2. G.R. No.
L-75697, June 18, 1987
TAXATION LAW REVIEW
CASE PRINCIPLES
GENERAL PRINCIPLES
1. G.R. No. 175356, December 3, 2013
MANILA MEMORIAL PARK, INC. AND LA FUNERARIA
PAZ-SUCAT, INC. vs. SECRETARY OF THE DEPARTMENT
OF SOCIAL WELFARE AND DEVELOPMENT and THE
SECRETARY OF THE DEPARTMENT OF FINANCE
Thus, even if the current law, through its tax deduction
scheme (which abandoned the tax credit scheme under the
previous law), does not provide for a peso for peso
reimbursement of the 20% discount given by private
establishments, no constitutional infirmity obtains
because, being a valid exercise of police power, payment of
just compensation is not warranted.
In the exercise of police power, a property right is
impaired by regulation, or the use of property is merely
prohibited, regulated or restricted to promote public
welfare. In such cases, there is no compensable taking,
hence, payment of just compensation is not required.
The 20% discount is intended to improve the welfare of
senior citizens who, at their age, are less likely to be
gainfully employed, more prone to illnesses and other
disabilities, and, thus, in need of subsidy in purchasing
basic commodities. It may not be amiss to mention also
that the discount serves to honor senior citizens who
presumably spent the productive years of their lives on
contributing to the development and progress of the
nation. This distinct cultural Filipino practice of honoring
the elderly is an integral part of this law. As to its nature
and effects, the 20% discount is a regulation affecting the
ability of private establishments to price their products
and services relative to a special class of individuals, senior
citizens, for which the Constitution affords preferential
concern. In turn, this affects the amount of profits or
income/gross sales that a private establishment can derive
from senior citizens. In other words, the subject regulation
affects the pricing, and, hence, the profitability of a private
establishment. However, it does not purport to
appropriate or burden specific properties, used in the
operation or conduct of the business of private
establishments, for the use or benefit of the public, or
senior citizens for that matter, but merely regulates the
pricing of goods and services relative to, and the amount of
profits or income/gross sales that such private
establishments may derive from, senior citizens.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
VALENTIN TIO doing business under the name and
style of OMI ENTERPRISES vs. VIDEOGRAM
REGULATORY BOARD, MINISTER OF FINANCE, METRO
MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA
Notwithstanding any provision of law to the contrary, the
province shall collect a tax of thirty percent (30%) of the
purchase price or rental rate, as the case may be, for every
sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual
program. Fifty percent (50%) of the proceeds of the tax
collected shall accrue to the province, and the other fifty
percent (50%) shall accrue to the municipality where the
tax is collected; PROVIDED, That in Metropolitan Manila,
the tax shall be shared equally by the City/Municipality
and the Metropolitan Manila Commission. x x x x” The
foregoing provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of
the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and
title. As a tool for regulation it is simply one of the
regulatory and control mechanisms scattered throughout
the DECREE. The express purpose of the DECREE to
include taxation of the video industry in order to regulate
and rationalize the heretofore uncontrolled distribution of
videograms is evident from Preambles 2 and 5, supra.
Those preambles explain the motives of the lawmaker in
presenting the measure. The title of the DECREE, which is
the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed
in its Preamble and reasonably covers all its provisions. It
is unnecessary to express all those objectives in the title or
that the latter be an index to the body of the DECREE.
The tax imposed by the DECREE is not only a regulatory
but also a revenue measure prompted by the realization
that earnings of videogram establishments of around P600
million per annum have not been subjected to tax, thereby
depriving the Government of an additional source of
revenue. It is an end-user tax, imposed on retailers for
every videogram they make available for public viewing, It
is similar to the 30% amusement tax imposed or borne by
the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of
the admission ticket, thus shifting the tax burden on the
buying or the viewing public. It is a tax that is imposed
uniformly on all videogram operators. The levy of the 30%
tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry,
particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was
Page 1
also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
3. G.R. No. L-7859, December 22, 1955
WALTER LUTZ, as Judicial Administrator of the
Intestate Estate of the deceased Antonio Jayme
Ledesma vs. J. ANTONIO ARANETA, as the Collector of
Internal Revenue
As the protection and promotion of the sugar industry is a
matter of public concern, the Legislature may determine
within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the
legislative discretion must be allowed full play, subject
only to the test of reasonableness; and it is not contended
that the means provided in section 6 of Commonwealth Act
No. 567 bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may
not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the
state’s police power.
4. G.R. No. L-23645, October 29, 1968
BENJAMIN P. GOMEZ vs. ENRICO PALOMAR, in his
capacity as Postmaster General, HON. BRIGIDO R.
VALENCIA, in his capacity as Secretary of Public Works
and Communications, and DOMINGO GOPEZ, in his
capacity as Acting Postmaster of San Fernando,
Pampanga
It is settled that the legislature has the inherent power to
select the subjects of taxation and to grant exemptions.
The classification of mail users is based on the ability to
pay, the enjoyment of a privilege and on administrative
convenience. Tax exemptions have never been thought of
as raising issues under the equal protection clause.
The imposition of a flat rate rather than a graduated tax
does not infringe the rule of uniformity and equality of
taxation. A tax need not be measured by the weight of the
mail or the extent of the service rendered. Considerations
of administrative convenience and cost afford an adequate
ground for classification.
The authority given to the Postmaster General to raise
funds through the mails must be liberally construed,
consistent with the principle that where the end is
required the appropriate means is given. Money raised
from the sales of the anti-TB stamps is not for the benefit
of the Philippine Tuberculosis Society. The Society is not
really the beneficiary but only the agency through which
the State acts in carrying out what is essentially a public
function. The money is treated as a special fund and as
such need not be appropriated by law.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
5. G.R. No. 166006, March 14, 2008
PLANTERS PRODUCTS, INC. vs. FERTIPHIL
CORPORATION
While the categories of what may constitute a public
purpose are continually expanding in light of the
expansion of government functions, the inherent
requirement that taxes can only be exacted for a public
purpose still stands. Public purpose is the heart of a tax
law. When a tax law is only a mask to exact funds from the
public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy
the requirement of “public purpose.” The purpose of a law
is evident from its text or inferable from other secondary
sources. Here, We agree with the RTC and that CA that the
levy imposed under LOI No. 1465 was not for a public
purpose.
Even if We consider LOI No. 1695 enacted under the police
power of the State, it would still be invalid for failing to
comply with the test of “lawful subjects” and “lawful
means.” Jurisprudence states the test as follows: (1) the
interest of the public generally, as distinguished from
those of particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive
upon individuals. For the same reasons as discussed, LOI
No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a
private corporation.
6. G.R. No. 168056, September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO vs. THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and
HONORABLE COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR.
The Supreme Court sustained the constitutionality of
Republic Act No. 9337 authorizing the President to
increase the VAT rate from 10% to 12% effective January
1, 2006 upon recommendation of the Secretary of Finance
on the existence of certain economic conditions. The
Supreme Court held that there is no undue delegation of
legislative power when the tax law gave the President a
stand-by authority to increase the VAT rate from 10% to
12% upon recommendation of the Secretary of Finance.
The law leaves the entire operation or non-operation of
the 12% rate upon factual matters outside of the control of
the Executive. No discretion would be exercised by the
President. The President is not given the power to fix the
VAT rate but rather to implement a pre-determined rate if
any of the economic conditions are present. In making his
recommendation to the President on the existence of
Page 2
either of the two conditions, the Secretary of Finance is not
acting as the alter ego of the President. He is not subject to
the power of control and direction of the President. He is
acting as the agent of the legislative department, to
determine and declare the event upon which its expressed
will is to take effect.
It is not the law, but the revenue bill, which is required by
the Constitution to “originate exclusively” from the House
of Representatives. It is important to emphasize this
because a bill originating in the House of Representatives
may undergo such extensive changes in the Senate that the
result may be a re-writing of the whole. This is consonant
with the Senate’s power, not only to concur with
amendments, but also to propose amendments.
7. G.R. No. 163072, April 2, 2009
MANILA INTERNATIONAL AIRPORT AUTHORITY vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG
PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF
PASAY, and CITY ASSESSOR OF PASAY
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA.
The determinative test whether MIAA is exempt from
local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality
under Section 133(o) of the Local Government Code.
A close scrutiny of the definition of “government-owned or
controlled corporation” in Section 2(13) will show that
MIAA would not fall under such definition. MIAA is a
government “instrumentality” that does not qualify as a
“government-owned or controlled corporation.” As
explained in the 2006 MIAA case: “A government-owned
or controlled corporation must be “organized as a stock or
non-stock corporation.” MIAA is not organized as a stock
or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA
has no stockholders or voting shares. x x x” Hence, MIAA is
not liable to pay real property tax for the NAIA Pasay
properties.
The airport lands and buildings of MIAA are properties of
public dominion intended for public use, and as such are
exempt from real property tax under Section 234(a) of the
Local Government Code. However, under the same
provision, if MIAA leases its real property to a taxable
person, the specific property leased becomes subject to
real property tax. In this case, only those portions of the
NAIA Pasay properties which are leased to taxable persons
like private parties are subject to real property tax by the
City of Pasay.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
8. G.R. No. 115455, August 25, 1994
ARTURO M. TOLENTINO vs. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE
What the Constitution simply means is that the initiative
for filing revenue bills must come from the House of
Representatives. The Constitution does not prohibit the
filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House of Representatives so
long as action by the Senate as a body is withheld pending
receipt of the bill from the House of Representatives. It is
not the law but the revenue bill which is required to
originate exclusively in the House of Representatives. A bill
originating in the House of Representatives may undergo
such extensive changes in the Senate that the result may be
a rewriting of the whole bill. To insist that a revenue
statute must be substantially the same as the bill approved
by the House of Representatives is to deny the power of
the Senate to propose amendments and to violate the
equality of the legislative power of the two Houses.
9. G.R. No. 115455, October 30, 1995
ARTURO M. TOLENTINO vs. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and
private bills must “originate exclusively in the House of
Representatives” but the Senate may propose or concur
with amendments.
We have held that, as a general proposition, the press is
not exempt from the taxing power of the State and that
what the constitutional guarantee of free press prohibits
are laws which single out the press or target a group
belonging to the press for special treatment or which in
any way discriminate against the press on the basis of the
content of the publication, and RA. No. 7716 is none of
these.
10. G.R. No. 163583, August 20, 2008
BRITISH AMERICAN TOBACCO vs. JOSE ISIDRO N.
CAMACHO, in his capacity as Secretary of the
Department of Finance and GUILLERMO L. PARAYNO,
JR., in his capacity as Commissioner of the Bureau of
Internal Revenue
As can be seen, the law creates a four-tiered system which
we may refer to as the low-priced, medium-priced, high-
priced, and premium-priced tax brackets. When a brand is
introduced in the market, the current net retail price is
determined through the aforequoted specified procedure.
The current net retail price is then used to classify under
which tax bracket the brand belongs in order to finally
Page 3
determine the corresponding excise tax rate on a per pack
basis. The assailed feature of this law pertains to the
mechanism where, after a brand is classified based on its
current net retail price, the classification is frozen and only
Congress can thereafter reclassify the same.
It is quite evident that the classification freeze provision
could hardly be considered arbitrary, or motivated by a
hostile or oppressive attitude to unduly favor older brands
over newer brands. Congress was unequivocal in its
unwillingness to delegate the power to periodically adjust
the excise tax rate and tax brackets as well as to
periodically resurvey and reclassify the cigarette brands
based on the increase in the consumer price index to the
DOF and the BIR. Congress doubted the constitutionality of
such delegation of power, and likewise, considered the
ethical implications thereof. Curiously, the classification
freeze provision was put in place of the periodic
adjustment and reclassification provision because of the
belief that the latter would foster an anti-competitive
atmosphere in the market.
The classification freeze provision was in the main the
result of Congress’s earnest efforts to improve the
efficiency and effectivity of the tax administration over sin
products while trying to balance the same with other state
interests.
The classification freeze provision uniformly applies to all
newly introduced brands in the market, whether imported
or locally manufactured. It does not purport to single out
imported cigarettes in order to unduly favor locally
produced ones.
11. G.R. No. 163583, April 15, 2009
BRITISH AMERICAN TOBACCO vs. JOSE ISIDRO N.
CAMACHO, in his capacity as Secretary of the
Department of Finance and GUILLERMO L. PARAYNO,
JR., in his capacity as Commissioner of the Bureau of
Internal Revenue
The classification freeze provision was inserted in the law
for reasons of practicality and expediency. That is, since a
new brand was not yet in existence at the time of the
passage of RA 8240, then Congress needed a uniform
mechanism to fix the tax bracket of a new brand. The
current net retail price, similar to what was used to classify
the brands under Annex "D" as of October 1, 1996, was
thus the logical and practical choice. Further, with the
amendments introduced by RA 9334, the freezing of the
tax classifications now expressly applies not just to Annex
"D" brands but to newer brands introduced after the
effectivity of RA 8240 on January 1, 1997 and any new
brand that will be introduced in the future.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
12. G.R. No. L-59431, July 25, 1984
ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting
Commissioner, Bureau of Internal Revenue; ROMULO
VILLA, Deputy Commissioner, Bureau of Internal
Revenue; TOMAS TOLEDO Deputy Commissioner,
Bureau of Internal Revenue; MANUEL ALBA, Minister
of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA,
Minister of Finance
A bare allegation that Batas 135, which sets different
income tax schedules for fixed income earners and
business or professional income earners, is arbitrary does
not suffice to invalidate said tax statute. There must be a
factual foundation of such unconstitutional taint. Absent
such a showing, the presumption of validity must prevail.
There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same
time reducing the applicable tax rate. Taxpayers may be
classified into different categories. To repeat, it is enough
that the classification must rest upon substantial
distinctions that make real differences. In the case of the
gross income taxation embodied in Batas Pambansa Blg.
135, the discernible basis of classification is the
susceptibility of the income to the application of
generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class.
As there is practically no overhead expense, these
taxpayers are not entitled to make deductions for income
tax purposes because they are in the same situation more
or less. On the other hand, in the case of professionals in
the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce
their income. It would not be just then to disregard the
disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on
the basis of gross income. There is ample justification then
for the Batasang Pambansa to adopt the gross system of
income taxation to compensation income, while continuing
the system of net income taxation as regards professional
and business income.
13. G.R. No. 144104, June 29, 2004
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY
and CONSTANTINO P. ROSAS, in his capacity as City
Assessor of Quezon City
To determine whether an enterprise is a charitable
institution/entity or not, the elements which should be
considered include the statute creating the enterprise, its
corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work
performed, the character of the services rendered, the
Page 4
indefiniteness of the beneficiaries, and the use and
occupation of the properties. In the legal sense, a charity
may be fully defined as a gift, to be applied consistently
with existing laws, for the benefit of an indefinite number
of persons, either by bringing their minds and hearts
under the influence of education or religion, by assisting
them to establish themselves in life or otherwise lessening
the burden of government. It may be applied to almost
anything that tend to promote the well-doing and well-
being of social man. It embraces the improvement and
promotion of the happiness of man. The word “charitable”
is not restricted to relief of the poor or sick. The test of a
charity and a charitable organization are in law the same.
The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law
as charitable or whether it is maintained for gain, profit, or
private advantage.
As a general principle, a charitable institution does not lose
its character as such and its exemption from taxes simply
because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives
subsidies from the government, so long as the money
received is devoted or used altogether to the charitable
object which it is intended to achieve; and no money
inures to the private benefit of the persons managing or
operating the institution.
The Lung Center of the Philippines does not lose its
character as a charitable institution simply because the gift
or donation is in the form of subsidies granted by the
government.
Those portions of Lung Center’s real property that are
leased to private entities are not exempt from real
property taxes as these are not actually, directly and
exclusively used for charitable purposes. What is meant by
actual, direct, and exclusive use of the property for
charitable institutions is the direct and immediate and
actual application of the property itself to the purposes for
which the charitable institution is organized. It is not the
use of the income from the real property that is
determinative of whether the property is used for tax-
exempt purposes.
14. G.R. No. 124043, October 14, 1998
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S
CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC.
In the instant case, the exemption claimed by the YMCA is
expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates
that the income of exempt organizations (such as the
YMCA) from any of their properties, real or personal, be
subject to the tax imposed by the same Code. Because the
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
last paragraph of said section unequivocally subjects to tax
the rent income of the YMCA from its real property, the
Court is duty-bound to abide strictly by its literal meaning
and to refrain from resorting to any convoluted attempt at
construction.
Private respondent also invokes Article XIV, Section 4, par.
3 of the Charter, claiming that the YMCA “is a non-stock,
non-profit educational institution whose revenues and
assets are used actually, directly and exclusively for
educational purposes so it is exempt from taxes on its
properties and income.” We reiterate that private
respondent is exempt from the payment of property tax,
but not income tax on the rentals from its property. The
bare allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its
exemption from the payment of income tax.
15. G.R. No. 127105, June 25, 1999
COMMISSIONER OF INTERNAL REVENUE vs. S.C.
JOHNSON AND SON, INC., and COURT OF APPEALS
International juridical double taxation is defined as the
imposition of comparable taxes in two or more states on
the same taxpayer in respect of the same subject matter
and for identical periods. The apparent rationale for doing
away with double taxation is to encourage the free flow of
goods and services and the movement of capital,
technology and persons between countries, conditions
deemed vital in creating robust and dynamic economies.
The RP-US Tax Treaty is just one of a number of bilateral
treaties which the Philippines has entered into for the
avoidance of double taxation. The purpose of these
international agreements is to reconcile the national fiscal
legislations of the contracting parties in order to help the
taxpayer avoid simultaneous taxation in two different
jurisdictions.
There are two methods of relief from double taxation—
the exemption method and the credit method. In the
exemption method, the income or capital which is taxable
in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into
account in determining the rate of tax applicable to the
taxpayer’s remaining income or capital. On the other hand,
in the credit method, although the income or capital
which is taxed in the state of source is still taxable in the
state of residence, the tax paid in the former is credited
against the tax levied in the latter. The basic difference
between the two methods is that in the exemption method,
the focus is on the income or capital itself, whereas the
credit method focuses upon the tax.
The purpose of a most favored nation clause is to grant to
the contracting party treatment not less favorable than
that which has been or may be granted to the “most
Page 5
favored” among other countries. The most favored nation
clause is intended to establish the principle of equality of
international treatment by providing that the citizens or
subjects of the contracting nations may enjoy the
privileges accorded by either party to those of the most
favored nation. The essence of the principle is to allow the
taxpayer in one state to avail of more liberal provisions
granted in another tax treaty to which the country of
residence of such taxpayer is also a party provided that the
subject matter of taxation, in this case royalty income, is
the same as that in the tax treaty under which the taxpayer
is liable.
16. G.R. No. 188550, August 19, 2013
DEUTSCHE BANK AG MANILA BRANCH vs.
COMMISSIONER OF INTERNAL REVENUE
Tax treaties are entered into to minimize, if not eliminate
the harshness of international juridical double taxation,
which is why they are also known as double tax treaty or
double tax agreements.
“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 Tax Treaty
does not provide for any pre-requisite for the availment of
the benefits under said agreement.
Bearing in mind the rationale of tax treaties, the period of
application for the availment of tax treaty relief as
required by RMO No. 1-2000 should not operate to divest
entitlement to the relief as it would constitute a violation
of the duty required by good faith in complying with a tax
treaty. The denial of the availment of tax relief for the
failure of a taxpayer to apply within the prescribed period
under the administrative issuance would impair the value
of the tax treaty. At most, the application for a tax treaty
relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief.
Section 229 of the NIRC provides the taxpayer a remedy
for tax recovery when there has been an erroneous
payment of tax. The outright denial of petitioner’s claim for
a refund, on the sole ground of failure to apply for a tax
treaty relief prior to the payment of the BPRT, would
defeat the purpose of Section 229.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
17. G.R. No. 181845, August 4, 2009
THE CITY OF MANILA, LIBERTY M. TOLEDO, in her
capacity as THE TREASURER OF MANILA and JOSEPH
SANTIAGO, in his capacity as the CHIEF OF THE
LICENSE DIVISION OF CITY OF MANILA vs. COCA-COLA
BOTTLERS PHILIPPINES, INC.
Double taxation means taxing the same property twice
when it should be taxed only once; that is, “taxing the same
person twice by the same jurisdiction for the same thing.”
It is obnoxious when the taxpayer is taxed twice, when it
should be but once. Otherwise described as “direct
duplicate taxation,” the two taxes must be imposed on the
same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the
same taxing period; and the taxes must be of the same kind
or character.
It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and
any other article of commerce, pursuant to Section 143(a)
of the LGC, said municipality or city may no longer subject
the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code. Section 143(h) may be
imposed only on businesses that are subject to excise tax,
VAT, or percentage tax under the NIRC, and that are “not
otherwise specified in preceding paragraphs.” In the same
way, businesses such as respondent’s, already subject to a
local business tax under Section 14 of Tax Ordinance No.
7794 [which is based on Section 143(a) of the LGC], can no
longer be made liable for local business tax under Section
21 of the same Tax Ordinance [which is based on Section
143(h) of the LGC].
18. G.R. No. 147188, September 14, 2004
COMMISSIONER OF INTERNAL REVENUE vs. THE
ESTATE OF BENIGNO P. TODA, JR., Represented by
Special Co-administrators Lorna Kapunan and Mario
Luza Bautista
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the
taxpayer in good faith and at arm’s length. Tax evasion, on
the other hand, is a scheme used outside of those lawful
means and when availed of, it usually subjects the taxpayer
to further or additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors: (1)
the end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-
payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being
“evil,” in “bad faith,” “willful,” or “deliberate and not
Page 6
accidental”; and (3) a course of action or failure of action
which is unlawful.
19. G.R. No. L-67649, June 28, 1988
ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE
COURT and HO FERNANDEZ
Francia contends that his tax delinquency of P2,400.00 has
been extinguished by legal compensation. He claims that
the government owed him P4,116.00 when a portion of his
land was expropriated on October 15, 1977. Hence, his tax
obligation had been set-off by operation of law as of
October 15, 1977. There is no legal basis for the
contention. By legal compensation, obligations of persons,
who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil
Code). The circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit: “(1) that
each one of the obligors be bound principally and that he
be at the same time a principal creditor of the other; xxx
xxx xxx “(3) that the two debts be due. xxx xxx xxx.
We have consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an
amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit
against the government. In the case of Republic v.
Mambulao Lumber Co. (4 SCRA 622), this Court ruled that
Internal Revenue Taxes cannot be the subject of set-off or
compensation. We stated that: “A claim for taxes is not
such a debt, demand, contract or judgment as is allowed to
be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or
transaction sued on.
20. G.R. No. L-18994, June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal
Revenue vs. HON. LORENZO C. GARLITOS, in his
capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the
Intestate Estate of the late Walter Scott Price
The ordinary procedure by which to settle claims or
indebtedness against the estate of a deceased person, as an
inheritance tax, is for the claimant to present a claim
before the probate court so that said court may order the
administrator to pay the amount hereof.
The legal basis for such a procedure is the fact that in the
testate or intestate proceedings to settle the estate of a
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
deceased person, the properties belonging to the estate are
under the jurisdiction of the court and such jurisdiction
continues until said properties have been distributed
among the heirs entitled thereto. During the pendency of
the proceedings all the estate is in custodia legis and the
proper procedure is not to allow the sheriff. In case of a
court judgment, to seize the properties but to ask the court
for an order to require the administrator to pay the
amount due from the estate and required to be paid.
The fact that the court having jurisdiction of the estate had
found that the claim of the estate against the Government
has been appropriated for the purpose by a corresponding
law (Rep. Act No. 2700) shows that both the claim of the
Government for inheritance taxes and the claim of the
intestate for services rendered have already become
overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law,
in accordance with the provisions of Articles 1279 and
1290 of the Civil Code, and both debts are extinguished to
the concurrent amount.
21. G.R. No. 193007, July 19, 2011
RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE
According to the Supreme Court, the fees paid by the
public to tollway operators for use of tollways are not
taxes in any sense. Taxes are imposed for the purpose of
raising revenues to fund public expenditures. Toll fees, on
the other hand, are collected by private tollway operators
as reimbursement for costs and expenses incurred in
construction, maintenance and operation of tollways, as
well as to assure them a reasonable margin of income. In
addition, the Supreme Court also said that the VAT on
tollway operations cannot be deemed “a tax on tax” due to
the nature of VAT as an indirect tax. In indirect taxation, a
distinction is made between the liability for the tax and
burden of the tax. The seller who is liable for the VAT may
shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is
transferred is not the seller’s liability but merely the
burden of the VAT. Thus, the seller remains directly and
legally liable for payment of the VAT, but the buyer bears
its burden since the amount of VAT paid by the former is
added to the selling price. Once shifted, the VAT ceases to
be a tax and simply becomes part of the cost that the buyer
must pay in order to purchase the good, property or
service. Consequently, VAT on tollway operations is not
really a tax on tollway users, but on tollway operators.
Under Section 105 of the NIRC, VAT is imposed on any
person who, in the course of trade or business, sells or
renders services for a fee. In other words, the seller of
services, in this case the tollway operator, is the person
liable for VAT. The latter merely shifts the burden of VAT
Page 7
to the tollway user as part of the toll fees. For this reason,
VAT on tollway operations cannot be “a tax on tax” even if
toll fees were deemed as “user’s tax”. VAT is assessed
against tollway operator’s gross receipts and not
necessarily on toll fees. Although the tollway operator
may shift the VAT burden to the tollway user, it will not
make the latter directly liable for VAT. The shifted VAT
burden simply becomes part of toll fees that one has to pay
in order to use tollways.
22. G.R. No. 167919, February 14, 2007
PLARIDEL M. ABAYA, COMMODORE PLARIDEL C.
GARCIA (retired) and PMA ’59 FOUNDATION, INC., rep.
by its President, COMMODORE CARLOS L. AGUSTIN
(retired) vs. HON. SECRETARY HERMOGENES E.
EBDANE, JR., in his capacity as Secretary of the
DEPARTMENT OF PUBLIC WORKS and HIGHWAYS,
HON. SECRETARY EMILIA T. BONCODIN, in her capacity
as Secretary of the DEPARTMENT OF BUDGET and
MANAGEMENT, HON. SECRETARY CESAR V. PURISIMA,
in his capacity as Secretary of the DEPARTMENT OF
FINANCE, HON. TREASURER NORMA L. LASALA, in her
capacity as Treasurer of the Bureau of Treasury, and
CHINA ROAD and BRIDGE CORPORATION
The prevailing doctrine in taxpayer’s suits is to allow
taxpayers to question contracts entered into by the
national government or government- owned or controlled
corporations allegedly in contravention of law. A taxpayer
is allowed to sue where there is a claim that public funds
are illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is a
wastage of public funds through the enforcement of an
invalid or unconstitutional law. Significantly, a taxpayer
need not be a party to the contract to challenge its validity.
In the present case, the petitioners are suing as taxpayers.
They have sufficiently demonstrated that, notwithstanding
the fact that the CPI project is primarily financed from
loans obtained by the government from the JBIC,
nonetheless, taxpayers’ money would be or is being spent
on the project considering that the Philippine Government
is required to allocate a peso-counterpart therefor. The
public respondents themselves admit that appropriations
for these foreign-assisted projects in the GAA are
composed of the loan proceeds and the peso-counterpart.
The counterpart funds, the Solicitor General explains, refer
to the component of the project cost to be financed from
government-appropriated funds, as part of the
government’s commitment in the implementation of the
project. Hence, the petitioners correctly asserted their
standing since a part of the funds being utilized in the
implementation of the CPI project partakes of taxpayers’
money.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
Further, the serious legal questions raised by the
petitioners, e.g., whether RA 9184 applies to the CP I
project, in particular, and to foreign-funded government
projects, in general, and the fact that public interest is
indubitably involved considering the public expenditure of
millions of pesos, warrant the Court to adopt in the present
case its liberal policy on locus standi.
23. G.R. No. L-31685, July 31, 1975
RAMON A. GONZALES vs. IMELDA R. MARCOS, as
Chairman of the Cultural Center of the Philippines,
Father HORACIO DE LA COSTA, I. P. SOLIONGCO,
ERNESTO RUFINO, ANTONIO MADRIGAL, and ANDRES
SORIANO, as Members thereof
Taxpayer has no legal standing to question executive acts
that do not involve the use of public funds. The President
had the power under the former Constitution, to
administer a trust created by an agreement with a foreign
country. Creation of Cultural Center of the Philippines
promotes constitutional policy encouraging arts and
letters.
24. G.R. No. 141309, June 19, 2007
LIWAYWAY VINZONS-CHATO vs. FORTUNE TOBACCO
CORPORATION
The general rule is that a public officer is not liable for
damages which a person may suffer arising from the just
performance of his official duties and within the scope of
his assigned tasks. An officer who acts within his authority
to administer the affairs of the office which he/she heads is
not liable for damages that may have been caused to
another, as it would virtually be a charge against the
Republic, which is not amenable to judgment for monetary
claims without its consent. However, a public officer is by
law not immune from damages in his/her personal
capacity for acts done in bad faith which, being outside the
scope of his authority, are no longer protected by the
mantle of immunity for official actions.
A public officer who directly or indirectly violates the
constitutional rights of another, may be validly sued for
damages under Article 32 of the Civil Code even if his acts
were not so tainted with malice or bad faith. Thus, the rule
in this jurisdiction is that a public officer may be validly
sued in his/her private capacity for acts done in the
course of the performance of the functions of the
office, where said public officer:
(1) Acted with malice, bad faith, or negligence; or
(2) Where the public officer violated a constitutional
right of the plaintiff.
Page 8
 INCOME TAXATION
1. G.R. No. 78953, July 31, 1991
COMMISSIONER OF INTERNAL REVENUE vs. MELCHOR
J. JAVIER, JR. and THE COURT OF TAX APPEALS
We are persuaded considerably by the private
respondent’s contention that there is no fraud in the filing
of the return and agree fully with the Court of Tax Appeals’
interpretation of Javier’s notation on his income tax return
filed on March 15, 1978 thus: “Taxpayer was the recipient
of some money from abroad which he presumed to be a
gift but turned out to be an error and is now subject of
litigation;” that it was an “error or mistake of fact or law”
not constituting fraud, that such notation was practically
an invitation for investigation and that Javier had literally
“laid his cards on the table.”
The fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted to in
order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to the
fraud with intent to evade the tax contemplated by law. It
must amount to intentional wrong-doing with the sole
object of avoiding the tax. It necessarily follows that a
mere mistake cannot be considered as fraudulent intent,
and if both petitioner and respondent Commissioner of
Internal Revenue committed mistakes in making entries in
the returns and in the assessment, respectively, under the
inventory method of determining tax liability, it would be
unfair to treat the mistakes of the petitioner as tainted
with fraud and those of the respondent as made in good
faith.
In the case at bar, there was no actual and intentional
fraud through willful and deliberate misleading of the
government agency concerned, the BIR, headed by the
herein petitioner. The government was not induced to give
up some legal right and place itself at a disadvantage so as
to prevent its lawful agents from proper assessment of tax
liabilities because Javier did not conceal anything. Error or
mistake of law is not fraud. The petitioner’s zealousness to
collect taxes from the unearned windfall to Javier is highly
commendable. Unfortunately, the imposition of the fraud
penalty in this case is not justified by the extant facts.
2. G.R. No. L-68118, October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.
OBILLOS and REMEDIOS P. OBILLOS vs.
COMMISSIONER OF INTERNAL REVENUE and COURT
OF TAX APPEALS
Where the father sold his rights over two parcels of land to
his four children so they can build their residence, but the
latter after one (1) year sold them and paid the capital
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
gains, they should not be treated to have formed an
unregistered partnership and taxed corporate income tax
on the sale and dividend income tax on their shares of the
profits from the sale. Their original purpose was to divide
the lots for residential purposes. If later on they found it
not feasible to build their residences on the lots because of
the high cost of construction, then they had no choice but
to resell the same to dissolve the co-ownership. The
division of the profit was merely incidental to the
dissolution of the co-ownership which was in the nature of
things a temporary state. It had to be terminated sooner or
later.
Mere sharing of gross income from an isolated transaction
does not establish a partnership. Article 1769(3) of' the
Civil Code provides that ''the sharing of gross returns does
not of itself establish a partnership, whether or not the
persons sharing them have a j oint or common right or
interest in any property from which the returns are
derived". There must be an unmistakable intention to form
a partnership or joint venture.
3. G.R. No. 195909, September 26, 2012
COMMISSIONER OF INTERNAL REVENUE vs. ST. LUKE'S
MEDICAL CENTER, INC.
The Supreme Court ruled that St. Luke’s is subject to the
10% preferential tax rate. Section 27(B) of the 1997 Tax
Code imposes a 10% preferential tax rate on the income of
(1) proprietary non-profit educational institutions, and (2)
proprietary non-profit hospitals. The only qualifications
for hospitals are that they must be proprietary and non-
profit. “Proprietary” means private, following the
definition of a “proprietary educational institution” as “any
private school maintained and administered by private
individuals or groups” with a government permit. “Non-
profit” means no net income or asset accrues to or benefits
any member or specific person, with all the net income or
asset devoted to the institution’s purposes and all its
activities conducted not for profit.
According to the Supreme Court, in order to be exempt
from income tax, a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to
or inure to the benefit of any member, organizer,
officer, or any specific person.
Thus, both the organization and operations of the
charitable institution must be devoted exclusively for
charitable purposes.
To be a charitable institution, an organization must meet
the substantive test of charity under existing
Page 9
jurisprudence. Charity is essentially a gift to an indefinite
number of persons which lessens the burden of
government. In other words, charitable institutions
provide for free goods and services to the public which
would otherwise fall on the shoulders of government.
Thus, as a matter of efficiency, the government forgoes
taxes which should have been spent to address public
needs, because certain private entities already assume a
part of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes by
the government is compensated by its relief from doing
public works which would have been funded by
appropriations from the Treasury.
To be exempt from income taxes, Section 30(E) of the 1997
Tax Code requires that a charitable institution must be
“organized and operated exclusively” for charitable
purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the 1997 Tax Code requires that the
institution be “operated exclusively” for social welfare. In
short, the last paragraph of Section 30 provides that if a tax
exempt charitable institution conducts “any” activity for
profit, such activity is not tax-exempt even as its not-for-
profit activities remain tax-exempt. Thus, even if the
charitable institution must be “organized and operated
exclusively” for charitable purposes, it is nevertheless
allowed to engage in “activities conducted for profit”
without losing its tax exempt status for its not-for-profit
activities. The only consequence is that the “income of
whatever kind and character” of a charitable institution
“from any of its activities conducted for profit, regardless
of the disposition made of such income, shall be subject to
tax.”
The Supreme Court held that St. Luke’s is a corporation
that is not “operated exclusively” for charitable or social
welfare purposes insofar as its revenues from paying
patients are concerned. This ruling is based not only on a
strict interpretation of a provision granting tax exemption,
but also on the clear and plain text of Section 30(E) and
(G). Section 30(E) and (G) of the 1997 Tax Code requires
that an institution be “operated exclusively” for charitable
or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does
not lose its tax exemption if it earns income from its for-
profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate but
now at the preferential 10% rate pursuant to Section
27(B). St. Luke’s fails to meet the requirements under
Section 30(E) and (G) of the 1997 Tax Code to be
completely tax-exempt from all its income. However, it
remains a proprietary non-profit hospital under Section
27(B) of the 1997 Tax Code as long as it does not
distribute any of its profits to its members and such profits
are reinvested pursuant to its corporate purposes. St.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
Luke’s, as a proprietary non-profit hospital, is entitled to
the preferential tax rate of 10% on its net income from its
for-profit activities.
4. G.R. No. 175410, November 12, 2014
SMI-ED PHILIPPINES TECHNOLOGY, INC. vs.
COMMISSIONER OF INTERNAL REVENUE
Petitioner is not entitled to benefits given to PEZA-
registered enterprises, including the 5% preferential tax
rate under Republic Act No. 7916 or the Special Economic
Zone Act of 1995. This is because it never began its
operation. Essentially, the purpose of Republic Act No.
7916 is to promote development and encourage
investments and business activities that will generate
employment. Giving fiscal incentives to businesses is one
of the means devised to achieve this purpose. It comes
with the expectation that persons who will avail these
incentives will contribute to the purpose’s achievement.
Hence, to avail the fiscal incentives under Republic Act No.
7916, the law did not say that mere PEZA registration is
sufficient.
For petitioner’s properties to be subjected to capital gains
tax, the properties must form part of petitioner’s capital
assets.
Thus, “capital assets” refers to taxpayer’s property that
is NOT any of the following:
1. Stock in trade;
2. Property that should be included in the taxpayer’s
inventory at the close of the taxable year;
3. Property held for sale in the ordinary course of
the taxpayer’s business;
4. Depreciable property used in the trade or
business; and
5. Real property used in the trade or business.
The properties involved in this case include petitioner’s
buildings, equipment, and machineries. They are not
among the exclusions enumerated in Section 39(A)(1) of
the National Internal Revenue Code of 1997. None of the
properties were used in petitioner’s trade or ordinary
course of business because petitioner never commenced
operations. They were not part of the inventory. None of
them were stocks in trade. Based on the definition of
capital assets under Section 39 of the National Internal
Revenue Code of 1997, they are capital assets.
For corporations, the National Internal Revenue Code of
1997 treats the sale of land and buildings, and the sale of
machineries and equipment, differently. Domestic
corporations are imposed a 6% capital gains tax only on
the presumed gain realized from the sale of lands and/or
buildings. The National Internal Revenue Code of 1997
Page 10
does not impose the 6% capital gains tax on the gains
realized from the sale of machineries and equipment.
5. G.R. No. 198756, January 13, 2015
BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING
CORPORATION, METROPOLITAN BANK & TRUST
COMPANY, PHILIPPINE BANK OF COMMUNICATIONS,
PHILIPPINE NATIONAL BANK, PHILIPPINE VETERANS
BANK AND PLANTERS DEVELOPMENT BANK, RIZAL
COMMERCIAL BANKING CORPORATION AND RCBC
CAPITAL CORPORATION vs. REPUBLIC OF THE
PHILIPPINES, THE COMMISSIONER OF INTERNAL
REVENUE, BUREAU OF INTERNAL REVENUE,
SECRETARY OF FINANCE, DEPARTMENT OF FINANCE,
THE NATIONAL TREASURER AND BUREAU OF
TREASURY
Under the 1997 National Internal Revenue Code, Congress
specifically defined “public” to mean “twenty (20) or more
individual or corporate lenders at any one time.” Hence,
the number of lenders is determinative of whether a debt
instrument should be considered a deposit substitute and
consequently subject to the 20% final withholding tax.
20-lender rule:
Petitioners contend that “there [is] only one (1) lender (i.e.
RCBC) to whom the BTr issued the Government Bonds.”
On the other hand, respondents theorize that the word
“any” “indicates that the period contemplated is the entire
term of the bond and not merely the point of origination or
issuance[,]” such that if the debt instruments “were
subsequently sold in secondary markets and so on, in such
a way that twenty (20) or more buyers eventually own the
instruments, then it becomes indubitable that funds would
be obtained from the “public” as defined in Section 22(Y)
of the NIRC.” Indeed, in the context of the financial market,
the words “at any one time” create an ambiguity.
Meaning of “at any one time”:
Thus, from the point of view of the financial market, the
phrase “at any one time” for purposes of determining the
“20 or more lenders” would mean every transaction
executed in the primary or secondary market in
connection with the purchase or sale of securities.
When, through any of the foregoing transactions, funds are
simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public
borrowing and the bonds at that point in time are deemed
deposit substitutes. Consequently, the seller is required to
withhold the 20% final withholding tax on the imputed
interest income from the bonds.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
For debt instruments that are not deposit substitutes,
regular income tax applies:
It must be emphasized, however, that debt instruments
that do not qualify as deposit substitutes under the 1997
National Internal Revenue Code are subject to the regular
income tax.
Tax treatment of income derived from the PEACe
Bonds:
It may seem that there was only one lender — RCBC on
behalf of CODE-NGO — to whom the PEACe Bonds were
issued at the time of origination. However, a reading of the
underwriting agreement and RCBC term sheet reveals that
the settlement dates for the sale and distribution by RCBC
Capital (as underwriter for CODE-NGO) of the PEACe
Bonds to various undisclosed investors at a purchase price
of approximately P11.996 would fall on the same day,
October 18, 2001, when the PEACe Bonds were supposedly
issued to CODE-NGO/RCBC. In reality, therefore, the entire
P10.2 billion borrowing received by the Bureau of
Treasury in exchange for the P35 billion worth of PEACe
Bonds was sourced directly from the undisclosed number
of investors to whom RCBC Capital/CODE-NGO distributed
the PEACe Bonds — all at the time of origination or
issuance. At this point, however, we do not know as to
how many investors the PEACe Bonds were sold to by
RCBC Capital.
Should there have been a simultaneous sale to 20 or more
lenders/investors, the PEACe Bonds are deemed deposit
substitutes within the meaning of Section 22(Y) of the
1997 National Internal Revenue Code and RCBC
Capital/CODE-NGO would have been obliged to pay the
20% final withholding tax on the interest or discount from
the PEACe Bonds. Further, the obligation to withhold the
20% final tax on the corresponding interest from the
PEACe Bonds would likewise be required of any
lender/investor had the latter turned around and sold said
PEACe Bonds, whether in whole or part, simultaneously to
20 or more lenders or investors.
We note, however, that under Section 24 of the 1997
National Internal Revenue Code, interest income received
by individuals from long-term deposits or investments
with a holding period of not less than five (5) years is
exempt from the final tax.
Thus, should the PEACe Bonds be found to be within the
coverage of deposit substitutes, the proper procedure was
for the Bureau of Treasury to pay the face value of the
PEACe Bonds to the bondholders and for the Bureau of
Internal Revenue to collect the unpaid final withholding
tax directly from RCBC Capital/CODE-NGO, or any lender
or investor if such be the case, as the withholding agents.
Page 11
6. G.R. No. 172231, February 12, 2007
COMMISSIONER OF INTERNAL REVENUE vs. ISABELA
CULTURAL CORPORATION
The requisites for the deductibility of ordinary and
necessary trade, business, or professional expenses,
like expenses paid for legal and auditing services, are:
(a) The expense must be ordinary and necessary;
(b) It must have been paid or incurred during the
taxable year;
(c) It must have been paid or incurred in carrying on
the trade or business of the taxpayer; and
(d) It must be supported by receipts, records or other
pertinent papers.
The requisite that it must have been paid or incurred
during the taxable year is further qualified by Section 45
of the National Internal Revenue Code (NIRC) which states
that: "[t]he deduction provided for in this Title shall be
taken for the taxable year in which ‘paid or accrued’ or
‘paid or incurred’, dependent upon the method of
accounting upon the basis of which the net income is
computed.
Under the accrual method of accounting, expenses not
being claimed as deductions by a taxpayer in the current
year when they are incurred cannot be claimed as
deduction from income for the succeeding year. Thus, a
taxpayer who is authorized to deduct certain expenses and
other allowable deductions for the current year but failed
to do so cannot deduct the same for the next year.
Amounts of income accrue where the right to receive them
become fixed, where there is created an enforceable
liability. Similarly, liabilities are accrued when fixed and
determinable in amount, without regard to indeterminacy
merely of time of payment.
For a taxpayer using the accrual method, the
determinative question is: When do the facts present
themselves in such a manner that the taxpayer must
recognize income or expense?
The accrual of income and expense is permitted when the
all-events test has been met. This test requires:
(1) Fixing of a right to income or liability to pay; and
(2) The availability of the reasonable accurate
determination of such income or liability.
The all-events test requires the right to income or liability
be fixed, and the amount of such income or liability be
determined with reasonable accuracy. However, the test
does not demand that the amount of income or liability be
known absolutely, only that a taxpayer has at his disposal
the information necessary to compute the amount with
reasonable accuracy. The all-events test is satisfied where
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
computation remains uncertain, if its basis is
unchangeable; the test is satisfied where a computation
may be unknown, but is not as much as unknowable,
within the taxable year. The amount of liability does not
have to be determined exactly; it must be determined with
"reasonable accuracy." Accordingly, the term "reasonable
accuracy" implies something less than an exact or
completely accurate amount.
The propriety of an accrual must be judged by the facts
that a taxpayer knew, or could reasonably be expected to
have known, at the closing of its books for the taxable year.
7. G.R. No. 163653, July 19, 2011
COMMISSIONER OF INTERNAL REVENUE vs. FILINVEST
DEVELOPMENT CORPORATION
The CIR's powers of distribution, apportionment or
allocation of gross income and deductions under Section
43 of the 1993 NIRC and Section 179 of Revenue
Regulation No. 2 does not include the power to impute
"theoretical interests" to the controlled taxpayer's
transactions.
While it has been held that the phrase "from whatever
source derived" indicates a legislative policy to include all
income not expressly exempted within the class of taxable
income under our laws, the term "income" has been
variously interpreted to mean "cash received or its
equivalent", "the amount of money coming to a person
within a specific time" or "something distinct from
principal or capital." Otherwise stated, there must be proof
of the actual or, at the very least, probable receipt or
realization by the controlled taxpayer of the item of gross
income sought to be distributed, apportioned or allocated
by the CIR.
The term 'control' shall mean ownership of stocks in a
corporation by possessing at least 51% of the total voting
power of all classes of stocks entitled to vote. Control is
determined by the amount of stocks received, i.e., total
subscribed, whether for property or for services by the
transferor or transferors. In determining the 51% stock
ownership, only those persons who transferred property
for stocks in the same transaction may be counted up to
the maximum of five.
In cases where no formal agreements or promissory notes
have been executed to cover credit facilities, the
documentary stamp tax shall be based on the amount of
drawings or availment of the facilities, which may be
evidenced by credit/debit memo, advice or drawings by
any form of check or withdrawal slip, under Section 180 of
the Tax Code.
Page 12
We find that the instructional letters as well as the
journal and cash vouchers evidencing the advances FDC
extended to its affiliates in 1996 and 1997 qualified as loan
agreements upon which documentary stamp taxes may be
imposed.
On the matter of whether or not the inter-office memo
covering the advances granted by an affiliate company
is subject to documentary stamp tax, it is informed that
nothing in Regulations No. 26 (Documentary Stamp Tax
Regulations) and Revenue Regulations No. 9-94 states that
the same is subject to documentary stamp tax. Such being
the case, said inter-office memo evidencing the lendings or
borrowings which is neither a form of promissory note nor
a certificate of indebtedness issued by the corporation-
affiliate or a certificate of obligation, which are, more or
less, categorized as 'securities', is not subject to
documentary stamp tax imposed under Section 180, 174
and 175 of the Tax Code of 1997, respectively. Rather, the
inter-office memo is being prepared for accounting
purposes only in order to avoid the co-mingling of funds of
the corporate affiliates.
8. G.R. No. 180356, February 16, 2010
SOUTH AFRICAN AIRWAYS vs. COMMISSIONER OF
INTERNAL REVENUE
In the instant case, the general rule is that resident foreign
corporations shall be liable for a 32% income tax on their
income from within the Philippines, except for resident
foreign corporations that are international carriers that
derive income "from carriage of persons, excess baggage,
cargo and mail originating from the Philippines" which
shall be taxed at 2 1/2% of their Gross Philippine Billings.
Petitioner, being an international carrier with no flights
originating from the Philippines, does not fall under the
exception. As such, petitioner must fall under the general
rule. This principle is embodied in the Latin maxim,
exception firmat regulam in casibus non exceptis, which
means, a thing not being excepted must be regarded as
coming within the purview of the general rule.
To reiterate, the correct interpretation of the above
provisions is that, if an international air carrier maintains
flights to and from the Philippines, it shall be taxed at the
rate of 2 1/2% of its Gross Philippine Billings, while
international air carriers that do not have flights to and
from the Philippines but nonetheless earn income from
other activities in the country will be taxed at the rate of
32% of such income.
If Sec. 28(A)(3)(a) is applicable to a taxpayer, then the
general rule under Sec. 28(A)(1) would not apply. If,
however, Sec. 28(A)(3)(a) does not apply, a resident
foreign corporation, whether an international air carrier or
not, would be liable for the tax under Sec. 28(A)(1).
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
9. G.R. No. L-65773-74, April 30, 1987
COMMISSIONER OF INTERNAL REVENUE vs. BRITISH
OVERSEAS AIRWAYS CORPORATION and COURT OF
TAX APPEALS
In order that a foreign corporation may be regarded as
doing business within a State, there must be continuity of
conduct and intention to establish a continuous business,
such as the appointment of a local agent, and not one of a
temporary character.
Those activities were in exercise of the functions which are
normally incident to, and are in progressive pursuit of, the
purpose and object of its organization as an international
air carrier. In fact, the regular sale of tickets, its main
activity, is the very lifeblood of the airline business, the
generation of sales being the paramount objective. There
should be no doubt then that BOAC was "engaged in"
business in the Philippines through a local agent during
the period covered by the assessments. Accordingly, it is a
resident foreign corporation subject to tax upon its total
net income received in the preceding taxable year from all
sources within the Philippines.
For the source of income to be considered as coming from
the Philippines, it is sufficient that the income is derived
from activity within the Philippines. In BOAC's case, the
sale of tickets in the Philippines is the activity that
produces the income. The tickets exchanged hands here
and payments for fares were also made here in Philippine
currency. The site of the source of payments is the
Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should
share the burden of supporting the government.
A transportation ticket is not a mere piece of paper. When
issued by a common carrier, it constitutes the contract
between the ticket-holder and the carrier. It gives rise to
the obligation of the purchaser of the ticket to pay the fare
and the corresponding obligation of the carrier to
transport the passenger upon the terms and conditions set
forth thereon. The ordinary ticket issued to members of
the traveling public in general embraces within its terms
all the elements to constitute it a valid contract, binding
upon the parties entering into the relationship.
The absence of flight operations to and from the
Philippines is not determinative of the source of income or
the site of income taxation. Admittedly, BOAC was an off-
line international airline at the time pertinent to this case.
The test of taxability is the "source"; and the source of an
income is that activity ... which produced the income.
Unquestionably, the passage documentations in these
cases were sold in the Philippines and the revenue
Page 13
therefrom was derived from an activity regularly pursued
within the Philippines. And even if the BOAC tickets sold
covered the "transport of passengers and cargo to and
from foreign cities", it cannot alter the fact that income
from the sale of tickets was derived from the Philippines.
The word "source" conveys one essential idea, that of
origin, and the origin of the income herein is the
Philippines.
10. G.R. No. L-65773-74, April 30, 1987
COMMISSIONER OF INTERNAL REVENUE vs. BRITISH
OVERSEAS AIRWAYS CORPORATION and COURT OF
TAX APPEALS
Cooperatives are not required to withhold the 20% final
withholding tax (FWT) on the interest income paid on
savings and time deposits of their members because the
interest income paid by cooperatives does not fall under
the phrase “similar arrangements” under Section 24(B)(1)
of the National Internal Revenue Code of 1997. The 20%
FWT under Section 24(B)(1) and Section 27(D)(1) covers
only interest income from currency bank deposits and
deposit substitutes. Since cooperatives are not banks, they
are not required to impose the 20% FWT on interest paid
on the savings and time deposits of their members.
The legislative intent to give cooperatives preferential tax
treatment is apparent under Articles 61 and 62 of Republic
Act (R.A.) No. 6938 or the “Cooperative Code of the
Philippines”, and the said tax exemption provision has
been retained under Article 61 of the amended
cooperative code, which is R.A. 9520 or the “Philippine
Cooperative Code of 2008”.
Under Article 2 of RA 6938, as amended by RA 9520, it is a
declared policy of the State to foster the creation and
growth of cooperatives as a practical vehicle for promoting
self-reliance and harnessing people power towards the
attainment of economic development and social justice.
Thus, to encourage the formation of cooperatives and to
create an atmosphere conducive to their growth and
development, the State extends all forms of assistance to
them, one of which is providing cooperatives a preferential
tax treatment.
The legislative intent to give cooperatives a preferential
tax treatment is apparent in Articles 61 and 62 of RA 6938,
which read:
ART. 61. Tax Treatment of Cooperatives. — Duly
registered cooperatives under this Code which do
not transact any business with non-members or
the general public shall not be subject to any
government taxes and fees imposed under the
Internal Revenue Laws and other tax laws.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
Cooperatives not falling under this article shall be
governed by the succeeding section.
ART. 62. Tax and Other Exemptions. —
Cooperatives transacting business with both
members and nonmembers shall not be subject to
tax on their transactions to members.
Notwithstanding the provision of any law or
regulation to the contrary, such cooperatives
dealing with nonmembers shall enjoy the
following tax exemptions; x x x.
This exemption extends to members of cooperatives. It
must be emphasized that cooperatives exist for the benefit
of their members. In fact, the primary objective of every
cooperative is to provide goods and services to its
members to enable them to attain increased income,
savings, investments, and productivity. Therefore, limiting
the application of the tax exemption to cooperatives would
go against the very purpose of a credit cooperative.
Extending the exemption to members of cooperatives, on
the other hand, would be consistent with the intent of the
legislature. Thus, although the tax exemption only
mentions cooperatives, this should be construed to include
the members, pursuant to Article 126 of RA 6938, which
provides:
ART. 126. Interpretation and Construction. – In
case of doubt as to the meaning of any provision of
this Code or the regulations issued in pursuance
thereof, the same shall be resolved liberally in
favor of the cooperatives and their members.
11. G.R. No. 160756, March 9, 2010
CHAMBER OF REAL ESTATE AND BUILDERS'
ASSOCIATIONS, INC. vs. THE HON. EXECUTIVE
SECRETARY ALBERTO ROMULO, THE HON. ACTING
SECRETARY OF FINANCE JUANITA D. AMATONG, and
THE HON. COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR.
MCIT Is Not Violative of Due Process
The constitutional safeguard of due process is embodied in
the fiat "[no] person shall be deprived of life, liberty or
property without due process of law." In Sison, Jr. v.
Ancheta, et al., we held that the due process clause may
properly be invoked to invalidate, in appropriate cases, a
revenue measure when it amounts to a confiscation of
property. But in the same case, we also explained that we
will not strike down a revenue measure as
unconstitutional (for being violative of the due process
clause) on the mere allegation of arbitrariness by the
taxpayer. There must be a factual foundation to such an
unconstitutional taint. This merely adheres to the
authoritative doctrine that, where the due process clause
Page 14
is invoked, considering that it is not a fixed rule but rather
a broad standard, there is a need for proof of such
persuasive character.
Certainly, an income tax is arbitrary and confiscatory if it
taxes capital because capital is not income. In other words,
it is income, not capital, which is subject to income tax.
However, the MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived at
by deducting the capital spent by a corporation in the sale
of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being
taxed.
Furthermore, the MCIT is not an additional tax imposition.
It is imposed in lieu of the normal net income tax, and only
if the normal income tax is suspiciously low. The MCIT
merely approximates the amount of net income tax due
from a corporation, pegging the rate at a very much
reduced 2% and uses as the base the corporation’s gross
income.
Besides, there is no legal objection to a broader tax base or
taxable income by eliminating all deductible items and at
the same time reducing the applicable tax rate.
No Violation of Equal Protection
The equal protection clause under the Constitution
means that "no person or class of persons shall be
deprived of the same protection of laws which is enjoyed
by other persons or other classes in the same place and in
like circumstances." Stated differently, all persons
belonging to the same class shall be taxed alike. It follows
that the guaranty of the equal protection of the laws is not
violated by legislation based on a reasonable classification.
Classification, to be valid, must (1) rest on substantial
distinctions; (2) be germane to the purpose of the law; (3)
not be limited to existing conditions only and (4) apply
equally to all members of the same class.
The taxing power has the authority to make reasonable
classifications for purposes of taxation. Inequalities which
result from a singling out of one particular class for
taxation, or exemption, infringe no constitutional
limitation. The real estate industry is, by itself, a class and
can be validly treated differently from other business
enterprises.
 MCIT applies to domestic corporations and
resident foreign corporations.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
12. G.R. No. 179259, September 25, 2013
COMMISSIONER OF INTERNAL REVENUE vs.
PHILIPPINE AIRLINES, INC. (PAL)
Based on the foregoing, a domestic corporation must
pay whichever is the higher of:
(1) The income tax under Section 27(A) of the NIRC of
1997, as amended, computed by applying the tax
rate therein to the taxable income of the
corporation; or
(2) The MCIT under Section 27(E), also of the same
Code, equivalent to 2% of the gross income of the
corporation.
The Court would like to underscore that although this may
be the general rule in determining the income tax due from
a domestic corporation under the provisions of the NIRC of
1997, as amended, such rule can only be applied to
respondent only as to the extent allowed by the provisions
of its franchise.
During the lifetime of the franchise of respondent, its
taxation shall be strictly governed by two fundamental
rules, to wit:
(1) Respondent shall pay the Government either the
basic corporate income tax or franchise tax,
whichever is lower; and
(2) The tax paid by respondent, under either of these
alternatives, shall be in lieu of all other taxes,
duties, royalties, registration, license, and other
fees and charges, except only real property tax.
Parenthetically, the basic corporate income tax of
respondent shall be based on its annual net taxable
income, computed in accordance with the NIRC of 1997, as
amended. P.D. No. 1590 also explicitly authorizes
respondent, in the computation of its basic corporate
income tax, to:
(1) Depreciate its assets twice as fast the normal rate
of depreciation; and
(2) Carry over deduction from taxable income any net
loss incurred in any year up to five years following
the year of such loss.
The franchise tax, on the other hand, shall be 2% of the
gross revenues derived by respondent from all sources,
whether transport or nontransport operations. However,
with respect to international air-transport service, the
franchise tax shall only be imposed on the gross passenger,
mail, and freight revenues of respondent from its outgoing
flights.
By way of, reiteration, although it appears that respondent
is not completely exempt from all forms of taxes under P.D.
No. 1590 considering that Section 13 thereof requires it to
pay, either the lower amount of the basic corporate income
Page 15
tax or franchise tax (which are both direct taxes), at its
option, mere exercise of such option already relieves
respondent of liability for all other taxes and/or duties,
whether direct or indirect taxes.
13. G.R. No. 76573, September 14, 1989
MARUBENI CORPORATION (formerly Marubeni — Iida,
Co., Ltd.) vs. COMMISSIONER OF INTERNAL REVENUE
AND COURT OF TAX APPEALS
The general rule that a foreign corporation is the same
juridical entity as its branch office in the Philippines
cannot apply here. This rule is based on the premise that
the business of the foreign corporation is conducted
through its branch office, following the principal agent
relationship theory. It is understood that the branch
becomes its agent here. So that when the foreign
corporation transacts business in the Philippines
independently of its branch, the principal-agent
relationship is set aside. The transaction becomes one of
the foreign corporation, not of the branch. Consequently,
the taxpayer is the foreign corporation, not the branch or
the resident foreign corporation.
Corollarily, if the business transaction is conducted
through the branch office, the latter becomes the taxpayer,
and not the foreign corporation.
In other words, the alleged overpaid taxes were incurred
for the remittance of dividend income to the head office in
Japan which is a separate and distinct income taxpayer
from the branch in the Philippines. There can be no other
logical conclusion considering the undisputed fact that the
investment (totalling 283.260 shares including that of
nominee) was made for purposes peculiarly germane to
the conduct of the corporate affairs of Marubeni Japan, but
certainly not of the branch in the Philippines. It is thus
clear that petitioner, having made this independent
investment attributable only to the head office, cannot now
claim the increments as ordinary consequences of its trade
or business in the Philippines and avail itself of the lower
tax rate of 10%.
Petitioner, being a non-resident foreign corporation, as a
general rule, is taxed 35% of its gross income from all
sources within the Philippines. [Section 24 (b) (1)].
However, a discounted rate of 15% is given to petitioner
on dividends received from a domestic corporation
(AG&P) on the condition that its domicile state (Japan)
extends in favor of petitioner, a tax credit of not less than
20% of the dividends received. This 20% represents the
difference between the regular tax of 35% on non-resident
foreign corporations which petitioner would have
ordinarily paid, and the 15% special rate on dividends
received from a domestic corporation.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
14. G.R. No. 76573, March 7, 1990
MARUBENI CORPORATION (formerly Marubeni — Iida,
Co., Ltd.) vs. COMMISSIONER OF INTERNAL REVENUE
AND COURT OF TAX APPEALS
Section 24(b)(1) is explicit on the conditions for the
availment of the preferential fifteen percent (15%) tax
rate. Under said provision, petitioner must show that
Japan grants a tax credit to Marubeni, taxes deemed to
have been paid in the Philippines equivalent to at least
twenty percent (20%) against the tax due from Marubeni.
In the case at bar, petitioner similarly failed to comply with
the requisites set forth under Section 24(b)(1). Petitioner
reasons that it cannot furnish the Commissioner of
Internal Revenue with the confidential income tax return
of Marubeni Japan since such a requirement is beyond the
power of Philippine taxation laws. (Rollo, p. 238).
Such reasoning finds no merit. Section 24(b)(i) of the
National Internal Revenue Code of 1977 is clear and
explicit on the conditions for the availment of the
preferential fifteen percent (15%) tax rate. Normally the
Philippines imposes a higher thirty five percent (35%) tax
rate on corporations. But since the Philippines seeks to
lessen the impact of double taxation between countries, we
impose only the lower tax rate of fifteen percent (15%) on
dividends subject to the condition that the country in
which the non-resident foreign corporation is domiciled
allows a tax credit of twenty percent (20%). Such
prerequisite must be strictly complied with because the
fifteen percent (15%) tax rate is a concession in the nature
of a tax exemption vis-a-vis the normal rate of thirty five
(35%) on corporations.
we hereby modify the decision dated September 14, 1989
and rule that petitioner corporation is subject to the
twenty five percent (25%) tax rate on dividends pursuant
to Article 10(2) of the Philippine-Japan Tax Convention.
15. G.R. No. 156305, February 17, 2003
JULIANE BAIER-NICKEL vs. COMMISSIONER OF
INTERNAL REVENUE
The fact that recipient of commission income is President
and majority stockholder of the Philippine company does
not alter the source of income.
There are only two ways by which the President and
other members of the Board can be granted
compensation apart from reasonable per diems:
(1) When there is a provision in the by-laws fixing
their compensation; and
(2) When the stockholders agree to give it to them.
Page 16
 If none of these conditions are present, commission
income cannot be automatically attributed to petitioner’s
position in the company.
16. G.R. No. 153793, August 29, 2006
COMMISSIONER OF INTERNAL REVENUE vs. JULIANE
BAIER-NICKEL, as represented by Marina Q. Guzman
(Attorney-in-fact)
Non-resident aliens, whether or not engaged in trade or
business, are subject to Philippine income taxation on their
income received from all sources within the Philippines.
Thus, the keyword in determining the taxability of non-
resident aliens is the income’s "source." In construing the
meaning of "source" in Section 25 of the NIRC, resort must
be had on the origin of the provision.
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 activity within the
Philippines.
In sum, we find that the faxed documents presented by
respondent did not constitute substantial evidence, or that
relevant evidence that a reasonable mind might accept as
adequate to support the conclusion that it was in Germany
where she performed the income producing service which
gave rise to the reported monthly sales in the months of
March and May to September of 1995. She thus failed to
discharge the burden of proving that her income was from
sources outside the Philippines and exempt from the
application of our income tax law. Hence, the claim for tax
refund should be denied.
17. G.R. No. 180529, November 13, 2013
COMMISSIONER OF INTERNAL REVENUE vs. BANK OF
COMMERCE
Clearly, the CIR, in BIR Ruling No. 10-2006, ruled on the
issue of merger without taking into consideration TRB’s
pending tax deficiencies. The ruling was based on the
Purchase and Sale Agreement, factual evidence on the
status of both companies, and the Tax Code provision on
merger. The CIR’s knowledge then of TRB’s tax deficiencies
would not be material as to affect the CIR’s ruling. The
resolution of the issue on merger depended on the
agreement between TRB and BOC, as detailed in the
Purchase and Sale Agreement, and not contingent on TRB’s
tax liabilities.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
VALUE-ADDED TAX
1. G.R. No. 153866, February 11, 2005
COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES)
As a PEZA-registered enterprise within a special economic
zone, respondent is entitled to the fiscal incentives and
benefits provided for in either PD 669 or EO 226. A VAT-
registered PEZA enterprise is entitled to a refund of or
credit for input VAT.
Tax Credit Method – An entity can credit against or
subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.
Zero-rated transactions generally refer to the export sale
of goods and supply of services. The tax rate is set at zero.
When applied to the tax base, such rate obviously results
in no tax chargeable against the purchaser. The seller of
such transactions charges no output tax, but can claim a
refund of or a tax credit certificate for the VAT previously
charged by suppliers.
Effectively zero-rated transactions, however, refer to
the sale of goods or supply of services to persons or
entities whose exemption under special laws or
international agreements to which the Philippines is a
signatory effectively subjects such transactions to a zero
rate. Again, as applied to the tax base, such rate does not
yield any tax chargeable against the purchaser. The seller
who charges zero output tax on such transactions can also
claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.
An exempt transaction, on the one hand, involves goods
or services which, by their nature, are specifically listed in
and expressly exempted from the VAT under the Tax Code,
without regard to the tax status -- VAT-exempt or not -- of
the party to the transaction. Indeed, such transaction is not
subject to the VAT, but the seller is not allowed any tax
refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity
granted VAT exemption under the Tax Code, a special law
or an international agreement to which the Philippines is a
signatory, and by virtue of which its taxable transactions
become exempt from the VAT. Such party is also not
subject to the VAT, but may be allowed a tax refund of or
credit for input taxes paid, depending on its registration as
a VAT or non-VAT taxpayer.
Its sales transactions, however, will either be zero-rated or
taxed at the standard rate of 10 percent, depending again
on the application of the destination principle.
Page 17
If respondent enters into such sales transactions with a
purchaser -- usually in a foreign country -- for use or
consumption outside the Philippines, these shall be subject
to 0 percent. If entered into with a purchaser for use or
consumption in the Philippines, then these shall be subject
to 10 percent, unless the purchaser is exempt from the
indirect burden of the VAT, in which case it shall also be
zero-rated.
Since the purchases of respondent are not exempt from the
VAT, the rate to be applied is zero. Its exemption under
both PD 66 and RA 7916 effectively subjects such
transactions to a zero rate, because the ecozone within
which it is registered is managed and operated by the
PEZA as a separate customs territory. This means that in
such zone is created the legal fiction of foreign territory.
Under the cross-border principle of the VAT system
being enforced by the Bureau of Internal Revenue (BIR),
no VAT shall be imposed to form part of the cost of goods
destined for consumption outside of the territorial border
of the taxing authority. If exports of goods and services
from the Philippines to a foreign country are free of the
VAT, then the same rule holds for such exports from the
national territory -- except specifically declared areas -- to
an ecozone.
Sales made by a VAT-registered person in the customs
territory to a PEZA-registered entity are considered
exports to a foreign country; conversely, sales by a PEZA-
registered entity to a VAT-registered person in the
customs territory are deemed imports from a foreign
country. An ecozone -- indubitably a geographical territory
of the Philippines -- is, however, regarded in law as foreign
soil.
To summarize, special laws expressly grant preferential
tax treatment to business establishments registered and
operating within an ecozone, which by law is considered as
a separate customs territory. As such, respondent is
exempt from all internal revenue taxes, including the VAT,
and regulations pertaining thereto. It has opted for the
income tax holiday regime, instead of the 5 percent
preferential tax regime. As a matter of law and procedure,
its registration status entitling it to such tax holiday can no
longer be questioned. Its sales transactions intended for
export may not be exempt, but like its purchase
transactions, they are zero-rated. No prior application for
the effective zero rating of its transactions is necessary.
Being VAT-registered and having satisfactorily complied
with all the requisites for claiming a tax refund of or credit
for the input VAT paid on capital goods purchased,
respondent is entitled to such VAT refund or credit.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
2. G.R. No. 193301, March 11, 2013
MINDANAO II GEOTHERMAL PARTNERSHIP vs.
COMMISSIONER OF INTERNAL REVENUE
Mindanao II asserts that the sale of a fully depreciated
Nissan Patrol is not an incidental transaction in the course
of its business; hence, it is an isolated transaction that
should not have been subject to 10% VAT.
Section 105 of the 1997 Tax Code does not support
Mindanao II’s position:
SEC. 105. Persons Liable. - Any person who, in the
course of trade or business, sells barters, exchanges,
leases goods or properties, renders services, and any
person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 to
108 of this Code.
The value-added tax is an indirect tax and the amount of
tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of
goods, properties or services at the time of the effectivity
of Republic Act No. 7716.
The phrase "in the course of trade or business" means the
regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged
therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their
guests), or government entity.
The rule of regularity, to the contrary notwithstanding,
services as defined in this Code rendered in the Philippines
by nonresident foreign persons shall be considered as
being rendered in the course of trade or business.
(Emphasis supplied)
3. G.R. No. 125355, March 30, 2000
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS and COMMONWEALTH MANAGEMENT AND
SERVICES CORPORATION
Even a non-stock, non-profit, organization or government
entity, is liable to pay VAT on the sale of goods or services.
VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods
or property, and on the performance of services, even in
the absence of profit attributable thereto. The term "in the
course of trade or business" requires the regular conduct
or pursuit of a commercial or an economic activity
regardless of whether or not the entity is profit-oriented.
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Hence, it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-on-
cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long
as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT.
4. G.R. No. 193007, July 19, 2011
RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE
Toll fees collected by tollway operators may be subjected
to value-added tax. When a tollway operator takes a toll
fee from a motorist, the fee is in effect for the latter's use of
the tollway facilities over which the operator enjoys
private proprietary rights that its contract and the law
recognize. In this sense, the tollway operator is no
different from the service providers under Section108 who
allow others to use their properties or facilities for a fee.
Tollway operators are franchise grantees and they do not
belong to exceptions that Section 119 spares from the
payment of VAT.
5. G.R. No. 183505, February 26, 2010
COMMISSIONER OF INTERNAL REVENUE vs. SM PRIME
HOLDINGS, INC. and FIRST ASIA REALTY
DEVELOPMENT CORPORATION
A cursory reading of the Section 108 of the NIRC clearly
shows that the enumeration of the "sale or exchange of
services" subject to VAT is not exhaustive. The words,
"including," "similar services," and "shall likewise include,"
indicate that the enumeration is by way of example only.
Since the activity of showing motion pictures, films or
movies by cinema/theater operators or proprietors is not
included in the enumeration, it is incumbent upon the
court to determine whether such activity falls under the
phrase "similar services." The intent of the legislature
must therefore be ascertained.
The legislature never intended operators or proprietors of
cinema/theater houses to be covered by VAT.
The gross receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are not
subject to VAT. The legislature never intended operators
or proprietors of cinema/theater houses to be covered by
VAT. When the VAT law was implemented, it exempted
persons subject to amusement tax under the NIRC from
the coverage of VAT. When the Local Tax Code was
repealed by the LGC of 1991, the local government
continued to impose amusement tax on admission tickets
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
from theaters, cinematographs, concert halls, circuses and
other places of amusements.
6. G.R. No. 179085, January 21, 2010
TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF
INTERNAL REVENUE
The Court finds that pawnshops should have been treated
as non-bank financial intermediaries from the very
beginning, subject to the appropriate taxes provided by
law.
Since petitioner is a non-bank financial intermediary, it is
subject to 10% VAT for the tax years 1996 to 2002;
however, with the levy, assessment and collection of VAT
from non-bank financial intermediaries being specifically
deferred by law, then petitioner is not liable for VAT
during these tax years.
"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is
neither a security nor a printed evidence of indebtedness.
True, the law does not consider said ticket as an evidence
of security or indebtedness. However, for purposes of
taxation, the same pawn ticket is proof of an exercise of a
taxable privilege of concluding a contract of pledge. There
is therefore no basis in petitioner's assertion that a DST is
literally a tax on a document and that no tax may be
imposed on a pawn ticket.
7. G.R. No. 168129, April 24, 2007
COMMISSIONER OF INTERNAL REVENUE vs.
PHILIPPINE HEALTH CARE PROVIDERS, INC.
As respondent does not actually provide medical and/or
hospital services, as provided under Section 103 on
exempt transactions, but merely arranges for the same, its
services are not VAT-exempt.
Section 246 of the 1997 Tax Code, as amended, provides
that rulings, circulars, rules and regulations promulgated
by the Commissioner of Internal Revenue have no
retroactive application if to apply them would prejudice
the taxpayer.
The exceptions to this rule are:
(1) Where the taxpayer deliberately misstates or
omits material facts from his return or in any
document required of him by the Bureau of
Internal Revenue;
(2) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially
different from the facts on which the ruling is
based; or
(3) Where the taxpayer acted in bad faith.
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8. G.R. No. 172087, March 15, 2011
PHILIPPINE AMUSEMENT AND GAMING CORPORATION
(PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE
(BIR), represented herein by HON. JOSE MARIO
BUÑAG, in his official capacity as COMMISSIONER OF
INTERNAL REVENUE, JOHN DOE and JANE DOE, who
are persons acting for, in behalf, or under the
authority of Respondent
Under Section 1 of R.A. No. 9337, amending Section 27 (c)
of the National Internal Revenue Code of 1977, petitioner
PAGCOR is no longer exempt from corporate income tax as
it has been effectively omitted from the list of GOCCs that
are exempt from it.
9. G.R. No. 172378, January 17, 2011
SILICON PHILIPPINES, INC., (Formerly INTEL
PHILIPPINES MANUFACTURING, INC.) vs.
COMMISSIONER OF INTERNAL REVENUE
In a claim for credit/refund of input VAT attributable
to zero-rated sales, Section 112 (A)43 of the NIRC lays
down four requisites, to wit:
1) The taxpayer must be VAT-registered;
2) The taxpayer must be engaged in sales which are
zero-rated or effectively zero-rated;
3) The claim must be filed within two years after the
close of the taxable quarter when such sales were
made; and
4) The creditable input tax due or paid must be
attributable to such sales, except the transitional
input tax, to the extent that such input tax has not
been applied against the output tax.
But while there is no law requiring the ATP to be printed
on the invoices or receipts, Section 238 of the NIRC
expressly requires persons engaged in business to secure
an ATP from the BIR prior to printing invoices or receipts.
Failure to do so makes the person liable under Section 264
of the NIRC.
All told, the non-presentation of the ATP and the failure to
indicate the word "zero-rated" in the invoices or receipts
are fatal to a claim for credit/refund of input VAT on zero-
rated sales. The failure to indicate the ATP in the sales
invoices or receipts, on the other hand, is not. In this case,
petitioner failed to present its ATP and to print the word
"zero-rated" on its export sales invoices.
To claim a refund of input VAT on capital goods,
Section 112 (B)56 of the NIRC requires that:
1. The claimant must be a VAT registered person;
2. The input taxes claimed must have been paid on
capital goods;
3. The input taxes must not have been applied
against any output tax liability; and
APRIL LYNN L. URSAL LLB-4
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UNIVERSITY OF CEBU – COLLEGE OF LAW
4. The administrative claim for refund must have
been filed within two (2) years after the close of
the taxable quarter when the importation or
purchase was made.
"Capital goods or properties" refer to goods or
properties with estimated useful life greater that one year
and which are treated as depreciable assets under Section
29 (f), used directly or indirectly in the production or sale
of taxable goods or services.
Training materials, office supplies, posters, banners, T-
shirts, books, and the other similar items reflected in
petitioner’s Summary of Importation of Goods are not
capital goods.
10. FORT BONIFACIO DEVELOPMENT CORPORATION
vs. COMMISSIONER OF INTERNAL REVENUE and
REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO.
44, TAGUIG and PATEROS, BUREAU OF INTERNAL
REVENUE, G.R. No. 173425, September 4, 2012
There is nothing in Section 105 of the old NIRC to indicate
that prior payment of taxes is necessary for the availment
of the 8% transitional input tax credit. Obviously, all that is
required is for the taxpayer to file a beginning inventory
with the BIR.
Moreover, prior payment of taxes is not required to avail
of the transitional input tax credit because it is not a tax
refund per se but a tax credit. Tax credit is not
synonymous to tax refund. Tax refund is defined as the
money that a taxpayer overpaid and is thus returned by
the taxing authority. Tax credit, on the other hand, is an
amount subtracted directly from one’s total tax liability. It
is any amount given to a taxpayer as a subsidy, a refund, or
an incentive to encourage investment. Thus, unlike a tax
refund, prior payment of taxes is not a prerequisite to avail
of a tax credit.
The 8% transitional input tax credit should not be limited
to the value of the improvements on the real properties
but should include the value of the real properties as well.
ESTATE TAX
1. G.R. No. 120880, June 5, 1997
FERDINAND R. MARCOS II vs. COURT OF APPEALS, THE
COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE and HERMINIA D. DE GUZMAN
It has been held that it is within the jurisdiction of the
probate court to approve the sale of properties of a
deceased person by his prospective heirs before final
adjudication; to determine who are the heirs of the
decedent; the recognition of a natural child; the status of a
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woman claiming to be the legal wife of the decedent; the
legality of disinheritance of an heir by the testator; and to
pass upon the validity of a waiver of hereditary rights.
The nature of the process of estate tax collection has been
described as follows: Strictly speaking, the assessment of
an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be
viewed as an incident to the complete settlement of an
estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a
part of the final decree of distribution of the estate. It is not
against the property of decedent, nor is it a claim against
the estate as such, but it is against the interest or property
right which the heir, legatee, devisee, etc., has in the
property formerly held by decedent. Further, under some
statutes, it has been held that it is not a suit or controversy
between the parties, nor is it an adversary proceeding
between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been
held that the hearing and determination of the cash value
of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to
be necessarily a proceeding in rem.
In the Philippine experience, the enforcement and
collection of estate tax, is executive in character.
Vectigalia nervi sunt rei publicae — Taxes are the sinews of
the state.
It is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is
not a mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax Bureau
erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the
ground that it was required to seek first the probate
court's sanction. There is nothing in the Tax Code, and in
the pertinent remedial laws that implies the necessity of
the probate or estate settlement court's approval of the
state's claim for estate taxes, before the same can be
enforced and collected.
Under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the
executor or judicial administrator of the decedent's estate
to deliver any distributive share to any party interested in
the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes
have been paid. This provision disproves the petitioner's
contention that it is the probate court which approves the
assessment and collection of the estate tax.
The Notices of Levy upon real property were issued within
the prescriptive period and in accordance with the
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
provisions of the present Tax Code. The deficiency tax
assessment, having already become final, executory, and
demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section
205 of the NIRC.
In the case of notices of levy issued to satisfy the
delinquent estate tax, the delinquent taxpayer is the Estate
of the decedent, and not necessarily, and exclusively, the
petitioner as heir of the deceased. In the same vein, in the
matter of income tax delinquency of the late president and
his spouse, petitioner is not the taxpayer liable. Service of
notices of levy in satisfaction of these tax delinquencies
upon the petitioner is not required by law, under Section
213 of the NIRC.
2. G.R. No. 123206, March 22, 2000
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS, COURT OF TAX APPEALS and JOSEFINA P.
PAJONAR, as Administratrix of the Estate of Pedro P.
Pajonar
Attorneys' and guardians' fees incurred in a trustee's
accounting of a taxable inter vivos trust attributable to the
usual issues involved in such an accounting was held to be
proper deductions because these are expenses incurred in
terminating an inter vivos trust that was includible in the
decedent's estate. Attorney's fees are allowable deductions
if incurred for the settlement of the estate. Accordingly, all
expenses incurred in relation to the estate of the deceased
will be deductible for estate tax purposes provided these
are necessary and ordinary expenses for administration of
the settlement of the estate.
Attorney's fees, on the other hand, in order to be
deductible from the gross estate must be essential to the
settlement of the estate.
The deductions from the gross estate permitted under
section 79 of the Tax Code basically reproduced the
deductions allowed under Commonwealth Act No. 466 (CA
466), otherwise known as the National Internal Revenue
Code of 1939, 16 and which was the first codification of
Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also
provided for the deduction of the "judicial expenses of the
testamentary or intestate proceedings" for purposes of
determining the value of the net estate. Philippine tax laws
were, in turn, based on the federal tax laws of the United
States. In accord with established rules of statutory
construction, the decisions of American courts construing
the federal tax code are entitled to great weight in the
interpretation of our own tax laws.
Page 21
3. G.R. No. 140944, April 30, 2008
RAFAEL ARSENIO S. DIZON, in his capacity as the
Judicial Administrator of the Estate of the deceased
JOSE P. FERNANDEZ vs. COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE
Under Section 8 of RA 1125, the CTA is categorically
described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute
aspect of their cases. Indubitably, no evidentiary value can
be given the pieces of evidence submitted by the BIR, as
the rules on documentary evidence require that these
documents must be formally offered before the CTA.
While the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves
and are primarily intended as tools in the administration
of justice, the presentation of the BIR's evidence is not a
mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may
ascertain and verify the truth of BIR's claims against the
Estate. The BIR's failure to formally offer these pieces of
evidence, despite CTA's directives, is fatal to its cause. Such
failure is aggravated by the fact that not even a single
reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.
The Supreme Court agreed with the “date-of-death
valuation rule.”
There is no law, nor do we discern any legislative intent in
our tax laws which disregards the date-of-death valuation
principle and particularly provides that post-death
developments must be considered in determining the net
value of the estate. Any doubt on whether a person, article
or activity is taxable is generally resolved against taxation.
Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is
generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against
the deceased in his lifetime, or liability contracted by the
deceased before his death. Therefore, the claims existing at
the time of death are significant to, and should be made the
basis of, the determination of allowable deductions.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
DONOR’S TAX
1. G.R. No. 120721, February 23, 2005
MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D.
REGALA, AVELINO V. CRUZ vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS
“Political contributions” are considered gifts and thus are
subject to donor’s tax. It falls squarely within the definition
of a donation, with its elements.
Donation has the following elements:
(a) the reduction of the patrimony of the donor;
(b) the increase in the patrimony of the donee; and,
(c) the intent to do an act of liberality or animus donandi.
Note: Political contributions are no longer subject to
donor’s tax, provided that, Statement of Contributions and
Expenses are duly reported to the COMELEC within thirty
(30) days after the day of the election. (Section 14 of R.A.
No. 7166)
TAX REMEDIES
1. G.R. No. 210987, November 24, 2014
THE PHILIPPINE AMERICAN LIFE AND GENERAL
INSURANCE COMPANY vs. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE
There is no provision in law that expressly provides where
exactly the ruling of the Secretary of Finance under the
adverted NIRC provision is appealable to. However, We
find that Sec. 7(a)(1) of RA 1125, as amended, addresses
the seeming gap in the law as it vests the CTA, albeit
impliedly, with jurisdiction over the CA petition as "other
matters" arising under the NIRC or other laws
administered by the BIR. As stated:
Sec. 7. Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by
appeal, as herein provided:
1. Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other
matters arising under the National Internal
Revenue or other laws administered by the Bureau
of Internal Revenue. (emphasis supplied)
Even though the provision suggests that it only covers
rulings of the Commissioner, We hold that it is,
nonetheless, sufficient enough to include appeals from the
Secretary’s review under Sec. 4 of the NIRC.
Page 22
Indeed, to leave undetermined the mode of appeal from
the Secretary of Finance would be an injustice to taxpayers
prejudiced by his adverse rulings. To remedy this
situation, We imply from the purpose of RA 1125 and its
amendatory laws that the CTA is the proper forum with
which to institute the appeal. This is not, and should not, in
any way, be taken as a derogation of the power of the
Office of President but merely as recognition that matters
calling for technical knowledge should be handled by the
agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency
mandated to adjudicate tax, customs, and assessment
cases, there can be no other court of appellate jurisdiction
that can decide the issues raised in the CA petition, which
involves the tax treatment of the shares of stocks sold.
The respective teachings in British American Tobacco and
Asia International Auctioneers, at first blush, appear to
bear no conflict––that when the validity or
constitutionality of an administrative rule or regulation is
assailed, the regular courts have jurisdiction; and if what is
assailed are rulings or opinions of the Commissioner on
tax treatments, jurisdiction over the controversy is lodged
with the CTA. The problem with the above postulates,
however, is that they failed to take into consideration one
crucial point––a taxpayer can raise both issues
simultaneously.
Petitioner essentially questions the CIR’s ruling that
Petitioner’s sale of shares is a taxable donation under Sec.
100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7
(C.2.2) and RMC 25-11 is merely questioned incidentally
since it was used by the CIR as bases for its unfavourable
opinion. Clearly, the Petition involves an issue on the
taxability of the transaction rather than a direct attack on
the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08
and RMC 25-11. Thus, the instant Petition properly
pertains to the CTA under Sec. 7 of RA 9282.
2. G.R. No. 198756, January 13, 2015
BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING
CORPORATION, METROPOLITAN BANK & TRUST
COMPANY, PHILIPPINE BANK OF COMMUNICATIONS,
PHILIPPINE NATIONAL BANK, PHILIPPINE VETERANS
BANK AND PLANTERS DEVELOPMENT BANK, RIZAL
COMMERCIAL BANKING CORPORATION AND RCBC
CAPITAL CORPORATION vs. REPUBLIC OF THE
PHILIPPINES, THE COMMISSIONER OF INTERNAL
REVENUE, BUREAU OF INTERNAL REVENUE,
SECRETARY OF FINANCE, DEPARTMENT OF FINANCE,
THE NATIONAL TREASURER AND BUREAU OF
TREASURY
Thus, it was held that “[i]f superior administrative officers
[can] grant the relief prayed for, [then] special civil actions
are generally not entertained.” The remedy within the
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
administrative machinery must be resorted to first and
pursued to its appropriate conclusion before the court’s
judicial power can be sought.
Nonetheless, jurisprudence allows certain exceptions
to the rule on exhaustion of administrative remedies:
(1) When there is a violation of due process,
(2) When the issue involved is purely a legal
question,
(3) When the administrative action is patently
illegal amounting to lack or excess of
jurisdiction,
(4) When there is estoppel on the part of the
administrative agency concerned,
(5) When there is irreparable injury,
(6) When the respondent is a department secretary
whose acts as an alter ego of the president bears
the implied and assumed approval of the latter,
(7) When to require exhaustion of administrative
remedies would be unreasonable,
(8) When it would amount to a nullification of a
claim,
(9) When the subject matter is a private land in land
case proceedings,
(10) When the rule does not provide a plain, speedy
and adequate remedy,
(11) When there are circumstances indicating the
urgency of judicial intervention.
The exceptions under (2) and (11) are present in this case.
The question involved is purely legal, namely: (a) the
interpretation of the 20-lender rule in the definition of the
terms public and deposit substitutes under the 1997
National Internal Revenue Code; and (b) whether the
imposition of the 20% final withholding tax on the PEACe
Bonds upon maturity violates the constitutional provisions
on non-impairment of contracts and due process. Judicial
intervention is likewise urgent with the impending
maturity of the PEACe Bonds on October 18, 2011.
The rule on exhaustion of administrative remedies also
finds no application when the exhaustion will result in an
exercise in futility.
3. COMMISSIONER OF INTERNAL REVENUE vs. AICHI
FORGING COMPANY OF ASIA, INC., G.R. No. 184823,
October 6, 2010
What is the reckoning point for the two-year
prescriptive period for filing of claims for input VAT
refund?
In computing the two-year prescriptive period for claiming
a refund/credit of unutilized input VAT, the Supreme Court
ruled that the applicable provision is Section 112(A) of the
National Internal Revenue Code (NIRC) of 1997 which
Page 23
provides that the unutilized input VAT must be claimed
within two (2) years after the close of the taxable quarter
when the sales were made.
According to the Supreme Court, Sections 114(A), 204(C)
and 229 of the NIRC are inapplicable because both
provisions apply only to instances of erroneous payment
or illegal collection of internal revenue taxes. Thus, the
CTA En Banc erroneously applied Sections 114(A) and 229
of the NIRC in computing the two-year prescriptive period
for claiming refund/credit of unutilized input VAT.
The Supreme Court held that Section 112(A) of the NIRC is
the pertinent provision for the refund/credit of input VAT.
Hence, the two-year period should be reckoned from the
close of the taxable quarter when the sales were made.
Does the two-year prescriptive period apply to both
the administrative and the judicial claims for input
VAT refund?
The Supreme Court held that the two-year prescriptive
period applies only to the administrative claims for input
VAT refund. Section 112(D) of the NIRC clearly provides
that the Commissioner of Internal Revenue (CIR) has 120
days from the date of the submission of the complete
documents in support of the application for tax
refund/credit within which to grant or deny the claim. In
case of full or partial denial by the CIR, the taxpayer’s
recourse is to file an appeal before the Court of Tax
Appeals (CTA) within 30 days from receipt of the decision
of the CIR. However, if after the 120-day period the CIR
fails to act on the application for tax refund/credit, the
remedy of the taxpayer is to appeal the inaction of the CIR
to the CTA within 30 days.
According to the Supreme Court, applying the two-year
prescriptive period to judicial claims for input VAT refund
would render nugatory Section 112(D) of the NIRC, which
already provides for a specific period within which a
taxpayer should appeal the decision or inaction of the CIR.
The second paragraph of Section 112(D) of the NIRC
envisions two scenarios: (a) when a decision is issued by
the CIR before the lapse of the 120-day period; and (b)
when no decision is made after the 120-day period. In
both instances, the taxpayer has 30 days within which to
file an appeal with the CTA. Therefore, the 120-day period
is crucial in filing an appeal with the CTA.
Is the observance of the “120-30 day” rule provided in
Section 112(C) of the NIRC mandatory or permissive?
The Supreme Court ruled that the observance of the “120-
30 day” rule is mandatory and jurisdictional. In other
words, the taxpayer may appeal to the Court of Tax
Appeals within 30 days only in case there is full or partial
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
denial by the Commissioner of Internal Revenue (CIR) of
the application for refund before the lapse of the 120-day
period or in case the said period lapses without action on
the part of the CIR.
In the present case, the administrative and the judicial
claims were simultaneously filed by respondent Aichi
Forging Company on September 30, 2004. Obviously,
respondent did not wait for the decision of the CIR or the
lapse of the 120-day period before filing the judicial claim
with the CTA. Thus, the Supreme Court ruled that the
respondent’s filing of the judicial claim for input VAT
refund with the CTA on September 30, 2004 was
premature as no jurisdiction was acquired by the CTA.
4. COMMISSIONER OF INTERNAL REVENUE vs. SAN
ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013
Clearly, San Roque failed to comply with the 120-day
waiting period, the time expressly given by law to the
Commissioner to decide whether to grant or deny San
Roque’s application for tax refund or credit. It is
indisputable that compliance with the 120-day waiting
period is mandatory and jurisdictional.
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. Philippine jurisprudence is
replete with cases upholding and reiterating these
doctrinal principles.
Section 112(A) and (C) must be interpreted according to
its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at
anytime within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner
will have 120 days from such filing to decide the claim. If
the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30
days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation
of Section 112(A) and (C).
RMC No. 49-03: If the taxpayer files its judicial claim
before the expiration of the 120-day period, the BIR will
nevertheless continue to act on the administrative claim
because such premature filing cannot divest the
Commissioner of his statutory power and jurisdiction to
decide the administrative claim within the 120-day period.
On the other hand, if the taxpayer files its judicial claim
after the 120- day period, the Commissioner can still
Page 24
continue to evaluate the administrative claim. There is
nothing new in this because even after the expiration of
the 120-day period, the Commissioner should still evaluate
internally the administrative claim for purposes of
opposing the taxpayer’s judicial claim, or even for
purposes of determining if the BIR should actually concede
to the taxpayer’s judicial claim. The internal administrative
evaluation of the taxpayer’s claim must necessarily
continue to enable the BIR to oppose intelligently the
judicial claim or, if the facts and the law warrant
otherwise, for the BIR to concede to the judicial claim,
resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are
concerned, is that the mere filing by a taxpayer of a judicial
claim with the CTA before the expiration of the 120-day
period cannot operate to divest the Commissioner of his
jurisdiction to decide an administrative claim within the
120-day mandatory period, unless the Commissioner has
clearly given cause for equitable estoppel to apply as
expressly recognized in Section 246 of the Tax Code.
BIR Ruling No. DA-489-03: 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 Petition for
Review.
5. COMMISSIONER OF INTERNAL REVENUE vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, G.R. No.
191498, January 15, 2014
A. The Judicial Claim Need Not Be Filed Within the
Two-Year Prescriptive Period
The message of Aichi is clear: it is only the administrative
claim that must be filed within the two-year prescriptive
period; the judicial claim need not fall within the two-year
prescriptive period.
B. Reckoning Date is the Close of the Taxable Quarter
When the Relevant Sales Were Made
Under Section 110(B) and Section 112(A), the prescriptive
period for filing a judicial claim for "excess" input VAT is
two years from the close of the taxable quarter when the
sale was made by the person legally liable to pay the
output VAT. This prescriptive period has no relation to the
date of payment of the "excess" input VAT. The "excess"
input VAT may have been paid for more than two years but
this does not bar the filing of a judicial claim for "excess"
VAT under Section 112(A), which has a different reckoning
period from Section 229.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be
filed within the two-year prescriptive period.
(Aichi)
2. The proper reckoning date for the two-year
prescriptive period is the close of the taxable
quarter when the relevant sales were made. (San
Roque)
3. The only other rule is the Atlas ruling, which
applied only from 8 June 2007 to 12 September
2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of
unutilized input VAT payments should be counted
from the date of filing of the VAT return and
payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two
ways: (1) file the judicial claim within thirty days
after the Commissioner denies the claim within
the 120-day period, or (2) file the judicial claim
within thirty days from the expiration of the 120-
day period if the Commissioner does not act
within the 120-day period.
2. The 30-day period always applies, whether there
is a denial or inaction on the part of the CIR.
3. As a general rule, the 3 0-day period to appeal is
both mandatory and jurisdictional. (Aichi and San
Roque)
4. As an exception to the general rule, premature
filing is allowed only if filed between 10 December
2003 and 5 October 2010, when BIR Ruling No.
DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during
the time when BIR Ruling No. DA-489-03 was in
force. (San Roque)
6. COMMISSIONER OF INTERNAL REVENUE and
ARTURO V. PARCERO in his official capacity as
Revenue District Officer of Revenue District No. 049
(Makati) vs. PRIMETOWN PROPERTY GROUP, INC., G.R.
No. 162155, August 28, 2007
The rule is that the two-year prescriptive period (for tax
refund/credit) is reckoned from the filing of the final
adjusted return. But how should the two-year
prescriptive period be computed?
Under the Administrative Code of 1987, however, a year is
composed of 12 calendar months. Needless to state, under
the Administrative Code of 1987, the number of days is
irrelevant. (This is the later law than the New Civil Code.)
Page 25
7. COMMISSIONER OF INTERNAL REVENUE vs. METRO
STAR SUPERAMA, INC., G.R. No. 185371, December 8,
2010
Does the issuance of a Final Assessment Notice (FAN)
without prior issuance of a Preliminary Assessment
Notice (PAN) violate the taxpayer’s right to procedural
due process?
Yes. The Supreme Court held that the issuance of a Final
Assessment Notice (FAN) without prior issuance of a
Preliminary Assessment Notice (PAN) is a violation of due
process. The sending of a PAN to the taxpayer to inform
the latter of the assessment made is part of the due
process requirement in the issuance of a deficiency tax
assessment, the absence of which renders nugatory any
assessment made by the tax authorities.
Section 228 of the 1997 Tax Code clearly states that the
taxpayer must be informed of his liability for deficiency
taxes through the sending of a Preliminary Assessment
Notice (PAN). The said provision provides that a pre-
assessment notice should be issued by the BIR
Commissioner or his duly authorized representative when
he/she finds that the proper taxes should be assessed,
except in certain cases enumerated therein.
This requirement was likewise confirmed under the
provisions of Revenue Regulations (RR) No. 12-99 which
provides that after review and evaluation of the
Assessment Division or by the BIR Commissioner or his
duly authorized representative, if it is determined that
there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the BIR shall issue to the taxpayer,
at least by registered mail, a PAN for the proposed
assessment, showing in detail the facts and the law on
which the assessment is based. The use of the word “shall”
in the said Revenue Regulations suggests the mandatory
nature of the service of PAN.
8. LASCONA LAND CO., INC. vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 171251, March 5, 2012
The word "decisions" in paragraph 1, Section 7 of Republic
Act No. 1125, quoted above, has been interpreted to mean
the decisions of the Commissioner of Internal Revenue on
the protest of the taxpayer against the assessments.
Definitely, said word does not signify the assessment itself.
The period of thirty days prescribed by section 11 of
Republic Act No. 1125 within which petitioner should have
appealed to the respondent court must be counted from its
receipt of said assessment. Where a taxpayer questions an
assessment and asks the Collector to reconsider or cancel
the same because he (the taxpayer) believes he is not
liable therefor, the assessment becomes a "disputed
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
assessment" that the Collector must decide, and the
taxpayer can appeal to the Court of Tax Appeals only upon
receipt of the decision of the Collector on the disputed
assessment, . . .
Therefore, as in Section 228, when the law provided for
the remedy to appeal the inaction of the CIR, it did not
intend to limit it to a single remedy of filing of an appeal
after the lapse of the 180-day prescribed period. Precisely,
when a taxpayer protested an assessment, he naturally
expects the CIR to decide either positively or negatively. A
taxpayer cannot be prejudiced if he chooses to wait for the
final decision of the CIR on the protested assessment. More
so, because the law and jurisprudence have always
contemplated a scenario where the CIR will decide on the
protested assessment.
It must be emphasized, however, that in case of the
inaction of the CIR on the protested assessment, while
we reiterate − the taxpayer has two options, either:
(1) file a petition for review with the CTA within 30
days after the expiration of the 180-day period; or
(2) await the final decision of the Commissioner on
the disputed assessment and appeal such final
decision to the CTA within 30 days after the
receipt of a copy of such decision, these options
are mutually exclusive and resort to one bars the
application of the other.
9. ALLIED BANKING CORPORATION vs. COMMISSIONER
OF INTERNAL REVENUE, G.R. No. 175097, February
2010
Records show that petitioner Allied Banking Corporation
disputed the Preliminary Assessment Notice (PAN) but not
the Formal Letter of Demand with Assessment Notices.
Nevertheless, we cannot blame petitioner for not filing a
protest against the Formal Letter of Demand with
Assessment Notices since the language used and the tenor
of the demand letter indicate that it is the final decision of
the respondent on the matter. We have time and again
reminded the Commissioner of Internal Revenue (CIR) to
indicate, in a clear and unequivocal language, whether his
action on a disputed assessment constitutes his final
determination thereon in order for the taxpayer concerned
to determine when his or her right to appeal to the tax
court accrues. Viewed in the light of the foregoing,
respondent CIR is now estopped from claiming that he did
not intend the Formal Letter of Demand with Assessment
Notices to be a final decision.
Page 26
10. PHILIPPINE JOURNALISTS, INC. vs. COMMISSIONER
OF INTERNAL REVENUE, G.R. No. 162852, December
16, 2004
The appellate jurisdiction of the CTA is not limited to cases
which involve decisions of the Commissioner of Internal
Revenue on matters relating to assessments or refunds.
The second part of the provision covers other cases that
arise out of the NIRC or related laws administered by the
Bureau of Internal Revenue. The wording of the provision
is clear and simple. It gives the CTA the jurisdiction to
determine if the warrant of distraint and levy issued by the
BIR is valid and to rule if the Waiver of Statute of
Limitations was validly effected.
11. COMMISSIONER OF INTERNAL REVENUE vs. KUDOS
METAL CORPORATION, G.R. No. 178087, May 5, 2010
The period to assess and collect taxes may only be
extended upon a written agreement between the
Commissioner of Internal Revenue and the taxpayer,
which is executed before the expiration of the three-year
period for assessment. Revenue Memorandum Order
(RMO) No. 20-90 lays down the procedure for the proper
execution of the Waiver of Statute of Limitations. In the
case at bar, due to the defects in the Waivers, the period to
assess or collect taxes was not extended. Consequently,
the assessments were issued by the Bureau of Internal
Revenue (BIR) beyond the three-year period and are
considered void.
12. COMMISSIONER OF INTERNAL REVENUE vs.
PHILIPPINE GLOBAL COMMUNICATION, INC., G.R. No.
167146, October 31, 2006
If the BIR issued this assessment within the three-year
period or the ten-year period, whichever was applicable,
the law provided another three years after the assessment
for the collection of the tax due thereon through the
administrative process of distraint and/or levy or through
judicial proceedings. The three-year period for collection
of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the
BIR.
Request for reconsideration – refers to a plea for a re-
evaluation of an assessment on the basis of existing
records without need of additional evidence. It may
involve both a question of fact or of law or both.
Request for reinvestigation – refers to a plea for re-
evaluation of an assessment on the basis of newly-
discovered evidence or additional evidence that a taxpayer
intends to present in the investigation. It may also involve
a question of fact or law or both.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
The main difference between these two types of protests
lies in the records or evidence to be examined by internal
revenue officers, whether these are existing records or
newly discovered or additional evidence. A re-evaluation
of existing records which results from a request for
reconsideration does not toll the running of the
prescription period for the collection of an assessed tax.
Section 271 distinctly limits the suspension of the running
of the statute of limitations to instances when
reinvestigation is requested by a taxpayer and is granted
by the CIR.
13. SILKAIR (SINGAPORE) PTE, LTD. vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173594, February 6, 2008
Who is the proper party to claim a refund for the
payment of excise taxes?
The Supreme Court held that the proper party to question,
or seek a refund of an indirect tax is the statutory taxpayer,
the person on whom the tax is imposed by law, and who
paid the same even if he shifts the burden thereof to
another.
Excise tax (whether classified as specific or ad valorem
tax) is basically an indirect tax imposed on the
consumption of a specified list of goods or products. The
tax is directly levied on the manufacturer upon removal of
the goods from the place of production but in reality, the
tax is passed on the end consumer as part of the selling
price of the goods sold. In view thereof, while Petron
actually passed on the burden of the excise tax to Silkair,
the additional amount billed to the latter was essentially a
part of the purchase price and not a tax in itself.
Hence, the Supreme Court ruled that even if the consumers
or purchasers ultimately pay for the tax, they are not
considered the taxpayers. The fact that Petron, on whom
the excise tax is imposed, can shift the tax burden to its
purchasers does not make the latter the taxpayers and the
former the withholding agent.
Although it was ruled in the instant case that Petron is the
proper party that can claim the refund of the excise taxes
paid to the BIR, the Supreme Court said that Silkair may
nevertheless invoke its tax exemption to Petron before
buying aviation jet fuel in the future.
Page 27
14. PHILIPPINE AIRLINES, INC. vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 198759, July 1, 2013
PAL’s legal personality to file a claim for refund of
excise taxes.
PAL counters that the doctrine laid down in Silkair is
inapplicable, asserting that it has the legal personality to
file the subject tax refund claim on account of its tax
exemption privileges under its legislative franchise which
covers both direct and indirect taxes.
The propriety of a tax refund claim is hinged on the kind of
exemption which forms its basis. If the law confers an
exemption from both direct or indirect taxes, a claimant is
entitled to a tax refund even if it only bears the economic
burden of the applicable tax. On the other hand, if the
exemption conferred only applies to direct taxes, then the
statutory taxpayer is regarded as the proper party to file
the refund claim.
Coverage of LOI 1483.
Based on Section 13 of PAL’s franchise, PAL’s tax
exemption privileges on all taxes on aviation gas, fuel and
oil may be classified into three (3) kinds, namely: (a) all
taxes due on PAL’s local purchase of aviation gas, fuel and
oil; (b) all taxes directly due from or imposable upon the
purchaser or the seller, producer, manufacturer, or
importer of aviation gas, fuel and oil but are billed or
passed on to PAL; and (c), all taxes due on all importations
by PAL of aviation gas, fuel, and oil.
The phrase "purchase of domestic petroleum products for
use in its domestic operations" – which characterizes the
tax privilege LOI 1483 withdrew – refers only to PAL’s tax
exemptions on passed on excise tax costs due from the
seller, manufacturer/producer of locally manufactured/
produced goods for domestic sale41 and does not, in any
way, pertain to any of PAL’s tax privileges concerning
imported goods.
15. COMMISSIONER OF INTERNAL REVENUE vs.
PROCTER & GAMBLE PHILIPPINE MANUFACTURING
CORPORATION & THE COURT OF TAX APPEALS, G.R.
No. L-66838, April 15, 1988
It is axiomatic that the State can never be in estoppel, and
this is particularly true in matters involving taxation. The
errors of certain administrative officers should never be
allowed to jeopardize the government's financial position.
The real party in interest being the mother corporation in
the United States, it follows that American entity is the real
party in interest, and should have been the claimant in this
case.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
16. COMMISSIONER OF INTERNAL REVENUE vs.
WANDER PHILIPPINES, INC. AND THE COURT OF TAX
APPEALS, G.R. No. L-68375, April 15, 1988
the submission of petitioner that Wander is but a
withholding agent of the government and therefore cannot
claim reimbursement of the alleged overpaid taxes, is
untenable. It will be recalled, that said corporation is first
and foremost a wholly owned subsidiary of Glaro. The fact
that it became a withholding agent of the government
which was not by choice but by compulsion under Section
53 (b) of the Tax Code, cannot by any stretch of the
imagination be considered as an abdication of its
responsibility to its mother company. Thus, this Court
construing Section 53 (b) of the Internal Revenue Code
held that "the obligation imposed thereunder upon the
withholding agent is compulsory." It is a device to insure
the collection by the Philippine Government of taxes on
incomes, derived from sources in the Philippines, by aliens
who are outside the taxing jurisdiction of this Court
(Commissioner of Internal Revenue vs. Malayan Insurance
Co., Inc., 21 SCRA 944). In fact, Wander may be assessed
for deficiency withholding tax at source, plus penalties
consisting of surcharge and interest (Section 54, NLRC).
Therefore, as the Philippine counterpart, Wander is the
proper entity who should for the refund or credit of
overpaid withholding tax on dividends paid or remitted by
Glaro.
17. COMMISSIONER OF INTERNAL REVENUE vs.
PASCOR REALTY AND DEVELOPMENT CORPORATION,
ROGELIO A. DIO and VIRGINIA S. DIO, G.R. No. 128315,
June 29, 1999
The NIRC defines the specific functions and effects of an
assessment. To consider the affidavit attached to the
Complaint as a proper assessment is to subvert the nature
of an assessment and to set a bad precedent that will
prejudice innocent taxpayers.
The fact that the Complaint itself was specifically directed
and sent to the Department of Justice and not to private
respondents shows that the intent of the commissioner
was to file a criminal complaint for tax evasion, not to issue
an assessment. Although the revenue officers
recommended the issuance of an assessment, the
commissioner opted instead to file a criminal case for tax
evasion. What private respondents received was a notice
from the DOJ that a criminal case for tax evasion had been
filed against them, not a notice that the Bureau of Internal
Revenue had made an assessment.
Page 28
Assessment Not Necessary Before Filing of Criminal
Complaint
Private respondents maintain that the filing of a criminal
complaint must be preceded by an assessment. This is
incorrect, because Section 222 of the NIRC specifically
states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this
case, proceedings in court may be commenced without an
assessment. Furthermore, Section 205 of the same Code
clearly mandates that the civil and criminal aspects of the
case may be pursued simultaneously.
The issuance of an assessment must be distinguished
from the filing of a complaint.
Before an assessment is issued, there is, by practice, a pre-
assessment notice sent to the taxpayer. The taxpayer is
then given a chance to submit position papers and
documents to prove that the assessment is unwarranted. If
the commissioner is unsatisfied, an assessment signed by
him or her is then sent to the taxpayer informing the latter
specifically and clearly that an assessment has been made
against him or her.
In contrast, the criminal charge need not go through all
these. The criminal charge is filed directly with the DOJ.
Thereafter, the taxpayer is notified that a criminal case had
been filed against him, not that the commissioner has
issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to
penalize the taxpayer for violation of the Tax Code.
18. LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON,
and SARA S. DE LOS REYES, in their capacities as
President, Treasurer and Secretary of Adamson
Management Corporation vs. COURT OF APPEALS and
LIWAYWAY VINZONS-CHATO, in her capacity as
Commissioner of the Bureau of Internal Revenue, G.R.
No. 120935, May 21, 2009
Is a tax assessment required before the Department of
Justice can file a criminal complaint for tax evasion
against a taxpayer?
No, a tax assessment is not required before the
Department of Justice can file a criminal complaint for tax
evasion. An assessment of a deficiency is not necessary to
a criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the
violator has knowingly and willfully filed a fraudulent
return, with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on
the part of the taxpayer that he has made an inaccurate
return, and the government’s failure to discover the error
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
and promptly to assess has no connections with the
commission of the crime.
19. COMMISSIONER OF INTERNAL REVENUE vs. HON.
RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS
ENGINEERING CORPORATION (represented by LUIS M.
CAMUS and LINO D. MENDOZA), G.R. No. 177279,
October 13, 2010
Explain the “Best Evidence Obtainable Rule” in tax
assessment. When can the BIR Commissioner assess
taxes based on best evidence obtainable?
Under the “Best Evidence Obtainable Rule”, the BIR
Commissioner makes or amends the tax return of the
taxpayer from his own knowledge and from such
information as he can obtain through the testimony or
otherwise. Assessments made as such are deemed prima
facie correct and sufficient for all legal purposes.
The law authorizes the Commissioner of Internal Revenue
to assess taxes on the basis of “best evidence obtainable” in
the following cases: (1) if a person fails to file a return or
other document at the time prescribed by law; or (2) if a
person willfully or otherwise files a false or fraudulent
return or other document.
LOCAL GOVERNMENT TAXATION AND
REAL PROPERTY TAXATION
1. HON. FRANKLIN M. DRILON, in his capacity as
SECRETARY OF JUSTICE vs. MAYOR ALFREDO S. LIM,
VICE-MAYOR JOSE L. ATIENZA, CITY TREASURER
ANTHONY ACEVEDO, SANGGUNIANG PANGLUNSOD
AND THE CITY OF MANILA, G.R. No. 112497, August 4,
1994
Section 187 of the LGC authorizes the Secretary of Justice
to review only the constitutionality or legality of the tax
ordinance and, if warranted, to revoke it on either or both
of these grounds. When he alters or modifies or sets aside
a tax ordinance, he is not also permitted to substitute his
own judgment for the judgment of the local government
that enacted the measure. Secretary Drilon did set aside
the Manila Revenue Code, but he did not replace it with his
own version of what the Code should be. He did not
pronounce the ordinance unwise or unreasonable as a
basis for its annulment. He did not say that in his judgment
it was a bad law. What he found only was that it was illegal.
All he did in reviewing the said measure was determine if
the petitioners were performing their functions in
accordance with law, that is, with the prescribed
procedure for the enactment of tax ordinances and the
grant of powers to the city government under the Local
Government Code. As we see it, that was an act not of
control but of mere supervision.
Page 29
2. G.R. No. 120051, December 10, 2014
CITY OF MANILA, HON. ALFREDO S. LIM, as Mayor of
the City of Manila, and ANTHONY Y. ACEVEDO, City
Treasurer vs. HON. ANGEL VALERA COLET, as
Presiding Judge, Regional Trial Court of Manila (Br.
43), and MALAYSIAN AIRLINE SYSTEM
It is already well-settled that although the power to tax is
inherent in the State, the same is not true for the LGUs to
whom the power must be delegated by Congress and must
be exercised within the guidelines and limitations that
Congress may provide.
The power to tax "is an attribute of sovereignty," and as
such, inheres in the State. Such, however, is not true for
provinces, cities, municipalities and barangays as they are
not the sovereign; rather, they are mere "territorial and
political subdivisions of the Republic of the Philippines".
It is settled that a municipal corporation unlike a sovereign
state is clothed with no inherent power of taxation. The
charter or statute must plainly show an intent to confer
that power or the municipality, cannot assume it. And the
power when granted is to be construed in strictissimi juris.
Any doubt or ambiguity arising out of the term used in
granting that power must be resolved against the
municipality.
Therefore, the power of a province to tax is limited to the
extent that such power is delegated to it either by the
Constitution or by statute.
Among the common limitations on the taxing power of
LGUs is Section 133(j) of the LGC, which states that
"[u]nless otherwise provided herein," the taxing power of
LGUs shall not extend to "[t]axes on the gross receipts of
transportation contractors and persons engaged in the
transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided
in this Code[.]"
Section 133(j) of the LGC clearly and unambiguously
proscribes LGUs from imposing any tax on the gross
receipts of transportation contractors, persons engaged in
the transportation of passengers or freight by hire, and
common carriers by air, land, or water. Yet, confusion
arose from the phrase "unless otherwise provided herein,"
found at the beginning of the said provision.
The omnibus grant of power to municipalities and cities
under Section 143(h) of the LGC cannot overcome the
specific exception/exemption in Section 133(j) of the same
Code.
In the case at bar, the sanggunian of the municipality or
city cannot enact an ordinance imposing business tax on
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
the gross receipts of transportation contractors, persons
engaged in the transportation of passengers or freight by
hire, and common carriers by air, land, or water, when said
sanggunian was already specifically prohibited from doing
so.
Such construction gives effect to both Sections 133(j) and
143(h) of the LGC. Also, Sec. 5(b) of the LGC itself, on
Rules of Interpretation, provides that in case of doubt, any
tax ordinance shall be construed strictly against the LGU
enacting it, and liberally in favor of the taxpayer.
Furthermore, such a construction is pursuant to the
legislative intent to exclude from the taxing power of the
LGU the imposition of business tax against common
carriers to prevent a duplication of the so-called “common
carrier’s tax.”
3. MANILA ELECTRIC COMPANY vs. PROVINCE OF
LAGUNA and BENITO R. BALAZO, in his capacity as
Provincial Treasurer of Laguna, G.R. No. 131359, May
5, 1999
While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for
carrying on the franchise, these exemptions, nevertheless,
are far from being strictly contractual in nature.
Contractual tax exemptions, in the real sense of the term
and where the non-impairment clause of the Constitution
can rightly be invoked, are those agreed to by the taxing
authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting
in its private capacity, sheds its cloak of authority and
waives its governmental immunity. Truly, tax exemptions
of this kind may not be revoked without impairing the
obligations of contracts. These contractual tax
exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes
the nature of a grant which is beyond the purview of the
non-impairment clause of the Constitution. Indeed, Article
XII, Section 11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is
explicit that no franchise for the operation of a public
utility shall be granted except under the condition that
such privilege shall be subject to amendment, alteration or
repeal by Congress as and when the common good so
requires.
4. NATIONAL POWER CORPORATION vs. CITY OF
CABANATUAN, G.R. No. 149110, April 9, 2003
In section 131 (m) of the LGC, Congress unmistakably
defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word
franchise is used in the context of taxation. As commonly
Page 30
used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises
granted by the state." It is not levied on the corporation
simply for existing as a corporation, upon its property or
its income, but on its exercise of the rights or privileges
granted to it by the government. Hence, a corporation need
not pay franchise tax from the time it ceased to do
business and exercise its franchise.56 It is within this
context that the phrase "tax on businesses enjoying a
franchise" in section 137 of the LGC should be interpreted
and understood. Verily, to determine whether the
petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has
a "franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or
privileges under this franchise within the territory of the
respondent city government.
5. QUEZON CITY and THE CITY TREASURER OF
QUEZON CITY vs. ABS-CBN BROADCASTING
CORPORATION, G.R. No. 166408, October 6, 2008
The "in lieu of all taxes" provision in the franchise of ABS-
CBN does not expressly provide what kind of taxes ABS-
CBN is exempted from. It is not clear whether the
exemption would include both local, whether municipal,
city or provincial, and national tax. What is clear is that
ABS-CBN shall be liable to pay three (3) percent franchise
tax and income taxes under Title II of the NIRC. But
whether the "in lieu of all taxes provision" would include
exemption from local tax is not unequivocal.
As adverted to earlier, the right to exemption from local
franchise tax must be clearly established and cannot be
made out of inference or implications but must be laid
beyond reasonable doubt. Verily, the uncertainty in the "in
lieu of all taxes" provision should be construed against
ABS-CBN. ABS-CBN has the burden to prove that it is in
fact covered by the exemption so claimed. ABS-CBN
miserably failed in this regard.
The clause "in lieu of all taxes" does not pertain to VAT or
any other tax. It cannot apply when what is paid is a tax
other than a franchise tax. Since the franchise tax on the
broadcasting companies with yearly gross receipts
exceeding ten million pesos has been abolished, the "in lieu
of all taxes" clause has now become functus officio,
rendered inoperative.
In sum, ABS-CBN's claims for exemption must fail on twin
grounds. First, the "in lieu of all taxes" clause in its
franchise failed to specify the taxes the company is sought
to be exempted from. Neither did it particularize the
jurisdiction from which the taxing power is withheld.
Second, the clause has become functus officio because as
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
the law now stands, ABS-CBN is no longer subject to a
franchise tax. It is now liable for VAT.
6. COCA-COLA BOTTLERS PHILIPPINES, INC. vs. CITY
OF MANILA, LIBERTY M. TOLEDO – City Treasurer and
JOSEPH SANTIAGO – Chief, Licensing Division, G.R. No.
156252, June 27, 2006
The passage of the assailed ordinance did not have the
effect of curing the defects of Ordinance No. 7988 which,
anyway, does not legally exist." If an order or law sought to
be amended is invalid, then it does not legally exist, there
should be no occasion or need to amend it.
7. PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
INC. vs. CITY OF DAVAO and ADELAIDA B. BARCELONA,
in her capacity as the City Treasurer of Davao, G.R. No.
143867, March 25, 2003
The "in lieu of all taxes" provision in the franchises of
Globe and Smart, which are relatively new entrants in the
telecommunications industry, cannot thus be deemed
applicable to PLDT, which had virtual monopoly in the
telephone service in the country for a long time, without
defeating the very policy of leveling the playing field of
which PLDT speaks.
The fact is that after petitioner’s tax exemption by R.A. No.
7082 had been withdrawn by the LGC, no amendment to
re-enact its previous tax exemption has been made by
Congress. Considering that the taxing power of local
government units under R.A. No. 7160 is clear and is
ordained by the Constitution, petitioner has the heavy
burden of justifying its claim by a clear grant of exemption.
8. PHILIPPINE MATCH CO., LTD. vs. THE CITY OF CEBU
and JESUS E. ZABATE, Acting City Treasurer, G.R. No. L-
30745, January 18, 1978
The city can validly tax the sales of matches to customers
outside of the city as long as the orders were booked and
paid for in the company's branch office in the city. Those
matches can be regarded as sold in the city, as
contemplated in the ordinance, because the matches were
delivered to the carrier in Cebu City. Generally, delivery to
the carrier is delivery to the buyer.
The sales of matches to customers outside oil Cebu City,
which sales were booked and paid for in the company's
branch office in the city, are subject to the city's taxing
power.
The sales in the instant case were in the city and the
matches sold were stored in the city. The fact that the
matches were delivered to customers, whose places of
business were outside of the city, would not place those
Page 31
sales beyond the city's taxing power. Those sales formed
part of the merchandising business being assigned on by
the company in the city. In essence, they are the same as
sales of matches fully consummated in the city.
Furthermore, because the sellers place of business is in
Cebu City, it cannot be sensibly argued that such sales
should be considered as transactions subject to the taxing
power of the political subdivisions where the customers
resided and accepted delivery of the matches sold.
9. EVELYN ONGSUCO and ANTONIA SALAYA vs. HON.
MARIANO M. MALONES, both in his private and official
capacity as Mayor of the Municipality of Maasin, Iloilo,
G.R. No. 182065, October 27, 2009
The defect in the enactment of Municipal Ordinance No. 98
was not cured when another public hearing was held on 22
January 1999, after the questioned ordinance was passed
by the Sangguniang Bayan and approved by respondent on
17 August 1998. Section 186 of the Local Government
Code prescribes that the public hearing be held prior to the
enactment by a local government unit of an ordinance
levying taxes, fees, and charges.
Since no public hearing had been duly conducted prior to
the enactment of Municipal Ordinance No. 98-01, said
ordinance is void and cannot be given any effect.
Consequently, a void and ineffective ordinance could not
have conferred upon respondent the jurisdiction to order
petitioners’ stalls at the municipal public market vacant.
10. CAGAYAN ELECTRIC POWER AND LIGHT CO., INC.
vs. CITY OF CAGAYAN DE ORO, G.R. No. 191761,
November 14, 2012
The law requires that the dissatisfied taxpayer who
questions the validity or legality of a tax ordinance must
file his appeal to the Secretary of Justice, within 30 days
from effectivity thereof. In case the Secretary decides the
appeal, a period also of 30 days is allowed for an aggrieved
party to go to court. But if the Secretary does not act
thereon, after the lapse of 60 days, a party could already
proceed to seek relief in court. These three separate
periods are clearly given for compliance as a prerequisite
before seeking redress in a competent court. Such
statutory periods are set to prevent delays as well as
enhance the orderly and speedy discharge of judicial
functions. For this reason the courts construe these
provisions of statutes as mandatory.
Ordinance No. 9503-2005 is a tax on business. CEPALCO’s
act of leasing for a consideration the use of its posts, poles
or towers to other pole users falls under the Local
Government Code’s definition of business. Business is
defined by Section 131(d) of the Local Government Code
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
as "trade or commercial activity regularly engaged in as a
means of livelihood or with a view to profit." In relation to
Section 131(d), Section 143(h) of the Local Government
Code provides that the city may impose taxes, fees, and
charges on any business which is not specified in Section
143(a) to (g) and which the sanggunian concerned may
deem proper to tax.
Under Section 143(h), the maximum tax that a
municipality may impose is 2% of Php100, which is Php2
or Two Pesos. Therefore, the maximum tax that the City
may impose shall be one-half of this, which is Php1 or One
Peso. But the tax under Ordinance No. 9503-2005 is
Php10, or Ten Pesos. This is a whooping [sic] 10 times
more than that allowed for the municipality! As in the
earlier instance discussed above, the violation made by the
respondent city of its delegated taxing authority is all too
patent.
In view of the lack of a separability clause, we declare void
the entirety of Ordinance No. 9503-2005. Any payment
made by reason of the tax imposed by Ordinance No. 9503-
2005 should, therefore, be refunded to CEPALCO. Our
ruling, however, is made without prejudice to the
enactment by the City of Cagayan de Oro of a tax ordinance
that complies with the limits set by the Local Government
Code.
11. LUZ R. YAMANE, in her capacity as the CITY
TREASURER OF MAKATI CITY vs. BA LEPANTO
CONDOMINIUM CORPORATION, G.R. No. 154993,
October 25, 2005
Moreover, a careful examination of the Revenue Code
shows that while Section 3A.02(m) seems designed as a
catch-all provision, Section 3A.02(f), which provides for a
different tax rate from that of the former provision, may be
construed to be of similar import. While Section 3A.02(f) is
quite exhaustive in enumerating the class of businesses
taxed under the provision, the listing, while it does not
include condominium-related enterprises, ends with the
abbreviation "etc.", or "et cetera".
We do note our discomfort with the unlimited breadth and
the dangerous uncertainty which are the twin hallmarks of
the words "et cetera." Certainly, we cannot be disposed to
uphold any tax imposition that derives its authority from
enigmatic and uncertain words such as "et cetera." Yet we
cannot even say with definiteness whether the tax
imposed on the Corporation in this case is based on "et
cetera," or on Section 3A.02(m), or on any other provision
of the Revenue Code. Assuming that the assessment made
on the Corporation is on a provision other than Section
3A.02(m), the main legal issue takes on a different
complexion. For example, if it is based on "et cetera" under
Section 3A.02(f), we would have to examine whether the
Page 32
Corporation faces analogous comparison with the other
businesses listed under that provision.
Certainly, the City Treasurer has not been helpful in that
regard, as she has been silent all throughout as to the exact
basis for the tax imposition which she wishes that this
Court uphold. Indeed, there is only one thing that prevents
this Court from ruling that there has been a due process
violation on account of the City Treasurer’s failure to
disclose on paper the statutory basis of the tax–that the
Corporation itself does not allege injury arising from such
failure on the part of the City Treasurer.
We can elicit from the Condominium Act that a
condominium corporation is precluded by statute from
engaging in corporate activities other than the holding of
the common areas, the administration of the condominium
project, and other acts necessary, incidental or convenient
to the accomplishment of such purposes. Neither the
maintenance of livelihood, nor the procurement of profit,
fall within the scope of permissible corporate purposes of
a condominium corporation under the Condominium Act.
The assessment appears to be based solely on the
Corporation’s collection of assessments from unit owners,
such assessments being utilized to defray the necessary
expenses for the Condominium Project and the common
areas. There is no contemplation of business, no
orientation towards profit in this case.
12. ERICSSON TELECOMMUNICATIONS, INC. vs. CITY OF
PASIG, represented by its City Mayor, Hon. Vicente P.
Eusebio, et al.*, G.R. No. 176667, November 22, 2007
Gross receipts include money or its equivalent actually or
constructively received in consideration of services
rendered or articles sold, exchanged or leased, whether
actual or constructive.
Gross revenue covers money or its equivalent actually or
constructively received, including the value of services
rendered or articles sold, exchanged or leased, the
payment of which is yet to be received.
The imposition of local business tax based on petitioner's
gross revenue will inevitably result in the constitutionally
proscribed double taxation – taxing of the same person
twice by the same jurisdiction for the same thing –
inasmuch as petitioner's revenue or income for a taxable
year will definitely include its gross receipts already
reported during the previous year and for which local
business tax has already been paid.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
13. ORLEYTE COMPANY vs. CITY OF MAKATI, CTA AC
No. 80, November 14, 2012
Orleyte is not engaged in any commercial business, as it
has consistently submitted an affidavit of non-operation.
Having no income arising from services performed or to be
performed to its customers, Orleyte's foreign exchange
gain, dividend income and interest income do not form
part of gross receipts that are subject to local business tax.
Hence, Orleyte's foreign exchange gain, dividend income
and interest income are not subject to local business tax.
14. LUNG CENTER OF THE PHILIPPINES vs. QUEZON
CITY and CONSTANTINO P. ROSAS, in his capacity as
City Assessor of Quezon City, G.R. No. 144104, June 29,
2004
It is plain as day that under the decree, the petitioner does
not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon.
Under the 1973 and 1987 Constitutions and Rep. Act No.
7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and unequivocal
proof, that (a) it is a charitable institution; and (b) its real
properties are ACTUALLY, DIRECTLY and EXCLUSIVELY
used for charitable purposes. "Exclusive" is defined as
possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and "exclusively" is
defined, "in a manner to exclude; as enjoying a privilege
exclusively." If real property is used for one or more
commercial purposes, it is not exclusively used for the
exempted purposes but is subject to taxation. The words
"dominant use" or "principal use" cannot be substituted
for the words "used exclusively" without doing violence to
the Constitutions and the law. Solely is synonymous with
exclusively.
What is meant by actual, direct and exclusive use of the
property for charitable purposes is the direct and
immediate and actual application of the property itself to
the purposes for which the charitable institution is
organized. It is not the use of the income from the real
property that is determinative of whether the property is
used for tax-exempt purposes.
15. GOVERNMENT SERVICE INSURANCE SYSTEM vs.
CITY TREASURER and CITY ASSESSOR of the CITY OF
MANILA, G.R. No. 186242, December 23, 2009
Under its charter, is GSIS exempt from real property
taxation?
The Supreme Court ruled that GSIS enjoys full tax
exemption under its charter. Moreover, as an
instrumentality of the national government, it is itself not
liable to pay real estate taxes assessed by the City of
Page 33
Manila against its Katigbak and Concepcion-Arroceros
properties.
Assuming that it is exempt from real property tax, is
GSIS liable for real property taxes for its properties
leased to a taxable entity?
However, following the “beneficial use” rule, accrued real
property taxes are due from the Katigbak property,
because it is leased to a taxable entity (Manila Hotel
Corporation). According to the Supreme Court, the
corresponding liability for the payment of the real
property taxes devolves on the taxable beneficial user.
Therefore, as a matter of law and contract, Manila Hotel
Corporation (MHC) stands liable to pay the real property
taxes due on the Katigbak property.
Are the properties of GSIS exempt from levy?
Moreover, the Supreme Court also held that the subject
GSIS properties are exempt from any attachment,
garnishment, execution, levy, or other legal processes. The
Katigbak property cannot in any event be subject of a
public auction sale, notwithstanding its real property tax
delinquency. This means that the City of Manila has to
satisfy its tax claim by serving the accrued real property
tax assessment on Manila Hotel Corporation (MHC) as the
taxable beneficial user of the Katigbak property, and in
case of nonpayment, through means other than the sale at
public auction of the leased property.
16. FELS ENERGY, INC. vs. THE PROVINCE OF
BATANGAS and THE OFFICE OF THE PROVINCIAL
ASSESSOR OF BATANGAS, G.R. No. 168557, February
16, 2007
The remedy of appeal to the Local Board of Assessment
Appeals (LBAA) is available from an adverse ruling or
action of the provincial, city or municipal assessor in the
assessment of the property. It follows then that the
determination made by the respondent Provincial
Assessor with regard to the taxability of the subject real
properties falls within its power to assess properties for
taxation purposes subject to appeal before the LBAA.
If the taxpayer fails to appeal in due course, the right of the
local government to collect the taxes due with respect to
the taxpayer’s property becomes absolute upon the
expiration of the period to appeal. It also bears stressing
that the taxpayer’s failure to question the assessment in
the LBAA renders the assessment of the local assessor
final, executory and demandable, thus, precluding the
taxpayer from questioning the correctness of the
assessment, or from invoking any defense that would
reopen the question of its liability on the merits.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
17. NATIONAL POWER CORPORATION vs. CENTRAL
BOARD OF ASSESSMENT APPEALS (CBAA), LOCAL
BOARD OF ASSESSMENT APPEALS (LBAA) OF LA
UNION, PROVINCIAL TREASURER, LA UNION and
MUNICIPAL ASSESSOR OF BAUANG, LA UNION, G.R. No.
171470, January 30, 2009
The mere undertaking of petitioner NPC under Section
10.1 of the Agreement, that it shall be responsible for the
payment of all real estate taxes and assessments, does not
justify the exemption. The privilege granted to petitioner
NPC cannot be extended to FELS. The covenant is between
FELS and NPC and does not bind a third person not privy
thereto, in this case, the Province of Batangas.
Build-operate-and-transfer (BOT): Under this concept, it
is the project proponent who constructs the project at its
own cost and subsequently operates and manages it. The
proponent secures the return on its investments from
those using the project’s facilities through appropriate
tolls, fees, rentals, and charges not exceeding those
proposed in its bid or as negotiated. At the end of the fixed
term agreed upon, the project proponent transfers the
ownership of the facility to the government agency. Thus,
the government is able to put up projects and provide
immediate services without the burden of the heavy
expenditures that a project start up requires.
Consistent with the BOT concept and as implemented,
BPPC – the owner-manager-operator of the project – is the
actual user of its machineries and equipment. BPPC’s
ownership and use of the machineries and equipment are
actual, direct, and immediate, while NAPOCOR’s is
contingent and, at this stage of the BOT Agreement, not
sufficient to support its claim for tax exemption. Thus, the
CTA committed no reversible error in denying NAPOCOR’s
claim for tax exemption.
18. NATIONAL POWER CORPORATION vs. PROVINCE
OF QUEZON and MUNICIPALITY OF PAGBILAO, G.R. No.
171586, July 15, 2009
The liability for taxes generally rests on the owner of the
real property at the time the tax accrues. This is a
necessary consequence that proceeds from the fact of
ownership. However, personal liability for real property
taxes (RPT) may also expressly rest on the entity with the
beneficial use of the real property, such as the tax on
property owned by the government but leased to private
persons or entities, or when the tax assessment is made on
the basis of the actual use of the property. In either case,
the unpaid RPT attaches to the property but is directly
chargeable against the taxable person who has actual and
beneficial use and possession of the property regardless of
whether or not that person is the owner.
Page 34
In the present case, the National Power Corporation (NPC),
contrary to its claims, is neither the owner nor the
possessor/user of the subject machineries.
19. MANILA INTERNATIONAL AIRPORT AUTHORITY vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG
PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF
PASAY, and CITY ASSESSOR OF PASAY, G.R. No. 163072,
April 2, 2009
MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not
organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation
under Section 16, Article XII of the 1987 Constitution
because MIAA is not required to meet the test of economic
viability. MIAA is a government instrumentality vested
with corporate powers and performing essential public
services pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local
Government Code.
The exception to the exemption in Section 234(a) does not
apply to MIAA because MIAA is not a taxable entity under
the Local Government Code. Such exception applies only if
the beneficial use of real property owned by the Republic
is given to a taxable entity.
MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested
with corporate powers.
Thus, MIAA is not a government-owned or controlled
corporation but a government instrumentality which is
exempt from any kind of tax from the local governments.
Indeed, the exercise of the taxing power of local
government units is subject to the limitations enumerated
in Section 133 of the Local Government Code. Under
Section 133(o) of the Local Government Code, local
government units have no power to tax instrumentalities
of the national government like the MIAA. Hence, MIAA is
not liable to pay real property tax for the NAIA Pasay
properties.
20. CITY ASSESSOR OF CEBU CITY vs. ASSOCIATION OF
BENEVOLA DE CEBU, INC., G.R. No. 152904, June 8,
2007
"Actual use" refers to the purpose for which the property
is principally or predominantly utilized by the person in
possession of the property.
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
SC held that CHHMAC is an integral part of CHH. It is
undisputed that the doctors and medical specialists
holding clinics in CHHMAC are those duly accredited by
CHH, that is, they are consultants of the hospital and the
ones who can treat CHH’s patients confined in it. This fact
alone takes away CHHMAC from being categorized as
"commercial" since a tertiary hospital like CHH is required
by law to have a pool of physicians who comprises the
required medical departments in various medical fields. As
aptly pointed out by respondent:
The physicians holding offices or clinics in CHHMAC, duly
appointed or accredited by CHH, precisely fulfill and carry
out their roles in the hospital’s services for its patients
through the CHHMAC. The fact that they are holding office
in a separate building, like at CHHMAC, does not take away
the essence and nature of their services vis-à-vis the over-
all operation of the hospital and the benefits to the
hospital’s patients. Given what the law requires, it is clear
that CHHMAC is an integral part of CHH.
Moreover, the exemption in favor of property used
exclusively for charitable or educational purposes is "not
limited to property actually indispensable" therefore
(Cooley on Taxation, Vol. 2, p. 1430), but extends to
facilities which are "incidental to and reasonably necessary
for" the accomplishment of said purposes, such as, in the
case of hospitals, "a school for training nurses, a nurses’
home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for
student nurses, interns and residents" (84 C.J.S., 621), such
as "athletic fields," including "a farm used for the inmates
of the institution" (Cooley on Taxation, Vol. 2, p. 1430).
Verily, being an integral part of CHH, CHHMAC should be
under the same special assessment level of as that of the
former.
21. STA. LUCIA REALTY & DEVELOPMENT, Inc. vs. CITY
OF PASIG, MUNICIPALITY OF CAINTA, PROVINCE OF
RIZAL, G.R. No. 166838, June 15, 2011
While a local government unit is authorized under several
laws to collect real estate tax on properties falling under
its territorial jurisdiction, it is imperative to first show that
these properties are unquestionably within its
geographical boundaries.
Page 35
 TARIFF AND CUSTOMS CODE
1. COMMISSIONER OF CUSTOMS vs. AGFHA
INCORPORATED, G.R. No. 187425, March 28, 2011
Republic Act No. 529, as amended by R.A. No. 4100
provides that stipulations on the satisfaction of obligations
in foreign currency are void. Payments of monetary
obligations, subject to certain exceptions, shall be
discharged in the currency which is the legal tender in the
Philippines. But since R.A. No. 529 does not provide for the
rate of exchange for the payment of foreign currency
obligations incurred after its enactment, the Court held in
a number of cases that the rate of exchange for the
conversion in the peso equivalent should be the prevailing
rate at the time of payment.
Regarding the state immunity doctrine, the Commissioner
of Customs cannot escape liability for the lost shipment for
goods. As discussed in the case of Republic of the
Philippines represented by the Bureau of Customs vs.
UNIMEX Micro-Electronics, “the Court cannot turn a blind
eye to [the Bureau of Custom’s] ineptitude and gross
negligence in the safekeeping of respondent’s goods. [The
Court is] not likewise unaware of its lackadaisical attitude
in failing to provide a cogent explanation on the goods’
disappearance, considering that they were in its custody
and that they were in fact the subject of litigation. The
situation does not allow [the Court] to reject respondent’s
claim on the mere invocation of the doctrine of state
immunity. Succinctly, the doctrine must be fairly observed
and the State should not avail itself of this prerogative to
take undue advantage of parties that may have legitimate
claims against it.
2. CHEVRON PHILIPPINES, INC. vs. COMMISSIONER OF
THE BUREAU OF CUSTOMS, G.R. No. 178759, August 11,
2008
The term "entry" in customs law has a triple meaning.
It means:
(1) the documents filed at the customs house;
(2) the submission and acceptance of the documents
and
(3) the procedure of passing goods through the
customs house.
The import entry declaration (IED) serves as basis for the
payment of advance duties on importations whereas the
import entry and internal revenue declaration (IEIRD)
evidences the final payment of duties and taxes.
Clearly, the operative act that constitutes "entry" of the
imported articles at the port of entry is the filing and
acceptance of the "specified entry form" together with the
other documents required by law and regulations. There is
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
no dispute that the "specified entry form" refers to the
IEIRD.
Both the IED and IEIRD should be filed within 30 days
from the date of discharge of the last package from the
vessel or aircraft.
The TCC is clear and explicit. It gives a non-extendible
period of 30 days for the importer to file the entry which
we have already ruled pertains to both the IED and IEIRD.
Thus under Section 1801 in relation to Section 1301, when
the importer fails to file the entry within the said period,
he "shall be deemed to have renounced all his interests
and property rights" to the importations and these shall be
considered impliedly abandoned in favor of the
government.
3. COMMISSIONER OF CUSTOMS vs. MARINA SALES,
INC., G.R. No. 183868, November 22, 2010
To fall under Tariff Heading H.S. 2106.90 50, which calls
for a higher import duty rate of 7%, the imported articles
must not lose their original character. The laboratory
analysis of importer’s samples yielded a different result.
The report supported importer’s position that the subject
importations are not yet ready for human consumption.
The juice compounds could not be taken in their raw form
because they are highly concentrated and must be mixed
with other additives before they could be marketed as
Sunquick juice products. If taken in their unprocessed
form, the concentrates without the mixed additives would
produce a sour taste. The concentrates, to be consumable,
must have to lose their original character. The importer
transforms said juice compounds, being raw materials,
into a substance suitable for human consumption.
Contrary to the Commissioner of Customs’ assertions,
empirical evidence shows that the subject importations
would have to undergo a laborious method, as shown by
its manufacturing flowchart and manufacturing process, to
achieve their marketable juice consistency. Accordingly,
the 1% tariff import duty rate under Tariff Heading H.S.
2106.90 was correctly applied to the subject importations.
4. MARIBEL B. JARDELEZA vs. PEOPLE OF THE
PHILIPPINES, G.R. No. 165265, February 6, 2006
A person arriving in the Philippines with baggages
containing dutiable articles is bound to declare the same in
all respects. In order to meet the convenience of the
travelers, a simple and more expeditious method of
customs clearance is provided for baggages occupying the
passage therein for goods imported in the regular manner.
Official entry forms and forms of baggage declaration are
supplied to the passengers to be filled before the customs
officer. The traveler has the burden of carrying forward
items that have to be declared before examination of the
Page 36
cargo has begun. Adequate reporting of dutiable
merchandise being brought into the country is absolutely
necessary to the enforcement of customs laws, and failure
to comply with those requisites is as condemnable as
failure to pay customs fees.
The provision is Part 4 of Title VI, Section 2505, of the TCC
which enumerates the administrative penalties in the form
of surcharges, fines and forfeitures imposed by law on
imported dutiable goods. It does not define a crime. It
merely provides, inter alia, for the administrative remedies
which can be resorted to by the Bureau of Customs when
seizing the dutiable articles found in the baggage of any
person arriving in the Philippines which is not included in
the accomplished baggage declaration submitted to the
customs authorities, and the administrative penalties that
such person must pay for the release of such goods if not
imported contrary to law. Any administrative penalty that
may be imposed on the person arriving in the Philippines
with undeclared dutiable articles is separate from and
independent of the criminal liability for smuggling under
Section 3601 of the TCC and for violation of other penal
provisions in the TCC. The criminal liability of such person
can only be determined in the appropriate criminal
proceedings, prescinding from the outcome in any
administrative case that may have been filed and disposed
of by the customs authorities. Indeed, the second
paragraph of Section 2505 provides that nothing in this
Section shall prevent the bringing of criminal action
against the offender for smuggling under Section 3601 of
the TCC.
Smuggling is committed by any person who:
(1) fraudulently imports or brings into the Philippines
any article contrary to law;
(2) assists in so doing any article contrary to law; or
(3) receives, conceals, buys, sells or in any manner
facilitate the transportation, concealment or sale
of such goods after importation, knowing the
same to have been imported contrary to law.
5. EL GRECO SHIP MANNING AND MANAGEMENT
CORPORATION vs. COMMISSIONER OF CUSTOMS, G.R.
No. 177188, December 4, 2008
The penalty of forfeiture is imposed on any vessel
engaged in smuggling, provided that the following
conditions are present:
(1) The vessel is "used unlawfully in the importation
or exportation of articles into or from" the
Philippines;
(2) The articles are imported to or exported from
"any Philippine port or place, except a port of
entry"; or
(3) If the vessel has a capacity of less than 30 tons and
is "used in the importation of articles into any
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
Philippine port or place other than a port of the
Sulu Sea, where importation in such vessel may be
authorized by the Commissioner, with the
approval of the department head."
There is no question that M/V Neptune Breeze, then
known as M/V Criston, was carrying 35,000 bags of
imported rice without the necessary papers showing that
they were entered lawfully through a Philippine port after
the payment of appropriate taxes and duties thereon. This
gives rise to the presumption that such importation was
illegal. Consequently, the rice subject of the importation, as
well as the vessel M/V Neptune Breeze used in
importation are subject to forfeiture. The burden is on El
Greco, as the owner of M/V Neptune Breeze, to show that
its conveyance of the rice was actually legal.
JUDICIAL REMEDIES
1. THE CITY OF MANILA, represented by MAYOR JOSE
L. ATIENZA, JR., and MS. LIBERTY M. TOLEDO, in her
capacity as the City Treasurer of Manila vs. HON.
CARIDAD H. GRECIA-CUERDO, in her capacity as
Presiding Judge of the Regional Trial Court, Branch
112, Pasay City; SM MART, INC.; SM PRIME HOLDINGS,
INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.;
ACE HARDWARE PHILIPPINES, INC.; WATSON
PERSONAL CARE STORES, PHILS., INC.; JOLLIMART
PHILS., CORP.; SURPLUS MARKETING CORPORATION
and SIGNATURE LINES, G.R. No. 175723, February 4,
2014
Petitioners availed of the wrong remedy when they filed
the instant special civil action for certiorari under Rule 65
of the Rules of Court in assailing the Resolutions of the CA
which dismissed their petition filed with the said court and
their motion for reconsideration of such dismissal. There is
no dispute that the assailed Resolutions of the CA are in
the nature of a final order as they disposed of the petition
completely. It is settled that in cases where an assailed
judgment or order is considered final, the remedy of the
aggrieved party is appeal. Hence, in the instant case,
petitioner should have filed a petition for review on
certiorari under Rule 45, which is a continuation of the
appellate process over the original case.
The CTA has exclusive appellate jurisdiction over
decisions, orders or resolutions of the RTCs in local tax
cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction, there is
no categorical statement under RA 1125 as well as the
amendatory RA 9282, which provides that the CTA has
jurisdiction over petitions for certiorari assailing
interlocutory orders issued by the RTC in local tax cases
filed before it.
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The prevailing doctrine is that the authority to issue writs
of certiorari involves the exercise of original jurisdiction
which must be expressly conferred by the Constitution or
by law and cannot be implied from the mere existence of
appellate jurisdiction.
The power of the CTA includes that of determining
whether or not there has been grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of
the RTC in issuing an interlocutory order in cases falling
within the exclusive appellate jurisdiction of the tax court.
It, thus, follows that the CTA, by constitutional mandate, is
vested with jurisdiction to issue writs of certiorari in these
cases.
Indeed, in order for any appellate court to effectively
exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In
transferring exclusive jurisdiction over appealed tax cases
to the CTA, it can reasonably be assumed that the law
intended to transfer also such power as is deemed
necessary, if not indispensable, in aid of such appellate
jurisdiction. There is no perceivable reason why the
transfer should only be considered as partial, not total.
2. COMMISSIONER OF INTERNAL REVENUE vs.
HAMBRECHT & QUIST PHILIPPINES, INC., G.R. No.
169225, November 17, 2010
The appellate jurisdiction of the Court of Tax Appeals
(CTA) is not limited to cases which involve decisions of the
Commissioner of Internal Revenue (CIR) on matters
relating to assessments or refunds.
The jurisdiction of the Court of Tax Appeals (CTA) over
“other matters” is found in number 1 of Section 7 of
Republic Act No. 1125, as amended. Under this provision,
the CTA exercises exclusive appellate jurisdiction to
review by appeal decisions of the Commissioner of
Internal Revenue (CIR) in cases involving disputed
assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or
other matters arising under the National Internal Revenue
Code (NIRC) or other law as part of law administered by
the Bureau of Internal Revenue (BIR). The term “other
matters” is limited only by the qualifying phrase that
follows it. The appellate jurisdiction of the CTA is not
limited to cases which involve decisions of the CIR on
matters relating to assessments or refunds. It covers other
cases that arise out of the NIRC or related laws
administered by the BIR. The issue of whether or not the
BIR’s right to collect taxes had already prescribed is a
subject matter falling under the NIRC. In connection
therewith, the NIRC also states that the collection of taxes
is one of the duties of the BIR. Thus, from the foregoing,
the issue of prescription of the BIR’s right to collect taxes
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
may be considered as covered by the term “other matters”
over which the CTA has appellate jurisdiction.
The Supreme Court held that the fact that an assessment
has become final for failure of the taxpayer to file a protest
within the time allowed only means that the validity or
correctness of the assessment may no longer be
questioned on appeal. However, the validity of the
assessment itself is a separate and distinct issue from the
issue of whether the right of the CIR to collect the validly
assessed tax has prescribed. This issue of prescription,
being a matter provided for by the National Internal
Revenue Code (NIRC), is well within the jurisdiction of the
CTA to decide.
3. EMERLINDA S. TALENTO, in her capacity as the
Provincial Treasurer of the Province of Bataan vs.
HON. REMIGIO M. ESCALADA, JR., Presiding Judge of
the Regional Trial Court of Bataan, Branch 3, and
PETRON CORPORATION, G.R. No. 180884, June 27,
2008
Whether the collection of taxes may be suspended by
reason of the filing of an appeal and posting of a surety
bond, is undoubtedly a pure question of law. Section 2(c)
of Rule 41 of the Rules of Court provides:
SEC. 2. Modes of Appeal. -
(c) Appeal by certiorari. - In all cases when only
questions of law are raised or involved, the appeal
shall be to the Supreme Court by petition for review
on certiorari under Rule 45. (Emphasis supplied)
Thus, petitioner resorted to the erroneous remedy when
she filed a petition for certiorari under Rule 65, when the
proper mode should have been a petition for review on
certiorari under Rule 45. Moreover, under Section 2, Rule
45 of the same Rules, the period to file a petition for
review is 15 days from notice of the order appealed from.
In the instant case, petitioner received the questioned
order of the trial court on November 6, 2007, hence, she
had only up to November 21, 2007 to file the petition.
However, the same was filed only on January 4, 2008, or
43 days late. Consequently, petitioner's failure to file an
appeal within the reglementary period rendered the order
of the trial court final and executory.
The perfection of an appeal in the manner and within the
period prescribed by law is mandatory. Failure to conform
to the rules regarding appeal will render the judgment
final and executory and beyond the power of the Court's
review. Jurisprudence mandates that when a decision
becomes final and executory, it becomes valid and binding
upon the parties and their successors in interest. Such
Page 38
decision or order can no longer be disturbed or reopened
no matter how erroneous it may have been.
Petitioner's resort to a petition under Rule 65 is obviously
a play to make up for the loss of the right to file an appeal
via a petition under Rule 45. However, a special civil action
under Rule 65 cannot cure petitioner's failure to timely file
a petition for review on certiorari under Rule 45 of the
Rules of Court. Rule 65 is an independent action that
cannot be availed of as a substitute for the lost remedy of
an ordinary appeal, including that under Rule 45,
especially if such loss or lapse was occasioned by one's
own neglect or error in the choice of remedies.
Moreover, even if we assume that a petition under Rule 65
is the proper remedy, the petition is still dismissible.
We note that no motion for reconsideration of the
November 5, 2007 order of the trial court was filed prior
to the filing of the instant petition. The settled rule is that a
motion for reconsideration is a sine qua non condition for
the filing of a petition for certiorari. The purpose is to
grant the public respondent an opportunity to correct any
actual or perceived error attributed to it by the re-
examination of the legal and factual circumstances of the
case. Petitioner's failure to file a motion for
reconsideration deprived the trial court of the opportunity
to rectify an error unwittingly committed or to vindicate
itself of an act unfairly imputed. Besides, a motion for
reconsideration under the present circumstances is the
plain, speedy and adequate remedy to the adverse
judgment of the trial court.
DOCUMENTARY STAMP TAX
1. MICHEL J. LHUILLER Pawnshop, Inc. vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
166786, May 3, 2006
True, the law does not consider said ticket as an evidence
of security or indebtedness. However, for purposes of
taxation, the same pawn ticket is proof of an exercise of a
taxable privilege of concluding a contract of pledge. At any
rate, it is not said ticket that creates the pawnshop’s
obligation to pay DST but the exercise of the privilege to
enter into a contract of pledge. There is therefore no basis
in petitioner’s assertion that a DST is literally a tax on a
document and that no tax may be imposed on a pawn
ticket.
2. MICHEL J. LHUILLER PAWNSHOP, INC. vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
166786, September 11, 2006
APRIL LYNN L. URSAL LLB-4
TAXATION LAW REVIEW (S.Y. 2015-2016)
UNIVERSITY OF CEBU – COLLEGE OF LAW
Section 195 of the National Internal Revenue Code (NIRC)
imposes a DST on every pledge regardless of whether the
same is a conventional pledge governed by the Civil Code
or one that is governed by the provisions of P.D. No. 114.
All pledges are subject to DST, unless there is a law
exempting them in clear and categorical language.
Then too, it is the exercise of the privilege to enter into an
accessory contract of pledge, as distinguished from a
contract of loan, which gives rise to the obligation to pay
DST.
3. PHILIPPINE BANKING CORPORATION (NOW:
GLOBAL BUSINESS BANK, INC.) vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 170574, January 30,
2009
Documentary stamp tax is a tax on documents,
instruments, loan agreements, and papers evidencing the
acceptance, assignment, sale or transfer of an obligation,
right or property incident thereto. A DST is actually an
excise tax because it is imposed on the transaction rather
than on the document. A DST is also 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. Hence, in imposing the DST, the Court
considers not only the document but also the nature and
character of the transaction.
It is clear that the "Special/Super Savings Deposit Account"
(SSDA) is a certificate of deposit drawing interest subject
to DST even if it is evidenced by a passbook and non-
negotiable in character.
A document to be deemed a certificate of deposit requires
no specific form as long as there is some written
memorandum that the bank accepted a deposit of a sum of
money from a depositor. What is important and controlling
is the nature or meaning conveyed by the passbook and
not the particular label or nomenclature attached to it,
inasmuch as substance, not form, is paramount.
Moreover, a certificate of deposit may be payable to the
depositor, to the order of the depositor, or to some other
person or his order. From the use of the conjunction or,
instead of and, the negotiable character of a certificate of
deposit is immaterial in determining the imposition of
DST.
4. COMMISSIONER OF INTERNAL REVENUE vs. FIRST
EXPRESS PAWNSHOP COMPANY, INC., G.R. Nos.
172045-46, June 16, 2009
Page 39
A deposit on future subscription is not subject to Yes. The inter-company advances are subject to DST. The
documentary stamp tax. It must be noted that deposits on Supreme Court ruled that the instructional letters as well
subscription represent advances made by the stockholders as the journal vouchers evidencing advances extended to
and are in the nature of liabilities for which stocks may be FDC’s affiliates qualify as loan agreements upon which
issued in the future. Absent any express agreement documentary stamp taxes (DST) may be imposed.
between the stockholders and petitioner to convert said
advances/deposits to capital stock, either through a
subscription agreement or any other document, these
deposits remain as liabilities owed by respondent to its
stockholders. For these deposits to be subject to DST, it is
necessary that a conversion/subscription agreement be
made by First Express and its stockholders. Absent such
conversion, no DST can be imposed on said deposits under
Section 175 of the Tax Code.

5. COMMISSIONER OF INTERNAL REVENUE vs.

FILINVEST DEVELOPMENT CORPORATION, G.R. No.
163653, July 19, 2011

Can the BIR assess deficiency income tax based on

imputed interest on inter-company advances?

No. The BIR cannot assess deficiency income tax based on

imputed interest. The Supreme Court ruled that the BIR
Commissioner’s power of distribution, apportionment or
allocation of gross income and deductions under the
National Internal Revenue Code (NIRC) does not include
the power to impute “theoretical interests” to the
controlled taxpayer's transactions. While it has been held
that the phrase “from whatever source derived” indicates a
legislative policy to include all income not expressly
exempted within the class of taxable income under our
laws, the term “income” has been variously interpreted to
mean “cash received or its equivalent”, “the amount of
money coming to a person within a specific time” or
“something distinct from principal or capital”. Otherwise
stated, there must be proof of the actual or, at the very
least, probable receipt or realization by the controlled
taxpayer of the item of gross income sought to be
distributed, apportioned or allocated by the BIR
Commissioner.

According to the Supreme Court, there is no evidence of

actual or possible showing that the advances extended by
FDC to its affiliates had resulted to the interests
subsequently assessed by the BIR. The BIR had adduced
no evidence that the advances extended to affiliates were
sourced from the borrowings made by respondent FDC
from the commercial banks. Moreover, the Supreme Court
also said that pursuant to Article 1956 of the New Civil
Code of the Philippines, no interest shall be due unless it
has been expressly stipulated in writing.

Are inter-company advances subject to Documentary

Stamp Tax (DST)?

APRIL LYNN L. URSAL LLB-4 Page 40

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