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G.R. No. 160756 March 9, 2010 CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC., vs. THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO CORONA, J.: Chamber of Real Estate and Builders‘ Associations, Inc. is questioning the constitutionality of Section 27 (E) of Republic Act (RA) 8424 and the revenue regulations (RRs) issued by the Bureau of Internal Revenue (BIR) to implement said provision and those involving creditable withholding taxes, re: and on the following arguments:  that the imposition of minimum corporate income tax (MCIT) on corporations violates the due process clause because it levies income tax even if there is no realized gain.  it is highly oppressive, arbitrary and confiscatory which amounts to deprivation of property without due process of law; that gross income as defined, only considers the cost of goods sold and other direct expenses; other major expenditures, such as administrative and interest expenses which are equally necessary to produce gross income, were not taken into account, thus, pegging the tax base of the MCIT to a corporation‘s gross income is tantamount to a confiscation of capital because gross income, unlike net income, is not ―realized gain.‖  being imposed and collected even when there is actually a loss, or a zero or negative taxable income  that the creditable withholding tax (CWT) on sales of real properties classified as ordinary assets insofar as the collection of CWT on the sale of real properties categorized as ordinary assets, ignore the different treatment by RA 8424 of ordinary assets and capital assets, that the Secretary of Finance has no authority to collect CWT and to base the CWT on the gross selling price or fair market value of the real properties classified as ordinary assets, all violate the equal protection clause because the CWT is being levied upon real estate enterprises but not on other business enterprises, more particularly those in the manufacturing sector.  Disregarded distinctions: ( a) the revenue regulations use  

gross selling price (GSP) or fair market value (FMV) of the real estate as basis for determining the income tax for the sale of real estate classified as ordinary assets and (b) they mandate the collection of income tax on a per transaction basis, i.e., upon consummation of the sale via the CWT, contrary to RA 8424 which calls for the payment of the net income at the end of the taxable period. arbitrarily shifted the tax base of a real estate business‘ income tax from net income to GSP or FMV of the property sold deprives of their property without due process of law because gain is never assured by mere receipt of the selling price. As a result, the government is collecting tax from net income not yet gained or earned.

ISSUES:  imposition of the MCIT on domestic corporations is unconstitutional and  imposition of CWT on income from sales of real properties classified as ordinary assets under RRs 2-98, 6-2001 and 7-2003, is unconstitutional. OVERVIEW OF MCIT & CWT: (A)MCIT - Republic Act (RA) 8424 : Section 27 (E) - MCIT on Domestic Corporations:  Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of 2% of its gross income when it has zero or negative taxable income or whenever the amount of minimum corporate income tax is greater than the normal income tax due from such corporation. Section 27(A),  If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT.  Any excess of the MCIT over the normal tax shall be carried forward and credited against the normal income tax for the three immediately succeeding taxable years.  The Secretary of Finance is hereby authorized to suspend the imposition of the [MCIT] on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses.  Gross Income shall mean gross sales less sales returns, discounts and

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allowances and cost of goods sold. ―Cost of goods sold‖ shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use.

(B)CWT - RR No. 2-98 Section 2.57.2 (J)  income payments from the sale, exchange or transfer of real property, other than capital assets, by persons residing in the Philippines and habitually engaged in the real estate business were subjected to CWT.  (as amended) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property classified as ordinary asset. - A [CWT] based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than capital asset, shall be imposed upon the withholding agent,/buyer, in accordance with the following schedule: Those which are exempt from a Exempt withholding tax at source as prescribed in Sec. 2.57.5 of these regulations. With a selling price of five hundred 1.50% thousand pesos (P500,000.00) or less. With a selling price of more than five 3.00% hundred thousand pesos (P500,000.00) but not more than two million pesos (P2,000,000.00). With selling price of more than two million 5.00% pesos (P2,000,000.00) However, if the buyer is engaged in trade or business, whether a corporation or otherwise, the tax shall be deducted and withheld by the buyer on every installment. HELD: Petition dismissed.

In any event, this Court has the discretion to take cognizance of a suit which does not satisfy the requirements of an actual case, ripeness or legal standing when paramount public interest is involved. The questioned MCIT and CWT affect not only petitioners but practically all domestic corporate taxpayers in our country. The transcendental importance of the issues raised and their overreaching significance to society make it proper for us to take cognizance of this petition. Concept and Rationale of the MCIT To further emphasize the corrective nature of the MCIT, the following safeguards were incorporated into the law: 1. recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital expenditures, the imposition of the MCIT commences only on the fourth taxable year immediately following the year in which the corporation commenced its operations. This grace period allows a new business to stabilize first and make its ventures viable before it is subjected to the MCIT. 2. the law allows the carrying forward of any excess of the MCIT paid over the normal income tax which shall be credited against the normal income tax for the three immediately succeeding years. 3. since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of Finance to suspend the imposition of MCIT if a corporation suffers losses due to prolonged labor dispute, force majeure and legitimate business reverses. (A) MCIT Is Not Violative of Due Process An income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital. It is imposed on gross income which 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. Clearly, the capital is not being taxed. MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously low. It merely approximates the amount of net income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation‘s gross income.

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Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Moreover, petitioner does not cite any actual, specific and concrete negative experiences of its members nor does it present empirical data to show that the implementation of the MCIT resulted in the confiscation of their property. In enacting the minimum tax, Congress attempted to remedy general taxpayer distrust of the system growing from large numbers of taxpayers with large incomes who were yet paying no taxes. (B) RRs 2-98, 6-2001 and 7-2003 On Secretary of Finance authority to issue RR 2-98: The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate the necessary rules and regulations for the effective enforcement of the provisions of the law. Such authority is subject to the limitation that the rules and regulations must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. It is well-settled that an administrative agency cannot amend an act of Congress. Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any person, national or juridical, residing in the Philippines. Such authority is derived from Section 57(B) of RA 8424 Effects of the CWT: The taxes withheld are in the nature of advance tax payments by a taxpayer in order to extinguish its possible tax obligation. They are installments on the annual tax which may be due at the end of the taxable year. The CWT is to be deducted from the net income tax payable by the taxpayer at the end of the taxable year. Accordingly, at the end of the year, the taxpayer/seller shall file its income tax return and credit the taxes withheld (by the withholding agent/buyer) against its tax due. If the tax due is greater than the tax withheld, then the taxpayer shall pay the difference. If, on the other hand, the tax due is less than the tax withheld, the taxpayer will be entitled to a refund or tax credit. Undoubtedly, the taxpayer is taxed on its net income. The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of practicality and convenience.

On Distinctions between Ordinary and Capital Assets: FWT (6% on the gain of Capital Assets - Section 27(D)(5) of RA 8424) a) The amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. b)The liability for payment of the tax rests primarily on the payor as a withholding agent. CWT (GSP or FMV of the real property, Ordinary Assets - RR 2-98) a) Taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. b) Payee of income is required to report the income and/or pay the difference between the tax withheld and the tax due on the income. The payee also has the right to ask for a refund if the tax withheld is more than the tax due. c) The income recipient is still required to file an income tax return, as prescribed in Sec. 51 and Sec. 52 of the NIRC, as amended.

c) The payee is not required to file an income tax return for the particular income.#

The fact that the tax is withheld at source does not automatically mean that it is treated exactly the same way as capital gains. As aforementioned, the mechanics of the FWT are distinct from those of the CWT. The withholding agent/buyer‘s act of collecting the tax at the time of the transaction by withholding the tax due from the income payable is the essence of the withholding tax method of tax collection. On Deprivation of Property without Due Process: The CWT does not impose new taxes nor does it increase taxes. It relates entirely to the method and time of payment. CWT is applied only on the amounts actually received or receivable by the real estate entity. On Violation of Equal Protection:

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‖ Stated differently. must (1) rest on substantial distinctions. It follows that the guaranty of the equal protection of the laws is not violated by legislation based on a reasonable classification. by itself. making it less cumbersome for the parties to comply with the withholding tax scheme. the real estate business which is engaged in the sale of a real property receives bigger income and its frequency of transaction limited. To require the customers of manufacturing enterprises to withhold the taxes on each of their transactions with their tens or hundreds of suppliers may result in an inefficient and unmanageable system of taxation and may well defeat the purpose of the withholding tax system. 4 . Classification. The taxing power has the authority to make reasonable classifications for purposes of taxation. all persons belonging to the same class shall be taxed alike. (3) not be limited to existing conditions only and (4) apply equally to all members of the same class. Inequalities which result from a singling out of one particular class for taxation. The real estate industry is. infringe no constitutional limitation. (2) be germane to the purpose of the law. a class and can be validly treated differently from other business enterprises. to be valid. or exemption.mpnanocpaue – college of law taxation law review The equal protection clause under the Constitution means that ―no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances. As compared with those manufacturing enterprises. Manufacturing enterprise may have tens of thousands of transactions with several thousand customers every month involving both minimal and substantial amounts.

Aerotel Limited Corporation (Aerotel). In the Philippines. 2010 SOUTH AFRICAN AIRWAYS vs. exempt all international air carriers from the coverage of Sec. Sec. 1999. 1998. entitled to a refund or a tax credit of erroneously paid tax on Gross Philippine Billings for the taxable year 2000 in the amount of P1. 28(A)(3)(a) does not apply. J. would be liable for the tax under Sec. effective January 1. That effective January 1.: Petitioner South African Airways is a foreign corporation organized and existing under and by virtue of the laws of the Republic of South Africa with principal office is located at International Airport. COMMISSIONER OF INTERNAL REVENUE VELASCO. offsetting is unavailing. with the new definition of GPB. 28(A)(3)(a). ―Since an action for a tax refund partakes of the nature of an exemption. thus. 28(A)(3)(a). If.38 (claimed as refund). So. 1997 NIRC provides that an international carrier doing business in the Philippines shall pay a tax of 2 1/2% on its ‗Gross Philippine Billings‘. 28(A)(1) would not apply. South Africa.727.727. HELD: Petition is granted and remanded to CTA for proper determination of the tax refund. No. as an off-line international carrier selling passage documents through an independent sales agent in the Philippines. 180356 February 16. excess baggage. it is thereby excluded from the imposition of any income tax. 2003. it filed with BIR a claim for refund for the erroneous payment of tax based on GPB. is engaged in trade or business in the Philippines subject to the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC. 5 . 28(A)(3)(a). Sec. 28(A)(1). Aerotel sells passage documents for compensation or commission for petitioner‘s off-line flights for the carriage of passengers and cargo between ports or points outside the territorial jurisdiction of the Philippines.  existence of such liability would preclude their claim for a refund of tax paid on the basis of Sec. petitioner filed separate quarterly and annual income tax returns for its off-line flights based on 2. 1997 NIRC provides for the rates of income tax on Resident Foreign Corporations shall be subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived in the preceding taxable year from all sources within the Philippines: provided. or partnership and is not licensed to do business herein. the rate shall be thirty-three percent (33%). The logical interpretation of such provisions is that. But on Feb. however. ISSUES:  income derived by petitioner from the sale of passage documents covering petitioner‘s off-line flights is Philippine-source income subject to Philippine   income tax.mpnanocpaue – college of law taxation law review 02 G. 28(A)(1) of the 1997 NIRC. 2000 and thereafter. but the same was unheeded by the BIR. the rate shall be thirty-two percent (32%).766.  legal implication of the amendment to Sec. 5.R. it is strictly construed against the claimant who must discharge such burden convincingly. It is not registered with the Securities and Exchange Commission as a corporation. cargo and mail originating from the Philippines in a continuous and uninterrupted flight. which cannot be allowed unless granted in the most explicit and categorical language. 28(A)(3)(a) of the 1997 NIRC defining GPB. and effective January 1. as to refer to the amount of gross revenue derived from carriage of persons. branch office. it is no longer liable under Sec. if Sec. JR. then the general rule under Sec. in any categorical term. Sec. For the taxable year 2000.. 28(A)(1).5% Gross Philippine Billings (GPB) for a total of amount P1. a resident foreign corporation.766. it filed a petition for review with the CTA for the refund which denied the same and held that it be liable to pay a tax of 32% on its income derived from the sales of passage documents in the Philippines. irrespective of the place of sale or issue and the place of payment of the ticket or passage document…. the rate of income tax shall be thirty-four percent (34%). that because the 2 1/2% tax on GPB is inapplicable to it. whether an international air carrier or not. 28(A)(3)(a) of the 1997 NIRC does not.38.‖ On the proper taxability of the subject corporation: Sec. 28(A)(3)(a) is applicable to a taxpayer. it is an internal air carrier having no landing rights in the country but with general sales.

1279 NCC provides for requisites for compensation may be proper: (1) That each one of the obligors be bound principally. This principle is embodied in the Latin maxim. it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings. Thus. 28(A)(1). does not fall under the exception. Petitioner.mpnanocpaue – college of law taxation law review The general rule in this case at bar is that resident foreign corporations shall be liable for a 32% income tax on their income from within the Philippines. excess baggage. 6 . (2) That both debts consist in a sum of money. which means. although not yet final. 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. they be of the same kind. On the claim for refund: Art. while Sec. by itself and without unquestionable evidence. and also of the same quality if the latter has been stated. exception firmat regulam in casibus non exceptis. and that he be at the same time a principal creditor of the other. cargo and mail originating from the Philippines‖ which shall be taxed at 2 1/2% of their Gross Philippine Billings. being an international carrier with no flights originating from the Philippines. 28(A)(1) to establish whether a tax refund is forthcoming or that a tax deficiency exists. petitioner‘s similar tax refund claim assumes that the tax return that it filed was correct. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. that is. 28(A)(1) is based on taxable income. while taxes are due to the Government in its sovereign capacity. Here. the facts stated therein are true and correct. commenced by third persons and communicated in due time to the debtor. Debts are due to the Government in its corporate capacity. it must fall under the general rule. or if the things due are consumable. The deficiency assessment. It would not be proper to deny such claim without making a determination of petitioner‘s liability under Sec. It is only after such amount is established that a tax refund or deficiency may be correctly pronounced. cannot be the basis for the grant of the refund. (4) That they be liquidated and demandable. if any. if an international air carrier maintains flights to and from the Philippines. except for resident foreign corporations that are international carriers that derive income ―from carriage of persons. The grant of a refund is founded on the assumption that the tax return is valid. a thing not being excepted must be regarded as coming within the purview of the general rule. (3) That the two debts be due. 28(A)(3)(a) is based on GPB. The collection of a tax cannot await the results of a lawsuit against the government. created a doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which. It must be remembered that the tax under Sec. There is a necessity to receive evidence to establish such amount vis-à-vis the claim for refund. There is a material distinction between a tax and debt. gross income less deductions and exemptions. The correct interpretation of the above provisions is that. there is a need to make a determination of petitioner’s liability under Sec. that is. It cannot be assumed that petitioner‘s liabilities under the two provisions would be the same. (5) That over neither of them there be any retention or controversy. thus.

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G.R. No. 163072 April 2, 2009 MANILA INTERNATIONAL AIRPORT AUTHORITY vs. CITY OF PASAY CARPIO, J.: Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO 903), the Revised Charter of the Manila International Airport Authority. It owns approximately 600 hectares of land, including the runways, the airport tower, and other airport buildings, all are along the border between Pasay City and Parañaque City. On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the taxable years 1992 to 2001 = Tax Due of P373,466,110.13 + Penalties of P1,016,213,836.33 = TOTAL of P642,747,726.20. The City of Pasay then issued notices of levy and warrants of levy for the NAIA Pasay properties and threatened to sell at public auction the NAIA Pasay properties if the delinquent real property taxes remain unpaid. On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with prayer for preliminary injunction or temporary restraining order, which sought to enjoin the City of Pasay from imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties. CA dismissed the petition and upheld the power of the City of Pasay to impose and collect realty taxes on the NAIA Pasay properties, on the basis that MIAA as a government-owned corporation, its tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the Local Government Code. ISSUE: MIAA‘s exemption from real property tax.

On the nature of MIAA: MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Instrumentality refers to any agency of the national Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use. On its exemption to taxes imposed by LGUs: As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code because it is not a taxable entity under the said law. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity. The Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic which are exempt from real estate tax under Section 234(a) of the LGC. Except those real properties leased to taxable persons like private parties shall be taxed. Section 133(o) of the Local Government Code: Taxes which cannot be imposed by the LGUs:

HELD: Petition is granted and set aside the CA decision. MIAA shall not be subject to LGUs real property tax except insofar as real properties leased to private parties.

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(o) taxes, fees and charges of any kind on the national government, its agencies and instrumentalities and LGUs

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G.R. No. 155491 September 16, 2008 SMART COMMUNICATIONS, INC. vs. THE CITY OF DAVAO, represented Mayor DUTERTE, and the SANGGUNIANG PANLUNGSOD NACHURA, J.: On March 27, 1992, Smart obtained its legislative franchise under R.A. No. 7294. Sec. 9 of said law provides that ―The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of' this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue. (Emphasis supplied.)‖ On January 1, 1992, the Local Government Code (R.A. No. 7160) took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the local government units. R.A. No. 7716 or the VAT Law was enacted which specifically expressed under Section 20, repealing provisions of all special laws (that includes the legislative franchise R.A. No. 7294, a special law) relative to the rate of franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules and regulations, or parts thereof which are inconsistent with it. It is in effect, rendered ineffective the ―in lieu of all taxes‖ clause in R.A. No. 7294. Tax Code of the City of Davao, Section 1, Article 10 thereof, provides: ―Notwithstanding any exemption granted by any law or other special law, there

is hereby imposed a tax on businesses enjoying a franchise, at a rate of seventyfive percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City. Smart filed a special civil action for declaratory relief for the ascertainment of its rights and obligations under the Tax Code of the City of Davao and contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the following grounds:  the issuance of its franchise under Republic Act (R.A.) No. 7294, subsequent to R.A. No. 7160 shows the clear legislative intent to exempt it from the provisions of R.A. 7160  that the ―in lieu of all taxes‖ clause in Section 9 of its franchise exempts it from all taxes, both local and national, except the national franchise tax (now VAT), income tax, and real property tax  Section 137 of R.A. No. 7160 can only apply to exemptions already existing at the time of its effectivity and not to future exemptions;  not covered bec. The franchise was granted after the effectivity of the LGC  the power of the City of Davao to impose a franchise tax is subject to statutory limitations such as the “in lieu of all taxes” clause found in Section 9 of R.A. No. 7294; and  only taxes it may be made to bear under its franchise are the national franchise tax (now VAT), income tax, and real property tax  exempt from the local franchise tax because the ―in lieu of taxes‖ clause in its franchise does not distinguish between national and local taxes.  the imposition of franchise tax by the City of Davao would amount to a violation of the constitutional provision against impairment of contracts.  franchise is in the nature of a contract between the government and Smart. Respondent invoked its power granted by the Constitution to local government units to create their own sources of revenue.

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Due to this ambiguity in the law. the doubt must be resolved in favor of the City of Davao. No 7294 does not expressly provide what kind of taxes Smart is exempted from. Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal Revenue Code. On ―In lieu of all taxes― Clause in RA 7294: R. No. The ―in lieu of all taxes‖ clause applies only to national internal revenue taxes and not to local taxes. Contract Clause has never been thought as a limitation on the exercise of the State‘s power of taxation save only where a tax exemption has been granted for a valid consideration. 7294 has become functus officio with the abolition of the franchise tax on telecommunications companies. No. Absent the express provision on such exemption under the franchise. In this case. It should be noted that the ―in lieu of all taxes‖ clause in R.A. Marcos and declared that the city‘s power to tax is based not merely on a valid delegation of legislative power but on the direct authority granted to it by the fundamental law.A." second paragraph of Section 9. What is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise or earnings thereof. It is not clear whether the ―in lieu of all taxes‖ provision in the franchise of Smart would include exemption from local or national taxation. No." same paragraph. No.mpnanocpaue – college of law taxation law review RTC denied the petition on the ground that petitioner failed to prove that it is exempt from tax applying strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 7716. They can only be given force when the grant is clear and categorical. 7294 is not definite in granting exemption to Smart from local taxation. as provided in R. as amended by the Expanded Value Added Tax Law (R. It is not even applied to income tax. ISSUES:  Exemption from Franchise Tax under Section 9.A. On the burden of grant to Tax exemptions: Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority. It is clear that the ―in lieu of all taxes‖ clause apply only to taxes under the NIRC and not to local taxes.A. speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code. to wit: 10 . it cited Mactan Cebu International Airport Authority v. Currently. But whether the franchise tax exemption would include exemption from exactions by both the local and the national government is not unequivocal. The franchise of Smart does not expressly provide for exemption from local taxes." If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes. any such legislated limitation must be consistent with the basic policy of local autonomy. Section 9 of R.A. declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue. the doubt must be resolved against the grant of tax exemption. as shown in the provision itself.    proviso in the first paragraph of Section 9. On impairment of contracts: There is no violation of Article III. then the intention of the legislature must be resolved in favor of the State. Congress would have expressly mentioned the exemption from municipal and provincial taxes. The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the sale or exchange of services. That while such power may be subject to restrictions or conditions imposed by Congress. RA 7294 which contains ―in lieu of taxes‖ clause  ―In lieu of taxes‖ clause applies to national taxes or local taxes or both?  Violation to the Constitutional prohibition against ―impairment of contracts‖ HELD: Petition is denied. On the issue of violation of the non-impairment clause of the Constitution. 8241).A. R. No. Smart along with other telecommunications companies pays the uniform 10% value-added tax. Section 10 of the 1987 Philippine Constitution. If the intention of the legislature is open to doubt. we are constrained to rule against it.

Quezon for the purpose of converting fuel into electricity and operate and maintain the power plant for 25 years while NPC will supply the necessary fuel to be converted by Mirant into electric power.  On the right to protest the assessment: A taxpayer's failure to question the assessment before the LBAA renders the assessment of the local assessor final. or presently enjoyed by. or from invoking any defense that would reopen the question of its liability on the merits.mpnanocpaue – college of law taxation law review 05 G. When an tax assessment came. whose tax liabilities the NPC has contractually assumed. 171586 July 15. A person legally burdened with the obligation to pay for the tax imposed on a property has legal interest in the property and the personality to protest a tax assessment on the property. all persons. any exemption from payment of real property tax previously granted to. Among the obligations undertaken by the NPC under the ECA was to contractually assume tax liabilities of Mirant. At the end of the 25-year term. under Section 234(c) of RA 7160 [LGC]. 2009 NATIONAL POWER CORPORATION vs. ISSUE: HELD: NPC as GOCC is tax-exempt under Section 234 of the LGC. (e) Machinery and equipment used for pollution control and environmental protection. Mirant will transfer the power plant to the NPC without compensation. No. thus precluding the taxpayer from questioning the correctness of the assessment. whether natural or juridical. Quezon. To pursue this mandate. among others. – (c) All machineries and equipment that are actually. and other sources. directly. and that Mirant has retained only naked title to it LBAA however dismissed its petition. geothermal. contends that it is beneficial owner of the plant. that it has the right to control and supervise the construction and operation of the plant. NPC then filed a petition before the Local Board of Assessment Appeals (LBAA) to Declare Exempt from Payment of Property Tax on Machineries and Equipment Used for Generation and Transmission of Power. it entered into an Energy Conversion Agreement (ECA) with Mirant Pagbilao Corporation (Mirant) on November 9. and the transmission of electric power on a nationwide basis.: NPC is a GOCC mandated by law to undertake. since Mirant will acquire ownership thereof at the end of 25 years. the production of electricity from nuclear. and exclusively used by local water districts and government-owned or –controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. which when appealed before the Central Board of Assessment Appeals (CBAA) then to the CTA. Based on the agreement. both affirmed the LBAAs ruling. executory. Except as provided herein. Section 226 of the LGC provided 2 entities vested with the personality to contest an assessment: (1) the owner and (2) the person with legal interest in the property. Petition is denied. and demandable. including government-owned or –controlled corporations are hereby withdrawn upon the effectivity of the Code. located at Pagbilao. Exemptions from Real Property Tax. J. 1991. PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO BRION. take the power generated. Mirant will build and finance a coal-fired thermal power plant on the lots owned by the NPC in Pagbilao. and use it to supply the electric power needs of the country.  Section 234. Rules governing an assessment protest provided below: 11 .R.

it is the machineries that are exempted from the payment of real property tax. Lastly. the NPC is neither the owner. the buildings and improvements thereon and the [power plant]. the NPC is neither the owner nor the possessor/user of the subject machineries because under the ECA. NPC‘s contractual liability alone cannot be the basis for the enforcement of tax liabilities against it by the local government unit. The owner of the real property or the person having legal interest therein may pay the basic real property tax xxx due thereon without interest in four (4) equal instalments xxx. or when the tax assessment is made on the basis of the actual use of the property. However. [Mirant] shall. which thus manifest that NPC does not actually. not the contractual liability that is enforceable between the parties to a contract. it is Mirant which uses and operates them. The test of exemption is the use. city or municipal assessor in the assessment of his property may. Payment of Real Property Taxes in Instalments. fittings. Under this legal situation.…―From the Effective Date until the Transfer Date [that is. nor the possessor or user of the property taxed. In the present case. By law. directly. not the water or electricity that these machineries generate and distribute. within sixty (60) days from the date of receipt of the written notice of assessment. the local government units can neither be compelled to recognize the protest of a tax assessment from the NPC. Although NPC plant‘s machineries are devoted to the generation of electric power. "all real estate taxes and assessments. as third parties to the ECA. Corollarily. The claim exemption under Section 234(c) of the LGC. SECTION 250. own the Power Station and all the fixtures. directly. and exclusively using the real properties.1 of the ECA alone. . NPC does not have the "legal interest" that the law and jurisprudence require to give it personality to protest the tax imposed by law on Mirant. based on the clear wording of the law. No interest on its part thus justifies any tax liability on its part other than its voluntary contractual undertaking. Further. In the present case. an entity against whom it cannot enforce the tax liability.mpnanocpaue – college of law taxation law review SECTION 226. directly or indirectly. Local Board of Assessment Appeals. as provide in Article 2. use. machinery and equipment on the Site or used in connection with the Power Station which have been supplied by it or at its cost…. local government unit can rightfully and successfully enforce. the power plant‘s machineries clearly vest their ownership with Mirant. not the ownership of the machineries devoted to generation and transmission of electric power. appeal to the Board of Assessment Appeals of the province or city xxx. The Municipality of Pagbilao and the Province of Quezon). such as the tax on property owned by the government but leased to private persons or entities. cannot demand payment from the NPC on the basis of Article 11. rates and other charges in respect of the site. and possession of the plant and its machineries.Any owner or person having legal interest in the property who is not satisfied with the action of the provincial. On tax exemption: Is completely without merit." The tax liability refers to the liability arising from law that the 12 .‖ Thus. Neither the NPC nor Mirant satisfies both requirements. specifically.12. not the local government unit. On liability for taxes: NPC indeed assumed responsibility for the taxes due on the power plant and its machineries. and the use must be devoted to the generation and transmission of electric power. can enforce the tax liability that the NPC contractually assumed. only Mirant as the contractual obligor. we find it essentially wrong to allow the NPC to assume in its BOT The liability for taxes generally rests on the owner of the real property at the time the tax accrues. the day following the last day of the 25-year period]. The nature of the NPC‘s ownership of these machineries only finds materiality in resolving the NPC‘s claim of legal interest in protesting the tax assessment on Mirant. the GOCC must be the entity actually. personal liability for realty taxes may also expressly rest on the entity with the beneficial use of the real property. from the points of view of essential fairness and the integrity of our tax system. the tax liability rests on Mirant based on its ownership. and exclusively use them.

and at the same time allow NPC to turn around and say that no taxes should be collected because the NPC is taxexempt as a government-owned and controlled corporation. 13 .mpnanocpaue – college of law taxation law review contracts the liability of the other contracting party for taxes that the government can impose on that other party.

695. FBDC acquired by way of sale from the national government. utilizing the regular input tax credit of P19. FBDC paid P347. 2009 FORT BONIFACIO DEVELOPMENT CORPORATION COMMISSIONER OF INTERNAL REVENUE.413. interests and penalties. FBDC then proceeded to develop the tract of land.741. On availment of the transitional/presumptive input tax credit.180.45 Output VAT payable (10%) P 318.708. FBDC sent 2 letters to the BIR requesting appropriate action on whether its use of its presumptive input VAT on its land inventory but the same was disallowed.743. After the effectivity of Rep. Inventory transitional input VAT) was more than enough to offset the VAT paid by it for the third quarter of 1997. separately conveying 2 parcels of land within the Global City in consideration of the purchase prices at P1. On deficiency of VAT payment.526.74.469. ISSUES:  Implication of the Transitional/ Presumption Input VAT on the sale of real property:  Deficiency of payment on the assessment  Claim for refund HELD: This consolidated petitions are granted.713.R. The assailed decisions of the CTA and CA are reversed and set aside.792.60 / 10% VAT 110% Sales – sales price 3.11.00 Input VAT Payable P 48.565. For the fourth quarter of 1996. It invoked its right to avail of the transitional input tax credit and accordingly submitted an inventory list of real properties it owned. followed by a letter from the Commissioner disallowing the presumptive input tax credit arising from the land inventory on the basis of Revenue Regulation 7-95 (RR 7-95) and Revenue Memorandum Circular 3-96 (RMC 3-96).921. no VAT was paid thereon.298.726.740. On 8 February 1995. Act No.322. 1997: For the third quarter of 1997. inclusive of surcharge. FBDC executed in favor of Metro Pacific Corporation 2 contracts to sell.949. and are (a) restrained from Fort Bonifacio Development Corporation (FBDC) is engaged in the development and sale of real property.00 and P785. The Assessment Notice shows P45.74 on the ground the its input tax credit (with the 8% of the Beg.503.200.328. FBDC computed VAT as follows: Sales – invoice price P3. located in what is now the Fort Bonifacio Global City (Global City) in Taguig City. on separate transactions: On 14 October 1996. of which remits to BIR output VAT payments it received from the sale. TINGA.mpnanocpaue – college of law taxation law review VAT Paid P 269.340. Since the sale was consummated prior to the enactment of Rep.326. Before the CTA. 1966 onwards it has been selling lots located in the Global City to interested buyers.: vs.591.498. with a total book value ofP71.45 06 G. CTA denied the claim for refund. 1996: Then.741. affirms the assessment made by BIR. Act No.14 Less: Input Taxes Regular Input Tax Credit (10%) P 20. et. and from October.73 on purchases of goods and services It then filed a claim for refund of the amount of P347.009. Between July and October 1997.539. out of the sales and lease of lots P3.227.888.783.018. BIR issued Pre-Assessment Notice (PAN) dated 23 December 1997 for deficiency VAT for the 4th quarter of 1996.69 Transitional/presumptive Input Tax Credit (8%) 28. 7716.69 14 . J. On the sale of 2 parcels of land. 3rd qtr.08 of deficiency VAT for the 4th quarter of 1996.807. real estate transactions of FBDC have since been made subject to VAT. Section 4.00. of which the CA affirms CTAs decision but removing the surcharge. a vast tract of land that formerly formed part of the Fort Bonifacio military reservation. both payable in installments.188. 4th qtr. No.695.080. interest and penalty.105-1 of RR 7-95. which was the same affirmed by the CA. al. 7716. 158885 April 2.00.

4th qtr. With the passage of the new NIRC or RA No. equivalent to one and one-half percent (1 1/2%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production…. had remained intact despite its passage. Equal application of Section 100 NIRC: RA No.O. barters or exchanges goods. in the course of trade or business. 15 .00 representing the transitional input tax credit due. then such differing treatment would have constituted in RA No. materials and supplies equivalent for eight percent (8%) of the value of such inventory or the actual valueadded tax paid on such goods. But Section 105 of the NIRC.  (2) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31. with the tax imposable on "any person who. section on the transitional input tax credit was renumbered from Section 105 of the Old NIRC to Section 111(A) of the New NIRC. Tax credit prescribed in paragraphs (2) and (3) above shall be allowed only to a VAT-registered person who files an inventory of the goods referred to in said paragraphs as provided in regulations. materials and supplies. creditable against the output tax.7 (Emphasis supplied). 1987 which are accounted for in accordance with regulations prescribed therefor. 1987 as goods for sale. 7716 took effect amending provisions of the Old NIRC (Section 100 NIRC) principally by restructuring the VAT system. No. and  (3) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31. and not when the real estate transactions are engaged in by persons who do not sell or lease properties in the ordinary course of trade or business. mackerel and milk." Section 25 of E. on the transitional input tax credit. 7716. which shall be creditable against the output tax.A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall.74 paid as output VAT.  (1) Persons or firms engaged in the processing of sardines.. 1996. renders services. and in manufacturing refined sugar and cooking oil. 3rd qtr. be allowed input tax on his beginning inventory of goods. 273 provides for the "Transitory Provisions". which were never incorporated in the Old NIRC. 1997 for the third quarter of 1997 in light of the persisting transitional input tax credit available to FBDC Evolution of the VAT system – Transitional / Presumptive Input Taxes: VAT system was first introduced in the Philippines on 1 January 1988 pursuant to EO 273.  (B) Presumptive Input Tax Credits. 1987 of materials and supplies which are not for sale. subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of finance.695. . sells.  (2) Public works contractors shall be allowed a presumptive input tax equivalent to one and one-half percent (1 1/2%) of the contract price with respect to government contracts only in lieu of actual input taxes therefrom.413. It equally applies to merchants of other goods or properties available in the market. which provides that:  (A) Transitional Input Tax Credits. provides that:  All VAT-registered persons shall be allowed transitional input taxes which can be credited against output tax in the same manner as provided in Sections 104 of the NIRC.783. of which VAT was also imposed for the first time on the sale of real properties. the tax on which was not taken up or claimed as deferred sales tax credit. as follows:  (1) The balance of the deferred sales tax credit account as of December 31. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for lease in the ordinary course of trade or business" that are subject to the VAT. upon recommendation of the Commissioner. 8424. and (b) directed to refund to FBDC P347.741. the tax on which was not taken up or claimed as deferred sales tax credit. On 1 January 1996. shall be allowed a presumptive input tax.mpnanocpaue – college of law taxation law review collecting from FBDC P28. Had any differentiation between the treatment of real properties or real estate dealers and the treatment of the transactions involving other commercial goods. RA No. or engages in similar transactions and any person who imports goods. whichever is higher.

mpnanocpaue – college of law taxation law review Rationale of the Transitional Input Tax: To address the inequity of Section 25 . The CIR has no power to limit the meaning and coverage of the 16 . thus. There is no logic that coheres with either E. whether or not they previously paid taxes in the acquisition of their beginning inventory of goods. the tax on which was not taken up or claimed as deferred sales tax credit. 1987 of goods for sale. and  a similar ―presumptive input tax‖ of 8% of the value of the inventory as of December 31. However. The transitional input tax credit. The clear language of the law entitles new trades or businesses to avail of the tax credit once they become VAT-registered. it is not merely ―inequity‖ that is intended to be cured because Congress has reenacted the transitional input tax credit several times.Transitory provision in EO 273 (shift from Sales Tax to VAT). or (2) any person who elects to be VAT-registered. 1987 of materials and supplies which are not for sale. 273 or Rep. the transitional input tax credit is not confined to the transition from sales tax to VAT. authorizes  "presumptive input tax‖ of 8% of the value of the inventory as of December 31. 7716 which supports the restriction imposed on real estate brokers and their ability to claim the transitional input tax credit based on the value of their real properties. whether under the Old NIRC or the New NIRC. The very idea of excluding the real properties itself from the beginning inventory simply runs counter to what the transitional input tax credit seeks to accomplish for persons engaged in the sale of goods. Act No. the former must prevail.O. may be claimed by a newlyVAT registered person such as when a business as it commences operations. term "goods" in Section 105 of the Old NIRC absent statutory authority or basis to make and justify such limitation. the tax on which was not taken up or claimed as deferred sales tax credit". In fact. On conflict between the law and administrative order: In case of conflict between a statute and an administrative order. whether or not such "goods" take the form of real properties or more mundane commodities. Section 105 NIRC (old) that it is available to (1) a person who becomes liable to VAT. Distinction between presumptive input tax credit and the transitional input tax credit: Persons to avail the Presumptive Input Tax: It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons. materials and supplies. No.

1998 MPC paid Mitsubishi the VAT component for the progress billings from April 1993-September 1996. viz:  December 1. it based with Section 108(B)(3) of the Tax Code . 1999 .993. ISSUES:   MPCs entitlement to zero-rating for VAT purposed for its sales and services to tax-exempt NPC Refund or Tax Credit for its unutilized input VAT. for the construction of the electrical and mechanical equipment portion of its Pagbilao.62 (inclusive of the P135. CIR vs. and Transfer scheme.)   reflecting total Input VAT of P148. modified CTAs decision by ordering the CIR to make refund or issue a tax credit certificate in favor of MPC of its unutilized input VAT payments directly attributable to its effectively zero-rated sales. Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes 17 .MPC filed a claim for refund of the unutilized Input VAT of P148.48) representing its input VAT payments for service purchases from Mitsubishi Corporation of Japan for the construction of a portion of its Pagbilao.00. but only P 10. which is to be construed strictissimi juris against the taxpayer. Mitsubishi had advanced the VAT component as this serves as its output VAT which is essential for the determination of its VAT payment.993. it file its quarterly VAT return.Zero-rated for VAT purposes.766. VELASCO JR. to the NPC. 2nd quarter 1998 of P146.570 (P146.570.003. CTA granted MPC's claim for input VAT refund or credit. Quezon.760. it filed with the RDO No.  August 25. 1998 While awaiting approval of its application.760. its claim for refund forestall the running of the two-year prescriptive period under Section 229 of the NIRC. it refiled the same application before the BIR.48 and ordered the CIR to refund or issued Tax Credit Certificate to MPC. 2nd quarter of 1998.62 No action from the CIR as of yet… MPC.  May 13. 6395.509. 172129 September 12.939. 1998 .047.  January 28..766. is a domestic firm engaged in the generation of power which it sells to the National Power Corporation (NPC). It filed a petition for review before the CTA and contends that with the inaction of the CIR. The following ensued after the sale of the power generation service to NPC.) Corporation. Operate.R. On claim for refund: The claim for tax refund may be based on a statute granting tax exemption. MIRANT PAGBILAO CORPORATION SOUTHERN ENERGY QUEZON.mpnanocpaue – college of law taxation law review 07 G.CIR issued VAT Ruling No. Inc.939. Quezon power station on the ground that it has prescribed. shall be subject to the zero percent (0%) VAT. In its revised charter. as found in RA No. No.509. it is exempt from all taxes. 0189 covering P135.: 2008 (FORMERLY INC. 2nd quarter of 1998 HELD: Petition is Partly granted. This application. 052-99. J.570. From 1993 to 1996. and also formerly known as Hopewell (Phil. 1997 With the above-mentioned exemption. formerly Southern Energy Quezon.Since. CIR asserted that the MPC's claim for refund cannot be granted because MPC's sale of electricity to NPC is not zerorated for its failure to secure an approved application for zero-rating. ordering the CIR for the issuance of the tax credit certificate to MPC representing its unutilized input VAT payments directly attributable to its effectively zero-rated sales. MPC secured the services of Mitsubishi Corporation (Mitsubishi) of Japan. 1999 . supported by OR No. pursuant to Section 108 (B) (3) of the NIRC of 1997. Before the CA."  April 14.003.993.00 VAT component of the progress billings) December 20.48 . 60 in Lucena City an application for Effective Zero Rating covering the construction and operation of its Pagbilao power state under a Build.48 but denying the tax refund or credit to the extent of P135.939.P10.047. meaning that the claim cannot be made to rest on vague inference..766.48. stating that "the supply of electricity by Hopewell Phil. no response has been received from the BIR district office (RDO). 2nd quarter of P10.

of any sum alleged to have been excessively or in any manner wrongfully collected without authority. That a return filed showing an overpayment shall be considered as a written claim for credit or refund. 204.  Sec. In any case. The creditable input VAT due for the period covering the progress billing of September 6.No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected. the claimant must show that he clearly falls under the exempting statute. MPC's claim for refund or tax credit filed on December 10.mpnanocpaue – college of law taxation law review of the nature of an exemption. Recovery of Tax Erroneously or Illegally Collected. or sum has been paid under protest or duress. but such suit or proceeding may be maintained. for the purpose of refund.) On entitlement to creditable input VAT: 18 . however. Abate and Refund or Credit Taxes. refund the value of internal revenue stamps when they are returned in good condition by the purchaser. prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefore and in both instances apply only to erroneous payment or illegal collection of internal revenue taxes. 1999 had already prescribed. On Prescription: The claim for tax refund/ credit of input tax covered by OR No. . whose sales are zero-rated or effectively zero-rated may. within two (2) years after the close of the taxable quarter when the sales were made. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made. 1998. when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction. until a claim for refund or credit has been duly filed with the Commissioner. or of any sum alleged to have been excessively or in any manner wrongfully collected. 1999. Consequently. That the Commissioner may. refund or credit any tax. however. Thus. MPC cannot avail itself of the provisions of Section 204(C) or 229 of the NIRC which. (Emphasis ours.-. even without a written claim therefor. where on the face of the return upon which payment was made. 1996. and. or of any penalty claimed to have been collected without authority. no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided. to the extent that such input tax has not been applied against output tax: x x x The above proviso clearly provides that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. 1996 or on September 30. 112 of the NIRC. in his discretion. apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. which provides: (A) Zero-rated or Effectively Zero-rated Sales. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided. 229.-. penalty. whether or not such tax. 1996 is the third quarter of 1996 ending on September 30. said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. except transitional input tax. re: purchases by MPC from Mitsubishi from 1993 to 1996 was filed on December 20. Authority of the Commissioner to Compromise.clearly way beyond the two-year prescriptive period set in Sec. redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. 0189.Any VAT-registered person. xxxx  Sec.The Commissioner may x x x x (c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority. such payment appears clearly to have been erroneously paid. any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30. regardless when the input VAT was paid.

When applied to the tax base.mpnanocpaue – college of law taxation law review Section 105 of the NIRC provides that a creditable input VAT is an indirect tax which can be shifted or passed on to the buyer. 19 . properties. The seller of such transactions charges no output tax. or services of the taxpayer. transferee. The tax rate is set at zero. albeit the erroneous. the excess shall be carried over to the succeeding quarter or quarters. however. or wrongful payment angle does not enter the equation. no payment is required. If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by the suppliers. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods. If. or lessee of the goods. the input taxes exceed the output taxes. any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. standing alone. inputs and imports. but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. On Zero-rated transactions: It refers to the export sale of goods and supply of services. Its application has been drawn from the Tax Credit Method. illegal. deprive the taxpayer of its right to a refund for any unutilized creditable input VAT. of which an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases. such rate obviously results in no tax chargeable against the purchaser. resulting in a zero-rated or effectively zero-rated transaction. does not. It is when the output taxes exceed the input taxes that the excess has to be paid. The fact that the subsequent sale or transaction involves a wholly-tax exempt client.

T. but also in adopting alternative corporate strategies to meet the demands of LOI 1465. After the 1986 Edsa Revolution. affirming the CAs decision. Before the CA. it faced the possibility of severe sanctions for failure to pay the levy. pesticides and agricultural chemicals. 1465 which provided.R. Inc. HELD: On locus standi of Fertiphil:  Fertiphil did not sustain direct injury or damage because the imposition of the CRC fell to ultimate consumer or farmers. PLANTERS PRODUCTS. it affirmed RTC‘s ruling that its imposition was to ensure the continued supply and distribution of fertilizer in the country which is imbued with public interes. 1985 to January 24. The harm to its business consists not only in fewer clients because of the increased price. The doctrine of locus standi or the right of appearance in a court of justice requires a litigant to have a material interest in the outcome of a case. No. oppressive. 1465.1986). and promotion of private enterprises.: 2008 the benefit. INC. must be levied for public purpose. The government‘s commitment to support the successful rehabilitation and continued viability of PPI.mpnanocpaue – college of law taxation law review 15 G. for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers in the Phils that the fertilizer pricing formula for a capital contribution component of not less than P10 per bag. or for Constitutionality of LOI 1465. vs. Constitutionality of the LOI:  Contentions of Fertiphil- 20 . Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. R. It held that the imposition of the P10 CRC as an exercise of the State‘s inherent power of taxation. ISSUES:  Planters Products. Pursuant to the LOI. until PPI becomes viable. among others. FPA voluntarily stopped the imposition of the P10 levy. but that does not disqualify it from attacking the constitutionality of the LOI or from seeking a refund because as seller.689. not on the seller of fertilizer. unreasonable. the depositary bank of PPI (July 8. a private corporation. it bore the ultimate burden of paying the levy. 1465 for being unjust. J. countered that its issuance was a valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the country. thru the SolGen. Fertiphil paid P10 levy imposed for every bag of fertilizer sold on the domestic market. holding that the said LOI unconstitutional because it solely benefit a private entity. It may be true that Fertiphil has passed some or all of the levy to the ultimate consumer. In this case. (PPI) and Fertiphil Corporation (Fertiphil) are private corporations incorporated under Philippine laws and both engaged in the importation and distribution of fertilizers. but PPI refused to accede to the demand so a complaint for collection and damages was filed before the RTC against FPA and PPI. FERTIPHIL CORPORATION REYES. On June 3. questioning the constitutionality of LOI No. is an unmistakable attempt to mask the subject statute‘s impartiality. and others.144) for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority (FPA). In its Answer. Thus. RTC rendered judgment in favor of Fertiphil and ordered PPI to pay the sum paid by Fertiphil. Fertiphil paid P10 (P6. Taxes cannot be levied for the improvement of private property. invalid and an unlawful imposition that amounted to a denial of due process of law because said law solely favored PPI. 166006 March 14. taking into consideration the following:  Exercise of the power of taxation and police power for public purposes  Principle of Operative Facts Petition is denied. and deposited collections to Far East Bank and Trust Company. except where the aid is incident to the public benefit. FPA. 1985. then President Marcos issued LOI No. which used the proceeds to maintain its monopoly of the fertilizer industry..

while taxation is revenue generation. PPPI. that on the contrary it was used by PPI in trying to regain its former despicable monopoly of the fertilizer industry to the detriment of other distributors and importers. Jurisprudence states that public purpose should be given a broad interpretation. and imposed at the expense and disadvantage of the other fertilizer importers/distributors who were themselves in tight business situation and were then exerting all efforts and maximizing management and marketing skills to remain viable. while the power of taxation is the power to levy taxes to be used for public purpose. Contentions of PPI LOI No. 21 . as ultimate beneficiary of the taxes because LOI intends that the capital contribution shall be collected until adequate capital is raised to make PPI viable. but also includes those purposes designed to promote social justice.  Thus.e. on the other hand. being void. the primary purpose of the levy is revenue generation. no doubt. that law will not satisfy the requirement of public purpose. The lawful subjects and lawful means tests are used to determine the validity of a law enacted under the police power. 1465 is a valid exercise either of the police power or the power of taxation.  The imposition of the P10 levy was conditional and dependent upon PPI becoming financially viable. It notably does not fix a maximum amount when PPI is deemed financially viable.  On police power and power of taxationPolice power and the power of taxation are inherent powers of the State . Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare. It does not only pertain to those purposes which are traditionally viewed as essentially government functions. This means that it cannot be used for purely private purposes or for the exclusive benefit of private persons because said power exists for the general welfare. While it is true that the power of taxation can be used as an implement of police power. a private company. which is applied in the imposition of the levy. i.  The CRC was an unlawful. implemented for the purpose of assuring the fertilizer supply and distribution in the country and for benefiting a foundation created by law to hold in trust for millions of farmers their stock ownership in PPI. 1465 was not for a public purpose based on the following grounds:  Levy imposed to the benefit of PPI. Thus. ***Public purpose is the heart of a tax law. which makes Fertiphil and other domestic sellers of fertilizer to pay the levy is made indefinite. When a tax law is only a mask to exact funds from the public when its true intent is to give undue benefit and advantage to a private enterprise. was a big burden on the seller or the ultimate consumer. In this case. the levy imposed under LOI No. and unconstitutional special assessment and its imposition is tantamount to illegal exaction amounting to a denial of due process since the persons of entities which had to bear the burden of paying the CRC derived no benefit therefrom. public money may now be used for the relocation of illegal settlers. A plain reading of the LOI also supports the conclusion that the levy was for revenue generation and was imposed until adequate capital is raised to make PPI viable One of the inherent limitations on the power of taxation is public purpose. The levy. low-cost housing and urban or agrarian reform. making the law for the benefit of LOI only. such as building roads and delivery of basic services. Fertiphil had no legal obligation to pay the levy and all levies duly paid pursuant to an unconstitutional law should be refunded under the civil code principle against unjust enrichment. It increased the price of a bag of fertilizer by as much as five percent. The power of taxation.  The P10 levy under LOI No.  Public PurposeThe term public purpose is not defined but an elastic concept that can be hammered to fit modern standards.mpnanocpaue – college of law taxation law review  It favors only one private domestic corporation. The main purpose of police power is the regulation of a behavior or conduct. 1465 is too excessive to serve a mere regulatory purpose. is circumscribed by inherent and constitutional limitations.

The government‘s commitment to support the successful rehabilitation and continued viability of PPI. Said letter reveals that PPI was in deep financial problem because of its huge corporate debts with pending petitions for rehabilitation against PPI before the SEC. the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public welfare. We cannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer industry in the country. There is no way to treat the self-interest of a favored entity. The past cannot always be erased by a new judicial declaration. Well to stress. is in legal contemplation. When a statute‘s public purpose is spoiled by private interest. To rule in favor of appellant would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private individuals.. like PPI.ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest. For police power but failed to comply with lawful subjects and means: Even if the LOI was enacted under the police power of the State. it would still be invalid for failing to comply with the test of lawful subjects and lawful means. The letter of understanding and the plain text of the LOI clearly indicate that the levy was exacted for the benefit of a private corporation. imposes no duties and affords no protection. as distinguished from those of particular class. inoperative as if it has not been passed. is an unmistakable attempt to mask the subject statute impartiality.mpnanocpaue – college of law taxation law review   The levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and Trust Company. and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.holding LOI 1465 unconstitutional…. This doctrine is inapplicable in this case because it is a general rule that an unconstitutional law is void – it produces no rights. Fertiphil is not required to pay the levy.It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have consequences which cannot always be ignored. Being void. Failed to promote public interest: to a private corporation. It is applied as a matter of equity and fair play. as identical with the general interest of the country‘s farmers or even the Filipino people in general. For private purpose: It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI. Jurisprudence states the test as follows: (1) the interest of the public generally. It was enacted to give undue advantage Ruling of the CA: …. requires its exercise. However. The levy was used to pay the corporate debts of PPI as shown in the Letter of Understanding dated May 18. the former shall be void and the latter shall govern.‖ When the courts declare a law to be inconsistent with the Constitution. substantive due process exacts fairness and equal protection disallows distinction where none is needed. Doctrine of Operative Fact: This doctrine means that an unconstitutional law has an effect before being declared unconstitutional. the depositary bank of PPI which proves that PPI benefited from the LOI. a private corporation. the use of police power 22 . has no legal effect. 1985 signed by then PM Virata. and their violation or nonobservance shall not be excused by disuse or custom or practice to the contrary. all levies paid should be refunded in accordance with the principle against unjust enrichment enunciated in Article 7 NCC which provides that ―Laws are repealed only by subsequent ones. becomes a travesty which must be struck down for being an arbitrary exercise of government power. As such.

The case was remanded to the CTA which cancelled and set aside the assessment notices issued against ICC on the following grounds: (a) claimed deductions for professional and security services were properly claimed by ICC in 1986 because it was only in the said year when the bills demanding payment were sent to ICC. ICC. (2) The alleged understatement of ICC‘s interest income on the three promissory notes due from Realty Investment. 1990. 2007  Before the CTA. (c) ICC withheld 1% expanded withholding tax on its claimed deduction for security services as shown by the various payment orders and confirmation receipts it presented as evidence.86 which arose from the following: 1) The BIR‘s disallowance of ICC‘s claimed expense deductions for professional and security services billed to and paid by ICC in 1986. 2003 CTA decision. 1990. 1995. J. COMMISSIONER OF INTERNAL REVENUE. Inc based on compounded interest when there was no stipulation to that effect or no delay in payment or breach of contract was done that would justify its application.mpnanocpaue – college of law taxation law review G.196. for the year ending December 31. Petitioner. (b) ICC did not understate its interest income on the subject promissory notes.890. 1985. a domestic corporation. amounts to a final decision on the protested assessment and may therefore be questioned before the CTA. a Final Notice of Assessment before seizure was received demanding payment of the amounts stated in the said notices.00 deduction for security services.  On February 23. 172231 February 12.79. On February 9. That. due to failure to withhold 1% expanded withholding tax on its claimed P244. the expenses for the professional services that accrued in 1984 and 1985. it was held premature because the Final Notice of Assessment cannot be considered as a final decision appealable it. Inc. vs.ISABELA CULTURAL CORPORATION.  Petitioner arguments are as follows: (a) since ICC is using the accrual method of accounting.     Petition for review with the CA affirmed the CTA decision ISSUES: WON ICC correctly (a) sustained the deduction of the expenses for professional and security services (b) recorded the interest income On March 23. Respondent. (b) Expenses for the legal services [inclusive of retainer fees] of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson for 1984 and 1985. (c) Expense for security services of El Tigre Security & Investigation Agency for April and May 1986. it could not declare the same as deduction for the said years as the amount thereof could not be determined at that time. to wit: (a) Expenses for the auditing services of SGV & Co.: FACTS: CIR assails the September 30. even if some of these professional services were rendered to ICC in 1984 or 1985. 2005 CA decision affirming the February 26. ICC sought a reconsideration of the subject assessments.R. It was the BIR‘s error when it overstated the interest income received from Realty Investment. (B) Assessment Notice for deficiency expanded withholding tax of P4. inclusive of surcharges and interest: (A) Assessment Notice for deficiency income tax of P333. received from the BIR. No. This was reversed by the CA holding that the BIR demand letter reiterating the payment of deficiency tax. which cancelled and set aside the Assessment Notices for deficiency income tax and expanded withholding tax issued by the BIR against Isabela Cultural Corporation (ICC). should have been declared as deductions from income during the said years  23 . both for taxable year 1986. YNARES-SANTIAGO.897.

24 . ICC apply the accrual method of accounting. Memorandum Order No. are: (a) the expense must be ordinary and necessary. business. and (d) it must be supported by receipts. is declared valid only insofar as the expenses for the professional fees of SGV & Co." Accrual method of accounting presents largely a question of fact. The all-events test is satisfied where computation remains uncertain. expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction from income for the succeeding year. or professional expenses. The all-events test however does not demand that the amount of income or liability be known absolutely. Under this method. is not sufficient to exempt it from being charged with knowledge of the reasonable amount of the expenses for legal and auditing services. dependent upon the method of accounting upon the basis of which the net income is computed x x x". income or expense is recognized applying the ALL – EVENTS TEST. and (2) the availability of the reasonable accurate determination of such income or liability (accurate) From the nature of the claimed deductions and the span of time during which the firm was retained. (b) as to the alleged deficiency interest income and failure to withhold expanded withholding tax assessment. especially so that it is using the accrual method of accounting and could have reasonably determined the amount of legal and retainer fees owing to its familiarity with the rates charged by their long time legal consultant. The decision is affirmed in all other respects. (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer. HELD: The petition is partially granted. such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction. This test requires: (1) fixing of a right to income or liability to pay (fixed) . a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year. Since a deduction for income tax purposes partakes of the nature of a tax exemption. Thus. The failure to determine the exact amount of the expense during the taxable year when they could have been claimed as deductions cannot thus be attributed solely to the delayed billing of these liabilities by the firm. Requisites for the deductibility of ordinary and necessary trade. The expenses for legal services pertain to the 1984 & 1985 legal and retainer fees of the law firm Bengzon… and for reimbursement of the expenses of said firm in connection with ICC‘s tax problems for the year 1984. only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. then it must also be strictly construed as in tax exemptions. (b) it must have been paid or incurred during the taxable year. it must be determined with "reasonable accuracy. And since. like expenses paid for legal and auditing services. within the taxable year. The expense deduction of Isabela Cultural Corporation for professional and security services.mpnanocpaue – college of law taxation law review and the failure of ICC to do so bars it from claiming said expenses as deduction for the taxable year 1986. For a taxpayer using the accrual method. if its basis is unchangeable. the test is satisfied where a computation may be unknown. records or other pertinent papers. It could have inquired into the amount of their obligation to the firm. but is not as much as unknowable. the presumption that the assessment notices issued by the BIR are valid. (a) expenses for professional fees consist of expenses for legal and auditing services. The requisite that it must have been paid or incurred during the taxable year is further qualified by Section 45 of the NIRC which states that: "[t]he deduction provided for in this Title shall be taken for the taxable year in which ‗paid or accrued‘ or ‗paid or incurred‘. it bears the burden of establishing the accrual of an expense or income. ICC can be expected to have reasonably known the retainer fees charged by the firm as well as the compensation for its legal services. 1-2000. The amount of liability does not have to be determined exactly. and of the law firm. are concerned. which it failed to comply and merely relied on the defense of delayed billing by the firm and the company. it applies the accrual method of accounting. which under the circumstances. In this case. Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson.

we sustain the findings of the CTA and CA that no such understatement exists and that only simple interest computation and not a compounded one should have been applied by the BIR. the records show that these expenses were incurred by ICC and could be properly claimed as deductions for the said year. There is indeed no stipulation between the latter and ICC on the application of compounded interest. It failed to discharge the burden of proving that the claimed expense deductions for the professional services were allowable deductions for the taxable year 1986 so they cannot be validly deducted from its gross income for the said year and were therefore properly disallowed by the BIR. (b) insofar as the interest income from the promissory notes of Realty Investment. 25 .. Inc." as the standard to ascertain its liability to SGV.mpnanocpaue – college of law taxation law review professional fees of SGV & Co. expenses for security services. for auditing the financial statements of ICC for 1985 cannot be validly claimed as expense deductions in 1986 because ICC failed to present evidence showing that even with only "reasonable accuracy.

Delfin and his sister. Bulacan (now Metro Manila) leased the same on April 3. and (d) at the time of incorporation.169 m2 land located in the Municipality of Polo (now Valenzuela).. Inc.500 shares of stock of the corporation with a total value of P1. The trial court declared the valid existence of the plaintiffs preferential right to acquire the subject property (right of first refusal) and ordered the defendants and all persons deriving rights therefrom to convey the said property to plaintiff." Thus. January 3. 1974 to Construction Components International Inc. GUTIERREZ. Both the contract of lease and assignment of lease were annotated at the back of the title.500 original unissued no par value shares of stocks of the Delpher Trades 26 .mpnanocpaue – college of law taxation law review G. (b) the leased property was transferred to the corporation by virtue of a deed of exchange of property. he knew all about the contract of lease of the lot to Hydro Pipes Philippines. were transferred to the corporation.000. Metro Manila for 2. INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES. This decision was affirmed on appeal by the IAC. (c) to exchange for these properties. August 3. Inc. INC.. Pelagia Pacheco.  Private respondents argue that Delpher Trades Corporation is a corporate entity separate and distinct from the Pachecos so it cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or conduit. respondents.a deed of exchange was executed between lessors Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property together with another parcel of land also located in Malinta Estate. contention that the deed of exchange whereby Delfin & Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in exchange for 2. as per stipulation of the parties. After incorporation. and DELPHIN PACHECO. vs. ISSUE: WON "Deed of Exchange" of the properties executed by the Pachecos and the Delpher constitute a contract of sale which. including one that has been leased to Hydro Pipes Philippines.R.500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation. 1988 DELPHER TRADES CORPORATION. in effect.  Petitioners argued that Delpher Trades Corporation is a family corporation of the Pacheco‘s organized to perpetuate their control over the property through the corporation and to avoid taxes on the following: (a) the 2 pieces of real estate.500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract. It maintains that there was actual transfer of ownership interests over the leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock.lessee Construction Components International. there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property. prejudiced the Hydro Pipes Phils. filed an amended complaint for reconveyance against lessors Pacheco on the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement. J.00. HELD: We rule for the petitioners. petitioners. Inc. 1974 . assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines. the Pachecos acquired 2. Valenzuela. in exchange for their properties. right of first refusal. one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof In the case at bar. 1976 .500. L-69259 January 26. the Pacheco‘s acquired 2.: FACTS: Petitioners question the decision of the IAC which sustained the Hydro Pipes Phils. with the signed conformity and consent of lessors Pacheco. with a condition that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions. Hydro Pipes Philippines. JR. No. They refer to this scheme as "Estate Planning. co-owners of 27.

the continuity in relation to ownership by a particular person of certain properties in respect shall not be subjected to taxes (inheritance taxes) on succession as the corporation does not die. since a corporation does not die it can continue to hold on to the property indefinitely for a period of at least 50 years. The Pacheco family merely changed their ownership from one form to another. Their equity capital is 55% as against 45% of the other stockholders. the Delpher Trades Corporation is a business conduit of the Pachecos. The Estate Planning scheme resorted to by the Pachecos: This mode is not prohibited. Effects of the execution of a deed of exchange on properties for no par value shares of the Delpher: (a) Continuous control of the property (b) tax exemption benefits.mpnanocpaue – college of law taxation law review Corporation which consequently make the Pachecos stockholders of the corporation by subscription. This is where the doctrine of flexibility takes place. and (c) other inherent benefits in a corporation. cannot be doubted. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. tax exemption benefits refer to Section 35 of the National Internal Revenue Code under par. There was no transfer of actual ownership interests by the Pachecos to a third party. the Hydro Pipes has no basis for its claim of a light of first refusal under the lease contract. The ownership remained in the same hands. viz: "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them. who also belong to the same family group. The board can fix the value of the shares equivalent to the capital requirements of the corporation. Hence." Doctrine of “Flexibility in connection with the ownership of the property in question: There is flexibility in using no par value shares as the value is determined by the board of directors in increasing capitalization. if the property is held by the spouse the property will be tied up in succession proceedings and the consequential payments of estate and inheritance taxes when an owner dies. the Pachecos have control of the corporation. C-sub-par. In effect." The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. 27 . It is to be stressed that by their ownership of the 2. Insofar as taxation law is concerned. In effect. (2) Exceptions regarding the provision which I quote: "No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation. In this case. On the other hand.500 no par shares of stock. by means which the law permits.

666. when certified to as such by the Secretary of Agriculture and Natural Resources upon the recommendation of the Director of Mines. CIR recomputed the deficiency income tax liabilities. Republic Act 909. 1964.27 Net income corresponding to taxable period April 1 to Dec.65 60. L-26911 January 27. 1958.the Secretary of DOF ruled that the exemption provided in RA 909 embraces all new mines and old mines whether gold or other minerals. which on June 9. only three-fourth (3/4) of the net taxable income of petitioner is subject to income tax. petitioner. As the exemption of petitioner from the payment of corporate income tax under Section 4. respondent. vs.00 DEFICIENCY INCOME TAX DUE 7.Atlas protested the assessment asking for its reconsideration and cancellation. any such mine and/or mines making a complete return of its capital investment at any time within the said period. 1962 . assailing the disallowance of the following items claimed as deductible from its gross income for 1958: Transfer agent's fee Stockholders relation service fee U. Provided that.96 for 1958 deficiency income taxes.S.898.000.R.96 to P39. Atlas is a corporation engaged in the mining industry registered under the laws of the Philippines. respondents. (b) For 1958 deficiency income tax covers the disallowance of items claimed by Atlas as deductible from gross income. No. 31. vs.477. October 9.16 for 1957 & P215. computed as follows: Total net income for 1958 1.00 Less: Amount already assessed 405.673. Accordingly. stock listing expenses Suit expenses Provision for contingencies Total P59. DE CASTRO.42 25.968.: FACTS: These are 2 petitions for review from the decision of the CTA on CTA tax case No. 1981 ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION.993.295. of which the CIR conducted a reinvestigation of the case.14 8.16 for the year 1957 and the assessment for 1958 was reduced from P215.666.242. on the following: (a) For 1957. October 25.70 Add: Stockholders relation service fee (3/4 or 9/12 of 25. and old mines which resume operation. 1981 COMMISSIONER OF INTERNAL REVENUE. petitioner.468.70 6.R.mpnanocpaue – college of law taxation law review G. ¾ or 9/12 of TNI 1. the provision of which reads: New mines.91 October 25.35 Litigation expenses 6. CIR opined the deficiency taxes on its assessment issued on August 20.695.227.523.14) 19.00 P159.00 Add: 1/2 % monthly interest 28 . 1962. shall pay income tax from that year.65 Net income per decision110.ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION and COURT OF TAX APPEALS.70 Tax due thereon 412. Atlas is not entitled to exemption from the income tax under Section 4 of RA 909 because the same covers only gold mines. except the items denominated by Atlas as stockholders relation service fee and suit expenses. J. the CIR issued a revised assessment entirely eliminating the assessment of P546. COMMISSIONER OF INTERNAL REVENUE. No.646.326.142. shall be exempt from the payment of income tax during the first three (3) years of actual commercial production. 1962 . 1312 arose from the 1957 & 1958 deficiency income tax assessments made by the CIR where the Atlas Consolidated Mining and Development Corporation was assessed P546. was good only up to the Ist quarter of 1958 ending on March 31 of the same year.82 from which Atlas appealed to the CTA.295.476. L-26924 January 27.523.493. G. 1966 – CTA allowed the above disallowed items.493.

The term "ordinary" does not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them often. 29 . In addition. 30(a)(1) of NIRC. otherwise.K MacKer & Co.S. it is a requirement for an expense to be deductible from gross income that it must have been "paid or incurred during the year" for which it is claimed.A is a deductible expense from GI under Sec. No. An expense will be considered "necessary" where the expenditure is appropriate and helpful in the development of the taxpayer's business. in order to be deductible under this section of the statute. civil case is an allowable deduction as business expense under Sec.523. (2) CIR can raise the fact of payment for the first time on appeal HELD: No in both issues. the same will be disallowed. That the expense in question was incurred to create a favorable image of the corporation in order to gain or maintain the public's and its stockholders' patronage. 30 (a)(1) of NIRC which allows a deduction of "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.14 on the ground that said amount pertains to 1958 annual public relations expenses incurred and paid to P.526. The issue raised was WON the expenses paid for the services rendered by a public relations firm P. Statutory test of deductibility. and that the best evidence to prove payment. when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances.. labelled as stockholders relation service fee is an allowable deduction as business expense under Sec. if at all any has been made. The law allowing expenses as deduction from GI is Sec.K Macker & Co. (2) it must be paid or incurred within the taxable year.30 (a)(1) NIRC. as required under Sec. does not make it deductible as business expense but a capital expenditures. The mere allegation of the taxpayer that an item of expense is ordinary and necessary does not justify its deduction. would be the vouchers or receipts issued therefor which ATLAS failed to present. CA sustained the CTA decision which states that : A taxpayer who claims a deduction must point to some specific provision of the statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction which the law allows. a reputable public relations consultant in New York City. 30 (a)(1) of NIRC..300." An item of expenditure.89 TOTAL AMOUNT DUE & COLLECTIBLE 8. L-26911—Atlas appealed CTA decision disallowing the deduction from gross income of the so-called stockholders relation service fee amounting to P25. 30 (a)(1) of NIRC. that in the absence of convincing and satisfactory evidence of payment. U. an ordinary and necessary business expense aimed at creating a favorable image and goodwill to gain or maintain their patronage. must fall squarely within its language. the taxpayer who meet the business test must substantially prove by evidence or records the deductions claimed under the law.mpnanocpaue – college of law taxation law review from 6-20-59 to 6-20-62 (18%) 1. R. CIR’s contentions: The CIR contended that under Sec. the deduction from gross income for the year 1958 income tax return cannot be sustained. three conditions are imposed: (1) the expense must be ordinary and necessary. ISSUE: WON the (1) attorneys fees/litigation expenses paid indefense of title to the Toledo Mining properties purchased from Mindanao Lode Mines Inc. He also contended that should be disallowed for not being ordinary and necessary and not incurred in trade or business. and (3) it must be paid or incurred in carrying in a trade or business.22 Separate petition for review before the CA were filed by Atlas and CIR which sustained the ruling of the CA. The contention of Atlas is as follows: G. the payment may be unique or non-recurring to the particular taxpayer affected.

or even in the report of the investigating examiner and/or letters of demand and assessment notices of Atlas which gave rise to its appeal to the CTA. that said fees were therefore incurred not for the production of income but for the acquisition petition of capital in view of the definition that an expense is deemed to be incurred in trade or business if it was incurred for the production of income. Tax Court in the case of Safety Tube Corp. Thus. (2) CIR cannot be allowed to adopt a theory distinct and different from that he has previously pursued. In line with the decision of the U. it is well settled that litigation expenses incurred in defense or protection of title are capital in nature and not deductible but shall constitute a part of the cost of the property. 30 . but explains the failure with the allegation that the CIR did not raise that question of fact in his pleadings. CIR. the Court of Tax Appeal found that the fact of payment of the claimed deduction from gross income was never controverted by the CIR even during the initial stages of routinary administrative scrutiny conducted by BIR examiners. Atlas admitted that it failed to adduce evidence of payment of the deduction claimed in its 1958 income tax return. it was too late for the CIR to raise the issue of fact of payment for the first time in his memorandum in the CTA and in this instant appeal to the SC. and are not deductible as expense. In the case at bar. (1) The litigation expenses under consideration were incurred in defense of Atlas title to its mining properties. vs. or in the expectation of producing income for the business. Failure to assert a question within a reasonable time warrants a presumption that the party entitled to assert it either has abandoned or declined to assert it.S. In this case.mpnanocpaue – college of law taxation law review 30(a)(1) of NIRC.

is not realized gain. 1. and • Contravene the equal protection clause because the CWT is being charged upon real estate enterprises.G. those in the manufacturing sector. Firstly. unlike net income. Clearly.The Hon. Is the imposition of CWT on income from sales of real properties classified as ordinary assets constitutional? Ruling: 1. because it is income. 160756 promulgated March 9.R. (CREBA). that the use of gross income as MCIT base amounts to a confiscation of capital because gross income. instead of the entity‘s net taxable income as provided for under the Tax Code. which prescribe the rules and procedures for the collection of CWT on sales of real properties classified as ordinary assets. as well as the CWT on income from sales of real property classified as ordinary assets. Yes. Is the imposition of MCIT constitutional? 2. more particularly. the law authorizes the Secretary of Finance to suspend the imposition of 31 . which do business similar to that of a real estate enterprise. CREBA also sought to invalidate the provisions of RR No. contrary to the Tax Code provision which imposes income tax on net income at the end of the taxable period.mpnanocpaue – college of law taxation law review RANDOM NOTES: 01 Chamber of Real Estate and Builders’ Associations. et al . as amended. 2-98. questioned the validity of Section 27(E) of the Tax Code which imposes the minimum corporate income tax (MCIT) on corporations. Under the Tax Code. Facts: Petitioner Chamber of Real Estate and Builders‘ Associations. MCIT is imposed on gross income which is computed by deducting from gross sales the capital spent by a corporation in the sale of its goods. among others. the capital is not being taxed. gain is never assured by mere receipt of the selling price. beginning on the 4th taxable year immediately following the year in which it commenced its business operations. Thirdly. An income tax is arbitrary and confiscatory if it taxes capital. No. which is subject to income tax. since certain businesses may be incurring genuine repeated losses. on the grounds that these regulations: • Use gross selling price (GSP) or fair market value (FMV) as basis for determining the income tax on the sale of real estate classified as ordinary assets. recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital expenditures. i... CREBA argued.e. the corporation does not pay the MCIT. The imposition of the MCIT is constitutional. However. an association of real estate developers and builders in the Philippines. 2010 . and not capital. • Go against the due process clause because the government collects income tax even when the net income has not yet been determined. a corporation can become subject to the MCIT at the rate of 2% of gross income. is constitutional. otherwise known as the Consolidated Withholding Tax Regulations.Supreme Court (En Banc) The imposition of the MCIT on domestic corporations. If the regular income tax is higher than the MCIT. Various safeguards were incorporated into the law imposing MCIT. when such MCIT is greater than the normal corporate income tax. the law allows the carry-forward of any excess of the MCIT paid over the normal income tax which shall be credited against the normal income tax for the 3 immediately succeeding years. vs. the MCIT is imposed only on the 4th taxable year immediately following the year in which the corporation commenced its operations. Inc. Secondly. Issues: • Mandate the collection of income tax on a per transaction basis. the cost of goods and other direct expenses from gross sales. but not on other business enterprises. Inc. Executive Secretary Alberto Romulo.

the taxpayer will be entitled to a refund or tax credit. The real estate industry is.. Hence. 32 . his basis can only be the GSP or FMV which figures are reasonably known to him. Also. The withholding agent-buyer‘s act of collecting the tax at the time of the transaction. is not contrary to the Tax Code which calls for the payment of the net income at the end of the taxable period.e. What distinguishes the real estate business from other manufacturing enterprises. the taxing power has the authority to make reasonable classifications for purposes of taxation. If. making it less cumbersome for the parties to comply with the withholding tax scheme. is the very essence of the withholding tax method of tax collection. On the other hand. on the other hand.. infringe no constitutional limitation. They are installments on the annual tax which may be due at the end of the taxable year. The income from the sale of a real property is bigger and its frequency of transaction limited.e. the collection of income tax via the CWT on a per transaction basis. Yes. i. i. or exemption. by withholding the tax due from the income payable. upon consummation of the sale. each manufacturing enterprise may have tens of thousands of transactions with several thousand customers every month involving both minimal and substantial amounts. for purposes of the imposition of the CWT. gross income less allowable costs and deductions. The seller shall file its income tax return and credit the taxes withheld by the withholding agent-buyer against its tax due. Despite the imposition of CWT on GSP or FMV. Inequalities which result from singling out a particular class for taxation. 2. a class and can be validly treated differently from other business enterprises. is not their production processes but the prices of their goods sold and the number of transactions involved. The use of the GSP or FMV as basis to determine the CWT is for purposes of practicality and convenience. On the alleged violation of the equal protection clause. force majeure and legitimate business reverses. by itself. then the taxpayer shall pay the difference. The taxes withheld are in the nature of advance tax payments by a taxpayer in order to cancel its possible future tax obligation.mpnanocpaue – college of law taxation law review MCIT if a corporation suffers losses due to prolonged labor dispute. the income tax base for sales of real property classified as ordinary assets remains as the entity‘s net taxable income as provided in the Tax Code. The knowledge of the withholding agent-buyer is limited to the particular transaction in which he is a party. If the tax due is greater than the tax withheld. the tax due is less than the tax withheld.

does not fall under the exception.mpnanocpaue – college of law taxation law review 02 South African Airways vs. February 16. As such. petitioner must fall under the general rule. exception firmat regulam in casibus non exceptis. No. G. an off-line international carrier selling passage documents through an independent sales agent in the Philippines. the correct interpretation of the above provisions is that. 180356.R. AN OFF-LINE AIR CARRIER HAVING A GENERAL SALES AGENT IN THEPHILIPPINES IS ENGAGED IN OR DOING BUSINESS IN THE PHILIPPINESSUCH THAT ITS INCOME FROM SALES OF PASSAGE DOCUMENTS HERE ISPHILIPPINE SOURCE INCOME SUBJECT TO ORDINARY INCOME TAX. a thing not being excepted must be regarded as coming within the purview of the general rule. This principle is embodied in the Latin maxim. No. except for resident foreign corporations that are international carriers that derive income ―from carriage of persons. Petitioner. excess baggage. which means. South African Airways. it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings.G. 180356 dated February16. if an international air carrier maintains flights to and from the Philippines. The Supreme Court reiterated the rule in the case of British Overseas Airways which held that an off-line air carrier is doing business in the Philippines and that income from the sale of passage documents in the Philippines is taxable Philippine-source income. 2010. is engaged in trade or business in the Philippines subject to the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC. the Supreme Court ruled that the taxpayer is subject to the 32% income tax under Section 28(A)(1) of the Tax Code. South African Airways v. The general rule is that resident foreign corporations shall be liable for a 32% income tax on their income from within the Philippines. 33 . To reiterate. Commissioner of Internal Revenue .R. 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. cargo and mail originating from the Philippines‖ which shall be taxed at 2 1/2% of their Gross Philippine Billings. Commissioner of Internal Revenue. The Supreme Court ruled that the taxpayer is not subject to the 2½% Gross Philippine Billings (GPB) tax under Section 28(A)(3)(a) of the Tax Code. being an international carrier with no flights originating from the Philippines. However. 2010 Gross Philippine billings. off line carrier.

April 2. The ―in lieu of all taxes‖ clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes. the ―in lieu of all taxes‖ clause only applies to national internal revenue taxes and not to local taxes. Rodrigo Duterte and the Sangguniang Panlunsod of Davao City. The City of Davao. APPLIES ONLY TO NATIONAL INTERNAL REVENUE TAXES AND NOT TO LOCAL TAXES. 163072. Franchise tax. ―IN LIEU OF ALL TAXES‖ CLAUSE IN A LEGISLATIVE FRANCHISE. the franchisee is still liable to pay the local franchise tax. the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority. under the same provision. Taxpayer was assessed for local franchise tax by a city government. However. Smart Communications Inc. The taxpayer sought to avail of the ―most favored treatment clause‖ by citing that a taxpayer with a similar line of business and legislative franchise enjoys exemption from the local franchise tax. Real Property Tax. Furthermore.mpnanocpaue – college of law taxation law review 04 03 Manila International Airport Authority vs. July 21. INTHE ABSENCE OF UNEQUIVOCAL LANGUAGE PROVIDING OTHERWISE. et al. G. 2009. No. 155491 dated September 16.R.. Indeed. the specific property leased becomes subject to real property tax. and as such are exempt from real property tax under Section 234(a) of the Local Government Code. No. if MIAA leases its real property to a taxable person. City of Pasay. City of Davao. In this case. Smart Communications. the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code. local government units have no power to tax instrumentalities of the national government like the MIAA. Inc. G. Under Section 133(o) of the Local Government Code.R. represented by its Mayor Hon. otherwise. 155491. vs. the airport lands and buildings of MIAA are properties of public dominion intended for public use. 2009. 2008. only those portions of the NAIA Pasay properties which are leased to taxable persons like private parties are subject to real property tax by the City of Pasay..R. The taxpayer raised the defense that it is not subject to the local franchise tax because of the ―in lieu of all taxes‖ clause found in its legislative franchise. Hence. MIAA is not liable to pay real property tax for the NAIA Pasay properties. MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments. v. The NAIA Pasay properties of the Manila International Airport Authority is exempt from real property tax imposed by the City of Pasay. Jurisprudence suggests that aside from the national franchise tax. However. The Supreme Court ruled that in the absence of unequivocal language. a careful study of the language of the legislative franchise of the other taxpayer revealed that their franchise specifically exempts the taxpayer from local taxes. G. unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. 34 .

file a sworn statement declaring the true value of the real property. No. Real property tax. protested the assessment before the Local Board of Assessment Appeals (LBAA). The Court of Tax Appeals (CTA) en banc agreed with the CBAA‘s discussion. It has absolutely no solid claim of ownership or even of use and possession of the machineries. valued. Legal interest is defined as interest in property or a claim cognizable at law. G. January 25. We do not believe that the phrase ―person having legal interest in the property‖ in Section 226 of the LGC can include an entity that assumes another person‘s tax liability by contract. claiming entitlement to the tax exemptions provided under Section 234 of the Local Government Code (LGC). According to the CBAA. the city or municipal treasurer will not act on his protest. 35 . which entered into a Build-Operate-Transfer (BOT) Agreement with Mirant.R. Otherwise. does not question the authority of local assessor to assess real property tax. National Power Corporation vs. Hence. 171586. January 25. Napocor. Napocor‘s omission to do so in this case can be construed as contradictory to its claim of ownership of the subject machineries.R. A review of the provisions of the LGC on real property taxation shows that the phrase has been repeatedly adopted and used to define an entity: a. The protest contemplated under Section 252 is required where there is a question as to the reasonableness or correctness of the amount assessed. and assessed. relying mainly on the cases of Ty vs. 2010 Real property tax. 2010. he is required to ―first pay the tax‖ under protest. if a taxpayer disputes the reasonableness of an increase in a real property tax assessment. The real property taxes assessed were not paid prior to the protest. Trampe and Olivarez vs. Marquez. as it is not an entity having the legal title over the machineries. Given this definition. whether full or partial. whether taxable or exempt. a payment prior to protest applies only if the taxpayer is subject to the tax but is disputing the correctness of the amount assessed.mpnanocpaue – college of law taxation law review 05 National Power Corporation vs. If Napocor truly believed that it was the owner of the subject machineries. That it assumed liability for the taxes that may be imposed on the subject machineries similarly does not clothe it with legal title over the same. file sufficient documentary evidence supporting its claim for tax exemption. Province of Quezon and Municipalilty of Pagbilao. In National Power Corporation vs. 2010. the CBAA agreed with Napocor‘s position that the protest contemplated in Section 252 (a) is applicable only when the taxpayer is questioning the reasonableness or excessiveness of an assessment. Napocor is clearly not vested with the requisite interest to protest the tax assessment. proper entity to file protest of assessment. and b.R. A claim for tax exemption. the Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for unpaid real property taxes. The Local Board of Assessment Appeals (LBAA) dismissed Napocor‘s petition for exemption for its failure to comply with Section 252 of the LGC requiring payment of the assailed tax before any protest can be made. While a real property owner‘s failure to comply with Sections 202 and 206 does not necessarily negate its tax obligation nor invalidate its legitimate claim for tax exemption. payment of tax prior to protest. Province of Quezon and Municipalilty of Pagbilao. No. G. No. in whose name the real property shall be listed. G. 171586. The Central Board of Assessment Appeals (CBAA) ultimately dismissed Napocor‘s appeal for failure to meet the requirements for tax exemption. equivalent to that of a legal owner who has legal title to the property. however. The CBAA ruled that the requirement of payment prior to protest does not apply where the legality of the assessment is put in issue on account of the taxpayer‘s claim that it is exempt from tax. 171586. January 25. it should have complied with Sections 202 and 206 of the LGC which obligates owners of real property to: a. Province of Quezon and Municipalilty of Pagbilao.

valuation. citing Cooley‘s Law on Taxation. NPC also asserts that pursuant to the ECA. not the contractual liability that is enforceable between the parties to a contract. The framers of the LGC certainly did not contemplate that the listing. Province of Quezon and Municipalilty of Pagbilao. Province of Quezon and Municipality of Pagbilao. and that the other party to the ECA has retained only naked title to it. and i. SUPREME COURT REITERATES THAT AN ENTITY THAT ASSUMES ANOTHER PERSON‘S TAX LIABILITY BY CONTRACT HAS NO LEGAL g. who may pay the real property tax. direct and immediate. who may redeem the property after it was sold at the public auction for delinquent taxes. National Power Corporation vs. Legal interest should be an interest that is actual and material. The tax laws of the United States deem it sufficient that a person‘s pecuniary interests are affected by the tax assessment to consider him as a person aggrieved and who may thus avail of the judicial or administrative remedies against it. possessed of the requisite standing to protest it). January 25. our own LGC. as well as who may object the proposed ordinance. 2009.R.mpnanocpaue – college of law taxation law review b. since it will acquire ownership thereof at the end of 25 years. 171586 dated July 15. The reference to this foreign material. the real interest of NPC is only in the continued operation of the plant for the generation of electricity. is misplaced. No. e. property (hence. f. The Court held that these contentions are not sufficient to vest the NPC the personality to protest the assessment. who may stay the public auction upon payment of the delinquent tax. 2010 THE PARTY CONTRACTUALLY ASSUMING REAL PROPERTY TAX LIABILITY PURSUANT TO AN ENERGY CONVERSION AGREEMENT DOES NOT HAVE LEGAL INTEREST TO GIVE IT PERSONALITY TO PROTEST THE TAX IMPOSED BY LAW ON THE OTHER PARTY. National Power Corporation v. NPC contends that it should be regarded as the beneficial owner of the plant. d. nor did they intend to make the warrant of levy enforceable against it. Insofar as the provisions of the LGC are concerned. the tax liability that would give NPC the personality to protest the assessment is the liability arising from the law that the local government unit can rightfully and successfully enforce. not US federal or state tax laws. our law has required legal interest in the property taxed before any administrative or judicial remedy can be availed. Some authorities consider a person whose pecuniary interests is or may be adversely affected by the tax assessment as one who has legal interest in the 36 . as well as who may be exempt from the same. who may be liable for the idle land tax. mere pecuniary interest is not sufficient. The right to appeal a tax assessment is a purely statutory right. who may be summoned by the local assessor to gather information on which to base the market value of the real property. NPC‘s ownership of the plant will happen only after the lapse of the 25-year period.R. c. and assessment of real property can be made in the name of such entity. who shall be notified of any proposed ordinance imposing a special levy. G. 171586. who is entitled to be notified of the warrant of levy and against whom it may be enforced. however. Prior to this event. who may protest the tax assessment before the LBAA and may appeal the latter‘s decision to the CBAA. it has the right to control and supervise the construction and operation of the plant. Moreover. As opposed to our LGC. whether a person challenging an assessment bears such a relation to the real property being assessed as to entitle him the right to appeal is determined by the applicable statute – in this case. The rights and obligations arising from the BOT Agreement between Napocor and Mirant were of no legal interest to the tax collector – the Province of Quezon – which is charged with the performance of independent duties under the LGC. For the Court to consider an entity assuming another person‘s tax liability by contract as a person having legal interest in the real property would extend to it the privileges and responsibilities enumerated above. No. this entity is a party foreign to the operation of real property tax laws and could not be clothed with any legal interest over the property apart from its assumed liability for tax. not simply contingent or expectant. G. h. penalties and surcharge. In this case.

such as the Bureau of Internal Revenue.158885 and 170680.R.R. 2009 Value-added tax. v. our own Local Government Code of 1991 (―LGC‖). 06 Fort Bonifacio Development Corp./Fort Bonifacio Development Corp. No. in the beginning inventory of goods. In this case. The LBAA dismissed Napocor‘s petition for exemption for its failure to comply with Section 252 of the LGC requiring payment of the assailed tax before any protest can be made. G. While administrative agencies. or in any way modify explicit provisions of the law. based on which inventory the transitional input tax credit is computed. 37 . or extend or expand the statute beyond its terms. Any rule that is not consistent with the statute itself is null and void. therefore. having been defined. a quasi-judicial body or an administrative agency for that matter cannot amend an act of Congress. and hence was simply questioning the correctness of the assessment. the term ―goods‖ as used in Section 105 (now 111(A)) of the same Code could not have a different meaning.105-1 of RR 7-95.S. Trampe. It cannot modify. G. acting solely and independently. Section 111 (A) of the new NIRC providing for transitional input tax credits to taxpayers not previously covered under the VAT law is clear and unambiguous to cover goods and properties. or subtract from the law it is intended to implement. Hence. particularly the requirement of payment under protest. federal or state tax laws. Petitioner should have first complied with Section 252. the basic law prevails. 170680. Thus. the Supreme Court held that the protest contemplated under Section 252 is required where there is a question as to the reasonableness or correctness of the amount assessed. Payment under protest is not required if the taxpayer is questioning the very authority and power of the assessor. xxx As mandated by Article 7 of the Civil Code. Fort Bonifacio Development Corp. Our law has required legal interest in the property taxed before any administrative or judicial remedy can be availed. 1. et al. October 2. Commissioner of Internal Revenue et al. to impose the assessment and of the treasurer to collect the tax. must conform and not contravene the law on which it is based. vs. expand. not U. an administrative rule or regulation. may issue regulations to implement statutes. PAYMENT UNDER PROTEST IS REQUIRED BEFORE AN APPEAL TO THE LOCAL BOARD OF ASSESSMENT APPEALS (―LBAA‖) CAN BE MADE. Indeed. In Ty v.. petitioner was claiming tax exemption. to be valid. which limits ―goods‖ to improvements on the real property while excludes the real properties themselves is. Section 100 (now 105) defines ―good or properties‖ to include ―real properties held primarily for sale to costumers or held for lease in the ordinary course of business. There is nothing in Section 105 of the old Tax Code that prohibits the inclusion of real properties. whether full or partial. whether a person challenging an assessment bears such a relation to the real property being assessed as to entitle him the right to appeal is determined by the applicable statute – in this case.R.‖ The statutory definition leaves no room for doubt. Commissioner of Internal Revenue. vs. No. in case of a discrepancy between the basic law and an interpretative or administrative ruling. materials and supplies. Commissioner of Internal Revenue.mpnanocpaue – college of law taxation law review INTEREST IN THE PROPERTY BEING SUBJECTED TO REAL PROPERTY TAX. together with the improvements thereon. Section 4. The right to appeal a tax assessment is a purely statutory right. 158885/G. April 2. they are without authority to limit the scope of the statute to less than what it provides. 2009. A claim for tax exemption. struck down for being contradictory to the Tax Code. does not question the authority of the local assessor to assess real property tax.

a new counsel entered appearance without the withdrawal of the original counsel. Proper Party to Claim Excise Tax Refund The proper party to seek a refund of an indirect tax is the statutory taxpayer. which exempts from excise tax petroleum products sold to exempt entities under international agreements and Article 4(2) of the Air Transport 38 . a Singapore corporation. the new counsel received a copy of the Resolution and requested on October 28. [Silkair (Singapore) Pte. Silkair Pte Ltd v. is the statutory taxpayer and. on the basis of Sec 135 of the 1997 NIRC.R. Commissioner of Internal Revenue. February 25. 2005 was granted and on November 17.mpnanocpaue – college of law taxation law review 13 Silkair (Singapore) PTE. Its original counsel of record received on October 3. sought a refund of excise tax paid by Petron Corporation as manufacturer. Facts: SPL. the additional amount which petitioner paid is not a tax but a part of the purchase price which it had to pay to obtain the goods. P Corp. SPL filed with the BIR a claim for refund of the excise taxes it allegedly paid on its purchases of jet fuel from P Corp. cannot be construed as including indirect taxes. Even if the manufacturer or producer passed the burden of the tax to the purchaser. Ltd. ruling that where no notice of withdrawal or substitution of counsel has been shown. another extension until November 24. 2005. it is the manufacturer or producer which is entitled to claim a refund. G. 2005 a copy of the September 22. Under Section 130(A)(2) of the NIRC. the Supreme Court affirmed the dismissal. 2006. On October 13. Rule 138 of the Rules of Court on the requirements for withdrawal of counsel.INDIRECT TAX EXEMPTION MUST BE CLEARLY GRANTED. On petition for certiorari. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. is the statutory taxpayer entitled to claim a refund based on Section 135 of the NIRC. the burden of the tax. the high tribunal held: The proper party to question. Commissioner of Internal Revenue. In this case. Silkair filed its petition. notice to counsel of record is notice to the client citing Section 26. 2005. It bears stressing that even if Petron shifted or passed on to petitioner Silkair. The CTA Division denied against the claim since it was not the taxpayer. therefore. 2005. February 6. 2005 an extension of time to file petition. By Resolution of May 19. SERVICE TO COUNSEL OF RECORD BINDS PETITIONER Petitioner Silkair. Thus. On September 12. 2005 Resolution of the CTA Division denying its motion for reconsideration of the decision. CIR. 2010. G. In case of a refund of excise taxes on petroleum products. vs. is an online international carrier which maintains a Philippine representative office and operates routes passing through Cebu and Davao. an indirect tax is the statutory taxpayer. it is the manufacturer or producer who is subject to excise tax. The proper party to question. Ltd.. 173594. 2008 Excise tax.R. Petron Corporation. or seek a refund of. 2005. No. 15-DAY APPEAL PERIOD TO CTA EN BANC IS JURISDICTIONAL. No. which is Petron in this case. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. not Silkair. the CTA En Banc dismissed the petition for being filed out of time notwithstanding the grant of extension. the original counsel withdrew its appearance with conformity of petitioner and the new counsel requested for an official copy of the Resolution. On October 14. the additional amount billed for jet fuel is not a tax but part of the price which the purchaser had to pay. or claim a refund or tax credit of an indirect tax is the statutory taxpayer. refund. promulgated 6 February 2008] STATUTORY TAXPAYER IS PROPER PARTY TO CLAIM FOR REFUND OF INDIRECT TAXES. 184398. vs. 2005. the proper party to file the claim for tax refund. a Singapore-based international air carrier. Upon request. 173594. which shifted the burden of the tax to purchaser Silkair. being the manufacturer of the petroleum products.R. The SC held that the exemption granted under Sec 135(B) of the 1997 NIRC and Article 4(2) of the Air Transport Agreement. The SC did not give merit to the argument of SPL that it is exempt from indirect taxes on the basis of the RP-Singapore Air Transport Agreement. No. The Court En Banc gave it until November 14. the person on whom the tax is imposed by law and who paid the same even he shifts the burden thereof to another. Held: The SC held that the proper party to question or seek a refund of an indirect tax is the statutory taxpayer. without clear legislative intent. G. as it is the company on which the tax is imposed by law and which paid the same even if the burden thereof was shifted or passed on to another. Ruling on the merits.

which includes uncollected earnings. 2007. CIR. can shift the tax burden to its purchasers does not make the latter the taxpayers and the former the withholding agent. BIR Revenue Regulations No. Inc. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Hence. There is no indirect tax exemption under the Air Transport Agreement in the absence of clear showing of legislative intent. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer.‖3 Excise tax. Even if Petron passed on to Silkair the burden of the tax. The tax is directly levied on the manufacturer upon removal of the table goods from the place of production but in reality. G. which defined gross receipts. is basically an indirect tax imposed on the consumption of a specified list of goods or products. the Supreme Court held that ―the proper party to question. Ltd. 17 Ericsson Telecommunications. It cited Section 4. Silkair (Singapore) PTE. City of Pasig. No. ―Constructive receipt‖ occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. actual or constructive. Silkair filed a formal claim for refund with the Commissioner of Internal Revenue (CIR). or seek a refund of an indirect tax is the statutory taxpayer.176667. No. as opposed to gross earnings/revenue. G. it correctly paid its taxes based on gross receipt. vs. the SC ruled that ―even if the consumers or purchasers ultimately pay for the tax. Who is the proper party to claim a refund for the payment of excise taxes? What is an excise tax? What is the remedy of a taxpayer who enjoys tax exemption with regard to the payment of excise taxes? Silkair (Singapore Pte.mpnanocpaue – college of law taxation law review Agreement between RP and Singapore. ACTUAL OR CONSTRUCTIVE Taxpayer is a corporation with principal office in Pasig City and engaged in the design. they are not considered the taxpayers. Nonetheless.R. Purchased aviation jet fuel from Petron. thereby negating the tax exemption expressly granted to it. engineering. In contrast. LOCAL BUSINESS TAX ON CONTRACTORS SHOULD BE BASED ON GROSS RECEIPTS. 16-2005. exchanged or leased. 173594. November 22. and marketing of telecommunications facilities/system. while Petron actually passed on the burden of the tax to Silkair. The fact that Petron. Feb.‖4 In view thereof. including the value of services rendered or articles sold. 6. on whom the excise tax is imposed. Ltd.2001 based on prior year‘s gross revenues per its audited financial statements. ―whether classified as specific or ad valorem tax. to which the latter imposed a P3. the payment of which is yet to be received. Claiming exemption from payment of excise taxes pursuant to Section 135 of the Tax Code and Article 4 of the Philippines Singapore Air Agreement. the additional amount billed to Silkair for jet fuel is not a tax but part of the purchase price. gross revenue covers money or its equivalent actually or constructively received. the additional amount billed to the latter was essentially a part of the purchase price and not a tax in itself. 108-4. the tax is passed on to the end consumer as part of the selling price of goods sold.67 per liter excise (specific) tax. vs. It was assessed deficiency business taxes for the years 1998. 2008.R. The Supreme Court sustained the taxpayer‘s position and ruled that as a contractor. Silkair alleged that it was the one who actually paid the excise taxes due on the transactions while Petron merely remitted the payment to the BIR. 39 .

While local government units are authorized to burden all such other class of goods with ―taxes. fees and charges. goods made of precious metals. The two options are alternative and the choice of one precludes the other. 40 . No. Tiangco and the Municipal Treasurer of the Municipality of Navotas. the sale of petroleum products is exempt from business taxes. No. Conversely.‖ The first limitation comprehends a wider range of subjects of taxation: all articles already covered by excise taxation under the NIRC. such as alcohol products. specifically. a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight. fees and charges. and yachts and other vessels intended for pleasure or sports. automobiles.mpnanocpaue – college of law taxation law review 16 Petron Corporation vs. but all ―taxes. Held: The Supreme Court ruled in favor of P Corp. perfumes.‘‖ 11 CIR vs. 158881. it specifically prohibits local government units from extending the levy of any kind of ‗taxes. 163345. 16 April 2008) Qualified prohibition to impose fees and charges on petroleum products The SC ruled that language of Section 133(h) of the Local Government Code (LGC) is clear that the prohibition with respect to petroleum products extends not only to excise taxes thereon. mineral products. PERF Realty Corporation. G. should this option be chosen by the taxpayer later on. particularly the selfassessment and collection aspects. tobacco products. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. pointing out that ―while Section 133(h) does not generally bar the imposition of business taxes on articles burdened by excise taxes under the NIRC. 4 July 2008) Failure to indicate option of tax refund or tax credit not fatal to a claim for refund Section 76 of the 1997 Tax Code offers two options: (1) filing for tax refund and (2) availing of tax credit. G.R. In contrast. P protested the assessment on the ground that under the implementing rules of the LGC. Mayor Tobias M. was assessed deficiency business taxes on its sale of petroleum products from its depot located in Taguig.‖ excepting excise taxes. ―petroleum products‖. the latter reference to ―taxes. fees and charges‖ pertains only to one class of articles of the many subjects of excise taxes. fees or charges on petroleum products. failure to indicate a choice will not bar a valid request for a refund. However. a specific prohibition is imposed barring the levying of any other type of taxes with respect to petroleum products.R. The reason for requiring that a choice be made in the Final Adjustment Return upon its filing is to ease tax administration. A LOCAL GOVERNMENT UNIT HAS NO POWER UNDER THE LGC TO IMPOSE BUSINESS TAXES ON PERSONS/ENTITIES ENGAGED IN THE SALE OF PETROLEUM PRODUCTS P Corp. and such nonessential goods as jewelry.

x x x Second. executive orders. 15 Planters Products..mpnanocpaue – college of law taxation law review 08 CIR vs. 1985 by President Ferdinand Marcos provided for a capital recovery component (CRC) on the domestic sale of fertilizers of not less than P10 per bag in favor of Planters Products. The refund could not be granted without LOI 1465 being declared unconstitutional. G. ―First. 17-99 [implementing Sections 141. G. not necessarily in a suit for declaratory relief. the levy was used to pay the corporate debts of PPI. RR No.167274-75. fermented liquors and cigars and cigarettes packed by machine by 12% on January 1. ―An inherent limitation on the power of taxation is public purpose. 166006. 17-99 contrary to Section 145 of the 1997 Tax Code By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1 January 2000.R. as increased by 12% — a situation not supported by the plain wording of Section 145 of the 1997 Tax Code. presidential decrees and other issuances pursuant to Section 5. The Court of Appeals (CA) affirmed the RTC decision. 2008 TAX MUST BE FOR PUBLIC PURPOSE LOI 1464 issued on June 3. It further held: The RTC has jurisdiction to consider the constitutionality of statutes. 2000] effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)year transition period and the specific tax under paragraph C.‖ The LOI is unconstitutional even if enacted under the police power as it did not promote public interest.‘ x x x Third.R. The imposition of the levy was an exercise by the State of its taxation power. the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by the FPA to Far East Bank and Trust Company. Fertiphil Corporation sought a refund of the levy in a suit for collection and damages before the Makati Regional Trial Court (RTC). Inc. Nos. (3) and (4) of the 1997 Tax Code relative to the increase of the excise tax on distilled spirits. a private company. Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through any of the actions cognizable by courts of justice. x x x Fourth. Article VIII of the 1987 Constitution. the LOI expressly provided that the levy be imposed to benefit PPI. 143 and 145 (A) and (C) (1). the Supreme Court ruled that Fertiphil has locus standi or right to appear in court since it suffered direct injury from the levy being required to pay it. 142. vs. The constitutionality of LOI 1465 is the very lis mota of the complaint for collection. (2). the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming financially ‗viable. wines. Fertiphil Corporation. Fortune Tobacco Corporation.‖ The levy is not for a public purpose. Inc. 41 . 21 July 2008) Revenue Regulations (RR) No. March 14. the depositary bank of PPI. sub-paragraph (1)(4). Taxes are exacted only for a public purpose. (PPI). In sustaining the CA and RTC decisions. The primary purpose of the levy is revenue generation. which granted the refund. No.

Under the Administrative Code of 1987. For this reason. Book I of the Administrative Code of 1987. a year is equivalent to 365 days whether it be a regular year or a leap year.R. ruling that the petition was filed 731 days after the filing of the return. a more recent law. the petition was filed on the last day of the 24th calendar month from the day the taxpayer filed its final adjusted return. 162155. Under the Civil Code. PRESCRIPTIVE PERIOD On April 14. Chapter VIII. No. 42 . the taxpayer filed its petition for review claiming refund based on its final adjusted return filed on April 14. 1998. however. which provides that a year is composed of 12 calendar months.mpnanocpaue – college of law taxation law review 10 Commissioner of Internal Revenue vs. Inc. CHAPTER VIII. the CTA found that the petition was filed beyond the two-year prescriptive period equivalent to 730 days for filing the claim under Section 229 of the NIRC. On appeal. OR THE ADMINISTRATIVE CODE OF 1987. Section 31 provides that a ―year‖ shall be understood to be 12 calendar months. SUPREME COURT HOLDS THAT THE TWO-YEAR PRESCRIPTIVE PERIOD CONSISTS OF 24 CALENDAR MONTHS PURSUANT TO SECTION 31.O. G.. governs the computation of legal periods. being the more recent law. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. Using this. The SC affirmed the CA‘s reversal but ruled that the basis for the reversal is EO 292 of the Administrative Code of 1987. 2000. BOOK I OF E. the CA reversed the CTA and ruled that Article 13 of the Civil Code did not distinguish between a regular year and a leap year. a year is composed of 12 calendar months and the number of days is irrelevant. Primetown Property Group. 2007. August 28. 292. Both Article 13 of the Civil Code and Section 31 of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Counting 365 days as a year pursuant to Article 13 of the Civil Code. the Supreme Court held that Section 31.

Thus when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction.R.48.R. MPC filed a request for ruling with the VAT Review Committee at the BIR National Office. the CA modified the decision of the CTA and granted MPC‘s claim for tax refund or credit in the total amount of P146. MPC then chose not to pay the VAT in the progress billings from Mitsubishi for the period covering April 1993 to September 1996. 12 September 2008) What is the best evidence to substantiate the payment of input VAT? Is the nonpayment of interest by reason of the late payment of input VAT fatal to a claim for refund thereof? How is the prescriptive period in filing a claim for refund of unutilized input VAT reckoned? Mirant Pagbilao Corporation (MPC) sells its generated power to the National Power Corporation (NPC).570 supported by Official Receipt 0189. in fine.R. 0189 to substantiate the payment of input VAT. 60 in Lucena City. MPC filed the present claim for refund only on December 10. said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. ―prescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued. the SC ruled that MPC‘s nonpayment of interest to Mitsubishi. No. To the NPC shall be subject to zero percent (0%) VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made. on the other hand. is not fatal to MPC‘s claim for refund since such issue does not belie the fact of payment by MPC of the input VAT involved. while the creditable input VAT involved in the present case relates to the progress billing dated September 6. the CIR issued VAT Ruling No. 172129. The Court said that although the BIR is not precluded from requiring additional evidence to prove that input VAT had indeed been paid or. 1996. Hence. the SC held that O.993. It was only in April 14. MPC filed its quarterly VAT return for the second quarter of 1998 on August 25. While awaiting the approval of its application with the RDO. No. No. The SC affirmed that O. MPC subsequently filed an administrative claim for refund of unutilized input VAT.mpnanocpaue – college of law taxation law review COMMISSIONER OF INTERNAL REVENUE vs. INC. 1998 that MPC paid Mitsubishi the abovementioned VAT component of P135.KxxxK. No. Hence. As pronounced by the Court. The CA likewise denied the CIR‘s motion for reconsideration. the CTA claims otherwise and doubted the veracity and genuineness of O. No. No. Furthermore. however.993.047.939. 0189. MPC filed an Application for Effective Zero Rating with the BIR‘s Revenue District Office No. 0189 dated April 14. On appeal. 1999. Subsequently.R. stating that ―the supply of electricity by Hopewell Phil. MPC filed a petition with the CTA.62. 0189 was the best evidence for the payment of input VAT by MPC to Mitsubishi. 0198 in itself sufficiently proves payment of creditable input VAT involved pursuant to Section 110 (A)(1)(B) of the NIRC. Getting no response from the RDO.003. but only for the amount of P10.48.. No.509. Eventually. as well as. which amount includes the abovementioned P135.R.) (G. 0189 undoubtedly proves payment by MPC of its creditable input VAT relative to its purchases from Mitsubishi. Section 112(A) of the NIRC declares that a VAT registered person may file for the issuance of a tax credit certificate or refund of creditable input tax within two (2) years after the close of the taxable quarter when the sales were made. MIRANT PAGBILAO CORPORATION (Formerly SOUTHERN ENERGY QUEZON. 43 . that the taxpayer is indeed entitled to a tax refund or credit for input VAT. By reason of NPC‘s tax exempt status. 052-99. the Court affirmed that MPC has already lost its right to file the instant claim for refund of the unutilized input VAT since prescription has already set in. regardless when the input VAT was paid. 1998 is for payment of the VAT on the progress billings from Mitsubishi Japan.766. which is clearly beyond the period provided under the law. While the CA claimed that O. the CIR failed to act on the same.760.R. 1998 where it reflected an input VAT of P148. Nonetheless.570. the genuineness of OR 0189. in view of the former‘s late payment of creditable input VAT. The main difference between the decisions of the CTA and CA involves the sufficiency of O.R. The SC further said that any doubt as to what OR 0198 was issued for was put to rest by the report of the independent accountant that O.the law considers a duly executed VAT invoice or OR as sufficient evidence to support a claim for input tax credit. The CTA granted MPC‘s claim for input VAT refund or credit.

the Commissioner of Internal Revenue validly assessed for 1986 deficiency percentage and documentary stamp taxes in the total amount of P129.mpnanocpaue – college of law taxation law review Commissioner of Internal Revenue vs. can only operate prospectively.488. 1998. April 17. 1997 cannot be considered as a written claim. WRITTEN CLAIM IS CONDITION PRECEDENT TO FILING A PETITION FOR REVIEW PRIOR THERETO Under Section 230 of the old Tax Code. Section 204(c) of the 1997 NIRC (RA 8424. Tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government 44 .63 by notifying the taxpayer of his findings. The December 10. 2007. provides in pertinent part: ―That a return filed showi ng an overpayment shall be considered as a written claim for credit or refund‖. Bank of the Philippine Islands. FAILURE TO PROTEST WITHIN 30 DAYS IS FATAL In two notices dated October 28. which merely required notice of findings. 1988. What applies is Section 270 (subsequently renumbered 229 prior to amendment as 228) of the old law prior to amendment by RA 8424. 1997 TAX REFORM ACT CANNOT BE APPLIED RETROACTIVELY. we shall inform you of the taxpayer‘s decision on whether to pay or protest the assessment‖ does not qualify as a protest. the 1997 Tax Reform Act). Amended income tax return filed on June 17. Due process was observed when a pre-assessment notice was issued and the taxpayer was given the opportunity to discuss the findings and even prepared worksheets in connection with the findings. Hence. ONLY NOTICE REQUIRED IN PRIOR LAW. The new Tax Code became effective only on January 1.R. G. 134062. Section 228 of the 1997 NIRC requiring that the taxpayer should inform the taxpayer in writing of the law and facts on which the assessments for deficiency taxes were made is not applicable here.656. 1988 reply which stated ―[a]s soon as this is explained and clarified in a proper letter of assessment. the assessments became final and unappealable. No. an actual written claim for refund is required.

levy. the BIR has another three years within which to collect the tax due by distraint. CIR. or court proceeding. Prescriptive period for collection The BIR has three years from the date of actual filing of the tax return to assess deficiency taxes or to commence proceedings for the collection of deficiency taxes. However. in order to suspend the running of the prescriptive periods for assessment and collection. G. For BPI‘s protest letters dated 20 April and 8 May 1989 to toll the prescriptive period for collection. The CIR had 3 years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. 45 . 2008. Neither did the waiver of prescription effective until 31 December 1994 suspend the prescriptive period is invalid. March 7. more than 8 years elapsed since expiry of the waiver before the BIR attempted to collect. the request for reinvestigation must be granted first by the BIR. No. At any rates. There is nothing to show that such request was granted. the period of prescription for assessment and collection is 3 years. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO 20-90. the request for reinvestigation should have been granted.R. INVALID AND LAPSED WAIVER OF PRESCRIPTION Under Section 320 of the 1977 NIRC. 174942. the law then applicable. REQUEST FOR RE-INVESTIGATION NOT GRANTED DOES NOT TOLL PRESCRIPTIVE PERIOD. Under Section 320 (now Section 223) of the Tax Code. mailed or sent to the taxpayer.mpnanocpaue – college of law taxation law review Bank of the Philippine Islands (Formerly Far East Bank and Trust Company vs. it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency. The three year period for collection of the assessed tax begins to run on the date the assessment notice had been released. When it validly issues an assessment within the three year period.

76 of the NIRC merely identifies the excess income tax. 178490 dated July 7. the excess income tax credit. which was opted to be carried over. Thus. 76 OF THE NATIONAL INTERNAL REVENUE CODE (―NIRC‖). by referring to the taxable period when it was acquired by the taxpayer.mpnanocpaue – college of law taxation law review Commissioner of Internal Revenue v. 2009. NO APPLICATION FOR TAX REFUND OR TAX CREDIT CERTIFICATE SHALL BE ALLOWED FOR THE CARRIED OVER EXCESS INCOME TAX CREDIT IN ANY SUBSEQUENT YEAR. In the present case. Bank of the Philippine Islands. the taxpayer cannot later on opt to apply for a refund of the very same 1998 excess income tax credit. The option to carry over the 1998 excess income tax credit is irrevocable. the failure of the taxpayer to indicate any option in its ITR for the year 2000 was already immaterial to its 1998 excess income tax credit.R. 46 . subject of the option. The phrase ―for that taxable period‖ under Sec. UNDER SEC. ONCE THE CARRY-OVER OPTION IS TAKEN. G. was acquired during the taxable year 1998. No.

47 . Under the said Agreement. B Corp. entered into a ―Power of Attorney Agreement‖ wherein P Corp. and B. for deficiency taxes. and B. failed to prove that there was a valid and existing loan transaction between the two corporations. The SC agreed with the CTA that the relationship between the parties was actually that of a joint venture as evidenced by the stipulations on profit sharing and the contribution of funds. FOR PURPOSES OF CLAIMING A BAD DEBT DEDUCTION. Furthermore. P and Co.R. as a bad debt and reported the same for income tax purposes. and the manner of payment was unclear. G.mpnanocpaue – college of law taxation law review Philex Mining vs. Held: The SC affirmed the CTA decision and ruled that there was no valid and existing loan between P Corp. or a specific deed evidencing the terms and conditions normally accompanying loans. Corp. Because of continued losses. The SC pointed out that in a contract of loan. The SC held that in order to validly claim a bad debt deduction. like petitioner. No. The matter was elevated to the CTA which upheld the assessment on the ground that there was no loan. were in the nature of an investment in the mining claim. assigned certain properties to P Corp. and B. cannot generally enter into a contract of partnership unless authorized by law or its charter. while a corporation. The said Agreement also provided that P Corp. c) the parties also did not provide a specific maturity date for the advances to become due and demandable. in order to settle the advances made by P Corp. thus. and d) if there is evidence of ―partnership‖ between the parties as there would be a 50% sharing of the net profits as ―compensation‖. P Corp. 148187 dated 16 April 2008) Court rules against allowing bad debt deductions. to satisfy its indebtedness. made several advances of cash and properties. a substantial amount remained unpaid and this amount was subsequently written off by P Corp. In this case. will manage and operate the mining claim owned by B Corp. P Corp. Despite partial settlement. The SC held P Corp. a taxpayer must be able to establish the existence of a subsisting debt. was authorized to make advances of cash and property in the course of operating and managing the mining claim. Eventually. Corp. withdrew as manager of the mining claim and operation of the mine eventually ceased. as manager and operator of the mining claim was to receive fifty percent (50%) of the net profit to be earned from the operation of the mining claim. Commissioner of Internal Revenue (CIR). the totality of the circumstances and the stipulations in the parties‘ agreement indubitably lead to the conclusion that a partnership was formed between Co. two Agreements were entered into by P Corp. The Court of Appeals upheld the decision of the CTA. Corp. the case was elevated to the Supreme Court (SC). a person who receives a loan or money or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind and quality. A TAXPAYER MUST PROVE THE EXISTENCE OF A SUBSISTING DEBT P Corp. The BIR disallowed the bad debt deduction and assessed P Corp. circumstances show advance is not a true loan The Supreme Court (SC) ruled that advances are not loans which could be allowed as bad debt deductions if a) there was no unconditional obligation to return the advances. Over the course of managing the mining claim. and that the advances made by P Corp. b) if such advances were made with neither security or collateral. it has been held that it may enter into a joint venture which is akin to a particular partnership. P Corp. in the course of managing and operating the mining claim. B.

But the amounts involved in this case are creditable withholding taxes. we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. Commissioner of Internal Revenue. 9337). Records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. VAT. Excess creditable VAT withheld is much unlike excess income taxes withheld. G. No. February 8. respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision. (PAL). 179800.‖ For the effective zero rating . 2010.. 175097.R. otherwise known as the Consolidated Value-Added Tax Regulations. 2010. i. VAT. it follows that such refund cannot be allowed. Inc. 1996. they cannot be regarded as erroneously or illegally collected as contemplated in Sections 204(C) and 229 of the NIRC. subject to adjustment at the proper time when the actual tax liability 48 . Overseas communication tax. No.108-1 of RR 795.A. PAL. not final taxes subject to withholding. final decision.R. Republic of the Philippines represented by the Commissioner of Internal Revenue vs. 1995 and took effect on January 1. Commissioner of Internal Revenue vs. G. which the Secretary of Finance issued on December 9.. 9337 amended the 1997 NIRC on November 1. in a clear and unequivocal language.A. February 26. In the latter case. Philippine Airlines is exempt from the overseas communications tax. 178090. the taxpayer has to be VAT-registered and must comply with invoicing requirements. When petitioner Panasonic made the export sales subject of this case. Petitioner CIR also points out that since the NIRC does not specifically grant taxpayers the option to refund excess creditable VAT withheld. Philippine Airlines. No. from April 1998 to March 1999. Gross receipts derived by respondents from admission tickets in showing motion pictures. Nevertheless. Commissioner of Internal Revenue.. it made this particular revenue regulation a part of the tax code.R. As the CTA correctly points out. Respondent Ironcon‘s excess creditable VAT in this case consists of amounts withheld and remitted to the BIR by Ironcon‘s clients. 183505. The withheld taxes remitted to the BIR are treated as deposits or advances on the actual tax liability of the taxpayer. When R. motion pictures. The CIR submits thus that the only option available to taxpayers in case of excess creditable VAT withheld is to apply the excess credits to succeeding quarters. February 4. G. SM Prime Holdings. VAT. The CTA did not err in granting respondent Ironcon‘s application for refund of its excess creditable VAT withheld. 2005. invoice. No. the rule that applied was Section 4. whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues.e. taxes withheld on certain payments under the creditable withholding tax system are but intended to approximate the tax due from the payee.R. Panasonic Communication Imaging Corporation of the Philippines vs. Petitioner CIR‘s main contention is that. Under its franchise.mpnanocpaue – college of law taxation law review Here are selected February 2010 rulings of the Supreme Court of the Philippines on tax law: Assessment. Allied Banking Corporation vs. The CTA en banc correctly denied petitioner Panasonic‘s claim for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their faces that its sales were ―zero-rated. refund of excess creditable VAT withheld. It already required the printing of the word ―zero-rated‖ on the invoices covering zero-rated sales. 2010. Inc. et al. films or movies are not subject to valueadded tax under Section 108 of the National Internal Revenue Code of 1997. 2010. February 5. since these amounts were withheld in accordance with what the law provides. This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law. Sections 76 and 58(D) of the NIRC specifically make the option to seek a refund available to the taxpayer. G. We have time and again reminded the CIR to indicate. These clients were government agencies that applied the 6% withholding rate on their payments to Ironcon pursuant to Section 114 of the NIRC (prior to its amendment by R. Viewed in the light of the foregoing.

Asia‘s Emerging Dragon Corp. only when it is able to do so will the original proponent enjoy the preferential right to the award of the project over the other bidder. Hon. February 8.R. unless the parties have agreed otherwise.R. and it cannot be held solidarily liable for anything beyond that amount. Sandiganbayan. the original proponent must be able to match the most advantageous or lowest bid. Robles. particularly. Dividends. A corporate officer‘s dismissal or removal is always a corporate act and/or an intra-corporate controversy. Atty. Señeres vs. Inc. public bidding. 174166. G. In a situation where there is no other competitive bid submitted for the BOT project. As a general rule. Dr. Republic of the Philippines and the Sheriff of Sandiganbayan.mpnanocpaue – college of law taxation law review can be fully and finally determined. as amended. The holdover doctrine has. Hans Christian M.. AEDC may be the original proponent of the NAIA IPT III Project. the predecessor of PIATCO. Eastern Telecommunications Philippines. since they are being held liable under different obligations. 23 of the Corporation Code contains a provision to this effect. G. Authorities are almost unanimous that one who continues with the discharge of the functions of an office after the expiration of his or her legal term––no successor having. Cojuangco. a purpose which is at once legal as it is practical. to be a qualified bidder for the project. 183278. in accordance with the provisions of the Civil Code.R. Inc. Insurance Contract. the Pre-Qualification Bids and Awards Committee (PBAC) also found the People‘s Air Cargo & Warehousing Co. 2009. the transferor has the right to dividends as against the corporation without notice of transfer but it serves as trustee of the real owner of the dividends. No. vs. et al. April 24.R. as the case may be. vs. Intra-corporate controversy. et al. Upon consideration of the bid of Paircargo/PIATCO. in the meantime. however. that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. the insurance policy. Commissioner of Internal Revenue vs. No. DOTC. Virgilio R. Dividends are payable to the stockholders of record as of the date of the declaration of dividends or holders of record on a certain future date. Garcia vs.R. However. G. Ironco Builders and Development Corp. Inc. It is settled that where the insurance contract provides for indemnity against liability to third persons. Prime Holdings.. April 7. 2009. It accords validity to what would otherwise be deemed as dubious corporate acts and gives continuity to a corporate enterprise in its relation to outsiders. 178678. In the instant case. and the Estate of Ramon U. Holdover. the acts of such de facto officer are considered valid and effective... G. Sec. A transfer of shares which is not recorded in the books of the corporation is valid only as between the parties. The direct liability of the insurer under indemnity contracts against third party liability does not mean. even where no provision is made by law for his holding over and there is nothing to indicate the contrary. G. however. These are the general circumstances covered by Section 4-A of Republic Act No. The Heirs of George Y. Malayan Insurance Co. The liability of the insured carrier or vehicle owner is based on tort. the PBAC found the same to be far more advantageous than the original offer of AEDC. CA. 6957. that project would be awarded to the original proponent thereof. while that of the insurer arises from contract. By fiction of law. been appointed or chosen––is commonly regarded as a de factoofficer. Poe vs. Commercial Law BOT. No./Republic of the Philippines etc. Consortium (Paircargo).R. et al. hence. 180042. Commission on Elections and Melquiades A. and since it did not exercise its right to match the most advantageous proposal within the prescribed period. it cannot assert its right to be awarded the project. April 7. subject to the contract between the transferor and transferee as to who is entitled to receive the dividends. 169914/G. No. April 16. et al. Imelda O. Cojuangco vs. to be sure. 2010. No. 2009. Any award beyond the insurance coverage would already be the sole liability of the insured and/or the other parties at fault.. 156302. officers and directors of a corporation hold over after the expiration of their terms until such time as their successors are elected or appointed. Inc. the liability of the insurer is direct and such third persons can directly sue the insurer. 2009. It is already an established fact in Agan that AEDC failed to match the more advantageous proposal submitted by PIATCO by the time the 30-day working period expired on 28 November 1996./Eastern Telecommunications 49 . No. when there are competitive bids submitted. over which the Securities and Exchange Commission [SEC] (now the Regional Trial Court) has original and exclusive jurisdiction. The third-party liability of the insurer is only up to the extent of the insurance policy and that required by law.

No. vs. et al. 158805. by itself. Inc. Respondent should be exempted from the burden of paying backwages. P. G. if he so desires. 2009.. HFS Phlippines.mpnanocpaue – college of law taxation law review Philippines Inc. A non-stock corporation may seize and dispose of the membership share of a fully-paid member on account of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws (even if not so provided in the Articles of Incorporation). G. Each party must bear his own loss. 2009. The documentary evidence of petitioner indubitably establishes that respondent committed payroll padding. Pajarillo Liner and NLRC. No. G. lack of jurisdiction.R. except for minors and incompetents who may be assisted by their next-of-kin who are not lawyers. Thus. National Federation of Labor Union. Arbiter Ortiguerra‘s decision shows that MACLU. G. Inc. Ronaldo R. Non-stock corporations. G. There was no showing of David willingly and knowingly voting for or assenting to patently unlawful acts of the corporation. It did not comply with the required first notice. petitioner should not be paid for the time he was not working.R. sold canepoints without the knowledge and consent of management and misappropriated the proceeds thereof.R. April 21. CBA. and (2) a second notice to him that his employment is being terminated. 2009. Vda. 164681. vs. vs. Liability of corporate officers. 168716. et al. a CBA is the law between the contracting parties and compliance therewith in good faith is required by law. Labor Law Backwages. G. 173115/G. or that David was guilty of gross negligence or bad faith. the purpose of which is to apprise the employee of the cause for termination and to give him rasonable opportunity to explain his side. NAFLU. Virgilio R. David‘s resignation from MAC took effect on 15 October 1993. These acts constitute willful breach by the employee of the trust reposed in him by his employer – a ground for termination of employment. The letter dated June 3. April 30.R.‖ The requirement of giving respondent the first notice not having been complied with. Rosa O. Bacolod-Talisay Realty and Development Corp. Caram.. No. viz: (1) a first notice to apprise him of his fault.V.R. 2009. Due process. April 16. and rented tractor to another farm and misappropriated the rental payments therefor. 179563. Just like any other contract. The proceedings before the Labor Arbiter deprived David of due process. Because of MAC‘s failure to appear. April 16. petitioners failed to afford respondent due process by failing to comply with the twin notice requirement in dismissing him. Hearings before thebarangay council do not afford the employee ample opportunity to be represented by counsel if he so desires because Section 415 of the Local Government Code mandates that ―[i]n all katarungang pambarangay proceedings. April 24. April 30. Del Rosario and IUM Ship Management vs. Valley Golf & Country Club. the burden of economic loss suffered by the employees should not be shifted to the employer. 179563. It would be unfair to allow petitioner to recover something he has not earned and could not have earned. No. Navarro vs. Garcia. 2009. No. Atty. Pilar. Romeo Dela Cruz. MACLU and NAFLU filed their complaint against MAC on 12 August 1993.R. The confrontation before the barangay council did not constitute the first notice – to give the employee ample opportunity to be heard with the assistance of counsel. NAFLU and MACLU moved to implead 50 . G. April 16. BacolodTalisay Realty and Development Corp. 2009. 173163-64. et al. 2009. Breach of trust. The Court agrees with the NLRC‘s conclusion that petitioner is not entitled to backwages. does not make a corporate officer personally liable for the debts of the corporation because Section 31 of the Corporation Code is still the governing law on personal liability of officers for the debts of the corporation. since he could not discharge his work as a driver without his driver‘s license. the parties must appear in person without the assistance of counsel or his representatives. In other words. Article 212(e) of the Labor Code. Bernardino V.R. discussions of whether the second notice was complied with is rendered unnecessary. Armando David vs. vs. He never bothered to redeem his driver‘s license at the soonest possible time when there was no showing that he was unlawfully prevented by respondent from doing so.R. 148263 and 148271-72. No. Due process. Ruben T. 1997 sent to respondent was a letter of suspension. Romeo Dela Cruz. The Court of Appeals correctly held that petitioners did not comply with the proper procedure in dismissing respondent. The Court has held that where the failure of employees to work was not due to the employer‘s fault. Arbiter Ortiguerra deemed the case submitted for resolution. and MAC were the only parties summoned to a conference for a possible settlement.. No. No..

The guiding principles in connection with the hearing requirement in dismissal cases are: (a) ―ample opportunity to be heard‖ means any meaningful opportunity (verbal or written) given to the employee to answer the charges against him and submit evidence in support of his defense. (b) a formal hearing or conference becomes mandatory only when requested by the employee in writing or substantial evidentiary disputes exist or a company rule or practice requires it. abandonment. whether in a hearing. 158956. there was no dismissal to speak of. be illegal. Illegal dismissal. April 7. the termination would. et al. National Federation of Labor Union. burden of proof. Iligan Cement Corporation vs. Otherwise stated.. Petitioner insists that there cannot be any illegal dismissal because in the first place. the requirements for the lawful dismissal of an employee are two-fold. as amended. 2009. Neither is the Court convinced that the filing of the illegal dismissal case was respondent‘s way to avoid the charge of theft. Not only must the dismissal be for a valid or authorized cause. 51 . It is a basic principle that in the dismissal of employees.R. G. Perez. the substantive and the procedural. G. No. conference or some other fair. Illegal dismissal. No. Armando David vs. without their concurrence. G. April 30. in her Decision dated 17 June 1994. 168273. April 24. as it was respondent who abandoned his work. On the contrary. G. One does not suffice. the filing of the complaint a few days after his alleged dismissal signified respondent‘s desire to return to work. likewise.R. one could not possibly abandon his work and shortly thereafter vigorously pursue his complaint for illegal dismissal. The records of the present case fail to show any order from Arbiter Ortiguerra summoning David to attend the preliminary conference. Having failed to establish compliance with the requirements on termination of employment under the Labor Code. the rudimentary requirements of due process – notice and hearing – must. save for the allegation that respondent did not submit him to the investigation and the latter‘s failure to return to work as instructed in the 8 February 1999 letter. just and reasonable way. 2009.R. Iliascor Employees and Workers Union-Southern Philippines Federation of Labor. As the employer. Felix B. Under the Labor Code. 152048. et al. Indeed.. she also held Carag and David solidarily liable with MAC. 148263 and 148271-72. In the instant case. Petitioner failed to discharge the burden of proof that complainant was guilty of abandonment. David did not receive any summons and had no knowledge of the decision against him. Petitioner failed to discharge this burden. Hearing. Despite this lack of summons. petitioner has the burden of proving that the dismissal of petitioner was for a cause allowed under the law and that petitioner was afforded procedural due process.mpnanocpaue – college of law taxation law review Carag and David for the first time only in their position paper dated 3 January 1994. in the eyes of the law. a factor which further militates against petitioner‘s theory of abandonment. after finding out that he was being investigated for theft. 2009. 2009. Philippine Telegraph and Telephone Company. April 21. Harbor View Restaurant vs. it failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the services of individual respondents. be observed before an employee may be dismissed. It did not adduce any proof to show that petitioner clearly and unequivocally intended to abandon his job. (c) the ―ample opportunity to be heard‖ standard in the Labor Code prevails over the ―hearing or conference‖ requirement in the implementing rules and regulations. It has been repeatedly stressed that for abandonment to be a valid cause for dismissal there must be a concurrence of intention to abandon and some overt act from which it may be inferred that the employee had no more interest to continue working in his job. No notice of such impending termination was ever given to them.R. Arbiter Ortiguerra not only granted MACLU and NAFLU‘s motion to implead Carag and David. or when similar circumstances justify it. Neither did petitioner show that individual respondents were given ample opportunity to contest the legality of their dismissal. Vs. Reynaldo Labro. the dismissal of individual respondents was tainted with illegality. the burden of proof rests upon the employer to show that the dismissal is for a just cause and failure to do so would necessarily mean that the dismissal is not justified. et al. No. An employee who forthwith takes steps to protest his layoff cannot by any logic be said to have abandoned his work. Individual respondents were definitely denied due process. No. petitioner was unable to present any evidence which tend to show respondent‘s intent to abandon his work.

There was. as distinguished from an act done carelessly. De La Salle University Employees Association (DLSUEA-NAFTEU). 155639. Iliascor Employees and Workers Union-Southern Philippines Federation of Labor. there are three parties involved: (1) the ―labor-only‖ contractor. the special law on prescription is Article 291 of the Labor Code. No. 2009. In a labor-only contract. again the general law on prescription applies – Article 1150 of the Civil Code. the employee would eternally remain at the mercy of the employer. Adam B. April 21. Articles 1139 to 1155 of the Civil Code provide the general law on prescription of actions. Article 212(e) of the Labor Code. A condemnation of dishonesty and disloyalty cannot arise from suspicion spawned by speculative inferences. Under Article 1139. 2009. Garcia vs. and (3) the principal who is deemed the real employer. Petitioner is a mere labor-only contractor because it only supplied workers to petitioner to work at its pier. Loss of Confidence. Inc. Other than their bare allegations and the fact that such documents came into petitioners‘ hands at some point. Gulf Air Jassim Hindri Abdullah. Resignation. For that. 148263 and 148271-72.. Juanaria A. 152048. the procedure in the handling and approval of shipping requests and the fact that no personnel other than petitioners were involved. Respondent‘s resignation can 52 . United Laboratories. Elsewise stated. April 24. No. Intra-union dispute. the respondents‘ evidence is insufficient to clearly and convin cingly establish the facts from which the loss of confidence resulted. respondents should have provided evidence of petitioners‘ functions. Under this scheme. Liability of corporate officers. G. without justifiable excuse. We are not convinced that Vedali is an independent contractor. therefore. National Federation of Labor Union. April 7. 159687. Prescription.G. et al. respondent‘s officers remained duly authorized to conduct union affairs. Perez. NLRC (Second Division) Legazpi Oil Company. knowingly. does not make a corporate officer personally liable for the debts of the corporation because Section 31 of the Corporation Code is still the governing law on personal liability of officers for the debts of the corporation. vs. De La Salle University. Without undermining the importance of a shipping order or request. No. Thus. The worst that respondent committed was an inadvertent infraction. 2009. No. No. and purposely. 172854. otherwise. et al. a patent paucity of proof connecting petitioners to the alleged tampering of shipping documents. 2009. vs. Romeo F. G. actions prescribe by the mere lapse of time prescribed by law.R. the extreme penalty of dismissal imposed on him by petitioners was grossly disproportionate. as a valid ground for dismissal. G.. Petitioner failed to present any service contract with Vedali in the proceedings with the Labor Arbiter. April 7.R. In labor cases.R. thoughtlessly. There is nothing on record that Vedali has a substantial capital or investment to actually perform the service under its own account and responsibility. April 24. impartial tribunals should not rely only on the statement of the employer that it has lost confidence in its employee.R.R.R. Loss of confidence. vs. April 16. the extent of their duties. That law may either be the Civil Code or special laws as specifically mandated by Article 1148. Iligan Cement Corporation vs. et al. Resignation is defined as the voluntary act of an employee who finds himself in a situation where he believes that personal reasons cannot be sacrificed in favor of the exigency of the service and he has no other choice but to disassociate himself from his employment. or that David was guilty of gross negligence or bad faith. There was no showing of David willingly and knowingly voting for or assenting to patently unlawful acts of the corporation. Pending the final resolution of the intra-union dispute. et al. The Labor Code has no specific provision on when a monetary claim accrues. Rivera vs. Unless duly proved or sufficiently substantiated otherwise. Felix B. must be based on willful breach of the trust reposed in the employee by his employer. No. The alterations on the shipping documents could not reasonably be attributed to petitioners because it was never proven that petitioners alone had control of or access to these documents.R. penalty. Loss of trust and confidence. 158956. by itself. Such breach is willful if it is done intentionally. (2) the employee who is ostensibly under the employ of the ―labor-only‖ contractor. et al. NLRC. 177283. G. 2009. G. Inc. Philippine Telegraph and Telephone Company. et al. Labor only contracting. 2009. the penalty commensurate to the violation he committed should be suspension for three months.mpnanocpaue – college of law taxation law review Illegal dismissal. 2009. Taking into account the managerial position he held and the prior warning issued to him for failing to communicate with his superiors.. the ―labor-only‖ contractor is the agent of the principal. Mercado and Gus Zuluaga.G. it must be based on substantial evidence and not on the employer‘s whims or caprices or suspicions. No. heedlessly or inadvertently. April 22. Armando David vs.

No. It is this process which completes the official‘s membership in the CES and confers on him security of tenure in the CES. Herida vs. made in bad faith. conferment of the CES eligibility is done by the CES Board through a formal board resolution after an evaluation has been done of the examinee‘s performance in the four stages of the CES eligibility examinations. 178127.D. At this juncture.R.D. in any case. 2009 SSS. 2009. Her employer cannot be held liable for constructive dismissal. The onus probandi falls on the shoulders of petitioner to establish or substantiate such claims by the requisite quantum of evidence. Such being the case. vs. the employer must show that the transfer is not unreasonable. Board of Trustees of the Lung Center of the Philippines as represented by Hon. M. April 29. Manuel M. Barraquio. Petitioner makes several allegations that UST committed ULP. Social Security System. Hence. Unfair labor practice. No. G. G. G. April 16.. Upon conferment of CES eligibility and compliance with the other requirements prescribed by the Board. F4C Pawnshop and Jewelry Store/Marcelino Florete. nor does it involve a demotion in rank or a diminution of his salaries. 172601. et al. To determine the validity of the transfer of employees. 160467. 2009. The claim for funeral benefits under P. petitioner cannot adamantly refuse to abide by the order of transfer without exposing herself to the risk of being dismissed. Petitioner does not seem to have gone through this definitive process. burden of proof. Bare allegations of threat or force do not constitute substantial evidence to support a finding of forced resignation. Hence. inconvenient. Civil Service Commission. which presupposes a permanent appointment. it bears emphasis that.R. Jose Pepito M. Under the rules and regulations promulgated by the CES Board. April 16. Virgen Shipping Corporation. No. except first and second-level employees. Amores M. April 7. No. It is that which entitles the examinee to conferment of CES eligibility and the inclusion of his name in the roster of CES eligibles. G. Respondent‘s bare claim that he was forced to execute his resignation letter deserves no merit. In labor cases as in other administrative proceedings.mpnanocpaue – college of law taxation law review be gleaned from the unambiguous terms of his letter to Captain Cristino. or prejudicial to the employee. Transfer. and other privileges. 178453. Be that as it may. provided there is no demotion in rank or diminution of salary. vs. 2009. 626. had not prescribed. an incumbent of a CES position may qualify for appointment to a CES rank. Melendres. No. No. Appointment to a CES rank is made by the President upon the Board‘s recommendation.. Jr.R. 2009. Aileen G. et al. Jesus B. no challenge may be offered against his separation from office even if it be for no cause and at a moment‘s notice. That such claim was proferred a year later all the more renders his contention bereft of merit.D. 170093. We have long stated that the objection to the transfer being grounded solely upon the personal inconvenience or hardship that will be caused to the employee by reason of the transfer is not a valid reason to disobey an order of transfer.R. Petitioner voluntarily resigned. Should the employer fail to overcome this burden of proof. Not even his own self-serving claim that he was competent to continue serving as Deputy Director may actually and legally give even the slightest semblance of authority to his thesis that he should remain in office. privileges and other benefits. Dayrit and Fernando A. substantial evidence or such relevant evidence as a reasonable mind might accept as sufficient to support a 53 . pertains only to rank and not to the office or position to which they may be appointed. her dismissal was for just cause in accordance with Article 282(a) of the Labor Code. Security of Tenure. G. the employee‘s transfer shall be tantamount to constructive dismissal.. Gloria Artiaga vs.R. there could not have been any violation of petitioner‘s supposed right to security of tenure inasmuch as he had never been in possession of the said right at least during his tenure as Deputy Director for Hospital Support Services. Security of tenure in the career executive service. what comes unmistakably clear is the fact that because petitioner lacked the proper CES eligibility and therefore had not held the subject office in a permanent capacity. takes place upon passing the CES examinations administered by the CES Board. Siliman University and Siliman University Medical Center. Resignation. Jurisprudence recognizes the exercise of management prerogative to transfer or assign employees from one office or area of operation to another. the mere fact that an employee is a CES eligible does not automatically operate to vest security of tenure on the appointee inasmuch as the security of tenure of employees in the career executive service. April 16. which was filed after the lapse of 10 years by the therein petitioner who had earlier filed a claim for death benefits. or effected as a form of punishment or demotion without sufficient cause. as amended. and the action is not motivated by discrimination. benefits. Soledad Muños Mesa vs.

Avilon. To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. as represented by the President Vicente R. Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect. UST Faculty Union vs. No. April 15. Lalican vs. G. where he has a relation or connection with or concern in it. G. et al. H. Tomas. In the instant case. Both the Policy Contract and the Application for Reinstatement provide for specific conditions for the reinstatement of a lapsed policy. 180892. The Provincial Assesor of Marinduque vs. Avilon. petitioner miserably failed to adduce substantial evidence as basis for the grant of relief. Inc. G. The Insular Life Assurance Company Limited. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio‘s lifetime and good health. No. April 7. Violeta R.. 2009. 163583. as amended by RA 9334: (1) does not violate the equal protection and unformity of taxation clauses. Rolando De la Rosa. 171138.R. insurable interest. Insurable interest is one of the most basic and essential requirements in an insurance contract. and operate to remove the prerogative of Insular Life thereunder to approve or disapprove the Application for Reinstatement. Jose Isidro N. but need not exist thereafter or when the loss occurs. Tambunting Pawnshop. 2009. Rev. or injury by the happening of the event insured against. In general.R. reinstatement. Stamp tax. and (3) does not vilate the constitutional prohibition on regresssive and inequitable taxation. Eulogio‘s death. August 25. Lalican vs. Marcopper Mining‘s siltation dam and decant system are not machineries but improvements subject to real property tax. such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction. G. Camacho. Read more… Here are selected August 2009 Philippine Supreme Court decisions on political law: Constitutional law 54 . and Merecedes Hinayon. 2009. does not constitute a special circumstance that can persuade this Court to already consider Policy No. No. but Policy No. Pawnshop transactions evidenced by pawn tickets are subject to documentary stamp taxes. 170532.mpnanocpaue – college of law taxation law review conclusion is required. 2009.R. termination. Even though the Court commiserates with Violeta. In the petition at bar. No. Commercial Law Insurance. True. as represented by the President Vicente R. 183526. Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own life. 2009. Section 145 of the Tax Code. Commissioner of Internal Revenue. Justice and fairness must equally apply to all parties to a case. Said circumstance cannot override the clear and express provisions of the Policy Contract and Application for Reinstatement. Violeta R.R. Rodelio Aligan. Real Property Tax. before his death. 183526. The function and duty of the courts consist simply in enforcing and carrying out the contracts actually made. Court of Appeals. 2009. et al.R. managed to file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with Malaluan. The Insular Life Assurance Company Limited. just hours after filing his Application for Reinstatement and depositing his payment for overdue premiums and interests with Malaluan. The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance.R. Courts are not permitted to make contracts for the parties. an insurable interest is that interest which a person is deemed to have in the subject matter insured. British American Tobacco vs. No. No. Hon. University of Sto. Eulogio‘s death rendered impossible full compliance with the conditions for reinstatement of Policy No. Rev Fr. August 25. Tax Excise tax. Eulogio. the Court cannot arbitrarily burden Insular Life with the payment of proceeds on a lapsed insurance policy. April 30. Domingo Legaspi. 9011992 reinstated. Insurance. (2) does not violate the constitutional prohibition on unfair competition. G. vs. 9011992. as the tragic and fateful turn of events leaves her practically empty-handed. Fr. April 7. G.

. probationary employment. 55 . 180066. Labor Law. or national authority or government agency. that this could not be the last word on the matter. is clearly all-inclusive. 2009. 1590.mpnanocpaue – college of law taxation law review Congress. assessed or collected by any municipal. Read more… Categories: Commercial Law. can properly discourage or correct such abuses committed in the name of parliamentary immunity. The basic corporate income tax or franchise tax paid by respondent shall be ―in lieu of all other taxes. this legislative privilege is founded upon long experience and arises as a means of perpetuating inviolate the functioning process of the legislative department. G. Masahiro Tsukahara. Inc. Tax Law Tags: check-off. 180043.R. July 7. not for their private indulgence. royalties. August 25. A. or description imposed.R. parliament. This Court is aware of the need and has in fact been in the forefront in upholding the institution of parliamentary immunity and promotion of free speech. 1590 will not reveal any provision therein limiting the tax exemption of respondent to final withholding tax on interest income or excluding from said exemption the overseas communications tax. illegal dismissal. For the above reasons. Section 13 of Presidential Decree No. 2009. nature. registration.C. Legislators are immune from deterrents to the uninhibited discharge of their legislative duties. minimum corporate income tax. city. 2009. Section 11 of the Constitution. Cebu Mactan Members Center. tax and labor laws. customs duties. It is felt. 2009. Neither has the Court lost sight of the importance of the legislative and oversight functions of the Congress that enable this representative body to look diligently into every affair of government. vs. July 14. Inc. Pobre vs. Philippine Airlines. Miriam Defensor-Santiago. or its equivalent. The immunity Senator Santiago claims is rooted primarily on the provision of Article VI. would degenerate into a polite and ineffective debating forum. Courts do not interfere with the legislature or its members in the manner they perform their functions in the legislative floor or in committee rooms. G.R. investigate and denounce anomalies. established. 159624. duties. real property tax. No. The privilege would be of little value if they could be subjected to the cost and inconvenience and distractions of a trial upon a conclusion of the pleader. Any claim of an unworthy purpose or of the falsity and mala fides of the statement uttered by the member of the Congress does not destroy the privilege. Overseas communications tax. No. loss of confidence.‖ except only real property tax. July 17. now or in the future x x x. tax credit Here are selected June 2009 decisions of the Philippine Supreme Court on commercial. Read more… Here are selected July 2009 Philippine Supreme Court decisions on commercial. Without parliamentary immunity. the plea of Senator Santiago for the dismissal of the complaint for disbarment or disciplinary action is well taken. or to the hazard of a judgment against them based upon a judge‘s speculation as to the motives. and other fees and charges of any kind. G. compensable illness. Commissioner of Internal Revenue vs. The disciplinary authority of the assembly and the voters. No. granting respondent tax exemption. Inc. and talk about how the country and its citizens are being served. Antero J. her privilege speech is not actionable criminally or in a disciplinary proceeding under the Rules of Court. (PAL). franchise tax. Philippine Airlines is exempt from the minimum corporate income tax. 7399. Tax Law Minimum corporate income tax. As American jurisprudence puts it. Philippine Airlines. Commissioner of Internal Revenue vs. project employee. Sen. provincial. No. not the courts. Even a meticulous examination of Presidential Decree No. but for the public good. illegal strike.. levied. jurisdiction. legislative immunity. Indeed. tax and labor laws: Commercial Law Board action. however. retirement. Under its charter. license. A corporate loan entered into by the President without board approval is binding on the corporation when the President is authorized under the by-laws to enter into loans on behalf of the corporation.

petitioners‘ continued stay on the subject land is only by mere tolerance of respondents. or (c) the exclusive property of either spouse with the consent of the other. or (b) the conjugal partnership. Commissioner of Internal Revenue. an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights. G. A family home is generally exempt from execution. the suing stockholder is regarded as a nominal party. Tambunting Pawnshop. vs. No. Inc. which are non-bank financial intermediaries. Similarly. good faith reliance. or are the ones to be sued. Thus. Commissioner of Internal Revenue. 179085. Tambunting Pawnshop. or on the property of the unmarried head of the family. or hold the control of the corporation. where there is no communal or conjugal property existing. otherwise known as the Securities Regulation Code. petitioner is not liable for VAT for the tax year 1999. is now vested in the Regional Trial Courts designated by the Supreme Court pursuant to A. 8799. et al. 55207. With respect to petitioner‘s argument against liability for surcharges and interest — that it was in good faith in not paying documentary stamp taxes.R. 2010. a stockholder may intervene and defend on behalf of the corporation. It cannot be established on property held in co-ownership with third persons. coverage. Interest. it can be constituted only on his or her own property. As pointed out in Kelley. VAP. Jr. including derivative suits. 179085.R. No. it must be given its literal application and applied without 56 . v. Therein lies the fatal flaw in the postulate of petitioners. For all their arguments to the contrary. By virtue of Republic Act No.mpnanocpaue – college of law taxation law review Commercial Law Derivative suits. it can be established partly on community property. January 21. G.R. 00-11-03-SC promulgated on 21 November 2000.M. commercial and labor laws: Civil Law Family home. vs. its power to sue is lodged with its board of directors or trustees. was deferred for the tax years 1996 to 2002.‖ In other words. the Court finds the same meritorious. the family home must be established on the properties of (a) the absolute community. & Mrs. And the relief which is granted is a judgment against a third person in favor of the corporation. January 21. pledge. or of the exclusive properties of either spouse with the latter‘s consent. March 20. Inc. It is well-settled that where the language of the law is clear and unequivocal. If constituted by an unmarried head of a family. National Internal Revenue Code Documentary stamp tax. A pawn ticket is subject to documentary stamp tax. 2010. The general rule is that where a corporation is an injured party. The corporation is a necessary party to the suit. Read more… Here are selected March 2009 decisions on civil. 180587. Mr. 2010. or conjugal property and partly on the exclusive property of either spouse with the consent of the latter. 2009. Planters Products. Since the imposition of VAT on pawnshops. whenever the officials of the corporation refuse to sue. it having relied on the rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary stamp taxes.: ‖[T]he family home must be part of the properties of the absolute community or the conjugal partnership.R. Simeon Cabang. CV No. However.R. It is likewise a given that the family home must be constituted on property owned by the persons constituting it. It is settled that 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. the stark and immutable fact is that the property on which their alleged family home stands is owned by respondents and the question of ownership had been long laid to rest with the finality of the appellate court‘s judgment in CA-G. jurisdiction over intra-corporate disputes. if a corporation has a defense to an action against it and is not asserting it. 179085. January 21. pawnshops. G. Inc. vs. Tambunting Pawnshop. Guillermo Basay. No. Commissioner of Internal Revenue. No. with the corporation as the real party in interest. provided it was duly constituted as such. vs. No. Value added tax. In such actions. A derivative action is a suit by a shareholder to enforce a corporate cause of action. G. Inc. Nonetheless.

Kepco Philippines Corporation vs. Commissioner of Internal Revenue. There shall be annotated on the tax receipts the words ―paid under protest‖. That petitioner failed to indicate under its fixed assets or depreciable assets account. G. is the taxpayer required to pay the tax pursuant to Section 252 or is the taxpayer covered by Ty vs. Title II. Cebu Mactan Members Center. (d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a). Where the taxpayer claims a refund. Section 252 of the Local Government Code (LGC) provides: Section 252. December 14. G. Trampe? Here are selected December 2009 rulings of the Supreme Court of the Philippines on tax law: National Internal Revenue Code Tax refund. It is settled that tax refunds are in the nature of tax exemptions. Commissioner of Internal Revenue. No. the account vouchers specifically indicate that the disallowed purchases were recorded under inventory accounts. 57 . The general rule of requiring adherence to the letter in construing statutes applies with particular strictness to tax laws and provisions of a taxing act are not to be extended by implication.R. nature. the taxpayer must pay the real property tax assessed prior to protesting a real property tax assessment. Commissioner of Internal Revenue vs. 2009. 179356. G. the useful life of goods or properties must exceed one year. input VAT on capital goods. 2009.‖ three requisites must concur. instead of depreciable accounts. In Ty vs. First. vs. Laws granting exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 179356. Read more… Here are selected July 2009 Philippine Supreme Court decisions on commercial. VAT. No.mpnanocpaue – college of law taxation law review interpretation. Trampe. Book II of this Code. the Supreme Court ruled that the payment of the tax prior to protest is not necessary where the taxpayer questions the authority and power of the assessor to impose the assessment and of the treasurer to collect the tax. Inc.R. A careful reading of the RMOs pertaining to the VAP shows that the recording of the information in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer may be excluded from the coverage of the VAP.R. tax and labor laws: Commercial Law Board action. No. January 21. . 2009. in the case of a municipality within Metropolitan Manila Area. As a rule. Julieta Ariete. A corporate loan entered into by the President without board approval is binding on the corporation when the President is authorized under the by-laws to enter into loans on behalf of the corporation. (a) No protest shall be entertained unless the taxpayer first pays the tax. G. Masahiro Tsukahara. second. Payment Under Protest. who shall decide the protest within sixty (60) days from receipt. 2010. The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial. If the taxpayer claims that the property is exempt from real property tax. For petitioner‘s purchases of domestic goods and services to be considered as ―capital goods or properties.R. July 17. the CTA as a court of record is required to conduct a formal trial (trial de novo) to prove every minute aspect of the claim. goods and services allegedly purchased pursuant to the rehabilitation and maintenance of Malaya Power Plant Complex. the goods or properties must be recorded and treated as depreciable assets under Section 34 (F) of the NIRC. 164152. the goods or properties must be used directly or indirectly in the production or sale of taxable goods and services. said goods or properties are treated as depreciable assets under Section 34 (f) and. No. As correctly found by the CTA. December 14. militates against its claim for refund. city treasurer or municipal treasurer. From petitioner‘s evidence. Kepco Philippines Corporation vs. third. the taxpayer may avail of the remedies as provided for in Chapter 3. . 159624.

been appointed or chosen––is commonly regarded as a de factoofficer./Republic of the Philippines etc.‖ except only real property tax. or description imposed. Republic of the Philippines and the Sheriff of Sandiganbayan. et al. 178678. G. April 16. officers and directors of a corporation hold over after the expiration of their terms until such time as their successors are elected or appointed. royalties. No. No. Authorities are almost unanimous that one who continues with the discharge of the functions of an office after the expiration of his or her legal term––no successor having. Prime Holdings.R. 174166.. Commissioner of Internal Revenue vs.R. Cojuangco. Sandiganbayan. 1590. the transferor has the right to dividends as against the corporation without notice of transfer but it serves as trustee of the real owner of the dividends. Inc. vs. public bidding. Overseas communications tax. CA. These are the general circumstances covered by Section 4-A of Republic Act No. as amended. Upon consideration of the bid of Paircargo/PIATCO. it cannot assert its right to be awarded the project. Dividends. National Internal Revenue Code Documentary stamp tax. Philippine Airlines. Sec. Section 13 of Presidential Decree No. Hans Christian M. 2009. In the instant case. (PAL). Hon. vs. Commission on Elections and Melquiades A. duties. However. Dividends are payable to the stockholders of record as of the date of the declaration of dividends or holders of record on a certain future date. the Pre-Qualification Bids and Awards Committee (PBAC) also found the People‘s Air Cargo & Warehousing Co. now or in the future x x x. 6957. G.mpnanocpaue – college of law taxation law review Minimum corporate income tax.R. and other fees and charges of any kind. April 24. hence.R. Robles.. is clearly all-inclusive. The holdover doctrine has. the acts of such de facto officer are considered valid and effective. Inc. the original proponent must be able to match the most advantageous or lowest bid. It is already an established fact in Agan that AEDC failed to match the more advantageous proposal submitted by PIATCO by the time the 30-day working period expired on 28 November 1996. By fiction of law. 2009. subject to the contract between the transferor and transferee as to who is entitled to receive the dividends. January 21. Asia‘s Emerging Dragon Corp.R. 2010. Tambunting Pawnshop. Commissioner of Internal Revenue. a purpose which is at once legal as it is practical.R. et al. 180043. 183278. levied. assessed or collected by any municipal.. and the Estate of Ramon U. A transfer of shares which is not recorded in the books of the corporation is valid only as between the parties. July 7. that project would be awarded to the original proponent thereof. et al. It accords validity to what would otherwise be deemed as dubious corporate acts and gives continuity to a corporate enterprise in its relation to outsiders. G. to be a qualified bidder for the project. established.R.. Under its charter. A pawn ticket is subject to documentary stamp tax. Cojuangco vs. In a situation where there is no other competitive bid submitted for the BOT project. 1590 will not reveal any provision therein limiting the tax exemption of respondent to final withholding tax on interest income or excluding from said exemption the overseas communications tax. Dr. as the case may be. pledge. or national authority or government agency. provincial. only when it is able to do so will the original proponent enjoy the preferential right to the award of the project over the other bidder. Señeres vs. Here are selected April 2009 decisions of the Supreme Court on commercial. As a general rule. 23 of the Corporation Code contains a provision to this effect. unless the parties have agreed otherwise. labor and tax laws: Commercial Law BOT.. 2009. in the meantime. registration. April 7. 179085. AEDC may be the original proponent of the NAIA IPT III Project. Inc. and since it did not exercise its right to match the most advantageous proposal within the prescribed period. Consortium (Paircargo). granting respondent tax exemption. the predecessor of PIATCO. 58 . Commissioner of Internal Revenue vs. No. G. Imelda O. No. No. 2009. July 14. The basic corporate income tax or franchise tax paid by respondent shall be ―in lieu of all other taxes. G. No. Holdover. to be sure. 169914/G. Inc. the PBAC found the same to be far more advantageous than the original offer of AEDC. even where no provision is made by law for his holding over and there is nothing to indicate the contrary. license. Inc. vs. Philippine Airlines is exempt from the minimum corporate income tax. DOTC. when there are competitive bids submitted. however. Even a meticulous examination of Presidential Decree No. 180066. nature. No. G. Philippine Airlines. 2009. city.

179085. Commissioner of Internal Revenue vs. 2009. 2010. Tambunting Pawnshop. Commissioner of Internal Revenue. the Court finds the same meritorious. the executive judge approved the issuance of the certificate of sale to UCPB on March 1.R. 2010. 2005. on October 20. A careful reading of the RMOs pertaining to the VAP shows that the recording of the information in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer may be excluded from the coverage of the VAP. Court of Tax Appeals. 2010. Income tax. it is not liable for deficiencies. 2010. especially if these are similar to the findings of the Court of Appeals which is normally the final arbiter of questions of fact. hence. 179063. Commissioner of Internal Revenue vs. The payment of the documentary stamp tax and the filing of the return thereof must be made within five (5) days from the end of the month when the redemption period expires. it was filed out of time. good faith reliance. Inc. UCPB had. 2005. 2010.R. 2002 to pay the creditable withholding tax and July 5. Only on this date then did the deadline for payment of creditable withholding tax and documentary stamp tax on the extrajudicial foreclosure sale become due. vs. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. It is well-settled that where the language of the law is clear and unequivocal. Under Revenue Memorandum Circular 58-2008. No. Under the above-quoted Section 228 of the 1997 Tax Code. 2009. 2002 to pay the stamp tax. 2005 issued by respondent and which petitioner received on August 4. No. it must be given its literal application and applied without interpretation. Inc. it had until September 3. the findings of fact of the CTA. G. January 21. Julieta Ariete. The general rule of requiring adherence to the letter in construing statutes applies with particular strictness to tax laws and provisions of a taxing act are not to be extended by implication. Tax Procedure Assessment. finality.R. January 21. mortgage. 164152. January 21. pawnshops. Since the imposition of VAT on pawnshops. No. the three-month redemption period ended only on June 1. October 23.R. China Banking Corporation vs. It filed one. Commissioner of Internal Revenue. G. United Coconut Planters Bank. October 2. It is settled that 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. The Commissioner of Internal Revenue. Since petitioner received the denial of its administrative protest on August 4. January 21. however. was deferred for the tax years 1996 to 2002. otherwise known as ―Savings Plus Deposit. 179085. petitioner had 30 days to appeal respondent‘s denial of its protest to the CTA. Petitioner‘s administrative protest was denied by Final Decision on Disputed Assessment dated August 2.R. With respect to petitioner‘s argument against liability for surcharges and interest — that it was in good faith in not paying documentary stamp taxes. G. binding. findings of fact. Chinabank‘s special savings deposits (SSD). January 21. Tambunting Pawnshop. No. Stamp tax. 2002. until July 10. Since it paid both taxes on July 5. the creditable expanded withholding tax is due and must paid within ten (10) days following the end of the month in which the redemption period expires. if the property is an ordinary asset of the mortgagor. certificates drawing interest. G. petitioner is not liable for VAT for the tax year 1999. VAP. G. Value added tax. Commissioner of Internal Revenue. are ―certificates of deposits drawing interest‖ subject to documentary stamp tax as provided for in Section 180 of the 1997 NIRC. 2005. 2005 to file a petition for review before the CTA Division. Here.mpnanocpaue – college of law taxation law review Interest. 2002.R. Fishwealth Canning Corporation vs. G. therefore. No. are regarded as final. Consequently. No. No. 2002. 172359. and conclusive upon this Court. 164152. 179343. 59 . it having relied on the rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary stamp taxes. which are non-bank financial intermediaries. Commissioner of Internal Revenue vs. vs.R. Julieta Ariete. coverage. a court exercising expertise on the subject of tax. G. Generally.

No.:p FACTS: For the taxable years 1974 & 1975 both ending on 30 June Procter and Gamble Philippine Manufacturing Corporation ("P&GPhil. 24 (b) (1) of NIRC as amended by PD 369. or sum has been paid under protest or duress.P&G-Phil filed a petition for review with CTA.21 representing the 35% withholding tax at source was deducted.") declared dividends payable to its parent company and sole stockholder. Commissioner of Internal Revenue.  Sec. among other things. vs. or of any sum alleged to have been excessive or in any manner wrongfully collected. G. which on 31 January 1984 decision ordered CIR to refund or grant the tax credit the mentioned amount. Authority of Commissioner to Take Compromises and to Refund Taxes.457. 902 or other provisions of the US Tax Code that allows a credit against the US tax due from P&G-USA of taxes deemed to have been paid in the Philippines equivalent to 20% ISSUES: WON  (1) P&G-Phil. L-66838 December 2. 158885/G. This was however reversed by CTA 2nd Division holding as follows:  P&G-USA and not P&G-Phil. on its Global City land inventory. or of any penalty claimed to have been collected without authority.R. 170680. . and P&G-Phil. Commissioner of Internal Revenue. respondents. whether or not such tax. Under Revenue Regulations No. Procter and Gamble Co. .—The Commissioner may: 60 ..989. until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue. et al. was the proper party to claim the refund or tax credit here involved.. the allowable transitional input tax credit is not limited to improvements on real properties.  there is nothing in Sec. et al. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected. J. 306.164.Recovery of tax erroneously or illegally collected." G. FELICIANO. FBDC is entitled to transitional input tax credit under Section 105 of the NIRC.832. has the capacity to claim for refund or tax credit  (2) Dividends are taxable to 15%  (3) CIR can raise this alleged incapacity for the first time HELD/ ARGUMENTS: (1) The NIRC provides rules for a claim for refund or tax credit filed with the CIR is essential for maintenance of a suit for recovery of taxes allegedly erroneously or illegally assessed or collected.R. In any case. No. viz: Sec. but such suit or proceeding may be maintained.R. no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: . the applicable rate of withholding tax on the dividends remitted was only 15% and 35% of the dividends 13 July 1977 . 6-97./Fort Bonifacio Development Corporation vs.. 5 January 1977 .PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION and THE COURT OF TAX APPEALS.26 claiming. 309. 1991 COMMISSIONER OF INTERNAL REVENUE.30.  which represents the difference between the regular tax of 35% on corporations and the tax of 15% on dividends. Inc.731. (USA) ("P&G-USA") of P24. presumptive input VAT. Sec. No.946. penalty.mpnanocpaue – college of law taxation law review Value added tax.P&G-Phil filed with the CIR a claim for refund or tax credit in the amount of P4. from which dividends the amount of P8. Fort Bonifacio Development Corporation vs. petitioner. 2009. October 2. failed to meet certain conditions necessary in order that "the dividends received by its non-resident parent company in the P&G-USA may be subject to the preferential tax rate of 15% instead of 35%.

The NIRC specifies that such tax credit for "taxes deemed paid in the Philippines" must. . (2) Sec. . or to apply the tax credit to some Philippine tax obligation of. P&G-Phil. and as impliedly authorized to file the claim for refund and the suit to recover such claim. dividends . NIRC. No. The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation. 69) It thus becomes important to note that under Sec. that on dividends received from a domestic corporation liable to tax under this Chapter. . The withholding agent. moreover. both connote legal obligation or duty to pay a tax. is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittances. is properly regarded as a "taxpayer" within the meaning of Sec. Philippine NIRC does not require that the US tax law deem the parentcorporation to have paid the 20 percentage points of dividend tax waived by the Philippines but only requires that the US "shall allow" P&G-USA a "deemed There is nothing to preclude the BIR from requiring P&G-Phil. 24(b)(1) of NIRC provides: (b) Tax on foreign corporations." applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. . Hence. before actual payment of the refund or issuance of a tax credit certificate. is directly and personally liable to the Government for the taxes and any deficiency assessments to be collected. reach an amount equivalent to 20 percentage points which represents the difference between the regular 35% dividend tax rate and the preferred 15% dividend tax rate.mpnanocpaue – college of law taxation law review (3) credit or refund taxes erroneously or illegally received. . 309. shall pay a tax equal to 35% of the gross income receipt during its taxable year from all sources within the Philippines. . the tax shall be 15% of the dividends. In other words. subject to and liable for deficiency assessments. goes down to 15% if the country of domicile of the foreign stockholder corporation "shall allow" such foreign corporation a tax credit for "taxes deemed paid in the Philippines. P&G-USA. .D. Further. as . still further.. as a minimum.— (1) Non-resident corporation. to show some written or telexed confirmation by P&G-USA of the subsidiary's authority to claim the refund or tax credit and to remit the proceeds of the refund. . is domiciled shall allow a credit against the tax due from the non-resident foreign corporation. . which shall be collected and paid as provided in Section 53 (d) of this Code. taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends as provided in this Section . A sovereign government should act honorably and fairly at all times. P&G-Phil.. Although P&G-Phil. subject to the condition that the country in which the non-resident foreign corporation. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty. the withholding agent who is "required to deduct and withhold any tax" is made " personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. — A foreign corporation not engaged in trade and business in the Philippines. even vis-a-vis taxpayers. (As amended by P.53(c) of NIRC. . . . A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer". The withholding agent is. the Government is not legally liable for a refund simply because it did not demand a written confirmation of P&GPhil. 61 ..'s implied authority from the very beginning. Provided. in the instant case. the reduced 15% dividend tax rate is applicable if the USA "shall allow" to P&G-USA a tax credit for "taxes deemed paid in the Philippines" applicable against the US taxes of P&G-USA. surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law.

the term "accumulated profits" means with respect to any foreign corporation. (Emphasis supplied) 62 . (A) for purposes of subsections (a) (1) and (b) (1). Did the US law comply with the above requirement? The relevant provisions of the US Intemal Revenue Code ("Tax Code") are the following: Sec. and excess profits taxes imposed on or with respect to such profits or income by any foreign country. . treating dividends paid in the first 20 days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shows otherwise). . war profits. (A) Treatment of Taxes Paid by Foreign Corporation. the amount of any income. and excess profits taxes imposed on or with respect to such profits or income. or against the personal holding company tax imposed by section 541. — If the taxpayer chooses to have the benefits of this subpart. — In the case of a citizen of the United States and of a domestic corporation. . against the additional tax imposed for the taxable year under section 1333 (relating to war loss recoveries) or under section 1351 (relating to recoveries of foreign expropriation losses). a domestic corporation which owns at least 10 percent of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall — (2) to the extent such dividends are paid by such foreign corporation out of accumulated profits [as defined in subsection (c) (1) (b)] of a year for which such foreign corporation is a less developed country corporation. in the case of a corporation. the tax imposed by this chapter shall. (c) Applicable Rules (1) Accumulated profits defined. profits. . be deemed to have paid the same proportion of any income. . profits. The credit shall not be allowed against the tax imposed by section 531 (relating to the tax on accumulated earnings). — Credit for corporate stockholders in foreign corporation. subject to the applicable limitation of section 904. 902. war profits. or income computed without reduction by the amount of the income. or earning. and (B) for purposes of subsections (a) (2) and (b) (2). war profits. — Subject to the applicable limitation of section 904. or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States on or with respect to such accumulated profits. the taxes deemed to have been paid under sections 902 and 960..mpnanocpaue – college of law taxation law review paid" tax credit in an amount equivalent to the 20 percentage points waived by the Philippines. — For purposes of this section. be credited with the amounts provided in the applicable paragraph of subsection (b) plus. war profits. . the amount of its gains. profits. and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States. Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. which the amount of such dividends bears to the amount of such accumulated profits. and Sec. or income in excess of the income. the following amounts shall be allowed as the credit under subsection (a): (a) Citizens and domestic corporations. and in other respects treating dividends as having been paid from the most recently accumulated gains. — For purposes of this subject. 901 — Taxes of foreign countries and possessions of United States. The Secretary or his delegate shall have full power to determine from the accumulated profits of what year or years such dividends were paid. the amount of its gains. (b) Amount allowed. (a) Allowance of credit.

of which. NIRC ——— P13. of P&G-USA as a part of the economic cost of carrying on business operations in the Philippines through the medium of P&GPhil. to ascertain that the amount of the "deemed paid" tax credit allowed by US law is at least equal to the amount of the dividend tax waived by the Philippine Government. i. "Deemed Paid" concept merely reflects economic reality.75 — Reduced dividend tax P22. These tax credits are allowed because of the US congressional desire to avoid or reduce double taxation of the same income stream.00 for every P100.00 of pre-tax net income earned by P&GPhil. NIRC. deemed paid by P&G. 24(b)(1) NIRC P22. NIRC. b. Amount (a) is also the minimum amount of the "deemed paid" tax credit that US tax law shall allow if P&G-USA is to qualify for the reduced or preferential dividend tax rate under Section 24 (b) (1). It is also useful to note that both (i) the tax credit for the Philippine dividend tax actually withheld. What is. the US tax law treats the Philippine corporate income tax as if it came out of the pocket. b. since the Philippine corporate income tax was in fact paid and deducted from revenues earned in the Philippines.e. The amount above is as follows: (a) P13. it is necessary: a. US Tax Code) grants to P&G-USA a "deemed paid' tax credit 8 for a proportionate part of the corporate income tax actually paid to the Philippines by P&G-Phil. Tax Code) grants P&G-USA a tax credit for the amount of the dividend tax actually paid (i.. to determine the amount of the "deemed paid" tax credit which US tax law must allow to P&G-USA. 63 . NIRC -9.e. NIRC. as Philippine corporate income tax. P100..00 -35. to determine the amount of the 20 percentage points dividend tax waived by the Philippine government under Section 24 (b) (1).00 — Dividends remittable to P&G-USA x 15% — Reduced dividend tax rate under Section 24 (b) (1).75 — Reduced dividend tax under Section 24 (b) (1). NIRC ——— P9. withheld) from the dividend remittances to P&G-USA. under US law.mpnanocpaue – college of law taxation law review Close examination of the above quoted provisions of the US Tax Code shows the following: a. and c.75 — Regular dividend tax P65. as it were. the amount of the dividend tax waived by the Philippine government is arithmetically determined in the following manner: P100.. are tax credits available or applicable against the US corporate income tax of P&G-USA. thus reducing the amount remittable as dividends to P&G-USA.00 — Amount of dividend tax waived by Philippine government under ===== Section 24 (b) (1). In order to determine whether US tax law complies with the requirements for applicability of the reduced or preferential fifteen percent (15%) dividend tax rate under Section 24 (b) (1). which are very real indeed. NIRC. US law (Section 901. Amount (a). but "deemed paid" by P&G-USA. US law (Section 902.00 — Paid to the BIR by P&G-Phil. not by P&G-USA.00 — Available for remittance as dividends to P&G-USA P65. and (ii) the tax credit for the Philippine corporate income tax actually paid by P&G Phil.00 — Dividends remittable to P&G-USA x 35% — Regular Philippine dividend tax rate under Sec. x 35% — Regular Philippine corporate income tax rate ——— P35.USA are not "phantom taxes" but instead Philippine corporate income taxes actually paid here by P&G-Phil. and which hence goes to P&G-USA.00 ——— P65. P&G-Phil. and here earning profits. The parent-corporation P&G-USA is "deemed to have paid" a portion of the Philippine corporate income tax although that tax was actually paid by its Philippine subsidiary..75 — Regular dividend tax under Section 24 (b) (1).00 — Pretax net corporate income earned by P&G-Phil.

and in other respects treating dividends as having been paid from the most recently accumulated gains. (Emphasis supplied) Under Section 30 (c) (3) (a). and excess-profits taxes imposed upon or with respect to such profits or income.g..00 profits earned byP&G-Phil. In the case of a foreign corporation..25 of dividends actually remitted (after withholding at the rate of 15%) by P&G-Phil. the word "year" as used in this subsection shall be construed to mean such accounting period.9. which the amount of such dividends bears to the amount of such accumulated profits: Provided. that is. provides: (d) Sec. . may be computed arithmetically as follows: P65. — For the purposes of this subsection a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income. upon or with respect to the accumulated profits of such foreign corporation from which such dividends were paid. the tax imposed by this Title shall be credited with . NIRC.75 — Dividend tax withheld at the reduced (15%) rate ——— P55. NIRC.00 (the amount of dividend tax waived by the Philippine government). profits.75 Amount of accumulated P65. war-profits. war-profits. Since P29. the income. and excess-profits taxes of which are determined on the basis of an accounting period of less than one year. or excess-profits taxes paid by such foreign corporation to any foreign country. profits. . . The term "accumulated profits" when used in this subsection reference to a foreign corporation. That the amount of tax deemed to have been paid under this subsection shall in no case exceed the same proportion of the tax against which credit is taken which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. NIRC. is practically identical with Section 902 of the US Tax Code. NIRC. the BIR must give a tax credit to a Philippine corporation for taxes actually paid by it to the US government—e.25 — Dividends actually remitted to P&G-USA P35. to its US parent P&G-USA. 64 . a tax credit of P29. US Tax Code.to P&G-USA P55. specifically and clearly complies with the requirements of Section 24 (b) (1).75 is much higher than P13. for every P55. war profits or excess profits.g.mpnanocpaue – college of law taxation law review (b) the amount of the "deemed paid" tax credit which US tax law allows under Section 902.00 — Philippine corporate income tax paid by P&G-Philto the BIR Dividends actuallyremitted by P&G-Phil. Section 30 (c) (8). taxes paid or accrued during the taxable year to any foreign country. e. or income in excess of the income. (c) Taxes. war-profits. Section 902. This Section of the NIRC is the equivalent of Section 901 of the US Tax Code. and the Commissioner of Internal Revenue shall have full power to determine from the accumulated profits of what year or years such dividends were paid. — If the taxpayer signifies in his return his desire to have the benefits of this paragraphs. treating dividends paid in the first sixty days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise). (a) Citizen and Domestic Corporation. Tax Code. 30. for taxes paid to the US by the US subsidiary of a Philippine-parent corporation. for taxes collected by the US government on dividend remittances to the Philippine corporation. Under the above quoted Section 30 (c) (8). .25 x P35. means the amount of its gains. NIRC. there shall be allowed as deductions — . and provides as follows: (8) Taxes of foreign subsidiary. The Philippine parent or corporate stockholder is "deemed" under our NIRC to have paid a proportionate part of the US corporate income tax paid by its US subsidiary.—In computing net income. Deductions from Gross Income.00 — Dividends remittable to P&G-USA . or earnings. in excess of income tax Thus. (3) Credits against tax for taxes of foreign countries. the amount of net income.75 is allowed by Section 902 US Tax Code for Philippine corporate income tax "deemed paid" by the parent but actually paid by the wholly-owned subsidiary. . Section 30 (c) (3) and (8). although such US tax was actually paid by the subsidiary and not by the Philippine parent.00 P29. — In the case of a citizen of the Philippines and of domestic corporation. the BIR must give a tax credit to a Philippine parent corporation for taxes "deemed paid" by it. . — . above.

D. into its present form: (1) imperative to adopt measures responsive to the requirements of a developing economy foremost of which is the financing of economic development programs. of a particular tax rate. We should leave details relating to administrative implementation where they properly belong — with the BIR. The position originally taken by the Second Division results in a severe practical problem of administrative circularity which in effect held that the reduced dividend tax rate is not applicable until the US tax credit for "deemed paid" taxes is actually given in the required minimum amount by the US Internal Revenue Service to P&G-USA. or any Philippine corporation similarly situated. 11 It is this practical or operating circularity that is in fact avoided by our BIR when it issues rulings that the tax laws of particular foreign jurisdictions (e. does not create a tax exemption nor does it provide a tax credit.g. relates to the administrative implementation of the applicable reduced tax rate. The "deemed paid" tax credit allowed in Section 902." There is neither statutory provision nor revenue regulation issued by the Secretary of Finance requiring the actual grant of the "deemed paid" tax credit by the US Internal Revenue Service to P&G-USA before the preferential fifteen percent (15%) dividend rate becomes applicable. Since the US tax laws can and do change. is no more a credit for "phantom taxes" than is the "deemed paid" tax credit granted in Section 30 (c) (8). Republic of Vanuatu 12 Hongkong. to submit such certification within a certain period of time. some revenues have to be foregone in that process. NIRC. that the USA "shall allow a credit against the tax due from [P&G-USA for] taxes deemed to have been paid in the Philippines . 13 Denmark. NIRC. Once such a ruling is rendered. under Section 24 (b) (1). A requirement relating to administrative implementation is not properly imposed as a condition for the applicability.or majority-owned subsidiary in (for instance) the US. NIRC. . the Philippine subsidiary begins to withhold at the reduced dividend tax rate. to certify to the BIR the amount of the "deemed paid" tax credit actually subsequently granted by the US tax authorities to P&G-USA or a US parent corporation for the taxable year involved. 14 etc. . must be allowed by US law to P&G-USA. As to the applicable tax rate: The question of whether or not P&G-USA is in fact given by the US tax authorities a "deemed paid" tax credit in the required amount. But. for applicability of the fifteen percent (15%) tax rate. the "deemed paid" tax credit which. would result in the imposition of a deficiency assessment for the twenty (20) percentage points differential. As noted several times earlier. (3) in order to encourage more capital investment for large projects an appropriate tax need be imposed on dividends received by non-resident foreign corporations in the same manner as the tax imposed on interest on foreign loan. 65 . An interpretation of a tax statute that produces a revenue flow for the government is not. 2. not to trigger off an instant surge of revenues. in the case at bar. does not in fact require that the "deemed paid" tax credit shall have actually been granted before the applicable dividend tax rate goes down from thirty-five percent (35%) to fifteen percent (15%). is the same "deemed paid" tax credit that Philippine law allows to a Philippine corporation with a wholly. there is nothing to prevent the BIR from issuing implementing regulations that would require P&G Phil. There are many tax statutes or provisions which are designed. Section 24 (b) (1). which means that the Philippine dividend tax. as in the case at bar. 369 which amended Section 24 (b) (1). (2) nonresident foreign corporations with investments in the Philippines are taxed on their earnings from dividends at the rate of 35%. was actually imposed and collected..) comply with the requirements set out in Section 24 (b) (1). necessarily the correct reading of the statute. The task of this Court is to settle which tax rate is applicable. NIRC.. but rather to achieve longer-term and broader-gauge fiscal and economic objectives. such implementing regulations could also provide that failure of P&G-Phil. as a matter of law. upon the determination or recognition of the applicability of the reduced tax rate. Upon the other hand. merely requires. No. Section 24 (b) (1).mpnanocpaue – college of law taxation law review Clearly. The task of our Court is to give effect to the legislative design and objectives as they are written into the statute even if. The economic objectives sought to be achieved by the Philippine Government by reducing the thirty-five percent (35%) dividend rate to fifteen percent (15%) are set out in the preambular clauses of P. it is a provision which specifies when a particular (reduced) tax rate is legally applicable. the US "deemed paid" tax credit cannot be given by the US tax authorities unless dividends have actually been remitted to the US. NIRC. NIRC. NIRC. US Tax Code. considering the state of US law at a given time. Section 24 (b) (1). for that reason alone. at the rate here applicable.

S.415 . could offset the US corporate income tax payable on the dividends remitted by P&G-Phil. NIRC.9. The result.P. there is here on the part of the 66 .66 — US corporate income tax payable after Section 901 ——— tax credit. US Tax Code. This is. in the assumption that a positive incentive effect would thereby be felt by the investor. 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any). Clearly. tax" income to subject to its own taxing power) by allowing the investor additional tax credits which would be applicable against the tax payable to such home country. by a treaty commitment.. in fine. seeks to promote the in-flow of foreign equity investment in the Philippines by reducing the tax cost of earning profits here and thereby increasing the net dividends remittable to the investor. however. at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation.75 — US tax credit for RP dividend tax withheld by P&G-Phil.415 . P25. The net effect upon the foreign investor may be shown arithmetically in the following manner: P65.415—US corporate tax payable by P&G-USAwithout tax credits P25.75 — Reduced R.75 — "Deemed paid" tax credit under Section 902 US ——— Tax Code (please see page 18 above) . US Tax Code) P15. could be that P&G-USA would after US tax credits.25.— US corporate income tax payable on dividends ====== remitted by P&G-Phil. In the calculation of the Philippine Government. Section 24 (b) (1).e.25 x 46% — Maximum US corporate income tax rate ——— P25.0 . It will be seen that the "deemed paid" tax credit allowed by Section 902. dividend tax withheld by P&G-Phil.at 15% (Section 901. would not benefit from the reduction of the Philippine dividend tax rate unless its home country gives it some relief from double taxation (i. and U." the Philippines.00 — Dividends remittable to P&G-USA .25 — Dividends actually remitted to P&G-USA P55.9. the full amount of the dividends remitted to P&G-USA net of Philippine taxes. NIRC. of course. established a treaty obligation on the part of the United States that it "shall allow" to a US parent corporation receiving dividends from its Philippine subsidiary "a [tax] credit for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine [subsidiary] —. US Tax Code. precisely the "deemed paid" tax credit provided for in Section 902. still wind up with P55.66 ——— P39. The foreign investor. P55. reduced the regular rate of dividend tax to a maximum of twenty percent (20%) of the gross amount of dividends paid to US parent corporations: Art 11. Accordingly. to P&G-USA after Section 902 tax credit.25 — Amount received by P&G-USA net of RP and US ====== taxes after Section 902 tax credit. It remains only to note that under the Philippines-United States Convention "With Respect to Taxes on Income.25 .P.P. this should encourage additional investment or reinvestment in the Philippines by P&G-USA. Section 24 (b) (1).59 — Amount received by P&G-USA net of R. second-tier taxation) (the home country would simply have more "post-R. at the same time. requires the home or domiciliary country to give the investor corporation a "deemed paid" tax credit at least equal in amount to the twenty (20) percentage points of dividend tax foregone by the Philippines. P55.29. taxes without ===== "deemed paid" tax credit. discussed above.mpnanocpaue – college of law taxation law review More simply put. or (b) When the recipient is a corporation.15. The Tax Convention. — Dividends (2) The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed — (a) 25 percent of the gross amount of the dividend. ——— P55.

We conclude that private respondent P&G-Phil. makes available in respect of dividends from a Philippine subsidiary. NIRC. is entitled to the tax refund or tax credit which it seeks. 67 . there is still a differential or additional reduction of five (5) percentage points which compliance of US law (Section 902) with the requirements of Section 24 (b) (1).mpnanocpaue – college of law taxation law review Philippines a deliberate undertaking to reduce the regular dividend tax rate of twenty percent (20%) is a maximum rate.

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