UPDATES ON TAX REMEDIES

Atty. Vic C. Mamalateo

Oct 2, 2013
PICPA, Hotel Intercon, Makati City
FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG,
G.R. 173425, Jan 22, 2013

• BIR FILED MOTION FOR RECON

– 1. Prior payment of tax is inherent in the nature and
payment of the 8% transitional input tax
– 2. RR 7-95 providing for 8% TIT based on value of
improvements on real property is valid legislative rule
– 3. For failure to clearly prove its entitlement to TIT credit,
petitioner’s claim for refund must fail; a refund partakes of
the nature of tax exemption, which must be construed
strictly against the taxpayer
• SC RULING
– SC deny with finality the MR filed by BIR. Basic issues have
already been passed upon and no substantial argument
has been adduced to warrant the reconsideration sought.
FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG,
G.R. 173425, Jan 22, 2013
• BIR/Dissent: Sale by national government of lot to petitioner was not subject to
any input tax. Otherwise stated, prior payment of taxes is a prerequisite before a
taxpayer could avail of the TIT credit.
• SC: Prior payment of taxes is not necessary before a taxpayer could avail of the 8%
TIT, based on the following:
– Sec 105 of old Tax Code clearly provides that all that is required from a taxpayer is to file a
beginning inventory with the BIR.
– Since the law does not provide for prior payment of taxes, to require it now would be
tantamount to judicial legislation.
– A TIT is not a tax refund per se but a tax credit. Logically, prior payment of taxes is not
required before a taxpayer could avail of TIT. Tax refund is not synonymous to tax credit.
– This issue is not novel. In FBDC v. CIR (583 SCRA 168 [Apr 2009]), this Court had already ruled
“If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could
have simply said that the tax base shall be the actual VAT paid. Instead, the law as framed
contemplates a situation where a TIT is claimed, even if there was no actual payment of VAT.
In such cases, the tax base used shall be the value of the beginning inventory of goods,
materials and supplies.”
– In CIR v. Central Luzon Drug Corp, this Court declared that prior payment of taxes is not
required in order to avail of a tax credit. While a tax liability is essential to availment or use of
a tax credit, prior tax payments are not.
FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG,
G.R. 173425, Jan 22, 2013
• BIR/Dissent: Sec. 110 and 112, Tax Code do not allow any cash refund of
input tax, only a tax credit, and even for zero-rated or EZR VAT-registered
taxpayers, the Tax Code does not allow any cash refund or credit of TIT.
• SC: This is inaccurate.
– Sec. 112, Tax Code speaks of zero-rated or EZR sales. Transaction in this case is
not ZR or EZR.
– Careful reading of Sec 112 would show it allows either a refund or tax credit
for input VAT on ZR or EZR sales.
– Contrary to Dissent, Sec 112 does not prohibit cash refund or tax credit of TIT
in case of ZR or EZR VAT-reg taxpayers who do not any output tax. The phrase
“except TIT” was inserted in Sec 112 to distinguish creditable input tax from
TIT credit. TIT may be availed of once by first-time VAT taxpayers. Creditable
input taxes are input taxes of VAT taxpayers in the course of their trade or
business, which should be applied within 2 years after the close of taxable
quarter when sales were made.
FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG,
G.R. 173425, Jan 22, 2013

– As regards Sec 110, while the law only provides for a tax
credit, a taxpayer who erroneously or excessively pays his
output tax is still entitled to recover the payments either
as a tax credit or refund. In this case, since petitioner has
available TIT, it filed a claim for refund. Thus, there is no
reason for denying its claim for tax refund/credit.
– The dispositive portion of our Sept 4, 2012 Decision,
directed CIR to either refund or issue TCC. We did not
outrightly direct the cash refund.
– In the earlier Fort Bonifacio case, we directed CIR to either
refund or issue TCC. This decision became final and
executory and entry of judgment was made in due course.
FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG,
G.R. 173425, Jan 22, 2013

• BIR/Dissent: The refund, not being supported by

any prior actual tax payment, is unconstitutional
since public funds will be used to pay for the
refund which is for the exclusive benefit of
petitioner, a private entity.
• SC: This is inaccurate. The grant of refund or
issuance of TCC would not contravene Sec 4(2) of
GAO (fund or property shall be sepnt or used
solely for public purpose). It is precisely pursuant
to Sec 105 of NIRC, which allows refund/tax
credit.
PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6,
2013

• FACTS
– Philacor is a domestic corporation engaged in retail financing.
Buyer of appliance executes a promissory note in favor of the
appliance dealer. Such promissory note is subsequently assigned
by the appliance dealer to Philacor.
– LA was issued and PAN was later on issued by BIR against
Philacor. BIR assessed deficiency DST on all promissory notes
purchased by Philacor. Philacor argued that the accredited
appliance dealers were required by law to affix DST until the
enactment of RA 7660, which took effect on Jan 15, 1994.
– Philacor filed petition for review. CTA held Philacor liable for DST
on two transactions – issuance of PN and the subsequent
assignment in favor of Philacor. MR filed with CTA division, but
denied. Appeal to CTA en banc made, and it ruled in favor of
BIR. Philacor then filed appeal to SC.
PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6,
2013

• SC RULING
– Philacor is not liable for DST on issuance of promissory notes.
– Who are liable to DST?
• Sec 173 names those who are primarily liable for DST and those who
would be secondarily liable. The persons primarily liable are the
person (1) making, (2) signing, (3) issuing, (4) accepting, or (5)
transferring the taxable document. Should these parties be exempted
from paying tax, the other party who is not exempt would then be
liable.
• Philacor did not make, sign, issue, accept or transfer the prom notes.
The acts of making, signing, issuing and transferring are unambiguous.
The buyers of appliances made, signed and issued the prom notes,
while the appliance dealer transferred these notes to Philacor, which
received or accepted them. “Acceptance” is, however, an act that is
not even applicable to promissory notes, but only to bills of exchange.
Its object to bind the drawee of a bill and make him an actual and
bound party to the instrument.
PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6,
2013
– In a ruling adopted by BIR as early as 1955, acceptance has been
given a narrow definition with respect to incoming foreign bills
of exchange, not the common usage of the word “accepting” as
in receiving.
– This ruling further clarifies that a party to a taxable transaction
who “accepts” any document in the ordinary meaning of the act
does not become primarily liable for the tax. In this regard, Sec
173 assumes materiality as it determines liability should the
parties who are primarily liable turn out to be exempted from
paying tax; the other party to the transaction then becomes
liable.
– RR 9-2000 interprets the law more widely so that all parties to a
transaction are primarily liable for the DST, and not only the
person making, signing, issuing, accepting or transferring the
same becomes liable as the law provides. But even under these
terms, the liability of Philacor is not a foregone conclusion.
PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6,
2013
– It would seem that Philacor is the person who ultimately benefits from
the issuance of the notes, if not the intended payee of these notes.
However, these observations pertain to facts and implications that are
found outside the terms of the documents and are contradictory to
their outright terms. To consider these externalities would go against
the doctrine that the liability for DST and the amount due are
determined from the document itself – examined through its form and
face – and cannot be affected by proof of facts outside it.
– Sec 42 of Regulation No. 26 (Mar 26, 1924) uses the word “can” which
is permissive, rather than the word “shall” which would make the
liability of the persons named definite and unconditional.
– We cannot interpret Sec 42 of Regulation 26 to mean that anyone who
“uses” the document, regardless of whether such person is a party to
the transaction, should be liable, as this reading would to beyond Sec
173 of the 1986 Tax Code – the law that the rule seeks to implement.
Implementing rules and regulations cannot amend a law for they are
intended to carry out, not supplant or modify, the law.
PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6,
2013
• Philacor is not liable for DST on assignment of promissory notes
– As an assignee or transferee of the prom notes, Philacor is not liable as
this transaction is not taxed under the law.
– CIR argues that DST is levied on the exercise of privileges thru the
execution of specific instruments or the privilege to enter into a
transaction. Thus, DST should be imposed on every exercise of the
privilege to enter into a transaction. There is nothing in Sec 180 of the
1986 Tax Code that supports this argument; the argument is even
contradicted by the way the provisions on DST were drafted.
– Philacor correctly pointed out that there are provisions in the 1997 Tax
Code that specifically impose the DST on the transfer and/or
assignment of documents evidencing particular transactions (Secs.
175, 176, 178, 198, 183-185, 194-195). We can safely conclude that
where the law did not specify that such transfer and/or assignment is
to be taxed, there would be no basis to recognize an imposition. The
list does not include the assignment or transfer of evidence of
indebtedness; rather, it is the renewal of these that is taxable.
PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6,
2013

– In BIR Ruling 139-97, Dec 29, 1997, CIR pronounced that

the assignment of a loan that is not for a renewal or a
continuance does not result in a liability for DST.
– In RR 13-2004, Dec 23, 2004, DST on all debt instruments
shall be imposed only on every original issue and the tax
shall be based on the issue price thereof. Included in the
enumeration of debt instruments is a promissory note.
– The settled rule is that in case of doubt, tax laws must be
construed strictly against the State and liberally in favor of
the taxpayer. The reason is – taxes, as burdens which must
be endured by the taxpayer, should not be presumed to go
beyond what the law expressly and clearly declares.
 VAT REFUND OR TAX CREDIT
• Tax reliefs of VAT taxpayers on their excess input taxes
(EIT) attributable to zero-rated and effectively zero-
rated sales
– Carry over the excess input tax to the next quarter, until excess is utilized
– File a claim for refund
– File a claim for tax credit, within two years after the close of taxable
quarter where the sales were made, (NOT from the filing of the quarterly
VAT return)
• For non-zero-rated sales, remedy available is only to
carry over EIT to the next quarter(s), or to dissolve the
corporation or cease operation of business subject to VAT
within 2 years from date of dissolution or cessation of
business
– RMC 57-2013, Aug 29, 2013 (Unutilized excess input taxes may not be
expensed after expiration of 2 years to file claim for refund or tax
credit)
RMC 57-2013, Aug 23, 2013
• BIR RULING 123-2013, Mar 25, 2013
– Unutilized creditable input taxes attributable to
zero-rated sales can only be recovered through
the application for refund or tax credit.
– Unapplied input taxes after the expiration of the
two-year period prescriptive period may not be
expensed outright.
• Tax exemptions are strictly construed against the
taxpayer.
• Deductions are in the nature of tax exemptions.
 VAT REFUND OR TAX CREDIT
• Reckoning of two-year prescriptive period
– From the date of the filing of the VAT return and payment of the
tax. After all, VAT liability or refundability can only be
determined upon the filing of the quarterly VAT return (Atlas
Consolidated Mining & Dev Corp v. CIR, G.R. No. 141104, June 8, 2007).
– From the close of the taxable quarter when the relevant sales
were made pertaining to the input VAT, regardless of whether
said tax was paid or not. The phrase “within two years” refers
to the application for refund or TCC filed with the CIR, and not
to filing of appeal to CTA.
– Secs. 204© and 229, NIRC cannot apply in a claim for refund of
excess input VAT on zero-rated sales, considering that it is not a
case of erroneous payment or illegal collection of taxes (CIR v.
Mirant Pagbilao Corp, G.R. No. 172129, Sept 12, 2008).
VAT REFUND OR TAX CREDIT
• Reckoning of two-year prescriptive period
– From the close of the taxable quarter when the sales were
made. Sec.112(A) which states “within two years … apply
for the issuance of a tax credit certificate or refund” refers
to applications for tax refund/credit filed with the CIR and
not to appeals made to the CTA.
– Sec. 112(D), NIRC provides that CIR has 120 days from date
of submission of complete documents within which to
grant or deny the claim. In case of full or partial denial, or
the failure of CIR to act on the application within the
required period, taxpayer may, within 30 days from receipt
of the decision denying the claim or after the expiration of
the 120 day period, appeal the decision or the unacted
claim with the CTA.
VAT REFUND OR TAX CREDIT
– In this case, administrative and judicial claims were
simultaneously filed on Sept 30, 2004. Taxpayer should
have waited for the decision of the CIR or the lapse of the
120-day period. Sec 112(A) applies to administrative
claims, while Sec 112(D) applies to judicial claims. Thus, SC
found the judicial claim with the CTA premature.
– The 120-30 day period under Sec. 112(D) is crucial in filing
an appeal to the CTA. Sec. 229 does not apply to
refunds/credits of unutilized input VAT arising from zero-
rated sales.
– In computing legal periods, the Administrative Code of
1987 prevails over the Civil Code (CIR v. Aichi Forging Co. of Asia, G.R.
No. 184823, Oct 6, 2010).
CIR v. SAN ROQUE POWER CORP, TAGANITO MINING CORP,
PHILEX MINING CORP , G.R. 187455, 196113 & 197156, Feb 12,
2013
• San Roque v. CIR (Feb 2013)
• Mar 28, 2003 – San Roque filed amended administrative
claim with BIR
• Apr 10, 2003 – It filed petition for review with CTA (i.e.,
after 13 days)

• SC RULING
• 1. San Roque must comply with the 120-day waiting period.
This is mandatory and jurisdictional. Failure to comply
violates the doctrine of exhaustion of administrative
remedies and renders the petition PREMATURE and
without a cause of action; hence, the court cannot acquire
jurisdiction.
 CIR v. SAN ROQUE POWER CORP
• 2. CTA charter: CTA can review on appeal decisions of
CIR involving claims for refunds, or in case of inaction,
which is deemed a denial. In this case, there is no CIR
decision to be reviewed by the CTA.
• 3. Art. 5, NCC: Acts executed against mandatory or
prohibited laws shall be void, except when the law
itself authorizes its validity. Here, there is no such law.
• 4. A person committing a void act contrary to the
mandatory provision of law cannot claim or acquire
any right from his void act. This doctrine is repeated in
Art. 2254, NCC.
 PHILEX MINING CORP v. CIR
• PHILEX MINING v. CIR (2013)
• Oct 21, 2005 – Philex filed original VAT return for Q3
2005
• Mar 20, 2006 – It filed administrative claim with BIR
• Oct 17, 2007 – It filed petition for review with CTA

• SC RULING
• 1. Philex timely filed its administrative claim. Even if
the 2-year prescriptive period is computed from the
date of payment of the output tax under Sec 229, it
filed its claim on time.
PHILEX MINING CORP v. CIR
• 2. CIR had until July 17, 2006, the last day of the
120-day period, to decide Philex’s claim
• 3. Since CIR did not act on the claim on or before
July 17, 2006, Philex had until Aug 17, 2006, the
last day of the 30-day period, to file its judicial
claim.
• 4. However, Philex filed its judicial claim only on
Oct 17, 2007, or 426 days after the last day of
filing; hence, the case is dismissed for LATE
FILING.
FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 &
175543, Feb 25, 2013
• FACTS
– In 1992, RA 7227 was enacted that created BCDA. On Feb 3, 1995,
BCDA established Fort Bonifacio Dev Corp, as a wholly-owned
government corporation.
– On Feb 7, 1995, RP transferred by land grant (thru Special Patent
3596) a 214-hectare land in Fort Bonifacio to FBDC, which in turn
executed a prom note for P71.2 B in favor of government. RP assigned
PN to BCDA, which assigned it back to FBDC as full payment of
subscriptions to FBDC’s authorized capital stock.
– On Feb 8, 1995, RP executed a Deed of Absolute Sale with Quitclaim in
favor of FBDC covering the 214 has for P71.2 B.
– On Feb 19, 1995, Reg of Deeds issued Original Cert of Title.
– On Feb 24, 1995, Congress enacted RA 7917, declaring exempt from all
forms of taxes the proceeds of government sale of Fort Boni land.
– Subsequently, BCDA sold at public bidding 55% of its shares in FBDC to
private investors.
FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 &
175543, Feb 25, 2013

– On Sept 15, 1998, CIR issued LA for FBDC’s 1995 tax audit.
– On Dec 10, 1999, CIR issued FAN for def DST based on RP’s
sale to FBDC of Fort Boni land.
– FBDC protested the FAN. On Jan 6, 2000, FBDC wrote a
letter to CIR, invoking RA 7917.
– Since CIR did not act on protest, FBDC filed petition for
review after the lapse of 180-day period.
– On Mar 5, 2003, CTA rendered decision denying FBDC’s
petition and affirming DST assessment. Special patent was
treated as separate and distinct from Deed of Absolute
Sale. Special patent was exempt, but Deed of Sale was
not.
FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 &
175543, Feb 25, 2013

– FBDC filed petition for review with CA, which

affirmed CTA decision, including 20% def. interest.
– FBDC filed appeal to SC. On Dec 17, 2004, FBDC
filed manifestation and motion informing the
court that the disputed assessment had already
been paid thru SARO issued by DBM to BCDA for
P1.189 B, which includes DST.
– CIR commented that payment was illegal, since it
breached the scope of tax exemption provided in
RA 7917, and since BCDA paid the tax for the
benefit of FBDC, a private corporation.
FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 &
175543, Feb 25, 2013
• SC RULING
– The two documents – Special Patent and Deed of Absolute Sale – covered the
Republic’s conveyance to FBDC of the same Fort Boni land for the same price
that FBDC paid but once. It is one transaction, twice documented.
– On Feb 7, 1995, the Republic, thru the President, issued Special Patent to
FBDC pursuant to RA 7227. That legislative act removed the public character
of the Fort Boni land and allowed the President to cede ownership to FBDC,
then a wholly-owned govt corp under BCDA. The Republic could not just
spend or use the money it received from the sale without authority from
Congress. In this case, the basis for appropriation is found also in RA 7227,
which earmarked the proceeds of sale of the land for use in capitalizing the
BCDA.
– The Republic sold the land to FBDC and the latter paid it with a prom note.
When the Republic in turn assigned the note to BCDA, not only did it comply
with its obligation under the above provision to capitalize BCDA from the
proceeds of sale and also enabled the latter to fully pay for its subscription to
FBDC’s capital stock. Thus, to tax the proceeds of sale would be to tax an
appropriation made by law, a power that CIR does not have.
FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 &
175543, Feb 25, 2013
– The Special Patent absolutely and irrevocably grant and convey legal title over
the land to FBDC. In effect, the Republic admitted that the Deed of Sale was
only a formality, not a vehicle for conveying ownership.
– DST is by nature, an excise tax since it is levied on the exercise by persons of
privileges conferred by law. These privileges may cover the creation,
modification or termination of contractual relationships by executing specific
documents. The sale of Fort Boni land was not a privilege but an obligation
imposed by law which was to sell lands in order to fulfill a public purpose.
– Sec 8 of RA 7227 exempted the proceeds of sale of land from all forms of
taxes, including DST. Moreover, the payment of DST would have resulted in
diminishing the proceeds of sale that the Republic turned over to BCDA to
capitalize it.
– When DST was paid thru SARO, the government acknowledges that it made
the private investors was exempt from all forms of taxes as the law provides.
Indeed, government warranted in the Deed of Absolute Sale that “there are
no taxes due and owing in respect of subject property or transfer thereof in
favor of the buyer.”
MINDANAO II GEOTHERMAL PARTNERSHIP v. CIR, G.R.
193301 & 194637, Mar 11, 2013

• Sale of Nissan Patrol is said to be an isolated

transaction.
– CIR v. Magsaysay, decided in 1986, involved sale of
vessels of NDC to Magsaysay Lines; sale was
involuntary and made pursuant to government’s
policy of privatization.
• However, it does not follow that an isolated
transaction cannot be an incidental transaction
for VAT purposes. A reading of Sec 105 of the
1997 Tax Code would show that a transaction “in
the course of trade or business” includes
“transactions incidental thereto.”
FIRST LEPANTO TAISHO INSURANCE CORP v. CIR, G.R.
197117, Apr 10, 2013

• A director whose duties are confined to attendance at

and participation in meetings of the Board of Directors
is considered an employee under Sec 5, RR 12-86.
• Non-inclusion of the names of some of petitioner’s
directors in the company’s Alpha List does not ipso
facto create a presumption that they are not
employees of the corporation, because the imposition
of WT on compensation hinges upon the nature of
work performed by such individuals in the company.
RR 2-98 cannot be applied to this case as the latter is a
later regulation, while the accounting books examined
for the year 1997.
PDIC v. BIR, G.R. 172892, Jun 13, 2013
• ISSUE:
– Whether or not Sec 52(C ) of the Tax Code (which requires
that the corporation under liquidation has to secure a tax
clearance from the BIR before the project of distribution of
the assets can be approved by the liquidation court)
applies to banks ordered/placed under liquidation by the
Monetary Board
• SC RULING
– Sec 52(C ) of the Tax Code is not applicable to banks
ordered under liquidation by the MB, and a tax clearance
is not a prerequisite to the approval of the project of
distribution of the assets of a bank under liquidation by
the PDIC.
DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R.
188550, Aug 19, 2013
• FACTS
– Petitioner withheld and remitted to BIR in Oct 2003 the amount of P67 M,
representing 15% BPRT on its RBU net income remitted to DB Germany for
2002 and prior years.
– Believing it overpaid the BPRT, petitioner filed with LTAID in 2005 an
administrative claim for refund/tax credit in amount of P22 M. Also, it
requested ITAD a confirmation of entitlement to 10% preferential tax rate
under the RP-Germany Tax Treaty.
– Alleging inaction, petitioner filed petition with CTA.
– After trial, CTA Division found petitioner paid P67 M as 15% BPRT for 2002 and
prior years. However, claim was denied on ground that application for treaty
relief was not filed with ITAD prior to payment of its BPRT, or prior to its
availment of preferential rate under the treaty. The court held petitioner
violated the 15-day period mandated under RMO 1-2000, citing CTA Division
decision in Mirant (Phil) Operations Corp v. CIR.
– CTA en banc affirmed ruling of CTA Division.
DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R.
188550, Aug 19, 2013

• SC RULING
– Sec 28(A)(5), NIRC imposes 15% BPRT, but by virtue of tax
treaty, we are bound to extend to a branch in the Phil the
benefit of 10% BPRT.

– A minute resolution is not a binding precedent

– Tax treaty v. RMO 1-2000
• Our Constitution provides for adherence to the general principles
of international law as part of the law of the land. The principle
pacta sunt servanda demands the performance in good faith of
treaty obligations on the part of the states that enter into the
agreement. Every treaty in force is binding upon the parties, and
obligations under the treaty must be performed by them in good
faith. More importantly, treaties have the force and effect of law
in this jurisdiction.
DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R.
188550, Aug 19, 2013
– A state that has contracted valid international obligations is
bound to make in its legislations those modifications that may
be necessary to ensure the fulfillment of the obligations
undertaken. Thus, laws and issuances must ensure that the
reliefs granted under tax treaties are accorded to the parties
entitled thereto. The BIR must not impose additional
requirements that would negate the availment of the reliefs
provided for under international agreements. More so, when
the RP-Germany does not provide for any pre-requisite for the
availment of the benefits under said agreement.
– There is nothing in RMO 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to
comply with the 15-day period.
– At most, the application for a tax treaty relief from BIR should
merely operate to confirm the entitlement of the taxpayer to
the relief.
DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R.
188550, Aug 19, 2013

– The obligation to comply with a tax treaty must take

precedence over the objective of RMO 1-2000.
• Non-compliance with tax treaties has negative implications
on international relations and unduly discourages foreign
investors.
• While the consequences sought to be prevented under RMO
1-2000 involve an administrative procedure, these may be
remedied thru other system management processes, like
imposition of fine or penalty.
– We cannot totally deprive those who are entitled to
the benefit of a treaty for failure to strictly comply
with an administrative issuance, requiring prior
application for tax treaty relief.
DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R.
188550, Aug 19, 2013

• Prior application v. claim for refund

– The underlying principle of prior application with the BIR
becomes moot in refund cases, where the very basis of
claim is erroneous or there is excessive payment arising
from non-availment of a tax treaty relief. Here, petitioner
should not be faulted for not complying with RMO prior to
the transaction. It could not have applied for a tax treaty
relief within the period prescribed, or 15 days prior to the
payment of its BPRT, precisely because it erroneously paid
the BPRT not on the basis of the preferential tax rate under
the treaty, but on the regular rate prescribed by the Tax
Code. Hence, prior application requirement becomes
illogical.
• Petitioner is entitled to a refund.
CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 &
192576, Sept 11, 2013

• FACTS
– Prior to Jan 1, 1997, FTC cigarette brands were subject to ad
valorem tax under Sec 142, 1977 Tax Code.
– On Jan 1, 1997, RA 8240 became effective. This law shifts to
specific tax system in imposing excise taxes on cigarette brands
under Sec 145, 1997 Tax Code.
– On Dec 16, 1999, RR 17-99 was issued, to implement a 12%
increase of excise tax on cigarettes packed by machines by Jan 1,
2000. RR 17-99 provides that the new specific tax rate for any
existing brand packed by machine shall not be lower than the
excise tax that is actually being paid prior to Jan 1, 2000.
– FTC paid excise taxes on all its cigarettes removed from the
place of production, but subsequently filed claims for refund for
the period from Jan 1, 2000 to Dec 31, 2001.
– FTC filed petition for review in view of inaction by BIR.
CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 &
192576, Sept 11, 2013

– On Oct 21, 2002, CTA Division ordered CIR to refund

erroneously paid excise taxes of P35.651 M (for Jan 2000)
and P644.735 M (for Feb 2000 – Dec 2001).
– CIR filed motion for recon, which was granted.
– Then, FTC filed another petition questioning validity of RR
17-99, praying for refund of overpaid excise tax of
P355.385 M for Jan 2002 to Dec 2002.
– CTA Division reversed earlier Resolution and ordered CIR to
refund P35.651 M and P644.735 M for 2000-2001.
– In its decision in CTA Case 6612 on Dec 4, 2003, CTA
Division declared RR 17-99 invalid and contrary to Sec 145
of NIRC. The court ordered refund of P355.385 M to FTC.
CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 &
192576, Sept 11, 2013

– CIR filed MR, but this was denied on Mar 17, 2004.
– On Dec 10, 2003, CIR filed a petition for review with CA
questioning the CTA Resolution issued in CTA Cases 6365
and 6383.
– On Apr 28, 2004, CIR filed another petition with CTA
questioning CTA decision in CTA Case 6612.
– In consolidated CA decision dated Sept 28, 2004, CA
denied CIR’s petitions and affirmed FTC’s refund claims.
– MR filed with CA by CIR, but this was denied.
– On May 4, 2005, CIR filed petition for review on certiorari
with SC. Supplemental petition was filed.
– On July 21, 2008, SC affirmed the findings of CA and
granted refund.
CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 &
192576, Sept 11, 2013

• SC RULING
– The state of things under the premises ought not to
remain uncorrected. And the BIR cannot plausibly raise a
valid objection for such approach. BIR knew where it was
coming from when it appealed, first before the CA and
then to this Court, the award of refund to FTC and the
rationale underpinning the award. BIR cannot plausibly, in
good faith, seek refuge on the basis of slip on the
formulation of the fallo of a decision to evade a duty.
– On the other hand, FTC has discharged its burden of
establishing its entitlement to the refund. The favorable
rulings of the tax court, appellate court and finally, this
court, say as much.
CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 &
192576, Sept 11, 2013
– In the interest of justice and orderly proceedings, this Court
should make the corresponding clarification on the fallo of its
July 21, 2008 decision in GR Nos. 162274-75. It is an established
rule that when the dispositive portion of a judgment, which has
meanwhile become final and executory, contains a clerical error
or an ambiguity arising from an inadvertent omission, such error
or ambiguity may be clarified by reference to the body of the
decision itself.
– After scrutiny of the body of the decision, the Court finds it
necessary to render a judgment nunc pro tunc and address an
error in the fallo of said decision. The object of the judgment
nunc pro tunc is not the rendering of a new judgment and the
ascertainment of new rights, but is one placing in proper form
on the record, that has been previously rendered, to make it
speak the truth.
CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 &
192576, Sept 11, 2013
– Sec 145 states that during the transition period (i.e., within the next 3 years
from the effectivity of the Tax Code), the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand on 1 Oct 1996.
This qualification, however, is conspicuously absent as regards the 12%
increase which is to be applied on cigars and cigarettes packed by machine. By
adding the above qualification, RR 17-99 effectively imposes a tax which is the
higher amount between the ad valorem tax being paid at the end of the 3-
year transition period and the specific tax under paragraph C, as increased by
12% -- a situation not supported by the plain wording of Sec. 145 of the Code.
– This is not the first time that BIR officials had ventured in the area of
unauthorized administrative legislation. In CIR v. Reyes, respondent was not
informed in writing of the law and the facts on which the assessment of estate
taxes was made. She was merely notified of the findings. The court held in
case of discrepancy between the law as amended and the implementing
regulation based on the old law, the former necessarily prevails. The law must
still be followed, even though the existing regulation at that time provided for
a different procedure.
FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 12-
1236, Sept 5, 2013
• CIR issued RMC 65-2012 dated Oct 31, 2012 which imposes income tax
and VAT on association dues, membership fees and other charges of
condominium corporations, which are non-stock, non-profit corporations.
• Petitioner averred the operative mandate of RMC is unjust, oppressive and
confiscatory.
– It is unjust, because it directly and actually burdens the unit owners with
income tax and VAT on their own money pooled together and spent
exclusively for the purpose of maintaining and preserving the building and its
premises which they themselves own and possess.
– To tax the collected association dues, membership fees and other assessments
is to diminish and impair the legitimate exercise of the owners’ right to
possess and enjoy one’s own property.
– It is oppressive and confiscatory, because it directly and actually exacts upon
the unit owners, comprising the condominium corporation, with the duty to
shell out additional sums of money to pay for income tax and VAT, when in
truth, petitioner is already in dire financial strait and hard up in its every day
corporate existence.
– It would violate the due process clause.
FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 12-
1236, Sept 5, 2013
• Petitioner thru the Makati Commercial Estate Asso, Inc. has sent letter dated Dec
5, 2012 to BIR, requesting for deferment of the implementation, and another
letter dated Dec 19, 2012 for the attention of RDO, South Makati, announcing
continuing judicial consignation of income tax and VAT purportedly due under the
questioned RMC. It also alleged that petitioner has not committed any act to
breach RMC 65-2012, since any or all amounts of taxes due are placed in custodia
legis by way of continuing judicial consignation.

• BIR thru the OSG commented that declaratory relief is no longer proper since the
RMC already took effect on Oct 31, 2012. BIR Litigation Division alleged the
petition lacks proper or insufficient verification, and the petition should be
dismissed applying the doctrine of primary jurisdiction. Courts cannot and will not
determine a controversy on a question within the jurisdiction of the administrative
tribunal prior to the resolution of that question by said administrative tribunal.
Clearly, petitioner has not exhausted all administrative remedies prior to its resort
to this Court. The income tax and VAT should be remitted directly to the BIR; the
collection of the taxes should not be unduly delayed or hampered by incidental
matters. BIR said the RMC is already a clarificatory issuance of pertinent laws
under the NIRC and was issued to clarify the taxability of association dues and fees
FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 12-
1236, Sept 5, 2013

• The association dues and fees are collected by the

condo corp as compensation for beneficial service
rendered to its members. “Beneficial services” means
any service, including the operation, management, and
maintenance of common areas/community facilities,
provided by a condo corp for the benefit of its
members. Under RA 4726 (Condo Act), the act of
management of the project constitutes beneficial
service.
• The State can never be in estoppel, and this is
particularly true in matters involving taxation.
FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 12-
1236, Sept 5, 2013
• In its Reply, petitioner argued respondent’s interpretation of the
consequence of judicial consignation is absolutely erroneous. The
act of judicial consignation is akin to the payment of the tax under
protest (DBM v. Manila’s Finest Retirees Asso, 2007; Matalin
Coconut Co v. Mun Council of Malabang, Lanao del Sur). Judicial
consignation neither extinguishes the obligation nor automatically
releases the obligor. It simply means putting the controverted
amount in custodia legis – subject to the disposition by the Court
upon determination of the rights and duties of the petitioner under
the special civil action. Petitioner has not registered as a VAT entity,
which is indicative that there is no injury yet sustained on the part
of respondent. The non-registration and non-availment of the
output tax-input tax, coupled with the judicial consignation, show
that petitioner has not submitted any act of obeisance and has not
sustained any real injury at all.
FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 12-
1236, Sept 5, 2013

• The requirements of an action for declaratory relief are:

– There must be a justiciable controversy;
– The controversy must be between persons whose interests are
adverse;
– The party seeking declaratory relief must have a legal interest in
the controversy; and
– The issue involved must be ripe for judicial determination.
• Guided by the above parameters, the Court declared that
declaratory relief is the proper remedy and the Court has
jurisdiction to take cognizance of the same.
• Petitioner raised the validity and constitutionality of the
RMC, which matter is ripe for judicial determination and is
within the power of judicial review.
FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 12-
1236, Sept 5, 2013
• Petitioner has not committed any willful breach of the RMC. Petitioner is not
assailing any assessment, because there is yet no tax assessment made. In
previous years, petitioner has not been subjected to payment of the tax on the
dues and fees. Petitioner seeks relief from the court to determine whether the
RMC is validly issued or not.
• The RMC was effective on Oct 31, 2012, but petitioner adopted the calendar year;
hence, its income tax return for the year is still due on April 15, 2013. Thus, at the
time of filing the petition on Dec 26, 2012, petitioner is not yet obligated to pay
and file its income tax return and VAT return and breach has not yet set in.
• The assailed RMC not merely interpreted or clarified the existing BIR ruling, but in
fact legislated or introduced new legislation under the mantle of its quasi-
legislative authority. The RMC failed to show what particular law it clarified; it
shows it merely departed from the several rulings of the BIR exempting from
income such assessments/charges because these amounts were held in trust to be
used solely for administrative purposes. The RMC changed and departed from the
long standing ruling of the BIR and what is worse, it was made immediately
effective. In so doing, the passage contravenes the constitutional mandate of due
process of law.
• Without the notice and publication, there would be no basis to punish its citizen.
AGRINURTURE, INC v. CIR, CTA Case 8345, May 29,
2013

• FACTS
– Based on the LN, CIR issued FAN on Dec 30, 2010 for
2007 deficiency income tax and VAT, which was
predicated solely on alleged undeclared purchase
transaction.
– Taxpayer protested the assessment by failing to state
the specific facts and law upon which it is based (i.e.,
the details of the discrepancy in the SLS submitted by
suppliers were not itemized), and since no action was
taken BIR on the protest within the 180 day period,
petitioner filed petition on Sept 16, 2011.
AGRINURTURE, INC v. CIR, CTA Case 8345, May 29,
2013
• CTA RULING
– Petitioner was informed of the factual and legal bases of the
assessment and was given opportunity to contest the same. There is
no reason for this Court to sustain petitioner’s allegation that
assessment was void for failure to state the assessment’s factual basis
inasmuch as it was based on examination by respondent of
petitioner’s tax returns and the TPI Relief per SLS submitted by
petitioner’s suppliers.
– Basic is the rule that assessments are presumed correct and made in
good faith. It is presumed, however, that such assessment was based
on sufficient evidence. This rule for tax initiated suits is premised on
several factors other than the normal evidentiary rule imposing proof
obligation on the petitioner-taxpayer: the presumption of
administrative regularity; the likelihood that taxpayer will have access
to relevant information; and the desirability of bolstering the record-
keeping requirements of the NIRC.
AGRINURTURE, INC v. CIR, CTA Case 8345, May 29,
2013

• The prima facie correctness of a tax assessment does not

apply upon proof that an assessment is utterly without
foundation; i.e., it is arbitrary and capricious. Where the
BIR has come out with a “naked assessment,” the
determination of the tax is without rational basis; hence,
the determination by this Court must rest on all the
evidence introduced and its ultimate determination must
find support in credible evidence.
• In the imposition of income tax, it must be clear that there
was an income, and such income was received by the
taxpayer, not when there is an under-declaration of
purchases. Here, the BIR presumed that the alleged
undeclared purchase is an unaccounted expense, which
supposed translated into income.
AGRINURTURE, INC v. CIR, CTA Case 8345, May 29,
2013
• A taxpayer is free to deduct from its gross income a lesser amount,
or not to claim any deduction at all. What is prohibited by the
income tax law is to claim a deduction beyond the amount
authorized therein.
• With respect to VAT, VAT can be imposed only when it is shown that
the taxpayer received an amount of money or its equivalent from a
taxable sale of goods or services, and not when there are under-
declared purchases.
• An assessment must be based on actual fact. The presumption of
correctness of assessment, being a mere presumption, cannot be
made to rest on another presumption (i.e., the under-declared
purchases would automatically result in undeclared income or
additional taxable sales, which would in turn increase petitioner’s
income tax and VAT liabilities.
END OF PRESENTATION

Atty. Vic C. Mamalateo

Mobile No.: 0939-9209175; 0917-5280445

Email: vic.mamalateo@vcmlaw.com.ph

vicmamalateo@yahoo.com

Direct Line: 372-9224