This action might not be possible to undo. Are you sure you want to continue?
established a pension fund for the benefit of its employees - The fund was later invested in stocks of San Miguel Brewery, for which dividends had been regularly received. These dividends, however, were not declared for tax purposes - The Provincial Auditor allowed VEC to declare the dividends as income for franchise tax purposes, thus tax exempt - The Revenue Examiner, however, argued that the dividend were subject to corporate income tax Decision - The dividends were not income of VEC. They do not go to the general fund of the company - The dividends were part of the pension fund which was solely for the benefit of the employees - To qualify for exemption, the employees’ trust (pension) fund must refer to a definite program, scheme, or plan. It must be set up in good, actuarially sound, and not to be used or controlled in any way by the company. It must extend retirement and pension benefits for the employees - Unquestionably, the VEC pension fund was created in good faith. It was meant for the benefit of the employees - There are, however, no sufficient data which would justify the Court to make a conclusive statement that the VEC pension fund qualifies as a trust under the Tax Code. 1) The requirements for the formation of employees’ trust funds for pension had not been strictly complied with—e.g., the only record evidence of its creation is the minutes of a board meeting; 2) No record to show that the fund was actuarially sound - Absent such data, the dividends are not tax exempt. Reason: Exemptions in tax statutes are never presumed.
CIR vs CA Facts - The GCL Retirement Plan is an employees’ trust which provides retirement, pension, and other benefits - GCL made investments and earned therefrom interest income - This income was assessed 15% withholding final tax - GCL claims tax exemption, based on Sec 56(b) of Tax Code —employees’ trusts are exempt from income tax - CIR denied exemption, based on PD 1959 which deleted provisions on tax exemption and preferential tax rates Decision - PD 1959 is a general law which cannot repeal by implication Sec 56(b) of Tax Code which is a specific law - Tax Code clearly exempts employees’ trusts from withholding tax. The reason for this is to promote the formation and establishment of employees’ trusts funds for the benefit of workers - Employees’ trust fund—an independent and additional source of protection for the working group. Moreover, it is established for their exclusive benefit and for no other purpose III.A Exempt individuals under tax treaty REAGAN vs CIR Facts - Reagan is an employee of an American firm that provides technical assistance to the US Air Force in the Philippines - Reagan imported an automobile to the Philippines and sold it to Johnson, a US Air Force member. Johnson, in turn, sold the automobile to a Filipino - The transaction took place in Clark Field Air Base in Pampanga - For the profit realized from the sale, the CIR imposed on Reagan an income tax - Reagan decried the imposition, citing the opinion of Justice Tuason in the Saura Case: “Transactions done in army
bases within the Philippines are contemplated to have been conducted on a US soil, thus tax exempt” Decision - J. Tuason’s opinion was merely an obiter—not binding—and was overturned in the 1962 Co Po case - The Philippines is an independent and sovereign state—its authority may be exercised over its entire domain, where there is no portion that is beyond its power - Although, under the concept of auto-limitation, state may choose to limit its exercise of sovereignty over certain parts of its territory - Still, the auto-limited part remains a native soil—still subject to authority of the state. Jurisdiction may diminish but does not disappear - Clark Air Force is not a foreign territory for purposes for income tax legislation—this power of taxation by the Philippines is preserved in the Military Bases Agreement - The Agreement merely states that a US national serving or employed in connection with the construction, maintenance, or operation of the military bases in the Philippines is tax exempt unless the income is derived from Philippine source or sources. In the sale of the automobile, the source was clearly the Philippines. Reagan is liable for the income tax.
Decision - The RP-US Bases Agreement is very clear: to avail oneself of tax exemption, one must be a national of US, employed in the naval base, and residing in the Philippines - Robertson et al meet all said requirements, therefore tax exempt III.B Exempt Corporations CIR vs SINCO Facts - The VG Sinco Educational Institution is a non-stock, nonprofit corporation which was established to operate the Foundation College of Dumaguete - CIR assessed the College an income tax on the following grounds: 1) Sinco personally received benefits from it; 2) Community Publishers, a stockholder, profits from it; 3) It charges tuition fee; 4) It acquired buildings and other property which will redound to the benefit of stockholders after dissolution of the corporation - Sinco argued that under the NIRC, corporation organized and maintained exclusively for educational purposes and no part of its net income inures to the benefit of any private individual Decision - VG Sinco Educational Institution is tax exempt - The corporation has never distributed any dividends to its stockholders - Remuneration for services rendered to the College is allowed by law. This covers the money given to Sinco (as salary) and Community Publishers (for services) - Tuition fee is the only source of income to ensure that the College will keep its operations going—allowed by law - That the buildings and other property acquired by the corporation will benefit the stockholders upon dissolution— too speculative
CIR vs ROBERTSON Facts - Robertson et al are American citizens (although some of them were born in the Philippines) employed at the US Naval Base in Subic Bay - CIR claims Robertson et al should be imposed income taxes because they were in the Philippines not solely for employment. Some of them were retired from the Federal Civil Service and were living with their respective families here, while the others owned residential properties here
CIR vs CA (Oct 14, 1998) Facts - YMCA is a non-stock, non-profit corporation which conducts various programs and activities that are beneficial to the public. It leased out portions of its premises to small shop owners and for parking slots - The CIR assessed against YMCA income tax for the profits it earned from leasing out portions of its premises - YMCA claimed exemption for being one of the organizations listed in Sec 27 of the NIRC and Art VI of the 1987 Constitution Decision - Under the NIRC, YMCA is exempt from the payment of property tax but not tax exempt from the profits it earned from leasing out portions of its premise - A reading from Sec 27 of the NIRC shows that the income from any property of exempt organization, as well as that arising from any activity it conducts for profit, is taxable - Art VI of the Constitution exempts from payment of tax charitable, religious, educational institutions. Exemption here applies only to property tax. Besides, YMCA is not a school or an educational institution CIR vs CA (Apr 18, 1997) Facts - The Institute of Philippine Culture (IPC) is an auxiliary unit of the Ateneo de Manila University. Occasionally, IPC accepts sponsorships from foreign international organizations for its research activities - The CIR assessed a contractor’s tax against Ateneo, claiming that it—through IPC—is an independent contractor selling its research to foreign organizations Decision - Ateneo is not an independent contractor and, therefore, tax exempt - Ateneo does not sell its services for a fee. The funds it receives for its research activities are technically not a fee but a gift, a donation
- Contract of sale requires transfer of ownership. Research data obtained by IPC remain with Ateneo, not transferred to the funding agency - The research activity of Ateneo/IPC is in pursuance of maintaining its academic integrity and of its university status - Ateneo’s motive for doing research is not profits but public service (for education) IV. Gross Income. A. Income from Whatever Source CIR vs BRITISH OVERSEAS AIRWAYS CORP Facts - In the period that the CIR assessed against BOAC income tax, BOAC had no landing rights for traffic purposes in the Philippines. Consequently, it did not carry passengers and/or cargo to and from the Philippines - During the same period, however, BOAC maintained a general sales agent in the Philippines which was responsible for selling BOAC tickets covering passengers and cargoes - BOAC argued that the proceeds of sales of its passage tickets in the Philippines do not constitute income from Philippine sources since BOAC did not perform any service of cargoes or passengers within the Philippines Decision - Gross income: includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever - The phrase “income from any source whatever” discloses a legislative policy to include all income not expressly
exempted within the class of taxable income under our laws EISNER VS MACOMBER Facts - Standard Oil, to readjust its capitalization, issued additional shares sufficient to constitute a stock dividend of 50% of the outstanding stock. Accordingly, the new stock was divided among the stockholders - Macomber, being an owner of the old stock, received certificates for the additional shares - Macomber was then imposed tax arising from the income supposedly derived from the additional shares Decision - In income, the essential matter is not a gain accruing to capital, not a growth or increment of value in the investment, BUT a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital, however invested or employed, and coming in, being derived—that is, received or drawn by the taxpayer for his separate use, benefit, and disposal— that is income derived from property - So is stock dividend an income, therefore, taxable? - Far from being a realization of profits, stock dividend tends rather to postpone such realization. It merely shows that the company’s accumulated profits have been capitalized instead of distributed to the stockholders - The essential controlling fact is that the stockholder received nothing out of the company’s assets for his separate use and benefit - Macomber not liable to income tax Situs of Income CIR vs JAVIER Facts - Because of clerical error, $1M was transmitted to Javier’s account at the Prudential Bank
- In her income tax return, Javier stated in a footnote that she received $1M by mistake and therefore not subject to tax - BIR, however, imposed a 50% fraud penalty against Javier Decision - Fraudulent return is always considered an evasion of tax, but a false return is not necessarily so - It can hardly be said that there was actual and intentional fraud on the part of Javier to induce the government to not assess against her tax liabilities - Javier received money from abroad which she presumed to be a gift and spent some of it. That it turned out to be an error or mistake of fact cannot constitute fraud - Fraud must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right - Javier did no such thing, 50% fraud penalty against should be deleted CIR vs JAPAN AIRLINES Facts - I957: JAL constituted PAL as its general sales agent in the Philippines, whereby PAL sold for and in behalf of JAL plane tickets and reservations for cargo spaces - 1959-1963: JAL did not have planes that landed or lifted passengers and cargoes in the Philippines—having had no CPCN (certificate of public convenience and necessity) - CIR assessed against JAL deficiency income tax for the years 1959-1963 - JAL protested, claiming it was a non-resident foreign corporation and, therefore, taxable only on income from Philippine sources Decision - For CIR. The Court adopted the BOAC doctrine: “The source of an income is the property, activity, or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient
that the income is derived from an activity within the Philippines” - When JAL constituted PAL as its sales agent, there is no doubt that JAL is a resident foreign corporation doing business in the Philippines. Sale of plane tickets, after all, is the very lifeblood of the airline industry CIR vs BRITISH OVERSEAS AIRWAYS CORP Facts: supra Decision - BOAC is a resident foreign corporation subject to tax upon its total net income received from all sources within the Philippines. - It was engaged in business in the Philippines through a local agent during the period covered by the assessments - The source of an income is the property, activity, or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity within the Philippines
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.