SUBJECT: Tax II Atty. Gading Mendoza Date: July 14 !""# Assignment No.

. 3: Value-added Tax (VAT) Mi$$ing Ca$e$: ABA%ADA Seagate To$&i'a

$u'$tituting it1 a$ u*ged 'y -etitione*$ ,on,e*n$ a /e*e /atte* o0 0o*/ and ,on$ide*ing t&e -etitione* &a$ not $&o;n ;&at $u'$tantial di00e*en,e it ;ould /a2e i0 Senate a--lied $u,& $u'$titution in t&e ,a$e it ,annot 'e a--lied to t&e ,a$e at 'a*. @&ile t&e a0o*e/entioned Con$titutional -*o4i$ion $tate$ t&at 'ill$ /u$t <o*iginate ex,lu$i4ely in t&e >o. = it al$o add$ <'ut t&e Senate /ay -*o-o$e o* ,on,u* ;it& a/end/ent$.= T&e Senate /ay t&en -*o-o$e an enti*ely ne; 'ill a$ a $u'$titute /ea$u*e. )etitione*$ e**ed in a$$u/ing t&e Senate 4e*$ion to 'e an inde-endent and di$tin,t 'ill. @it&out t&e >ou$e 'ill Senate ,ould not &a4e ena,ted t&e Senate 'ill a$ t&e latte* ;a$ a /e*e a/end/ent o0 t&e 0o*/e*. A$ $u,& it did not &a4e to -a$$ t&e Senate on $e,ond and t&i*d *eading$. )etitione*$ ?ue$tion t&e $igning o0 t&e )*e$ident on 'ot& 'ill$ to $u--o*t t&ei* ,ontention t&at $u,& a*e $e-a*ate and di$tin,t. T&e )*e$ident ,e*ti0ied t&e 'ill$ $e-a*ately only 'e,au$e t&e ,e*ti0i,ation &ad to 'e /ade o0 t&e 4e*$ion o0 t&e $a/e *e4enue 'ill ;&i,& AT T>E MBME5T ;a$ 'eing ,on$ide*ed. )etitione*$ ?ue$tion t&e -o;e* o0 t&e Con0e*en,e Co//ittee to in$e*t ne; -*o4i$ion$. T&e Cu*i$di,tion o0 t&e ,on0e*en,e ,o//ittee i$ not li/ited to *e$ol4ing di00e*en,e$ 'et;een t&e Senate and t&e >ou$e. It /ay -*o-o$e an enti*ely ne; -*o4i$ion gi4en t&at $u,& a*e ge*/ane to t&e $u'Ce,t o0 t&e ,on0e*en,e and t&at t&e *e$-e,ti4e &ou$e$ o0 Cong*e$$ $u'$e?uently a--*o4e it$ *e-o*t. )etitione* )A: ,ontend$ t&at t&e a/end/ent o0 it$ 0*an,&i$e 'y t&e ;it&d*a;al o0 it$ exe/-tion 0*o/ 8AT i$ not ex-*e$$ed in t&e title o0 t&e la; t&e*e'y 4iolating t&e Con$titution. T&e Cou*t 'elie4e$ t&at t&e title o0 t&e ..A. $ati$0ie$ t&e Con$titutional .e?ui*e/ent. )etitione*$ ,lai/ t&at t&e ..A. 4iolate$ t&ei* -*e$$ 0*eedo/ and *eligiou$ li'e*ty &a4ing *e/o4ed t&e/ 0*o/ t&e exe/-tion to -ay 8AT. Su00i,e it to $ay t&at $in,e t&e la; g*anted t&e -*e$$ a -*i4ilege t&e la; ,ould ta2e 'a,2 t&e -*i4ilege anyti/e ;it&out o00en$e to t&e Con$titution. By g*anting exe/-tion$ t&e State doe$ not 0o*e4e* ;ai4e t&e exe*,i$e o0 it$ $o4e*eign -*e*ogati4e.

Tolentino v. Secretary of Finance - !" S#$A %3& (ACTS: )etitione*$ +Tolentino %ilo$'ayan In,. )&ili--ine Ai*line$ .o,o and C&a/'e* o0 .eal E$tate and Builde*$ A$$o,iation1 $ee2 *e,on$ide*ation o0 t&e Cou*t3$ -*e4iou$ *uling di$/i$$ing t&e -etition$ 0iled 0o* t&e de,la*ation o0 un,on$titutionality o0 ..A. 5o. 6617 t&e Ex-anded 8alue9Added Tax :a;. )etitione*$ ,ontend t&at t&e ..A. did not <o*iginate ex,lu$i4ely= in t&e >o. a$ *e?ui*ed 'y A*ti,le 7 Se,tion !4 o0 t&e Con$titution. T&e Senate allegedly did not -a$$ it on $e,ond and t&i*d *eading$ in$tead -a$$ing it$ o;n 4e*$ion. )etitione*$ ,ontend t&at it $&ould &a4e a/ended t&e >ou$e 'ill 'y $t*i2ing out t&e text o0 t&e 'ill and $u'$tituting it ;it& t&e text o0 it$ o;n 'ill $o a$ to ,on0o*/ ;it& t&e Con$titution. ISSUE: @A5 t&e ..A. i$ un,on$titutional 0o* &a4ing <o*iginated= 0*o/ t&e Senate and not t&e >o.. >E:D: )etition i$ un/e*ito*iou$. T&e ena,t/ent o0 t&e Senate 'ill &a$ not 'een t&e 0i*$t in$tan,e ;&e*e t&e Senate in t&e exe*,i$e o0 it$ -o;e* to -*o-o$e a/end/ent$ to 'ill$ +*e?ui*ed to o*iginate in t&e >ou$e1 -a$$ed it$ o;n 4e*$ion. An a/end/ent 'y $u'$titution +$t*i2ing out t&e text and

:a$tly -etitione*$ ,ontend t&at t&e ..A. 4iolate$ due -*o,e$$ e?ual -*ote,tion and ,ont*a,t ,lau$e$ and t&e *ule on taxation. )etitione*$ 0ail to ta2e into ,on$ide*ation t&e 0a,t t&at t&e 8AT ;a$ al*eady -*o4ided 0o* in E.B. 5o. !6D long 'e0o*e t&e ..A. ;a$ ena,ted. T&e latte* /e*ely EE)A5DS t&e 'a$e o0 t&e tax. E?uality and uni0o*/ity in taxation /ean$ t&at all taxa'le a*ti,le$ o* 2ind$ o0 -*o-e*ty o0 t&e $a/e ,la$$ 'e taxed at t&e $a/e *ate t&e taxing -o;e* &a4ing aut&o*ity to /a2e *ea$ona'le and natu*al ,la$$i0i,ation$ 0o* -u*-o$e$ o0 taxation. It i$ enoug& t&at t&e $tatute a--lie$ e?ually to all -e*$on$ 0o*/$ and ,o*-o*ation$ -la,ed in $ $i/ila* $ituation.

ad/ini$t*ati4e e00i,ien,y o0 )&ila/li0e and it$ a00iliate$ and not in t&e $ale o0 $e*4i,e$. It ;a$ not -*o0it9/oti4ated t&u$ not engaged in 'u$ine$$. In 0a,t it did not gene*ate -*o0it 'ut $u00e*ed a net lo$$ in taxa'le yea* 1#GG. CBMASE.CB a4e**ed t&at $in,e it ;a$ not engaged in 'u$ine$$ it ;a$ not lia'le to -ay 8AT. CI. a4e*$ t&at to Hengage in 'u$ine$$H and to Hengage in t&e $ale o0 $e*4i,e$H a*e t;o di00e*ent t&ing$. )etitione* /aintain$ t&at t&e $e*4i,e$ *ende*ed 'y CBMASE.CB to )&ila/li0e and it$ a00iliate$ 0o* a 0ee o* ,on$ide*ation a*e $u'Ce,t to 8AT. 8AT i$ a tax on t&e 4alue added 'y t&e -e*0o*/an,e o0 t&e $e*4i,e. It i$ i//ate*ial ;&et&e* -*o0it i$ de*i4ed 0*o/ *ende*ing t&e $e*4i,e. T&e CTA *ule$ in 0a4ou* o0 CI.. T&e CA *e4e*$ed. I$$ue: @&et&e* o* not CBMASE.CB ;a$ engaged in t&e $ale o0 $e*4i,e$ and /u$t 'e lia'le to -ay 0o* 8AT. >eld: 8AT i$ a tax on t*an$a,tion$ i/-o$ed at e4e*y $tage o0 t&e di$t*i'ution -*o,e$$ on t&e $ale 'a*te* ex,&ange o0 good$ o* -*o-e*ty and on t&e -e*0o*/an,e o0 $e*4i,e$ e4en in t&e a'$en,e o0 -*o0it att*i'uta'le t&e*eto. T&e te*/ Hin t&e ,ou*$e o0 t*ade o* 'u$ine$$H *e?ui*e$ t&e *egula* ,ondu,t o* -u*$uit o0 a ,o//e*,ial o* an e,ono/i, a,ti4ity *ega*dle$$ o0 ;&et&e* o* not t&e entity i$ -*o0it9o*iented. t&e Co//i$$ione* o0 Inte*nal .e4enue i$$ued BI. .uling 5o. "1"9#G e/-&a$izing t&at a do/e$ti, ,o*-o*ation t&at -*o4ided te,&ni,al *e$ea*,& /anage/ent and te,&ni,al a$$i$tan,e to it$ a00iliated ,o/-anie$ and *e,ei4ed -ay/ent$ on a *ei/'u*$e/ent9o09,o$t 'a$i$ ;it&out any intention o0 *ealizing -*o0it ;a$ $u'Ce,t to 8AT on $e*4i,e$ *ende*ed. In 0a,t e4en i0 $u,& ,o*-o*ation ;a$ o*ganized ;it&out any intention *ealizing

#'$ v. #A(#)*AS+$#) (a,t$: Co//on;ealt& Manage/ent and Se*4i,e$ Co*-o*ation +CBMASE.CB1 i$ a ,o*-o*ation duly o*ganized and exi$ting unde* t&e la;$ o0 t&e )&ili--ine$. It i$ an a00iliate o0 )&ili--ine A/e*i,an :i0e In$u*an,e Co. +)&ila/li0e1 o*ganized 'y t&e lette* to -e*0o*/ ,olle,tion ,on$ultati4e and ot&e* te,&ni,al $e*4i,e$ in,luding 0un,tioning a$ an inte*nal audito* o0 )&ila/li0e and it$ ot&e* a00iliate$. BI. i$$ued an a$$e$$/ent to CBMASE.CB 0o* de0i,ien,y 8AT a/ounting to )DF1 GF1."1 0o* taxa'le yea* 1#GG. CBMASE.CB3$ annual ,o*-o*ate in,o/e tax *etu*n ending De,e/'e* D1 1#GG indi,ated a net lo$$ in it$ o-e*ation$ in t&e a/ount o0 )7 "66. CBMASE.CB a$$e*ted t&at t&e $e*4i,e$ it *ende*ed to )&ila/li0e and it$ a00iliate$ *elating to ,olle,tion$ ,on$ultati4e and ot&e* te,&ni,al a$$i$tan,e in,luding 0un,tioning a$ an inte*nal audito* ;e*e on a Hno9 -*o0it *ei/'u*$e/ent9o09,o$t9onlyH 'a$i$. It a4e**ed t&at it ;a$ not engaged in t&e 'u$ine$$ o0 -*o4iding $e*4i,e$ to )&ila/li0e and it$ a00iliate$. It ;a$ e$ta'li$&ed to en$u*e o-e*ational o*de*line$$ and

-*o0it any in,o/e o* -*o0it gene*ated 'y t&e entity in t&e ,ondu,t o0 it$ a,ti4itie$ ;a$ $u'Ce,t to in,o/e tax. >en,e it i$ i//ate*ial ;&et&e* t&e -*i/a*y -u*-o$e o0 a ,o*-o*ation indi,ate$ t&at it *e,ei4e$ -ay/ent$ 0o* $e*4i,e$ *ende*ed to it$ a00iliate$ on a *ei/'u*$e/ent9on9,o$t 'a$i$ only ;it&out *ealizing -*o0it 0o* -u*-o$e$ o0 dete*/ining lia'ility 0o* 8AT on $e*4i,e$ *ende*ed. A$ long a$ t&e entity -*o4ide$ $e*4i,e 0o* a 0ee *e/une*ation o* ,on$ide*ation t&en t&e $e*4i,e *ende*ed i$ $u'Ce,t to 8AT. At any *ate $in,e taxe$ a*e t&e li0e'lood o0 t&e nation $tatute$ t&at allo; exe/-tion$ a*e ,on$t*ued again$t t&e g*antee and li'e*ally in 0a4ou* o0 t&e go4e*n/ent. Any exe/-tion 0*o/ t&e -ay/ent o0 a tax /u$t 'e ,lea*ly $tated in t&e language o0 t&e la;I it ,annot 'e /e*ely i/-lied t&e*e0*o/. In t&e ,a$e o0 8AT Se,tion 1"# .e-u'li, A,t G4!4 ,lea*ly enu/e*ate$ t&e t*an$a,tion$ exe/-ted 0*o/ 8AT. T&e $e*4i,e$ *ende*ed 'y CBMASE.CB do not 0all ;it&in t&e exe/-tion$.

T&e ,ont*o4e*$y in t&i$ ,a$e a*o$e ;&en t&e *e$-ondent *e?ue$ted 0*o/ t&e BI. a *e0und o0 it$ 1##6 ex,e$$ in-ut taxe$ ;&i,& ;a$ a**i4ed at a0te* dedu,ting 0*o/ it$ total in-ut 8AT -aid it$ a--lied out-ut lia'ilitie$. T&e*e 'eing no a,tion on t&e -a*t o0 t&e BI. t&e *e$-ondent 0iled a -etition 'e0o*e t&e Cou*t o0 Tax A--eal$. A,,o*ding to t&e *e$-ondent Se,tion 1"! -*o4ide$ t&at ex-o*t $ale$ 'y a 8AT *egi$te*ed -e*$on t&e ,on$ide*ation o0 ;&i,& i$ -aid 0o* in a,,e-ta'le 0o*eign ,u**en,y in;a*dly *e/itted to t&e )&ili--ine$ and a,,ounted 0o* in a,,o*dan,e ;it& exi$ting *egulation$ o0 t&e BS) a*e $u'Ce,t to 8AT at ze*o -e*,ent. Mo*eo4e* Se,tion 1"7 -*o4ide$ t&at in-ut taxe$ on do/e$ti, -u*,&a$e$ o0 taxa'le good$ and $e*4i,e$ *elated to ze*o9*elated *e4enue$ a*e a4aila'le a$ tax *e0und. Being a 8AT9*egi$te*ed entity t&e *e$-ondent a*gued t&at it i$ $u'Ce,t to t&e $aid 8AT *ate and t&at it ,an a4ail o0 t&e *e0und$ o* tax ,*edit$ o0 in-ut tax. T&e Cou*t o0 Tax A--eal$ g*anted t&e -etition o0 t&e *e$-ondent to 'e gi4en t&e *e0und o0 it$ ex,e$$ in-ut taxe$ and $u,& *uling o0 t&e CTA ;a$ a00i*/ed 'y t&e CA. A,,o*ding to t&e CA t&e CI. ;a$ /i$ta2en in *e?ui*ing t&at t&e *e$-ondent3$ $e*4i,e$ 'e ,on$u/ed a'*oad in o*de* to 'e ze*o9*ated. By doing $o it ;ent 'eyond t&e $-&e*e o0 inte*-*etation and into t&at o0 legi$lation. I$$ue: .uling: Ke$ it ,an. T&e la; i$ 4e*y ,lea* in $aying t&at 8AT9*egi$te*ed -e*$on in t&e )&ili--ine$ +ot&e* t&an t&e -*o,e$$ing /anu0a,tu*ing o* *e-a,2ing o0 good$ 0o* -e*$on$ doing 'u$ine$$ out$ide t&e )&ili--ine$1 ;&en -aid in a,,e-ta'le 0o*eign ,u**en,y and a,,ounted 0o* in a,,o*dan,e ;it& t&e *ule$ and *egulation$ o0 t&e BS) a*e ze*o9*ated. T&e *e$-ondent in t&i$ ,a$e i$ a 8AT *egi$te*ed -e*$on t&at 0a,ilitate$ t&e ,olle,tion and -ay/ent o0 *e,ei4a'le$ 'elonging to it$ *e$ident 0o*eign ,lient 0o* ;&i,& it get$ -aid in a,,e-ta'le 0o*eign ,u**en,y in;a*dly *e/itted and a,,ounted 0o* in ,on0o*/ity ;it& BS) *ule$ and *egulation$. Ce*tainly t&e $e*4i,e it *ende*$ @A5 t&e *e$-ondent ,o/-any ,an a4ail o0 tax ,*edit$

#ommissioner of 'nternal $evenue 'nternational- 'nc. (./ili,,ine 0ranc/)

vs.

American

+x,ress

G... 5o. 1F!7"# J June !# !""F J J. )angani'an J dige$t 'y MCAC Balde/o* (a,t$: T&e *e$-ondent i$ a )&ili--ine B*an,& o0 A/e*i,an Ex-*e$$ Inte*national a ,o*-o*ation duly o*ganized and exi$ting unde* and 'y 4i*tue o0 t&e la;$ o0 t&e State o0 Dela;a*e U.S.A. It i$ a $e*4i,ing unit o0 t&e A/e*i,an Ex-*e$$ Inte*national >% B*an,& and i$ engaged -*i/a*ily to 0a,ilitate t&e ,olle,tion$ o0 AMEE9>% *e,ei4a'le$ 0*o/ ,a*d /e/'e*$ $ituated in t&e )&ili--ine$ and -ay/ent to $e*4i,e e$ta'li$&/ent$ in t&e )&ili--ine$. T&e *e$-ondent ,o*-o*ation i$ a *egi$te*ed 8AT tax-aye*.

in t&e )&ili--ine$ i$ not in t&e $a/e ,atego*y a$ <-*o,e$$ing /anu0a,tu*ing o* *e-a,2ing o0 good$= and $&ould &en,e 'e ze*o9*ated. (o* 0a,ilitating in t&e )&ili--ine$ t&e ,olle,tion and -ay/ent o0 *e,ei4a'le$ 'elonging to it$ >ong %ong9'a$ed 0o*eign ,lient and getting -aid 0o* it in duly a,,ounted a,,e-ta'le 0o*eign ,u**en,y t&e *e$-ondent *ende*$ $e*4i,e 0alling unde* t&e ,atego*y o0 ze*o9*ating. @it& t&i$ t&e Cou*t u-&old$ t&e *e$-ondent3$ entitle/ent to t&e *e0und. It i$ al$o i/-o*tant to note t&at t&e la; neit&e* /a2e$ a ?uali0i,ation no* add$ a ,ondition in dete*/ining t&e tax $itu$ o0 t&e ze*o9*ated $e*4i,e. Unde* t&i$ ,*ite*ion t&e -la,e ;&e*e t&e $e*4i,e i$ *ende*ed dete*/ine$ t&e Cu*i$di,tion to i/-o$e 8AT. )e*0o*/ed in t&e )&ili--ine$ $u,& $e*4i,e i$ ne,e$$a*ily $u'Ce,t to it$ Cu*i$di,tion in o*de* to en0o*,e a ze*o *ate. T&e -la,e o0 -ay/ent i$ i//ate*ial /u,& le$$ i$ t&e -la,e ;&e*e t&e out-ut o0 $e*4i,e ;ill 'e 0u*t&e* o* ulti/ately u$ed. #'$ vs #e1u Toyo #or,oration (a,t$: Ce'u Toyo Co*-. +Ce'u1 i$ a do/e$ti, $u'$idia*y o0 Toyo :en$ Co*-o*ation Ja-an engaged in t&e /anu0a,tu*e o0 len$e$ and 4a*iou$ o-ti,al ,o/-onent$ u$ed in T8 $et ,a/e*a$ CD$ et,. It$ -*in,i-al o00i,e i$ lo,ated at t&e Ma,tan Ex-o*t )*o,e$$ing Lone +ME)L1 a$ a zone ex-o*t ente*-*i$e *egi$te*ed ;it& t&e )ELA. It i$ al$o *egi$te*ed ;it& t&e BI. a$ a 8AT tax-aye*. Ce'u $ell$ G"M o0 it$ -*odu,t$ to it$ /ot&e* ,o*-o*ation -u*$uant to an Ag*ee/ent o0 B00$etting. T&e *e$t a*e $old to 4a*iou$ ente*-*i$e$ doing 'u$ine$$ in t&e ME)L. Bn Ma*,& D" 1##G it 0iled an a--li,ation 0o* tax ,*editA*e0und o0 8AT -aid 0o* t&e -e*iod A-*il 1##7 to De,e/'e* 1##6 a/ounting to a'out )4.4 /illion *e-*e$enting ex,e$$ 8AT in-ut -ay/ent$. Ce'u a*gue$ t&at a$ a 8AT9*egi$te*ed ex-o*te* o0 good$ it i$ $u'Ce,t to 8AT at t&e *ate o0 "M on it$ ex-o*t $ale$ t&at do not *e$ult in any out-ut tax. >en,e t&e unutilized 8AT in-ut taxe$ on it$ -u*,&a$e$ o0 good$ and $e*4i,e$ *elated to $u,& ze*o9*ated a,ti4itie$ a*e a4aila'le a$ tax ,*edit$ o* *e0und.

T&e BI. o--o$ed t&i$ on t&e 0ollo;ing g*ound$: It 0ailed to $&o; t&at t&e tax ;a$ e**oneou$ly o* illegally ,olle,tedI t&e taxe$ -aid and ,olle,ted a*e -*e$u/ed to &a4e 'een /ade in a,,o*dan,e ;it& la;I and t&at ,lai/$ 0o* *e0und a*e $t*i,tly ,on$t*ued again$t t&e ,lai/ant. T&e CTA *uled t&at not t&e enti*e a/ount ,lai/ed 0o* *e0und 'y Toyo ;e*e a,tually o00$et again$t it$ *elated a,,ount$. It dete*/ined t&at t&e *e0undA,*edit a/ounted only to )!.1M. T&e $a/e ;a$ a00i*/ed 'y t&e CA. I$$ue: @&et&e* t&e CA e**ed in a00i*/ing t&e CTA g*anting a *e0und *e-*e$enting unutilized in-ut 8AT on good$ and $e*4i,e$. .uling: T&e -etition i$ denied. Ce'u i$ entitled to t&e )!.1M tax *e0undA,*edit. )etitione*3$ ,ontention t&at *e$-ondent i$ not entitled to *e0und 0o* 'eing exe/-t 0o*/ 8AT i$ untena'le. T&i$ a*gu/ent tu*n$ a 'lind eye to t&e 0i$,al in,enti4e$ gi4en to )ELA *egi$te*ed ente*-*i$e$ unde* .A 6#17. Unde* t&i$ $tatute Ce'u &a$ to o-tion$ ;it& *e$-e,t to it$ tax 'u*den. It ,ould a4ail o0 an in,o/e tax &oliday -u*$uant to EB !!7 t&u$ exe/-ting it 0*o/ in,o/e taxe$ 0o* a nu/'e* o0 yea*$ +in t&i$ ,a$e 4 yea*$1 'ut not 0*o/ ot&e* inte*nal *e4enue taxe$ $u,& a$ 8ATI o* it ,ould a4ail o0 t&e tax exe/-tion on all taxe$ in,luding 8AT unde* )D 77 and -ay only t&e -*e0e*ential *ate o0 FM unde* .A 6#17. T&u$ a4ailing o0 t&e 0i*$t o-tion *e$-ondent i$ not exe/-t 0*o/ 8AT and it ,o**e,tly *egi$te*ed it$el0 a$ a 8AT tax-aye*. In 0ine it i$ engaged in a taxa'le *at&e* t&an exe/-t t*an$a,tion$. In taxa'le t*an$a,tion$ t&e $elle* +Ce'u1 $&all 'e entitled to tax ,*edit 0o* t&e 8AT -aid on -u*,&a$e$ and lea$e$ o0 good$ -*o-e*tie$ o* $e*4i,e$. Unde* t&e 8AT $y$te/ a ze*o9*ate $ale 'y a 8AT9*egi$te*ed -e*$on ;&i,& i$ a taxa'le t*an$a,tion 0o* 8AT -u*-o$e$ $&all not *e$ult in any out-ut tax. >o;e4e* in-ut tax on &i$ -u*,&a$e o0 good$ -*o-e*tie$ o*

$e*4i,e$ *elated to $u,& ze*o9*elated $ale $&all 'e a4aila'le a$ a tax ,*edit o* *e0und. @&ile a ze*o *ating and exe/-tion a*e ,o/-utationally t&e $a/e t&ey a,tually di00e* in $e4e*al a$-e,t$ to ;it: A1 A ze*o9*ated $ale i$ a taxa'le t*an$a,tion 'ut doe$ not *e$ult in an out-ut tax ;&ile an exe/-ted t*an$a,tion i$ not $u'Ce,t to t&e out-ut taxI B1 T&e in-ut 8At on t&e -u*,&a$e$ o0 8AT9*egi$te*ed -e*$on ;it& ze*o9 *ated $ale$ /ay 'e allo;ed a$ tax ,*edit$ o* *e0unded ;&ile t&e $elle* in an exe/-t t*an$a,tion i$ not entitled to any out-ut tax on &i$ -u*,&a$e$ de$-ite t&e i$$uan,e o0 a 8AT in4oi,e o* *e,ei-tI C1 )e*$on$ engaged in t*an$a,tion$ ;&i,& a*e ze*o9*ated 'eing $u'Ce,t to 8At a*e *e?ui*ed to *egi$te* ;&ile *egi$t*ation i$ o-tional 0o* 8At9 exe/-t -e*$on$. Sin,e Ce'u did not &a4e any out-ut tax again$t ;&i,& $aid in-ut tax /ay 'e o00$et it &ad t&e o-tion to 0ile a ,lai/ 0o* tax *e0undA,*edit o0 it$ unutilized in-ut taxe$. #'$ vs. Se2isui 3us/i ./ili,,ines- 'nc. - !"% S#$A 4% Facts : Se2i$ui Ju$&i )&ili--ine$ In,. +Se2i$ui1 i$ a do/e$ti, ,o*-o*ation -*in,i-ally engaged in t&e 'u$ine$$ o0 /anu0a,tu*ing i/-o*ting ex-o*ting 'uying $elling o* ot&e*;i$e dealing in at ;&ole$ale good$ $u,& a$ $t*a--ing 'and$ and ot&e* -a,2aging /ate*ial$ and good o0 $i/ila* natu*e and any and all e?ui-/ent /ate*ial$ $u--lie$ u$ed o* e/-loyed in o* *elated to t&e /anu0a,tu*e o0 $u,& 0ini$&ed good$. >a4ing *egi$te*ed ;it& t&e BI. a$ a 4alue9added +8AT1 tax-aye* Se2i$ui 0iled it$ ?ua*te*ly *etu*n$ ;it& t&e BI. 0o* t&e -e*iod Janua*y 1 to June D" 1##6 *e0le,ting t&e*ein in-ut taxe$ in t&e a/ount o0 )4 7D1 1D!.6" -aid 'y it in ,onne,tion ;it& it$ do/e$ti,

-u*,&a$e o0 ,a-ital good$ and $e*4i,e$. Said in-ut taxe$ *e/ained unutilized $in,e Se2i$ui &a$ not engaged in any 'u$ine$$ a,ti4ity o* t*an$a,tion 0o* ;&i,& it /ay 'e lia'le 0o* out-ut tax and 0o* ;&i,& $aid in-ut tax /ay 'e ,*edited. Se2i$ui 0iled ;it& t&e Bne9Sto- S&o- Inte*9Agen,y Tax C*edit and Duty D*a;'a,2 Cente* o0 t&e de-a*t/ent o0 (inan,e +CE5TE.9 DB(1 t;o $e-a*ate a--li,ation$ 0o* tax ,*editA*e0und o0 4at in-ut taxe$ -aid 0o* t&e -e*iod Janua*y to Ma*,& D1 1##6 and A-*il 1 to June D" 1##6 *e$-e,ti4ely. T&e*e 'eing no a,tion on it$ a--li,ation Se2i$ui 0iled ;it&in t&e t;o yea* -*e$,*i-ti4e -e*iod a -etition 0o* *e4ie; ;it& t&e Cou*t o0 Tax A--eal$ ,lai/ing CI. 0iled it$ an$;e* ,lai/ing t&at: +11 $aid ,lai/ 0o* tax ,*editA*e0und i$ $u'Ce,t to ad/ini$t*ati4e *outina*y in4e$tigation 'y t&e BI.I +!1 Se2i$ui 0ailed to $&o; t&at t&e a/ount ,lai/ed a$ 8AT in-ut taxe$ ;e*e e**oneou$ly ,olle,ted o* t&at t&e $a/e ;e*e -*o-e*ly ,olle,tedI +D1 taxe$ due and ,olle,ted a*e -*e$u/ed to &a4e 'een /ade in a,,o*dan,e ;it& la;I +41 t&e 'u*den o0 -*oo0 i$ on t&e tax -aye* to e$ta'li$& &i$ *ig&t to a *e0und in an a,tion 0o* tax *e0undI +F1 *e$-ondent $&ould $&o; t&at it ,o/-lied ;it& t&e -*o4i$ion$ o0 Se,tion !"4 in *elation ;it& Se,tion !!# o0 t&e Tax CodeI and +71 ,lai/$ 0o* *e0und a*e $t*i,tly ,on$t*ued again$t t&e tax-aye*. CTA: Se2i$ui ;a$ entitled to t&e *e0und. @&ile t&e ,o/-any ;a$ *egi$te*ed ;it& t&e )&ili--ine Ex-o*t Lone Aut&o*ity +)ELA1 a$ an e,ozone and ;a$ a$ $u,& exe/-t 0*o/ t&e in,o/e tax it a4ailed it$el0 o0 t&e 0i$,al in,enti4e unde* EB !!7. It t&e*e'y $u'Ce,ted it$el0 to ot&e* inte*nal *e4enue taxe$ li2e t&e 8AT. It *uled t&at only in-ut taxe$ a/ounting to )4 D66 1"!.!7 ;e*e duly $u'$tantiated 'y in4oi,e$ and o00i,ial *e,ei-t$ ;&ile t&o$e a/ounting to )!F4 D1D.4D &ad not 'een $u00i,iently -*o4en and ;e*e t&u$ di$allo;ed. T&e Cou*t o0 A--eal$ a00i*/ed t&e de,i$ion o0 t&e CTA. >en,e t&i$ -etition. CI.: Se2i$ui 'eing *egi$te*ed ;it& t&e )ELA a$ an e,ozone ex-o*t ente*-*i$e i$ not $u'Ce,t to 8AT -u*$uant to $e,tion 1"D o0

t&e Tax Code. Sin,e Se2i$ui i$ exe/-t 0*o/ 8at t&e ,a-ital good$ and $e*4i,e$ it -u*,&a$e$ a*e ,on$ide*ed not u$ed in 8AT taxa'le 'u$ine$$ &en,e Se2i$ui i$ not allo;ed any tax ,*editA*e0und on 8AT in-ut tax -*e4iou$ly -aid on $u,& ,a-ital good$. 'ssue(s): @&et&e* o* not Se2i$ui i$ entitled to t&e *e0und o* i$$uan,e o0 tax ,*edit a$ alleged unutilized in-ut taxe$ -aid on do/e$ti, -u*,&a$e o0 ,a-ital good$ and $e*4i,e$N $uling: Ke$. $atio: An entity *egi$te*ed ;it& t&e )ELA a$ an e,ozone /ay 'e ,o4e*ed 'y t&e 8AT $y$te/. Se,tion !D o0 .A 6#17 gi4e$ a )ELA9*egi$te*ed ente*-*i$e t&e o-tion to ,&oo$e 'et;een t&e t;o 0i$,al in,enti4e$: +a1 0i4e -e*,ent -*e0e*ential tax *ate on it$ g*o$$ in,o/e unde* t&e $aid la;I o* +'1 an in,o/e tax &oliday -*o4ided unde* EB 5o. !!7 o* t&e B/ni'u$ In4e$t/ent Code o0 1#G6. I0 t&e entity a4ail$ it$el0 o0 t&e 0i4e -e*,ent -*e0e*ential tax *ate unde* t&e 0i*$t $,&e/e it i$ exe/-t 0*o/ all taxe$ in,luding t&e 8ATI unde* t&e $e,ond and it i$ exe/-t 0*o/ in,o/e taxe$ 0o* a nu/'e* o0 yea*$ nut not 0*o/ ot&e* national inte*nal *e4enue taxe$ li2e t&e 8AT. Se2i$ui a4ailed it$el0 o0 t&e !nd $,&e/e ;&i,& i$ 0i$,al in,enti4e o0 an in,o/e tax &oliday unde* EB 5o. !!7. By a4ailing it$el0 o0 t&e in,o/e tax &oliday Se2i$ui 'e,a/e $u'Ce,t o0 8AT 'e,au$e it$ t*an$a,tion$ ;e*e not 8AT9exe/-t. 5ota'le ;&ile an e,ozone i$ geog*a-&i,ally ;it&in t&e )&ili--ine$ it i$ dee/ed a $e-a*ate ,u$to/$ te**ito*y and i$ *ega*ded in la; a$ 0o*eign $oil. Sale$ 'y $u--lie*$ 0*o/ out$ide t&e 'o*de*$ o0 t&e e,ozone to t&i$

$e-a*ate ,u$to/$ te**ito*y a*e dee/ed a$ ex-o*t$ and t*eated a$ ex-o*t $ale$. T&e$e $ale$ a*e ze*o9*ated o* $u'Ce,t to a tax *ate o0 ze*o -e*,ent. Se2i$ui -aid in-ut taxe$ in t&e a/ount o0 )4 D66 1"!.!7. Bn t&e ot&e* &and 1"" -e*,ent o0 t&e -*odu,t$ o0 Se2i$ui a*e ex-o*ted ;&i,& /ean$ t&at all it$ t*an$a,tion$ a*e dee/ed ex-o*t $ale$ and a*e t&u$ 8AT ze*o9*ated. Sin,e Se2i$ui &a$ no out-ut tax ;&i,& it ,ould o00$et it$ in-ut tax a$ $&o;n 'y t&e 0a,t t&at t&e $aid in-ut tax it -aid 0o* it$ do/e$ti, -u*,&a$e$ o0 ,a-ital good$ and $e*4i,e$ *e/ained unutilized it ,an ,lai/ a *e0und 0o* t&e in-ut 8AT -*e4iou$ly ,&a*ged 'y it$ $u--lie*$.

#'$ v. 0+N56+T #)$.. G... 5o$. 1D4FG6 O 1D4FGG Augu$t "G !""F 78AT 'S 'N.6T VAT9: 9 It *e-*e$ent$ t&e a,tual -ay/ent$ ,o$t$ and ex-en$e$ in,u**ed 'y a 8AT9*egi$te*ed tax-aye* in ,onne,tion ;it& &i$ -u*,&a$e o0 good$ and $e*4i,e$. 9 It i$ t&e 8AT -aid 'y a 8AT9*egi$te*ed -e*$on in t&e ,ou*$e o0 &i$ t*ade o* 'u$ine$$ on t&e i/-o*tation o0 good$ o* lo,al -u*,&a$e o0 good$ o* $e*4i,e$ 0*o/ a 8AT9*egi$te*ed -e*$on. 78AT 'S )6T.6T VAT9: 9 @&en t&e $elle* $ell$ &i$ -*odu,t$ o* $e*4i,e$ t&e 8AT9*egi$te*ed tax-aye* gene*ally 'e,o/e$ lia'le 0o* 1!M o0 t&e $elling -*i,e a$ out-ut 8AT. 9 >en,e it i$ t&e 8AT on t&e $ale o0 taxa'le good$ o* $e*4i,e$ 'y any -e*$on *egi$te*ed o* *e?ui*ed to *egi$te* unde* t&e 5I.C. +;A*.<+: Mang 5at$ i$ in t&e 'u$ine$$ o0 /a2ing leat&e* good$ +e.g. leat&e* 'ound ,odal$1. >e i/-o*t$ Italian leat&e* 0*o/ C&ina +&e&e1. Mang 5at$ ;ill &a4e to -ay an I5)UT 8AT on &i$ i/-o*tation.

5o; Ate )ea*l ;ant$ to 'uy a ,odal to de,o*ate &e* ,u'i,le. S&e 'uy$ 0*o/ Mang 5at$ t&e :a'o* Code 'e,au$e 'lue i$ &e* 0a4o*ite ,olo*. @&en Mang 5at$ $old t&e ,odal to Ate )ea*l t&e -*i,e al*eady in,luded t&e BUT)UT 8AT. .e/e/'e* t&at 8AT i$ an indi*e,t tax t&at /ay 'e $&i0ted to t&e 'uye*. Mang 5at$ i$ lia'le 0o* t&e BUT)UT 8AT 'ut &e $&i0ted t&e 'u*den to Ate -ea*l. GETSNP FA#TS: Benguet Co*-. +<Benguet=1 i$ a do/e$ti, ,o*-o*ation engaged in /ining. It i$ a 8AT9*egi$te*ed ente*-*i$e. In Janua*y 1#GG Benguet 0iled an a--li,ation 0o* ze*o9*ating o0 it$ $ale$ o0 /ine -*odu,t$. T&e a--li,ation ;a$ a--*o4ed. =ST VAT $6<'N5 (A65. =">>): T&e CI. i$$ued 8AT .uling 5o. D6G9GG ;&i,& de,la*ed t&at t&e $ale o0 gold to t&e Cent*al Ban2 +<CB=1 i$ ,on$ide*ed an ex-o*t $ale and t&e*e0o* $u'Ce,t to "M 8AT. (*o/ 1#GG to 1##" t&e CI. +/o*e t&an F ti/e$1 *eite*ated and ,on0i*/ed it$ -o$ition t&at t&e $ale o0 gold 'y a 8AT9*egi$te*ed tax-aye* to t&e CB i$ $u'Ce,t to "M 8AT. In *elian,e to t&e CI.3$ -o$ition Benguet +0*o/ Janua*y 1#GG to July 1#G#1 $old gold to t&e CB and t*eated t&e$e $ale$ a$ "M 8AT *ated. In t&i$ $a/e -e*iod Benguet in,u**ed in-ut taxe$ att*i'uta'le to it$ $ale o0 gold to t&e CB. Con$e?uently Benguet 0iled ;it& t&e CI. a--li,ation$ 0o* t&e i$$uan,e o0 Tax C*edit Ce*ti0i,ate$ 0o* in-ut 8AT C*edit$ att*i'uta'le to it$ ex-o*t $ale$ +in,lu$i4e o0 di*e,t ex-o*t $ale$ and $ale o0 gold to t&e CB1. VAT $6<'N5 (3AN. ="" ): T&e CI. i$$ued 8AT .uling 5o. ""G9#! de,la*ing t&at t&e $ale$ o0 gold to t&e CB a*e ,on$ide*ed do/e$ti, $ale$ $u'Ce,t to 1"M 8AT +in$tead o0 "M 0*o/ 1##G91##" in t&e 1ST VAT RULING1. 3$? VAT $6<'N5 (A65. ="" ): T&e CI. i$$ued 8AT .uling 5o. F#9#!. It $tated t&e *et*oa,ti4e a--li,ation o0 t&e 2ND VAT RULING to all $u,& $ale$ $ta*ting Janua*y 1 1#GG. It al$o $aid t&at /ining ,o/-anie$ ;ill not 'e unduly -*eCudi,ed 'y t&e *et*oa,ti4e a--li,ation o0 t&e 2ND VAT RULING
N?

'e,au$e t&ei* ,lai/ 0o* *e0und o0 in-ut taxe$ a*e not lo$t 'e,au$e t&ey a*e allo;a'le on it$: +11 But-ut taxe$ on t&e $ale$ o0 gold to CB +!1 But-ut taxe$ on ot&e* $ale$ +D1 A$ a dedu,tion to in,o/e tax T&e CI. t*eated Benguet3$ $ale$ to CB a$ do/e$ti, $ale$ $u'Ce,t to 1"M 8AT 'ut allo;ed Benguet a total tax ,*edit o0 only a*ound )G1M ;&i,& ,o**e$-onded to 8AT in-ut taxe$ att*i'uta'le only to it$ di*e,t EE)B.T SA:ES. De$-ite t&i$ Benguet ;a$ not *e0unded t&e $aid a/ount$ o0 tax ,*edit ,lai/ed. >en,e Benguet -*ayed 0o* t&e i$$uan,e o0 Tax C*edit Ce*ti0i,ate$ ;it& t&e CTA. Benguet3$ ,o/-utation o0 tax ,*edit a/ounted to )1D1M ;&i,& in,luded in-ut tax to BBT> EE)B.T SA:ES and SA:ES B( GB:D TB T>E CB. #TA: Denied Benguet3$ ,lai/ 0o* tax ,*edit. T&e alleged -*eCudi,e to Benguet o0 t&e *et*oa,ti4e a--li,ation i$ /e*ely $-e,ulati4e and not a,tual and i//inent $o a$ to -*o&i'it it$ *et*oa,ti4ity. T&e*e ;on3t 'e any -*eCudi,e 'e,au$e t&e 3RD VAT RULING -*o4ide$ 0o* t&e *e/edie$ 0o* t&e *e,o4e*y o0 t&e in-ut 8AT. #A: A00i*/ed t&e CTA. Bn M. t&e CA *e4e*$ed it$el0. E*go t&e )1D1M tax ,*edit ,lai/ ;a$ a--*o4edP A,,o*ding to t&e CA t&e )1D1M in,lude$: +11 )G1M +in-ut 8AT ,*edit$ att*i'uta'le to di*e,t EE)B.T SA:ES1 +!1 )F"M +in-ut 8AT ,*edit$ att*i'uta'le to SA:ES B( GB:D TB CB ;&i,& ;e*e $u'Ce,t to "M ;&en t&e $aid $ale$ ;e*e /ade1 'SS6+S: @A5 t&e 2ND VAT RULING +$u'Ce,ting $ale$ o0 gold to t&e CB to 1"M 8AT1 ;ould 'e -*eCudi,ial to Benguet. N)T+: Gene*al *ule: BI. *ule$ ;ould &a4e no *et*oa,ti4e a--li,ation i0 to $o a--ly t&e/ ;ould 'e -*eCudi,ial to t&e tax-aye*$. Ex,e-tion:

+11 Tax-aye* deli'e*ately /i$$tate$ o* o/it$ /ate*ial 0a,t$ 0*o/ &i$ *etu*n +!1 T&e 0a,t$ $u'$e?uently gat&e*ed 'y t&e BI. a*e /ate*ially di00e*ent 0*o/ t&e 0a,t$ on ;&i,& t&e *uling i$ 'a$ed +D1 Tax-aye* a,ted in 'ad 0ait& #'$@S .)S'T')N: T&e CA e**ed in *eCe,ting t&e *et*oa,ti4e a--li,ation o0 t&e 2ND VAT RULING 'e,au$e it$ *et*oa,ti4e a--li,ation ;ill not -*eCudi,e Benguet. It /ay: +11 U$e $aid in-ut taxe$ in -aying it$ out-ut taxe$ in ,onne,tion ;it& it$ ot&e* $ale$ t*an$a,tion$ ;&i,& a*e $u'Ce,t to t&e 1"M 8AT +!1 I0 t&e*e a*e no ot&e* $ale$ t*an$a,tion $u'Ce,t to t&e 1"M 8AT t*eat t&e in-ut 8AT a$ ,o$t and dedu,t t&e $a/e 0*o/ in,o/e 0o* in,o/e tax -u*-o$e$. 8+<?: CI. (AI:P BE5GUET (T@P T&e -*eCudi,e to Benguet i$ o'4iou$P 5o *et*oa,ti4e e00e,tP Benguet /ay ,lai/ t&e )F"M in-ut 8AT ,*editP T&e 8AT $y$te/ allo;$ a 8AT9*egi$te*ed tax-aye* to *e,o4e* it$ in-ut 8AT eit&e* 'y: +11 )a$$ing on t&e 1"M out-ut 8AT +no; 1!M1 on t&e g*o$$ $elling -*i,e o* g*o$$ *e,ei-t$ to it$ 'uye*$. +!1 I0 t&e in-ut tax i$ att*i'uta'le to t&e -u*,&a$e o0 ,a-ital good$ o* to ze*o9*ated $ale$ 'y 0iling a ,lai/ 0o* a *e0und o* tax ,*edit ;it& t&e BI.. Benguet3$ ,lai/ed tax ,*edit o0 in-ut tax a/ounting to )F"M *e-*e$ent$ t&e ,o$t$ o* ex-en$e$ in,u**ed 'y Benguet in ,onne,tion ;it& it$ gold -*odu,tion. .elying on t&e 1ST VAT RULING +$ale$ o0 gold to t&e CB a*e ,on$ide*ed ex-o*t $ale$ $u'Ce,t to "M1 Benguet $old gold to t&e CB ;it&out -a$$ing on CB it$ in-ut 8AT ,o$t$ o'4iou$ly intending to o'tain a *e0und o* ,*edit t&e*eo0 0*o/ t&e BI. at t&e end o0 t&e taxa'le -e*iod. >o;e4e* 'y t&e ti/e Benguet a--lied 0o* ,*edit o0 it$ in-ut 8AT ,o$t$ t&e 2ND VAT RULING t*eated $ale$ o0 gold to t&e CB a$ do/e$ti, $ale$ $u'Ce,t to 1"M 8AT. And t&e 3RD VAT RULING *et*oa,ti4ely a--lied t&e 2ND VAT RULING to $u,& $ale$ /ade 0*o/ Janua*y 1 1#GG on;a*d$. By *ea$on o0

t&e denial o0 it$ ,lai/ 0o* ,*edit Benguet &a$ 'een -*e,luded 0*o/ *e,o4e*ing it$ in-ut 8AT ,o$t$. T&e CI.3S *e/edie$ +$et o00 ;it& ot&e* t*an$a,tion$ o* in,o/e dedu,tion1 ,annot 'e a--lied. +11 Benguet &a$ ,lea*ly $&o;n t&at it &a$ no <ot&e* t*an$a,tion$= $u'Ce,t to 1"M 8AT and CI. &a$ 0ailed to -*o4e t&e exi$ten,e o0 $u,& <ot&e* t*an$a,tion$= again$t ;&i,& to $et o00 Benguet3$ in-ut 8AT. +!1 T*eating t&e in-ut 8AT a$ an in,o/e tax dedu,tion ;ill yield only to a -a*tial 'ene0it. T&e u$e o0 in-ut 8AT a$ a tax dedu,tion$ *e$ult$ in a lo$$ o0 7FM o0 t&e in-ut 8AT ;&i,& ,ould &a4e ot&e*;i$e 0ully utilized a$ a tax ,*edit. T&e*e i$ $u'$tantial di00e*en,e 'et;een a tax ,*edit and a tax dedu,tion. A tax ,*edit *edu,e$ tax lia'ility ;&ile a tax dedu,tion only *edu,e$ taxa'le in,o/e +SEE ).6" B( T>E CASEP It illu$t*ate$ t&e di00e*en,e 'et;een u$ing t&e tax ,*edit and tax dedu,tion /et&od$1. )*eCudi,e i$ all t&e /o*e &ig&lig&ted 'y t&e 0a,t t&at it &a$ 'een i$$ued a$$e$$/ent$ 0o* de0i,ien,y out-ut 8AT in t&e a/ount$ o0 )!F!M +0o* 1#GG1 and )!44M +0o* 1#G#1P Benguet *elied on t&e 0o*/al a$$u*an,e$ o0 t&e BI.3$ 1ST VAT RULING. To *et*oa,t a late* *uling *e4o2ing t&e g*ant o0 "M *ating $tatu$ and a--lying a ne; and ,ont*a*y -o$ition t&at $u,& $ale$ a*e no; $u'Ce,t to 1"M i$ in,on$i$tent ;it& Cu$ti,e and 0ai* -lay.

Assignment No. !: )t/er .ercentage Taxes #/ina 0an2ing #or,oration vs. #ourt of A,,eals 5.$. No. =!%A!" and 5.$. No. =!A"3>- 3une =4- 443 Facts: CBC i$ a uni4e*$al 'an2ing ,o*-o*ation o*ganized and exi$ting unde* )&ili--ine la;. CBC -aid )1! DF4 #DD."" a$ g*o$$ *e,ei-t$ tax in 1##4. Bn !""7 CTA in Asian Bank Corporation v. Commissioner of Internal Revenue *uled t&at t&e !"M 0inal ;it&&olding tax on a 'an23$ -a$$i4e inte*e$t in,o/e doe$ not 0o*/ -a*t o0 it$ taxa'le g*o$$ *e,ei-t$. CBC no; ,lai/$ 0o* tax *e0und o* ,*edit o0 )1 14" 7!D.G! 0*o/ t&e )1! DF4 #DD."" g*o$$ *e,ei-t$ tax t&at CBC -aid. Citing Asian Bank, CBC a*gued t&at it ;a$ not lia'le 0o* t&e g*o$$ *e,ei-t$ tax on t&e $u/$ ;it&&eld 'y t&e Bangko Sentral ng Pilipinas a$ 0inal ;it&&olding tax on CBC3$ -a$$i4e inte*e$t in,o/e in 1##4. Co//i$$ione* ,lai/$ t&at CBC -aid t&e g*o$$ *e,ei-t$ tax -u*$uant to Se,tion 11# +no; Se,tion 1!11 o0 t&e 5I.C. T&e Co//i$$ione* a*gued t&at t&e 0inal ;it&&olding tax on a 'an23$ inte*e$t in,o/e 0o*/$ -a*t o0 it$ g*o$$ *e,ei-t$ in ,o/-uting t&e g*o$$ *e,ei-t$ tax. T&e Co//i$$ione* ,ontended t&at t&e te*/ <g*o$$ *e,ei-t$= /ean$ t&e enti*e in,o/e o* *e,ei-t ;it&out any dedu,tion. $uling of #TA CTA *uled in 0a4o* o0 CBC and &eld t&at !"M (inal ;it&&olding tax on inte*e$t in,o/e doe$ not 0o*/ -a*t o0 CBC3$ taxa'le g*o$$ in,o/e 'a$ed on t&e A$ian Ban2 *uling. $uling of #A CA a00i*/ed t&e CTA *uling

'ssues: 1. @&et&e* t&e !"M 0inal ;it&&olding tax on inte*e$t in,o/e $&ould 0o*/ -a*t o0 CBC3$ g*o$$ *e,ei-t$ in ,o/-uting t&e g*o$$ *e,ei-t$ tax on 'an2$N 8eld: T&e a/ount o0 inte*e$t in,o/e ;it&&eld in -ay/ent o0 t&e !"M 0inal ;it&&olding tax 0o*/$ -a*t o0 CBC3$ g*o$$ *e,ei-t$ in ,o/-uting t&e g*o$$ *e,ei-t$ tax on 'an2$. $atio: ?efinition of 5ross $ecei,ts T&e Tax Code doe$ not de0ine t&e te*/ <g*o$$ *e,ei-t$= 0o* -u*-o$e$ o0 t&e g*o$$ *e,ei-t$ tax on 'an2$. A'$ent a $tatuto*y de0inition t&e BI. &a$ a--lied t&e te*/ in it$ -lain and o*dina*y /eaning. In o*dina*y te*/$ <g*o$$ *e,ei-t$= /ean$ t&e enti*e *e,ei-t$ ;it&out any dedu,tion. Dedu,ting any a/ount 0*o/ t&e g*o$$ *e,ei-t$ ,&ange$ t&e *e$ult and t&e /eaning to net *e,ei-t$. Any dedu,tion 0*o/ g*o$$ *e,ei-t$ i$ in,on$i$tent ;it& a la; t&at /andate$ a tax on g*o$$ *e,ei-t$ unle$$ t&e la; it$el0 /a2e$ an ex,e-tion. Unde* .e4enue .egulation$ 5o$. 1!9G" and 169G4 a$ ;ell a$ in $e4e*al nu/'e*ed *uling$ t&e BI. &a$ ,on$i$tently *uled t&at t&e te*/ <g*o$$ *e,ei-t$= doe$ not ad/it o0 any dedu,tion. T&e inte*-*etation &a$ yet to 'e ,&anged until t&e -*e$ent tax ,ode. T&e legi$latu*e &a$ ado-ted t&e BI.3$ inte*-*etation 0ollo;ing t&e -*in,i-le o0 legi$lati4e a--*o4al 'y *e9ena,t/ent.

T&e tax ,ode doe$ not de0ine 0o* g*o$$ *e,ei-t$ ex,e-t 0o* t&e a/u$e/ent tax ;&i,& i$ al$o a 'u$ine$$ tax. It de0ine$ it a$ it <e/'*a,e$ all *e,ei-t$ o0 t&e -*o-*ieto* le$$ee o* o-e*ato* o0 t&e a/u$e/ent -la,e.= T&e Tax Code 0u*t&e* add$ t&at <Q$Raid g*o$$ *e,ei-t$ al$o in,lude in,o/e 0*o/ tele4i$ion *adio and /otion -i,tu*e *ig&t$ i0 any.= T&i$ de0inition /e*ely ,on0i*/$ t&at t&e te*/ <g*o$$ *e,ei-t$= e/'*a,e$ t&e enti*e *e,ei-t$ ;it&out any dedu,tion o* ex,lu$ion a$ t&e te*/ i$ gene*ally and ,o//only unde*$tood. 'nterest income forms ,art of 5ross $ecei,ts In Asian Bank t&e Cou*t o0 Tax A--eal$ &eld t&at t&e 0inal ;it&&olding tax i$ not -a*t o0 t&e 'an23$ taxa'le g*o$$ *e,ei-t$. In Collector of Internal Revenue v. Manila Jockey Club ;&i,& &eld t&at <g*o$$ *e,ei-t$ o0 t&e -*o-*ieto* $&ould not in,lude any /oney ;&i,& alt&oug& deli4e*ed to t&e a/u$e/ent -la,e &a$ 'een e$-e,ially ea*/a*2ed 'y la; o* *egulation 0o* $o/e -e*$on ot&e* t&an t&e -*o-*ieto*.= T&e tax ,ou*t ado-ted t&e Asian Bank *uling in $u,,eeding ,a$e$ in4ol4ing t&e $a/e i$$ue. CTA *e4e*$ed it$ *uling in A$ia Ban2. In Far East Bank & rust Co. v. Commissioner and !tan"ar" C#artere" Bank v. Commissioner, it *uled t&at t&e 0inal ;it&&olding tax 0o*/$ -a*t o0 t&e 'an23$ g*o$$ *e,ei-t$ in ,o/-uting t&e g*o$$ *e,ei-t$ tax. T&e tax ,ou*t &eld t&at Se,tion 4+e1 o0 .e4enue .egulation$ 5o. 1!9G" did not -*e$,*i'e t&e ,o/-utation o0 t&e g*o$$ *e,ei-t$ 'ut /e*ely aut&o*ized <t&e dete*/ination o0 t&e a/ount o0 g*o$$ *e,ei-t$ on t&e 'a$i$ o0 t&e /et&od o0 a,,ounting 'eing u$ed 'y t&e tax-aye*.= Se,tion 1!1 o0 t&e Tax Code in,lude$ <inte*e$t= a$ -a*t o0 g*o$$ *e,ei-t$ it *e0e*$ to t&e enti*e inte*e$t ea*ned and o;ned 'y t&e 'an2 ;it&out any dedu,tion. <Inte*e$t= /ean$ t&e g*o$$ a/ount -aid 'y t&e 'o**o;e* to t&e lende* a$ ,on$ide*ation 0o* t&e u$e o0 t&e lende*3$ /oney. T&i$ de0inition doe$ not allo; any dedu,tion. T&e enti*e inte*e$t -aid 'y t&e de-o$ito*y

'an2 ;it&out any dedu,tion i$ ;&at 0o*/$ -a*t o0 t&e lending 'an23$ g*o$$ *e,ei-t$. #0#@s reliance of Collector of Internal Revenue v. Manila Jockey Club CBC ,ite$ Collector of Internal Revenue v. Manila Jockey Club a$ aut&o*ity t&at t&e 0inal ;it&&olding tax on inte*e$t in,o/e doe$ not 0o*/ -a*t o0 a 'an23$ g*o$$ *e,ei-t$ 'e,au$e t&e 0inal tax i$ <ea*/a*2ed 'y *egulation= 0o* t&e go4e*n/ent. Manila Jo,2ey Clu' -aid a/u$e/ent tax on it$ ,o//i$$ion in t&e total a/ount o0 'et$ ,alled ;age* 0und$ 0*o/ t&e -e*iod 5o4e/'e* 1#47 to B,to'e* 1#F". But $u,& -ay/ent did not in,lude t&e F S M o0 t&e 0und$ ;&i,& ;ent to t&e Boa*d on .a,e$ and to t&e o;ne*$ o0 &o*$e$ and Co,2ey$. @e *uled t&at t&e g*o$$ *e,ei-t$ o0 t&e Manila Jo,2ey Clu' $&ould not in,lude t&e F SM 'e,au$e alt&oug& deli4e*ed to t&e Clu' $u,& /oney &a$ 'een e$-e,ially ea*/a*2ed 'y la; o* *egulation 0o* ot&e* -e*$on$. T&e Manila Jo ke! "l#$ doe$ not a--ly to t&e ,a$e$ at 'a* 'e,au$e ;&at &a--ened t&e*e i$ ea*/a*2ing and not ;it&&olding. Ea*/a*2ing i$ not t&e $a/e a$ ;it&&olding. A/ount$ ea*/a*2ed do not 0o*/ -a*t o0 g*o$$ *e,ei-t$ 'e,au$e t&e$e a*e 'y la; o* *egulation *e$e*4ed 0o* $o/e -e*$on ot&e* t&an t&e tax-aye* alt&oug& deli4e*ed o* *e,ei4ed. Bn t&e ,ont*a*y a/ount$ ;it&&eld 0o*/ -a*t o0 g*o$$ *e,ei-t$ 'e,au$e t&e$e a*e in ,on$t*u,ti4e -o$$e$$ion and not $u'Ce,t to any *e$e*4ation In t&e in$tant ,a$e CBC o;n$ t&e inte*e$t in,o/e ;&i,& i$ t&e $ou*,e o0 -ay/ent o0 t&e 0inal ;it&&olding tax. T&e go4e*n/ent $u'$e?uently 'e,o/e$ t&e o;ne* o0 t&e /oney ,on$tituting t&e 0inal tax ;&en CBC -ay$ t&e 0inal ;it&&olding tax to extingui$& it$ o'ligation to t&e go4e*n/ent. T&i$ i$ t&e ,on$ide*ation 0o* t&e t*an$0e* o0 o;ne*$&i- o0 t&e /oney 0*o/ CBC to t&e go4e*n/ent. T&u$ t&e a/ount ,on$tituting t&e 0inal tax 1eing

originally oBned 1y #0# as ,art of its interest income- $&ould 0o*/ -a*t o0 it$ taxa'le g*o$$ *e,ei-t$. #0#@s reliance on Asian 0an2 ruling CBC al$o *elie$ on t&e Tax Cou*t3$ *uling in Asian Bank t&at Se,tion 4+e1 o0 .e4enue .egulation$ 5o. 1!9G" aut&o*ize$ t&e ex,lu$ion o0 t&e 0inal tax 0*o/ t&e 'an23$ taxa'le g*o$$ *e,ei-t$. Se,tion 4+e1 $tate$ t&at t&e g*o$$ *e,ei-t$ <$&all 'e 'a$ed on all ite/$ o0 in,o/e a,tually *e,ei4ed.= T&e Tax Cou*t e**ed in inte*-*eting Se,tion 4+e1 o0 .e4enue .egulation$ 5o. 1!9G". In,o/e /ay 'e taxa'le eit&e* at t&e ti/e o0 it$ a,tual *e,ei-t o* it$ a,,*ual de-ending on t&e a,,ounting /et&od o0 t&e tax-aye*. T&u$ t&e inte*e$t in,o/e a,tually *e,ei4ed 'y t&e lending 'an2 'ot& -&y$i,ally and ,on$t*u,ti4ely i$ t&e net inte*e$t -lu$ t&e a/ount ;it&&eld a$ 0inal tax. #0#@s claim amount to a tax exem,tion CBC3$ ,ontention t&at it ,an dedu,t t&e 0inal ;it&&olding tax 0*o/ it$ inte*e$t in,o/e a/ount$ to a ,lai/ o0 tax exe/-tion. T&e ,a*dinal *ule in taxation i$ exe/-tion$ a*e &ig&ly di$0a4o*ed and ;&oe4e* ,lai/$ an exe/-tion /u$t Cu$ti0y &i$ *ig&t 'y t&e ,lea*e$t g*ant o0 o*gani, o* $tatute la;. CBC /u$t -oint to a $-e,i0i, -*o4i$ion o0 la; g*anting t&e tax exe/-tion. T&e tax exe/-tion ,annot a*i$e 'y /e*e i/-li,ation and any dou't a'out ;&et&e* t&e exe/-tion exi$t$ i$ $t*i,tly ,on$t*ued again$t t&e tax-aye* and in 0a4o* o0 t&e taxing aut&o*ity. CBC 0ailed to ,ite any -*o4i$ion o0 la; allo;ing t&e 0inal tax a$ an exe/-tion dedu,tion o* ex,lu$ion Co//i$$ione* o0 Inte*nal .e4enue 4. Solid'an2 Co*-.

(o* ,alenda* yea* 1##F *e$-ondent 0iled it$ ?ua*te*ly -e*,entage tax *etu*n$ *e0le,ting g*o$$ *e,ei-t$ ;it& ,o**e$-onding g*o$$ *e,ei-t$ tax -ay/ent$. It allege$ t&at t&e total g*o$$ *e,ei-t$ in,luded t&e g*o$$ *e,ei-t$ 0*o/ -a$$i4e in,o/e ;&i,& ;a$ al*eady $u'Ce,t to !"M 0inal ;it&&olding tax (F7T). Bn Janua*y 1##7 Cou*t o0 Tax A--eal$ *ende*ed a de,i$ion ;&i,& &eld t&at t&e !"M (@T on a 'an23$ inte*e$t in,o/e $&ould not 0o*/ -a*t o0 it$ taxa'le g*o$$ *e,ei-t$ 0o* -u*-o$e$ o0 ,o/-uting g*o$$ *e,ei-t$ tax (5$T) . .e$-ondent 0iled ;it& BI. a *e?ue$t 0o* *e0und o* i$$uan,e o0 tax ,*edit ,e*ti0i,ate *e-*e$enting allegedly o4e*-aid G.T. Cou*t o0 Tax a--eal$ o*de*ed *e0und. CA a00i*/ed.

I$$ue:

@A5 t&e !"M (@T on a 'an23$ inte*e$t in,o/e 0o*/$ -a*t o0 t&e taxa'le g*o$$ *e,ei-t$ in ,o/-uting t&e FM G.T.

.uling:

KES. It i$ in,luded.

)E.CE5TAGE TAE national tax /ea$u*ed 'y a ,e*tain -e*,entage o0 g*o$$ $elling -*i,eAg*o$$ *e,ei-t$. 5ot $u'Ce,t to ;it&&olding. I5CBME TAE national tax i/-o$ed on t&e net o* g*o$$ in,o/e. Su'Ce,t to ;it&&olding

(a,t$:

G.BSS .ECEI)TS total *e,ei-t$ 'e0o*e any dedu,tion @IT>>B:DI5G TAE SKSTEM -ayee i$ t&e tax-aye*I -ayo* a $e-a*ate entity a,t$ a$ no /o*e t&an an agent o0 t&e go4e*n/ent 0o* t&e ,olle,tion o0 tax to en$u*e -ay/ent. )o$$e$$ion i$ a,?ui*ed 'y t&e -ayo* a$ t&e ;it&&olding agent o0 t&e go4e*n/ent 'e,au$e t&e tax-aye* *ati0ie$ t&e 4e*y a,t o0 -o$$e$$ion 0o* t&e go4e*n/ent. T&e*e i$ ,on$t*u,ti4e *e,ei-t .e$-ondent ,lai/$ t&at it i$ entitled to a *e0und on t&e 'a$i$ o0 ex,e$$ G.T -ay/ent$. T&e SC di$ag*eed. Tax *e0und$ a*e in t&e natu*e o0 tax exe/-tion$. Su,& exe/-tion$ a*e $t*i,tly ,on$t*ued again$t t&e tax-aye*. T&o$e ;&o ,lai/ to 'e exe/-t 0*o/ t&e -ay/ent o0 a -a*ti,ula* tax /u$t do $o unde* ,lea* and un/i$ta2a'le te*/$ 0ound in t&e $tatute.

SC ag*eed ;it& )etitione* $aying t&at alt&oug& t&e !"M (@T on 'an23$ inte*e$t in,o/e ;a$ not a,tually *e,ei4ed 'y *e$-ondent 'e,au$e it3$ *e/itted di*e,tly to t&e go4e*n/ent t&e 0a,t t&at t&e a/ount *edounded to 'an23$ 'ene0it /a2e$ it -a*t o0 t&e taxa'le g*o$$ *e,ei-t$ in ,o/-uting t&e FM G.T.

T&e*e ;a$ no dou'le taxation. Taxe$ &e*e ;e*e i/-o$ed on ! di00e*ent $u'Ce,t /ate*$. T&e $u'Ce,t /atte* o0 t&e (@T i$ t&e -a$$i4e in,o/e gene*ated. In G.T it i$ t&e -*i4ilege o0 engaging in t&e 'u$ine$$ o0 'an2ing. Taxing -e*iod$ a*e al$o di00e*ent. (@T i$ dedu,ted and ;it&&eld a$ $oon a$ t&e in,o/e i$ ea*ned and i$ -aid a0te* e4e*y ,alenda* ?ua*te*.

(@T and G.T a*e t;o di00e*ent taxe$. G.T i$ unde* Title 8 and i$ not $u'Ce,t to ;it&&olding. (@T i$ unde* Se,tion !4+e1+11 o0 Title II. It3$ a tax on -a$$i4e in,o/e dedu,ted and ;it&&eld.

Assignment No. !: +xcise Taxes Mi$$ing Ca$e: Sil2Ai*

.A 1!9G" +'a$i$ o0 *e$-ondent. Say$: tax *ate$ to 'e i/-o$ed on t&e g*o$$ *e,ei-t$ o0 'an2$ xxx $&all 'e 'a$ed on all ite/$ o0 in,o/e a,tually ea*ned1 &a$ 'een $u-e*$eded 'y .A 169G" +/a2e$ no di$tin,tion and -*o4ide$ t&at A:: inte*e$t$ ea*ned $&all 'e in,luded. .e$-ondent a*gue$ t&at $in,e t&e*e i$ no a,tual *e,ei-t (@T i$ not in,luded in t&e tax 'a$e 0o* ,o/-uting G.T. SC di$ag*eed. A*t FD1 o0 t&e Ci4il Code -*o4ide$ t&at a,?ui$ition o0 t&e *og&t o0 -o$$e$$ion i$ t&*oug& t&e -*o-e* a,t$ and legal 0o*/alitie$ e$ta'li$&ed t&e*e0o*. T&e ;it&&olding -*o,e$$ i$ one $u,& a,t. T&e*e /ay not 'e a,tual *e,ei-t o0 t&e in,o/e ;it&&eld &o;e4e* a$ -*o4ided in a*t FD! -o$$e$$ion 'y any -e*$on ;it&out any -o;e* $&all 'e ,on$ide*ed a$ a,?ui*ed ;&en *ati0ie$ 'y t&e -e*$on in ;&o$e na/e t&e a,t o0 -o$$e$$ion i$ exe,uted.

Assignment No. !: ?ocumentary Stam, Tax Mi$$ing Ca$e$: )>I:AM B)I A5TAM