Updates on Taxation2011

GENERAL PRINCIPLES

• EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, INC. – PHILIPPINE BRANCH VS. COMMISSIONER OF INTERNAL REVENUE

… Exxonmobil was a US corporation engaged in selling petroleum products to domestic and international carriers. It purchased petroleum products from local suppliers (Caltex and Petron), the excise taxes on which were remitted by the said suppliers but the amount of which were, however, passed-on to Exxonmobil. It then filed a claim for refund of excise taxes paid on its purchase of petroleum products from its suppliers.

??? Is Exxonmobil entitled to file the claim for the refund of the excise taxes passed-on by Caltex and Petron?

GENERAL PRINCIPLES

!!! NO. The proper party to seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden to another. Although the burden of an indirect tax can be shifted to the purchaser, the amount added or shifted becomes part of the price. Thus, the purchaser does not really pay the tax per se but only the price of the commodity. Indirect taxes were defined as those that are demanded, in the first instance, from, or are paid by, one person to someone else. When the seller passes on the tax to the buyer he in effect shifts only the tax burden and not the liability to pay for it.

GENERAL PRINCIPLES

• ABAKADA GURO PARTYLIST vs. PURISIMA

… Petitioners question the Attrition Act of 2005 and contend that by establishing a system of rewards and incentives when they exceed their revenue targets, the law (1) transforms the officials and employees of the BIR and BOC into mercenaries and bounty hunters; (2) violates the constitutional guarantee of equal protection as it limits the scope of the law to the BIR and BOC; (3) unduly delegates to the President the power to fix revenue targets without sufficient standards; and (4) violates the doctrine of separation of powers by creating a Congressional Oversight Committee to approve the law’s implementing rules.

??? Is R.A. No. 9335 constitutional?

!!! YES. R.A. No. 9335 is constitutional, except for Section 12 of the law which creates a Joint Congressional Oversight Committee to review the law’s IRR.

GENERAL PRINCIPLES

!!! That RA No. 9335 will turn BIR and BOC employees and officials into “bounty hunters and mercenaries” is purely speculative as the law establishes safeguards by imposing liabilities on officers and employees who are guilty of negligence, abuses, malfeasance, etc. Neither is the equal protection clause violated since the law recognizes a valid classification as only the BIR and BOC have the common distinct primary function of revenue generation. There are sufficient policy and standards to guide the President in fixing revenue targets as the revenue targets are based on the original estimated revenue collection expected of the BIR and the BOC. However, the creation of a Joint Congressional Oversight Committee for the purpose of reviewing the IRR formulated by agencies of the executive branch (DOF, DBM, NEDA, etc.) is unconstitutional since it violates the doctrine of separation of powers since Congress arrogated judicial power upon itself.

GENERAL PRINCIPLES

• REPUBLIC ACT NO. 10143 --- PHILIPPINE TAX ACADEMY

!!! Serves as a learning institution for tax collectors and administrators of the government and selected applicants from the private sector.

!!! It shall handle all trainings, continuing education programs and other courses for all officials and personnel of the BIR, BOC, and BLGF. All existing officials and personnel of the said agencies shall be required to undergo the re-tooling and enhancement seminars and training programs.

!!! The Board of Trustees will be composed of representatives from the DOF (ex officio Chairman), BIR, BOC, BLGF, and 3 representatives from the academe with at least 5 years of teaching experience. The first 3 will be Presidential appointees.

INCOME TAX

• PHILIPPINE AMUSEMENT AND GAMING CORPORATION VS. BUREAU OF INTERNAL REVENUE

??? Is Republic Act 9337 constitutional insofar as it excluded PAGCOR from the enumeration of GOCCs exempt from the payment of

corporate income tax?

!!! YES. The original exemption of PAGCOR from corporate income tax was not made pursuant to a valid classification based on substantial distinctions so that the law may operate only on some and not on all. Instead, the same was merely granted due to the acquiescence of the House Committee on Ways and Means to the request of PAGCOR. The argument that the withdrawal of the exemption also violates the non-impairment clause will not hold since any franchise is subject to amendment, alteration or repeal by Congress.However, the Court made it clear that PAGCOR remains exempt from payment of indirect taxes and as such its purchases remain not subject to VAT, reiterating the rule laid down in the Acesite case.

INCOME TAX

• COMMISSIONER OF INTERNAL REVENUE VS. FILINVEST DEVELOPMENT CORPORATION

… Filinvest Development Corporation extended advances in favor of its affiliates and supported the same with instructional letters and cash and journal vouchers. The BIR assessed Filinvest for deficiency income tax by imputing an “arm’s length” interest rate on its advances to affiliates. Filinvest disputed this by saying that the CIR lacks the authority to impute theoretical interest and that the rule is that interests cannot be demanded in the absence of a stipulation to the effect.

??? Can the CIR impute theoretical interest on the advances made by Filinvest to its affiliates?

INCOME TAX

!!! NO. Despite the seemingly broad power of the CIR to distribute, apportion and allocate gross income under (now) Section 50 of the Tax Code, the same does not include the power to impute theoretical interests even with regard to controlled taxpayers’ transactions. This is true even if the CIR is able to prove that interest expense (on its own loans) was in fact claimed by the lending entity. The term in the definition of gross income that even those income “from whatever source derived” is covered still requires that there must be actual or at least probable receipt or realization of the item of gross income sought to be apportioned, distributed, or allocated. Finally, the rule under the Civil Code that “no interest shall be due unless expressly stipulated in writing” was also applied in this case.The Court also ruled that the instructional letters, cash and journal vouchers qualify as loan agreements that are subject to DST.

INCOME TAX

• MERCURY DRUG CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE

… Mercury Drug granted 20% sales discount to qualified senior citizens on their purchases of medicines. They subsequently filed a refund for taxable years 1993 and 1994 given that the then prevailing rule allowed that the sales discounts be claimed as tax credits.

??? Is the claim for tax credit to be based on the full amount of the 20% senior citizen discount or the

acquisition cost of the item sold?

INCOME TAX

!!! The tax credit should be equivalent to the actual 20% sales discount granted to the senior citizens. The previous ruling of the CTA that the tax credit is based only on the “cost of the discount” which was interpreted to cover only direct acquisition cost, excluding administrative and other incremental costs, was struck down by the Court.

N.B. The March 3, 2008 case of M.E. Holdings Corporation vs. CIR & CTA clarified that the rule will be -- (i) prior to March 21, 2004 (effectivity of Expanded Senior Citizens Act) the discounts are treated as tax credit; (ii) after March 21, 2004 the same are treated as deductions.

INCOME TAX

• CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATION, INC. vs. EXECUTIVE SECRETARY

… CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process clause as it levies income tax even if there is no realized gain. They also question the creditable withholding tax (CWT) on sales of real properties classified as ordinary assets stating that (1) they ignore the different treatment of ordinary assets and capital assets; (2) the use of gross selling price or fair market value as basis for the CWT and the collection of tax on a per transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on ordinary real properties; (3) the government collects income tax even when the net income has not yet been determined; and (4) the CWT is being levied upon real estate enterprises but not on other enterprises, more particularly those in the manufacturing sector.

??? Are the impositions of the MCIT on domestic corporations and CWT on income from sales of real properties classified as ordinary assets unconstitutional?

INCOME TAX

!!! NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can suspend the imposition of MCIT in justifiable instances. The regulations on CWT did not shift the tax base of a real estate business’ income tax from net income to GSP or FMV of the property sold since the taxes withheld are in the nature of advance tax payments and they are thus just installments on the annual tax which may be due at the end of the taxable year. As such the tax base for the sale of real property classified as ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because these are the only factors reasonably known to the buyer in connection with the performance of the duties as a withholding agent.Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate industry is, by itself, a class on its own and can be validly treated different from other businesses.

INCOME TAX

• COMMISSIONER OF INTERNAL REVENUE VS.SMART COMMUNICATION, 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?

INCOME TAX

!!! 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. Smart was granted a refund given that only a portion of its payments represented royalties since it is only that portion over which Prism maintained intellectual property rights and the rest involved full transfer of proprietary rights to Smart and were thus treated as business profits of Prism.

INCOME TAX

• UNITED AIRLINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE

… 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?

INCOME TAX

!!! 32% tax. The Court reiterated the ruling in South African Airways and BOAC 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.

INCOME TAX

• DUMAGUETE CATHEDRAL CREDIT COOPERATIVE vs. COMMISSIONER OF INTERNAL REVENUE

… Petitioner was assessed for deficiency withholding taxes on interest from savings and time deposits of its members. The CTA ruled against the Petitioner and claimed that the withholding of tax on income payments subject to final withholding tax includes the said interest as "interest from x x x similar arrangements . . ."

???Is Petitioner liable for the deficiency WT?

!!! NO. The BIR had earlier ruled without any qualification that since interest from any Philippine currency bank deposit and yield or any other monetary benefit from deposit substitutes are paid by banks, cooperatives are not required to withhold the corresponding tax on the interest from savings and time deposits of their members. The fact that “similar arrangements” is preceded by banking terms means that that those subject to withholding must have deposit peculiarities. This is consistent with the preferential treatment accorded to members of cooperatives who are exempt in the same way as the cooperatives themselves.

INCOME TAX

• COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE AIRLINES, INC.

… PAL paid the 10% Overseas Communications Tax (OCT) for overseas telephone calls made through PLDT. It then later filed with the BIR a claim for refund of the amount paid as OCT, claiming that other than being liable for basic corporate income tax or the franchise tax, whichever was lower, it was exempted from all other taxes by virtue of the "in lieu of all taxes" clause in its charter.

??? Is PAL liable for the OCT?

!!! NO. The language of PAL’s franchise is clearly all-inclusive --- the basic corporate income tax or franchise tax paid by respondent shall be "in lieu of all other taxes” except only real property tax. It is not the fact of tax payment that exempts it, but the exercise of its option. In the event that respondent incurs a net loss, it shall have zero liability for basic corporate income tax, the lowest possible tax liability. There being no qualification to the exercise of its options, then Respondent is free to choose basic corporate income tax, even if it would have zero liability.

INCOME TAX

• COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE AIRLINES, INC.

… PAL had zero taxable income for 2000 but would have been liable for MCIT based on its gross income. However, PAL did not pay the MCIT using as basis its franchise which exempts it from “all other taxes” upon payment of whichever is lower of either (a) the basic corporate income tax based on the net taxable income or (b) a franchise tax of 2%.

??? Is PAL liable for MCIT?

!!! NO. PAL’s franchise clearly refers to "basic corporate income tax" which refers to the general rate of 35% (now 30%). In addition, there is an apparent distinction under the Tax Code between taxable income, which is the basis for basic corporate income tax under Sec. 27 (A) and gross income, which is the basis for the MCIT under Section 27 (E). The two terms have their respective technical meanings and cannot be used interchangeably. Not being covered by the Charter which makes PAL liable only for basic corporate income tax, then MCIT is included in "all other taxes" from which PAL is exempted.

INCOME TAX

!!! The CIR also can not point to the “Substitution Theory” which states that Respondent may not invoke the “in lieu of all other taxes” provision if it did not pay anything at all as basic corporate income tax or franchise tax. The Court ruled that it is not the fact tax payment that exempts Respondent but the exercise of its option. The Court even pointed out the fallacy of the argument in that a measly sum of one peso would suffice to exempt PAL from other taxes while a zero liability would not and said that there is really no substantial distinction between a zero tax and a one-peso tax liability. Lastly, the Revenue Memorandum Circular stating the applicability of the MCIT to PAL does more than just clarify a previous regulation and goes beyond mere internal administration and thus cannot be given effect without previous notice or publication to those who will be affected thereby.

INCOME TAX

• SUPREME TRANSLINER, INC. VS. BPI FAMILY SAVINGS BANK, INC.

… Supreme Transliner took out a loan from respondent and was unable to pay. The respondent bank extrajudicially foreclosed the collateral and, before the expiration of the one-year redemption period, the mortgagors notified the bank of its intention to redeem the property.

??? Is the mortgagee-bank liable to pay the capital gains tax upon the execution of the certificate of sale and before the expiry of the redemption period?

!!! NO. It is clear that in foreclosure sale there is no actual transfer of the mortgaged real property until after the expiration of the one-year period and title is consolidated in the name of the mortgagee in case of non-redemption. This is because before the period expires there is yet no transfer of title and no profit or gain is realized by the mortgagor.

INCOME TAX

• COMMISSIONER OF INTERNAL REVENUE vs. MIRANT (PHILIPPINES) OPERATIONS, CORPORATION

… Mirant filed its final adjusted Annual Income Tax Return for fiscal year ending 1999 declaring a net loss. It then amended the said return this time reflecting an increased net loss and showing that it opted to carry over as tax credit its overpayment to the succeeding taxable year. This excess tax credit was unutilized in 2000 as Mirant still reported a net loss. Mirant then filed a claim for refund of its excess creditable income tax for 1999.

??? Can Mirant claim for refund its excess credits from 1999?

INCOME TAX

!!! NO. Mirant’s choice to carry over its 1999 excess income tax credit to succeeding taxable years is irrevocable, regardless of whether it was able to actually apply the said amount to a tax liability. It is a mistake to understand the phrase "for that taxable period" as a prescriptive period for the irrevocability rule – i.e., that since the tax credit in this case was acquired in 1999, and Respondent opted to carry it over to 2000, then the irrevocability of the option to carry over expired by the end of 2000, leaving Respondent free to again take another option as regards its 1999 excess income tax credit. The Court ruled that this interpretation effectively renders nugatory the irrevocability rule.

INCOME TAX

• REPUBLIC ACT 9856 --- REAL ESTATE INVESTMENT TRUST (TAX INCENTIVES)

!!! The taxable net income of REITs is the gross income under Section 32 less (a) the deductions under Section 34 AND (b) dividends

distributed by the REIT out of its distributable income provided it (a) maintains its status as a public company; (b) maintains the listed

status of the investor securities (shares issued by the REIT); and (c) distributes at least 90% of its distributable income.

!!! Other tax rules:• Not subject to the MCIT• Income payments to REIT are subject to a lower CWT of 1%• Sale of real property to REITs subject to DST reduction of 50%• Dividends received by an OFW from the REIT is exempt from the

10% WT for the first 7 years of the law.• VAT is imposed on sale of real property by the REIT but not of its

securities as it is not considered a dealer in securities

INCOME TAX

• REPUBLIC ACT NO. 9994 --- ADDITIONAL BENEFITS TO SENIOR CITIZENS (TAX BENEFITS)

!!! The following transactions with senior citizens are exempt from VAT (aside from the 20% discount):

• Professional fees of physicians, licensed health workers• Purchase of medicines• Medical and dental services and laboratory fees• Fare for any land transportation• Fare for domestic air and sea services• Utilization of hotels and similar lodging establishments• Admission fees on theaters, concert halls, circuses, etc.• Funeral and burial services

INCOME TAX

!!! Discounts given are still considered as tax deductions and NOT tax credits

!!! Employment of senior citizens will entitle employer to additional tax deduction of 15% of total amount paid as salaries and wages to senior citizens provided that the employment lasts for at least 6 months

!!! Realty tax holiday for the first 5 years is granted to those establishing foster care facilities

INCOME TAX

• REPUBLIC ACT NO. 10026 --- TAX EXEMPTION TO 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.

INCOME TAX

• REPUBLIC ACT NO. 9504 --- TAX EXEMPTION OF MINIMUM WAGE EARNES AND INCREASING PERSONAL/ADDITIONAL EXEMPTIONS / CHANGE IN OSD

!!! “Minimum wage earners” shall be exempt from income tax on their taxable income including holiday pay, overtime, night shift differential pay, and hazard pay

!!! Increases the amount of personal exemption for all individuals to a fixed amount of P50,000.00 and the additional exemption toP25,000.00 for each dependent, not exceeding four (4)

!!! Amends Section 34(L) to increase to 40% of gross sales or receipts the Operational Standard Deduction (OSD) allowed to individuals (except nonresident aliens) engaged in business or earning income in the exercise of their profession

!!! Now allow corporations (except nonresident foreign corporations) to claim OSD, instead of itemized deductions, in an amount not exceeding 40% of their gross income.

ESTATE TAX

• DIZON in his capacity as Administrator of deceased Fernandez vs. COMMISSIONER OF INTERNAL REVENUE

… 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 amounts should be what will 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.

VALUE ADDED TAX

• DIAZ VS. SECRETARY OF FINANCE

??? May toll fees collected by tollway operators be subject to VAT?

!!! YES. (1) VAT is imposed on “all kinds of services” and tollway operators who are engaged in constructing, maintaining, and operating expressways are no different from lessors of property, transportation contractors, etc. (2) Not only do they fall under the broad term under (1) but also come under those described as “all other franchise grantees” which is not confined only to legislative franchise grantees since the law does not distinguish. They are also not a franchise grantee under Section 119 which would have made them subject to percentage tax and not VAT.(3) Neither are the services part of the enumeration under Section 109 on VAT-exempt transactions.

VALUE ADDED TAX

(4) The toll fee is not a user’s tax and thus it is permissible to impose a VAT on the said fee. The MIAA case does not apply and the Court emphasized that toll fees are not taxes since they are not assessed by the BIR and do not go the general coffers of the government. Toll fees are collected by private operators as reimbursement for their costs and expenses with a view to a profit while taxes are imposed by the government as an attribute of its sovereignty. Even if the toll fees were treated as user’s tax, the VAT can not be deemed as a ‘tax on tax’ since the VAT is imposed on the tollway operator and the fact that it might pass-on the same to the tollway user, it will not make the latter directly liable for VAT since the shifted VAT simply becomes part of the cost to use the tollways.

(5) The assertion that the VAT imposed is not administratively feasible given the manner by which the BIR intends to implement the VAT (i.e., rounding off the toll rates and putting any excess collection in an escrow account) is not enough to invalidate the law. Non-observance of the canon of administrative feasibility will not render a tax imposition invalid “except to the extent that specific constitutional or statutory limitations are impaired”.

VALUE ADDED TAX

• COMMISSIONER OF INTERNAL REVENUE 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?

VALUE ADDED TAX

!!! (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. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the company’s “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.

VALUE ADDED TAX

!!!(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.

VALUE ADDED TAX

• COMMISSIONER OF INTERNAL REVENUE vs. SM PRIME HOLDINGS, INC.

??? Are the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets subject to

VAT?

!!! NO. While (1) the enumeration under Section 108 on the VAT-taxable services is not exhaustive and (2) the said list includes “the lease of motion picture films, films, tapes and discs”, the said activity however is not the same as showing or exhibition of motion pictures or films. Thus, since the showing or exhibition of motion pictures or films is not in the enumeration, the CIR must show that it falls under the phrase “similar services”. The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets. The removal of the prohibition (on the national government to tax certain activities) under the Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators or proprietors. Neither did it expand the coverage of VAT.

VALUE ADDED TAX

• TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF INTERNAL REVENUE

… Petitioner was assessed for deficiency VAT and DST on the premise that, for the VAT, it was engaged in the sale of services.

??? (1) Is Petitioner liable for the VAT?(2) Can the imposition of surcharge and interest be

waived on the imposition of deficiency DST?

!!! (1) NO. Since Petitioner is considered a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002 but since the collection of VAT from non-bank financial intermediaries was specifically deferred by law, Petitioner is not liable for VAT during these tax years. With the full implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, Petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be.

VALUE ADDED TAX

!!! (2) YES. Petitioner's argument against liability for surcharges and interest — that it was in good faith in not paying documentary stamp taxes, it having relied on the rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary stamp taxes — was found to be meritorious. Good faith and honest belief that one is not subject to tax on the basis of previous interpretations of government agencies tasked to implement the tax law are sufficient justification to delete the imposition of surcharges and interest.

VALUE ADDED TAX

• FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

… 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?

VALUE ADDED TAX

!!! 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.

VALUE ADDED TAX

• COMMISSIONER OF INTERNAL REVENUE vs. SEKISUI JUSHI PHILIPPINES, INC.

… Sekisui Jushi is a PEZA entity engaged in manufacture and export of strapping bands and other packaging materials seeking for refund of unutilized input taxes.

??? Being a PEZA exporter, can Petitioner claim its unutilized input VAT?

!!! YES. PEZA entities can avail of two alternative or subsequent incentives of ITH and 5% GIE. It is only in the latter where the VAT is not imposed on the PEZA entity on its sales. Being under ITH, it will be subject to VAT on sales and should VAT-register. However, (1) sales to the PEZA entity, regardless of incentive availed, is zero-rated on the part of the seller since PEZA is considered “foreign soil” and thus sales to them are considered as “export sales” and (2) if the PEZA entity is an exporter, its input VAT are subject to refund not by virtue of its PEZA status (and thus regardless of whether it’s at 5% GIE or ITH) but due to the nature of its transactions (i.e., export sales).

VALUE ADDED TAX

• MICROSOFT PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE

… Microsoft renders marketing services to two affiliated nonresident foreign corporations with their services being paid for in foreign currency. Microsoft filed a claim for refund for unutilized input VAT but the CTA denied the same on the basis that the official receipts issued did not bear the imprinted word “zero-rated” on its face and are thus not valid evidence of Microsoft’s sales.

??? Is Microsoft entitled to a refund?

!!! NO. The regulations in effect when the sales were made by Microsoft clearly indicate in the portion outlining the “Invoicing Requirements” that the word “zero-rated” must be imprinted in the invoice. Without such, the invoice are not considered as VAT invoices and thus could not give rise to any input tax. The Court added that the reason for enforcing this rule even if only based on regulation is that it prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually paid.

VALUE ADDED TAX

• COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.

… A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The foreign entity then subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a mixture of currencies while the consortium, in turn, paid Burmeister foreign currency inwardly remitted into the Philippines. BIR did not want to grant refund since the services are “not destined for consumption abroad” (or the destination principle).

??? Are the receipts of Burmeister entitled to VAT zero-rated status?

!!! PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to the filing of CIR’s Answer in the CTA. The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister, was deemed doing business within the Philippines since its 15-year O&M with NPC can not be interpreted as an isolated transaction.

VALUE ADDED TAX

!!! In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than those in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency. The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of its sales to foreign consortium. However, the ruling is only valid until the time that CIR filed its Answer in the CTA which is deemed revocation of the previously-issued ruling. The Court said the revocation can not retroact since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present.

REMEDIES

• RIZAL COMMERCIAL BANKING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE

??? Whether a taxpayer, by paying the other tax assessments covered by a Waiver of the Statute of Limitations, is consider 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.

REMEDIES

• ALLIED BANKING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

… 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?

REMEDIES

!!! 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 CIR’s own actions.

REMEDIES

• COMMISSIONER OF INTERNAL REVENUE 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?

REMEDIES

!!! 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.

REMEDIES

• COMMISSIONER OF INTERNAL REVENUE vs. FIRST EXPRESS PAWNSHOP COMPANY, INC.

… CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When CIR did not act on the protest during the 180-day period, respondent filed a petition before the CTA.

??? Has Respondent’s right to dispute the assessment in the CTA prescribed?

!!! NO. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest, respondent attached all the documents it felt were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription.

REMEDIES

!!! The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date.

REMEDIES

• LUCAS ADAMSON vs. COURT OF APPEALS

… A deficiency tax assessment was issued against Petitioners relating to their payment of capital gains tax and VAT on their sale of shares of stock and parcels of land. Subsequent to the preliminary conference, the CIR filed with the Department of Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately ruled that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax.

??? (1) Has the CIR issued an assessment?(2) Must a criminal prosecution for tax evasion be

preceded by a deficiency tax assessment?(3) Does the CTA have jurisdiction on the case?

REMEDIES

!!! (1) NO. The recommendation letter of the Commissioner cannot be considered a formal assessment as (a) it was not addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner. It was only an affidavit of the computation of the alleged liabilities and thus merely served as prima facie basis for filing criminal informations. (2) YES. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment considering that upon investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the transactions. The Tax Code is clear that the remedies may proceed simultaneously. (3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision of the Commissioner, or in cases of inaction within the prescribed period. Since in the cases at bar, the Commissioner has not issued an assessment of the tax liability of the Petitioners, the CTA has no jurisdiction.

REMEDIES

• COMMISSIONER OF INTERNAL REVENUE vs. ENRON SUBIC POWER CORPORATION

… The BIR assessed Enron which countered by filing a Petition for Review with the CTA stating that the assessment disregarded the provisions of the Tax Code and of RR No. 12-99, when the assessment failed to provide the legal and factual bases of the assessment. The CTA and CA ruled that the assessment notice must not only refer to the supporting revenue laws or regulations for the assessment but must also justify their applicability to the factual milieu of the assessment.

??? Is the disputed assessment valid?

!!! NO. The assessment is not valid. Although the revenue examiners discussed their findings with Respondent’s representative during the pre-assessment stage, the same, together with the Preliminary Five-Day Letter and Petitioner’s Annex G, were not sufficient to comply with the procedural requirement of due process. The Tax Code provides that a taxpayer shall be informed (and not merely “notified” as was the requirement before) in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The use of the word “shall” indicates the mandatory nature of the requirement.

REMEDIES

• COMMISSIONER OF INTERNAL REVENUE 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 CIR’s right to assess prescribed?

REMEDIES

!!! 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 taxpayer’s 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

REMEDIES

• COMMISSIONER OF INTERNAL REVENUE 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 Petitioner’s administrative claim filed out of time? (2) Was the filing of the judicial claim

premature?

REMEDIES

!!! (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.

(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.

REMEDIES

• COMMISSIONER OF INTERNAL REVENUE VS. AQUAFRESH SEAFOODS, INC.

… Aquafresh Seafoods sold two parcels of located at Barrio Banica in Roxas City and paid the corresponding CGT and DST due on the sale. However, the BIR assessed Aquafresh Seafoods based on its conclusion that the lots were classified as commercial and not residential as claimed by the taxpayer. Aquafresh Seafood’s defense was that there was already a pre-defined zonal value for the said lots and thus the BIR could not reclassify the same to be commercial lots.

??? Is the requirement (under Section 6 of the Tax Code) of consultation with competent appraisers both from the

public and private sectors in determining fair market value applicable in this case?

REMEDIES

!!!YES. The BIR’s position that the requirement of consultation with appraisers is mandatory only when formulating or making changes in the schedule of zonal values is wrong. The Court held that the BIR’s act of classifying the subject properties involved a re-classification and revision of the prescribed zonal values. It was likewise added that the application of the rule of assigning zonal values based on the ‘predominant use of property’ only applies when the property is located in an area or zone where the properties are not yet classified and their zonal values are not yet determined. If a determination has already been made, the BIR has no discretion as regards its classification and/or valuation.

REMEDIES

• COMMISSIONER OF INTERNAL REVENUE vs. METRO STAR SUPERAMA, INC.

… Metro Star Superama was audited for taxable year 1999 and received a Preliminary 15-day Letter on November 15, 2001. On April 11, 2002, it received a Formal Letter of Demand dated April 3, 2002. Denying that it received a PAN and thus not accorded due process, Metro Star Superama filed a Petition with the CTA.

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

!!! NO. Since the Petitioner denied receipt of the PAN, the burden of proving the same shifts to the BIR. To raise the presumption of receipt, it must be shown that (a) the letter was properly addressed with postage prepaid and (b) that it was mailed. If receipt is denied, the BIR must then show actual receipt through presentation of the registry receipt or, if the same cannot be located, at least a certification from the Bureau of Posts.The Court likewise added that the issuance of a PAN is a mandatory requirement save only on specified instances. The old rule laid down in CIR vs. Menguito that only the FAN is mandatory no longer applies since the same was ruled upon based on the old provision.

REMEDIES

• REPUBLIC ACT NO. 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 when “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.

CTA LAW

• 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.

CTA LAW

• FISHWEALTH CANNING CORPORATION vs. COMMISSIONER OF INTERNAL RVENUE

… Petitioner was assessed for income tax, VAT and withholding tax. After CIR issued a Final Decision on Disputed Assessment, Petitioner filed a Letter of Reconsideration with the CIR instead of appealing the same to the CTA within 30 days. The CIR then issued a Preliminary Collection Letter which prompted the Petitioner to file its Petition with the CTA. CIR argued that the Petition with the CTA was filed out of time.

??? Did the filing of a Reconsideration toll the running of the 30- day period to appeal to the CTA?

!!! NO. A Motion for Reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA.

CTA LAW

• CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC. … Respondent paid the local business tax only as a manufacturers as it was

expressly exempted from the business tax under a different section and which applied to businesses subject to excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended the ordinance by deleting the provision exempting businesses under the latter section if they have already paid taxes under a different section in the ordinance. This amending ordinance was later declared by the Supreme Court null and void. Respondent then filed a protest on the ground of double taxation. RTC decided in favor of Respondent and the decision was received by Petitioner on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time to File Petition for Review asking for a 15-day extension or until May 20, 2007 within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to timely file the Petition.

CTA LAW

??? (1) Has Petitioner’s the right to appeal with the CTA lapsed?

(2) Does the enforcement of the latter section of the tax ordinance constitute double taxation?

!!! (1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the lapse of the 30-day period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of petitioners. Thus, when Petitioner filed their Petition via registered mail their Petition for Review on 30 May 2007, they were able to comply with the period for filing such a petition.

CTA LAW

!!! (2) YES. There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods — per calendar year; and (6) of the same kind or character — a local business tax imposed on gross sales or receipts of the business.

CTA LAW

• RIZAL COMMERCIAL BANKING CORPORATION vs. COMMISSIONER OF INTERNAL RVENUE

… RCBC received the FAN on July 5, 2001. It filed a protest on July 20, 2001. As the protest was not acted upon, it filed a Petition for Review with the CTA on April 30, 2002, or more than 30 days after the lapse of the 180-day period reckoned from the submission of complete documents. The CTA dismissed the Petition for lack of jurisdiction since the appeal was filed out of time.

??? Has the action to protest the assessment judicially prescribed?

!!! YES. The assessment has become final. The jurisdiction of the CTA has been expanded to include not only decision but also inactions and both are jurisdictional such that failure to observe either is fatal.

CTA LAW

!!! However, if there has been inaction, the taxpayer can choose between (1) file a Petition with the CTA within 30 days from the lapse of the 180-day period OR (2) await the final decision of the CIR and appeal such decision to the CTA within 30 days after receipt of the decision. These options are mutually exclusive and resort to one bars the application of the other. Thus, if petitioner belatedly filed an action based on inaction, it can not subsequently file another petition once the decision comes out.

CTA LAW

• REPUBLIC ACT NO. 9503 --- AMENDMENT TO THE CTA LAW

!!! The CTA will now have three Divisions instead of two with each Division still being composed of three Justices.

!!! For en banc sessions, five Justices shall constitute a quorum. For sessions of a Division, the quorum (two Justices) remains the same.

!!! The affirmative vote of five members of the CTA en banc shall be necessary to reverse a decision of a Division. However, only a simple majority of the Justices present necessary to promulgate a resolution or decision in all other cases, or two members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution in the Division level. (Note: Before RA No. 9503, there was no mention of the votes necessary to reverse a decision.)

LOCAL BUSINESS TAX

• 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?

LOCAL BUSINESS TAX

!!! 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 Petitioner’s 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.

LOCAL BUSINESS TAX

• QUEZON CITY vs. ABS-CBN BROADCASTING CORPORATION

… ABS-CBN was granted a franchise which provides that it “shall pay a 3% franchise tax and the said percentage tax shall be “in lieu of all taxes on this franchise or earnings thereof”. It thus filed a complaint against the imposition of local franchise tax.

??? Does the “in lieu of all taxes” provision in ABS-CBN’s franchise exempt it from payment of the local franchise tax?

!!! NO. The right to exemption from local franchise tax must be clearly established beyond reasonable doubt and cannot be made out of

inference or implications.

LOCAL BUSINESS TAX

!!! The uncertainty over whether the “in lieu of all taxes” provision pertains to exemption from local or national taxes, or both, should be construed against Respondent who has the burden to prove that it is in fact covered by the exemption claimed. Furthermore, the “in lieu of all taxes” clause in Respondent’s franchise has become ineffective with the abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding P10 million as they are now subject to the VAT.

LOCAL BUSINESS TAX

• 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).

REAL PROPERTY TAX

• 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 RTCC 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?

REAL PROPERTY TAX

!!! 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.

REAL PROPERTY TAX

• NATIONAL POWER CORPORATION vs. PROVINCE OF QUEZON

… NPC is a GOCC that entered into an Energy Conversion Agreement (ECA) under a build-operate-transfer (BOT) arrangement with Mirant Pagbilao Corp. Under the agreement, Mirant will build and finance a thermal power plant in Quezon, and operate and maintain the same for 25 years, after which, Mirant will transfer the power plant to the Respondent without compensation. NPC also undertook to pay all taxes that the government may impose on Mirant. Quezon then assessed Mirant real property taxes on the power plant and its machineries.

??? (1) Can Petitioner file the protest against the real property tax assessment?

(2) Can Petitioner claim exemption from the RPT given the BOT arrangement with Mirant?

(3) Is payment under protest required before an appeal to the LBAA is made?

REAL PROPERTY TAX

!!! (1) NO. The two entities vested with personality to contest an assessment are (a) the owner or (b) the person with legal interest in the property. NPC is neither the owner nor the possessor/user of the subject machineries even if it will acquire ownership of the plant at the end of 25 years. The Court said that legal interest should be an interest that is actual and material, direct and immediate, not simply contingent or expectant. While the Petitioner does indeed assume responsibility for the taxes due on the power plant and its machineries, the tax liability referred to is the liability arising from law that the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable between the parties to a contract. The local government units can neither be compelled to recognize the protest of a tax assessment from the Petitioner, an entity against whom it cannot enforce the tax liability.

REAL PROPERTY TAX

!!! (2) NO. To successfully claim exemption under Section 234 (c) of the LGC, the claimant must prove two elements: a) the machineries and equipment are actually, directly, and exclusively used by local water districts and government-owned or controlled corporations; and b) the local water districts and government-owned and controlled corporations claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power. Since neither the Petitioner nor Mirant satisfies both requirements, the claim for exemption must fall.

(3) YES. If a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to "first pay the tax" under protest. The case of Ty does not apply as it involved a situation where the taxpayer was questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. A claim for tax exemption, whether full or partial, does not question the authority of local assessors to assess real property tax.

REAL PROPERTY TAX

• DIGITAL TELECOMMUNICATIONS, INC. vs. CITY GOVERNMENT OF BATANGAS

… Petitioner was granted a 25-year franchise to install telecommunications systems under a law which states that “The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property exclusive of this franchise x x x.” As they were not being issued a Mayor’s permit, Petitioner paid the RPT under protest arguing that the phrase “exclusive of this franchise” means that only the real properties not used in furtherance of its franchise are subject to RPT while those real properties which are used in its telecommunications business are exempt from RPT.

??? Are Petitioner’s real properties used in its telecommunications business exempt from RPT?

REAL PROPERTY TAX

!!! NO. Petitioner’s real properties, whether or not used in its telecommunications business, are subject to RPT. The phrase “exclusive of this franchise” qualifies the term “personal property.” This means that Petitioner’s legislative franchise, which is an intangible personal property, shall not be subject to taxes. This is to put franchise grantees in parity with non-franchisees as the latter obviously do not have franchises which may potentially be subject to realty tax. There is nothing in the first sentence of Section 5 which expressly or even impliedly exempts Petitioner from RPT. Petitioner’s reliance on the BLGF’s opinion stating that real properties owned by telecommunications companies are exempt from RPT is without basis as the BLGF has no authority to rule on claims for exemption from RPT.

REAL PROPERTY TAX

• PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY vs. CENTRAL BOARD OF ASSESSMENT APPEALS

… Petitioner owned the Iloilo Fishing Port Complex which was on reclaimed land and consisted of a breakwater, landing quay, water and fuel oil supply system, refrigeration building, market hall and a municipal shed. Petitioner then leased portions of the IFPC to private firms engaged in the fishing business. Iloilo city then assessed the entire IFPC for RPT.

??? Is the entirety of the IFPC subject to the RPT?

!!! NO. The RPT liability of the IFPC is only on portions leased out to private entities. PFDA is not a GOCC but is actually an instrumentality of the national government exempt from RPT. Given this, it will only be subject to RPT on the portions of the IFPC which is leased to private entities. It is not a GOCC since a GOCC must satisfy two requirements: (i) capital stock divided into shares and (ii) authorized to distribute dividends/profits. PFDA does have capital stock but the same is not divided into shares and neither is it a non-stock corporation because it does not have members.

REAL PROPERTY TAX

!!! (Note: This was the same decision reached in MIAA vs. Paranaque (July 20, 2006) and again in MIAA vs. Pasay (April 2, 2009) where the property in question was the airport premises. In those cases, the Court additionally provided that other examples of government instrumentalities vested with corporate powers or what are know as “government corporate entities” are Philippine Ports Authority, BSP and University of the Philippines.)

CUSTOMS

• SUBIC BAY METROPOLITAN AUTHORITY vs. RODRIGUEZ… On September 29, 2001, a shipment described as “agricultural

product” arrived at Subic Bay Freeport Zone. On October 23, the BOC issued a Memorandum stating that upon examination the shipment was found to contain rice. The representative of the importer then stated that there was a “misshipment” and manifested willingness to pay appropriate duties and taxes. The BOC then issued a Hold Order on October 25, 2001. Despite several certifications for its clearance, Petitioner SBMA refused to allow the release of the rice shipment. Hence, on June 11, 2002, the respondent-importers filed with the RTC of Olongapo City a complaint for Injunction and Damages against SBMA.

??? Did the RTC have jurisdiction over the case?

CUSTOMS

!!! NO. The Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and the regular courts can not interfere nor can it enjoin these proceedings. This is the rule the moment the imported goods are in the possession or control of the Customs authorities even if no warrant for seizure or detention had previously been issued. The actions of the BOC are then only appealed to the CTA. The Court also said that this rule, which is anchored upon the policy of placing no unnecessary hindrance on the government’s drive to prevent smuggling and fraud and to collect correct duties, is absolute.

CUSTOMS

• PHILIPPINE BRITISH ASSURANCE COMPANY, INC. vs. BUREAU OF CUSTOMS

… Philippine British Assurance Company was an insurance company which regularly issued customs bonds to its clients in favor of the BOC. The bonds secure the release of imported goods in order that the goods may be released without prior payment of duties and taxes. Under these bonds, Petitioner and its clients jointly bind themselves to pay BOC the value of the bonds in the event that the bonds expire without the imported goods being re-exported or the proper duties being paid. BOC then filed a collection case alleging that Petitioner had unliquidated customs bonds. The RTC decided in favor of BOC but the appeal filed with the Court of Appeals was dismissed as the CA claimed lack of jurisdiction and said that the appeal lies with the CTA as a case for collection of taxes.

??? Did the CA, not the CTA, have jurisdiction over the appeal filed from the RTC?

CUSTOMS

!!! YES. An action to collect on a bond used to secure the payment of taxes is not a tax collection case but rather a simple case for enforcement of contractual liability. This was the same ruling in Mambulao Lumber where to satisfy its deficiency sales tax, the parties agreed for the taxpayer to pay in installments and as a security a bond was executed. Upon default, the government proceeded against the bond while the taxpayer argued that the 5-year period to collect had set in. The Court ruled that the prescription rules under the Tax Code do not apply and instead those under the Civil Code apply.

MCQs

(1) Supplier sells products subject to excise tax to Distributor who in turn sells the same to Consumer. Supplier pays the excise tax to the government but passes on the cost of the same down the line to the Distributor (who in turn does the same on its sales to Consumer). Who can claim a refund of the excise taxes paid in case of a legal basis to do so?

a. Supplierb. Distributorc. Consumerd. Anyone of the above

MCQs

(1) Supplier sells products subject to excise tax to Distributor who in turn sells the same to Consumer. Supplier pays the excise tax to the government but passes on the cost of the same down the line to the Distributor (who in turn does the same on its sales to Consumer). Who can claim a refund of the excise taxes paid in case of a legal basis to do so?

a. Supplierb. Distributorc. Consumerd. Anyone of the above

MCQs

(2) If Taxpayer X lends to Taxpayer Y and the two entities are related parties, the loan will ---

a. give rise to a theoretical interest that can be imputed by the BIR

b. only be charged with interest for income tax purposes if the parties agreed to have an interest charge in writing

c. not give rise to any interest subject to income tax in any case since the parties are related

d. result in the creditor being subject to income tax not only on the interest but on the principal as well

MCQs

(2) If Taxpayer X lends to Taxpayer Y and the two entities are related parties, the loan will ---

a. give rise to a theoretical interest that can be imputed by the BIR

b. only be charged with interest for income tax purposes if the parties agreed to have an interest charge in writing

c. not give rise to any interest subject to income tax in any case since the parties are related

d. result in the creditor being subject to income tax not only on the interest but on the principal as well

MCQs

(3) In a situation of a foreclosure sale, when is the applicable income tax/capital gains tax due?

a. Never. A foreclosure sale can not give rise to an income tax liability as it is an involuntary transfer

b. Upon execution of the certificate of sale which happens after public auction

c. Upon expiry of the one-year redemption periodd. Immediately upon foreclosure

MCQs

(3) In a situation of a foreclosure sale, when is the applicable income tax/capital gains tax due?

a. Never. A foreclosure sale can not give rise to a CGT liability as it is an involuntary transfer

b. Upon execution of the certificate of sale which happens after public auction

c. Upon expiry of the one-year redemption period

d. Immediately upon foreclosure

MCQs

(4) Mr. C died on June 1, 2011. Prior to his death, he owed Mr. D P1,000,000. After Mr. C’s death, the heirs of Mr. C were able to convince Mr. D for them to just pay P200,000 of the outstanding debt of the deceased. How much will be considered as a deduction against Mr. C’s gross estate?

a. P1,000,000b. P200,000c. P800,000d. P1,200,000

MCQs

(4) Mr. C died on June 1, 2011. Prior to his death, he owed Mr. D P1,000,000. After Mr. C’s death, the heirs of Mr. C were able to convince Mr. D for them to just pay P200,000 of the outstanding debt of the deceased. How much will be considered as a deduction against Mr. C’s gross estate?

a. P1,000,000b. P200,000c. P800,000d. P1,200,000

MCQs

(5) Which of the following is not a basis to state that the toll fees collected by tollway operators are subject to VAT?

a. The same is not a “tax on tax”b. It does not have a legislative franchisec. VAT is imposed on all kinds of servicesd. It is not a VAT-exempt transaction under Section 109 of

the Tax Code

MCQs

(5) Which of the following is not a basis to state that the toll fees collected by tollway operators are subject to VAT?

a. The same is not a “tax on tax”

b. It does not have a legislative franchise

c. VAT is imposed on all kinds of servicesd. It is not a VAT-exempt transaction under Section 109 of

the Tax Code

MCQs

(6) Company M was a nonresident foreign corporation that was engaged by a Philippine company, Company P, to provide services in the Philippines. Since Company M did not have a presence here, it subcontracted the work to Company N, its Philippine subsidiary. Company P paid Company M in foreign currency. Company M’s payments to Company N were likewise in foreign currency. What is the VAT implication of Company M’s payments to Company N?

a. VAT-taxableb. VAT-exemptc. VAT-zero-rated

MCQs

(6) Company M was a nonresident foreign corporation that was engaged by a Philippine company, Company P, to provide services in the Philippines. Since Company M did not have a presence here, it subcontracted the work to Company N, its Philippine subsidiary. Company P paid Company M in foreign currency. Company M’s payments to Company N were likewise in foreign currency. What is the VAT implication of Company M’s payments to Company N?

a. VAT-taxableb. VAT-exemptc. VAT-zero-rated

MCQs

(7) Taxpayer A executes a waiver for taxable year 2010. After executing the same, the taxpayer pays part of the assessed amount. Subsequently, the taxpayer discovers certain defects in the waiver and disputes the unpaid portion of the assessment claiming prescription since the waiver is deemed invalid. Which of the following is TRUE?

a. The taxpayer can no longer dispute the assessment as his partial payment of the assessed amount puts him in estoppel insofar as the issue of the validity of the waiver is concerned

b. The taxpayer can question the waiver anytime since an invalid waiver is void and has no effect

c. Even the partial payment is void since it rests on an invalid waiver

d. None of the above

MCQs

(7) Taxpayer A executes a waiver for taxable year 2010. After executing the same, the taxpayer pays part of the assessed amount. Subsequently, the taxpayer discovers certain defects in the waiver and disputes the unpaid portion of the assessment claiming prescription since the waiver is deemed invalid. Which of the following is TRUE?

a. The taxpayer can no longer dispute the assessment as his partial payment of the assessed amount puts him in estoppel insofar as the issue of the validity of the waiver is concerned

b. The taxpayer can question the waiver anytime since an invalid waiver is void and has no effect

c. Even the partial payment is void since it rests on an invalid waiverd. None of the above

MCQs

(8) Can a Formal Assessment Notice be considered as the final decision of the CIR which is appealable to the CTA?

a. It depends on the tenor of the FAN.b. Never. The only thing that can be appealed to the CTA is a

final decision of the CIR over a disputed assessmentc. Always. The FAN is in fact always considered the final

decision of the CIR.d. Sometimes. As long as the taxpayer was allowed to protest

already.

MCQs

(8) Can a Formal Assessment Notice be considered as the final decision of the CIR which is appealable to the CTA?

a. It depends on the tenor of the FAN.b. Never. The only thing that can be appealed to the CTA is a

final decision of the CIR over a disputed assessmentc. Always. The FAN is in fact always considered the final

decision of the CIR.d. Sometimes. As long as the taxpayer was allowed to protest

already.

MCQs

(9) Which of the following statements about the 60-day period to submit supporting documents in an assessment is FALSE?

a. The same can be effectively waived by the taxpayer if it manifests that all the supporting documents are submitted together with the protest to the FAN

b. The start of the counting period begins from the time the protest is filed

c. The BIR can dictate what has to be submitted within that period and failure of the taxpayer to heed the demand will make the assessment final and unappealable

d. None of the above

MCQs

(9) Which of the following statements about the 60-day period to submit supporting documents in an assessment is FALSE?

a. The same can be effectively waived by the taxpayer if it manifests that all the supporting documents are submitted together with the protest to the FAN

b. The start of the counting period begins from the time the protest is filed

c. The BIR can dictate what has to be submitted within that period and failure of the taxpayer to heed the demand will make the assessment final and unappealable

d. None of the above

MCQs

(9) Must a criminal prosecution for tax evasion be preceded by a deficiency tax assessment?

a. Yes, to be able to determine first whether there is sufficient basis to file the complaint

b. Yes, to afford the taxpayer due processc. No, to enable the swift collection of taxesd. No, the remedies can be resorted to simultaneously

MCQs

(9) Must a criminal prosecution for tax evasion be preceded by a deficiency tax assessment?

a. Yes, to be able to determine first whether there is sufficient basis to file the complaint

b. Yes, to afford the taxpayer due processc. No, to enable the swift collection of taxes

d. No, the remedies can be resorted to simultaneously

MCQs

(10) Which of the following is not one of the requisites of a valid waiver?

a. date of acceptanceb. an accompanying request for reinvestigationc. date of expiryd. signature by the waiving taxpayer

MCQs

(10) Which of the following is not one of the requisites of a valid waiver?

a. date of acceptance

b. an accompanying request for reinvestigation

c. date of expiryd. signature by the waiving taxpayer

MCQs

(11) Which of the following is TRUE in the case of VAT refunds arising from unutilized input VAT?

a. The administrative claim must always precede the judicial claim

b. The taxpayer need not wait for the decision or the expiry of the 120-day period if the 2-year period to appeal is about to lapse

c. The legal bases for the claim are Sections 204 and 229 of the Tax Code based in erroneous payment

d. All of the above

MCQs

(11) Which of the following is TRUE in the case of VAT refunds arising from unutilized input VAT?

a. The administrative claim must always precede the judicial claim

b. The taxpayer need not wait for the decision or the expiry of the 120-day period if the 2-year period to appeal is about to lapse

c. The legal bases for the claim are Sections 204 and 229 of the Tax Code based in erroneous payment

d. All of the above

MCQs

(12) In connection with the 180-day period in the procedure for protesting the assessment, the taxpayer ---

a. must always wait for the same to expire even if a decision has already been rendered

b. can opt to file an appeal based on inaction anytime after the expiry of the 180-day period

c. only has the sole option of appealing the inaction after the expiry of the 180-day period and can not choose to wait for a decision anymore

d. has the option of waiting for the decision even after the expiry of the 180-day period

MCQs

(12) In connection with the 180-day period in the procedure for protesting the assessment, the taxpayer ---

a. must always wait for the same to expire even if a decision has already been rendered

b. can opt to file an appeal based on inaction anytime after the expiry of the 180-day period

c. only has the sole option of appealing the inaction after the expiry of the 180-day period and can not choose to wait for a decision anymore

d. has the option of waiting for the decision even after the expiry of the 180-day period

MCQs

(13) If a taxpayer wishes to have the collection of local taxes against him stopped he can ---

a. not do anything as injunction will not lie to restrain the collection of local taxes

b. file an appeal with the CTA before any injunction can be issued under R.A. 9282

c. appeal the action to collect with the local treasurerd. file an injunction as it is not prohibited

MCQs

(13) If a taxpayer wishes to have the collection of local taxes against him stopped he can ---

a. not do anything as injunction will not lie to restrain the collection of local taxes

b. file an appeal with the CTA before any injunction can be issued under R.A. 9282

c. appeal the action to collect with the local treasurer

d. file an injunction as it is not prohibited

MCQs

(14) A foreign airline carrier has no landing rights in the Philippines but sells tickets for its offline flights through a local agent. The correct tax implication is ---

a. the carrier is subject to the 2 ½% tax on Gross Philippine Billings (GPB)

b. the carrier is subject to the 32% corporate income tax c. the local sales agent is subject to the 2 ½% tax on Gross

Philippine Billings (GPB)d. no Philippine tax is due on either the carrier or the sales

agent

MCQs

(14) A foreign airline carrier has no landing rights in the Philippines but sells tickets for its offline flights through a local agent. The correct tax implication is ---

a. the carrier is subject to the 2 ½% tax on Gross Philippine Billings (GPB)

b. the carrier is subject to the 32% corporate income tax

c. the local sales agent is subject to the 2 ½% tax on Gross Philippine Billings (GPB)

d. no Philippine tax is due on either the carrier or the sales agent

MCQs

(15) In what instance can the CTA have jurisdiction over a decision on an assessment that has become “final and unappealable”?

a. where there is alleged to be grave abuse of discretionb. where the issue elevated before it is whether the right to

collect has prescribedc. the CTA can not take cognizance anymore as the same is

finald. in all instances as long as the same is taken up by the CTA

en banc

MCQs

(15) In what instance can the CTA have jurisdiction over a decision on an assessment that has become “final and unappealable”?

a. where there is alleged to be grave abuse of discretion

b. where the issue elevated before it is whether the right to collect has prescribed

c. the CTA can not take cognizance anymore as the same is final

d. in all instances as long as the same is taken up by the CTA en banc

THANK YOU.THANK YOU.

GOOD GOOD LUCK!LUCK!