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Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of 1960, imposing a municipal license tax on tenement houses in accordance with the schedule of payment provided by therein. Villanueva and the other appellees are apartment owners from whom, the city collected license taxes by virtue of Ordinance 11. Appellees aver that the said ordinance is unconstitutional for RA 2264 does not empower cities to impose apartment taxes; that the same is oppressive and unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes not only double taxation but treble taxation; and, that it violates uniformity of taxation. Issues: 1. Does the ordinance impose double taxation? 2. Is Iloilo city empowered by RA 2264 to impose tenement taxes? Held: 1. While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by the national government as well as by the local government. The contention that appellees are doubly taxed because they are paying real estate taxes and the tenement tax is also devoid of merit. A license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. In order to constitute double taxation, both taxes must be the same kind or character. Real estate taxes and tenement taxes are not of the same character. 2. RA 2264 confers local governments broad taxing powers. The imposition of the tenement taxes does not fall within the exceptions mentioned by the same law. It is argued however that the said taxes are real estate taxes and thus, the imposition of more the 1 per centum real estate tax which is the limit provided by CA 158, makes the said ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It does not have the 1 attributes of a real estate tax. By the title and the terms of the ordinance, the tax is a municipal tax which means an imposition or exaction on the right to use or dispose of property, to pursue a business, occupation or calling, or to exercise a privilege. Tenement houses being offered for rent or lease constitute a distinct form of business or calling and as such, the imposition of municipal tax finds support in Section 2 of RA 2264.
It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. Te tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of the assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint.
If a tax is in its nature an excise, it does not become a property tax because it is proportioned in the amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise by necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered excise.
Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is interpreted as synonymous with domicile, and that The incidence of estate and succession has historically been determined by domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers) At the time of his death, Miller had his residence or domicile in Santa Cruz, California. During his stay in the country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". *** As to the shares of stocks issued by Philippine corporations, an exemption was granted to the estate by virtue of Section 122 of the Tax Code, which provides as follows: . . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country. Affirmed, with modification.
income she derived from said activities is not subject to Philippine income taxation. Issue/s: W/N respondents sales commission income is taxable in the Philippines. Held/Ratio: Yes. Section 25 of the NIRC provides that non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on their income received from all sources within the Philippines. Thus, the keyword in determining the taxability of non-resident aliens is the incomes source. Source of income relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. There is therefore no merit in petitioners interpretation which equates source of income in labor or personal service with the residence of the payor or the place of payment of the income. The decisive factual consideration here is not the capacity in which respondent received the income, but the sufficiency of evidence to prove that the services she rendered were performed in Germany. The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the taxpayer. The faxed documents presented by respondent did not constitute substantial evidence, or that relevant evidence that a reasonable mind might accept as adequate to support the conclusion that it was in Germany where she performed the income producing service which gave rise to the reported monthly sales in the months of March and May to September of 1995. She thus failed to discharge the burden of proving that her income was from sources outside the Philippines and exempt from the application of our income tax law. Petition GRANTED. The June 28, 2000 Decision of the Court of Tax Appeals in C.T.A. Case No. 5633, which denied respondents claim for refund of income tax paid for the year 1995 is REINSTATED.
CIR v. Solidbank (Double Taxation: Strict Sense) Facts: For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60. On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue[,] wherein it was held that the 20% final withholding tax on [a] banks interest income should not form part of its taxable gross receipts for purposes of computing the gross receipts tax. On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of Internal Revenue [BIR] a letter-request for the refund or issuance of [a] tax credit certificate in the aggregate amount of P3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995. The CTA rendered its decision ordering petitioner to refund in favor of respondent the reduced amount of P1,555,749.65 as overpaid [gross receipts tax] for the year 1995. The CA held that the 20% FWT on a banks interest income did not form part of the taxable gross receipts in computing the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to the government. The appellate court curtly said that while the Tax Code does not specifically state any exemption, x x x the statute must receive a sensible construction such as will give effect to the legislative intention, and so as to avoid an unjust or absurd conclusion.
Issue/s:W/N the 20% final withholding tax on [a] banks interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax. Held/Ratio: Yes, the amount of interest income withheld in payment of the 20% FWT forms part of gross receipts in computing for the GRT on banks. Two types of taxes are involved in the present controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by both taxes. Gross receipts refer to the total, as opposed to the net, income. These are therefore the total receipts before any deduction for the expenses of management. Websters New International Dictionary, in fact, defines gross as whole or entire. No Double Taxation The two taxes, subject of this litigation, are different from each other. The basis of their imposition may be the same, but their natures are different, thus leading us to a final point. Double taxation means taxing the same property twice when it should be taxed only once; that is, x x x taxing the same person twice by the same jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as direct duplicate
taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character. First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a property tax. It is not an income tax, unlike the FWT. These two taxes are entirely distinct and are assessed under different provisions. Second, although both taxes are national in scope because they are imposed by the same taxing authority -the national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a percentage tax not subject to withholding. In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory. Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation. Petition granted.
China Bank v. CA (Constitutionality of Double Taxation) Facts: The Court of Appeals affirmed the Decision of the Court of Tax Appeals, which granted China Banking Corporation (CBC) a tax refund or credit of P123,278.73 but denied due to insufficiency of evidence the remainder of CBCs claim for P1,140,623.82. On 20 July 1994, CBC paid P12,354,933.00 as gross receipts tax on its income from interests on loan investments, commissions, services, collection charges, foreign exchange profits and other operating earnings during the second quarter of 1994. On 30 January 1996, the Court of Tax Appeals in Asian Bank Corporation v. Commissioner of Internal Revenue ruled that the 20% final withholding tax on a banks passive interest income does not form part of its taxable gross receipts. On 19 July 1996, CBC filed with the Commissioner of Internal Revenue (Commissioner) a formal claim for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts tax that CBC paid for the second quarter of 1994. Citing Asian Bank, CBC argued that it was not liable for the gross receipts tax - amounting to P1,140,623.82 - on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on CBCs passive interest income in 1994. Disputing CBCs claim, the Commissioner asserted that CBC paid the gross receipts tax pursuant to Section 119 (now Section 121) of the National Internal Revenue Code (Tax Code) and pertinent Bureau of Internal Revenue (BIR) regulations. The Commissioner argued that the final withholding tax on a banks interest income forms part of its gross receipts in computing the gross receipts tax. The Commissioner contended that the term gross receipts means the entire income or receipt, without any deduction.
Issue/s:W/N the 20% final withholding tax on interest income should form part of CBCs gross receipts in computing the gross receipts tax on banks; Held/Ratio: Yes. As commonly understood, the term gross receipts means the entire receipts without any deduction. Deducting any amount from the gross receipts changes the result, and the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the law itself makes an exception. The Court of Tax Appeals reversed its ruling in Asian Bank. In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v. Commissioner, both promulgated on 16 November 2001, the tax court ruled that the final withholding tax forms part of the banks gross receipts in computing the gross receipts tax. The tax court also held in Far East Bank and Standard Chartered Bank that the exclusion of the final withholding tax from gross receipts operates as a tax exemption which the law must expressly grant. No law provides for such exemption. On Double Taxation: There is no double taxation when Section 121 of the Tax Code imposes a gross receipts tax on interest income that is already subjected to the 20% final withholding tax under Section 27 of the Tax Code. The gross
receipts tax is a business tax under Title V of the Tax Code, while the final withholding tax is an income tax under Title II of the Code. There is no double taxation if the law imposes two different taxes on the same income, business or property. Constitutionality: City of Baguio v. De Leon: As to why double taxation is not violative of due process, Justice Holmes made clear in this language: The objection to the taxation as double may be laid down on one side . . . . The 14th Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds. With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947 decision, however, we quoted with approval this excerpt from a leading American decision: Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. Reversed.
CIR v. SC Johnson & Son (Tax Treaties) Facts: S. C. Johnson and Son, Inc. entered into a license agreement with SC Johnson and Son, United States of America (USA) For the use of the trademark or technology, S. C. Johnson and Son, Inc. was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments S. C. Johnson and Son, Inc. filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that the preferential tax rate of 10% should apply to them
Issue Whether or not SC Johnson and Son, USA is entitled to the "most favored nation" tax rate of 10% on royalties as provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty. Held/Ratio NO. Under Article 13 of the RP-US Tax Treaty, the Philippines may impose one of three rates 25 percent of the gross amount of the royalties; 15 percent when the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities; or the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third state. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Since the RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent cannot be deemed entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances.
Republic v. Gonzales (Tax evasion) Facts Since 1946, Blas Gonzales, has been a private concessionaire in the U.S. Military Base at Clark Field, Angeles City: He was engaged in the manufacture of furniture and, per agreement with base authorities, supplied them with his manufactured articles. The appellant filed his income tax returns for the years 1946 and 1947, respectively, with the then Municipal Treasurer of Angeles, Pampanga. Upon investigation, however, the BIR discovered that for the years 1946 and 1947, the appellant had been paid a total of P2,199,920.50 for furniture delivered by him to the base authorities. Compared against the sales figure provided by the base authorities, therefore, the amount of P1,787,848.32 declared by the appellant as his total sales for the two tax years in question was short or underdeclared by some P412,072.18. Accordingly, the appellee considered this last mentioned amount as unreported item of income of the appellant for 1946. Further investigation into the appellant's 1946 profit and loss statement disclosed "local sales," that is, sales to persons other than the United States Army, in the amount of P124,510.43. As a result, the appellee likewise considered the said amount as unreported income for the said year. The full amount of P124,510.43 was considered as taxable income because the appellant could not produce the books of account on the same upon which any deduction could be based.
Issues 1. Whether or not Gonzales is subject to Philippine tax laws pursuant to the United States-Philippine Military Bases Agreement 2. Whether or not Gonzales is guilty of fraud. Held/Ratio 1. YES. None of the mentioned covenants shields a concessionaire, like the appellant, from the payment of the income tax. For one thing, even the exemption in favor of members of the United States Armed Forces and nationals of the United States does not include income derived from Philippine sources. The appellant cannot seek refuge in the use of "excise" or "other taxes or imposts" in paragraph 1 of Article XVIII of the Military Bases Agreement, because, as already stated, said terms are employed with specific application to the right to establish agencies and concessions within the bases and to the merchandise or services sold or dispensed by such agencies or concessions. 2. YES. As rightly argued by the Solicitor General's office, since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation purposes his true and actual income derived from his furniture business at the Clark Field Air Base for two consecutive years is an indication of his fraudulent intent to cheat the Government of its due taxes.
CIR v. PLDT (Nature of Taxation Exemption) FACTS: * PLDT paid to the BIR taxes for the for equipment, machineries and spare parts it imported for its business. * After such payment, it wrote to the BIR to seek a confirmatory ruling on its exemption privileges. The BIR issued a ruling stating that PLDT is exempt from all taxes including the 10% value-added tax (VAT) on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise. * Based on the BIR ruling, PLDT filed a claim for tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying in its importation of various equipment, machineries and spare parts needed for its operations. * PLDT filed with the CTA a petition for review. CTA granted the credit/refund. BIRs MfR denied. * BIR appealed to CA which affirmed CTA judgment. Hence this appeal.
ISSUE: WONPLDT is exempt from paying VAT, compensating taxes, advance sales taxes and internal revenue taxes on its importations? HELD: YES, PLDT exempt from paying direct taxes but not indirect taxes (ie VAT). Taxation is the rule, exemption is the exception. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. To him who claims a refund or exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted. Tax exemption represents a loss of revenue to the government and must, therefore, not rest on vague inference. When claimed, it must be strictly construed against the taxpayer who must prove that he falls under the exception. If an exemption is found to exist, it must not be enlarged by construction, since the reasonable presumption is that the state has granted in express terms all it intended to grant at all, and that, unless the privilege is limited to the very terms of the statute the favor would be extended beyond dispute in ordinary cases. DISPOSITIVE: CA modified. PLDT to get refund on advance sales tax and compensating tax it paid less the VAT due on the importations.
Basco v. Pagcor (Nature of Power to grant tax exemption) FACTS: * PAGCOR was created and given a franchise under PD 1067. * Petitioner filed a petition on the grounds that the PAGCOR Charter is contrary to morals, public policy and order, and because it constitutes a waiver of the right of Manila City government's right to impose taxes and license fees, which is recognized by law. They assail Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local."
ISSUE: WON PAGCOR Charter is violative of the autonomy of the local government? HELD: NO, it is not violative of the law. Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government (Note: Since the case doesn't directly say anything about the "nature of the power to grant tax exemption", use the doctrine mentioned in the case [which speaks of the "nature of the power to tax"] and extend them to tax exemption.) Manila has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax". Local governments have no power to tax instrumentalities of the National Government. "The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)" The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. DISPOSITIVE: PAGCOR Charter valid since exemption was granted by Congress.
MACEDA v. MACARAIG(Rationale/Ground for tax exemption & Construction of Statutes Granting Tax Exemption Exemption) FACTS: (same as 1991 case) * CA 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the production of power from other sources. * RA 358 (1949) granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out the policy of the national electrification, and provided in detail NAPOCORs tax exceptions. PD 380 (1974) specified that NAPOCORs exemption includes all taxes, etc. imposed directly or indirectly. * PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. * The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987. * Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. * NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. * NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery. ISSUE: WON NAPOCOR cease to enjoy exemption from indirect tax when exemption in PD 938 is in general terms. HELD: NO, NAPOCOR still exempt. Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as knowledge that many impositions taxpayers have to pay are in the nature of indirect taxes. To limit the exemption granted the National Power Corporation to direct taxes notwithstanding the general and broad language of the statute will be to thwart the legislative intention in giving exemption from all forms of taxes and impositions without distinguishing between those that are direct and those that are not.
1991 case held: NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by the government of the Republic of the Philippines. From the very beginning of the corporations existence, NAPOCOR enjoyed preferential tax treatment to enable the corporation to pay the indebtness and obligation and effective implementation of the policy enunciated in Section 1 of RA
6395. From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt status of NAPOCOR. It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or instrumentality. The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies. In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property exemption is the rule and taxation the exception. DISPOSITIVE: NAPOCOR exempt from tax.
CIR v. CA (Construction of Statutes granting tax exemption:general rule) Facts: * YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. * CIR issued an assessment including surcharge and interest, for deficiency tax. * YMCA protested but denied by the CIR, so it filed in the CTA. * CTA ruled in favor of YMCA, so CIR appealed to CA * CA in favor of CIR but upon MfR by YMCA, it ruled in favor of the latter. Hence, this petition. * CIR argues the income received by YMCA enumerated in 3 Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax in respect to income received by them as such, the exemption does not apply to income derived xxx from any if their properties, real or personal, or from any of their activities conducted for profit, regardless, of the disposition made of such income xxx. * YMCA argues that it is an exempt organization due to its nature and because the income it derives from renting its space and the fees it derives from parking is minimal (therefore not for profit). ISSUE: WON the income derived from rentals of real property owned by YMCA exempt from tax? HELD: NO, YMCA not exempt organization since it doesn't come within the purview of the provision. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. A claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption must expressly be granted in a statute stated in a language too clear to be mistaken." Where the language of the law is clear and unambiguous, its express terms must be applied. Laws allowing tax exemption are construed strictissimi juris. DISPOSITIVE: YMCA to pay tax liability.
Luzon Stevedoring v. CTA (Construction of Statutes granting tax exemption:general rule) FACTS: * Luzon Stevedoring for the and maintenance of its tugboats, imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. * Unable to secure a tax refund from the CIR, it filed a petition in the CTA. * CTA denied its petition hence this appeal. * Luzon Stevedoring argues contends that tugboats are embraced and included in the term cargo vessel under the tax 4 exemption provisions of Sec. 190 of the NIRC, as amended by RA 3176. * CTA argues that "tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes. Hence, Luzon Stevedoring should be taxed. ISSUE: WON Luzon Stevedoring should be exempt from tax? HELD: NO, tugboats not embraced in the provision hence Luzon Stevedoring doesn't come under the exemption. "As the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer. DISPOSITIVE: Luzon Stevedoring doesn't come under the purview of the exception. Pay tax liability.
SEC. 27. Exemptions from tax on corporations. -- The following organizations shall not be taxed under this Title in respect to income received by them as such -xxx xx x xxx (g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; xxx xx x xxx Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)
Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and are to form part thereof or to articles to be used by the importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel. ....
The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies. In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property exemption is the rule and taxation the exception. DISPOSITIVE: NAPOCOR exempt from tax. DISSENTING, Cruz: It is important to note that when P.D. Nos. 1931 and 1955 were issued by President Marcos, the rule under the 1973 Constitution was that "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]). Laws are usually passed by only a majority of those present in the chamber, there being a quorum, but not where it grants a tax exemption. This requires an absolute majority. Yet, despite this stringent limitation on the national legislature itself, such stricture does not inhibit the President and the FIRB in the exercise of their delegated power. It would seem that the delegate has more power than the principal. Significantly, this limitation is maintained in the present Constitution under Article VI, Section 28(4). The ponencia holds that the rule of strict construction is not applicable where the grantee is an agency of the government itself, like the MPC in the case before us. I notice, however, that the ultimate beneficiaries of the expected tax credit will be the oil companies, which certainly are not part of the Republic of the Philippines. As the tax refunds will not be enjoyed by the MPC itself, I see no reason why we should be exceptionally lenient in applying the exception. Sarmiento: Acetylene's pronouncement is founded on the very science of taxationthat indirect taxes are no taxes for purposes of exemption, and that consequently, one who did not pay taxes can not claim an exemption although the price he paid for the goods included taxes. To enable him to claim an exemption, as the majority would now enable him (Acetylene having been "abrogated"), is, I submit, to defeat the very laws of science. The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-settled concepts of taxation, as the law of supply and demand is to the law of economics. A President is said (unfairly) to have attempted it, but one can not repeal the law on supply and demand.
CIR v. ESSO(Set-off) Facts: ESSO overpaid its 1959 income tax by P221,033.00. It was accordingly granted a tax credit. However, ESSOs payment of its income tax for 1960 was found to be short by P367,994. So the Commissioner demanded payment of the deficiency, with interest. ESSO paid under protest, including the interest as reckoned by the Commissioner.
ESSOs contention: The interest was more than that properly due. It should not have been required to pay interest on the total amount of the deficiency tax, P367,994.00, but only on the amount of P146,961.00representing the difference between said deficiency and ESSOs earlier overpayment. ESSO thus asked for a refund. CIRs contention: It denied the claim for refund. Income taxes are determined and paid on an annual basis, such determination and payment are separate and independent transactions; and a tax credit could not be considered until it has been finally approved and the taxpayer notified. Since in this case, the tax credit was approved only on August 5, 1964, it could not be availed of in reduction of ESSOs earlier tax deficiency for 1960; as of that year there was no tax credit to speak of. In support of this, the Commissioner invokes the Section 51 of the Tax Code: (d) Interest on deficiency. Interest upon the amount determined as deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as a part of the tax... ESSO appealed to the Court of Tax Appeals, which in turn ordered payment to ESSO of its "refund-claim. Hence, this appeal by the Commissioner. ISSUE: Was it proper to apply ESSOs tax credit in reducing the total deficiency subject to interest? YES. Ratio Decidendi: 1. Regardless of CIRs assertions, the fact is that as early as July 15, 1960, the Government already had in its hands the sum representing excess payment. Having been paid and received by mistake, that sum unquestionably belonged to ESSO, and the Government had the obligation to return it to ESSO. 2. The obligation to return money mistakenly paid arises from the moment that payment is made, and not from the time that the payee admits the obligation to reimburse. The obligation of the payee to reimburse results from the mistake, not from the payee's confession of the mistake or recognition of the obligation to reimburse. In other words, since the amount of P221,033.00 belonging to ESSO was already in the hands of the Government as of July, 1960, it was neither legally nor logically possible for ESSO thereafter to be considered a debtor of the Government; and whatever other obligation ESSO might subsequently incur in favor of the Government would have to be reduced by that sum, in respect of which no interest could be charged. 3. "Nothing is better settled than that courts are not to give words a meaning which would lead to absurd or unreasonable consequences. "Statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or absurd conclusion." Holding: Petition denied, CTA affirmed.
Lozada & Igot v. Comelec (Taxpayers Suit) Facts: This is a petition for mandamus filed as a representative suit for and in behalf of those who wish to participate in the election irrespective, to compel the respondent COMELEC to call a special election to fill up existing vacancies) in the Interim Batasan Pambansa. The petition is based on Section 5(2), Article VIII of the 1973 Constitution which reads: (2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term.
The petitioners: Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution. COMELEC opposed the petition alleging, that 1) petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa. ISSUE: Do the petitioners have standing to sue? NO. Ratio Decidendi: I. No standing as taxpayers 1. As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC and therefore, involves no expenditure of public funds. 2. It is only when an act complained of involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. 3. What the case at bar seeks is one that entails expenditure of public funds. (In other words, they are effectively asking for the government to spend, not questioning the validity of such spending). Moreover, such spending could actually be illegal because it would be spent for a purpose that, as will be shown, COMELEC has no authority to call for. II. No standing as voters 1. As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute the present petition. 2. The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement. 3. In the case before Us, the alleged inaction of the COMELEC to call a special election would adversely affect only the generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged, which is held in common by all members of the public because of the necessarily abstract nature of the injury supposedly shared by all citizens. Concrete injury, actual or threatened, is that indispensable element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution. Holding: Petition denied.
CIR v. CA, ROH Auto (BIR Rules and Regulations) Facts: EO41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donor's taxes and taxes on business, for the taxable years 1981 to 1985. Availing itself of the amnesty, R.O.H. Auto Products filed, tax amnesty returnms and paid the amnesty taxes due. Prior to this availment, CIR assessed the ROH deficiency income and business taxes in an aggregate amount of P1,410,157.71. ROH wrote back to state that since it had been able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The request was denied by the Commissioner on the ground that Revenue Memorandum Order No. 4-87, dated 09 February 1987, implementing Executive Order No. 41, had construed the amnesty coverage to include only assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments theretofore made.
ISSUE: Is ROH covered by the tax amnesty? YES. Was the CIRs position correct? NO. Ratio Decidendi: 1. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to the mandate of the law which the regulation ought to implement. 2. The authority of the Secretary of Finance, in conjunction with the CIR, to promulgate rules and regulations for the enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law. 3. If, as the Commissioner argues, EO 41 had not been intended to include 1981-1985 tax liabilities already assessed prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it Holding: CA affirmed.
CIR v. Telefunken (BIR Rules and Regulations) FACTS: Telefunken is a domestic corporation registered with the Board of Investments (BOI) as an export producer on a preferred pioneer status under RA 6135. From October 1979 to September 1981, Telefunken produced semi-conductor devices amounting to P92,843,774.00 which were entirely sold to foreign markets. BIR denied Telefunkens request for a tax refund/tax credit from the contractors tax which it paid for said amount. Telefunken contended that under the provisions of Section 7 of RA 6135 in relation to Section 8 (a) of RA 5186 (The Investment Act), it was exempted from the payment of all national internal revenue taxes for the period in question, except for income tax. 5 Section 7 of RA. 6135 (the law under which Telefunken is registered) provides that registered export producers in a pioneer status are entitled to the incentives provided in section 8 (a) of RA 5186. On the other hand CIR argues that the law speaks of firms registered under RA 5186 only and thus, the privilege of tax exemption does not apply to firms registered under RA 6135.
ISSUE: WON Telefunken, registered under RA 6135 as a pioneer export producer, is exempted from payment of the 3% contractor's tax from October 1979 to September 1981. HELD: YES. 1. The controlling statute is Section 205 (16) of the 1977 National Internal Revenue Code which states: Sec. 205. Contractors, proprietors or operators of dockyards and others. A contractor's tax of three percentum of gross receipts is hereby imposed on the following: xxx xxx xxx (16) Business agents and other independent contractors including private detective or watchman agencies, except gross receipts of a pioneer enterprise registered with the Board of Investments under Republic Act 5186. (As amended by P.D. No. 1457 , June 11, 1978) There is no difference between the gross receipts of pioneer enterprises registered with the Board of Investments under RA 6135 and the gross receipts of registered pioneer enterprises under RA 5186. In fact the CIR himself had ruled in this vein on February 4, 6 1974 in the case of Asian Transmission Corporation.
5 Sec. 7. Incentives to registered export producers Registered export producers. Registered export producers unless they already enjoy the same privileges under other laws shall be entitled to the incentives set forth in parahraphs (h), (i) and (j) of Section 7 of Republic Act Numbered Fifty-one hundred eigthy-six, known as the Investment Incentives Act; and registered export producers that are pioneer enterprises shall be entitled also to the incentives set forth in paragraphs (a), (b) and (c) of Section 8 of the said Act. In addition to the said incentives, and in lieu of other incentives provided in Section 7 and in Section 9 of that Act, registered export producer shall be entitled to benefits and incentives as enumerated hereunder:
6 Pursuant to Section 7 of Republic Act No. 6135, that corporation as a registered export producer on a pioneer status is entitled to the same tax incentives granted to a pioneer industry set forth in section 8(a) of
This 1974 ruling was based the same on Section 191(16) of the Tax Code which states: Sec. 191. Contractors, proprietors or operators of dockyards, and others. A contractor's tax of three per centum of the gross receipts is hereby imposed on the following: xxx xxx xxx (16) Business agents and other independent contractors except persons, associations and corporations under contract for embroidery and apparel for export, as well as their agents and contractors and except gross receipts of or from a pioneer industry registered with the Board of Investments under the provisions of Republic Act Numbered Five Thousand one hundred and eighty-six. (Emphasis supplied) A comparison of the above with the previously quoted Section 205(16) of the 1977 Tax Code reveals that both provisions specifically mention pioneer industries registered with the Board of Investments under Republic Act No. 5186 as exempt from payment of the contractor's tax. 2. Also, this 1974 ruling has not been abrogated with the passage of the 1977 Tax Code, Section 205(16) which expressly mentions only pioneer enterprises registered with the Board of Investments under RA 5186 as exempt from the contractor's tax (though with no reference being made regarding pioneer enterprises registered under RA 6135). Lastly, under Sec. 246 of the National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is prejudicial to the taxpayer.
CIR v. Mega Gen. Merch (BIR Rules and Regulations) FACTS: (BACKGROUND)Prior to the promulgation of P.D. No. 392 on February 18, 1974, importations of all kinds of paraffin wax were subject to 7% advance sales tax on landed costs plus 25% mark up pursuant to Section 183(b) now Section 197(II) in relation to Section 186 (now Section 200) of the Tax Code. With the promulgation of P.D. No. 392, a new provision for the imposition of specific tax was added to Section 142 of the Tax 7 Code (effective Feb 18 1974) On April 1975 Mega wrote the CIR for clarification as to whether imported crude paraffin wax is subject to specific tax or advance sales tax. On May 14, 1975 Former Commissioner Misael P. Vera in his reply ruled that only wax used as high pressure lubricant and micro crystallin is subject to specific tax; that paraffin which was used as raw material in the manufacture of candles, wax paper, matches, crayons, drugs, appointments etc., is subject to the 7% advance sales tax, the tax to be based on the landed cost thereof, plus 25% mark-up. Due to Commissioner Vera's ruling Mega filed several claims for tax refund/tax credit of the specific tax paid by them. However, on January 28, 1977, then Acting CIR Efren Plana denied Megas claim. According to him the law does not make any distinction as to the kind of wax subject to specific tax. During the pendency of Megas request for reconsideration, an investigation was conducted by the BIR in connection with the importations of wax and petroleum that arrived in the country on or subsequent to the date of the ruling of January 28, 1977 and it was ascertained that Mega owes the government specific tax for importation of paraffin wax on June 21, 1977 and August 17, 1977 which gave rise to the letter of assessment dated May 8, 1978. Prior, however, to the issuance of said letter of assessment of May 8, 1978, CIR in a letter dated January 11, 1978, granted Megas claim for refund or tax credit since the importation which had arrived in Manila on April 18, 1975 was covered by the ruling of May 14, 1975 (before its revocation by the ruling of January 28, 1977). Issue: WON Megas importation of crude paraffin wax on June 21 and August 17, 1977 are subject to specific tax under Section 142(i) of the Tax Code promulgated on February 18, 1974. HELD: Yes. RATIO: 8 Contrary to the CTAs ruling , the Court believes that the letter of Commissioner Plana dated January 11, 1978 did not in any
Section 142. Specific tax on manufactured oils and other fuels.On refined and manufactured mineral oils and other motor fuels, there shall be collected the following taxes: xxx xxx xxx
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republic Act No. 5186. Under this latter provision, a pioneer industry is exempt from all taxes under the National Internal Revenue Code, except income tax. In other words, both a registered export producer on a pioneer status under Republic Act No. 6135 and a pioneer industry under Republic Act No. 5186 are entitled to the same tax exemption benefits under the Tax Code.
(i) Greases, waxes and petroleum, per kilogram, thirty-five centavos; ...
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way revoke his ruling dated January 28,1977 which ruling applied the specific tax to wax (without distinction). The reason he removed in 1978 private respondent's liability for the specific tax was NOT because he wanted to revoke, expressly or implicitly, his ruling of January 28, 1977 but because the P321,436.79 tax referred to importation BEFORE January 28, 1977 and hence still covered by the ruling of Commissioner Vera, Megas request for refund of the amount of P321,436.79 was granted in CIRs letter dated January 11, 1978 because the importation of private respondent was made on April 18,1975 wherein petitioner made clear that all importation of crude paraffin wax only after the ruling of January 28, 1977, is subject to specific tax The importation which gave rise to the assessment in the amount of P275,652.00 subject of this case, was made on June 27, 1977 and August 17, 1977 and that the petitioner's ruling of January 28,1977 was not revoked or overruled by his letter of January 11, 1978 granting respondent corporation's request for refund of the amount of P321,436.79.
CIR v. Burroughs (BIR Rules and Regulations) FACTS:In March 1979, the branch office of Burroughs Ltd. in the country applied with the Central Bank for authority to remit to its parent company abroad branch profit amounting to P7,647,058.00. On March 14, 1979, it paid the 15% branch profit remittance 9 tax pursuant to Sec. 24 (b) (2) (ii) . Based on this law Burroughs Ltd remitted to its head office the amount of P6,499,999.30 However on December 24, 1980 Burroughs Ltd. filed a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax. BIR ruled in favor of the refund on January 21, 1980. CIR contends that there should be no refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. Said memorandum circular statesConsidering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad. Issue: WON Burroughs Limited is entitled to a refund (in the amount of P172,058.90). Held: Yes. In a BIR ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made." What is applicable in the case at bar is still the BIR Ruling of January 21, 1980 because Burroughs Ltd. paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 10 327 of the National Internal Revenue Code. The prejudice that would result to private Burroughs Ltd. by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90.
To make petitioner liable for specific tax after it has made the importations, would surely prejudice petitioner as it would be subject to a tax liability of which the Bureau of Internal Revenue has not made it fully aware. As a result, the rulings of May 8, 1978 and February 15, 1980 having been issued long after the importations on June 21 and August 1 7, 1977 in question cannot be applied with legal effect in this case because to do so will violate the prohibition against retroactive application of the rulings of executive bodies. Rulings or circulars promulgated by the Commissioner of Internal Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any retroactive application, where to do so, as it did in the case at bar, would prejudice the taxpayer.
Sec. 24. Rates of tax on corporations.... (b) Tax on foreign corporations. ... (2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ... 10 Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)
HELD: No. Sec. 338-A (now Sec. 327) of the Tax Code applies in this case. Rulings or circulars promulgated by the CIR have no retroactive application where to so apply them would be prejudicial to taxpayers. The retroactive application of Memorandum Circular No. 4-71 prejudices ABSCBN since: a) it was issued only in 1971, or 3 years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. b) the assessment and demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. c) ABS-CBN was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as the enumerated exceptions (to nonretroactivity) are concerned, ABS-CBN does not fall under any of them.
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(b) Tax on foreign corporations.-(1) Non-resident corporations.- There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from an sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, a tax equal to thirty per centum of such amount. (Emphasis supplied)
In connection with Section 24 (b) of Tax Code, the amendment introduced by Republic Act No. 2343, under which an income tax equal to 30% is levied upon the amount received by every foreign corporation not engaged in trade or business within the Philippines from all sources within this country as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, it has been determined that the tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the basic principle of income taxation (Sec. 39, Income Tax Regulations), and that a mere return of capital or investment is not income (Par. 5,06, 1 Mertens Law of Federal 'Taxation). Since according to the findings of the Special Team who inquired into business of the non-resident foreign film distributors, the distribution or exhibition right on a film is invariably acquired for a consideration, either for a lump sum or a percentage of the film rentals, whether from a parent company or an independent outside producer, a part of the receipts of a non-resident foreign film distributor derived from said film represents, therefore, a return of investment. xxx xxx xxx 13 Amended version: (b) Tax on foreign corporations.-(1) Non-resident corporations.-A foreign corporation not engaged in trade or business in the Philippines including a foreign life insurance company not engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the Philippines, as interests, dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations for technical services or otherwise, emoluments or other fixed or determinable annual, periodical or casual gains, profits, and income, and capital gains, Provided however, That premiums shah not include reinsurance premiums. (Emphasis supplied)
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Sec. 338-A. Non-retroactivity of rulings. - Any revocation, modification, or reversal of and of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the relocation, modification, or reversal will be prejudicial to the taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or omits material facts from his return or any document required of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. (italics for emphasis)
CIR v. Benguet Corp (BIR Rules and Regulations) FACTS:(Benguet Corporation is a domestic corporation engaged in the exploration, development and operation of mineral resources, and the sale or marketing thereof to various entities. It is a value added tax (VAT) registered enterprise.)
The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of NIRC as amended by E.O. 273 s. 1987 then in effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person who imports goods is liable for output VAT at rates of either 10% or 0% (zero-rated) depending on the classification of the transaction under Sec. 100 of the NIRC. In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued which declared that the sale of gold to Central Bank is considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by EO 273. Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central Bank during the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject sales of gold. It then filed applications for tax refunds/credits corresponding to input VAT. However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that was issued subsequent to the consummation of the subject sales of gold to the Central Ban`k which provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 00892 withdrew, modified, and superseded all inconsistent BIR issuances. Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only if such application would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC. MAIN ISSUE: WON Benguets sale of gold to the Central Bank during the period when such was classified by BIR issuances as zerorated could be taxed validly at a 10% rate after the consummation of the transactions involved. NO. SUB ISSUE: (WON there was prejudice to Benguet Corp due to the new BIR VAT Ruling. YES. RATIO: (main issue): 1. At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet should not be faulted for relying on the BIRs interpretation of the said laws and regulations.
While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain unpaid on account of the errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous interpretation of law, these principles must give way to exceptions based on and in keeping with the interest of justice and fairplay. (then the Court cited the ABS-CBN case). (sub-issue) 2. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the amount equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic prejudice when its consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change in the VAT rating of Benguets transactions with the Central Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank. 3. Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed, this relief would only address Benguets overpayment of income tax but not the other burdens discussed above. Verily, this remedy is not a feasible option for Benguet because the very reason why it was issued a deficiency tax assessment is that its input VAT was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary and cumbersome refund process is prejudice enough.
BPI Leasing v.CA,CTA,CIR (BIR Rules & Regulations) FACTS:For the calendar year 1986, BLC paid the CIR a total of P1,139,041.49 representing 4% "contractors percentage tax" imposed by Section 205 of the NIRC based on its gross rentals from equipment leasing for said year.
On November 10, 1986, CIR issued Revenue Regulation 1986. Section 6.2 thereof provided that finance and leasing companies registered under RA 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for "contractors percentage tax" under Section 205 but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the "contractors percentage tax for its 1986 lease rentals BLC filed a claim for a refund with the CIR on April 1988 for the amount representing the difference between what it had paid as "contractors percentage tax" and what it should have paid for "gross receipts tax." ISSUES: 15 1. WON Revenue Regulation 19-86 is legislative rather than interpretative in character. 2. WON it should retroact to the date of effectivity of the law it seeks to interpret. RATIO: 1. NO. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. 2.NO. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. In the present case, there is no indication that the revenue regulation may operate retroactively. Furthermore, there is an express provision stating that it "shall take effect on January 1, 1987," and that it "shall be applicable to all leases written ON OR AFTER the said date." Being clear on its prospective application, it must be given its literal meaning and applied without further interpretation. Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987.
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Administrative issuances may be distinguished according to their nature and substance: legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing.