THE MANILA BANKING CORPORATION petitioner
Versus
COMMISSIONER INTERNAL REVENUE respondent
GR no. 168118
2006
The Manila banking corporation, petitioner was
engaged in the commercial banking industry since
1961. On 1987, the Monetary Board of the BSP
pursuant to Section 29, of RA 265 prohibited petitioner
from engaging in business due to insolvency.
It ceased operations that year.
Ra 8424 known as the COMPREHENSIVE TAX
REFORM ACT of 1997 introduced the impostion of a
minimum corporate income tax to domestic and foreign
corporations. The law allows a four year period from
the time the corporation were REGISTERED with the
BIR during which the minimum will not be imposed.
On 1999, 12 years after it ceased operations, BSP
authorized petitioner to operate as a thrift bank. It
filed its ACITR and paid 33million+ for the tax year
1999.
It also filed a letter to the BIR regarding petitioner’s
entitlement to the 4 year grace period given by the
RA8424. The BIR said that yes it is and so, its
minimum corporate income tax may not be imposed
earlier than 2002.
Hence a request for refund was made. But due to te
inaction of the BIR a petitioner for review was filed
before the CTA.
The court denied the petitioner contending that the
MCIT for the year 1999 is in order and it cnnot benefit
from the 4 year grace period since the law applies to
new corporations.
The CA affirmed, hence the petition for review on
certiorari.
For his part, the Commissioner of Internal Revenue
(CIR), respondent, maintains that pursuant to R.A. No.
8424, petitioner should pay its minimum corporate
income tax beginning January 1, 1998 as it did not
close its business operations in 1987 but merely
suspended the same. Even if placed under
receivership, its corporate existence was never
affected. Thus, it falls under the category of an existing
corporation recommencing its banking business
operations.
Isssue: Is petitioner covered by the four year grace
period hence not required to pay ACITR? Is it entitled
to a refund?
Ruling: Yes but not under the above law.
Significantly, on February 23, 1995, Congress enacted
R.A. No. 7906, otherwise known as the Thrift Banks
Act of 1995. It took effect on March 18, 1995. This law
provides for the regulation of the organization and
operations of thrift banks.Under Section 3, thrift banks
include savings and mortgage banks, private
development banks, and stock savings and loans
associations organized under existing laws.
On June 15, 1999, the BIR issued Revenue Regulation
No. 4-95 implementing certain provisions of the said
R.A. No. 7906. Section 6 provides:
Sec. 6. Period of exemption. All thrift banks created
and organized under the provisions of the Act shall be
exempt from the payment of all taxes, fees, and charges
of whatever nature and description, except the
corporate income tax imposed under Title II of the
NIRC and as specified in Section 2(A) of these
regulations, for a period of five (5) years from the date
of commencement of operations; while for thrift banks
which are already existing and operating as of the date
of effectivity of the Act (March 18, 1995), the tax
exemption shall be for a period of five (5) years
reckoned from the date of such effectivity.
For purposes of these regulations, date of
commencement of operations shall be understood to
mean the date when the thrift bank was registered
with the Securities and Exchange Commission or the
date when the Certificate of Authority to Operate was
issued by the Monetary Board of the Bangko Sentral
ng Pilipinas, whichever comes later.
petitioner bank was registered with the BIR in
1961. However, in 1987, it was found insolvent by the
Monetary Board of the BSP and was placed under
receivership. After twelve (12) years, or on June 23,
1999, the BSP issued to it a Certificate of Authority to
Operate as a thrift bank. Earlier, or on January 21,
1999, it registered with the BIR. Then it filed with the
SEC its Articles of Incorporation which was approved
on June 22, 1999.
It is clear from the above-quoted provision of Revenue
Regulations No. 4-95 that the date of commencement
of operations of a thrift bank is the date it was
registered with the SEC or the date when the
Certificate of Authority to Operate was issued to it by
the Monetary Board of the BSP, whichever comes later.
Let it be stressed that Revenue Regulations No. 9-98,
implementing R.A. No. 8424 imposing the minimum
corporate income tax on corporations, provides that for
purposes of this tax, the date when business operations
commence is the year in which the domestic
corporation registered with the BIR. However, under
Revenue Regulations No. 4-95, the date of
commencement of operations of thrift banks, such as
herein petitioner, is the date the particular thrift bank
was registered with the SEC or the date when the
Certificate of Authority to Operate was issued to it by
the Monetary Board of the BSP, whichever comes later.
Clearly then, Revenue Regulations No. 4-95, not
Revenue Regulations No. 9-98, applies to petitioner,
being a thrift bank. It is, therefore, entitled to a grace
period of four (4) years counted from June 23,
1999 when it was authorized by the BSP to operate as
a thrift bank. Consequently, it should only pay its
minimum corporate income tax after four (4) years
from 1999.
INTERCONTINENTAL BROADCASTING
CORPORATION (IBC), represented by ATTY.
RENATOQ. BELLO, in his capacity as CEO and
President, petitioner,
vs.
NOEMI B. AMARILLA, CORSINI R. LAGAHIT,
ANATOLIO G. OTADOY, and CANDIDO C.
QUIÑONES, JR.,respondents.
G.R. No. 162775 October 27, 2006
Facts
The four retirees herin repsondents were refused their
salary increases because according to petitioner these
would be used tooffset the taxes due on their
retirement benefits in accordance to the NIRC.
A claim before the Labor arbiter was filed for unfair
labor practice and non payment of backwages
The complainants averred that their retirement
benefits are exempt from income tax under Article 32
of the NIRC.
petitioner averred that under Section 21 of the NIRC,
the retirement benefits received by employees from
their employers constitute taxable income. While
retirement benefits are exempt from taxes under
Section 28(b) of said Code, the law requires that such
benefits received should be in accord with a reasonable
retirement plan duly registered with the Bureau of
Internal Revenue (BIR) after compliance with the
requirements therein enumerated. Since its retirement
plan in the 1993 CBA was not approved by the BIR,
complainants were liable for income tax on their
retirement benefits. Petitioner claimed that it was
mandated to withhold the income tax due from the
retirement benefits of said complainants.
Petitioner countered that the retirement benefits
received by the complainants were based on the CBA
between it and its bargaining units.
The LA and the NLRC ruled in favor of repondents.
The NLRC held that the benefits of the retirement plan
under the CBAs between petitioner and its union
members were subject to tax as the scheme was not
approved by the BIR. However, it had also been the
practice of petitioner to give retiring employees their
retirement pay without tax deductions and there was
no justifiable reason for the respondent to deviate from
such practice. The NLRC concluded that petitioner was
deemed to have assumed the tax liabilities of the
complainants on their retirement benefits, hence, had
no right to deduct taxes from their salary differentials.
Hence the petition. The respondent’s history reveals
that it was paying retirement pays to its retiring
employees without tax deductions as a matter of
practice. There is no justifiable reason for the
respondent to deviate from that practice now. It is
deemed to have assumed the tax liabilities of the
complainants
Petitioner insists that respondents are liable for taxes
on their retirement benefits because the retirement
plan under the CBA was not approved by the BIR. It
insisted that it failed to comply with the requisites of
Section 32 of the NIRC and Rule II, Section 6 of the
Rules Implementing the New Retirement Law which
provides that retirement pay shall be tax exempt upon
compliance with the requirements under Section 2(b)
of Revenue Regulation No. 12-86 dated August 1, 1986.
Issue
1.WON respondents benefits are part of their gross
income
2. WON petitioner can use the salary differentials to
offset the tax liabilities of respondents
Ruling:
Yes. We agree with petitioner’s contention that, under
the CBA, it is not obliged to pay for the taxes on the
respondents’ retirement benefits. We have carefully
reviewed the CBA and find no provision where
petitioner obliged itself to pay the taxes on the
retirement benefits of its employees.
We also agree with petitioner’s contention that, under
the NIRC, the retirement benefits of respondents are
part of their gross income subject to taxes.
Thus, for the retirement benefits to be exempt from the
withholding tax, the taxpayer is burdened to prove the
concurrence of the following elements: (1) a reasonable
private benefit plan is maintained by the employer; (2)
the retiring official or employee has been in the service
of the same employer for at least 10 years; (3) the
retiring official or employee is not less than 50 years of
age at the time of his retirement; and (4) the benefit
had been availed of only once.
Respondents were qualified to retire optionally from
their employment with petitioner. However, there is no
evidence on record that the 1993 CBA had been
approved or was ever presented to the BIR; hence, the
retirement benefits of respondents are taxable.
Under Section 80 of the NIRC, petitioner, as employer,
was obliged to withhold the taxes on said benefits and
remit the same to the BIR.
2. NO.
However, we agree with respondents’ contention that
petitioner did not withhold the taxes due on their
retirement benefits because it had obliged itself to pay
the taxes due thereon. This was done to induce
respondents to agree to avail of the optional retirement
scheme. Thus, in its petition in this case, petitioner
averred that:
While it may indeed be conceded that the previous
dispensation of petitioner IBC-13 footed the bill for the
withholding taxes, upon discovery by the new
management, this was stopped altogether as this was
grossly prejudicial to the interest of the petitioner IBC-
13.
Respondents received their retirement benefits from
the petitioner in three staggered installments without
any tax deduction for the simple reason that petitioner
had remitted the same to the BIR with the use of its
own funds conformably with its agreement with the
retirees. It was only when respondents demanded the
payment of their salary differentials that petitioner
alleged, for the first time, that it had failed to present
the 1993 CBA to the BIR for approval, rendering such
retirement benefits not exempt from taxes;
consequently, they were obliged to refund to it the
amounts it had remitted to the BIR in payment of their
taxes.
Notes:
An agreement to pay the taxes on the retirement
benefits as an incentive to prospective retirees and for
them to avail of the optional retirement scheme is not
contrary to law or to public morals. Petitioner had
agreed to shoulder such taxes to entice them to
voluntarily retire early, on its belief that this would
prove advantageous to it. Respondents agreed and
relied on the commitment of petitioner. For petitioner
to renege on its contract with respondents simply
because its new management had found the same
disadvantageous would amount to a breach of contract.
There is even no evidence that any "new management"
was ever installed by petitioner after respondents’
retirement; nor is there evidence that the Board of
Directors of petitioner resolved to renege on its contract
with respondents and demand the reimbursement for
the amounts remitted by it to the BIR.
CYANAMID PHILIPPINES, INC., petitioner, vs. THE
COURT OF APPEALS, THE COURT OF TAX
APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
[G.R. No. 108067. January 20, 2000]
Facts
Petitioner, Cyanamid Philippines, Inc., a corporation
organized under Philippine laws, is a wholly owned
subsidiary of American Cyanamid Co. based in Maine,
USA. It is engaged in the manufacture of
pharmaceutical products and chemicals, a wholesaler
of imported finished goods, and an importer/indentor.
On February 7, 1985, the CIR sent an assessment
letter to petitioner and demanded the payment of
deficiency income tax of one hundred nineteen
thousand eight hundred seventeen (P119,817.00) pesos
for taxable year 1981
Petitioner protested the assessment in particular the
surtax for the undue accumulation of earnings was not
proper because the said profits were retained to
INCREASE petitioners working capital and it would be
used for reasonable business needs of the company.
Petitioner appealed to the Court of Tax Appeals.
During the pendency of the case, however, both parties
agreed to compromise the 1981 deficiency income tax
assessment of P119,817.00. Petitioner paid a reduced
amount --twenty-six thousand, five hundred seventy-
seven pesos (P26,577.00) -- as compromise settlement.
However, the surtax on improperly accumulated
profits remained unresolved.
Petitioner claimed that CIRs assessment representing
the 25% surtax on its accumulated earnings for the
year 1981 had no legal basis for the following reasons:
(a) petitioner accumulated its earnings and profits for
reasonable business requirements to meet working
capital needs and retirement of indebtedness; (b) The tax on improper accumulation of surplus is
petitioner is a wholly owned subsidiary of American essentially a penalty tax designed to compel
Cyanamid Company, a corporation organized under corporations to distribute earnings so that the said
the laws of the State of Maine, in the United States of earnings by shareholders could, in turn, be taxed.
America, whose shares of stock are listed and traded in
The amendatory provision of Section 25 of the 1977
New York Stock Exchange. This being the case, no
NIRC, which was PD 1739, enumerated the
individual shareholder of petitioner could have evaded
corporations exempt from the imposition of improperly
or prevented the imposition of individual income taxes
accumulated tax: (a) banks; (b) non-bank financial
by petitioners accumulation of earnings and profits,
instead of distribution of the same. S intermediaries; (c) insurance companies; and (d)
corporations organized primarily and authorized by
The CTA denied the petition. "Petitioner contends that the Central Bank of the Philippines to hold shares of
it did not declare dividends for the year 1981 in order stocks of banks. Petitioner does not fall among those
to use the accumulated earnings as working capital exempt classes.
reserve to meet its "reasonable business needs". The
law permits a stock corporation to set aside a portion of If the CIR determined that the corporation avoided the
its retained earnings for specified purposes (citing tax on shareholders by permitting earnings or profits
Section 43, paragraph 2 of the Corporation Code of the to accumulate, and the taxpayer contested such a
determination, the burden of proving the
Philippines). In the case at bar, however, petitioners
determination wrong, together with the corresponding
purpose for accumulating its earnings does not fall
within the ambit of any of these specified purposes. burden of first going forward with evidence, is on the
taxpayer. This applies even if the corporation is not a
More compelling is the finding that there was no need mere holding or investment company and does not
for petitioner to set aside a portion of its retained have an unreasonable accumulation of earnings or
earnings as working capital reserve as it claims since profits.[27]
it had considerable liquid funds
In order to determine whether profits are accumulated
The CA affirmed. for the reasonable needs of the business to avoid the
surtax upon shareholders, it must be shown that the
Issue: Is petitioner liable for accumulated earnings tax
controlling intention of the taxpayer is manifested at
for the year 1981?
the time of accumulation, not intentions declared
Ruling: subsequently, which are mere
afterthoughts.[28] Furthermore, the accumulated
Section 25[9] of the old National Internal Revenue Code profits must be used within a reasonable time after the
of 1977 states: Sd-aad-sc close of the taxable year. In the instant case, petitioner
did not establish, by clear and convincing evidence that
"Sec. 25. Additional tax on corporation improperly
such accumulation of profit was for the immediate
accumulating profits or surplus -
needs of the business.
"(a) Imposition of tax. -- If any corporation is formed or
availed of for the purpose of preventing the imposition
of the tax upon its shareholders or members or the
shareholders or members of another corporation,
through the medium of permitting its gains and profits
to accumulate instead of being divided or distributed,
there is levied and assessed against such corporation,
for each taxable year, a tax equal to twenty-five per-
centum of the undistributed portion of its accumulated
profits or surplus which shall be in addition to the tax
imposed by section twenty-four, and shall be computed,
collected and paid in the same manner and subject to
the same provisions of law, including penalties, as that
tax.

The provision discouraged tax avoidance through

corporate surplus accumulation. When corporations do
not declare dividends, income taxes are not paid on the
undeclared dividends received by the shareholders.