised Benguet Revenue Code itself. This notwithstanding, the provincial revenue measure still did not distinguish between commercial and non-commercial extractions.

In addition, the Petitioners argument that when a company is taxed on its main business it can no longer be taxable for engaging in an activity that is but part of, incidental to, and necessary to such main business, was held to be inapplicable. The Court said that the cases where the above principle has been applied involved business taxes and thus the incidental activities could not be treated as separate and distinct from the main business. Here the tax being imposed was an excise tax levied on the privilege of extracting gravel and sand.

Michigan Holdings, Inc. vs. City Treasurer of Makati City

??? Are holding companies subject to local business tax on dividends received from their subsidiaries?

!!! NO. Section 133 of the LGC expressly provides that the taxing powers of LGUs shall not extend to the levy of income tax, except when levied on banks and other financial institutions. In this relation, Section 131 defines banks and other financial institutions to include lending investors, investment companies, pawnshops, insurance companies, stock brokers etc. The same does not cover holding companies.

National Power Corporation vs. Bataan

Bataan assessed NPC for franchise tax deficiency basing its claim on NPCs sale of electricity it generated from the power plants in Bataan. NPC refused to pay and said that it had ceased being liable for the tax after the effectivity of the Electric Power Industry Reform Act (EPIRA) relieving it (NPC) of the function of generating and supplying electricity.

??? Is NPC still liable for local tax?

!!! NO. The EPIRA transferred to TRANSCO NPCs electrical transmission function and thus NPC ceased to operated that business in Bataan by operation of law. Since the local franchise tax is imposed on the privilege of operating a franchise, not a tax on the ownership of the transmission facilities, it is clear that NPC is no longer taxable. The distribution business was likewise transferred to PSALM Corp. and as such the liability for the local franchise tax on that end passed to PSALM.

Angeles City Vs. Angeles Electric Corporation

??? Can an injunction be issued to enjoin the collection of local taxes?

!!! YES. The Local Government Code does not specifically prohibit an injunction enjoining the collection of taxes. This is different in the case of national taxes where the Tax Code expressly provides that no court shall have the authority to grant an injunction to restrain the collection on national internal revenue tax, fee or charge with the sole exception of when the CTA finds that the collection thereof may jeopardize the interest of the government and/or the taxpayer. Nevertheless, there must still be proof of the existence of the requirements for injunction to be issued under the Rules of Court (i.e., clear right to be protected and urgent necessity to prevent serious damage).

City of Manila vs. Grecia-Cuerdo

??? Does the CTA have jurisdiction over a special civil action for certiorari assailing an interlocutory order (injunction) issued by the RTC in a local tax case?

!!! YES. While Republic Act 9282 does not contain a categorical statement which vests to the CTA jurisdiction over petitions for certiorari on orders by the RTC on local tax cases, the grant of appellate jurisdiction on local tax cases leads to an assumption that the law intended to transfer also such power as is deemed necessary if not indispensable in aid of such appellate jurisdiction. The Court pointed out that to confer the power over certiorari petitions to the Court of Appeals would create a split-jurisdiction situation which is anathema to the orderly administration of justice. Thus, the power of the CTA to rule on petitions for certiorari on interlocutory orders issued by the RTC in local tax cases is included in the powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction.

National Power Corporation vs. City of Cabanatuan

Respondent computed the surcharge imposed on the deficiency local business tax imposed against Petitioner based on the total unpaid tax for each particular year. For example, if in 1993 the tax due was P1,000,000 (not the true amount ) and in 1994 the tax due was again P1,000,000 (also not true). The surcharge imposed for 1994 was based on P2,000,000 and not just P1,000,000. In effect, the Citys computation resulted in the imposition of the 25% surcharge for every year of default.

??? Did the City compute the imposable surcharge correctly?

!!! NO. There is nothing in the law which would justify the computation done by the City. The surcharge is to be computed only against the annual tax due and not compounded. While it is true that imposing a higher amount may be a more effective deterrent, it cannot be done as to make it confiscatory and oppressive since in effect the surcharge would even exceed the 72% limit on the interest imposable. Besides, if the legislative intent was to make the 25% surcharge proportionate to the period of delay, the law should have clearly said so.

Coca-Cola Bottlers Philippines, Inc. vs. City of Manila

??? Is a writ of execution of the judgment ordering Respondent either to refund or credit the tax assessed against Petitioner indispensable?

!!! NO. The decision provided for two options to the taxpayer to recover the erroneously paid tax refund or credit in the succeeding years. In either case, the issuance of a writ of execution is superfluous because the judgment can neither be considered an award for a specific sum of money susceptible of execution by levy or garnishment nor a special judgment. It could not have been the intention of the law to burden the taxpayer with going though the process of execution under the Rules of Civil Procedure. If at all, the City may be allowed to verify documents and information relative to the grant of the tax refund or tax credit.

VIII.REAL PROPERTY TAX

Mactan-Cebu International Airport Authority vs. City of Lapu-Lapu

??? Are the real property of Mactan-Cebu International Airport Authority subject to RPT ?

!!! NO. Petitioner is an instrumentality of the government and thus its properties actually, solely, and exclusively used for public purposes consisting of the airport terminal building, airfield, runway, taxiway, and the lots in which they are situated are exempt from RPT. The decision follows the 2006 MIAA case and not the 1996 MCIAA case. The Court reiterated that MIAA/MCIAA is not a GOCC (as it is not organized as a stock or non-stock corporation) but a government instrumentality vested with corporate powers. As properties of public dominion being for public use, the properties of MCIAA are not subject to levy, encumbrance, or disposition. The case likewise cited the previous rulings in the PFDA, GSIS, and PPA cases.

City of Lapu-Lapu vs. Philippine Economic Zone Authority

???(1) Is the Philippine Economic Zone Authority exempt fromreal property taxes?

(2) What are the remedies of a taxpayer against an RPT assessment?

!!! (1) YES. PEZA is an instrumentality of the national government. Even if it is not integrated within the department framework, it is an agency attached to the DTI. Although PEZA is a body corporate vested with some corporate powers, it is not a GOCC and is thus not required to be economically viable. The Court added that a provision in the Special Economic Zone Act explicitly exempting PEZA was deemed unnecessary since it assumed the RPT exemption of the EPZA under the previous law given that PEZA likewise replicated EPZAs non-profit character. Lastly, the Court stated that even the lands and buildings whose beneficial use have been granted to other persons are not subject to RPT since PEZA only leases its lands and buildings to PEZA-registered companies which are also not subject to RPT.

City of Lapu-Lapu vs. Philippine Economic Zone Authority

!!! (2) The taxpayer must follow the remedies below.

Pay the tax then file a protest with the local treasurer within 30 days from payment

Treasurer has 60 days to decide the appeal

Appeal to the LBAA within 60 days from the denial of the protest or after the lapse of the 60-day period

LBAA has 120 days to decide the appeal

Appeal to the CBAA within 30 days from the denial or after the lapse of the 120-day period

Appeal the CBAA decision to the CTA en banc under Rule 43

Appeal the CTA decision to the Supreme Court under Rule 45

City of Lapu-Lapu vs. Philippine Economic Zone Authority

!!! In case of an illegal assessment where the same was issued without authority, exhaustion of remedies in not necessary and the taxpayer may directly resort to judicial action by asking the RTC to enjoin the collection of RPT following the Ty vs. Trampe case. An appeal may be filed of the RTC decision with the CTA within 15 days from the RTC decision.

In case the LGU has issued a notice of delinquency, the taxpayer may ask the court to enjoin the sale. In case the property has been sold at public auction, the taxpayer must first deposit with the court the amount for which the property was sold with a 2% interest per month from the date of sale and can then file an action to assail the validity of the sale.

City of Lapu-Lapu vs. Philippine Economic Zone Authority

Note: The decision in the recent case of National Power Corporation vs. Navotas reiterated the principle that if the issue with the RPT assessment is one that deals with a legal issue, then resort to the LBAA and CBAA are not mandatory and the taxpayer can go straight to the RTC. This case dealt with the power of the municipality itself to impose RPT notwithstanding Petitioner NPCs actual and direct control and supervision of the power stations.

City of Pasig vs. Presidential Commission On Good Government

MPLDC owned two parcels of land in Pasig City. In 1986, Jose Y. Campos, the registered owner of MPLDC, voluntarily surrendered MPLDC to the government. From 2002-2005, Pasig City sent notices of assessment to MPLDC to demand payment of real property taxes. PCGG filed with the RTC a petition for prohibition with a prayer for issuance of a TRO claiming ownership over the said properties.

??? Are the properties owned by PCGG subject to real property taxes?

!!! Only those portions of the properties leased to taxable entities are subject to real estate taxes for the period of such leases and may also be sold at public auctioned to satisfy the tax delinquency. While it was established that the owner of the properties is now clearly the Republic of the Philippines given the voluntary surrender, the Local Government Code clearly states that the exemption will not apply when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. The

Court cited several cases to support the decision such as Philippine Fisheries, GSIS, MIAA, and Lung Center.

Provincial Assessor of Marinduque vs. Court of Appeals

The Provincial Assessor issued an assessment against Marcopper for real property taxes supposedly due on the siltation dam and decant system. Respondent submitted a DENR certification stating that the dam is a structure intended primarily for pollution control of silted materials and hence exempt from real property taxes.

??? Are the properties exempt from real property tax?

!!! NO. While Section 234 (e) exempts from the real property tax machinery and equipment used for pollution control, the Court found that during the period covered by the assessment, no evidence was presented that the property was used actually, directly, and exclusively for pollution control purposes. In addition, the DENR itself characterized the property as a structure rather than as machinery or equipment which thus takes it away from the exempting provision.

Provincial Assessor of Marinduque vs. Court of Appeals

Note: The assessment was for years before the law expanded the definition of pollution control device to include infrastructure or i