Professional Documents
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Case Digests Volume II Tax
Case Digests Volume II Tax
Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of 1960, imposing a
municipal license tax on tenement houses in accordance with the schedule of payment provided by therein. Villanueva and
the other appellees are apartment owners from whom, the city collected license taxes by virtue of Ordinance 11. Appellees
aver that the said ordinance is unconstitutional for RA 2264 does not empower cities to impose apartment taxes; that the
same is oppressive and unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes not only
double taxation but treble taxation; and, that it violates uniformity of taxation. Issues: 1. Does the ordinance impose double
taxation? 2. Is Iloilo city empowered by RA 2264 to impose tenement taxes? Held: 1. While it is true that appellees are
taxable under the NIRC as real estate dealers, and taxable under Ordinance 11, double taxation may not be invoked. This is
because the same tax may be imposed by the national government as well as by the local government. The contention that
appellees are doubly taxed because they are paying real estate taxes and the tenement tax is also devoid of merit. A license
tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to
property tax. In order to constitute double taxation, both taxes must be the same kind or character. Real estate taxes and
tenement taxes are not of the same character. 2. RA 2264 confers local governments broad taxing powers. The imposition of
the tenement taxes does not fall within the exceptions mentioned by the same law. It is argued however that the said taxes
are real estate taxes and thus, the imposition of more the 1 per centum real estate tax which is the limit provided by CA 158,
makes the said ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It does not have the 1
attributes of a real estate tax. By the title and the terms of the ordinance, the tax is a municipal tax which means an
imposition or exaction on the right to use or dispose of property, to pursue a business, occupation or calling, or to exercise a
privilege. Tenement houses being offered for rent or lease constitute a distinct form of business or calling and as such, the
imposition of municipal tax finds support in Section 2 of RA 2264.
Assoc. of Custom Brokers v Municipal Board
(privilege tax) Facts: The disputed ordinance (Ordinance 3379) was passed by the Municipal Board of the City of Manila
under the authority conferred by section 18(p) of RA 409 which confers upon the municipal board the power to tax
motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary
notwithstanding. The plaintiff, an association composed of all brokers and public service operators of Motor Vehicles in
the City of Manila filed this petition for declaratory relief challenging the validity of the ordinance on the following
grounds; that it while it levies a socalled property tax, it is in reality a license fee which is beyond the power of the board to
impose; that the said ordinance goes against the rule on uniformity of taxation; and, that the said imposition constitutes
double taxation. Issues: Can the city validly enact such ordinance? Held: No. The Motor Vehicle Law (Section 70[b])
provides that no fees may be exacted or demanded for the operation of any motor vehicle other than those therein provided ,
the only exception being that which refers to property tax which may be imposed by municipal corporations. While the
ordinance refers to property tax and it is fixed ad valorem, it is merely levied on motor vehicles operating within the city of
Manila with the main purpose of raising funds to be expanded exclusively for the repair, maintenance and improvement of
streets and bridges in said city. Because of this, the ordinance in question merely imposes a license fee although under the
cloak of being an ad valorem tax to circumvent the prohibition provided by the Motor 2 Vehicle Law.
It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to
the same owner. Te tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the
intervention of the assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the
tenement houses either by sale or distraint.
1
If a tax is in its nature an excise, it does not become a property tax because it is proportioned in the amount to the value of
the property used in connection with the occupation, privilege or act which is taxed. Every excise by necessarily must
finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the
performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered excise.
2
taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority,
within the same jurisdiction, during the same taxing period; and they must be of the same kind or character. First, the taxes
herein are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the
form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging
in the business of banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise
rather than a property tax. It is not an income tax, unlike the FWT. These two taxes are entirely distinct and are assessed
under different provisions. Second, although both taxes are national in scope because they are imposed by the same taxing
authority -the national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same
purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the
income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither
deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third, these two taxes are of
different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a percentage tax not
subject to withholding. In short, there is no double taxation, because there is no taxing twice, by the same taxing authority,
within the same jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory.
Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.
Petition granted.
China Bank v. CA (Constitutionality of Double Taxation) Facts: The Court of Appeals affirmed the Decision of the Court of
Tax Appeals, which granted China Banking Corporation (CBC) a tax refund or credit of P123,278.73 but denied
due to insufficiency of evidence the remainder of CBCs claim for P1,140,623.82. On 20 July 1994, CBC paid
P12,354,933.00 as gross receipts tax on its income from interests on loan investments, commissions, services, collection
charges, foreign exchange profits and other operating earnings during the second quarter of 1994. On 30 January 1996, the
Court of Tax Appeals in Asian Bank Corporation v. Commissioner of Internal Revenue ruled that the 20% final withholding
tax on a banks passive interest income does not form part of its taxable gross receipts. On 19 July 1996, CBC filed with
the Commissioner of Internal Revenue (Commissioner) a formal claim for tax refund or credit of P1,140,623.82
from the P12,354,933.00 gross receipts tax that CBC paid for the second quarter of 1994. Citing Asian Bank, CBC argued
that it was not liable for the gross receipts tax - amounting to P1,140,623.82 - on the sums withheld by the Bangko Sentral
ng Pilipinas as final withholding tax on CBCs passive interest income in 1994. Disputing CBCs claim, the
Commissioner asserted that CBC paid the gross receipts tax pursuant to Section 119 (now Section 121) of the National
Internal Revenue Code (Tax Code) and pertinent Bureau of Internal Revenue (BIR) regulations. The
Commissioner argued that the final withholding tax on a banks interest income forms part of its gross receipts in
computing the gross receipts tax. The Commissioner contended that the term gross receipts means the entire
income or receipt, without any deduction.
Issue/s:W/N the 20% final withholding tax on interest income should form part of CBCs gross receipts in computing
the gross receipts tax on banks; Held/Ratio: Yes. As commonly understood, the term gross receipts means the entire
receipts without any deduction. Deducting any amount from the gross receipts changes the result, and the meaning, to net
receipts. Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the law
itself makes an exception. The Court of Tax Appeals reversed its ruling in Asian Bank. In Far East Bank & Trust Co. v.
Commissioner and Standard Chartered Bank v. Commissioner, both promulgated on 16 November 2001, the tax court ruled
that the final withholding tax forms part of the banks gross receipts in computing the gross receipts tax. The tax court
also held in Far East Bank and Standard Chartered Bank that the exclusion of the final withholding tax from gross receipts
operates as a tax exemption which the law must expressly grant. No law provides for such exemption. On Double Taxation:
There is no double taxation when Section 121 of the Tax Code imposes a gross receipts tax on interest income that is
already subjected to the 20% final withholding tax under Section 27 of the Tax Code. The gross
receipts tax is a business tax under Title V of the Tax Code, while the final withholding tax is an income tax under Title II of
the Code. There is no double taxation if the law imposes two different taxes on the same income, business or property.
Constitutionality: City of Baguio v. De Leon: As to why double taxation is not violative of due process, Justice Holmes
made clear in this language: The objection to the taxation as double may be laid down on one side . . . . The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of
confiscation or proceedings unconstitutional on other grounds. With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup
de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947
decision, however, we quoted with approval this excerpt from a leading American decision: Where, as here, Congress
has clearly expressed its intention, the statute must be sustained even though double taxation results. Reversed.
City of Baguio v. De Leon
(Constitutionality of Double Taxation) Facts:An ordinance of the City of Baguio imposed a license fee on any person, firm,
entity or corporation doing business in the City of Baguio. Fortunato de Leon was held liable as a real estate dealer with a
property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to pay under such
ordinance the P50 annual fee. In its decision of December 19, 1964, the lower court declared the above ordinance as
amended, valid and subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate dealer. Its
validity on constitutional grounds is challenged because of the allegation that it imposed double taxation, which is
repugnant to the due process clause, and that it violated the requirement of uniformity. Issue/s: W/N the ordinance is valid.
Held/Ratio: Yes. The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the
city charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and occupations as may be
established or practiced in the City." On double taxation: As to why double taxation is not violative of due process, Justice
Holmes made clear in this language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of
confiscation or proceedings unconstitutional on other grounds." With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup
de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a 1947 decision,
however, we quoted with approval this excerpt from a leading American decision: "Where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though double taxation results." At any rate, it has been expressly
affirmed by us that such an "argument against double taxation may not be invoked where one tax is imposed by the state
and the other is imposed by the city ..., it being widely recognized that there is nothing inherently obnoxious in the
requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state
and the political subdivisions thereof." On uniformity: Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable
and natural classifications for purposes of taxation; Affirmed.
CIR v. SC Johnson & Son (Tax Treaties) Facts: S. C. Johnson and Son, Inc. entered into a license agreement with SC
Johnson and Son, United States of America (USA) For the use of the trademark or technology, S. C. Johnson and Son,
Inc. was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to
25% withholding tax on royalty payments S. C. Johnson and Son, Inc. filed with the International Tax Affairs Division
(ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that the preferential tax rate of 10%
should apply to them
Issue Whether or not SC Johnson and Son, USA is entitled to the "most favored nation" tax rate of 10% on royalties as
provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty. Held/Ratio NO. Under Article 13 of the
RP-US Tax Treaty, the Philippines may impose one of three rates 25 percent of the gross amount of the royalties; 15
percent when the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in
preferred areas of activities; or the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid
under similar circumstances to a resident of a third state. The RP-US and the RP-West Germany Tax Treaties do not contain
similar provisions on tax crediting. Since the RP-US Tax Treaty does not give a matching tax credit of 20 percent for the
taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent cannot be
deemed entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of taxes on
royalties under similar circumstances.
Delpher v. IAC (Tax avoidance)
Facts The Pacheco siblings leased a piece of real estate to Construction Components International Inc., providing that
during the existence or after the term of the lease that should the lessor decide to sell the property leased, it shall first be
offered to the lessee and the lessee has the priority to buy under similar conditions. Construction Components International,
Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity of the Pacheco siblings. A deed of exchange was executed between the Pachecos and Delpher Trades
Corporation whereby the former conveyed to the latter the leased property together with another parcel of land for 2,500
shares of stock of defendant corporation with a total value of P1,500,000.00. Issue Whether or not the "Deed of Exchange"
of the properties executed by the Pachecos and Delpher Trades Corporation was meant to be a contract of sale which, in
effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange."
Held/Ratio NO. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. 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. The "Deed of
Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There
was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their
ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis
for its claim of a light of first refusal under the lease contract.
CIR v. PLDT (Nature of Taxation Exemption) FACTS: * PLDT paid to the BIR taxes for the for equipment, machineries
and spare parts it imported for its business. * After such payment, it wrote to the BIR to seek a confirmatory ruling on its
exemption privileges. The BIR issued a ruling stating that PLDT is exempt from all taxes including the 10% value-added
tax (VAT) on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by
the franchise. * Based on the BIR ruling, PLDT filed a claim for tax credit/refund of the VAT, compensating taxes, advance
sales taxes and other taxes it had been paying in its importation of various equipment, machineries and spare parts needed
for its operations. * PLDT filed with the CTA a petition for review. CTA granted the credit/refund. BIRs MfR denied. *
BIR appealed to CA which affirmed CTA judgment. Hence this appeal.
ISSUE: WONPLDT is exempt from paying VAT, compensating taxes, advance sales taxes and internal revenue taxes on its
importations? HELD: YES, PLDT exempt from paying direct taxes but not indirect taxes (ie VAT). Taxation is the rule,
exemption is the exception. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. To him who claims a refund or exemption from tax payments rests the burden of
justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted. Tax exemption
represents a loss of revenue to the government and must, therefore, not rest on vague inference. When claimed, it must be
strictly construed against the taxpayer who must prove that he falls under the exception. If an exemption is found to exist, it
must not be enlarged by construction, since the reasonable presumption is that the state has granted in express terms all it
intended to grant at all, and that, unless the privilege is limited to the very terms of the statute the favor would be extended
beyond dispute in ordinary cases. DISPOSITIVE: CA modified. PLDT to get refund on advance sales tax and compensating
tax it paid less the VAT due on the importations.
Basco v. Pagcor (Nature of Power to grant tax exemption) FACTS: * PAGCOR was created and given a franchise under PD
1067. * Petitioner filed a petition on the grounds that the PAGCOR Charter is contrary to morals, public policy and order,
and because it constitutes a waiver of the right of Manila City government's right to impose taxes and license fees, which is
recognized by law. They assail Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from
paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local."
ISSUE: WON PAGCOR Charter is violative of the autonomy of the local government? HELD: NO, it is not violative of the
law. Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local
governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was
vested exclusively on the National Government (Note: Since the case doesn't directly say anything about the "nature of the
power to grant tax exemption", use the doctrine mentioned in the case [which speaks of the "nature of the power to tax"] and
extend them to tax exemption.) Manila has no inherent right to impose taxes. Thus, "the Charter or statute must plainly
show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to
a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax". Local
governments have no power to tax instrumentalities of the National Government. "The states have no power by taxation or
otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)" The
power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by
law. DISPOSITIVE: PAGCOR Charter valid since exemption was granted by Congress.
MACEDA v. MACARAIG(Rationale/Ground for tax exemption & Construction of Statutes Granting Tax Exemption
Exemption) FACTS: (same as 1991 case) * CA 120 created NAPOCOR as a public corporation to undertake the
development of hydraulic power and the production of power from other sources. * RA 358 (1949) granted NAPOCOR tax
and duty exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out the policy of
the national electrification, and provided in detail NAPOCORs tax exceptions. PD 380 (1974) specified that
NAPOCORs exemption includes all taxes, etc. imposed directly or indirectly. * PD 938 integrated the
exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance,
upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions
withdrawn or revised. * The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions
privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption
indefinitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June
1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987. * Since 1976, oil
firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil
companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. *
NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and
released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to
P410.58 million was denied. * NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to
NAPOCOR are tax exempt, regardless of the period of delivery. ISSUE: WON NAPOCOR cease to enjoy exemption from
indirect tax when exemption in PD 938 is in general terms. HELD: NO, NAPOCOR still exempt. Tax exemptions are
undoubtedly to be construed strictly but not so grudgingly as knowledge that many impositions taxpayers have to pay are in
the nature of indirect taxes. To limit the exemption granted the National Power Corporation to direct taxes notwithstanding
the general and broad language of the statute will be to thwart the legislative intention in giving exemption from all forms of
taxes and impositions without distinguishing between those that are direct and those that are not.
1991 case held: NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned
by the government of the Republic of the Philippines. From the very beginning of the corporations existence,
NAPOCOR enjoyed preferential tax treatment to enable the corporation to pay the indebtness and obligation and
effective implementation of the policy enunciated in Section 1 of RA
6395. From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed
against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt
status of NAPOCOR. It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions
in favor of government political subdivision or instrumentality. The basis for applying the rule of strict construction to
statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of
treatment among tax payers. The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money
that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax liability of such agencies. In the case of property
owned by the state or a city or other public corporations, the express exemption should not be construed with the same
degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property exemption is
the rule and taxation the exception. DISPOSITIVE: NAPOCOR exempt from tax.
CIR v. CA (Construction of Statutes granting tax exemption:general rule) Facts: * YMCA is a non-stock, non-profit
institution, which conducts various programs and activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives. * CIR issued an assessment including surcharge and interest,
for deficiency tax. * YMCA protested but denied by the CIR, so it filed in the CTA. * CTA ruled in favor of YMCA, so CIR
appealed to CA * CA in favor of CIR but upon MfR by YMCA, it ruled in favor of the latter. Hence, this petition. * CIR
argues the income received by YMCA enumerated in 3 Section 27 (now Section 26) of the NIRC is, as a rule, exempted
from the payment of tax in respect to income received by them as such, the exemption does not apply to income
derived xxx from any if their properties, real or personal, or from any of their activities conducted for profit, regardless,
of the disposition made of such income xxx. * YMCA argues that it is an exempt organization due to its nature and
because the income it derives from renting its space and the fees it derives from parking is minimal (therefore not for
profit). ISSUE: WON the income derived from rentals of real property owned by YMCA exempt from tax? HELD: NO,
YMCA not exempt organization since it doesn't come within the purview of the provision. Because taxes are the lifeblood
of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. A claim of
statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based.
Thus, the claimed exemption must expressly be granted in a statute stated in a language too clear to be mistaken."
Where the language of the law is clear and unambiguous, its express terms must be applied. Laws allowing tax exemption
are construed strictissimi juris. DISPOSITIVE: YMCA to pay tax liability.
Luzon Stevedoring v. CTA (Construction of Statutes granting tax exemption:general rule) FACTS: * Luzon Stevedoring for
the and maintenance of its tugboats, imported various engine parts and other equipment for which it paid, under protest, the
assessed compensating tax. * Unable to secure a tax refund from the CIR, it filed a petition in the CTA. * CTA denied its
petition hence this appeal. * Luzon Stevedoring argues contends that tugboats are embraced and included in the term cargo
vessel under the tax 4 exemption provisions of Sec. 190 of the NIRC, as amended by RA 3176. * CTA argues that
"tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or
goods by themselves but are mainly employed for towing and pulling purposes. Hence, Luzon Stevedoring should be taxed.
ISSUE: WON Luzon Stevedoring should be exempt from tax? HELD: NO, tugboats not embraced in the provision hence
Luzon Stevedoring doesn't come under the exemption. "As the power of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be
strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied." (84 C.J.S.
pp. 659-800), More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly
construed against the taxpayer. DISPOSITIVE: Luzon Stevedoring doesn't come under the purview of the exception. Pay
tax liability.
SEC. 27. Exemptions from tax on corporations. -- The following organizations shall not be taxed under this Title in
respect to income received by them as such -xxx xx x xxx (g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure,
recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private
stockholder or member; xxx xx x xxx Notwithstanding the provision in the preceding paragraphs, the income of whatever
kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities
conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code.
(as amended by Pres. Decree No. 1457)
3
Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not apply to articles to
be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment
abroad and are to form part thereof or to articles to be used by the importer himself as passenger and/or cargo vessel,
whether coastwise or oceangoing, including engines and spare parts of said vessel. ....
4
This 1974 ruling was based the same on Section 191(16) of the Tax Code which states: Sec. 191. Contractors, proprietors or
operators of dockyards, and others. A contractor's tax of three per centum of the gross receipts is hereby imposed on the
following: xxx xxx xxx (16) Business agents and other independent contractors except persons, associations and
corporations under contract for embroidery and apparel for export, as well as their agents and contractors and except gross
receipts of or from a pioneer industry registered with the Board of Investments under the provisions of Republic Act
Numbered Five Thousand one hundred and eighty-six. (Emphasis supplied) A comparison of the above with the previously
quoted Section 205(16) of the 1977 Tax Code reveals that both provisions specifically mention pioneer industries registered
with the Board of Investments under Republic Act No. 5186 as exempt from payment of the contractor's tax. 2. Also, this
1974 ruling has not been abrogated with the passage of the 1977 Tax Code, Section 205(16) which expressly mentions only
pioneer enterprises registered with the Board of Investments under RA 5186 as exempt from the contractor's tax (though
with no reference being made regarding pioneer enterprises registered under RA 6135). Lastly, under Sec. 246 of the
National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is prejudicial to the
taxpayer.
CIR v. Mega Gen. Merch (BIR Rules and Regulations) FACTS: (BACKGROUND)Prior to the promulgation of P.D. No.
392 on February 18, 1974, importations of all kinds of paraffin wax were subject to 7% advance sales tax on landed costs
plus 25% mark up pursuant to Section 183(b) now Section 197(II) in relation to Section 186 (now Section 200) of the Tax
Code. With the promulgation of P.D. No. 392, a new provision for the imposition of specific tax was added to Section 142
of the Tax 7 Code (effective Feb 18 1974) On April 1975 Mega wrote the CIR for clarification as to whether imported crude
paraffin wax is subject to specific tax or advance sales tax. On May 14, 1975 Former Commissioner Misael P. Vera in his
reply ruled that only wax used as high pressure lubricant and micro crystallin is subject to specific tax; that paraffin which
was used as raw material in the manufacture of candles, wax paper, matches, crayons, drugs, appointments etc., is subject to
the 7% advance sales tax, the tax to be based on the landed cost thereof, plus 25% mark-up. Due to Commissioner Vera's
ruling Mega filed several claims for tax refund/tax credit of the specific tax paid by them. However, on January 28, 1977,
then Acting CIR Efren Plana denied Megas claim. According to him the law does not make any distinction as to the
kind of wax subject to specific tax. During the pendency of Megas request for reconsideration, an investigation was
conducted by the BIR in connection with the importations of wax and petroleum that arrived in the country on or
subsequent to the date of the ruling of January 28, 1977 and it was ascertained that Mega owes the government specific tax
for importation of paraffin wax on June 21, 1977 and August 17, 1977 which gave rise to the letter of assessment dated May
8, 1978. Prior, however, to the issuance of said letter of assessment of May 8, 1978, CIR in a letter dated January 11, 1978,
granted Megas claim for refund or tax credit since the importation which had arrived in Manila on April 18, 1975 was
covered by the ruling of May 14, 1975 (before its revocation by the ruling of January 28, 1977). Issue: WON Megas
importation of crude paraffin wax on June 21 and August 17, 1977 are subject to specific tax under Section 142(i) of the Tax
Code promulgated on February 18, 1974. HELD: Yes. RATIO: 8 Contrary to the CTAs ruling , the Court believes that
the letter of Commissioner Plana dated January 11, 1978 did not in any
Section 142. Specific tax on manufactured oils and other fuels.On refined and manufactured mineral oils and other
motor fuels, there shall be collected the following taxes: xxx xxx xxx
7
republic Act No. 5186. Under this latter provision, a pioneer industry is exempt from all taxes under the National Internal
Revenue Code, except income tax. In other words, both a registered export producer on a pioneer status under Republic Act
No. 6135 and a pioneer industry under Republic Act No. 5186 are entitled to the same tax exemption benefits under the Tax
Code.
(i) Greases, waxes and petroleum, per kilogram, thirty-five centavos; ...
8
Excerpt from CTA ruling:
way revoke his ruling dated January 28,1977 which ruling applied the specific tax to wax (without distinction). The reason
he removed in 1978 private respondent's liability for the specific tax was NOT because he wanted to revoke, expressly or
implicitly, his ruling of January 28, 1977 but because the P321,436.79 tax referred to importation BEFORE January 28,
1977 and hence still covered by the ruling of Commissioner Vera, Megas request for refund of the amount of
P321,436.79 was granted in CIRs letter dated January 11, 1978 because the importation of private respondent was
made on April 18,1975 wherein petitioner made clear that all importation of crude paraffin wax only after the ruling of
January 28, 1977, is subject to specific tax The importation which gave rise to the assessment in the amount of P275,652.00
subject of this case, was made on June 27, 1977 and August 17, 1977 and that the petitioner's ruling of January 28,1977 was
not revoked or overruled by his letter of January 11, 1978 granting respondent corporation's request for refund of the
amount of P321,436.79.
CIR v. Burroughs (BIR Rules and Regulations) FACTS:In March 1979, the branch office of Burroughs Ltd. in the country
applied with the Central Bank for authority to remit to its parent company abroad branch profit amounting to P7,647,058.00.
On March 14, 1979, it paid the 15% branch profit remittance 9 tax pursuant to Sec. 24 (b) (2) (ii) . Based on this law
Burroughs Ltd remitted to its head office the amount of P6,499,999.30 However on December 24, 1980 Burroughs Ltd.
filed a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit
remittance tax. BIR ruled in favor of the refund on January 21, 1980. CIR contends that there should be no refund because
Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980.
Said memorandum circular statesConsidering that the 15% branch profit remittance tax is imposed and collected at
source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the
Philippines as profit to be remitted abroad. Issue: WON Burroughs Limited is entitled to a refund (in the amount of
P172,058.90). Held: Yes. In a BIR ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon.
Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit
remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which
the remittance is to be made." What is applicable in the case at bar is still the BIR Ruling of January 21, 1980 because
Burroughs Ltd. paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated
March 17, 1982 cannot be given retroactive effect in the light of Section 10 327 of the National Internal Revenue Code. The
prejudice that would result to private Burroughs Ltd. by a retroactive application of Memorandum Circular No. 8-82 is
beyond question for it would be deprived of the substantial amount of P172,058.90.
To make petitioner liable for specific tax after it has made the importations, would surely prejudice petitioner as it
would be subject to a tax liability of which the Bureau of Internal Revenue has not made it fully aware. As a result, the
rulings of May 8, 1978 and February 15, 1980 having been issued long after the importations on June 21 and August 1 7,
1977 in question cannot be applied with legal effect in this case because to do so will violate the prohibition against
retroactive application of the rulings of executive bodies. Rulings or circulars promulgated by the Commissioner of Internal
Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any
retroactive application, where to do so, as it did in the case at bar, would prejudice the taxpayer.
Sec. 24. Rates of tax on corporations.... (b) Tax on foreign corporations. ... (2) (ii) Tax on branch profits remittances. Any
profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ... 10 Sec. 327. Nonretroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in
accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shag not be given
retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following
cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of
him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN
Broadcasting Corp. v. CTA, 108 SCRA 151-152)
9
Sec. 338-A. Non-retroactivity of rulings. - Any revocation, modification, or reversal of and of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner
of Internal Revenue shall not be given retroactive application if the relocation, modification, or reversal will be prejudicial
to the taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or omits material facts from
his return or any document required of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the
taxpayer acted in bad faith. (italics for emphasis)
CIR v. Benguet Corp (BIR Rules and Regulations) FACTS:(Benguet Corporation is a domestic corporation engaged in the
exploration, development and operation of mineral resources, and the sale or marketing thereof to various entities. It is a
value added tax (VAT) registered enterprise.)
The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of NIRC as amended by
E.O. 273 s. 1987 then in effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders
services, or engages in similar transactions and any person who imports goods is liable for output VAT at rates of either 10%
or 0% (zero-rated) depending on the classification of the transaction under Sec. 100 of the NIRC. In January of 1988,
Benguet applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank. On 28 August 1988
VAT Ruling No. 3788-88 was issued which declared that the sale of gold to Central Bank is considered as export sale
subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by EO 273. Relying on its zero-rated status and
the above issuances, Benguet sold gold to the Central Bank during the period of 1 August 1989 to 31 July 1991 and entered
into transactions that resulted in input VAT incurred in relation to the subject sales of gold. It then filed applications for tax
refunds/credits corresponding to input VAT. However, such request was not granted due to BIR VAT Ruling No. 008-92
dated 23 January 1992 that was issued subsequent to the consummation of the subject sales of gold to the Central Ban`k
which provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall be subject to
10% VAT. BIR VAT Ruling No. 00892 withdrew, modified, and superseded all inconsistent BIR issuances. Both petitioner
and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only if such application would not be
prejudicial to the Benguet pursuant Sec. 246 of the NIRC. MAIN ISSUE: WON Benguets sale of gold to the Central
Bank during the period when such was classified by BIR issuances as zerorated could be taxed validly at a 10% rate after
the consummation of the transactions involved. NO. SUB ISSUE: (WON there was prejudice to Benguet Corp due to the
new BIR VAT Ruling. YES. RATIO: (main issue): 1. At the time when the subject transactions were consummated, the
prevailing BIR regulations relied upon by Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet
should not be faulted for relying on the BIRs interpretation of the said laws and regulations.
While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain unpaid on account of
the errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous
interpretation of law, these principles must give way to exceptions based on and in keeping with the interest of justice and
fairplay. (then the Court cited the ABS-CBN case). (sub-issue) 2. The adverse effect is that Benguet Corp became the
unexpected and unwilling debtor to the BIR of the amount equivalent to the total VAT cost of its product, a liability it
previously could have recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it
known it would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic prejudice when its
consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change in the VAT rating of
Benguets transactions with the Central Bank resulted in the twin loss of its exemption from payment of output VAT and
its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT sans the option to pass on this cost to
the Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the
Central Bank. 3. Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed, this
relief would only address Benguets overpayment of income tax but not the other burdens discussed above. Verily, this
remedy is not a feasible option for Benguet because the very reason why it was issued a deficiency tax assessment is that its
input VAT was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary
and cumbersome refund process is prejudice enough.
BPI Leasing v.CA,CTA,CIR (BIR Rules & Regulations) FACTS:For the calendar year 1986, BLC paid the CIR a total of
P1,139,041.49 representing 4% "contractors percentage tax" imposed by Section 205 of the NIRC based on its gross
rentals from equipment leasing for said year.
On November 10, 1986, CIR issued Revenue Regulation 1986. Section 6.2 thereof provided that finance and leasing
companies registered under RA 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This
means that companies registered under Republic Act 5980, such as BLC, are not liable for "contractors percentage tax"
under Section 205 but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since
BLC had earlier paid the "contractors percentage tax for its 1986 lease rentals BLC filed a claim for a refund with the
CIR on April 1988 for the amount representing the difference between what it had paid as "contractors percentage tax"
and what it should have paid for "gross receipts tax." ISSUES: 15 1. WON Revenue Regulation 19-86 is legislative rather
than interpretative in character. 2. WON it should retroact to the date of effectivity of the law it seeks to interpret. RATIO: 1.
NO. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC.
Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules
and regulations for the effective enforcement of the provisions of the NIRC. 2.NO. The principle is well entrenched that
statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the
contrary is manifest by express terms or by necessary implication. In the present case, there is no indication that the revenue
regulation may operate retroactively. Furthermore, there is an express provision stating that it "shall take effect on January
1, 1987," and that it "shall be applicable to all leases written ON OR AFTER the said date." Being clear on its prospective
application, it must be given its literal meaning and applied without further interpretation. Thus, BLC is not in a position to
invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987.
15
Administrative issuances may be distinguished according to their nature and substance: legislative and interpretative. A
legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the
details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the
administrative agency is in charge of enforcing.