SUMMARY OF SIGNIFICANT SC TAX DECISIONS (JANUARY TO AUGUST 2013)

1. A transferee of promissory note is not liable for DST both on the issuance of the
promissory note and on the assignment.

Philacor Credit Corporation (Philacor) is engaged in the business of retail financing. Through
retail financing, a prospective buyer of a home appliance – with neither cash nor credit card –
may purchase appliances on installment basis from an appliance dealer. After Philacor conducts
credit investigation an approves the application, the buyer executes a unilateral promissory note
in favor of the dealer. The same promissory note is assigned by the appliance dealer to
Philacor. An assessment for documentary stamp tax (DST) was imposed on Philacor both on
the (1) issuance of the promissory note and (2) assignment of the promissory note. The
assessment was sustained both by the CTA in Division and CTA En Banc. With respect to the
issuance of the promissory note, the CTA noted that Philacor is liable as transferee which
“accepted” the promissory note from the appliance dealer. Further, the Court noted that a
person “using” a promissory note is one of the persons who can be held liable for the DST. As
to the assignment of the promissory notes, the CTA ruled that each and every transaction
involving promissory note is subject to DST.

The decision of the CTA was reversed by the Supreme Court. With respect to the issuance of a
promissory note, the persons primarily liable are the persons (1) making, (2) signing, (3) issuing,
(4) accepting, or (5) transferring the taxable document, instrument or paper. Philacor did not
make, sign, issue, accept or transfer the promissory note. The buyers of the appliances made,
signed and issued the promissory notes, while the dealers of the appliances transferred these to
Philacor which received or accepted them. Acceptance, however, is an act that is not applicable
to promissory notes but to bills of exchange. Neither is Philacor liable to DST for the assignment
to it of the promissory notes. Assignments subject to DST do not include assignment of
promissory notes. It is the renewal of debt in instrument that is subject to DST, not the
assignment. (Philacor Credit Corporation vs. Commissioner of Internal Revenue, G.R. No.
169899, February 06, 2013)

2. Failure to comply with the 120-day waiting period in a claim for refund of input taxes
related to zero-rated sales violates a mandatory provision of law.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It
violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayer’s petition. When a taxpayer prematurely files a judicial action for
refund or credit with the CTA without waiting for the decision of the Commissioner, there is no
“decision” of the Commissioner to review and thus the CTA as a court of special jurisdiction has
no jurisdiction over the appeal. It is the Commissioner’s decision or inaction “deemed denial”
that the taxpayer can take to the CTA for review. The taxpayer cannot simply file a petition with
the CTA without first waiting for the Commissioner’s decision within the 120-day mandatory and
jurisdictional period. The CTA will not have jurisdiction because there is no decision or “deemed
a denial” decision of the Commissioner for the CTA to review. The exception to this rule is the
period between December 10, 2003 (when the BIR issued BIR Ruling DA-489-03, which
expressly ruled that “the taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petitioner for Review”) and October 6,
2010 when the Supreme Court promulgated the Aichi doctrine.

On the other hand, failure to file a petition for review within 30 days from the lapse pf the 120-
day period, which is “deemed a denial” decision renders the “deemed a denial” decision final
and unappealable. (Commissioner of Internal Revenue vs. San Roque Power Corporation,
G.R. No. 187485, Taganito Mining Corporation vs. Commissioner of Internal Revenue,
G.R. No. 196113, Philex Mining Corporation vs. Commissioner of Internal Revenue, G.R.
No. 197156, February 12, 2013)

3. The 20% final tax withheld on a bank’s passive income should be included in the
computation of the GRT.

In computing its gross receipts tax (GRT) for the year 1996, China Banking Corporation
(Chinabank) included the 20% final tax withheld on its interest income as part of its taxable
gross receipts. Alleging that is should have paid GRT, net of the 20% final withholding tax,
Chinabank filed a claim for refund for the alleged overpayment.

Citing earlier decisions, the Supreme Court ruled that gross receipts comprise the entire
receipts without any deduction. Clearly then, the 20% final withholding tax should form part of
the total gross receipts for purposes of computing the GRT. (China Banking Corporation vs.
Commissioner of Internal Revenue, G.R. No. 175108, February 27, 2013)

4. If the law confers an exemption from both direct and indirect taxes, a claimant is
entitled to a tax refund even if it only bears the economic burden of the applicable tax.

Caltex Philippines, Inc. (“Caltex”) imported Jet A-1 fuel for which it pad excise taxes. Caltex sold
the fuel to Philippine Airlines, Inc. (PAL), for which Caltex issued a billing including the amount
of excise tax paid on the imported fuel. PAL filed a claim for refund with the BIR, seeking the
refund of the excise taxes passed on to it by Caltex. PAL hinged its claim on its franchise, PD
No, 1590, which conferred upon it certain tax exemption privileges on its purchase and/or
importation of aviation gas, fuel and oil, including those which are passed on to it by the seller
and/or importer thereof. Due to BIR’s inaction, PAL filed a petition with the CTA. Relying on the
case of Silkair (Singapore) Pte. Ltd. vs. CIR1, the CTA denied PAL’s petition on the ground that
only a statutory taxpayer (Caltex, in this case) may seek a refund of the excise tax it paid. Even
if the tax burden was shifted to PAL, the latter cannot be deemed the statutory taxpayer.

On appeal to the Supreme Court, the Court ruled that while the NIRC mandates the
manufacturer/producer of goods manufactured or produced in the Philippines and the importer
and the owner/importer of imported goods as the persons to pay the applicable excise taxes
directly to the government, they may, however, shift the economic burden of such payments to
someone else – usually the purchaser of the goods – since excise taxes are considered as a
kind of indirect tax. Even if the purchaser effectively pays the tax, the manufacturers/producers

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G.R. No. 173594, February 06, 2008
or the owners/importers are still regarded as the statutory taxpayers. Section 204(c) of the NIRC
states that it is the statutory taxpayer which has the legal personality to file a claim for refund.
Accordingly, in cases involving excise tax exemptions on petroleum products under Section 135
of the NIRC, it is the statutory taxpayer who is entitled to claim a tax refund and not the party
who merely bears its economic burden. However, this rule does not apply to instances where
the law clearly grants the party to which the economic burden of tax is shifted an exemption
from both direct and indirect taxes. In which case, the latter must be allowed to claim a tax
refund even if it is not considered as the statutory taxpayer. if the law confers an exemption from
both direct and indirect tax, a claimant is entitled to a refund even if it only bears the economic
burden of the applicable tax. on the other hand, if the exemption conferred by law applies to
direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim.
(Philippine Airlines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 198759, July 01,
2013)

5. Rules on the determination of the prescriptive period for filing a tax refund or credit of
unutilized input VAT as provided in Section 112 of the 1997 Tax Code

a) An administrative claim must be filed with the BIR within 2 years after the close of the
taxable quarter when the zero-rated or effectively zero-rated sales were made;

b) The BIR has 120 days from the submission of the complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue tax credit
certificate. The 120-day period may extend beyond the two-year from the filing of the
administrative claim if the claim is filed in the later part of the two-year period. If the 120-day
period expires without any decision from the CIR, then the administrative claim may be
considered denied by inaction;

c) A judicial claim must be filed with the CTA within 30 days from receipt of the BIR’s
decision denying the administrative claim or from the expiration of the 120-day period without
any action from the BIR; and

d) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on December 10, 2003 up to its reversal on October 6, 2010, as an exception to the
mandatory and jurisdictional 102+30 day period. (Mindanao II Geothermal Partnership vs.
Commissioner of Internal Revenue, G.R. No. 193301, March 11, 2013)

6. Sale of motor vehicle forming part of the taxpayer’s property and equipment is
subject to VAT.

Taxpayer’s business is to convert steam supplied to it by PNOC-EDC into electricity and to

deliver the electricity to NPC. In the course of its business, taxpayer bought and eventually sold
Nissan Patrol. According to the Court, the sale of the Nissan Patrol is said to be an isolated
transaction. However, it does not follow that an isolated transaction cannot be an incidental
transaction for purposes of VAT liability. Section 105 of the 1997 Tax Code includes
“transactions incidental thereto”. Prior to the sale, the Nissan Patrol was part of taxpayer’s
property, plant and equipment. Therefore the sale of the Nissan Patrol is an incidental
transaction made in the course of taxpayer’s business which should be liable to VAT.
(Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue, G.R. No.
193301, March 11, 2013)

7. Section 52(C) of the 1997 Tax Code, requiring a corporation contemplating

dissolution to secure a tax clearance from the BIR, does not apply to a bank ordered
placed under liquidation by the Monetary Board.

The Bangko Sentral ng Pilipinas (BSP) placed the Rural Bank of Tuba (Benguet), Inc. (RBTI)
under receivership, pursuant to Section 30 of Republic Act No. 7653 or the New Central Bank
Act. Accordingly, the BSP designated the Philippine Deposit Insurance Corporation (PDIC) as
the receiver. After PDIC determined that RBTI remained insolvent, the Monetary Board issued a
resolution directing PDIC to proceed with the liquidation. Accordingly, PDIC filed with the
Regional Trial Court (RTC) a petition for assistance in the liquidation of RBTI. The Bureau of
Internal Revenue (BIR) intervened as one of the creditors, praying that the proceedings be
suspended under PDIC has secured as tax clearance required under Section 52(C) of the 1997
Tax Code. The RTC granted the BIR’s motion. The Court of Appeals affirmed the RTC’s order.

On appeal to the Supreme Court, the Court ruled that Section 52(C) of the 1997 Tax Code does
not apply to a bank ordered placed under liquidation by the Monetary Board, and a tax
clearance is not a requisite to the approval of the project of distribution of the assets of the bank
under liquidation by PDIC. (Philippine Deposit Insurance Corporation vs. Commissioner of
Internal Revenue, G.R. No. 172892, June 13, 2013)

8. A prior application for tax treaty relief is not required for the availment of tax relief
under tax treaties.

Taxpayer, a Philippine branch of a German bank, withheld and remitted to the BIR on October
21, 2003, 15% branch profit remittance tax (BPRT) on its payment of branch profit to its head
office. Believing that it overremitted the BPRT, the taxpayer filed with the BIR on October 4,
2005 a claim for refund or issuance of tax credit certificate (TCC) for the overpayment. On the
same date, it requested from the International Tax Affairs Division (ITAD) of the BIR a
confirmation of its entitlement to the preferential tax rate of 10% on branch profit remittance in
accordance with the Philippines – Germany Tax Treaty. Because of the inaction by the BIR on
the claim for refund or issuance of TCC, taxpayer filed a petition for review with the CTA. The
CTA denied the claim on the ground that application for tax treaty relief was not filed with the
ITAD prior to the payment of the BPRT or actual remittance of the branch profit to Germany, or
prior to its availment of the preferential tax rate under the RP-Germany tax treaty.

The Supreme Court reversed the CTA’s decision and held that the BIR must not impose
additional requirements that would negate the availment of reliefs provided under international
agreements. The obligation to comply with a tax treaty must take precedence over RMO 1-
2000. Taxpayers cannot be deprived of their entitlement to the benefit of a treaty for failure to
comply with an administrative issuance requiring the prior application for tax treaty relief.
(Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue, G.R. No.
188550, August 19, 2013)