Professional Documents
Culture Documents
BASIS OF TAXATION
Lifeblood Doctrine
CIR vs. Pineda, September 15, 1967, 21 SCRA 105
Facts: Manuel Pineda, the eldest son of the decedent who was made to pay the full
amount of the income tax liabilities assessed against the estate. He questioned the
assessment on the ground that as an heir his liability for the unpaid tax due the
estate is only up to the extent of and in proportion to the share he received
therefrom.
Q. Can the Government require Manuel Pineda to pay the full amount of the taxes
assessed?
A. Yes, the Government can require Manuel Pineda to pay the full amount of the
taxes assessed. The remedy (tax lien) is the very avenue the Government took in
this case to collect the tax. The BIR should be given in instances like the case at
bar, the necessary discretion to avail itself of the most expeditious way to collect
the tax as may be envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of the government and their prompt and
certain availability is an imperious need.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
THEORIES ON TAXATION
Necessity Theory
Philippine Guaranty Co., Inc. vs. CIR, 13 SCRA 780, (1965)
Facts: Petitioner Philippine Guaranty Co., Inc. (PGCI) entered into reinsurance
contracts with foreign insurance companies not doing business in the Philippines
and thereby agreed to cede to the foreign insurers a portion of the premiums. In
accordance with the aforesaid contracts, the petitioner excluded in its gross income
premiums ceded to the foreign reinsurers. Based on the foregoing, the CIR
assessed taxes from PGCI. The Petitioner protested claiming that the premiums
ceded to foreign reinsurance companies are not subject to withholding tax for they
are not income from sources within the Phil.
Q. Is the contention of petitioner correct?
A. No, considering that the reinsurance premiums in question were afforded
protection by the government and the recipient foreign reinsurers exercised rights
and privileges guaranteed by our laws, such reinsurance premiums and reinsurers
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
should share the burden of maintaining the State. The power to tax is an attribute
of sovereignty. It is a power emanating from necessity. It is a necessary burden to
preserve the States sovereignty and means to give the citizenry an army to resist
an aggression, a navy to defend its shores from invasion, a corps of civil servants to
serve, public improvements designed for the enjoyment of the citizenry and those
which come within the States territory, and facilities and protection which a
government is supposed to provide.
Benefits-Protection
Relationship
Theory
or
Doctrine
of
Symbiotic
LIABILITIES INVOLVED
Taxes are personal to the taxpayer.
Sunio vs. NLRC, L-57767, January 31, 1984
Facts: Petitioner was impleaded in the Complaint in his capacity as General
Manager of petitioner corporation. There appears to be no evidence on record that
he acted maliciously or in bad faith in terminating the services of private
respondents. His act, therefore, was within the scope of his authority and was a
corporate act.
Q. Can a corporations tax delinquency be enforced against its stockholders?
A. No, a corporations tax delinquency cannot, for instance, be enforced against its
stockholders because not only would this run counter to the principle that taxes are
personal, but it would run counter to the principle that taxes are personal, but it
would also not be in accord with the rule that a corporation is vested by law with a
personality that is separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Facts: The Central Syndicate, a corporation organized under the laws of the Phil.,
sent a letter to the Collector of Internal Revenue advising the latter that it
purchased from Dee Hong Lue the entire stock of surplus properties and that it
assumed Lue's obligation to pay the 3-1/2% sales tax on said surplus goods, it was
remitting the sum of P43,750.00 in his behalf as deposit to answer for the payment
of said sales tax with the understanding that it would later be adjusted after the
determination of the exact consideration of the sale. The syndicate again wrote the
Collector requesting a refund due to the adjustment and reduction of the purchase
price. However, the Collector denied the claim for refund. The Collector filed a
motion requiring the syndicate to file a bond to guarantee the payment of the tax
assessed against it which motion was denied by the CTA on the ground that cannot
be legally done it appearing that the syndicate is already a non-existing entity due
to the expiration of its corporate existence, the case was dismissed. From this order
the syndicate appealed to the SC wherein it intimated that the appeal should not be
dismissed because it could be substituted by its successors-in-interest.
Q. The Central Syndicate having already been dissolved because of the expiration
of its corporate existence, can the sales tax in question be enforced against its
successors-in-interest who are the present petitioners?
A. Yes, the creditor of a dissolved corporation may follow its assets once they
passed into the hands of the stockholders. The dissolution of a corporation does not
extinguish the debts due or owing to it. A creditor of a dissolved corporation may
follow its assets, as in the nature of a trust fund, into the hands of its stockholders.
An indebtedness of a corporation to the federal government for income and excess
profit taxes is not extinguished by the dissolution of the corporation. And it has
been stated, with reference to the effect of dissolution upon taxes due from a
corporation, "that the hands of the government cannot, of course, collect taxes from
a defunct corporation, it loses thereby none of its rights to assess taxes which had
been due from the corporation, and to collect them from persons, who by reason of
transactions with the corporation, hold property against which the tax can be
enforced and that the legal death of the corporation no more prevents such action
than would the physical death of an individual prevent the government from
assessing taxes against him and collecting them from his administrator, who holds
the property which the decedent had formerly possessed." Hence, petitioners could
be held personally liable for the taxes in question as successors-in-interest of the
defunct corporation.
Liabilities of a taxpayer
Republic vs. Patanao, L-22356, July 21, 1967
Facts: A complaint was filed against Patanao, who was the holder of an ordinary
timber license and as such was engaged in the business of producing logs and
lumber for sale during the years 1951-1955. He failed to file income tax returns for
1953 and 1954, and although he filed income tax returns for 1951, 1952 and 1955,
the same were false and fraudulent because he did not report substantial income
earned by him from his business. An examination was conducted by the BIR it was
ascertained that there are deficiency; income taxes and additional residence taxes
for the aforesaid years, due from defendant. Notwithstanding repeated demands
the defendant refused, failed and neglected to pay said taxes. Defendant moved to
dismiss the complaint on the ground that the action is barred by prior judgment,
defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
court, which were prosecutions for failure to file income tax returns and for nonpayment of income taxes.
Q. Is the contention of the defendant tenable?
A. No, the acquittal in the said criminal cases cannot operate to discharge
defendant from the duty of paying the taxes which the law requires to be paid,
since that duty is imposed by statute prior to and independently of any attempts by
the taxpayer to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding nor is it a mere civil liability
arising from crime that could be wiped out by the judicial declaration of nonexistence of the criminal acts charged.
Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. The situation under the income tax law is the exact opposite. Civil
liability to pay taxes arises from the fact, for instance, that one has engaged himself
in business, and not because of any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his civil obligation.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Senate was declared by the United States Supreme Court to be sufficiently broad to
enable it to make the alteration. [Flint v. Stone Tracy Company. 220 U.S. 107, 55 L.
ed. 389]
violates
the
equal
protection
clause
and
therefore
A. No, the legislature has the inherent power to select the subjects of taxation and
to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more than in other areas,
the legislature possesses the greatest freedom in classification. In the case of the
anti-TB stamp, undoubtedly, the single most important and influential consideration
that led the legislature to select mail users as subjects of the tax is the relative ease
and convenience of collecting the tax through the post offices. The small amount of
five centavo does not justify the great expense and inconvenience of collecting
through the regular means of collection.
The eradication of a dreaded disease is a public purpose, but if by public
purpose the petitioner means benefit to a taxpayer as a return for what he pays,
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living
in an organized society, established and safeguarded by the devotion of taxes to
public purposes.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Facts: A lower court decision upholding the validity of an ordinance of the City of
Baguio imposing a license fee on any person, firm, entity or corporation doing
business in the City of Baguio is assailed by De Leon. He was held liable as a real
estate dealer and was obligated to pay under such ordinance an annual fee. In
addition, there has been a firm insistence by appellant of the lack of jurisdiction of
the City Court of Baguio, where the suit originated due to the fact that the issue of
constitutionality was raised.
Q. Does the City Court of Baguio have jurisdiction to decide on the constitutionality
of the ordinance?
A. Yes, since the City Court is possessed of judicial power and it is likewise
axiomatic that the judicial power embraces the ascertainment of facts and the
application of the law, the Constitution as the highest law superseding any statute
or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter.
While it remains undoubted that such a power to pass on the validity of an
ordinance alleged to infringe certain constitutional rights of a litigant exists, still it
should be exercised with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city court in the
judicial hierarchy.
PURPOSES OF TAXATION
Primary Purpose, To raise revenue
Bagatsing, et al. vs Ramirez, 74 SCRA 306
Facts: An Ordinance regulating the operation of public markets and prescribing for
the rental of stalls was assailed in that the subject ordinance is not a "tax
ordinance" because the imposition of rentals, permit fees, tolls and other few is not
strictly a taxing power but a revenue-raising function, so that the procedure for
publication under the Local Tax Code finds no application.
Q. Is the contention of the petitioners correct?
A. No, the raising of revenues is the principal object of taxation. Under Section 5,
Article XI of the New Constitution, "Each local government unit shall have the power
to create its own sources of revenue and to levy taxes, subject to such provisions as
may be provided by law. And one of those sources of revenue is what the Local Tax
Code points to in particular: "Local governments may collect fan or rentals for the
occupancy or use of public markets and premises * * *." They can provide for and
regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy
thereof. They can license, or permit the use of, lease, sell or otherwise dispose of
stands, stalls or marketing privileges.
TEAM: BAR-OPS
8 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Regulatory Measure
Tio vs Videogram Regulatory Board, 151 SCRA 208
Facts: P.D. 1987 was promulgated creating the Videogram Regulatory Board with
broad powers to regulate and supervise the videogram industry. In addition, the
said law imposes a thirty percent (30%) tax on the sale, lease or disposition of
videograms. Petitioner attacks on the constitutionality of the Decree on the ground
that the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint
of trade in violation of the due process clause of the Constitution.
Q. Is the decree unconstitutional?
A. No, the levy of a 30% tax is for a public purpose. It was imposed primarily for
answering the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic videotapes, and therefore valid. While the direct
beneficiary of the said decree is the movie industry, the citizens are held to be its
indirect beneficiaries.
TEAM: BAR-OPS
9 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
A. None, from the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses dedicated to
other purposes is not indefensible. Race horses are devoted to gambling if
legalized, their owners derive fat income and the public hardly any profit from horse
racing, and this business demands relatively heavy police supervision.
TEAM: BAR-OPS
10 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
instant case for the Government to persuade, the taxpayer to lend it a helping hand
and later on to penalize him for duly answering the urgent call.
Administrative Feasibility
-------------------------------------------------------------------UST - Golden Notes
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
EXCEPTIONS
Republic vs. Ericta, 172 SCRA 623, 1989
Facts: The taxes sought to be collected by the Republic from Sampaguita were still
unpaid, its tender of the certificates of indebtedness in question not constituting
payment. Hence, it ought to be sentenced to pay the taxes. Even assuming the
contrary, legal compensation as a mode of extinguishing an obligation to pay taxes
was nonetheless unavailing against the government.
Q. Can there be a legal compensation in this case?
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
A. Yes, Sampaguita was entitled to a judgment against the Republic for the
payment of the face value of the certificate, the same having already been
presented and surrendered within the said period of ten (10) years to the Treasurer
of the Philippines (through the Municipal Treasurer of Bocaue.) In effect, while
judgment shall be rendered in favor of the Republic against Sampaguita for unpaid
taxes, judgment ought at the same time to issue for Sampaguita commanding
payment to it by Republic of the same sum representing the face value of the
certificate of indebtedness assigned to it and for recovery of which it had
specifically prayed in its counterclaim.
TEAM: BAR-OPS
13 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
A. No, the levy of a 30% tax is for a public purpose. It was imposed primarily for
answering the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic videotapes, and therefore valid. While the direct
beneficiary of the said decree is the movie industry, the citizens are held to be its
indirect beneficiaries.
Territoriality
Wells Fargo Bank and Union Trust vs. Collector, 70 Phil.
235
Facts: Birdie Lillian Eye, died at Los Angeles, California, the place of her alleged last
residence and domicile. Among the properties she left was her one-half conjugal
share in 70,000 shares of stock in the Benguet Consolidated Mining Company. She
left a will which was duly admitted to probate in California where her estate was
administered and settled. Wells Fargo Bank & Union Trust Company, was duly
appointed trustee of the trust created by the said will. The Federal and State of
California's inheritance taxes due on said shares have been duly paid. Respondent
sought to subject anew the aforesaid shares of stock to the Philippine inheritance
tax, to which petitioner objected contending that as to intangibles, like shares of
stock, their situs is in the domicile of the owner thereof, and, therefore, their
transmission by death necessarily takes place under his domiciliary laws.
Q. Are the questioned shares of stocks subject to the Philippine Inheritance Tax?
A. Yes, inheritance tax is not a tax on property, but upon transmission by
inheritance. Originally, the settled law is that intangibles have only the domicile of
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
the decedent at the time of his death as the situs for the purpose of inheritance tax
(mobilia sequuntur personam). However, such doctrine has been decried as a mere
"fiction of law having its origin in considerations of general convenience and public
policy, and cannot be applied to limit or control the right of the state to tax property
within its jurisdiction," and must "yield to established fact of legal ownership, actual
presence and control elsewhere, and cannot be applied if to do so would result in
inescapable and patent injustice."
In the instant case, the actual situs of the shares of stock is in the Philippines, the
corporation being domiciled therein. And besides, the certificates of stock have
remained in this country up to the time when the deceased died in California. And
that one Syrena McKee, secretary of the Benguet Consolidated Mining Company,
has the legal title to the certificates of stock held in trust for the true owner thereof.
In other words, the owner residing in California has extended here her activities with
respect to her intangibles so as to avail herself of the protection and benefit of the
Philippine laws.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
National Development
5,1992, 215 SCRA 382
Co.
vs.
Cebu
City,
November
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
CONSTITUTIONAL LIMITATIONS ON
THE POWER TO TAX
Due Process of Law
Reyes vs. Almanzor, 196 SCRA 322 (1991)
Facts: Petitioners are owners of a parcel of land which are leased and occupied as
dwelling. The tenants were paying monthly rentals not exceeding P300.00. Later,
the RA 6359 Rental Freezing Law was enacted. Consequently, petitioners were
precluded from raising their rental fee. After a re-classification and re-assessment
was made by the City Assessor, the realty tax on said land was increased.
Petitioners question the used of comparable sales approach rather than income
approach, citing violation of the due process clause.
Q. Is the used of comparable sales approach results to an unjust, excessive and
confiscatory assessment?
A. Yes, the use of the comparable sales approach result to the fact that the taxes
exceed the sum total of the yearly income or rental paid by the dweller. The due
process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to
amount to confiscation of property that would be a clear abuse of power.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Sugar Company, Inc. and none other. At the time of the taxing ordinances
enactment, Ormoc Sugar Company, it is true, was the only sugar central in the City
of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to
future conditions as well. The taxing ordinance should not be singular and exclusive
as to exclude any substantially established sugar central, of the same class as
plaintiff, from the coverage of the tax.
Uniformity of Taxation
Reyes vs. Almanzor, 196 SCRA 322
Facts: Petitioners are owners of a parcel of land which are leased and occupied as
dwelling. The tenants were paying monthly rentals not exceeding P300.00. Later,
the RA 6359 Rental Freezing Law was enacted. Consequently, petitioners were
precluded from raising their rental fee. After a re-classification and re-assessment
was made by the City Assessor, the realty tax on said land was increased.
Petitioners question the method used in the assessment of properties.
Q. Is the law invalid as it violates the rule on uniformity and equality in taxation?
A. No, the taxing power may make a reasonable and natural classification for
purposes of taxation but it must not be discriminatory. The law operates equally
and uniformly on all persons under the same circumstances.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
TEAM: BAR-OPS
19 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Facts: RA 7716 was enacted to widen the tax base of the existing VAT system and
enhance its administration by amending the National Internal Revenue Code (NIRC).
One of the petitioners is Philippine Press Institute (PPI),a non-profit organization of
newspaper publishers. Petitioner claims violations of their rights under Sections 4 of
the Bill of Rights as a result of the enactment of the VAT Law.
The PPI questions the law insofar as it has withdrawn the exemption previously
granted to the press under Section 103 (f) f the NIRC. Although the exemption was
subsequently restored by administrative regulation with respect to the circulation of
income of newspapers, PPI presses its claim because of the possibility that the
exemption may still be removed by mere revocation of the regulation of the
Secretary of Finance.
Q. Is RA 7716 unconstitutional for it violates the freedom of the press?
A. No, even with due recognition of its high estate and its importance in a
democratic society, however the press is not immune from general regulation by
the State. It has been held that the publisher of a newspaper has no immunity from
the application of general laws. He has no special privilege to invade the rights and
liberty of others. He must answer for libel. He may be punished for contempt of
court. Like others, he must pay equitable and nondiscriminatory taxes on his
business.
for
Religious,
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Facts: St. Catherines Hospital was established for charitable and humanitarian
purposes. It had a total capacity of 32 beds, 20 of which are for charity patients
and the remaining 12 are for pay patients. It likewise operates as a school for
midwifery. It used to enjoy exemption from real property tax but was later
reclassified as taxable.
Q. Are the lot, building and other improvements used by St. Catherines Hospital
exempt from real property tax?
A. Yes, within the purview of constitutional exemption from taxation, St. Catherine
Hospital is therefore, a charitable institution and the fact that it admits pay-patients
does not bar it from claiming that is devoted exclusively to benevolent purposes, it
being admitted that the income derived from pay-patients is devoted to the
improvement of charity ward, which represents almost 2/3 of the bed capacity of
the hospital, aside from charity out-patients who come only for consultation.
Moreover, the exemption in favor of the property used exclusively for
charitable or educational purposes is not limited to property actually indispensable
therefore but extends to facilities which are incidental to and reasonably necessary
for the accomplishment of said purposes, such as, in the case of hospitals, a school
for training nurses, a nurses home, property used to provide housing facilities for
interns, resident doctors, superintendents and other members of the hospital staff
and recreational facilities for student nurses, interns and residents, such as athletic
field including a firm used for the inmates of the institution.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
Facts: The petitioner Lung Center of the Philippines is a non-stock and non-profit
entity. It is the registered owner of a 121,463 sq.m. parcel of land located at
Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the
Lung Center of the Philippines. A big space at the ground floor is being leased to
private parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they
charge for their professional services. Almost one-half of the entire area on the left
side of the building along Quezon Avenue is vacant and idle, while a big portion on
the right side is being leased for commercial purposes to a private enterprise known
as the Elliptical Orchids and Garden Center. Petitioner accepts paying and nonpaying patients. It also renders medical services to out-patients, both paying and
non-paying. Aside from its income from paying patients, the petitioner receives
annual subsidies from the government. Both the land and the hospital building of
the petitioner were assessed for real property taxes by the City Assessor of Quezon
City. Petitioner avers that it is a charitable institution within the context of Section
28(3), Article VI of the 1987 Constitution.
Q. Are the real properties of the petitioner exempt from real property taxes?
A. Those portions of its real property that are leased to private entities are not
exempt from real property taxes as these are not actually, directly and exclusively
used for charitable purposes. The Lung Center of the Philippines shall be exempt
from the payment of taxes, charges and fees imposed by the Government or any
political subdivision or instrumentality thereof with respect to equipment purchases
made by, or for the Lung Center. It is plain as day that under the decree, the
petitioner does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon.
The tax exemption under Section 28(3), Article VI covers property taxes only. What
is exempted is not the institution itself but lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational
purposes. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to
be entitled to the exemption, the petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. What
is meant by actual, direct and exclusive use of the property for charitable purposes
is the direct and immediate and actual application of the property itself to the
purposes for which the charitable institution is organized. It is not the use of the
income from the real property that is determinative of whether the property is used
for tax-exempt purposes.
DOUBLE TAXATION
CIR vs. SC Johnson and Son, Inc., June 25, 1999, 309 SCRA
102
Facts: SC Johnson and Son, Inc., is a domestic corporation organized and operating
under the Philippine laws, entered into an agreement with SC Johnson and Son,
USA, a non-resident foreign corporation based in the USA pursuant to which
respondent was granted the right to use the trademark, patents and technology
owned by the latter including the right to manufacture, package and distribute the
products covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, USA. For the use of trademark
and technology respondent was obliged to pay SC Johnson and Son, USA royalties
and subjected the same to 25% withholding tax on royalty payments. Respondent
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Page
claim for refund of overpaid withholding tax on royalties and submit that the
royalties paid to SC Johnson and Son, USA is only subject to 10% withholding tax
pursuant to the most-favored nation clause. The CIR however, did not act on the
claim for refund.
Q. Is SC Johnson and Son, Inc. entitled to the most favored nation tax rate of 10%
on royalties?
A. No, since the RP-US Tax Treaty does not give a matching credit of 20% for the
taxes paid to the Philippines on royalties as allowed under the RP-West Germany
Tax Treaty, respondent cannot be deemed entitled to the 10% rate granted under
the latter treaty for the reason that there is no payment of taxes on royalties under
similar circumstances.
The purpose of the most favored nation clause is to grant to the contracting
parties treatment not less favorable than that which has been or may be granted to
the most favored among other countries. The most favored nation clause is
intended to establish the principle of equality of international treatment by
providing that the citizens or subjects of the contracting nations may enjoy the
privileges accorded by either party to those of the most favored nation. The
essence of the principle is to allow the taxpayer in one state to avail of more liberal
provisions granted in another tax treaty to which the country of residence of such
taxpayer is also a party provided that the subject matter of taxation, in this case,
royalty income, is the same as that in the tax treaty under which the taxpayer is
liable.
Both Articles 13 of the RP-US Tax Treaty and Article 12(2) of the RP-West
Germany Tax Treaty, above-quoted, speaks of tax on royalties for the use of
trademark, patents, and technology. The entitlement of the 10% rate by US firms
despite the absence of matching credit (20% for royalties) would derogate from the
design behind the most favored nation clause to grant equality of international
treatment since the tax burden laid upon the income of the investor is not the same
in the two countries. The similarity in the circumstances of payment of taxes is a
condition for the enjoyment of most favored nation treatment precisely to
underscore the need for equality of treatment.
On International Juridical Double Taxation -The RP-US Tax Treaty is just one of a number of bilateral treaties which the
Philippines has entered into for the avoidance of double taxation. The purpose of
these international agreements is to reconcile the national fiscal legislation of the
contracting parties in order to help the taxpayer avoid simultaneous taxation in two
different jurisdictions. More precisely, the tax conventions are drafted with a view
towards the elimination of international juridical double taxation which is defined as
the imposition of comparable taxes in two or more states on the same taxpayer in
respect of the same subject matter and for identical periods.
Methods to Eliminate Double Taxation -In order to eliminate double taxation, a tax treaty resorts to several methods.
First, it sets out the respective rights to tax of the state of source or situs and of the
state of residence with regard to certain classes of income or capital. In some
cases, an exclusive right to tax is conferred on one of the contracting states;
however, for other items of income or capital, both states are given the right to tax,
although the amount of tax that may be imposed by the state of source is limited.
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Page
The second method for the elimination of double taxation applies whenever the
state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation.
There are two methods of relief - the exemption method and the credit
method. In the exemption method, the income or capital which is taxable at the
state of source or situs is exempted at the state of residence, although in some
instances it may be taken into account in determining the rate of tax applicable to
the taxpayers remaining income or capital. On the other hand, in the credit
method, although the income or capital which is taxed in the state of source is still
taxable in the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is that in the
exemption method, the focus is on the income or capital, whereas the credit
method focuses upon the tax.
TAX EVASION
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Page
CIR vs. Benigno Toda Jr., GR 147188, Sept. 14, 2004, 438
SCRA 290
Facts: The BIR sent an assessment notice and demand letter to the Cibeles
Insurance Corporation (CIC) for deficiency income tax for the year 1989 arising from
an alleged simulated sale of a 16-storey commercial building known as Cibeles
Building in Makati City. Prior to the transaction, the CIC authorized Benigno Toda,
Jr., President and owner of 99.991% of its issued and outstanding capital stock, to
sell the Cibeles Building and the two parcels of land on which the building stands.
Toda purportedly sold the property for P100 million to Altonaga, who, in turn, sold
the same property on the same day to Royal Match Inc. (RMI) for P200 million.
These two transactions were evidenced by Deeds of Absolute Sale notarized on the
same day by the same notary public. For the sale of the property to RMI, Altonaga
paid capital gains tax in the amount of P10 million. Toda sold his entire shares of
stocks in CIC to Le Hun T. Choa for P12.5 million. Three and a half years later Toda
died.
The new CIC asked for a reconsideration asserting that the assessment should be
directed against the old CIC, and not against the new CIC, which is owned by an
entirely different set of stockholders; moreover, Toda had undertaken to hold the
buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years
1987-1989. The BIR then proceeded against the estate of Toda. The administrator of
the estate of Toda paid the deficiency taxes under protest. However, this protest
was denied by the CIR stating that a fraudulent scheme was deliberately
perpetuated by the CIC wholly owned and controlled by Toda by covering up the
additional gain of P100 million, which resulted in the change in the income structure
of the proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of 35%.
Q. Is the scheme perpetuated by Toda a case of tax evasion or tax avoidance?
Ruling: It is a tax evasion scheme. Tax avoidance is the tax saving device within
the means sanctioned by law. This method should be used by the taxpayer in good
faith and at arms length. Tax evasion, on the other hand, is a scheme used outside
of those lawful means and when availed of, it usually subjects the taxpayer to
further or additional civil or criminal liabilities. Tax evasion connotes the integration
of three factors: (1) the end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an accompanying state of mind which is described as
being evil, in bad faith, willfull, or deliberate and not accidental; and (3) a
course of action or failure of action which is unlawful.
The scheme resorted to by CIC in making it appear that there were two sales of the
subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot
be considered a legitimate tax planning (one way of tax avoidance). Such scheme
is tainted with fraud. Fraud in its general sense is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is taken
of another. Here, it is obvious that the objective of the sale to Altonaga was to
reduce the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax.
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Page
TAXPAYERS SUIT
Gonzales vs. Marcos, 65 SCRA 624, 1975
Facts: Through EO No. 30, the President created a trust for the benefit of the
Filipino People under the name and style of the Cultural Center of the Philippines.
The trust was to undertake the construction of a national theater and music hall to
awaken the nations consciousness or cultural heritage and to promote, preserve
and enhance the same. Pursuant thereto, CCPs Board of Trustees received foreign
donations and financial commitments. Petitioner however, claims that in issuing EO
No. 30, there was an encroachment by the President on the legislatives prerogative
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Page
to enact laws. The trial court dismissed the petition on the ground that Gonzales
did not have the personality to question the issuance of EO No. 30 since the funds
administered by the CCP came from donations, without a single centavo raised by
taxation.
Q. Does the petitioner have the personality to question the validity of EO No. 30
based on a taxpayers suit?
A. No, Gonzales did not meet the requisite burden to warrant the reversal of the
trial courts decision. It was pointed out therein that one valid reason why such an
outcome was unavoidable was that the funds administered by the Center came
from donations and contributions and not from taxation. Accordingly, there was the
absence of the pecuniary requisite or monetary interest. The stand of the lower
court finds support in judicial precedents. This is not to retreat from the liberal
approach followed in the earlier case of Pascual vs. Secretary of Public Works,
foreshadowed by People vs. Vera, where the doctrine was exhaustively discussed.
It is only to clarify that the Petitioner, judged by orthodox legal learning, has not
satisfied an element for a taxpayers suit.
INCOME TAXATION
Global System vs. Schedular System
Tan vs Del Rosario Jr., 237 SCRA 324, 1994
Facts: The Simplified Net Income Taxation Scheme (SNITS) was promulgated
imposing a tax on taxable net income from all sources, other than income from
salaries, of every individual whether a citizen of the Philippines or an alien residing
in the Philippines who is self-employed or practices his profession herein. Petitioners
challenge said law for violating the constitutional requirement of uniformity in
taxation in that the law would now attempt to tax single proprietorship and
professionals differently from the manner that it imposes tax on corporations and
partnerships.
Q. Is the law invalid for it runs counter to the constitutional rule that taxation shall
be uniform and equitable?
A. No, uniformity in taxation merely requires that all subjects or objects of taxation
similarly situated be treated alike in both privileges and liabilities. Uniformity does
not forbid classification as long as
1) The standards that are used therefore are substantial and not arbitrary;
2) The categorization is germane to achieve the legislative purpose;
3) The law applies all things being equal, to both present and future
conditions, and
4) The classification applies equally well to all those belonging to the same
class.
What may instead be perceived to be apparent from the amendatory law is
the legislative intent to increasingly shift the income tax system towards the
schedular approach in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment on the taxable corporations.
We certainly do not view this classification to be arbitrary and inappropriate.
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Page
With the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. This court cannot freely delve into those matters which, by constitutional
fiat, rightly rest on legislative judgment. Where a tax measure becomes so
unconscionable and unjust as to amount of confiscation of property, courts will not
hesitate to strike it down, for, despite all its plenitude, the power to tax cannot
override constitutional proscriptions.
Schedular System -- employed where the income tax treatment varies and made
to depend on the kind or category of taxable income of the taxpayer.
Global System -- tax treatment views indifferently the tax base and generally
treats in common all categories of taxable income of the taxpayer.
Judicial Definition
Fisher vs. Trinidad, 43 Phil 973
Facts: Frederick C. Fisher, was a stockholder in the Philippine American Drug
Company. Said corporation declared a stock dividend and that a proportionate
share of stock dividend was issued to the plaintiff-appellant. Trinidad, being the
then Commissioner of Internal Revenue, demanded payment of income tax on the
aforesaid dividends. Fisher protested the assessment made against him and
claimed that the stock dividends in question are not income but are capital and are,
therefore, not subject to tax.
Q. Are stock dividends income?
A. No, stock dividends are not income and are therefore not taxable as such. A
stock dividend, when declared, is merely a certificate of stock which evidences the
interest of the stockholder in the increased capital of the corporation. A declaration
of stock dividend by a corporation involves no disbursement to the stockholder of
accumulated earnings, and the corporation parts with nothing to its stockholder.
The property represented by a stock dividend is still that of the corporation and not
of the stockholder. The stockholder has received nothing but a representation of an
interest in the property of the corporation and, as a matter of fact, he may never
receive anything, depending upon the final outcome of the business of the
corporation.
While income is the gain derived from capital, from labor, from both capital
and labor, including the gain derived from the sale or exchange of capital assets.
Sources of Income
CIR vs. British Overseas Airways Corporation (BOAC), April
30, 1987,149 SCRA 395
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Partnership Theory
CIR vs. Lednicky, July 31, 1964 11 SCRA 603
Facts: The Lednicky spouses are resident aliens deriving all their income from
Philippine sources. After filing their income tax returns for the years 1955, 1956
and 1957, they paid the corresponding taxes thereon. Thereafter, the spouses filed
an amended income tax return claiming therein deductions for foreign income taxes
paid to the U.S. Government and they requested the refund of the allegedly
overpaid taxes. The spouses stress that if they are not allowed to deduct the
income taxes they ate required to the US Government in their return for Philippine
income tax, they would be subjected to double taxation.
Q. Is the contention of the spouses correct?
A. No, double taxation becomes obnoxious only when the taxpayer is taxed twice
for the benefit of the same governmental entity. In the present case, while the
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spouses would have to pay two taxes on the same income, the Philippine
Government only receives the proceeds of one tax. As between the Phil., where the
income was earned and where the taxpayer is domiciled, and the US, where the
income was not earned and where the taxpayer did not reside, it is undisputable
that justice and equity demand that the tax on the income should accrue to the
benefit of the Phil. xxx the right of a government to tax income emanates from its
partnership in the production of income, by providing the protection, resources,
incentives, and proper climate for such production xxx.
Constructive Receipt
Limpan Investment Corp. vs. Commisioner, 17 SCRA 703
Facts: Petitioner, a domestic corporation duly registered is engaged in the business
of leasing real properties. Limpan duly filed its 1956 and 1957 income tax returns
however the examiners of BIR conducted investigation of petitioners income tax
returns and they discovered and ascertained that petitioner had under declared its
rental income during said taxable years and had claimed excessive depreciation of
its buildings. CIR demands the payment of deficiency income tax. Petitioner denied
having received or collected the said unreported rental income explaining that part
of said amount was not declared because its president did not turn the same over
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Page
to petitioner in said year but did so only in 1959 and that a certain tenant deposited
in court his rentals over which the corporation had no actual or constructive control.
Q. Is the contention of the petitioner sufficient to justify the non-declaration of
rental income?
A. No, the withdrawal in 1958 of the deposits in court pertaining to the 1957 rental
income is no sufficient justification for the non- declaration of said income in 1957,
since the deposit was resorted to due to the refusal of petitioner to accept the
same, and was not the fault of its tenants; hence, petitioner is deemed to have
constructively received such rentals in 1957. The payment by the sub- tenant in
1957 should have been reported as rental income in said year, since it is income
just the same regardless of its source.
Retirement Benefits
Re: Request of Atty. Bernardo Zialcita, October 18, 1990,
190 SCRA 851
Facts: Bernardo Zalcita, a retired employee of the Supreme Court filed a request
with the SC for the refund of the amount of P59,502.33 which was deducted from
his terminal leave pay as withholding tax. The Court said that the terminal leave
pay of Atty. Zialcita, which he received by virtue of his compulsory retirement, can
never be considered as part of his salary subject to income tax. Hence, Atty.
Zialcitas request was granted.
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Page
Miscellaneous items
Commissioner vs. Mitbushi Metal Corporation, 181 SCRA
214
Facts: Atlas Consolidated Mining and Development Corporation (Atlas) entered into
a Loan and Sales Contract with Mitsubishi Metal Corporation (Mitsubishi), a Japanese
corporation licensed to engage in business in the Phil., for purposes of the projected
expansion of the productive capacity of the former's mines in Toledo, Cebu. Under
said contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of
$20,000,000.00, US currency, for the installation of a new concentrator for copper
production. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates
produced from said machine for a period of fifteen (15) years. It was contemplated
that $9,000,000.00 of said loan was to be used for the purchase of the concentrator
machinery from Japan.
Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan
(Eximbank for short) obviously for purposes of its obligation under said contract.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were
made by the former to the latter. A claim for tax credit was filed by Atlas.
Q. Is the loan tax exempt?
A. No, under Section 29 (b) (7) (A), excludes from gross income: "(A) Income
received from their investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on their deposits in banks in the Philippines by
(1) foreign governments, (2) financing institutions owned, controlled, or enjoying
refinancing from them, and (3) international or regional financing institutions
established by governments."
The loan and sales contract between Mitsubishi and Atlas does not contain
any direct or inferential reference to Eximbank whatsoever. The agreement is
strictly between Mitsubishi as creditor in the contract of loan and Atlas as the seller
of the copper concentrates. Meanwhile, the contract between Eximbank and
Mitsubishi is entirely different. It is too settled a rule in this jurisdiction, as to
dispense with the need for citations, that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The burden of proof
rests upon the party claiming exemption to prove that it is in fact covered by the
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Page
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Page
EXCPS:
Cancellation or redemption of shares of stock
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Page
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common fund with intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in the proper partition either
duly executed in an extra-judicial settlement or approved by the court in the
corresponding estate or intestate proceeding. If after such partition, each heir
allows his share to be held in common with his co-heirs under a single management
to be used with the intent of making profit thereby in proportion to his share, there
can be no doubt that, even if no document or instrument were executed for the
purpose, for tax purposes, at least, an unregistered partnership is formed and
therefore subject to corporate income tax.
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business
means
continuity
of
commercial
dealing
and
The rule that the doing of a single act does not constitute business within the
meaning of statutes prescribing the conditions to be complied with by foreign
corporations must be qualified to this extent, that a single act may bring the
corporation within the purview of the statute where it is, an act of the ordinary
business of the corporation. In such a case, the single act or transaction is not
merely incidental or casual, but is of such character as distinctly to indicate a
purpose on the part of the foreign corporation to do other business in the state, and
to make the state a basis of operations for the conduct of a part of the corporation's
ordinary business.
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MacKer & Co. concerning the operation of the Atlas was aimed at creating a
favorable image and goodwill to gain or maintain their patronage.
Q. Is the expenses paid for the services rendered by a public relations is an
allowable deduction as business expense under Section 30 (a) (1) of the NIRC?
A. There is thus no hard and fast rule on the matter. The right to a deduction
depends in each case on the particular facts and the relation of the payment to the
type of business in which the taxpayer is engaged. The intention of the taxpayer
often may be the controlling fact in making the determination. Assuming that the
expenditure is ordinary and necessary in the operation of the taxpayer's business,
the answer to the question as to whether the expenditure is an allowable deduction
as a business expense must be determined from the nature of the expenditure
itself, which in turn depends on the extent and permanency of the work
accomplished by the expenditure.
The expenditure paid by Atlas for services carrying on the selling campaign in an
effort to sell Atlas' additional capital stock is not an ordinary expense. Reason:
Capital expenditures (such as recapitalization and reorganization expenses, the
cost of obtaining stock subscription, promotion expenses and commission or fees
paid for the sale of stock organization) are not deductible.
Ordinarily, an expense will be considered "necessary" where the expenditure is
appropriate and helpful in the development of the taxpayer's business. It is
"ordinary" when it connotes a payment which is normal in relation to the business of
the taxpayer and the surrounding circumstances. The term "ordinary" does not
require that the payments be habitual or normal in the sense that the same
taxpayer will have to make them often; the payment may be unique or nonrecurring to the particular taxpayer affected.
Visayan Cebu Terminal Co. vs. Collector, CTA Case No. 28,
June 29, 1957
A business expense is necessary where it is appropriate and helpful in the
development of the taxpayers business. It is intended to realize a profit or to
minimize a loss.
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its business, the taxpayer not only must have sufficient assets but must preserve
the same and recover any that should be lost.
ESSO Standard Eastern Inc. vs. Commissioner, GR No. L285080, July 7, 1989, 175 SCRA 158
Facts: ESSO deducted from its gross income for 1959, as part of its ordinary and
necessary business expenses, the amount it had spent for drilling and exploration of
its petroleum conscessions. The Commissioner disallowed the claim on the ground
that the expenses should be capitalized and might be written off as a loss only
when a dry hole should result. Hence, ESSO filed an amended return where it
asked for the refund of P323,270 by reason of its abandonment, as dry holes, of
several of its oil wells. It also claimed as ordinary and necessary expenses in the
same return amount representing margin fees it had paid to the Central Bank on its
profit remittances to its New York Office.
Q. Can the margin fees be considered ordinary and necessary expenses when paid?
A. The fees were paid not in the production of income, but in the disposition of said
income after it had already been earned. Hence, it is an expense properly
attributable to the head office and not in the carrying on of its trade or business in
the Philippines. ESSO has not shown that the remittance to the head office of part of
its profits was made in furtherance of its own trade or business. The petitioner
merely presumed that all corporate expenses are necessary and appropriate in the
absence of a showing that they are illegal or ultra vires.
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However:
Basilan Estates
September 5, 1967
vs.
Commissioner,
GR
No.
L-22494,
Facts: A Phil. corporation engaged in the coconut industry, Basilan Estates, Inc.,
filed its income tax returns for 1953 and paid the same. The Commissioner of
Internal Revenue, per examiners' report assessed that petitioner has a deficiency
income tax for 1953 and 25% surtax on unreasonably accumulated profits as of
1953 pursuant to Section 25 of the Tax Code. Petitioner contends that there is an
error in disallowing claimed deductions. However, these were disallowed on the
ground that the nature of these expenses could not be satisfactorily explained nor
could the same be supported by appropriate papers.
Q. Can the expenses be allowed as deductions even if they are not substantiated by
proof?
A. Yes, even if there are no records or receipts available, the oral testimony (CPA)
not contradicted by the government is sufficient. The petitioner further argues that
when the Bureau of Internal Revenue decided to investigate, petitioner had no more
obligation to keep the same since five years had lapsed from the time these
expenses were incurred (Sec. 337 of the Tax Code).
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
BUSINESS EXPENSES
Factors or Tests to Determine Whether Compensation Paid
for Services Rendered is Deductible or Not:
Alhambra vs. Collector, 105, 106 Phil 355
An ostensible salary may be in part payment for property Partnership sells
out to a corporation; the former partners agreeing to continue in the service of the
corporation. The salaries are not merely for services but payment for the transfer of
their business. (Sec. 70, Rev. Reg. No. 2)
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Page
THE
a.)
b.)
c.)
d.)
e.)
f.)
g.)
h.)
and
i.)
The right to fix compensation may be conceded, but for income tax purposes
the employer cannot legally claim such bonuses as deductible expenses unless they
are shown to be reasonable. To hold otherwise would open the gate of rampant tax
evasion.
Aguinaldo Industries Corp vs. Commissioner, GR No. l29790, February 25, 1982
Facts: Petitioner is a domestic corporation engaged in two lines of business,
namely: (a) the manufacture of fishing nets, a tax-exempt industry, and (b) the
manufacture of furniture, its business of manufacturing fishing nets is handled by its
Fish Nets Division, while the manufacture of Furniture is operated by its Furniture
Division. For accounting purposes, each division is provided with separate books of
accounts as required by the Department of Finance. Previously, petitioner acquired
a parcel of land in Muntinglupa, Rizal, as site of the fishing net factory. This
transaction was entered in the books of the Fish Nets Division of the Company.
Later, when another parcel of land in Marikina Heights was found supposedly more
suitable for the needs of petitioner, it sold the Muntinglupa property, petitioner
derived profit from this sale which was entered in the books of the Fish Nets
Division as miscellaneous income to distinguish it from its tax-exempt income.
For the year 1957, petitioner filed two separate income tax returns one for its Fish
Nets Division and another for its Furniture Division. After investigation of these
returns, the examiners of the Bureau of Internal Revenue found that the Fish Nets
Division deducted from its gross income for that year the amount of P61,187.48 as
additional remuneration paid to the officers of petitioner.
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Page
Q. Is the bonus given to the officers of the petitioner upon the sale of its
Muntinglupa land is an ordinary and necessary business expense deductible for
income tax purposes?
A. No, bonuses granted to corporate officers for the successful sale of a piece of
land effected through a broker no services rendered not deductible as
reasonable and necessary expenses. There is absolutely no evidence of any service
actually rendered by Aguinaldo Industries officers which could be the basis of a
grant to them of a bonus out of the profit derived from the sale. This being so, the
payment of a bonus to them of the gain realized from the sale cannot be considered
as a selling expense; nor can it be deemed reasonable and necessary so as to make
it deductible for tax purposes.
It
Extraordinary Repairs
Dirscoll vs. Commissioner, 1477 [2d] 493)
Expenses necessitated by radical changes in design made
construction are not deductible. This is a part of the cost of the project.
during
However:
Buckland vs. US, DC Com May 9, 1946
Expenses of repairs to walls and roof of a building to prevent leakage are
deductible.
INTEREST EXPENSES
There must be indebtedness
Sambrano vs. CTA, GR No. L-8652, March 30, 1957
Although taxes already due have not, strictly speaking, the same concept as
debts, they are, however, obligations that may be considered as such. The term
"debt" is properly used in a comprehensive sense as embracing not merely money
due by contract, but whatever one is bound to render to another, either for contract
or the requirements of the law. Where statutes impose a personal liability for a tax,
the tax becomes, at least in a broad sense, a debt. A tax is a debt for which a
creditor's bill may be brought in a proper case. Some American authorities hold
that, especially for remedial purposes, Federal taxes are debts.
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Page
Facts: Before Don Carlos Palanca Sr. died, he donated in favor of his son 12,500
shares of stock in La Tondea, Inc. Palanca was assessed gift tax, surcharge and
interest which he paid. In March 1956, Palanca filed his income tax return for the
year 1955 claiming a deduction for interest. In November 1956, he filed an
amended return, claiming an additional deduction representing interest paid on the
donee's gift tax based on the provisions of Section 30(b) (1) of the Tax Code
authorizing the deduction from gross income of interest paid within the taxable year
on indebtedness. Meanwhile, the BIR considered the transfer of 12,500 shares of
stock as Palancas inheritance so he was assessed estate and inheritance tax.
Palanca claim a deduction representing interest on the estate and inheritance taxes
on the shares of stock.
Q. Is the amount paid by Palanca for interest on his delinquent estate and
inheritance tax deductible from the gross income for that year under section 30(b)
(1) of the NIRC?
A. Yes. While taxes and debt are distinguishable legal concepts on account of
their nature, the distinction becomes inconsequential in this case. The term debt is
properly used in a comprehensive sense as embracing not merely money due by
contract, but whatever one is bound to render to another, either for contract or the
requirements of the law. The term indebtedness as used in the Tax Code of the
United States has been defined as the unconditional and legally enforceable
obligation for the payment of money. Within the meaning of that definition it is
apparent that a tax may be considered an indebtedness.
Under the law, for interest to be deductible, it must be shown that there be
an indebtedness, that there should be interest upon it, and that what is claimed as
an interest deduction should have been paid or accrued within the year. It is here
conceded that the interest paid by respondent was in consequence of the late
payment of her donor's tax, and the same was paid within the year it is sought to he
deducted.
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however wishes to find out e.g., whether he would have been better off by lending
out his funds and earning interest rather than investing such funds in his business.
One thing that Section 79 quoted above makes clear is that interest which does
constitute a charge arising under an interest-bearing obligation is an allowable
deduction from gross income.
LOSSES
Requisites for Deductibility of Losses:
1. Taxpayer must prove that the loss was suffered by
him.
Marcelo Stell Corp. vs. Collector, GR No L-12401, October 31,
1960 putol
Facts: The petitioner is a corporation duly organized under Phil. laws. It is engaged
in three (3) industrial activities, namely, (1) manufacture of wire fence, (2)
manufacture of nails, and (3) manufacture of steel bars, rods and other allied steel
products. enjoined the benefits of the tax exemption under Republic Act No.
35.Petitioner filed amended income tax returns for two taxable years, showing that
bit suffered a net loss for the said years. The said losses were arrived at by
consolidating the gross income and expenses and/or deductions of the petitioner in
all its business activities. Petitioner filed a claim for refund but no action was taken
by the respondent.
Q. May petitioner be allowed to deduct from the profits realized from its taxable
business activities, the losses sustained by its tax except industries?
A. No, the purpose of Republic Act No. 35 is to encourage the establishment or
exploitation of new and necessary industries to promote the economic growth of the
country. It is a form of subsidy granted by the Government to courageous
entrepreneurs staking their capital in an unknown venture. Usually loss is incurred
rather than profit made. However, the privilege of tax exemption is confined only to
new and necessary industries. It did not intend to grant the tax exemption benefit
to an entrepreneur engaged at the same time in a taxable or non-exempt industry
and a new and necessary industry, by allowing him to deduct his gains or profits
derived from the operation of the first from the losses incurred in the operation of
the second.
The fact that the petitioner is a corporation organized with a single capital
that answers for all its financial obligations including those incurred in the tax
exempt industries is of no moment. The intent of the law is to treat taxable or nonexempt industries as separate and distinct from new and necessary industries
which are tax- exempt for purposes of taxation.
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Page
Facts: Respondent is a corporation duly organized under the laws of the Phil. Since
its organization, respondent has been engaged in the manufacture of sugar from
sugar cane in its. On or about April 18, 1942, respondent was burned by the
retreating USAFFE under its scorch earth policy and/or to resist enemy attack. The
Central was totally destroyed and was reconstructed only on or about 1947 it then
filed on February 26, 1948, with the Philippine War Damage Commission a claim for
damages sustained on its properties during the war which was approved. Payment
was received in the year 1950. The petitioner in its income tax return for 1950, it
claimed a deduction as war losses. Upon proper verification petitioner disallowed all
deductions for war losses and consequently, notices of deficiency income tax
assessments were issued against the respondent. Respondent paid thereafter filed
a claim for refund.
Q. Were the war losses in question properly deductible in 1942, when the losses
were actually sustained, or in 1950 and 1951?
A. The war losses are properly deductible in 1950 and 1951 when the claim for
indemnity was properly determined. Section 30(d) (2) of the Revenue Code allows
the deduction from the gross income of a corporation of "all losses actually
sustained and charged off within the taxable year and not compensated for by
insurance or otherwise.' If property is not insured against loss, 'the amount of the
loss must be reduced by the amount of any insurance or other compensation
received, and by the salvaged value, if any, of the property'; and the amount not so
compensated for by insurance is deductible in the year the claim for indemnity is
finally determined, since it is required that losses, to be deductible, must be
evidenced by closed and completed transactions.
3. Loss evidenced
transaction.
by
closed
and
completed
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Page
The announcement of the Federal Loan Agency of the United States with the
of the approval of the President of the US, of the creation of the War Insurance
Corporation
(later War Damage Corporation) by the Rehabilitation Finance
Corporation to provide protection against losses resulting from enemy attack which
might be sustained by owners of property in continental US and consequently, the
approval of the Philippine Rehabilitation Act of 1946, did not constitute in 1945 a
compensation "otherwise" than by insurance, and did not authorize petitioner here
in to postpone, to another year, its claim for deduction arising from the war losses
in question.
The words or 'otherwise' in law, when used as a general phrase following an
enumeration of particulars, are commonly interpreted in a restricted sense, as
referring to such other matters as are kindred to the classes before mentioned,
receiving an ejusdem generis interpretation
At any rate, there has 'never been any case in which the words "or
otherwise", in the 'income tax law, have been held to include the hope, or even the
moral certainty, that a proposed legislation authorizing payment of an indemnity,
not due, either under the general Principles of law, or under any particular statutewould eventually be approved.
The indemnity provided for in the Philippine Rehabilitation Act of 1946 was
purely an obligation voluntarily assumed solely for moral considerations, and did
not exist as a legal obligation prior to the approval of said Act. Consequently,
petitioner is now estopped from maintaining that said war losses were
"compensated for by insurance or otherwise".
BAD DEBTS
Debts must be
worthlessness.
charged
off
within
the
year
of
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Page
DEPRECIATION
Definition
Basilan Estates Inc.
September 5, 1967
vs.
Commissioner, 21
SCRA
17,
TEAM: BAR-OPS
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Page
and, in the case of a public service corporation, at least, its plain duty to the
public.3 Accordingly, the law permits the taxpayer to recover gradually his capital
investment in wasting assets free from income tax.
vs.
Commissioner, 21
SCRA
17,
The income tax law does not authorize the depreciation of an asset beyond
its acquisition cost. Hence, a deduction over and above such cost cannot be claimed
and allowed. The reason is that deductions from gross income are privileges, not
matters of right. They are not created by implication but upon clear expression in
the law.
Moreover, the recovery, free of income tax, of an amount more than the
invested capital in an asset will transgress the underlying purpose of a depreciation
allowance. For then what the taxpayer would recover will be, not only the
acquisition cost, but also some profit. Recovery in due time thru depreciation of
investment made is the philosophy behind depreciation allowance; the idea of profit
on the investment made has never been the undertying reason for the allowance of
a deduction for depreciation. Accordingly, the claim for depreciation beyond
P36,842.04 or in the amount of P10,500.49 has no justification in the law.
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Page
position papers and documents to prove that the assessment is unwarranted. If the
CIR is unsatisfied, an assessment signed by him is then sent to the taxpayer
informing the latter specifically and clearly that an assessment has been made
against him or her.
In contrast, the criminal charge need not go through the long and winding
process described above. The criminal charge is filed directly with the DOJ.
Thereafter, the taxpayer is notified that a criminal case had been filed against him,
not that the CIR has issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for
violation of the NIRC.
Sec. 222 of the Tax Code specifically states that in cases where a false or
fraudulent return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Sec. 205 of the same Code clearly mandates that the civil and criminal aspects of
the case may be pursued simultaneously. The CIR has discretion on whether to
issue an assessment or to file a criminal case against the taxpayer or to do both.
To reiterate, said Sec. 222 states that an assessment is not necessary before
a criminal charge can be filed. This is the general rule. Private respondents failed
to show that they are entitled to an exception. Moreover, the criminal charge need
only be supported by a prima facie showing of failure to file a required return. This
fact need not be proven by an assessment.
Presumption of Regularity
CIR vs CA and Atlas Consolidated Mining and Devt Corp.,
GR No. 104151
Assessments are prima facie presumed correct and made in good faith. It is
the taxpayer and not the Bureau of Internal Revenue who has the duty of proving
otherwise. It is an elementary rule that in the absence of proof of any irregularities
in the performance of official duties, an assessment will not be disturbed. All
presumptions are in favor of tax assessments. Verily, failure to present proof of
error in the assessment will justify judicial affirmance of said assessment.
for
Payment
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A. Since petitioner has not adduced proof that private respondent had in fact
received the demand letter of 16 July 1955, it can not be assumed that private
respondent received said letter. Records, however, show that petitioner wrote
private respondent a follow-up letter dated 19 September 1956, reiterating its
demand for the payment of taxes as originally demanded in petitioner's letter dated
16 July 1955. This follow-up letter is considered a notice of assessment in itself
which was duly received by private respondent in accordance with its own
admission.
property
and
Levy
upon
real
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Q. Are sugar quotas real (immovable) or personal properties? Should we adopt the
definition of personal and real properties under the Civil Code in order to determine
the requisites to be followed in levy or distraint proceedings?
A. As an improvement attached to the land, by express provision of law (Section 9,
Act 4166), though not physically so united, sugar quotas are inseparable therefrom,
just like servitudes and other real rights over an immovable, and should be
considered as immovable or real property under Article 416 (10) of the Civil Code.
The fact that the Philippine Trade Act of 1946 allows transfers of sugar quotas does
not militate against their immovability. There cannot be a sugar plantation owner
without land to which the quota is attached; and there can exist no quota without
there being first a corresponding plantation. Hence, a levy made by the sheriff upon
a sugar quota is null and void if not in compliance with the procedure prescribed in
Section 14, Rule 39, in relation with Section 7, Rule 59, of the Rules of Court,
requiring "the filing with the registered of deeds of a copy of the orders together
with a description of the property . . ." (By implication the procedure for levy, not
distraint, must be followed)
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delinquent taxpayer. This has reference to the registered owner, liable to pay taxes,
although the delinquent property remains assessed in the name of a former owner.
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can not be sanctioned without impairing the full faith and credence which the title is
meant to command and, hence, affects the essence of the Torrens System.
CIVIL ACTION
Q. When is Civil Action resorted to?
A. This is resorted to when a tax liability becomes collectible, that is, the
assessment becomes final and unappealable, OR the decision of the Commissioner
has become final, executory, and demandable. This occurs when:
a. A tax is assessed and the taxpayer fails to file an administrative protest by
filing a request for reconsideration or reinvestigation within 30 days from
receipt of the assessment.
b. A protest against the assessment is filed by the taxpayer but the
Commissioners decision denying in whole or in part the said protest, was not
appealed to the CTA within 30 days from receipt of such decision.
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A. The filing of a civil action in court to collect a tax which was the subject of a
pending protest in the BIR was a justifiable basis for the taxpayer to appeal to the
Court of Tax Appeals & to move for the dismissal in the trial court of the
Governments action to collect the tax under dispute. The respondent Court of First
Instance of Cagayan can only acquire jurisdiction over this case filed against the
heirs of the taxpayer if the assessment made by the Commissioner of Internal
Revenue had become final and incontestable. If the contrary is established, as this
Court holds it to be, considering the aforementioned conclusion of the Court of Tax
Appeals on the finality and incontestability of the assessment made by the
Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction
over this case.
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that it did not expressly show the approval of the Revenue Commissioner, as
required by Section 308 of the Tax Code.
Q. Is the approval of the Revenue Commissioner jurisdictional?
A. NO. The question of whether a suit should bear the approval of the Revenue
Commissioner is not jurisdictional, but one relating to capacity to sue or affecting
the cause of action only.
CRIMINAL ACTION
Republic vs. Patanao, 20 SCRA 712
Facts: Patanao has been accused in two Criminal Cases for not filing his income tax
returns and for non-payment of income taxes for the. In both cases, he was
acquitted.
Q. Does acquital in a criminal case for non-filing of tax return or non-payment of
taxes operate as acquital of civil liability to pay taxes?
A. NO. Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. Stated differently, the criminal liability gives birth to the civil obligation
such that generally, if one is not criminally liable under the Penal Code, he cannot
become civilly liable thereunder. The situation under the income tax law is the
exact opposite.
Civil liability to pay taxes arises from the fact, for instance, that one has
engaged himself in business, and not because of any criminal act committed by
him. The criminal liability arises upon failure of the debtor to satisfy his civil
obligation. The incongruity of the factual premises and foundation principles of the
two cases is one of the reasons for not imposing civil indemnity on the criminal
infractor of the income tax law.
Another reason, of course, is found in the fact that while Section 73 of the
National Internal Revenue Code has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a
return thereof, it failed to provide the collection of said tax in criminal proceedings.
Since the civil liability is not deemed included in the criminal action, acquittal of the
taxpayer in the criminal proceeding does not necessarily entail exoneration from his
liability to pay the taxes. The acquittal in a criminal case cannot operate to
discharge defendant from the duty of paying the taxes which the law requires to be
paid, since that duty is imposed by statute prior to and independently of any
attempts by the taxpayer to evade payment. Said obligation is not a consequence
of the felonious acts charged in the criminal proceeding nor is it a mere civil liability
arising from a crime that could be wiped out by the judicial declaration of nonexistence of the criminal acts charged.
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COMPROMISE
Chuy, et al vs Collector of Internal Revenue, CTA Case, July
16, 1958
A compromise is an agreement between 2 or more persons who amicably
settle their differences on such terms as they can agree on to avoid a lawsuit. It
very nature implies mutual agreement by the parties in regard to the thing to be
compromised.
An offer to compromise does not assume the category of a
compromise until it is voluntarily accepted by the other party, and no obligation
arises or is created by a simple offer or suggestion coming from one of the parties
without the acceptance by the other.
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A. NO, the BIR cannot. A compromise penalty is a certain amount of money which
the taxpayer pays to compromise a tax violation. It is paid in lieu of criminal
prosecution, and cannot be imposed in the absence of a showing that the taxpayer
consented thereto.
The payment of a compromise penalty cannot be demanded inasmuch as it
was offered by the petitioner only by way of compromise and the compromise did
not go through. A compromise implies agreement. If an offer of compromise is
rejected by the taxpayer, as in this case, the Commissioner of Internal Revenue
should file a criminal action if he believes that the taxpayer is criminally liable for
violation of the tax law as the only way to enforce a penalty. A penalty can be
imposed only on a finding of criminal liability.
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corresponding criminal action arising out of a violation of the provisions of the Tax
Code is a bar to such criminal action.
TAX LIENS
Hongkong and Shanghai Banking Corp. vs Rafferty, CIR 39
Phil. 145, November 15, 1918
Facts: Pujalte and Co. Was engaged in lumber business. In order to secure the
payment of forest charges due the government, it executed bonds. Thus, the CIR
permitted the company to remove the timber which was used to manufacture
railroad ties. These railroad ties were however rejected byt he Manila Railroad Co.
Meanwhile, Pujalte and Co. was not able to pay its debt to Hongkong and Shanghai
Banking Co. Thus, prompting Pujalte and Co. To assign to HK & S a large quantity of
railroad ties. The charges on the timber against Pujalte also not having been paid,
the CIR caused delinquency proceedings to be commenced and had issued a
distress warrant and later seized railroad ties including which had been assigned by
Pujalte & Co. to the Hongkong & Shanghai Banking Corporation, without the latter
receiving any notice of the tax.
Q. Does the lien follow the property subject to the tax into the hands of a third party
when at the time of transfer, no demand for payment had been made and when the
purchaser had no notice of the existence of the lien?
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A. NO.
A TAX LIEN in its modern acceptation is understood to denote a legal claim or
charge on property, either real or personal, as security for the payment of some
debt or obligation. Its meaning is more extensive than the jus retentionis (derecho
de retencion) of the civil law. The tax lien does not establish itself upon property
which has been transferred to innocent purchasers prior to demand. In order that
the lien may follow the property into the hands of a third party, it is further essential
that the latter should have notice, either actual or constructive. The reason is the
benevolence of our Constitution which prohibits the taking of property without due
process of law. In the case of real estate or special assessment taxation a man
cannot get rid of his liability to a tax by buying without notice. (City of Seattle vs.
Kelleher [1904], 195 U. S., 351.) The rule, however, is different where the vendee
has no knowledge of the taxes on personality existing at the time, or had no means
of knowing from the public records that such taxes had accrued.
FORFEITURE
MARIA B. CASTRO vs. COLLECTOR OF INTERNAL REVENUE
G.R. No. L-12174 April 26, 1962
Facts: Castro was assessed to be liable for war profits tax. There being no bidders,
the properties first sold at a public auction were forfeited in favor of the
Government. Consequently, another public auction of other properties was held in
order to raise the deficiency. Castro contends that the sale and forfeiture to the
government (due to lack of bidders) of her properties which had been levied upon
by the CIR and advertised for sale constitutes a full discharge of petitioner's tax
liabilities.
Q. Does forfeiture of the taxpayer's distrained or levied property in favor of the
Government, for lack of adequate bids, operate as full satisfaction of the total tax
claims even beyond the value of the property forfeited?
A. NO. The remedy by distraint of personal property and levy on realty may be
repeated if necessary until the full amount due, including all expenses, is collected.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
In a seizure to enforce a tax lien, the residue of such proceeds over and
above the tax sought to be realized, including expenses, is returned to the owner of
the property.
STATUTE OF LIMITATIONS
Arches vs. Bellosillo, 20 SCRA 32
The defense of prescription is not jurisdictional and must be raised
seasonably, otherwise it is deemed waived.
b.)
10 years
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prescriptive period, it is not required that the same be received by the taxpayer
within the prescriptive period.
Republic vs. Marsman Dev. Co., GRN L-18986, April 27, 1972
It was incumbent upon appellants to show that such a return had been
submitted. In order that the filing of a return may serve as the starting point of the
period for the making of an assessment, the return must be as substantially
complete as to include the needed details on which the full assessment may be
made.
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Page
a.)5 years
b.)
10 years
for
review
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Gomez vs. Domingo, CTA case No. 1168, February 16, 1964
Mere understatement of the income in itself does not constitute fraud.
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supporting receipts in the voucher recovering the expenses and by the failure of the
recipients thereof to declare them in their income tax returns.
Q. Can the expenses be claimed as a deduction by the partnership considering such
findings?
A. NO. The Commissioners finding on the facts constituting fraud, proven, and
found established by the Court of Tax Appeals, was not rebutted by the taxpayer.
Tan Guan did not present any evidence to disprove the findings that the expenses
are fictitious; considering that the investigation on Tan Guans liability was made
prior to the expiration of the 5-year period to preserve and keep receipts as set
fgorth in Section 337 of the Tax Code. As the determination of the Commissioner is
presumed correct, it behooves the taxpayers to rebut such presumption. For failure
to overcome the burden, Tan Guan or the company cannot claim the expenses as
deduction from gross income.
C. Criminal Liability
SUSPENSION OF PRESCRIPTIVE PERIODS
Republic vs. Felix Acebedo, GRN L-204207, March 29, 1968
The delay in collection could not be attributed to the defendant at all. His
requests had been unheeded until then, and there was nothing to impede
enforcement of the tax liability by any of the means provided by law. More than 5
years had elapsed since the assessment in question was made, and hence,
prescription had already set in, making subsequent events in connection with the
said assessment entirely immaterial. The written waiver of the statute signed by the
defendant could no longer revive the 'right of action, for under the law such waiver
must be executed within the original 5-year period within which suit could be
commenced.
However:
Sinforoso Alca vs. CTA and Commissioner, GRN L-24624,
November 27, 1968
The right to avail of the defense of prescription is waivable. Alca's waiver was
of the period of prescription beginning January 20, 1956. It is not just an extension
of the period of limitation, but a renunciation of her right to invoke the defense of
prescription which was then already available to her. There is nothing unlawful nor
immoral about this kind of waiver. The defense of prescription is waivable.
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Page
Prescription:
Collection
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presumed correct and made in good faith. A taxpayer has to prove otherwise.
Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made the
assessments final, executory and demandable. Such failure to file a position paper
may be construed as abandonment of the petitioners' request for reconsideration.
The court notes that it took the respondent Commissioner a period of more than
one (1) year and five (5) months before finally instituting the action for collection.
Under the circumstances of the case, the act of the Commissioner in filing an action
for allowance of the claim for estate and inheritance taxes, may be considered as
an outright denial of petitioners' request for reconsideration. The taxpayers
remedy is to appeal to the CTA within 30 days from the date he is notified. The
petitioners, however failed to avail of this remedy.
Q. Was the petition for review of the decision of the Commissioner seasonably filed
with the CTA?
A. YES. As a rule, the warrant of distraint and levy is "proof of the finality of the
assessment" and "renders hopeless a request for reconsideration," being
"tantamount to an outright denial thereof and makes the said request deemed
rejected."
Exception: If the protest filed was not pro forma and was based on strong
legal considerations. In this case, the proven fact is that four days after the private
respondent received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the warrant of distraint
and levy was issued. The protest was not pro forma and it thus had the effect of
suspending reglementary period which started on the date the assessment was
received. The period started running again only when the private respondent was
definitely informed of the implied rejection of the said protest and the warrant was
finally served on it.
Algues letter-protest of the assessment could not be found in the petitioners
office. Hence, the reglamentary period was suspended when Algue filed its protest
against the assessment and the period began to run again when Algue was
informed of the denial of its protest.
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Page
TEAM: BAR-OPS
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Page
TEAM: BAR-OPS
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TEAM: BAR-OPS
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Facts: Wander Inc. is a domestic corporation owned by Glaro S.A. Ltd., - a service
corporation not engaged in trade or business in the Philippines. Wander remits
dividends to its parent company out of which Wander withholds 35% and pays the
same to the BIR. Wander filed a claim for refund, contending that it is liable only for
15% withholding tax and not 35% as provided in the Tax Code.
Q. Is Wander entitled to the preferential rate of 15% withholding tax on the
dividends it remitted to Glaro?
A. YES. Under the Tax Code, dividends received from a domestic corporation liable
to tax, the tax rate shall be 15% of the dividends remitted, subject to the condition
that the country in which the non-resident corporation shall allow a credit against
the tax due from the non-resident corporation taxes deemed to be paid in the
Philippines equivalent to 20% which represents the difference between the regular
tax of 35% on corporations and 15% tax on dividends.
In the instant case, Switzerland did not impose any tax on dividends received
by Glaro. Such fact, however, should be considered as a full satisfaction of the
given conditions. To deny Wander to withhold the 15% tax would run counter to the
very spirit and intent of said law. The submission of petitioner that Wander is but a
withholding agent of the government and therefore cannot claim reimbursement of
the alleged overpaid taxes, is untenable. It will be recalled, that said corporation is
first and foremost a wholly owned subsidiary of Glaro. The fact that it became a
withholding agent of the government which was not by choice but by compulsion
under Tax Code, cannot by any stretch of the imagination be considered as an
abdication of its responsibility to its mother company. It is a device to insure the
collection by the Philippine Government of taxes on incomes, derived from sources
in the Philippines, by aliens who are outside the taxing jurisdiction of this Court. In
fact, Wander may be assessed for deficiency withholding tax at source, plus
penalties consisting of surcharge and interest. Therefore, as the Philippine
counterpart, Wander is the proper entity who should claim for the refund or credit of
overpaid withholding tax on dividends paid or remitted by Glaro.
The claim for refund must be filed within two (2) years
from date of payment of the tax or penalty regardless of
any supervening event.
Gibbs vs Collector of Internal Revenue, GR No. L-13453,
February 29, 1960
Facts: After the denial of their petition by the BIR, Petitioners paid the deficiency
income tax and demanded a refund therefrom. Petitioners filed a petition for review
of the refund which was denied by the respondent court holding that it had no
jurisdiction for being filed beyond the 30-day reglamentary period.
Q. Was the petition seasonably filed?
A. NO. A taxpayer who has paid the tax whether under protest or not, and who is
claiming a refund of the same, must comply with the requirements of both section
306 o0f the NIRC and section 11 of RA 1125; (1) that is, he must file a claim for
refund with the CIR within 2 years from the date of his payment of the tax as
required by Sec. 306 of the NIRC and (2) appeal to the CTA within 30 days from
receipt of the CIRs ruling or decision denying his claim for refund, as required by
Sec. 11 of RA 1125. If however, the Collector takes time in deciding the claim and
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the period of 2 years is about to end, the suit or proceeding must be started with
the CTA before the end of the 2-year period without awaiting the Decision of the
Collector. This is so because the positive requirement of Sec. 306 and the doctrine
that delay of the Collector in rendering decision does not extend the peremptory
period fixed by the statute.
In the case of taxpayer who has not yet paid the tax and who is protesting
the assessment made by the CIR, he must file an appeal with the CTA within 30
days from his receipt of the Collectors Assessment as required by Sec. 11 of RA
1125. Otherwise, his failure to comply with said statutory requirement would bar his
appeal and deprive the CTA of its jurisdiction to entertain or determine the same.
Sec. 7, in relation to Sec. 11 of RA 1125 gives the CTA exclusive appellate
jurisdiction to review by appeal decisions of the CIR involving disputed assessments
or refunds of internal revenue taxes, provided the case is filed within 30 days after
the receipt of such decision or ruling. Petitioners received the notice of denial on
November 14, 1956, they filed the petition more than 10 months thereafter on
September 27, 1957. The CTA will no longer entertain such petition for being filed
way beyond the 30-day reglamentary period.
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Facts: On April 15, 1982, the petitioner corporation filed with the Bureau of Internal
Revenue its annual corporate income tax return for the calendar year ending
December 31, 1981 reporting a net loss. In the said return, the petitioner
corporation declared as creditable all taxes withheld at source by various
withholding agents which were paid and remitted by the latter to the Bureau of
Internal Revenue from February to December 1981. On December 29, 1983, the
petitioner corporation filed a claim for refund inasmuch as it had no tax liability
against which to credit the amounts withheld.
Pending action of respondent CIR on its claim for refund, Petitioner filed a petition
for review with the CTA asking for the refund of the amounts withheld as overpaid
income taxes. The CTA dismissed the action after finding that the two-year period
within which the petitioners claim for refund should have been filed had already
prescribed pursuant to the Tax Code.
Q. Is CTA correct?
A. NO, CTA is not correct.
There are two alternative reckoning dates: (1) the end of the tax year; and
(2) when the tax liability falls due.
The corporation's withholding agents had paid the corresponding taxes
withheld at source to the Bureau of Internal Revenue from February to December
1981. In having applied the first alternative date-"the end of the tax year" in order
to determine whether or not the petitioner corporation's claim for refund had been
seasonably filed, the respondent appellate court failed to appreciate properly the
attending circumstances of this case.
The petitioner corporation is not claiming a refund of overpaid withholding
taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the
refundable or creditable amount determined upon the petitioner corporation's filing
of the its final adjustment tax return on or before 15 April 1982 when its tax liability
for the year 1981 fell due. The petitioner corporation's taxable year is on a
calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had
until 15 April 1982 within which to file its final adjustment return. The petitioner
corporation duly complied with this requirement on the basis of the corporate
income tax return which ACCRAIN filed on 15 April 1982.
Clearly, there is the need to file a return first before a claim for refund can
prosper inasmuch as the respondent Commissioner by his own rules and regulations
mandates that the corporate taxpayer opting to ask for a refund must show in its
final adjustment return the income it received from all sources and the amount of
withholding taxes remitted by its withholding agents to the Bureau of Internal
Revenue.
The petitioner corporation filed its final adjustment return for its 1981 taxable
year on April 15,1982. The two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the adjusted
final tax return. Hence, the petitioner corporation had until April 15, 1984 within
which to file its claim for refund.
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that the amount in question can no longer be refunded considering that more than
two years had already elapsed. The CTA ruled in favor of TMX Sales.
Q. When does the 2-year period to claim a refund of erroneously collected tax
provided for in Sec. 230 commence to run? Is it from the date the quarterly income
tax was paid or from the date of filing the adjusted return?
A. The most reasonable and logical application of the law would be to compute the
2-year prescriptive period at the time of filing the Final Adjustment Return or the
Annual Income Tax Return, when it can be finally ascertained if the taxpayer has
still to pay additional income tax or if he is entitled to a refund of overpaid income
tax.
It is the Final Adjustment Return where the figures of the gross receipts and
deductions have been audited and adjusted, that is truly reflective of the results of
the operations of a business enterprise. Thus, it is only when the Adjustments
Return covering the whole year is filed that the taxpayer would know whether a tax
is still due or a refund can be claimed based on the adjusted and audited figures.
Therefore, the filing of quarterly income tax returns required in sec.75, NIRC
and implemented per BIR Form 1702-Q and payment of quarterly income tax should
only be considered were installments of the annual tax due. These quarterly tax
payments which are computed on the cumulative figures of gross receipts and
deductions on order to arrive at a net taxable income, should be treated as
advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year.
TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on
April 15,1982, TMX Sales, Inc. is not yet barred by prescription.
TEAM: BAR-OPS
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Page
VALUE-ADDED TAX
-------------------------------------------------------------------UST - Golden Notes
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Commissioner of Internal
Corporation (Feb. 16, 2005)
Revenue
vs.
Cebu
Toyo
TEAM: BAR-OPS
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which remained unutilized since it had not yet engaged in any business activity or
transaction for which it may be liable for any output VAT. Consequently, Toshiba
filed applications for tax credit/refund of its unutilized input VAT for 01 January to 31
March 1996 in the amount of P14,176,601.28, and for 01 April to 30 June 1996 in
the amount of P5,161,820.79, for a total of P19,338,422.07.
Q. Is Toshiba entitled to the tax credit/refund of its input VAT on its purchases of
capital goods and services?
A. An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and
services by persons from the Customs Territory to ECOZONE enterprises shall be
subject to VAT at zero percent (0%). Presidential Decree No. 66, creating the Export
Processing Zone Authority (EPZA), is the precursor of Rep. Act No. 7916, as
amended, under which the EPZA evolved into the PEZA. Consequently, the
exception of Presidential Decree No. 66 from Section 103(q) of the Tax Code of
1977, as amended, extends likewise to Rep. Act No. 7916, as amended. This Court
agrees, however, that PEZA-registered enterprises, which would necessarily be
located within ECOZONES, are VAT-exempt entities, not because of Section 24 of
Rep. Act No. 7916, as amended, which imposes the five percent (5%) preferential
tax rate on gross income of PEZA-registered enterprises, in lieu of all taxes; but,
rather, because of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory. The Philippine VAT system adheres to the Cross
Border Doctrine, according to which, no VAT shall be imposed to form part of the
cost of goods destined for consumption outside of the territorial border of the taxing
authority. Sales of goods, properties and services by a VAT-registered supplier from
the Customs Territory to an ECOZONE enterprise shall be treated as export sales. If
such sales are made by a VAT-registered supplier, they shall be subject to VAT at
zero percent (0%). In zero-rated transactions, the VAT-registered supplier shall not
pass on any output VAT to the ECOZONE enterprise, and at the same time, shall be
entitled to claim tax credit/refund of its input VAT attributable to such sales. The
rule that any sale by a VAT-registered supplier from the Customs Territory to a
PEZA-registered enterprise shall be considered an export sale and subject to zero
percent (0%) VAT was clearly established only on 15 October 1999, upon the
issuance of RMC No. 74-99. Prior to the said date, however, whether or not a PEZAregistered enterprise was VAT-exempt depended on the type of fiscal incentives
availed of by the said enterprise.
TEAM: BAR-OPS
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Page
OF
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manufacturing business. The suppliers of these goods shifted unto petitioner the
10% VAT on the purchased items, which led the petitioner to pay input taxes in the
total amount of P1,108,307.72. Petitioner then filed two applications for tax refund
or tax credit of the VAT it paid. When no response was forthcoming, petitioner then
elevated the matter to the CTA. The BIR contended that since petitioner failed to
establish both its right to a tax refund or tax credit and its compliance with the rules
on tax refund as provided for in Sections 204 and 229 of the Tax Code, its claim
should be denied.
Q. Does the VAT exemption embodied in Rep. Act No. 7227 apply to petitioner as a
purchaser. Is Petitioner entitled to the tax refund on its purchases of supplies and
raw materials?
A. No. A VAT exemption means that the sale of goods or properties and/or services
and the use or lease of properties is not subject to VAT (output tax) and the seller is
not allowed any tax credit on VAT (input tax) previously paid. This is a case wherein
the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or
exchange of the goods or properties).
The person making the exempt sale of goods, properties or services shall not bill
any output tax to his customers because the said transaction is not subject to VAT.
On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or
services which are exempt from VAT is not entitled to any input tax on such
purchase despite the issuance of a VAT invoice or receipt.
On the other hand, Zero-rated Sales are sales by VAT-registered persons which are
subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A
zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT
purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.
The petitioners claim to VAT exemption in the instant case for its purchases of
supplies and raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act
No. 7227, which basically exempts them from all national and local internal revenue
taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.
Petitioner rightly claims that it is indeed VAT-Exempt and this fact is not
controverted by the respondent. In fact, petitioner is registered as a NON-VAT
taxpayer per Certificate of Registration issued by the BIR. As such, it is exempt
from VAT on all its sales and importations of goods and services.
Petitioners claim, however, for exemption from VAT for its purchases of supplies
and raw materials is incongruous with its claim that it is VAT-Exempt, for only VATRegistered entities can claim Input VAT Credit/Refund. While it is true that the
petitioner should not have been liable for the VAT inadvertently passed on to it by
its supplier since such is a zero-rated sale on the part of the supplier, the petitioner
is not the proper party to claim such VAT refund. Since the transaction is deemed a
zero-rated sale because the sale was in favor of an ecozone firm, petitioners
supplier may claim an Input VAT credit with no corresponding Output VAT liability.
Congruently, no Output VAT may be passed on to the petitioner.
2. No. The petitioner is registered as a NON-VAT taxpayer and thus, is exempt from
VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax)
previously paid. In fine, even if we are to assume that exemption from the burden
of VAT on petitioners purchases did exist, petitioner is still not entitled to any tax
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credit or refund on the input tax previously paid as petitioner is an exempt VAT
taxpayer.
Southern
Cross
Cement
Corporation
vs.
Cement
Manufacturers Association of the Philippines (465 SCRA
532)
FACTS: On May 22, 2001, DTI accepted an application from Philcemcor, alleging that
the importation of gray Portland cement in increased quantities has caused declines
in domestic production, capacity utilization, market share, sales and employment,
as well as caused depressed local prices. Philcemcor sought the imposition at first of
provisional, then later, definitive safeguard measures on the import of cement
pursuant to the SMA. After investigation, it was determined that critical
circumstances existed justifying the imposition of provisional measures.
Subsequently, the Tariff Commission received a request from the DTI for a formal
investigation to determine whether to impose a definitive safeguard measure and it
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found that there is no need to establish definitive safeguard measure since the
elements of serious injury and imminent threat of serious injury has not been
established. The DTI Secretary disagreed with the findings of the Commission and
requested for an opinion from the DOJ. But the DOJ Secretary opined that Sec. 13 of
the SMA precluded a review by the DTI Secretary of the Tariff Commissions
negative finding, or finding that a definitive safeguard measure should not be
imposed.
Philcemcor then sought to set aside the finding of the DTI in the CA
which was opposed by Southern Cross, alleging that it was the CTA which has
jurisdiction over the case. The appellate court ruled that it had jurisdiction over the
petition for certiorari since it alleged grave abuse of discretion. It also refused to
annul the findings of the Tariff Commission. Lastly, it held that the DTI Secretary is
not bound by the findings of the Tariff Commission since such findings are merely
recommendatory and they fall within the ambit of the Secretarys discretionary
review. Before the finality of the decision of the CA, the DTI Secretary issued a new
decision , ruling this time that since there was no longer any legal impediment to
his deciding Philcemcors application, he imposed a definitive safeguard measure on
the importation of gray Portland cement.
Q. Did the CA acquire jurisdiction over Philcemcors petition? Are the factual
findings of the Tariff Commission on the existence or non existence conditions
warranting the imposition of general safeguard measures binding upon the DTI
Secretary?
A. The Court does not doubt that the Court of Appeals certiorari powers extend to
correcting grave abuse of discretion on the part of an officer exercising judicial or
quasi-judicial functions. However, the special civil action for certiorari is available
only when there is no plain, speedy and adequate remedy in the ordinary course of
law. Southern Cross relies on this limitation, stressing that Sec. 29 of the SMA, is a
plain, speedy and adequate remedy in the ordinary course of law which Philcemcor
did not avail of. Under Sec. 29, to wit: Any interested party who is adversely
affected by the ruling of the Secretary in connection with the imposition of a
safeguard measure may file with the CTA, a petition for review of such ruling within
30 days from receipt thereof. Sec. 29 of the SMA is worded in such a way that it
places under the CTAs judicial review of all rulings of the DTI Secretary, which are
connected with the imposition of safeguard measure. This is sound and proper in
light of the specialized jurisdiction of the CTA in tax matters.
Considering that the Tariff Commission is an instrumentality of the
government, its actions are not beyond the pale of certiorari jurisdiction. Both the
Tariff Commission and the DTI Secretary may be regarded as agents of Congress
within their limited respective spheres, as ordained in the Safeguard Measures Act,
in the implementation of the said law which significantly draws its strength from the
plenary legislative power of taxation- indeed, even the president may be considered
as an agent of Congress for the purpose of imposing safeguard measures. When
Congress tasks the President or his/her alter egos to impose safeguard measures
under the delineated conditions, the President or the alter egos may be properly
deemed as agents of Congress to perform an act that inherently belongs as a
matter of right to the legislature. The positive final determination by the Tariff
Commission operates as an indispensable requisite to the imposition of the
safeguard measure. Congress in enacting the SMA and prescribing the roles to be
played therein by the Tariff Commission and the DTI Secretary did not envision that
the President, or his/her alter ego, could exercise supervisory powers over the Tariff
Commission- the Tariff Commission does not fall under the administrative
supervision of the DTI.
TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
TEAM: BAR-OPS
88 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
Page
there is legal basis for the claim of exemption. On the other hand, Section 18(i)
does not impose limitations on the exemptions granted in the preceding provisions,
but would only affect, if at all, the modality by which the exemption takes form.
The Tax Reform Act of 1997 authorizes either a refund or credit as a means of
recovery of tax erroneously or illegally collected. Formally, a tax refund requires a
physical return of the sum erroneously paid by the taxpayer, while a tax credit
involves the application of the reimbursable amount against any sum that may be
due and collectible from the taxpayer. On the practical side, the taxpayer to whom
the tax is refunded would have the option, among others, to invest for profit the
returned sum, an option not proximately available if the taxpayer chooses instead
to receive a tax credit.
2. No. The EPZA Law itself is silent on the matter, and the prescriptive periods under
the Tariff and Customs Code and other revenue laws are inapplicable, by specific
mandate of Section 17(1) of the EPZA Law. Thus, the Civil Code provisions on solutio
indebiti may find application. The Court has in the past sanctioned the application of
the provisions on solutio indebiti in cases when taxes were collected thru error or
mistake. Thus, the claim for refund must be commenced within six (6) years from
date of payment pursuant to Article 1145(2) of the New Civil Code.
LOCAL TAXATION
Radio Communications of the Philippines, Inc.
Provincial Assessor of South Cotabato (April 13, 2005)
vs.
FACTS: in 1957, RA 2036 granted RCPI a 50 year franchise and Sec. 14 of such
mandate it to pay the taxes required by law on real estate, buildings and other
personal property except radio equipment, machinery and spare parts needed in
connection with its business. In consideration of the franchise, a tax equal to one
and one-half per centum of all gross receipts from the business transacted under
this franchise by the grantee shall be paid and such shall be in lieu of any tax
collected by any authority. The municipal treasurer of Tupi, South Cotabato
subsequently assessed RCPI real property tax on its radio station building,
machinery shed, radio station tower and its accessories and generating sheds. RCPI
protested such assessment.
Q. Is RCPI liable to pay real property tax on the said properties?
A. YES. RCPIs radio relay station tower, radio station building, and machinery shed
are real properties and are thus subject to real property tax. The in lieu of all
taxes clause in Section 14 of RA 2036, as amended by RA 4054, cannot exempt
RCPI from the real estate tax because the same Section 14 expressly states that
RCPI shall pay the same taxes x x x on real estate, buildings x x x. Subsequent
legislations have radically amended the in lieu of all taxes clause in franchises of
public utilities. The Local Government Code of 1991 withdrew all the tax
exemptions existing at the time of its passage including that of RCPIs with
respect to local taxes like the real property tax. Also, Republic Act No. 7716 (RA
7716) abolished the franchise tax on telecommunications companies effective 1
January 1996. To replace the franchise tax, RA 7716 imposed a 10 percent valueadded-tax on telecommunications companies under Section 102 of the National
Internal Revenue Code. Lastly, it is an elementary rule in taxation that exemptions
are strictly construed against the taxpayer and liberally in favor of the taxing
authority. It is the taxpayers duty to justify the exemption by words too plain to be
mistaken and too categorical to be misinterpreted.
TEAM: BAR-OPS
89 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
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Page
City of Davao vs. RTC, Branch XII, Davao City (Aug. 18,
2005)
FACTS: The GSIS Davao City Branch received a Notice of Public Auction scheduling
the public bidding of GSIS properties located in Matina and Ulas, Davao City for non
payment of realty taxes for the years 1992-1994 totalling P295,721.61. GSIS filed a
Petition for Cetiorari, Prohibition, Mandamus and/or Declaratory Relief and further
sought to enjoin the auction sale by praying for a restraining order in the RTC of
Davao City. The said petition sought to determine whether the exemption of the
GSIS from paying realty axes has been withdrawn by the Local Government Code.
The said court subsequently ruled that notwithstanding, the enactment of the Local
Government Code, the GSIS retained its exemption.
Q. Is GSIS still exempt from paying real property tax?
A.NO. The Court in ruling in the case of Mactan-Cebu International Airport Authority
non-exempt from realty taxes, considered that Sec. 133 of the Local Government
Code qualified the exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase unless otherwise provided
herein. Sec. 133 was not intended to be so absolute a prohibition on the power of
LGUs to tax the National Government, its agencies and instrumentalities. The
exemptions from real property taxes are enumerated in Sec. 234, which specifically
states that only real properties owned by the Republic of the Philippines or any of
its political subdivisions is exempted from payment of the tax. Clearly,
instrumentalities or GOCCs do not fall within the exceptions under Sec. 234. The
express withdrawal of all tax exemptions accorded to all persons natural or juridical,
as stated in Sec. 133 of the Local Government Code applies, without impediment to
the present case. The state is mandated to ensure local autonomy of local
governments, and local governments are empowered to levy taxes, fees, charges
that accrue exclusively to them, subject to congressional guidelines and limitations.
City
Government
of
Quezon
City
Telecommunications Inc. (March 6, 2006)
vs.
Bayan
FACTS: Bayantel was assessed real property taxes for its properties located in the
territorial jurisdiction of Quezon City. It opposed such claiming that its properties
were exempted by virtue of Sec. 11 of its franchise which exempts it from paying
such taxes. On the other hand, the said city anchors its actions on the provisions of
the LGC which allows local governments to collect real property tax.
Q. Is Bayantel liable to pay real property tax?
A. While Sec. 14 of RA 3259, the original franchise of Bayantel, may be validly
viewed as an implied delegation of power to tax, the delegation under that
provision, as couched, is limited to impositions over properties of the franchisee
which are not actually, directly and exclusively used in the pursuit of its franchise.
The realty tax exemption enjoyed by Bayantel under its original franchise, but
subsequently withdrawn by Sec. 234 of the Local Government Code, has been
restored by Sec. 11 of RA 7633. The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be exercised by the local legislative
bodies, no longer merely by virtue of a valid delegation as before, but pursuant to
direct authority conferred by Sec. 5 Art. X of the Constitution. The Supreme Court
has upheld the power of Congress to grant exemptions over the power of local
government units to impose taxes.
TEAM: BAR-OPS
90 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
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Page
TEAM: BAR-OPS
91 of 124
Academics Committee Chairman: Gilberth D. Balderama
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Page
TEAM: BAR-OPS
92 of 124
Academics Committee Chairman: Gilberth D. Balderama
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Tax Law Committee Vice-Chairman: Regina S. Salonga
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Page
Properties of public dominion mentioned in Article 420 of the Civil Code, like
roads, canals, rivers, torrents, ports and bridges constructed by the State,
are owned by the State. The term ports includes seaports and airports.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the Republic of
the Philippines. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by the government
of a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads. Such fees
are often termed users tax.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus
are properties of public dominion. As properties of public dominion, the
Airport Lands and Buildings are outside the commerce of man. Also, property
of public dominion, being outside the commerce of man, cannot be the
subject of an auction sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being contrary to public
policy. Before MIAA can encumber the Airport Lands and Buildings, the
President must first withdraw from public use the Airport Lands and
Buildings. Thus, unless the Airport Lands and Buildings are withdrawn by law
or presidential proclamation from public use, they are properties of public
dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic. Its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the deed of conveyance
on behalf of the Republic. Only the President of the Republic can sign such
deed of conveyance.
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport
Lands and Buildings from the Bureau of Air Transportation of the Department
of Transportation and Communications without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation. Such
transfer was not meant to transfer beneficial ownership of these assets from
the Republic to MIAA. The purpose was merely to reorganize a division in the
Bureau of Air Transportation into a separate and autonomous body. The
Republic remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any ownership
rights over MIAAs assets adverse to the Republic.
e. Real Property Owned by the Republic is Not Taxable
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TEAM: BAR-OPS
93 of 124
Academics Committee Chairman: Gilberth D. Balderama
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Page
Section 234(a) of the Local Government Code exempts from real estate tax
any real property owned by the Republic of the Philippines. This exemption
should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing taxes, fees or charges of any
kind on the National Government, its agencies and instrumentalities.
While Section 234(a) of the Local Government Code states that real property
owned by the Republic loses its tax exemption only if the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable
person, MIAA, as a government instrumentality, is not a taxable person
under Section 133(o) of the Local Government Code. Thus, even assuming
that the Republic has granted to MIAA the beneficial use of the Airport Lands
and Buildings, such fact does not make these real properties subject to real
estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is subject
to real estate tax. In such a case, MIAA has granted the beneficial use of
such land area for a consideration to a taxable person and therefore such
land area is subject to real estate tax. This was the ruling enunciated in the
case of Lung Center of the Philippines vs. Quezon City (G.R. No. 144104.
June 29, 2004)
TEAM: BAR-OPS
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TEAM: BAR-OPS
95 of 124
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which the charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property is used
for tax-exempt purposes.
TEAM: BAR-OPS
96 of 124
Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
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TEAM: BAR-OPS
97 of 124
Academics Committee Chairman: Gilberth D. Balderama
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Page
real estate, area, unit value, market value, actual use and assessment level;
and, in the case of the machinery attached to the land, the description of the
machinery, date of operation, original cost, depreciation, market value and
assessment level. Hence, the said notices could not be used as bases for
filing an appeal to the Local Board of Assessment Appeals under Section 30
of the Real Property Tax Code, which clearly adverts to a written notice of
assessment. Thus, the petitioner contended, it could not be required to avail
of the prescribed administrative remedies in protesting an erroneous tax
assessment under the said Code.
The Court issued a Resolution denying with finality the petitioners motion for
reconsideration. The Court, however, reversed its ruling that the notices sent
by the respondent to the petitioner were notices of assessment. It
categorically stated that the notices were, in fact, notices of collection. The
foregoing notwithstanding, the Court ruled against a remand of the case to
the trial court since the issue in the main case was one of jurisdiction and as
such the Court ruled that the RTC has none.
The petitioner then filed a Second Motion for Reconsideration. It contended
that after the Court held in its February 1, 2002 Resolution that the
September 3, 1986 and October 31, 1989 notices sent by the respondent to
the petitioner were notices of collection, thus, justifying its conclusion that
Section 614 of P.D. No. 464 was not applicable, the Court should have
ordered the case remanded to the trial court for further proceedings
considering that while the material findings in the instant case were
reversed, the petitioners motion for reconsideration was altogether denied.
The petitioner avers that it should not be prevented from moving for a
rectification of this Courts inconsistent stance.
Q. Should the Decision be set aside and the case remanded to the trial court
for further proceedings, in view of the factual findings contained in the
Courts February 1, 2002 Resolution?
A. Yes. An assessment fixes and determines the tax liability of a taxpayer. It
is a notice to the effect that the amount therein stated is due as tax and a
demand for payment thereof. The assessor is mandated under Section 27 of
the law to give written notice within thirty days of such assessment, to the
person in whose name the property is declared. The notice should indicate
the kind of property being assessed, its actual use and market value, the
assessment level and the assessed value.
In the Courts February 1, 2002 Resolution, it said that it is apparent why the
foregoing cannot qualify as a notice of tax assessment. A notice of
assessment as provided for in the RPTC should effectively inform the
taxpayer of the value of a specific property, or proportion thereof subject to
tax, including the discovery, listing, classification, and appraisal of
properties. The September 3, 1986 and October 31, 1989 notices do not
contain the essential information that a notice of assessment must specify,
namely, the value of a specific property or proportion thereof which is being
taxed, nor does it state the discovery, listing, classification and appraisal of
the property subject to taxation. In fact, the tenor of the notices bespeaks an
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TEAM: BAR-OPS
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Academics Committee Chairman: Gilberth D. Balderama
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Page
intention to collect unpaid taxes, thus the reminder to the taxpayer that the
failure to pay the taxes shall authorize the government to auction off the
properties subject to taxes or, in the words of the notice. Furthermore, even
the Bureau of Local Government Finance (BLGF), upon whose
recommendation former Municipal Treasurer Alon relied in the collection of
back taxes against petitioner, deemed the September 3, 1986 notice as a
"collection letter."
Indeed, even the respondent admitted in his comment on the petition that
respondent did not issue any notice of assessment because statutorily, he is
not the proper officer obliged to do so. Under Chapter VIII, Sections 90 and
90-A of the RPTC, the functions related to the appraisal and assessment for
tax purposes of real properties situated within a municipality pertains to the
Municipal Deputy Assessor and for the municipalities within Metropolitan
Manila, the same is lodged on the Municipal Assessor.
The petitioner denied receiving copies of the Tax Declarations prepared by
the respondent Municipal Assessor in 1985. In the face of the petitioners
denial, the respondent was burdened to prove the service of the tax
declarations on the petitioner. The record is bereft of evidence regarding this
matter. The respondent even failed to append a copy of the said receipt in its
motion to dismiss in the trial court.
TEAM: BAR-OPS
99 of 124
Academics Committee Chairman: Gilberth D. Balderama
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Page