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CASE TITLE FACTS HELD IMPORTANT DOCTRINE

BASIC PRINCIPLES OF A SOUND TAX SYSTEM


CHAVEZ V. ONGPIN Chavez tax payer and real estate owner assails EO 73 (x) impose new nor increase taxes.  Fiscal adequacy which is one of the characteristics of a sound tax
constitutionality of E.O 73 (directs that collection of real To continue collecting based on valuation several years system requires that sources of revenue must be GERTRUDE
/ ALEEZAH adequate toR.meet
REGADO
property taxes should be based on the assessed 1984 real ago in disregard of increase in value of real property is government expenditure
property values instead of 1979 . Excessive increase of not in consonance with a sound tax system
real property tax by 100% to 400% on improvement and up
to 100% on land
Unconstitutional: imposes additional 1% tax on all property
(x) meet requirement of due process (publication, notice of
hearing and opportunity to be heard)
AM JUR 40
ART VI SEC 28 CONSTI
Section 28.
1. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
2. The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.
3. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.
4. No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress

SCOPE AND LIMITATIONS


SISON V. ANCHETA Suit for declaratory relief or prohibition on validity of Sec 1 It is enough that the classification rests on substantial  Power to tax is an attribute of sovereignty (J.Malcolm) It is the strongest
of BP 135 . distinctions that make real differences of all powers of the government. However the power to tax is not
Claim: Arbitrary class legislation, oppressive and capricious Classification is the susceptibility of the income to the unconfined. There are restrictions. The power to tax is not the power to
in character. application if the generalized rules removing all destroy while this court sits (CJ Marshal)
Transgression of both equal protection and due process deductible items from taxpayers within the class and  Due process clause
clause as well as rule on uniformity of taxation fixing a set of reduced tax rates to be applied to all - Arbitrary when it finds no support, or not for a public purpose.
Undue discrimination against imposition of higher tax upon There is ample justification for the BP to adopt the gross  Equal Protection clause
- Discrimination finds no support in reason. Laws operate equally
income arising from exercise of profession system of income taxation to compensation income.
and uniformly on all persons under similar circumstances or
that all persons must be treated in the same manner
 Uniformity
 Consti : Uniform and equitable. Achieved when it operates with the same
force and effect in every place where the subject may be found. The rule
does not call for perfect uniformity
COMM. V. ALGUE Algue, domestic corp engaged in engineering nd Amount considered as allowable deduction even though  Taxes is the lifeblood of the government and so should be collected
construction claiming a P75,000 deduction which most of the payees were neither employees nor without unnecessary hindrance.
represented payments for promotional fees to various stockholders  On the other hand, it must be made in accordance with law as any
persons. Algue was appointed as an agent of the PSEDC. They are considered as ordinary and necessary expense arbitrariness will negate the very reason for the government itself. It is
Algue eventually received P126,000 commission and it was on carrying on any trade or business . therefore necessary to reconcile the apparently conflicting interests of
from this commission that the P75,000 promotional fees Algue successfully proved the payment of fees were the authorities and the taxpayers so that the real purpose of taxation
were paid to these several person who aided algue in the necessary and reasonable in light of the efforts exerted which is the promotion of common good may be achieved.
formation of VOICP. by the payees in inducing investors and prominent  Rationale of taxation. Taxes are what we pay for a civilized society.
CIR claimed that the payments were not allowable businessmen to venture in the enterprise. Without taxes, the government would be paralyzed for lack of the motive
deductions power to activate and operate it. Hence, despite the natural reluctance to
surrender part of one’s hard earned income, every person who is able
must contribute his share to running the government. The government
for its part is expected to respond in form of tangible and intangible
benefits intended to improve the lives of the people. This symbiotic
relationship is the rationale of taxation.
ABAKADA GURO V. On July 2005, RA 9337 took effect. The law increased the
EXEC SEC. ERMITA VAT on the sale of goods and properties, imported goods  The doctrine of due process clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need
/ ALEEZAH GERTRUDE R. REGADO

BUREAU OF INTERNAL REVENUE


a. Powers and Duties of the Bureau of Internal Revenue
b. Exclusive and original power to interpret tax laws, subject to review by Sec of Finance
c. Assess & collect
CASE TITLE FACTS HELD DOCTRINE
CIR V. PASCOR The BIR examined the books of account of Pascor Realty and Devt Corp for  No. Section 222 of the NIRC states that an assessment is not  An assessment contains not only a
REALTY DEV CORP years 1986, 1987 and 1988, from which a tax liability of 10.5 Million Pesos necessary before a criminal charge can be filed. This is the computation of tax liabilities, but also
was found. Based on the recommendations of the examiners, the CIR filed general rule. Private respondents failed to show that they are a demand for payment within a
an information with the DOJ for tax evasion against the officers of Pascor. prescribed period. It also signals the
entitled to an exception. Moreover, the criminal charge need
time when penalties and interests
Upon receipt of the subpoena, the latter filed an urgent request for only be supported by a prima facie showing of failure to file a begin to accrue against the taxpayer.
reconsideration/reinvestigation with the CIR, which was immediately denied required return. This fact need not be proven by an  To enable the taxpayer to determine
upon the ground that no formal assessment has yet been issued by the assessment. his remedies thereon, due process
Commisioner. Pascor elevated the CIR's decision to the CTA on a petition for  The issuance of an assessment must be distinguished from requires that it must be served on
review. The CIR filed a Motion to Dismiss on the ground of lack of jurisdiction the filing of a complaint. Before an assessment is issued, and received by the taxpayer.
of CTA as there was no formal assessment made against the respondents. there is, by practice, a pre-assessment notice sent to the Accordingly, an affidavit, which was
The CTA dismissed the motion, hence this petition. taxpayer. The taxpayer is then given a chance to submit executed by revenue officers stating
the tax liabilities of a taxpayer and
ISSUE: Is a formal assessment necessary in the filing of a criminal position papers and documents to prove that the assessment
attached to a criminal complaint for
complaint? is unwarranted. If the commissioner is unsatisfied, an tax evasion, cannot be deemed an
assessment signed by him or her is then sent to the taxpayer assessment that can be questioned
informing the latter specifically and clearly that an before the Court of Tax Appeals.
assessment has been made against him or her.  The issuance of an assessment must
 In contrast, the criminal charge need not go through all these. be distinguished from the filing of a
The criminal charge is filed directly with the DOJ. Thereafter, complaint. Before an assessment is
the taxpayer is notified that a criminal case had been filed issued, there is, by practice, a pre-
assessment notice sent to the
against him, not that the commissioner has issued an
taxpayer. The taxpayer is then given
assessment. It must be stressed that a criminal complaint is a chance to submit position papers
instituted not to demand payment, but to penalize the and documents to prove that the
taxpayer for violation of the Tax Code. 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
MEANING OF ASSESSMENT
MARCOS II V. CA Bongbong Marcos sought for the reversal of the ruling of the Court of  No. The deficiency income tax assessments and estate tax  "Sec. 3. Powers and duties of the
Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos assessment are already final and unappealable -and-the Bureau.-The powers and duties of the
to cover the payment of his tax delinquencies during the period of his exile in subsequent levy of real properties is a tax remedy resorted to by Bureau of Internal Revenue shall
the US. The Marcos family was assessed by the BIR after it failed to file the government, sanctioned by Section 213 and 218 of the comprehend the assessment and
/ ALEEZAH GERTRUDE R. REGADO
estate tax returns. However the assessment were not protested National Internal Revenue Code. This summary tax remedy is collection of all national internal revenue
administratively by Mrs. Marcos and the heirs of the late president so that distinct and separate from the other tax remedies (such as Judicial taxes, fees, and charges, and the
they became final and unappealable after the period for filing of opposition Civil actions and Criminal actions), and is not affected or enforcement of all forfeitures, penalties,
has prescribed. Marcos contends that the properties could not be levied to precluded by the pendency of any other tax remedies instituted by and fines connected therewith, including
cover the tax dues because they are still pending probate with the court, and the government. the execution of judgments in all cases
settlement of tax deficiencies could not be had, unless there is an order by  The approval of the court, sitting in probate, or as a settlement decided in its favor by the Court of Tax
the probate court or until the probate proceedings are terminated. tribunal over the deceased's estate is not a mandatory Appeals and the ordinary courts. Said
Petitioner also pointed out that applying Memorandum Circular No. 38-68, requirement in the collection of estate taxes. On the contrary, Bureau shall also give effect to and
the BIR's Notices of Levy on the Marcos properties were issued beyond the under Section 87 of the NIRC, it is the probate or settlement court administer the supervisory and police
allowed period, and are therefore null and void. which is bidden not to authorize the executor or judicial power conferred to it by this Code or
administrator of the decedent's estate to deliver any distributive other laws."
share to any party interested in the estate, unless it is shown a  Thus, it was in Vera vs. Fernandez[12]
Certification by the Commissioner of Internal Revenue that the that the court recognized the liberal
estate taxes have been paid. This provision disproves the treatment of claims for taxes charged
petitioner's contention that it is the probate court which approves against the estate of the decedent. Such
the assessment and collection of the estate tax. taxes, we said, were exempted from the
 On the issue of prescription, the omission to file an estate tax application of the statute of non-claims,
return, and the subsequent failure to contest or appeal the and this is justified by the necessity of
assessment made by the BIR is fatal to the petitioner's cause, as government funding, immortalized in the
under Sec.223 of the NIRC, in case of failure to file a return, the maxim that taxes are the lifeblood of the
tax may be assessed at anytime within 10 years after the government. Vectigalia nervi sunt rei
omission, and any tax so assessed may be collected by levy publicae - taxes are the sinews of the
upon real property within 3 years (now 5 years) following the state.
assessment of the tax.  Such liberal treatment of internal
 Since the estate tax assessment had become final and revenue taxes in the probate proceedings
unappealable by the petitioner's default as regards protesting the extends so far, even to allowing the
validity of the said assessment, there is no reason why the BIR enforcement of tax obligations against the
cannot continue with the collection of the said tax. heirs of the decedent, even after
distribution of the estate's properties.
 Claims for taxes, whether assessed
before or after the death of the deceased,
can be collected from the heirs even after
the distribution of the properties of the
decedent. They are exempted from the
application of the statute of non-claims.
The heirs shall be liable therefor, in
proportion to their share in the
inheritance."[13]
 From the foregoing, 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
/ ALEEZAH GERTRUDE R. REGADO
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.
MERALCO The late Juan Maniago (substituted by his wife and children) submitted to the Mandamus only lies to enforce the performance of a ministerial act and The power to assess a tax by the CIR against
SECURITIES CORP CIR confidential information against the Meralco Securities Corp (MSC) NOT to control the performance of a discretionary power. Purely a taxpayer is discretionary and cannot be
V. SAVELLANO alleging tax evasion for 1962-1966 based on income tax payment of only administrative and discretionary functions may not be interfered with compelled by mandamus.
25% of the dividends it received from Meralco, equivalent to short changing by the courts. Otherwise, it would be tantamount to a usurpation of
of the government of income tax due from 75% of the dividends. executive functions.
• The CIR found that no deficiency corporate income tax was due from the 2) Judge Savellano has no jurisdiction because it is the CTA who has
MSC since under the then Sec. 24[a] of the NIRC that “in the case of exclusive appellate jurisdiction to review decisions of the CIR in cases
dividends received by a domestic or foreign resident corporation liable to involving disputed assessments, refunds of internal revenue taxes,
(corporate income) tax under this Chapter . . . .only 25% shall be returnable fees or other charges, penalties imposed in relation to the NIRC or
for the purposes of the tax imposed.” other law or part of law administered by the BIR. The issue of whether
• The CIR denied Maniago’s claim for informer’s reward on a non-existent to impose a deficiency tax assessment on MSC is covered by
deficiency. “disputed assessments” or “other matters arising under the NIRC.
• Maniago filed for mandamus in the CFI of Manila to compel the CIR to 3) Informer’s reward is contingent upon the payment and collection of
impose the alleged deficiency tax assessment on the MSC and to award to unpaid or deficiency taxes. Considering then that respondent judge
him the corresponding informer’s reward under the provisions of RA 2338. may not order by mandamus the CIR to issue the assessment against
• The CIR argues that under the NIRC, he is clothed with discretionary MSC when no such assessment has been found to be due, no
power whether to impose the alleged tax deficiency assessment against the deficiency taxes may therefore be assessed and collected against
MSC. Judge Savellano ruled in favor of Maniago ordering the CIR to collect MSC. Since no taxes are to be collected, no informer’s reward is due
and assess from MSC. to Maniago as the informer’s heirs.
• Issue: WON the judge has jurisdiction to take cognizance of the case.
ENFORCE FORFEITURES, PENALTIES & FINES, EXECUTE DECISIONS OF CTA & ORDINARY COURTS
REPUBLIC V. CA A shipment of textile cloth arrived at Manila International Container Port (MICP) The requisites for the forfeiture of goods under the Fraud must be specifically proven. Mere negligence does not
and was Tariff and Customs Code are: constitute fraud. In any case, regardless of existence of fraud, the
consigned to GQ Garments, Inc. However, the Clean Report of Findings (CRF) a) the wrongful making by the owner, importer, government is not estopped from collecting taxes
exporter or consignee of any declaration or affidavit,
mentioned that Agfha, Inc., is the consignee of the shipment.
or the wrongful making or delivery by the same
• The Customs Intelligence Services (CIS) placed the shipment under Hold person of any invoice, letter or paper - on the import
Order since GQ could not be located and was thus suspected to be a fictitious or export of merchandise;
firm. Forfeiture proceedings based on the Tariff and Customs Code were b) the falsity of such declaration, affidavit, invoice,
initiated. letter or paper; and
• Agfha, through its president Wilson Kho, intervened and contended that Agfha c) an intention on the part of the
is the lawful owner of the subject shipment. The Collector of Customs came up importer/consignee to evade the payment of the
duties due.
with a draft decision ordering the lifting of the warrant of seizure and detention.
2) Fraud must be proved to justify forfeiture. It must
• The CIIS opposed the draft decision, insisting that GQ was a fictitious be actual, amounting to intentional wrongdoing
corporation and that even if it did exist, its president, John Barlin, had no with the clear purpose of avoiding the tax.
authority to waive the right over the subject shipment in favor of Agfha. The Forfeiture is not favored in law nor in equity. Mere
Deputy Commissioner, relying on the comment of the CIIS, rejected the draft negligence is not equivalent to fraud.
decision of the Collector of Customs. 3) What is involved in this case is an honest mistake,
• GQ and Agfha filed a joint MR. The Commissioner of Customs, however, not even directly attributable to private
respondent, which will not deprive the government of
disapproved the new draft decision and denied the release of the goods. So the
its right to collect the proper tax.
District Collector of Customs ordered the forfeiture of the shipment.
/ ALEEZAH GERTRUDE R. REGADO
• CTA granted the petition and ordered the release of the goods to Agfha.
• The Commissioner of Customs asserts that it did not presume fraud, rather the
events point to the existence of fraud.
• Agfha maintains that there was no intentional wrongful declaration by the
shipper to evade payment of any tax due.
• Issue: WON the forfeiture was proper.
AZNAR V. CIR Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks Issue: Whether or not the deceased Aznar filed false The lower court's conclusion regarding the existence of
a review and nullification of the decision of the Court of Tax Appeals ordering the or fraudulent income tax returns and subsequently, fraudulent intent to evade payment of taxes was based
petitioner to pay the government the sum of P227,691.77 representing whether the action has not prescribed. merely on a presumption and not on evidence establishing
deficiency income taxes for the years 1946 to 1951. An investigation by the a willful filing of false and fraudulent returns so as to
Held: The petition is without merit.
Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of warrant the imposition of the fraud penalty. The fraud
 The respondent CTA concluded that the very
the taxpayer and it was discovered that from 1946 to 1951, his net worth had "substantial under declarations of income for contemplated by law is actual and not constructive. It must
increased every year, which increases in net worth was very much more than the six consecutive years eloquently be intentional fraud, consisting of deception willfully and
income reported during said years. The findings clearly indicated that the demonstrate the falsity or fraudulence of the deliberately done or resorted to in order to induce another
taxpayer did not declare correctly the income reported in his income tax returns income tax returns with an intent to evade to give up some legal right. Negligence, whether slight or
for the aforesaid years. Petitioner avers that according to the NIRC, the right of the payment of tax." gross, is not equivalent to the fraud with intent to evade the
the CIR to assess deficiency income taxes of the late Aznar for the years 1946,  The ordinary period of prescription of 5 years tax contemplated by the law. It must amount to intentional
within which to assess tax liabilities under
1947, and 1948 had already prescribed at the time the assessment was made wrong-doing with the sole object of avoiding the tax. It
Sec. 331 of the NIRC should be applicable to
on November 28, 1952; there being a five year limitation upon assessment and normal circumstances, but whenever the necessarily follows that a mere mistake cannot be
collection from the filing of the returns. Meanwhile, respondents believe that the government is placed at a disadvantage so considered as fraudulent intent, and if both petitioner and
prescription period in the case at bar that is applicable is under Sec. 332 of the as to prevent its lawful agents from proper respondent Commissioner of Internal Revenue committed
NIRC which provides that: "(a) In the case of a false or fraudulent return with assessment of tax liabilities due to false mistakes in making entries in the returns and in the
intent to evade tax or of a failure to file a return, the tax may be assessed, or a returns, fraudulent return intended to evade assessment, respectively, under the inventory method of
proceeding in court for the collection of such tax may be begun without payment of tax, or failure to file returns, the determining tax liability, it would be unfair to treat the
period of ten years from the time of the
assessment, at any time within ten years after the discovery of the falsity, fraud mistakes of the petitioner as tainted with fraud and those of
discovery of the falsity, fraud or omission
or omission". Petitioner argues said provision does not apply because the even seems to be inadequate. the respondent as made in good faith.
taxpayer did not file false and fraudulent returns with intent to evade tax.  There being undoubtedly false tax returns in
this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec.
332 (a) of the NIRC should apply and that
the period of ten years within which to
assess petitioner's tax liability had not
expired at the time said assessment was
made.
CIR V. BENIGNO 1989: Cibeles Insurance Corporation (CIC) authorized its then president, 1) All the three factors which point to tax evasion are  Fraud in its general sense, is deemed to comprise
TODA Benigno Toda, who also owned 99.99% of its outstanding capital stock, to sell present in this case. anything calculated to deceive, including all acts,
the Cibeles building and two parcels of land. Toda sold them to Altonaga for a) The end goal of the transaction was to pay less omissions, and concealment involving a breach of
P100M. taxes than what is due. legal or equitable duty, trust or confidence justly
• On the same day, Altonaga sold the same properties to Royal Match, Inc. (RMI) b) This was motivated by bad faith and willful intent. reposed, resulting in the damage to another, or by
for P200M. c) It was done through an unlawful course of action. which an undue and unconscionable advantage is
• These are evidenced by two Deeds of Sale notarized on the same day by the The scheme to show multiple sales from CIC to taken of another.
same notary public. Altonaga, then from Altonaga to RMI cannot be held  Here, it is obvious that the objective of the sale to
• Altonaga paid 5% capital gains tax, or P10M. as tax planning because it is tainted with fraud. Altonaga was to reduce the amount of tax to be
• 1990: CIC filed an income tax return which declared its gain from the sale of 2) In this case, Altonaga was a mere conduit, and his paid especially that the transfer from him to RMI
the property at P75M. sole purpose was to be a tax shelter. Altonaga never would then subject the income to only 5%
/ ALEEZAH GERTRUDE R. REGADO
• That same year, Toda sold his CIC shares to Choa for P12,500,000, as controlled the property and did not enjoy the normal individual capital gains tax, and not the 35%
evidenced by a Deed of Sale benefits and burdens of ownership. The sale to him corporate income tax.
of Shares of Stock, which indicated Toda undertakes to hold Choa and CIC free was merely a tax ploy, a sham, and without business  Altonagas sole purpose of acquiring and
from any income tax liabilities of CIC for 1987, 1988 and 1989. purpose and economic substance. transferring title of the subject properties on the
• 1994: Toda died. That same year, the BIR sent CIC a notice of unpaid tax 3) To allow CIC to lessen its tax liability by using same day was to create a tax shelter. Altonaga
liabilities, alleging that Toda’s sale to Altonaga was a mere ploy in order to evade Altonaga as a tax shelter would circumvent the tax never controlled the property and did not enjoy the
paying taxes, and that the real buyer of the properties was RMI in the first place. laws. normal benefits and burdens of ownership. The
• According to the BIR, Toda sold the properties to Altonaga so that CIC would 4) To permit the true nature of the transaction to be sale to him was merely a tax ploy, a sham, and
not have to pay P79M as corporate income tax; that a fraudulent scheme was disguised by mere formalisms, which exist without business purpose and economic
deliberately perpetuated by covering up the additional gain of P100 million, solely to alter tax liabilities, would impair the effective substance. Doubtless, the execution of the two
which resulted in the change in the income structure of the proceeds of the sale administration of tax policies. Because there is fraud, sales was calculated to mislead the BIR with the
of the two parcels of land and the building thereon to an individual capital gains the BIR assessed CIC within the reglementary period, end in view of reducing the consequent income
(5%), thus evading the higher corporate income tax rate of 35%. The income tax which is within 10 years from the discovery of the tax liability.
return filed by CIC for 1989 with intent to evade payment of the tax was thus fraudulent act or transaction.  In a nutshell, the intermediary transaction, i.e., the
false or fraudulent. 5) Toda’s estate should be held liable for the deficient sale of Altonaga, which was prompted more on the
• The CIR alleges that there was indeed fraud as proven by the following: income tax. It is clear from the Deed of mitigation of tax liabilities than for legitimate
1) The two sales were done simultaneously on 30 Aug 1989; Sales of Shares of Stock that Toda held himself business purposes constitutes one of tax evasion.
2) the Deed of Sale between Altonaga and RMI was notarized ahead of the personally liable for all of CIC’s income tax [31]
Deed of Sale liabilities for the fiscal years of 1987-1989.  Generally, a sale or exchange of assets will have
between CIC and Altonaga; an income tax incidence only when it is
3) as early as May 1949, CIC received P40M from RMI for the property; and consummated.[32] The incidence of taxation
• Now, CIR wants to hold Toda’s estate liable for the deficiency in income tax. depends upon the substance of a transaction. The
• The CTA denied the petition, stating that the CIR failed to prove fraud. The tax consequences arising from gains from a sale
subject transaction was mere tax avoidance. of property are not finally to be determined solely
• Issue: WON there was fraud in the sale among CIC, Altonaga, and RMI. by the means employed to transfer legal title.
• Decision: YES. Rather, the transaction must be viewed as a
whole, and each step from the commencement of
negotiations to the consummation of the sale is
relevant.
 A sale by one person cannot be transformed for
tax purposes into a sale by another by using the
latter as a conduit through which to pass title. To
permit the true nature of the transaction to be
disguised by mere formalisms, which exist solely
to alter tax liabilities, would seriously impair the
effective administration of the tax policies of
Congress.[33]
 To allow a taxpayer to deny tax liability on the
ground that the sale was made through another
and distinct entity when it is proved that the latter
was merely a conduit is to sanction a
circumvention of our tax laws. Hence, the sale to
Altonaga should be disregarded for income tax
purposes.
EFFECT OF POLICE POWERS
OBTAIN INFORMATION ETC
SY PO V. CTA Po Bien Sing, the sole proprietor of Silver Cup Wine Factory (SCWF), engaged Held: The law is specific and clear. The rule on “The Best Evidence Sec. 16. Power of the Commissioner of
in the business of manufacture and sale of compounded liquors. On the basis of Obtainable” applies when a tax report required by law for the Internal Revenue to make assessments.—
a denunciation against SCWF allegedly "for tax evasion amounting to millions of purpose of assessment is not available or when tax report is
/ ALEEZAH GERTRUDE R. REGADO
pesos, Secretary of Finance directed the Finance-BIR--NBI team to investigate. incomplete or fraudulent. xxx xxx xxx

On the basis of the team's report of investigation, the respondent Commissioner The tax assessment by tax examiners are presumed correct and (b) Failure to submit required returns,
of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax for 1966 made in good faith. The taxpayer has the duty to prove otherwise. statements, reports and other documents. -
to 1970 in the amount of P7,154,685.16 and for deficiency specific tax for In the absence of proof of irregularities in the performance of When a report required by law as a basis for
January 2,1964 to January 19, 1972 in the amount of P5,595,003.68 the assessment of an national internal
duties, an assessment duly made by the BIR examiner and
revenue tax shall not be forthcoming within
Petitioner protested the deficiency assessments. The BIR recommended the approved by his superior officers will not be disturbed. All the time fixed by law or regulation or when
reiteration of the assessments in view of the taxpayer's persistent failure to presumptions are in favour of the correctness of tax assessments. there is reason to believe that any such report
present the books of accounts for examination. is false, incomplete, or erroneous, the
Commissioner of Internal Revenue shall
Issue: WON the assessments have valid and legal basis. assess the proper tax on the best evidence
obtainable.

In case a person fails to file a required return


or other document at the time prescribed by
law, or willfully or otherwise, files a false or
fraudulent return or other documents, the
Commissioner shall make or amend the return
from his own knowledge and from such
information as he can obtain through
testimony or otherwise, which shall be prima
facie correct and sufficient for all legal
purposes.

The law is specific and clear. The rule on the


"best evidence obtainable" applies when a tax
report required by law for the purpose of
assessment is not available or when the tax
report is incomplete or fraudulent.
CIR V. HANTEX Hantex Trading Co is a company organized under the Philippines. It is engaged  Central to the second issue is Section 16 of the NIRC of 1977, The best evidence envisaged in Section 16 of
TRADING in the sale of plastic products, it imports synthetic resin and other chemicals for as amended which provides that the Commissioner of Internal the 1977 NIRC, as amended, includes the
the manufacture of its products. For this purpose, it is required to file an Import Revenue has the power to make assessments and prescribe corporate and accounting records of the
additional requirements for tax administration and taxpayer who is the subject of the assessment
Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of
enforcement. process, the accounting records of other
Customs under Section 1301 of the Tariff and Customs Code. Sometime in taxpayers engaged in the same line of
 Among such powers are those provided in paragraph (b),
October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of which provides that “Failure to submit required returns, business, including their gross profit and net
the Economic Intelligence and Investigation Bureau (EIIB), received confidential statements, reports and other documents. – When a report profit sales.[67] Such evidence also includes
information that the respondent had imported synthetic resin amounting to required by law as a basis for the assessment of any national data, record, paper, document or any
P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a internal revenue tax shall not be forthcoming within the time evidence gathered by internal revenue officers
subpoena to present its books of account which it failed to do. The bureau fixed by law or regulation or when there is reason to believe from other taxpayers who had personal
that any such report is false, incomplete or erroneous, the transactions or from whom the subject
cannot find any original copies of the products Hentex imported since the
Commissioner shall assess the proper tax on the best taxpayer received any income; and record,
originals were eaten by termites. Thus, the Bureau relied on the certified copies data, document and information secured from
evidence obtainable.”
of the respondent’s Profit and Loss Statement for 1987 and 1988 on file with the  This provision applies when the Commissioner of Internal government offices or agencies, such as the
SEC, the machine copies of the Consumption Entries, Series of 1987, submitted Revenue undertakes to perform her administrative duty of SEC, the Central Bank of the Philippines, the
by the informer, as well as excerpts from the entries certified by Tomas and assessing the proper tax against a taxpayer, to make a return Bureau of Customs, and the Tariff and
Danganan. The case was submitted to the CTA which ruled that Hentex have tax in case of a taxpayer’s failure to file one, or to amend a return Customs Commission.
/ ALEEZAH GERTRUDE R. REGADO
deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled already filed in the BIR. The law allows the BIR access to all relevant
that the income and sales tax deficiency assessments issued by the petitioner  The “best evidence” envisaged in Section 16 of the 1977 or material records and data in the person of
were unlawful and baseless since the copies of the import entries relied upon in NIRC, as amended, includes the corporate and accounting the taxpayer. It places no limit or condition on
computing the deficiency tax of the respondent were not duly authenticated by records of the taxpayer who is the subject of the assessment the type or form of the medium by which the
process, the accounting records of other taxpayers engaged in
the public officer charged with their custody, nor verified under oath by the EIIB record subject to the order of the BIR is kept.
the same line of business, including their gross profit and net
and the BIR investigators. profit sales. The purpose of the law is to enable the BIR to
Issue: Whether or not the final assessment of the petitioner against the  Such evidence also includes data, record, paper, document or get at the taxpayers records in whatever form
respondent for deficiency income tax and sales tax for the latter’s 1987 any evidence gathered by internal revenue officers from other they may be kept. Such records include
importation of resins and calcium bicarbonate is based on competent evidence taxpayers who had personal transactions or from whom the computer tapes of the said records prepared
and the law. subject taxpayer received any income; and record, data, by the taxpayer in the course of business.[68]
document and information secured from government offices or In this era of developing information-storage
agencies, such as the SEC, the Central Bank of the
technology, there is no valid reason to
Philippines, the Bureau of Customs, and the Tariff and
Customs Commission. immunize companies with computer-based,
 However, the best evidence obtainable under Section 16 of the record-keeping capabilities from BIR scrutiny.
1977 NIRC, as amended, does not include mere photocopies The standard is not the form of the record but
of records/documents. where it might shed light on the accuracy of
 The petitioner, in making a preliminary and final tax deficiency the taxpayers return.
assessment against a taxpayer, cannot anchor the said
assessment on mere machine copies of records/documents.
Mere photocopies of the Consumption Entries have no
probative weight if offered as proof of the contents thereof. The
reason for this is that such copies are mere scraps of paper
and are of no probative value as basis for any deficiency
income or business taxes against a taxpayer.
BACHE & CO. V. Fact: Respondent Commissioner, wrote a letter to respondent Judge Ruiz Personal examination by the judge of the complainant
RUIZ requesting the issuance of a search warrant against petitioners for violation of Held: Yes, A corporation is, after all, but an association of and his witnesses is necessary to enable him to
the National Internal Revenue Code, in relation to all other pertinent provisions determine the existence or non-existence of a
individuals under an assumed name and with a distinct legal
thereof, and authorizing a Revenue Examiner to make and file the application for probable cause, pursuant to Art. III, Sec. 1, par. 3, of
search warrant which was attached to the letter. In the afternoon of the following entity. In organizing itself as a collective body it waives no the Constitution, and Sec. 3, Rule 126 of the Revised
day, respondent De Leon and his witness, respondent Logronio, went to the constitutional immunities appropriate to such body. Its property Rules of Court.
Court of First Instance of Rizal. They brought with them the following papers:
respondent Vera’s aforesaid letter-request; an application for search warrant
cannot be taken without compensation. It can only be proceeded An assessment based on evidence illegally seized
already filled up but still unsigned by respondent De Leon; an affidavit of against by due process of law, and is protected against unlawful through an illegal search warrant is
respondent Logronio subscribed before respondent De Leon; a deposition in discrimination. we are of the opinion that an officer of a UNENFORCEABLE.
printed form of respondent Logronio already accomplished and signed by him
but not yet subscribed; and a search warrant already accomplished but still corporation which is charged with a violation of a statute of the
unsigned by respondent Judge. At that time respondent Judge was hearing a state of its creation, or of an act of Congress passed in the
certain case; so, by means of a note, he instructed his Deputy Clerk of Court to exercise of its constitutional powers, cannot refuse to produce the
take the depositions of respondents De Leon and Logronio. After the session
had adjourned, respondent Judge was informed that the depositions had already books and papers of such corporation, we do not wish to be
been taken. The stenographer, upon request of respondent Judge, read to him understood as holding that a corporation is not entitled to
her stenographic notes; and thereafter, respondent Judge asked respondent immunity, against unreasonable searches and seizures.
Logronio to take the oath and warned him that if his deposition was found to be
false and without legal basis, he could be charged for perjury. Respondent Judge
signed respondent de Leon’s application for search warrant and respondent
Logronio’s deposition, Search Warrant was then sign by respondent Judge and
accordingly issued. Three days later, the BIR agents served the search warrant
/ ALEEZAH GERTRUDE R. REGADO
petitioners at the offices of petitioner corporation. Petitioners’ lawyers protested
the search on the ground that no formal complaint or transcript of testimony was
attached to the warrant. The agents nevertheless proceeded with their search
which yielded six boxes of documents. Petitioners filed a petition with the Court
of First Instance of Rizal praying that the search warrant be quashed, dissolved
or recalled, that preliminary prohibitory and mandatory writs of injunction be
issued, that the search warrant be declared null and void, and that the
respondents be ordered to pay petitioners, jointly and severally, damages and
attorney’s fees. On March 18, 1970, the respondents, thru the Solicitor General,
filed an answer to the petition. After hearing, the court, presided over by
respondent Judge, issued on July 29, 1970, an order dismissing the petition for
dissolution of the search warrant. Hence, Petitioners came to this Court.

Issue: Whether a corporation is entitled to protection against unreasonable


search and seizure?

BIR RULES AND REGULATIONS


CIR V. CA, ROH EO 41 was promulgated in 1986 declaring a one-time tax amnesty on unpaid income taxes The authority of the Minister of Finance cannot be Administrative rules and regulations are
AUTO PRODUCTS and also estate, donor, and business taxes for 1981-1985. ROH Auto Products availed of controverted neither can it be disputed that such rules intended to carry out, neither to supplant nor
PHIL. INC AND CTA the amnesty, and paid the corresponding amnesty taxes due. It also requested for the and regulations should deserve weight and respect by to modify, the law. Executive Order No. 41 is
cancellation of the deficiency tax notice, but the CIR denied it saying that the amnesty the courts. Much more fundamental than either of the quite explicit and requires hardly anything
coverage includes only assessments issued by the BIR after promulgation of EO 41 and above, however, is that all such issuances must not beyond a simple application of its provisions.
not assessments before its promulgation. override, but must remain consistent and in harmony
ROH appealed to the CTA who ruled in its favor, arguing that it sufficiently proved its burden with, the law they seek to apply and implement. An EO specifically providing for those who do
hence qualified. Further, the exceptions (those who cannot avail) under Section 4 do not Administrative rules and regulations are intended to not apply to it cannot be interpreted further
include assessments made prior to the promulgation of EO 41. ROH is not an exception. carry out, neither to supplant nor to modify, the law. than what the law intends.
Is the CIR interpretation correct or the CTA? (CTA) Executive Order No. 41 is quite explicit and requires
hardly anything beyond a simple application of its
provisions.
EO 41 was specifically designed to be in the nature of a
general tax amnesty subject to SPECIFIC
EXCEPTIONS.
If it was intended not to include 1981-1985 tax liabilities
already assessed prior to promulgation, then the law
simply would’ve said so. The company does NOT fall
under the exceptions to the amnesty.
The interpretation of the CIR works against the purpose
of EO 41 to grant amnesties to those who were
encouraged not to pay taxes during revolution.

CIRV CA, CTA AND Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different Issue: WON it was necessary for BIR to follow the legal The act of reclassifying a cigarette and
FORTUNE brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified requirements when it issued its RMC imposing a tax based on an “interpretation” of
TOBACCO CORP them as foreign brands since they were listed in the World Tobacco Directory as belonging the law amounts to a legislative act and must
to foreign companies. However, Fortun changed the names of 'Hope' to 'Hope Luxury'and Held. YES. CIR may not disregard legal requirements in conform to the rules on notice, publication,
'More' to 'Premium More,' thereby removing the said brands from the foreign brand the exercise of its quasi-legislative powers which and hearing.
category. publication, filing, and prior hearing.
When an administrative rule is merely interpretative in
A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. nature, its applicability needs nothing further than its
/ ALEEZAH GERTRUDE R. REGADO
7654 was enacted – 55% for locally manufactured foreign brand while 45% for locally bare issuance for it gives no real consequence more
manufactured brands. 2 days before the effectivity of RA 7654, Revenue Memorandum than what the law itself has already prescribed. BUT
Circular No. 37-93 ("RMC 37-93"), was issued by the BIR saying since there is no showing when, upon the other hand, the administrative rule goes
who the real owner/s are of Champion, Hope and More, it follows that the same shall be beyond merely providing for the means that can facilitate
considered locally manufactured foreign brand for purposes of determining the ad or render least cumbersome the implementation of the
valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco law but substantially increases the burden of those
addressed to no one in particular. Then Fortune Tobacco received, by ordinary mail, a governed, the agency must accord, at least to those
certified xerox copy of RMC 37-93. CIR assessed Fortune Tobacco for ad valorem tax directly affected, a chance to be heard, before that new
deficiency amounting to P9,598,334.00. issuance is given the force and effect of law.
RMC 37-93 cannot be viewed simply as construing
Fortune Tobacco filed a petition for review with the CTA. 8 CTA upheld the position of Section 142(c)(1) of the NIRC, as amended, but has, in
Fortune. CA affirmed. fact and most importantly, been made in order to place
"Hope Luxury," "Premium More" and "Champion" within
the classification of locally manufactured cigarettes
bearing foreign brands and to thereby have them
covered by RA 7654 which subjects mentioned brands
to 55% the BIR not simply interpreted the law; verily, it
legislated under its quasi-legislative authority. The due
observance of the requirements of notice, of hearing,
and of publication should not have been then ignored.
CIR V. Burroughs Ltd. is a foreign corporation conducting business in the Philippines. 1) Any modification or revocation of any rule shall not be BIR Rulings are not given retroactive effect if it will be
BURROUGHS • 1979: Burroughs applied with the BSP for authority to remit to its parent company abroad, retroactive if such will be prejudicial to the taxpayer prejudicial to the taxpayer.
thus paying the 15% branch profit remittance tax based on the amount APPLIED for EXCEPT:
remittance (this was a larger amount), instead of the amount ACTUALLY remitted (a lesser a) Where the taxpayer deliberately misstates his
amount), which would have yielded lesser taxes. return/documents
• Burroughs filed a petition for review to the CTA, which ordered the BIR to grant Burroughs b) Where the facts gathered by the BIR are different
a tax credit equal to the difference between the tax he paid and what he should have have from that on which the ruling is based.
paid (the lesser amount). c) Where the taxpayer acted in bad faith.
• The CIR appealed citing BIR rulings stating that such taxes must be based on the amount 2) In this case, the rulings were promulgated after the
APPLIED for remittance. filing of Burroughs’ tax returns.
• Issue: WON a tax credit can be availed by Burroughs. 3) Burroughs does not fall under any of these exceptions
that could deprive him of his tax credit.
4) Burroughs’ basis was Section 24(b)(2) of the 1977
Tax Code: The 15% branch profit tax shall be imposed
on the branch profits ACTUALLY remitted abroad and
not on the total branch profits out of which the
remittance is to be made.
PBC V. CIR Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation memorandum-circular of a bureau head could
duly organized under Philippine laws, filed its quarterly income tax returns for the first and Ruling not operate to vest a taxpayer with shield
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00 RR 7-85 altering the 2-year prescriptive period imposed against judicial action. For there are no vested
by applying PBCom's tax credit memos for P3,401,701.00 and P1,615,253.00, respectively. by law to 10-year prescriptive period is invalid rights to speak of respecting a wrong
Subsequently, however, PBCom suffered net loss of P25,317,228.00, thereby showing no Administrative issuances are merely interpretations and construction of the law by the administrative
income tax liability in its Annual Income Tax Returns for the year-ended December 31, not expansions of the provisions of law, thus, in case of officials and such wrong interpretation could
1985. For the succeeding year, ending December 31, 1986, the petitioner likewise reported inconsistency, the law prevails over them. Administrative not place the Government in estoppel to
a net loss of P14,129,602.00, and thus declared no tax payable for the year. agencies have no legislative power. correct or overrule the same.

But during these two years, PBCom earned rental income from leased properties. The “When the Acting Commissioner of Internal Revenue
/ ALEEZAH GERTRUDE R. REGADO
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in issued RMC 7-85,
1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the Commissioner
of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the changing the prescriptive period of two years to ten
overpayment of taxes in the first and second quarters of 1985. years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld with the provision of Sec. 230 of 1977 NIRC. In so
by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for doing, the BIR did not simply interpret the law; rather it
P234,077.69. legislated guidelines contrary to the statute passed by
Congress.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner
instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals “It bears repeating that Revenue memorandum-circulars
(CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of are considered administrative rulings (in the sense of
Communications vs. Commissioner of Internal Revenue." more specific and less general interpretations of tax
laws) which are issued from time to time by the
The CTA decided in favor of the BIR on the ground that the Petition was filed out of time as Commissioner of Internal Revenue. It is widely accepted
the same was filed beyond the two-year reglementary period. A motion for Reconsideration that the interpretation placed upon a statute by the
was denied and the appeal to Court of Appeals was likewise denied. Thus, this appeal to executive officers, whose duty is to enforce it, is entitled
Supreme Court. to great respect by the courts. Nevertheless, such
Issues: interpretation is not conclusive and will be ignored if
judicially found to be erroneous. Thus, courts will not
a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary period from countenance administrative issuances that override,
two (2) years to ten (10) years is valid. instead of remaining consistent and in harmony with, the
law they seek to apply and implement.
b) Whether or not the petition for tax refund had already prescribed.
“Further, fundamental is the rule that the State cannot be
put in estoppel by the mistakes or errors of its officials or
agents. As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of
1977 NIRC, for being contrary to the express provision
of a statute. Hence, his interpretation could not be given
weight for to do so would, in effect, amend the statute.

By implication of the above, claim for refund had already


prescribed.

Since the petition had been filed beyond the prescriptive


period, the same has already prescribed. The fact that
the final adjusted return show an excess tax credit does
not automatically entitle taxpayer claim for refund
without any express intent.

ABS-CBN V. CTA & The ABS-CBN Broadcasting Corporation (herein shall be called the “Company”) was Can the CIR apply the law retroactively? (NO)
CIR engaged in the business of telecasting local as well as foreign films acquired from foreign Has the power to assess the deficiency prescribed? (YES)
corporations not engaged in trade or business with the Philippines. Under Section 24 (b) of The prejudice to ABS of the retroactive application of Memorandum Circular No. 4-71 is beyond question. It was issued only
the National Revenue Code, a withholding tax of 30% (RA 2343). It was implemented in 1971, or 3 years after 1968, the last year ABS had withheld taxes under General Circular No. V-334. The assessment and
demand on ABS to pay deficiency withholding income tax was also made 3 years after 1968 for a period of time
through Circular No. V-334. Pursuant to the foregoing, ABS-CBN dutifully withheld and
commencing in 1965. ABS was no longer in a position to withhold taxes due from foreign corporations because it had
turned over to the BIR the amount of 30% of one-half of the film rentals paid by it to foreign already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as
/ ALEEZAH GERTRUDE R. REGADO
corporations not engaged in trade or business within the Philippines. The last year that the enumerated exceptions are concerned, admittedly, petitioner does not fall under them.
ABS-CBN withheld taxes pursuant to the foregoing Circular was in 1968. The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It
provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of
RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 a prior executive construction. Note should be taken of the fact that this case involves not a mere opinion of the
Commissioner or ruling rendered on a mere query, but a Circular formally issued to "all internal revenue officials" by the
% and revising the tax basis from “such amount” referring to rents, etc. to “gross income.”
then Commissioner of Internal Revenue.
The following was implemented by Circular No. 4-71. This Court is not unaware of the well-entrenched principle that the Government is never estopped from collecting taxes because
of mistakes or errors on the part of its agents. In fact, utmost caution should be taken in this regard. But, like other principles of
Petitioner requested for a reconsideration and withdrawal of the assessment.
law, this also admits of exceptions in the interest of justice and fair play. The insertion of Sec. 338-A into the National Internal
Revenue Code, as held in the case of Tuason, Jr. vs. Lingad, is indicative of legislative intention to support the principle of good
faith. In fact, in the United States, from where Sec. 24 (b) was patterned, it has been held that the Commissioner of Collector is
precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom, or where there
has been a misrepresentation to payer.
CIR V. BENGUET Benguet Corporation is a domestic corporation engaged in the exploration, development Issues: (1) WON Benguet’s sale of gold to the Central Bank during the
CORP and operation of mineral resources, and the sale or marketing thereof to various entities. It period when such was classified by BIR issuances as zerorated could be taxed validly at a 10% rate after
is a VAT registered enterprise. the consummation of the transactions involved; (2) WON there was prejudice to Benguet Corp due to the
new BIR VAT Ruling.
The transactions in question occurred during the period between 1988 and 1991.
Under Sec. 99 of NIRC as amended by E.O. 273 s. 1987 then in effect, any person who, in Held: (1) NO. At the time when the subject transactions were consummated, the prevailing BIR
the course of trade or business, sells, barters or exchanges goods, renders services, or regulations relied upon by Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet
engages in similar transactions and any person who imports goods is liable for output VAT should not be faulted for relying on the BIRs interpretation of the said laws and regulations.
at rates of either 10% or 0% (zero-rated) depending on the classification of the transaction
under Sec. 100 of the NIRC. While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain
unpaid on account of the errors or mistakes of its agents and/or officials and there could be no vested
In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on right arising from an erroneous interpretation of law, these principles must give way to
its sale of gold to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued exceptions based on and in keeping with the interest of justice and fair play. (then the Court cited the
which declared that the sale of gold to Central Bank is considered as export sale subject to ABS-CBN case).
zero-rate pursuant to
Section 100 of the Tax Code, as amended by EO 273. (2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR
of the amount equivalent to the total VAT cost of its product, a liability it previously could have recovered
Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it known it would have
Bank during the period of 1 August 1989 to 31 July 1991 and entered into transactions that been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic prejudice when it
resulted in input VAT incurred in relation to the subject sales of gold. It then filed consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change in
applications for tax refunds/credits the VAT rating of Benguet’s transactions with the Central Bank resulted in the twin loss of its exemption
corresponding to input VAT. from payment of output VAT and its opportunity to recover input VAT, and at the same time subjected it to
the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in money
However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.
January 1992 that was issued subsequent to the consummation of the subject sales of gold
to the Central Ban`k which provides that sales of gold to the Central Bank shall not be Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed,
considered as export sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008- this relief would only address Benguet’s overpayment of income tax but not the other burdens discussed
92 withdrew, modified, and superseded all inconsistent BIR issuances. above. Verily, this remedy is not a feasible option for Benguet because the very reason why it was issued
Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 a deficiency tax assessment is that its input VAT
is valid only if such application would not be prejudicial to the Benguet pursuant Sec. 246 of was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an
the NIRC. unnecessary and cumbersome refund process is prejudice enough.

CIR V. BWSC-Denmark, Mitsui Engineering and Mitsui and Co. formed a consortium and entered Issue: Are the receipts of Burmeister entitled to VAT For a service to be zero rated, the following
BURSMEITERS & into a contract with NAPOCOR to operate the latter’s two power barges. BWSC established zero-rated status? conditions must be satisfied:
/ ALEEZAH GERTRUDE R. REGADO
WAIN BWSC-Mindanao which subcontracted the actual operation of the barges. (1) Recipient non-resident corp doing trade
SCANDINAVIAN • • NAPOCOR paid the capacity and energy fees to the Consortium in a mixture of Held: PARTIALLY. Respondent is entitled to the refund outside the Philippines
currencies, while the Consortium pays BWSC-Mindanao in foreign currency inwardly prayed for BUT ONLY for the period covered prior to the (2) Service paid in foreign currency
remitted to the Philippines via banking system. filing of CIR’s Answer in the CTA. (3) BSP Rules and Reg
(4) Service not a processing, manufacturing,
• • BWSC-Mindanao sought clarification on its tax implications. BIR told them that if The claim has no merit since the consortium, which was repacking of goods
they choose to be VAT + Paid by Foreign currency + BSP Rules = 0% rated! the recipient of services rendered by Burmeister, was (5) VAT-Registered
deemed doing business within the Philippines since its
• • BWSC-Mindanao chose this and availed of the Voluntary Assessment Program 15-year O&M with NPC can not be interpreted as an Fact that the members of a company are
and availed of tax credits. Denied! isolated transaction. principally foreign does NOT mean it is doing
business outside PHP.
Is BWSC-Mindanao entitled to the refund as wrongly paid? (NO) In addition, the services referring to ‘processing, GR – Exports are 0%
manufacturing, repacking’ and ‘services other than those EXC – Services done to foreign companies
in (1)’ of Sec. 102 both require (i) payment in foreign but done here.
currency; (ii) inward remittance; (iii) accounted for by the
BSP; AND (iv) that the service recipient is doing
business outside the Philippines. The Court ruled that if
this is not the case, taxpayers can circumvent just by
stipulating payment in foreign currency.

The refund was partially allowed since Burmeister


secured a ruling from the BIR allowing zero-rating of its
sales to foreign consortium. However, the ruling is only
valid until the time that CIR filed its Answer in the CTA
which is deemed revocation of the previously-issued
ruling. The Court said the revocation can not retroact
since none of the instances in Section 246 (bad faith,
omission of facts, etc.) are present.

NON-RETROACTIVITY OF BIR RULING 0% VAT


INCOME TAX
CASE TITLE FACTS HELD DOCTRINE
DEFINITION OF TERMS
1. Person / ALEEZAH GERTRUDE R. REGADO
2. Shares of Stock
3. Taxpayer
4. Taxable year
5. Fiscal year
6. Paid or incurred/paid or accrued

FILIPINAS SYNTHETIC Filipinas Synthetic Fiber was assessed a deficiency Section 53 of the NIRC is silent as to when the duty to withhold taxes
FIBER CORP V. CA withholding tax at source in the total amount of P829k from arise. In the provision, however, the withholding tax liability of the agent
1974 to 1975. The bulk of the deficiency consisted of is explicitly expressed and makes the agent personally liable for the  Section 53 (c) he is held
interest and compromise penalties for alleged late payment income tax. personally liable for the tax he
of withholding taxes due. • • Phil Guaranty v. CIR – Law sets no condition for personal is duty bound to withhold;
• • CIR – The liability to withhold and pay income liability of withholding agent to attach. Reason is to compel the agent to
tax withheld at source from payments due to a foreign withhold the tax under ALL CIRCUMSTANCES. He is the AGENT of the whereas, the Commissioner of
corporation is at the time of accrual and NOT at time of taxpayer in the payment of the tax to the government and is the agent Internal Revenue and his
actual remittance. Synthetic failed to pay the withholding of the GOV’T in the collection of it for its remittance. deputies are not made liable to
tax on interest, royalties, and guarantee fee at the time of • • Accrual Basis – Income is reportable when all the events
accrual have occurred that fix the taxpayer’s right to receive the income + law.
amount can be determined with reasonable accuracy. Thus, it is the  Since there was a definite
• • SYNTHETIC – Withholding taxes on interest of right to receive income and NOT the actual receipt that determines clear liability and imminent
income and royalties were paid to the gov’t when they were when to include the amount in gross income.
actually remitted abroad. Whatever amount has accrued in certainty that it was going to
the books, the withholding tax due is paid upon remittance. There was definite liability + clear and imminent certainty that at the earn income it should already
maturity of the loans, the foreign corporation was going to earn income
Is it upon remittance OR accrual? (ACCRUAL) in an ascertained amount, so much that Filipinas already deducted as
be taxable.
business expense the said amount as interests due to the foreign  Moreover, petitioner is
corporation. Having written-off the amounts as business expenses in its estopped for he has already
book, it has taken advantage of the benefit provided in the law for
allowing for deductions from gross income. It has represented to the
claimed deductions as there
BIR that the amounts deducted were incurred as business expense in were incurred as a business
the form of interest and royalties paid to the foreign corporations. It is expense in the form of interest
ESTOPPED now.
and royalties paid.
B. TAXABLE INCOME
GENERAL PRINCIPLES OF INCOME TAXATION
INDIVIDUALS

KINDS OF INDIVIDUALS

TYPES AND RATES OF INCOME


ESTATES AND TRUST

CIR V. VISAYAN ELECTRIC Visayan Electric established a pension fund known as the “Employees Investment of fund is NOT business op – It is For a trust fund to be exempt:
Reserve for Pensions.” The fund is for the benefit of present and future NOT income hence not part of the income tax (1) Definite Plan
employees in the event of retirement, accident, or disability. This fund was given in its legislative franchise -It is also not (2) Good faith
later invested by the company in stocks of San Miguel Brewery, for which incidental to the operations of the company. What is (3) Impossible to divert to other purposes
dividends have been regularly received. These dividends were NOT exempt under the legislative franchise are receipts, (4) Solely for the benefit of employees
declared for tax purposes. revenues, and profits of the COMPANY.
The Auditor General alleged that since the company retained full control of The intention to create a trust in favor of the