Philippine Chamber of Commerce and Industry (PCCI)

TAX SEMINAR
Tuesday, April 22, 2008, Dusit Hotel Nikko, Makati City

RECENT SIGNIFICANT DECISIONS ON TAXATION

JUANITO C. CASTAEDA, JR.
Associate Justice, Court of Tax Appeals

In Commissioner of Internal Revenue (CIR) vs. Michel J. Lhuiller,

G.R. No. 150947, July 15, 2003, 406 SCRA 178, the Supreme Court (SC),
held: The Supreme Court by tradition and in our system of judicial
administration, has the last word on what the law is; it is the final arbiter of
any justifiable controversy. There is only one Supreme Court from whose
decisions all other courts should take their bearings.

A.

IRREVOCABLE
CARRY-OVER
OF
EXCESS
INCOME TAX; NO SECOND MOTION FOR
RECONSIDERATION; DECISIONS OF COURT OF
APPEALS (CA) ARE NOT BINDING ON CO-EQUAL
CTA; SC HAS FINAL SAY

In its March 28, 2007 resolution, the Supreme Court denied taxpayers
petition filed on March 9, 2007 assailing the January 18, 2007 decision of the
CTA for: (a) failure of counsel to submit his IBP proof of payment for current
year (2006 OR indicated); (b) submitting a verification of the petition,

certification of non-forum shopping and affidavit of service that failed to

comply with the 2004 Rules on Notarial Practice with respect to competent
evidence of affiants identities; and (c) failure to give an explanation why
service was not done personally as required by Section 11, Rule 13 in relation
to Section 3, Rule 45 and Section 5(d), Rule 56 of the Rules of Court. On July
5, 2007, petitioners motion for reconsideration was denied with finality. A
second motion for reconsideration was filed claiming extraordinarily
persuasive reasons. The high tribunal held that a second motion for
reconsideration is prohibited and that there was no compelling reason to
excuse non-compliance. CA decisions are not superior to CTA, the CA and
the CTA being co-equal under RA 9282. Also, CA decision in an action in
personam binds only the parties in the case. Most importantly, SC is not
bound by the CA decisions & its rulings are binding on all courts.

On the merits, the Supreme Court held that under Section 76 of the
1997 NIRC, a taxable corporation with excess quarterly income tax payments
may choose to claim for a refund or tax credit certificate or to automatically
carry-over the excess tax for crediting against its income tax liabilities in the
succeeding years. Once the carry-over option is taken, actually or
constructively, it becomes irrevocable. Since the petitioner elected to carry

over its excess credits for the year 2000 in the amount of P4,627,976 as tax
credits for the following year, it could no longer claim a refund. Again, at the
risk of being repetitive, once the carry-over option was made, actually or
constructively, it became forever irrevocable regardless of whether the excess
tax credits were actually or fully utilized. Nevertheless, as held in Philam
Asset Management, Inc., the amount will not be forfeited in favor of the
government but will remain in the taxpayers account. Petitioner may claim
and carry it over in the succeeding taxable years, creditable against future
income tax liabilities until fully utilized.
Systra Philippines, Inc. vs. CIR, G.R No. 176290, September 21, 2007.

B.

ONLY FINAL ADJUSTMENT RETURN FOR

PREVIOUS NOT SUCCEEDING TAXABLE YEAR
IS REQUIRED TO CLAIM EXCESS INCOME TAX
CREDIT

The taxpayers claim for refund of 1997 unutilized tax credit was
allowed although it marked x indicating to be carried as tax credit next
year on the box appearing on its 1998 income tax return. Under Section 69
of the pre-1997 NIRC, excess income tax credit may only be carried over to
the succeeding taxable year. Hence, the explanation of the taxpayer that the
marking was only meant to indicate that it meant to carry over its 1998 excess

income tax to the succeeding year. The Tax Code merely requires the filing of
the final adjustment return for the preceding not the succeeding taxable
year. There is no legal requirement that the final adjustment return of the
succeeding year be presented to the BIR in requesting a tax refund. At any
rate, the taxpayer attached its 1999 and 2000 annual income tax returns. In
1999 the taxpayer incurred losses and had no tax liabilities against which the
1997 excess tax credits could be applied or utilized. State Land Investment
Corporation vs. CIR, G.R. No. 171956, January 18, 2008.

C.

TAX MUST BE FOR PUBLIC PURPOSE

LOI 1464 issued on June 3, 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, Inc.
(PPI). Fertiphil Corporation sought a refund of the levy in a suit for collection
and damages before the Makati Regional Trial Court (RTC), which granted
the refund. The Court of Appeals (CA) affirmed the RTC decision. In
sustaining the CA and RTC decisions, 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. It further held: The RTC has jurisdiction to
consider the constitutionality of statutes, executive orders, presidential decrees
4

and other issuances pursuant to Section 5, Article VIII of the 1987

Constitution.

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, not necessarily in a suit for declaratory relief.
The constitutionality of LOI 1465 is the very lis mota of the complaint for
collection. The refund could not be granted without LOI 1465 being declared
unconstitutional. The imposition of the levy was an exercise by the State of its
taxation power. The primary purpose of the levy is revenue generation. An
inherent limitation on the power of taxation is public purpose. Taxes are
exacted only for a public purpose. The levy is not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a
private company. x x x Second, the LOI provides that the imposition of the
P10 levy was conditional and dependent upon PPI becoming financially
viable. x x x Third, 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, the depositary bank of PPI. x x x Fourth, the levy was used
to pay the corporate debts of PPI. The LOI is unconstitutional even if enacted
under the police power as it did not promote public interest. Planters
Products, Inc. vs. Fertiphil Corporation, G.R. No. 166006, March 14, 2008.
D.

TCCs USED AS PAYMENT FOR EXCISE TAXES BY

A TRANSFEREE IN GOOD FAITH ARE VALID
5

PAYMENTS; NEED FOR PUBLICATION OF RULES;

ASSESSMENTS ARE VOID DUE TO LACK OF DUE
PROCESS

BIR assessed Pilipinas Shell Petroleum Corporation (Shell) for

deficiency excise taxes for the taxable years 1992 and 1994 to 1997. Shell had
paid its excise tax liabilities through Tax Credit Certificates (TCCs) acquired
through the Department of Finance (DOF) One Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center (Center) from other BOI-registered
companies. The payments were duly approved by the Center through the
issuance of Tax Debit Memoranda (TDM), and the BIR likewise accepted the
TCCs by issuing its own TDM covering said TCCs, and corresponding
Authorities to Accept Payment for Excise Taxes (ATAPETs). This was
protested and appealed to the CTA, which sitting in Division ruled in favor of
PSPC. [Incidentally, the contested payments here are also covered by a case
pending appeal before the CA, where the CTA previously ruled in Shells
favor.] However, upon appeal, the CTA En Banc upheld the assessments. On
appeal, the Supreme Court reversed the CTA En Banc and reinstated the CTA
Division decision, ruling as follows:

1.

TCCs duly issued by the Center are immediately valid and

effective and are not subject to post-audit as a suspensive
condition. Post-audit contemplated in the TCCs does not
pertain to their genuineness or validity, but on computational
discrepancies that may have resulted from the transfer and
utilization of the TCC. A tax credit is transferable in
accordance with pertinent laws, rules and regulations.

2.

Shell, the transferee, is not required by law to be a capital

equipment provider or a supplier of raw material and/or
component supplier to the transferors. What the law requires is
that the transferee be a BOI-registered company.

3.

Implementing Rules and Regulations (IRR) of EO 226, which

incorporated the October 5, 1982 Memorandum of Agreement
(MOA) between the MOF and BOI merely requires is that the
transferee be a BOI-registered company.

4.

While October 5, 1982 MOA appears to have been amended

by the August 29, 1989 MOA between the DOF and BOI, such
may not operate to prejudice transferees, as it remains only an
internal agreement.

5.

Moreover, there is lack of publication with the National

Administrative Register of the UP Law Center mandatorily
required under Chapter 2, Book VII, EO 292, the
Administrative Code of 1987. Shell cannot be compelled to
submit sales documents for the purported post-audit.

6.

Liability clause at the dorsal portion of the TCCs (Both the

TRANSFEROR and the TRANSFEREE shall be jointly and
severally liable for any fraudulent act or violation of the
pertinent laws, rules and regulations relating to the transfer of
this TAX CREDIT CERTIFICATE) provides only for solidary
liability relative to the transfer of the TCCs from the original
grantee to a transferee. There is nothing in the above clause
that provides for the liability of the transferee in the event that
the validity of the TCC issued to the original grantee by the
Center is impugned. The transferee in good faith and for value
may not be unjustly prejudiced by the fraud committed by the
claimant or transferor in the procurement or issuance of the
TCC from the Center.

7.

Shell is a transferee in good faith and for value. No evidence

reveals that Shell participated in any way in the issuance of the

subject TCCs to the corporations who in turn conveyed the

same to Shell. It was not involved in the processing for the
approval of the transfers of the subject TCCs.
8.

Pro-forma supply agreements allegedly executed by Shell and

the transferors covering the sale of the Industrial Fuel Oil
(IFO) were denied by Shell. BIR failed to present supply
agreements to prove participation by Shell.

9.

TCCs were already applied and cannot be canceled after

acceptance as payment.

10.

That there was fraud in the procurement of the TCCs is

irrelevant and immaterial to this case. Real issue here is
whether fraud or breach of law attended the transfer of said
TCCs. The remedy is to run after fraud perpetrators.

11.

Center has authority to cancel TCCs but may only do so before

a transferred TCC has been fully utilized.

12.

Centers

Excom

Resolution

No.

03-05-99

authorizing

cancellation of TCCs and TDMs granted without legal basis,

covered by a penal provision therein, is invalid and
unenforceable, not having been duly published.

13.

There was non-compliance with statutory and procedural due

process. Revenue Regulations No. 12-99 is applicable. There
was no notice of informal conference and a preliminary
assessment notice, as required. Shells November 4, 1999
motion for reconsideration of the purported Centers findings
and cancellation of the subject TCCs and TDM was not even
acted upon. Shell was merely informed that it is liable for the
amount of excise taxes it declared in its excise tax returns for
1992 and 1994 to 1997 covered by the subject TCCs via the
formal letter of demand and assessment notice.

14.

For being formally defective, the November 15, 1999 formal

letter of demand and assessment notice is void. Paragraph
3.1.4 of Sec. 3, RR 12-99 provides that the letter of demand
shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise the
formal letter of demand and assessment notice shall be void.
the BIR merely relied on the findings of the Center which did
not give Shell ample opportunity to air its side.

Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal

Revenue, G.R. No. 172598, December 21, 2007.

10

E.

BUREAU OF CUSTOMS COLLECTION SUIT ON

CANCELLED TDMs/TCCs IS PROPER

On November 3, 1999, the DOF Secretary informed Shell that itsTDMs

and corresponding TCCs assigned to it by various entities with the approval of
the BOI and the One Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center (Center) were fraudulently issued and transferred, and had to be
cancelled. Some of these TCCs were subsequently accepted as payment by the
Bureau of Customs (BoC) for its taxes and import duties in 1997 and 1998.
The Secretary asked Shell to immediately pay the BoC and the BIR the value
of the cancelled TCCs as well as related penalties, surcharges and interest.
Despite Shells objections, the Commissioner of Customs demanded
from it the amount of P209,129,141. Shell filed a protest on December 23,
1999. However, the BoC did not act thereon. Consequently, Shell filed a
petition for review questioning the legality of the cancellation of the TCCs in
the CTA. On April 22, 2002, the respondent RP, as represented by the BoC,
filed a complaint for collection before the Manila Regional Trial Court (RTC)
for P10,088,912 in unpaid customs duties and taxes, alleging that its TCCs
purchased from Filipino Way Industries and used to pay customs duties and
taxes on its importations in 1997 were spurious.

11

Shell questioned the RTCs jurisdiction. Both the RTC and the Court of
Appeals (CA) on petition for certiorari ruled that the RTC has jurisdiction.
Upon review by certiorari, the Supreme Court held:
1.

Assessments inform taxpayers of their tax liabilities. Under

Section 1601 of the Tariff and Customs Code of the
Philippines (TCCP), the assessment is in the form of a
liquidation made on the face of the import entry return and
approved by the Collector of Customs.

2.

Under Section 1603 of the old TCCP, an assessment or

liquidation of the BoC attains finality and conclusiveness one
year from the date of final payment except when (a) there was
fraud; (b) there is a pending protest or (c) the liquidation of
import entry was merely tentative. There was no fraud as
Shell claimed to be in good faith. No protest was made when
Shell paid without protest using the TCCs. Liquidation was
not a tentative one as the assessment had long become final
and incontestable. Consequently, the respondent had the right
to file a collection case.

3.

Under Section 1204 of the TCC, import duties constitute a

personal debt of the importer that must be paid in full. The

12

importers liability constitutes a lien on the article which the

government may choose to enforce while the imported articles
are in its custody or control.
4.

When respondent released the importers goods, its lien over

the goods was extinguished. Consequently, respondent could
only enforce the payment of duties by filing a collection case.

5.

Under the old CTA Law, RA 1125, prior to RA 9282

amendment, CTA jurisdiction was limited to decisions of the
Commissioner of Customs in instances enumerated under then
Section 7(2). RTC has jurisdiction under Section 19(6) of the
Judiciary Reform Act of 1980, which provides that RTCs
shall exercise exclusive original jurisdiction in all cases not
within the exclusive jurisdiction of any court, tribunal, person
or body exercising judicial or quasi-judicial functions.

6.

Respondent should collect Shells outstanding duties and

taxes notwithstanding the pendency of the CTA case
questioning the validity of the cancellation. Anyhow, Shell
may seek a refund if it ultimately wins the CTA case.

Pilipinas Shell Petroleum Corporation vs. Republic of the Philippines,

represented by the Bureau of Customs, G.R. No. 161953, March 6, 2008.

13

F.

PRESCRIPTIVE PERIOD

On April 14, 2000, the taxpayer filed its petition for review claiming
refund based on its final adjusted return filed on April 14, 1998. Counting 365
days as a year pursuant to Article 13 of the Civil Code, 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, ruling that the
petition was filed 731 days after the filing of the return. On appeal, 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. The SC affirmed the CAs
reversal but ruled that the basis for the reversal is EO 292 of the
Administrative Code of 1987, a more recent law, which provides that a year is
composed of 12 calendar months. Using this, the petition was filed on the last
day of the 24th calendar month from the day the taxpayer filed its final
adjusted return.
Commissioner of Internal Revenue vs. Primetown Property Group,
Inc., G.R. No. 162155, August 28, 2007.

14

G.

ONLY NOTICE REQUIRED IN PRIOR LAW;

FAILURE TO PROTEST WITHIN 30 DAYS IS FATAL

In two notices dated October 28, 1988, the Commissioner of Internal

Revenue validly assessed for 1986 deficiency percentage and documentary
stamp taxes in the total amount of P129,488,656.63 by notifying the taxpayer
of his findings. 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. What
applies is Section 270 (subsequently renumbered 229 prior to amendment as
228) of the old law prior to amendment by RA 8424, which merely required
notice of findings. 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. The December
10, 1988 reply which stated [a]s soon as this is explained and clarified in a
proper letter of assessment, we shall inform you of the taxpayers decision on
whether to pay or protest the assessment does not qualify as a protest. Hence,
the assessments became final and unappealable.
Commissioner of Internal Revenue vs. Bank of the Philippine Islands,
G.R. No. 134062, April 17, 2007.

15

H.

30-DAY PERIOD TO APPEAL IN CASE OF FAILURE

TO ACT BY CIR WITHIN 180 DAYS FROM
SUBMISSION
OF
DOCUMENTS
IS
JURISDICTIONAL; NEGLIGENCE OF COUNSEL IS
NOT EXCUSABLE; ISSUES CANNOT BE RAISED
FOR THE FIRST TIME ON APPEAL

The CIR failed to act on the disputed assessment within 180 days from
date of submission of documents. Petitioner opted to file a petition for review
before the CTA. Unfortunately, the petition for review was filed out of time;
i.e., it was filed more than 30 days after the lapse of the 180-day period.
Consequently, it was dismissed by the CTA for late filing. Petitioner did not
file a motion for reconsideration or make an appeal; hence, the disputed
assessment became final, demandable and executory. Negligence of counsel,
i.e., alleged misfiling of Resolution by counsels secretary, is inexcusable.
After availing the first option, i.e., filing a petition for review which was
however filed out of time, petitioner cannot successfully resort to the second
option, i.e., awaiting the final decision of the Commissioner and appealing the
same to the CTA, on the pretext that there is yet no final decision on the
disputed assessment because of the Commissioners inaction. Issue of
prescription cannot be raised for the first time on appeal.
Rizal Commercial Banking Corporation vs. Commissioner of Internal
Revenue, G.R. No. 168498, April 24, 2007 Resolution.

16

I.

REQUEST
FOR
RE-INVESTIGATION
NOT
GRANTED DOES NOT TOLL PRESCRIPTIVE
PERIOD; INVALID AND LAPSED WAIVER OF
PRESCRIPTION

Under Section 320 of the 1977 NIRC, the law then applicable, the
period of prescription for assessment and collection is 3 years. 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. However, it
was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.
For BPIs protest letters dated 20 April and 8 May 1989 to toll the prescriptive
period for collection, the request for reinvestigation should have been granted.
There is nothing to show that such request was granted.
Neither did the waiver of prescription effective until 31 December 1994
suspend the prescriptive period is invalid. The CIR himself contends that the
waiver is void as it shows no date of acceptance in violation of RMO 20-90.
At any rates, more than 8 years elapsed since expiry of the waiver before the
BIR attempted to collect.
Bank of the Philippine Islands (Formerly Far East Bank and Trust
Company vs. CIR, G.R. No. 174942, March 7, 2008. See also BPI v. CIR,
CTA Case No. 7397, April 9, 2008.

17

J.

CTA HAS JURISDICTION ON RMC REVIEW

The CTA, not the Regional Trial Court (RTC), has the jurisdiction to
review Revenue Memorandum Circulars (on the taxation of imported motor
vehicles through the Subic Free Port in this case), which are considered
administrative rulings issued from time to time by the CIR.

Asia

International Auctioneers & Subic Bay Motors Corporation vs. Hon.

Guillermo L. Parayno, G.R. No. 163445, Dec.18, 2007.

K.

1997 TAX REFORM ACT CANNOT BE APPLIED

RETROACTIVELY;
WRITTEN
CLAIM
IS
CONDITION PRECEDENT TO FILING A PETITION
FOR REVIEW PRIOR THERETO

Under Section 230 of the old Tax Code, an actual written claim for
refund is required. Amended income tax return filed on June 17, 1997 cannot
be considered as a written claim. Section 204(c) of the 1997 NIRC (RA 8424,
the 1997 Tax Reform Act), provides in pertinent part: That a return filed
showing an overpayment shall be considered as a written claim for credit or
refund, can only operate prospectively. The new Tax Code became effective
only on January 1, 1998. Tax refunds are in the nature of tax exemptions
which are construed strictissimi juris against the taxpayer and liberally in
favor of the government. CIR vs. BPI, G.R. No. 134062, April 17, 2007.
18

L.

STATUTORY TAXPAYER IS PROPER PARTY TO

CLAIM FOR REFUND OF INDIRECT TAXES;
INDIRECT TAX EXEMPTION MUST BE CLEARLY
GRANTED; 15-DAY APPEAL PERIOD TO CTA EN
BANC IS JURISDICTIONAL; SERVICE TO
COUNSEL OF RECORD BINDS PETITIONER

Petitioner Silkair, a Singapore-based international air carrier, sought a

refund of excise tax paid by Petron Corporation as manufacturer, which
shifted the burden of the tax to purchaser Silkair. The CTA Division denied
against the claim since it was not the taxpayer. On September 12, 2005, a new
counsel entered appearance without the withdrawal of the original counsel. Its
original counsel of record received on October 3, 2005 a copy of the
September 22, 2005 Resolution of the CTA Division denying its motion for
reconsideration of the decision. On October 13, 2005, 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, 2005, the new
counsel received a copy of the Resolution and requested on October 28, 2005
an extension of time to file petition. The Court En Banc gave it until
November 14, 2005. Upon request, another extension until November 24,
2005 was granted and on November 17, 2005, Silkair filed its petition. By
Resolution of May 19, 2006, the CTA En Banc dismissed the petition for
being filed out of time notwithstanding the grant of extension.

19

On petition for certiorari, the Supreme Court affirmed the dismissal,

ruling that where no notice of withdrawal or substitution of counsel has been
shown, notice to counsel of record is notice to the client citing Section 26,
Rule 138 of the Rules of Court on the requirements for withdrawal of counsel.
Ruling on the merits, the high tribunal held: The proper party to question, or
seek a refund of, an indirect tax is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same even he shifts the burden
thereof to another. Under Section 130(A)(2) of the NIRC, it is the
manufacturer or producer who is subject to excise tax. Thus, Petron
Corporation, not Silkair, is the statutory taxpayer entitled to claim a refund
based on Section 135 of the NIRC, which exempts from excise tax petroleum
products sold to exempt entities under international agreements and Article
4(2) of the Air Transport Agreement between RP and Singapore. Even if
Petron passed on to Silkair the burden of the tax, the additional amount billed
to Silkair for jet fuel is not a tax but part of the purchase price.
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.
Silkair (Singapore) PTE, Ltd. vs. CIR, G.R. No. 173594, Feb. 6, 2008.

20

M.

SAVINGS DEPOSIT WITH TIME DEPOSIT

FEATURES SUBJECT TO DST; SUBSTANCE OVER
FORM

Special savings deposit, which provide for a higher interest rate when
the deposit is not withdrawn within the required fixed period but earn interest
pertaining to a regular savings deposit when withdrawn prior to such period,
are subject to DST on time deposits under Section 180 of the NIRC, as
amended by RA 7660, even though evidenced by a passbook. Having a fixed
term and the reduction of interest rates in case of pre-termination are essential
features of a time deposit. While tax avoidance schemes and arrangements are
not prohibited, tax laws cannot be circumvented in order to evade payment of
just taxes. To claim that time deposits evidenced by passbooks should not be
subject to DST is a clear evasion of the rule on equality and uniformity in
taxation that requires the imposition of DST on documents evidencing
transactions of the same kind, in this particular case, on all certificates of
deposits drawing of interest.
The further amendment of Section 180 of the NIRC and its
renumbering as Section 179 by RA 9243, approved on February 17, 2004,
does not mean that time deposits for which passbooks were issued were
exempt from payment of DST. If at all, the further amendment was intended
to eliminate precisely the scheme used by banks of issuing passbooks to
21

cloak its time deposits as regular savings deposits, as reflected during the
deliberations on Senate Bill No. 2518 which eventually became RA 9243.
International Exchange Bank vs. CIR, G.R. No. 171266, April 4,
2007. See also Banco de Oro Universal Bank vs. CIR, G.R. No. 173602,
January 15, 2007 Resolution.

N.

AVAILMENT OF TAX AMNESTY BY A QUALIFIED

APPLICANT EXTINGUISHES TAX LIABILITY

A tax amnesty is a general pardon or intentional overlooking by the

State of its authority to impose penalties on persons otherwise guilty of
evasion or violation of a revenue or tax law. It partakes of an absolute
forgiveness or waiver by the government of its right to collect what is due it
and to give tax evaders who wish to relent a chance to start with a clean slate.
Being a qualified tax amnesty applicant, petitioner duly complied with
the requisites enumerated in RA 9420, as implemented by RMC 19-2008. The
law mandates that a tax amnesty compliant applicant shall be exempt from the
payment of taxes, including the civil, criminal, or administrative penalties
under the Tax Code.
Metropolitan Bank and Trust Company vs. CIR, CTA EB No. 269,
March 28, 2008 Resolution.

22

O.

HEALTH MAINTENANCE ORGANIZATION (HMO)

NOT ACTUALLY PROVIDING MEDICAL AND/OR
HOSPITAL SERVICES IS SUBJECT TO VAT; NONRETROACTIVITY OF BIR RULINGS

An HMO (health maintenance organization), which does not actually

provide medical and/or hospital services, but merely arranges for the same, is
not VAT-exempt under Sec. 103, NIRC, but the taxpayer is not subject for
years 1996 and 1997, relying on good faith on VAT Ruling No. 231-88, June
8, 1988, pursuant to Section 246 of the NIRC on non-retroactivity of rulings
prejudicial to the taxpayer. There is no misrepresentation by the mere fact that
the taxpayer failed to describe itself as an HMO.
CIR vs. Philippine Health Care Providers, Inc., G.R. No. 168129,
April 24, 2007.

P.

ZERO-RATE EXPORT SALES OF A VATREGISTERED TAXPAYER; ENTITLEMENT TO

TAX CREDIT ON VAT CHARGED BY SUPPLIERS;
AUTHORITY TO PRINT NEED NOT BE
REFLECTED IN SALES INVOICES; RMC CANNOT
HAVE
RETROACTIVE
EFFECT;
LIBERAL
INTERPRETATION
IN
CASE
OF
PEZAREGISTERED ENTERPRISES

A VAT-registered taxpayer is entitled to tax credit on input tax

attributable to its zero-rated or effectively zero-rated sales. There is no law or

23

BIR rule or regulation requiring that the BIR authority to print be reflected or
indicated in the taxpayers sales invoices. Based on Secs. 113, 237 and 238 of
the NIRC, only the following items are required to be indicated in
receipts/invoices: (1) a statement that the seller is a VAT-registered entity
followed by its TIN-V; (2) the total amount which the purchaser pays or is
obligated to pay to the seller with the indication that such amount includes the
VAT; (3) date of the transaction; (4) quantity of merchandise; (5) unit cost;
(6) business style, if any, and address of the purchases, customer or client in
the case of sales, receipt or transfers in the amount of P100.00 or more, or
regardless of the amount, where the sale or transfer is made by a person liable
to VAT to another person also liable to VAT, or where the receipt is issued to
cover payment made as rentals, commissions, compensations or fees; and the
TIN of the purchaser where the purchaser is a VAT-registered person. Items
(7) and (8) do not apply to the taxpayers export sales since the purchasers of
its goods are foreign entities, which are, logically, not VAT-registered or
liable to pay tax in this jurisdiction.
RMC 42-2003, issued on July 15, 2003 and providing for disallowance
for failure to comply with invoicing requirements, does not apply. Principal
ground for disallowance of the claim is the failure to reflect or indicate in the
invoices the BIR authority to print, which is not required by law or

24

regulations. Moreover, the claim was filed on May 18, 1999. Hence, the
circular cannot be applied retroactively because to do so would be prejudicial
to the taxpayer. As a PEZA-registered export enterprise, the taxpayer is
entitled to leniency in the implementation of the VAT.
Intel Technology Philippines, Inc. vs. CIR, G.R. No. 166732, April 27,
2007.

Q.

SUBSTANTIATION IS REQUIRED; CPA REPORT

MUST BE SUPPORTED BY INVOICES/RECEIPTS;
TRIAL DE NOVO; FORGOTTEN EVIDENCE MAY
NOT BE INTRODUCED

The claim for refund/credit must comply with the substantiation

requirements under CTA Circular No. 1-95. as amended by CTA Circular No.
10-97 (now Section 5, Rule 12 and Sections 1-5, Rule 13 of the Revised Rules
of the Court of Tax Appeals). CPA summary report and certification are not
sufficient.

Proceedings before CTA constitute trial de novo. Forgotten

evidence may not be introduced. Documentary requirements under Revenue

Regulations No. 3-88 must be followed as administrative issuances in the
implementation of law have the force of law.
Atlas Consolidated Mining and Development Corp. v. CIR, G.R. No.
145526, March 16, 2007; G.R. Nos. 141104 & 148763, June 8, 2007; G.R.
No. 146221, September 25, 2007; G.R. No. 159490, February 18, 2008.
25

R.

LOCAL BUSINESS TAX ON CONTRACTORS

SHOULD BE BASED ON GROSS RECEIPTS,
ACTUAL OR CONSTRUCTIVE

Taxpayer is a corporation with principal office in Pasig City and

engaged in the design, engineering, and marketing of telecommunications
facilities/system. It was assessed deficiency business taxes for the years 19982001 based on prior years gross revenues per its audited financial statements.
The Supreme Court sustained the taxpayers position and ruled that as a
contractor, it correctly paid its taxes based on gross receipt, actual or
constructive, as opposed to gross earnings/revenue, which includes
uncollected earnings. It cited Section 4. 108-4, BIR Revenue Regulations No.
16-2005, which defined gross receipts. 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. In contrast, gross
revenue covers money or its equivalent actually or constructively received,
including the value of services rendered or articles sold, exchanged or
leased, the payment of which is yet to be received.
Ericsson Telecommunications, Inc. vs. City of Pasig, G.R. No.
176667, November 22, 2007.

26

S.

OVER-THE-COUNTER SALE OF STOCK IS SUBJECT

TO CAPITAL GAINS TAX, NOT STOCK TRANSACTION
TAX; BASIS

Taxpayer was found to have bought for P98,000,000 and then sold
Over-The-Counter for P6,175,000 shares of stock in Best World Resources
Corporation (BW) in 1999 through his stock broker, Wise Securities
Philippines, Inc. The CTA upheld the assessment against petitioner for
deficiency capital gains tax (CGT) and documentary stamp tax (DST). OverThe-Counter (OTC) transactions refer to sale, transfer or other disposition of
shares of stock listed with the Philippine Stock Exchange that are not effected
on the trading floor, but only through the equity trading facility of the
Philippine Central Depository, Inc. (PCDI). Taxpayer is subject to capital
gains tax of 5% on the first P100,000 net capital gains realized and 10% on
the excess of P100,000 net capital gains realized based on the highest closing
price on the day when the shares are sold or transferred less cost determined
on the basis of the first-in first-out (FIFO) method since the stock cannot
properly identified pursuant to Sec. 6 (a) of Revenue Regulations No. 2-82,
dated March 29, 1982..
Manuel Maranon, Jr. vs. Commissioner of Internal Revenue, CTA
Case No. 6711, December 4, 2007.

27

T.

NO CRIMINAL OR CIVIL LIABILITY DUE TO LACK OF

VALID NOTICE OF ASSESSMENT

The BIR failed to prove receipt of the assessment notices, both the
Preliminary Assessment Notice and the Final Assessment Notices. Without
the alleged assessment notices, accused cannot be required to pay alleged
deficiency income tax and value-added tax liabilities. Lack of due process
exonerates the accused from both criminal and tax liabilities.
Ernesto S. Mallari vs. People of the Philippines, CTA E.B. Crim. Case
No. 002, January 8, 2008.

U.

SALE OF MEDICINE AND PHARMACEUTICAL

ITEMS TO HOSPITAL IN-PATIENTS ARE VAT
EXEMPT

Sale to hospital in-patients of medicines, drugs and pharmaceutical

items are part of hospital service and thus, exempt from VAT under
Section 109(l) of the 1997 NIRC.
Professional Services, Inc. vs. CIR, CTA Case No. 7381, March
17, 2008

28

V.

CINEMA TICKET SALES ARE VAT EXEMPT AND

EXEMPT FROM AMUSEMENT TAX UNDER THE
NIRC; FAILURE TO COMPLY WITH DUE NOTICE
REQUIREMENT UNDER RMC

Legislative history shows that the gross receipts of proprietors or

operators of cinemas/theaters from ticket sales have always been subject to
amusement tax, not to VAT or any other business tax. Moreover, House
Resolution No. 975 supports the finding that such sales are exempt from VAT.
As to the amusement tax, the provision imposing amusement tax on the
proprietor, lessee, or operator of theaters or cinematographs previously
provided under C.A. No. 466 can no longer be found in the NIRC. While it is
true that the Local Tax Code, which transferred to provincial government
which included the phrase to the exclusion of the national or municipal
government was replaced by the Local Government Code, which deleted
such phrase, such removal does not empower the National Government or the
municipal government to levy and collect taxes on the gross receipts from
admission fees collected by operators/proprietors of theaters, cinemas and
other amusement places, without an enabling statute.

29

RMC 28-2001 entitled Taxability of Movie/Cinema House Operators

for VAT Purposes failed to comply with notice, hearing and publication
requirements embodied in RMC 20-86 and is thus inoperative.
SM Prime Holdings, Inc. vs. CIR, CTA Case No. 7347, March 17,
2008. See Ayala Land, Inc. vs. CIR, CTA Case No. 7261, April 17, 2008;
First Asia Realty Development Corporation and SM Prime Holdings, Inc.
vs. CIR, CTA Case Nos. 7079, 7085, 7111 and 7272, September 22, 2006.

W.

NO TAX CREDIT ALLOWED FOR INPUT TAXES

ON ZERO-RATED SALES BY SUPPLIERS TO PEZAREGISTERED ENTERPRISE

Under the Cross Border Doctrine, sales by suppliers of goods and

services to a PEZA-registered Enterprise are considered as zero-rated VAT
export sales. Hence, such PEZA-registered enterprise may not claim for VAT
input taxes
paid or incurred on its purchases of goods and services attributed to its
zero-rated sales beginning the effectivity of RMC 74-99 dated October 15,
1999. Pursuant to RMC 42-03, its recourse is to seek reimbursement from its
suppliers.
Coral Bay Nickel Corporation vs. CIR, CTA Case No. 7022, March
10, 2008.
30

X.

ASSESSMENT CANCELLED DUE TO FAILURE TO

PRESENT THIRD PARTY INFORMATION

Both income tax and VAT assessments resulting from alleged

undeclared purchases, sale of unaccounted prepaid cards, undeclared
commission income and undeclared service and repairs income for the years
2001 and 2002 were cancelled due to failure to present third party
information, which was the basis thereof. BIR, which was declared in default,
presented no evidence notwithstanding its broad powers under Section 5 of
the NIRC to obtain the best evidence. Assessment must be based on actual
facts.
Wintelecom, Inc. vs. CIR, CTA Case No. 7056, February 20, 2008

Y.

ALL EVENTS TEST

In CIR vs. Isabela Cultural Corporation, G.R. No. 172231, February

12, 2007, 3rd Div., reversing the decision of the CA affirming the CTA on this
point, the high court disallowed the deduction of legal and auditing expenses
billed in the year 1986 for work rendered by a law firm in 1984 and 1985 and
for auditing services rendered by an auditing firm in the year 1985 pursuant to

31

the all events test used for purposes of determining recognition of income
and deductibility of expense. The Supreme Court held:

For a taxpayer using the accrual method, the determinative

question is, when do the facts present themselves in such a
manner that the taxpayer must recognize income or expense?
The accrual of income and expense is permitted when the allevents test has been met. This test requires: (1) fixing of a right
to income or liability to pay; and (2) the availability of the
reasonable accurate determination of such income or liability.

The all-events test requires the right to income or liability

be fixed, and the amount of such income or liability be
determined with reasonable accuracy. However, the test does not
demand that the amount of income or liability be known
absolutely, only that a taxpayer has at his disposal the
information necessary to compute the amount with reasonable
accuracy.

The all-events test is satisfied where computation

remains uncertain, if its basis is unchangeable; the test is satisfied

where a computation may be unknown, but is not as much as
unknowable, within the taxable year. The amount of liability
does not have to be determined exactly; it must be
determined with reasonable accuracy.

Accordingly, the

term reasonable accuracy implies something less than an

exact or completely accurate amount.

32

The propriety of an accrual must be judged by the facts

that a taxpayer knew, or could reasonably be expected to
have known, at the closing of its books for the taxable year.
Accrual method of accounting presents largely a question of
fact; such that the taxpayer bears the burden of proof of
establishing the accrual of an item of income or deduction.

Corollarily, it is a governing principle in taxation that tax

exemptions must be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority; and one
who claims an exemption must be able to justify the same by the
clearest grant of organic or statute law. An exemption from the
common burden cannot be permitted to exist upon vague
implications. And since a deduction for income tax purposes
partakes of the nature of a tax exemption, then it must also be
strictly construed.

In the instant case, the expenses for professional fees

consist of expenses for legal and auditing services. The expenses
for legal services pertain to the 1984 and 1985 legal and retainer
fees of the law firm Bengzon Zarraga Narciso Cudala Pecson
Azcuna & Bengson, and for reimbursement of the expenses of
said firm in connection with ICCs tax problems for the year
1984. As testified by the Treasurer of ICC, the firm has been its
counsel since the 1960s.

From the nature of the claimed

deductions and the span of time during which the firm was
retained, ICC can be expected to have reasonably known the
33

retainer fees charged by the firm as well as the compensation for

its legal services. 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. For one, ICC, in
the exercise of due diligence could have inquired into the amount
of their obligation to the firm, especially so that it is using the
accrual method of accounting.

For another, it 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.

As previously stated, the accrual method presents largely a

question of fact and that the taxpayer bears the burden of
establishing the accrual of an expense or income. However, ICC
failed to discharge this burden.

As to when the firms

performance of its services in connection with the 1984 tax

problems were completed, or whether ICC exercised reasonable
diligence to inquire about the amount of its liability, or whether it
does or does not possess the information necessary to compute
the amount of said liability with reasonable accuracy, are
questions of fact which ICC never established. It simply relied
on the defense of delayed billing by the firm and the company,
which under the circumstances, is not sufficient to exempt it from
being charged with knowledge of the reasonable amount of the
expenses for legal and auditing services.
34

In the same vein, the professional fees of SGV & Co. for
auditing the financial statements of ICC for the year 1985 cannot
be validly claimed as expense deductions in 1986.

This is so

because ICC failed to present evidence showing that even with

only reasonable accuracy, as the standard to ascertain its
liability to SGV & Co. in the year 1985, it cannot determine the
professional fees which said company would charge for its
services.

ICC thus failed to discharge the burden of proving that the

claimed expense deductions for the professional services were
allowable deductions for the taxable year 1986.

Hence, per

Revenue Audit Memorandum Order No. 1-2000, they cannot be

validly deducted from its gross income for the said year and were
therefore properly disallowed by the BIR.

Z.

PROOF OF RECEIPT OF SEPARATION PAY BY

EACH
SEPARATED
EMPLOYEE
AND
REMITTANCE
IS
REQUIRED;
MERE
CERTIFICATION BY INDEPENDENT CPA IS
INSUFFICIENT; MOTION FOR NEW TRIAL MUST
BE ADEQUATELY SUPPORTED BY ATTACHED
DOCUMENTS

Claim for refund of withholding tax on separation pay to employees due

to redundancy (cause beyond the control of employee) was denied by the BIR

35

and the CTA for failure to show proof of payment of separation and
remittance of such taxes. PLDT filed a motion for new trial/reconsideration,
praying for an opportunity to prove receipt of separation pay on ground that
receipts and quitclaims were only recently found and counsel relied on the
audit of the independent CPA of voluminous cash salary vouchers unaware
that cash salary vouchers of rank and file employees, unlike those of
supervisory and executive employees, do not have acknowledgment receipts.
CTA denied the motion. PLDT appealed to CA, which denied its petition and
motion for reconsideration. Hence, PLDT filed a petition for review by
certiorari.
The Supreme Court ruled that it is incumbent on PLDT as a claimant
for refund of each separated employee to show that each employee did reflect
in his return the income upon which any creditable tax is required to be
withhold. It must prove that the employees received the income payments as
part of gross income and the fact of withholding. As held by the CTA, PLDT
failed to prove receipt of payment as there were no payment acknowledgment
receipts, the cash receipt vouchers being unsigned. Its submitted documents
were insufficient to show that the tax withheld from the separated employees
were actually remitted.

36

While the independent auditor certified that it had been able to trace
such remittance, there are no adequate supporting documents to show such
remittance as required by CTA Circular No. 1-95.
Newly discovered evidence as a basis of a motion for new trial should
be supported by affidavits of the witnesses by whom such evidence is
expected to be give, or by duly authenticated documents which are proposed
to be introduced. And the grant or denial of a new trial is, generally speaking,
addressed to the sound discretion of the court which cannot be interfered with
unless a clear abuse thereof is shown. PLDT has not shown such abuse.
No affidavits were attached to the motion for new trial. Also, the
receipts, releases, and quitclaims were not authenticated. They were not
notarized, despite being signed by employees, as early as December 28, 1995,
or about two (2) years before the filing of the CTA petition. None of the
responsible officers executed an affidavit explaining why the same (a) were
not notarized on or about December 28, 1995; (b) whether the said deeds were
turned over to its counsel when it filed the petition; and (c) why it failed to
present the receipts to the independent auditor during the examination.
As to liberal application of the rules, this is a dangerous proposition
which must not be allowed as there would be no end to hearing. Simple
negligence cannot be tolerated.

37

Moreover, the alleged newly discovered evidence does not suffice, as

PLDT would still have to prove that the redundant employees declared the
separation pay as part of their gross income. Also, the fact of withholding
must be established by a copy of the statement duly issued by the payor to the
payee showing the amount paid and the amount of tax withheld therefrom.
Philippine Long Distance Telephone Company vs. CIR, G.R. No.
157264, January 31, 2008.

38