VER ANTHONY A.

FORTICH
2013-0390

CIR v. INSULAR LIFE ASSURANCE CO. LTD

GR No. 197192, Jun 04, 2014

FACTS
Respondent The Insular Life Assurance, Co., Ltd. is a corporation duly organized and existing under and
by virtue of the laws of the Republic of the Philippines, with principal office located at IL Corporate
Center, Insular Life Drive, Filinvest Corporate City, Alabang, Muntinlupa City. It is registered as a non-
stock mutual life insurer with the Securities and Exchange Commission.

On October 7, 2004, respondent received an Assessment Notice with Formal Letter of Demand both
dated July 29, 2004, assessing respondent for deficiency DST on its premiums on direct business/sums
assured for calendar year 2002, computed as follows:

Documentary Stamp Tax

Deficiency Documentary Stamp Tax-Basic [P]70,732,389.83
Add: Increments (Interest and Compromise Penalty) 23,201,969.38
Total Amount Due [P]93,934,359.21

Thereafter, respondent filed its Protest Letter on November 4, 2004, which was subsequently denied by
petitioner in a Final Decision, on Disputed Assessment dated April 15, 2005 for lack of factual and legal
bases. Apparently, respondent received the aforesaid Final Decision on Disputed Assessment only on
June 23, 2005. On July 15, 2005, respondent filed a Petition for Review before [the CTA].
On April 21, 2009, the former Second Division of the [CTA] rendered a Decision in favor of respondent,
thus, granting the Petition for Review and held, among others, that respondent sufficiently established
that it is a cooperative company and therefore, it is exempt from the DST on the insurance policies it
grants to its members.
Consequently, on May 13, 2009, petitioner filed a Motion for Reconsideration.
On January 11, 2010, petitioner received a Resolution dated January 4, 2010 of the former Second
Division of [the CTA] denying [its] Motion for Reconsideration for lack of merit. It held, among others,
that the Supreme Court in Republic of the Philippines vs. Sunlife Assurance Company of Canada
already laid down the rule that registration with the Cooperative Development Authority is not essential
before respondent may avail of the exemptions granted under Section 199 of the 1997 NIRC, as
amended.
Undaunted, petitioner filed a Petition for Review before the [CTA] en banc on January 26, 2010
On March 14, 2011, the CTA en banc denied the petition and rendered the assailed decision,
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit. The assailed
Decision dated April 21, 2009 and Resolution dated January 4, 2010 are AFFIRMED.
It is the petitioner's contention that since the respondent is not registered with the Cooperative
Development Authority (CDA), it should not be considered as a cooperative company that is entitled to
the exemption provided under Section 199(a) of the National Internal Revenue Code (NIRC) of 1997.[7]
Thus, the instant petition.
Issue
WHETHER OR NOT THE CTA EN BANC ERRED IN RULING THAT RESPONDENT IS A
COOPERATIVE AND [IS] THUS[,] EXEMPT FROM DOCUMENTARY STAMP TAX.

Ruling of the Court

No. CTA en Banc is correct
Under NIRC of 1997 defined a cooperative company or association as "conducted by the members
thereof with the money collected from among themselves and solely for their own protection and not for
profit. Consequently, as long as these requisites are satisfied, a company or association is deemed a
cooperative insofar as taxation is concerned. In this case, the respondent has sufficiently established
that it conforms with the elements of a cooperative as defined in the NIRC of 1997 in that it is managed
by members, operated with money collected from the members and has for its main purpose the mutual
protection of members for profit
the NIRC of 1997 does not require registration with the CDA. No tax provision requires a mutual life
insurance company to register with that agency in order to enjoy exemption from both percentage and
DST. Although a provision of Section 8 of the Revenue Memorandum Circular (RMC) No. 48-91 requires
the submission of the Certificate of Registration with the CDA before the issuance of a tax exemption
certificate, that provision cannot prevail over the clear absence of an equivalent requirement under the
Tax Code
The respondent correctly pointed out that in other provisions of the NIRC, registration with the CDA is
expressly required in order to avail of certain tax exemptions or preferential tax treatment , a
requirement which is noticeably absent in Section 199 of the NIRC.
This absence of the registration requirement under Section 199 clearly manifests the intention of the
Legislative branch of the government to do away with registration before the CDA for a cooperative to
benefit from the DST exemption under this particular section.
The distinguishing feature of a cooperative enterprise is the mutuality of cooperation among its member-
policyholders united for that purpose. So long as respondent meets this essential feature, it does not
even have to use and carry the name of a cooperative to operate its mutual life insurance business.
Gratia argumenti that registration is mandatory, it cannot deprive respondent of its tax exemption
privilege merely because it failed to register. The nature of its operations is clear; its purpose well-
defined. Exemption when granted cannot prevail over administrative convenience.
There being no cogent reason for the Court to deviate from its ruling in Sunlife, the Court holds that the
respondent, being a cooperative company not mandated by law to be registered with the CDA, cannot
be required under RMC No. 48-91, a mere circular, to be registered prior to availing of DST exemption.
G.R. No. 166018 June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES,
Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES,
Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:
1. HSBC performs custodial services on behalf of its investor-clients with respect to their passive
investments in the Philippines, particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the collection/payment agent.

2. HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price
therefor upon receipt of the securities.

3. Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively.

4. BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or advises
from abroad on the management of funds located in the Philippines which do not involve
transfer of funds from abroad are not subject to DST. A documentary stamp tax shall be
imposed on any bill of exchange or order for payment purporting to be drawn in a foreign
country but payable in the Philippines.

a. While the payor is residing outside the Philippines, he maintains a local and foreign
currency account in the Philippines from where he will draw the money intended to pay a
named recipient. The instruction or order to pay shall be made through an electronic
message. Consequently, there is no negotiable instrument to be made, signed or issued
by the payee.
b. Such electronic instructions by the non-resident payor cannot be considered as a transaction per
se considering that the same do not involve any transfer of funds from abroad or from the place
where the instruction originates. Insofar as the local bank is concerned, such instruction could be
considered only as a memorandum and shall be entered as such in its books of accounts. The
actual debiting of the payor’s account, local or foreign currency account in the Philippines, is the
actual transaction that should be properly entered as such. Under the Documentary Stamp Tax
Law, the mere withdrawal of money from a bank deposit, local or foreign currency account, is not
subject to DST, unless the account so maintained is a current or checking account, in which
case, the issuance of the check or bank drafts is subject to the documentary stamp tax.
c. Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s
account and thereafter upon instruction of the non-resident depositor-payor, through an
electronic message, the depository bank to debit his account and pay a named recipient shall not
be subject to documentary stamp tax. It should be noted that the receipt of funds from another
local bank in the Philippines by a local depository bank for the account of its client residing
abroad is part of its regular banking transaction which is not subject to documentary stamp tax.

5. With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the refund of
allegedly representing erroneously paid DST to the BIR
6. As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the
matter to the CTA, which favored HSBC and ordered payment of refund or issuance of tax
credit.
7. However, the CA reversed decisions of the CTA and ruled that the electronic messages of
HSBC’s investor-clients are subject to DST.
a. DST is levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific
instruments, independently of the legal status of the transactions giving rise thereto.

ISSUE: Whether or not the electronic messages are considered transactions pertaining to negotiable
instruments that warrant the payment of DST.

HELD: NO.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but payable in
the Philippines" and that "a bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum certain in money to order or to bearer."
The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the Philippines and
pay a certain named recipient also residing in the Philippines is not the transaction contemplated under
Section 181 of the Tax Code as such instructions are "parallel to an automatic bank transfer of local
funds from a savings account to a checking account maintained by a depositor in one bank." The Court
favorably adopts the finding of the CTA that the electronic messages "cannot be considered negotiable
instruments as they lack the feature of negotiability, which, is the ability to be transferred" and that the
said electronic messages are "mere memoranda" of the transaction consisting of the "actual debiting of
the [investor-client-payor’s] local or foreign currency account in the Philippines" and "entered as such in
the books of account of the local bank," HSBC.

The instructions given through electronic messages that are subjected to DST in these cases are not
negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the
Negotiable Instruments Law. The electronic messages are not signed by the investor-clients as
supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain
in money as the payment is supposed to come from a specific fund or account of the investor-clients;
and, they are not payable to order or bearer but to a specifically designated third party. Thus, the
electronic messages are not bills of exchange. As there was no bill of exchange or order for the
payment drawn abroad and made payable here in the Philippines, there could have been no acceptance
or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.

In these cases, the electronic messages received by HSBC from its investor-clients abroad instructing
the former to debit the latter's local and foreign currency accounts and to pay the purchase price of
shares of stock or investment in securities do not properly qualify as either presentment for acceptance
or presentment for payment. There being neither presentment for acceptance nor presentment for
payment, then there was no acceptance or payment that could have been subjected to DST to speak of.

WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA Case No. 6009 and
dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax Appeals are REINSTATED. SO ORDERED.
G.R. No. 197561 April 7, 2014

COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner,

vs.
CITY OF MANILA; LIBERTY M. TOLEDO, in her capacity as Officer-in-Charge (OIC), Treasurer of
the City of Manila; JOSEPH SANTIAGO, in his capacity as OIC, Chief License Division of the City
of Manila; REYNALDO MONTALBO, in his capacity as City Auditor of the City of Manila,
Respondents.

FACTS: Respondent paid the local business tax only as a manufacturers as it was expressly exempted
from the business tax under a different section and which applied to businesses subject to excise, VAT
or percentage tax under the Tax Code. The City of Manila subsequently amended the ordinance by
deleting the provision exempting businesses under the latter section if they have already paid taxes
under a different section in the ordinance. This amending ordinance was later declared by the Supreme
Court null and void. Respondent then filed a protest on the ground of double taxation. RTC decided in
favor of Respondent and the decision was received by Petitioner on April 20, 2007. On May 4, 2007,
Petitioner filed with the CTA a Motion for Extension of Time to File Petition for Review asking for a 15-
day extension or until May 20, 2007 within which to file its Petition. A second Motion for Extension was
filed on May 18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner finally filed
the Petition on May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for
failure to timely file the Petition.

ISSUES: Does the enforcement of the latter section of the tax ordinance constitute double taxation?

HELD: YES. There is indeed double taxation if respondent is subjected to the taxes under both Sections
14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject matter — the
privilege of doing business in the City of Manila; (2) for the same purpose — to make persons
conducting business within the City of Manila contribute to city revenues; (3) by the same taxing
authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial
jurisdiction of the City of Manila; (5) for the same taxing periods — per calendar year; and (6) of the
same kind or character — a local business tax imposed on gross sales or receipts of the business.
Commissioner Of Internal Revenue vs. Team [Philippines] Operations Corporation [Formerly
Mirant (Phils) Operations Corporation]
G.R. No. 179260 April 2, 2014

FACTS: This is a Petition for Review on Certiorari by petitioner Commissioner of Internal Revenue (CIR)
seeking to reverse and set aside the Decision and Resolution of the Court of Tax Appeals (CTA) En
Banc in which affirmed in toto the Decision and Resolution of the First Division of the CTA (CTA in
Division) granting Team (Philippines) Operations Corporation’s (Team) claim for refund in the amount of
P69,562,412.00 representing unutilized tax credits for taxable period ending 31 December 2001.

Respondent Team on 15April2012 filed its 2001 income tax return with the Bureau of Internal Revenue
(BIR), reporting an overpayment in the amount of Php69,562,412.00 arising from unutilized credit taxes
withheld. Team marked the appropriate boxes manifesting its intent to have the said overpayment
refunded. Team also filed on 27March2003 with BIR a letter requesting for the refund or issuance of a
tax credit certificate in connection herewith.

CIR on its petition relies solely on the ground that CTA gravely erred on a question of law in affirming the
CTA in Division’s ruling despite not being supported by the evidence on record.

ISSUES: Is the respondent entitled to a refund?

HELD: YES, the respondent is entitled to a refund.

There are three essential conditions for the grant of a claim for refund of creditable withholding income
tax, to wit: (1) the claim is filed with the Commissioner of Internal Revenue within the two-year period
from the date of payment of the tax; (2) it is shown on the return of the recipient that the income
payment received was declared as part of the gross income; and (3) the fact of withholding is
established by a copy of a statement duly issued by the payor to the payee showing the amount paid
and the amount of the tax withheld therefrom. The first requisite is provided under Sections 204(C) and
229 of the National Internal Revenue Code (NIRC) of 1997. The second and third requisites are
anchored on Section 2.58.3(B) of Revenue Regulation No. 2-98.

In addition, strict observance to the irrevocability rule under Section 76 of NIRC of 1997 is required. The
rule provides: “Once the option to carry-over and apply the excess quarterly income tax against income
tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or issuance of a tax
credit certificate shall be allowed therefor.”

In this case, it is found undisputed that Team complied with the above requisites. Counting from
15April2002, Team had until 14April2004 to file for a refund and the 27March2003 claim falls within said
prescriptive period. Team also was able to present various certificated of creditable tax withheld at
source for year 2001. Lastly, Team opted for a refund as evidenced by the marked boxes in its return.

CS GARMENT, INC., v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 182399, March 12, 2014

Facts: Petitioner [CS Garment] is a domestic corporation duly organized and existing under and by
virtue of the laws of the Philippines with principal office at Road A, Cavite Ecozone, Rosario, Cavite. On
the other hand, respondent is the duly appointed Commissioner of Internal Revenue of the Philippines
authorized under law to perform the duties of said office, including, inter alia, the power to assess
taxpayers for [alleged] deficiency internal revenue tax liabilities and to act upon administrative protests
or requests for reconsideration/reinvestigation of such assessments.

Petitioner [CS Garment] received from respondent [CIR] Letter of Authority, authorizing the examination
of petitioner’s books of accounts and other accounting records for all internal revenue taxes covering the
period January 1, 1998 to December 31, 1998. Thereafter received five (5) formal demand letters with
accompanying Assessment Notices from respondent to pay the alleged deficiency VAT, Income, DST
and withholding tax assessments for taxable year 1998 in the aggregate amount of P2,046,580.10; in
return, within the 30-day period prescribed under Section 228 of the Tax Code, as amended, petitioner
filed a formal written protest with the respondent assailing the above assessments and also additional
documents in support of its protest.

The CTA en banc affirmed the Decision and Resolution of the CTA Second Division. As regards the first
issue, the banc ruled that the CIR had duly apprised CS Garment of the factual and legal bases for
assessing the latter’s liability for deficiency income tax, as shown in the attached Schedule of
Discrepancies provided to petitioner; and in the subsequent reference of the CIR to Rule XX, Section 2
of the Rules and Regulations of R.A. 7916

CS Garment filed the present Petition for Review assailing the Decision of the CTA en banc. However,
on 26 September 2008, while the instant case was pending before this Court, petitioner filed a
Manifestation and Motion stating that it had availed itself of the government’s tax amnesty program
under the 2007 Tax Amnesty Law. It thus prays that we take note of its availment of the tax amnesty and
confirm that it is entitled to all the immunities and privileges under the law. It has submitted to this Court
the following documents, which have allegedly been filed with Equitable PCI Bank–Cavite EPZA Branch,
a supposed authorized agent-bank of the BIR: 1. Notice of Availment of Tax Amnesty under R.A. 9480,
2. Statement of Assets, Liabilities, and Net worth (SALN), 3. Tax Amnesty Return (BIR Form No. 2116),
4. Tax Amnesty Payment Form (Acceptance of Payment Form or BIR Form No. 0617), 5. Equitable PCI
Bank’s BIR Payment Form indicating that CS Garment deposited the amount of P250,000 to the
account of the Bureau of Treasury–BIR.

Issue: Whether or not CS Garment is already immune from paying the deficiency taxes stated in the
1998 tax assessments of the CIR, as modified by the CTA.

Held: Yes, Considering the completion of the aforementioned requirements, we find that petitioner has
successfully availed itself of the tax amnesty benefits granted under the Tax Amnesty Law. Therefore,
we no longer see any need to further discuss the issue of the deficiency tax assessments. CS Garment
is now deemed to have been absolved of its obligations and is already immune from the payment of
taxes – including the assessed deficiency in the payment of VAT, DST, and income tax as affirmed by
the CTA en banc – as well as of the additions thereto (e.g., interests and surcharges). Furthermore, the
tax amnesty benefits include immunity from "the appurtenant civil, criminal, or administrative penalties
under the NIRC of 1997, as amended, arising from the failure to pay any and all internal revenue taxes
for taxable year 2005 and prior years. “Tax amnesty refers to the articulation of the absolute waiver by a
sovereign of its right to collect taxes and power to impose penalties on persons or entities guilty of
violating a tax law. Tax amnesty aims to grant a general reprieve to tax evaders who wish to come clean
by giving them an opportunity to straighten out their records. In 2007, Congress enacted R.A. 9480,
which granted a tax amnesty covering" all national internal revenue taxes for the taxable year 2005 and
prior years, with or without assessments duly issued therefor, that have remained unpaid as of
December 31, 2005." These national internal revenue taxes include (a) income tax; (b) VAT; (c) estate
tax; (d) excise tax; (e) donor’s tax; (f) documentary stamp tax; (g) capital gains tax; and (h) other
percentage taxes.
Amnesty taxpayers may immediately enjoy the privileges and immunities under the 2007 Tax Amnesty
Law, as soon as they fulfill the suspensive conditions imposed therein
While tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority, it is also a well-settled doctrine that the rule-making power of
administrative agencies cannot be extended to amend or expand statutory requirements or to embrace
matters not originally encompassed by the law