UPDATES IN TAXATION: TRAIN Law Amendments and Recent Jurisprudence by Japar B. Dimaampao Associate Justice Court of AppealsI SUBSTANTIVE LAW AL NEW TAX RULES UNDER R.A. 10963 Otherwise Known as TAX REFORM FOR ACCELERATION AND INCLUSION (TRAIN) 1 INCOME TAX 1, Tax exempt - P250,000.00 2. Income Tax Rates. ~ Rates of Tax on Taxable Income of Individuals. — The tax shall be computed in accordance with and at the rates established in the following schedule: {a) Tax Schedule Effective January 1, 2018 until December 31,2022: Not over P25H,000 00% ‘Over £250,000 but not ever P400,000 20% of the excess over?"250,000, ‘Over P400,000 but not ever P00,000 7,000 + 25% of the excess aver PHNO,000 ‘Over P500,000 but not aver 72,008,000 130,000 + 30% of the excess over P2,000,000 ‘Over P2,00,000 but nat over P8,000,000 490,000 + 325% of the excess over P2,000,00 (Ovor P00,000 P2 410.000 + 35% oF the exevess over P8,000,000 Tax Schedule Effective January 1, 2023 and onwards: Not over P250,000 0.00% ‘Over P230,000 hut not over P3OO, KK) 15% of the excess over P250,000 ‘Over P400,100 but mot over PBLO, LO) 722,500 + 20% of the excess aver 16400,000, ‘Over 7800,000 but not over P2,000,000 102,500 + 25% of the excess over PRIO.DI0 ‘Over P200,040 but not aver P8,000,000 402,300 + 30% of the excess over P2,000,008 Over 78,000,000 2,202,500 + 35% of the excess over P8,000,000 3. RATE OF TAX ON INCOME OF PURELY SELF-EMPLOYED INDIVIDUALS AND/OR PROFESSIONALS WHOSE GROSS SALES OR GROSS RECEIPTS AND OTHER NON-OPERATING INCOME DO NOT EXCEED THE VALUE-ADDED TAX (VAT) THRESHOLD OF P3 MILLION - Self-employedindividuals and/or professionals shall have the option to avail of an eight percent (8%) tax on gross sales or gross receipts and other non-operating income income in excess of Two Hundred Fifty Thousand Pesos (P250,000) in liew of the graduated income tax rates (20%-35%) and the percentage tax under Section 116 of the Code (3% of the gross sales or receipts) 4, RATE OF TAX FOR MIXED INCOME EARNERS. - Taxpayers earning both compensation income and income from business or practice of profession shall be subject to the following taxes: (1) All Income from Compensation ~ 20%-35% tax rates (2) All Income from Business or Practice of Profession ~ “(a) If Total Gross Sales and/or Gross Reccipts and Other Non- operating Income Do Not Exceed the VAT Threshold of PS Million — 20%-35% on taxable income, or eight percent (8%) tax based on gross sales or gross receipts and other non- operating income in licu of the graduated income tax rates (20%-35%) and the percentage tax under Section 116 of the Code (3% of the gross sales or receipts) 5. INTEREST INCOME FROM DEPOSIT UNDER THE FOREIGN CURRENCY DEPOSIT SYSTEM RECEIVED BY RESIDENT INDIVIDUAL - 15% FINAL INCOME TAX USED TO BE SUBJECT TO FINAL INCOME TAX AT THE RATE OF 7.5% 6. SALES OF SHARES OF STOCK NOT LISTED AND TRADED - 15% FINAL TAX BASED ON NET CAPITAL GAIN : Hf traded in the stock exchange ~ 6/10 of 1% of gros: (percentage tax) selling price 7. EXEMPT GOVERNMENT-OWNED OR CONTROLLED CORPO- RATIONS GsIs sss PHIC Local Water Districts fOwe » The PCSO and PAGCOR are no longer tax-exempt. Local water districts are granted income tax exemption by virtue of R.A. No. 10026 8. INTEREST INCOME DERIVED BY A DOMESTIC CORPORATION FROM A DEPOSITARY BANK UNDER THE EXPANDED FOREIGN CURRENCY DEPOSIT SYSTEM SHALL BE SUBJECT TO A FINAL INCOME TAX AT THE RATE OF FIFTEEN PERCENT (15%) OF SUCH INTEREST INCOME. [Section 7, RA 10963] 9, 13™ MONTH PAY AND OTHER BENEFITS. - Gross benefitsreceived by officials and employees of public and private entities: Provided, however, That the total exclusion shall not exceed Ninety Thousand Pesos (P90,000) which shail cover: “) Benefits (Annual Christmas bonus) received by officials and employecs of the national and local government pursuant to Republic Act No. 6686; +i) Benefits (13 Month Pay) received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and (ii) Benefits received by officials and employees not covered by Presidential Decree No. 851, as amended by Memorandum Order No, 28, dated August 13, 1986; and *{iv} Other benefits such as productivity incentives and Christmas bonus.” (Section 9, RA 10953] Previous total exclusion ~ 282,000 10. FRINGE BENEFITS — Effective January 1, 2018 and onwards, a final tax of thirty-five percent (35%) is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees) by the employer, whether an individual or a corporation unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer. [Section 10, RA 10963] 11, OPTIONAL STANDARD DEDUCTION (OSD) A gencral professional partnership and the partners comprising such partnership may avail of the optional standard deduction only once, cither by the general professional partnership or the partners comprising the partnership. (Section 11, RA 10963] 12, SUBSTITUTED FILING OF INCOME TAX RETURNS BY EMPLOYEES RECEIVING PURELY COMPENSATION INCOME. - Individual taxpayers receiving purely compensation income, regardless of amount, from only one cmployer in the Philippines for the calendar year, the income tax of which has been withheld correctly by the said employer (tax due equals tax withheld) shall not be required to file an annual income tax return. The certificate of withholding filed by the respective employers, duly stamped “received” by the BIR, shall be tantamount to the substituted filing of income tax returns by said employees.” [Section 14, RA 10963] 13. INSTALLMENT OF PAYMENT. — When a tax due is in excess of ‘Two Thousand Pesos (P2,000), the taxpayer other than a corporation, may elect to pay the tax in two (2) equal installments, in which case, the first installment shall be paid at the time the return is filed and the second installment on or before October 15 following the close of the calendar year, if any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable together with the deliquency penalties.” [Section 16, RA 10963]e 2. ESTATE TAX ESTATE TAX RATE: Six percent (6%) based on the value of net estate ALLOWABLE DEDUCTIONS FROM GROSS ESTATE: a) Standard Deduction al) Resident Decedent ~ Five Million Pesos (5,000,000) a2) Non-Resident Decedent = Five Hundred Thousand Pesos (P500,000) b) Family Home - Ten Million Pesos (210,000,000) ESTATE TAX RETURNS: a} Gross estate exceeding P5Million shall be supported with a statement duly certified to by a certified public accountant b) Time for filing - within one (1) year from the decedent's death c) Payment by installment ~ within two (2) years from the statutory date for its payment without civil penalty and interest d) Withdrawal from the decedent's bank deposit account ~ subject to a final withholding of six percent (6%) 3. DONOR'S TAX EXEMPT DONATION: P250,000 DONOR'S TAX RATE: 6% of the total gifts in excess of P250,000 SALE, EXCHANGE, OR OTHER TRANSFER OF PROPERTY MADE IN ‘THE COURSE OF BUSINESS (BONA FIDE, AT ARM'S LENGTH, AND FREE FROM DONATIVE INTENT) - considered as madc for an adequate and full consideration in money or money's worth; hence, no taxable donation. 4. VALUE-ADDED TAX (VAT) EXEMPT TRANSACTIONS a) Importation of professional instruments and implements . . . personal and household effects belonging to persons coming to settle in the Philippines or Filipinos, their families and descendants who are not residents or citizens of other countries, x x x for their own use and not for barter or sale accompanying such persons, or arriving within a reasonable time. b) Sale of residential lot - P1,500,000 c} Sale of residential house and lot ~ P2,500,000 d) Lease of a residential unit with a monthly rental not exceeding P18,000 ¢} Transport of passengers by international carriers f) Sale or lease of goods and services to senior citizens and persons withdisability (PWD) 2) Transfer of property pursuant to a plan of merger or consolidation hj Association dues, membership fees and other assessments and charges collected by homeowners associations and condominium corporations j) Sale of gold to the Bangko Sentral ng Pilipinas (BSP) ji. Sale of drugs and medicines prescribed for diabetes, high cholesterol and hypertension beginning January 1, 2019 kj Sale or lease of goods or properties or the performance of services ~ the gross annual sales and/or receipts do not exceed the amount of PSMillion 2. REFUNDS OR TAX CREDITS OF INPUT TAX a) The Commissioner shall grant # refund for creditable inpul taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application b) The taxpayer affected may, within thirty (0) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals. Failure on the part of any official, agent, or employce of the BIR to act on the application within the nincty {90)-day period shall be punishable under Section 269 of the Code B. UPDATES IN TAX JURISPRUDENCE 1. TAXES ARE NOT SUBJECT TO SET-OFE; EXCEPTIONS As a rule, taxes cannot be subject to compensation because the government and the taxpayer are not creditors and debtors of each other. However, the Supreme Court allowed the offsetting of taxes under the following exceptional cases: In Connnissioner of futernal Recenne v. Court of Pax Appeals, 234 SCRA 348, the Court allowed offsetting of taxes in a tax refund case becatsse there was an existing deficiency income and business tax assessment against the taxpayer. The Court said that “{tJo award such refund despite the cxistence of that deficiency assessment is an absurdity and polarity in conceptual effects” and that “to grant the refunet without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits Similarly, in South African Atrways v. Contmissioner of internal Reventee, 612 SCRA 665, the Court permitted the offsetting of taxes because the correctness of the return filed. by the taxpayer was put in issue, In the recent case of SMI-ED Philippines Teclmology, Inc. 1. Connnissioner of tuterttal Revenue, 739 SCRA 691, the Court also allowed offsetting because there was a need for the court to determine if a taxpayer claiming refund of erroneously paid taxes is moreproperly liable for taxcs other than that paid, The Court explained that the determination of the proper category of tax that should have been paid is not an. assessment but is an incidental issue that must be resolved in order to determine Whether there should be a refund, However, x x x while offsetting may be allowed, the BIR can no longer assess the taxpayer fer deficiency taxes in excess of the amount claimed for refund if prescription has already set in. In all these cases, the Supreme Court allowed offsetting of taxes only because the determination of the taxpayer's liability is intertwined with the resolution of the claim for tax refund of erroneously or illegally collected taxes under Section 229 of the NERC. {CIR @, Toledo Power Company, 775 SCRA 709} 2. AN OFFLINE INTERNATIONAL AIR CARRIER SELLING PASSAGE TICKETS IN THE PHILIPPINES, THROUGH A GENERAL SALES AGENT, IS A RESIDENT FOREIGN CORPORATION DOING BUSINESS IN THE PHILIPPINES Doing business includes appointing representatives or distributors operating under full control of the foreign corporation, domiciled in the Philippines ot who in any calendar year stay in the country for a period totaling one hundred eighty (180) days or Upon this point, an offline carrier, a foreign air carrier not certified by the Civil Aeronautics Board, that maintains office or has designated or appointed agents or employees in the Philippines, through whom, it sells or offers for sale any air transportation, or negotiates for, or holds itself out by solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or arranges for such transpoctation, is undoubtedly “doing business” or “engaged in trade or business in the Philippines. As such, it is taxable under Section 28(A)(1), and not Section 28(A)(3) of the 1997 National Internal Revence Code, subject to any applicable tax treaty to which the Philippines is a signatory. Pursuant to Article 8 of the RP-Canada Tax Treaty, Air Canada may only be imposed a maximum tax of 142 % of its gross revenues earned from the sale of its tickets in the Philippines. [Air Canada 2, CIR, 778 SCRA 131] MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) IS EXEMPT FROM REAL ESTATE TAX In the 2006 MIAA case, the Supreme Court held that MIAA's airport lands and buildings are exempt from real estate tax imposed by local governments; that it is not a GOCC but an instrumentality of the national government, with its zeal properties being owned by the Republic of the Philippines, and these are exempt from real estate tax. The Court declared that MCIAA is an instramentality of the national government. {Mactan Cebu lnternational Airport Authority (MCIAA} 1). City of Lapu-Laywe and Elena T. Pacaldo, 757 SCRA 323]4, ‘THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA) IS AN INSTRUMENTALITY OF THE NATIONAL GOVERNMENT. EXEMPT FROM PAYMENT OF REAL PROPERTY TAXES PEZA is an intrumentality of the national government. It is not integrated within the department framework but is an agency attached to the Department of Trade and Industry. It administers its own funds and operates autonomously with the PEZA Board as an instrumentality of the national government, PEZA is vested with special functions or jurisdiction by law. Being an instrament of the national government, the PEZA cannot be taxed by local government units. (City of Lapu-Lapu &. Philippine Econtonuie Zone Authority, 742 SCRA 524] 5. PAGCOR IS STILL EXEMPT FROM CORPORATE INCOME TAX WITH RESPECT ‘TO ITS INCOME FROM GAMING OPERATIONS Under P.D, 1869, as amended, PAGCOR is subject to income tax only with respect to its operation of related services, Accordingly, the income tax exemption ‘ordained under Section 27(¢) of R.A. No. $424 clearly pertains only to PAGCOR's income from operation of related services. Such income fax exemption could not have been applicable to PAGCOR's income from gaming operations as it is already exempt therefzom under P.D. 1869, as amended. Indeed, the grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax, This is the most sound and logical interpretation because PAGCOR could not have been exempted from paying taxes which it was not liable to pay in the first place. This is clear fom the wordings of P.D. 1869, as amended, imposing a franchise tax of five percent {5%) on its gross revenue or earnings derived by PAGCOR from its operation under the Branchise fit diew of all taxes of any kind or form, as well as fees, charges of levies of whatever nature, which necessarily include corporate income tax. [PAGCOR 0, BIR, 744 SCRA 712} NEW DE MINIMIS BENEFITS: Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total annual monetary value received from both CBA and productivity incentive schemes combined do not exceed ten thousand pesos (Phpl0,000.00) per employee per taxable year. [Revenie Regulations No. 1-2015]7. THE 20% SENIOR CITIZEN DISCOUNT IS AN EXERCISE OF POLICE POWER In the recent case of Manite Memorial Park, frie. @. Secretary of te DSWWD, TIL SCRA 302, the Supreme Court ruled that the 20% senior citizen discoint is an exercise of police power. In holding so, the Court explained that 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 illness and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. (The 20% discount may be properly viewed as belonging to the category of price regulatory measures which affect the profitability of establishments subjected thereto. Ergo, the subject regulation is a police power measure. 8. ‘THE SOCIALIZED HOUSING TAX (SHT) 18 LEVIED IN THE EXERCISE OF THE POLICE POWER OF THE STATE {tis settled that the socialized housing tax (SH) isnot a pure exercise of taxing power or merely to raise revenue; it is levied with a regulatory purpose. The levy is primarily in the exercise of the police power for the general wellare of the entire Local government unit. It is greatly imbued with public interest. Removing slum areas is not ‘only beneficial to the underprivileged and homeless constituents but advantageous to the real property owner as well. The situation will improve the value of their property investments, fully enjoying the same in view of an orderly, secure and sate community, and will enhance the quality of tife of the poor, making them law-abiding, constituents and better consumers of business products. [Ferrer, jr. Bautista, 760 SCRA 852] 9. NATURE OF COCONUT LEVY FUNDS AND BUILDING PERMIT The coconut levy funds partake of the nature of taxes and can only be used for public purpose, and importantly, for the purpose for which it was exacted, fe, the development, rehabilitation and stabilization of the coconut industry. They cannot be used to benefit — whether directly or indirectly — private individuals, be it by way of a commission, or as the subject Agreement interestingly words it, compensation. [Cojumigeo, fe. Republic, 686 SCRA 472] It has been held that a building permit is a regulatory imposition. For one, in processing an application for a building permit, the Building Official shall see to it that the applicant satisfies and conforms with the approved standard requirements on voning and land use, lines and grades, structural design, sanitary and sewerage, environmental health, electrical and mechanicat safety. For another, clearances from various government authorities exercising and enforcing regulatory functions affecting buildings/ structures may be required before a building permit may be issued. {Angeles University Foundation v, City of Angeles, 675 SCRA 359}10. ST, LUKE'S MEDICAL CENTER, INC,, ORGANIZED AS A. NON-STOCK AND NON-PROFIT CHARITABLE INSTITUTION IS NOT IPSO FACTO ENTITLED TO A TAX EXEMPTION There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution, However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the organization of St. Luke's. Even if St, Luke's meets the test of charity, a charitable institution is not ipso facto tax exempt, To be exempt from real property taxes, Scction 283), Article VI of the Constitution requires that a charitable institution use the property “actually, directly and exclusively” for charitable purposes. To be exempt from income taxes, Section 30(B) of the NIRC 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 NIRC requires that the institution be “operated exclusively” for social welfare, {Coutmssioner of Internal Revenue 0, Si. Luke's Medical Center, Inc,, 682 SCRA 66} 1k. MINIMUM CORPORATE INCOME TAX (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, ie, the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed. {Clinber of Real Estate anid Builder's Associations, Buc. v. Rona, 614 SCRA 605, 628] 12. TOLL FEES COLLECTED BY TOLL OPERATORS MAY BE SUBJECTED TO VALUE-ADDED TAX Section 108(A) of the Code clearly states that servives of alll other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operatozs are not among, the franchise grantees subject to franchise tax under the latter provision, Neither are their services among the VAT-exempt transactions under Section 108 of the Code. xxx The grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The Court's role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress, The Court has no discretion on the matter but simply applies the law. ‘The VAT on the franchise grantees has been in the statute books since 1994 when R.A. 716 or the Expanded Value Added Tax law was passed, It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators. ‘The executive exercises exclusive discretion in matters pertaining to the implementation, the executive is more properly suited to deal Secretary and execution of fax laws, Consequently with the immediate and practical consequences of the VAT imposition. {D of Fisnance, 654 SCRA 96) 13. PRIOR PAYMENT OF VALUE-ADDED TAXES IS NOT A PREREQUISITE BEFORE A TAXPAYER COULD AVAIL OF THE TRANSITIONAL INPUT TAX CREDIT A transitional input tax credit is not a tax refund per se but a tax credit: Logically, prior payment of taxes is not required before a taxpayer could avail of transitional input tax credit. It is settled that fax 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 Rand, is an amount subtracted directly form one's total tax Liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. [Fort Bonifacio Development Corporation. Commuissioner of Internal Revenue, 689 SCRA 76} 14. LOCAL GOVERNMENT UNITS (LGU) ARE DEVOID. OF TAXING POWER OVER THE MANUFACTURING. AND DISTRIBUTION OF PETROLEUM PRODUCTS, Strictly speaking, as long. as the subject matter of the taning powers of the LGUs is the petroleum products per se or even the activity or privilege related to the petroleum products, such as manufacturing and distribution of said products, it is covered by the limitation under Section 133(h) andl thus, no levy can be imposed, On the contrary, Section 143 of the LGC (RA 7160) defines the general power of LGUs to tax businesses. within its jurisdiction, Thus, the omnibus grant of power to LGUs under Section 143(h) of the LGC cannot overcome the specific exception or exemption in Section 13%(h) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general anes. A special and specific provision prevails over a general provision irrespective of their relative positions in the statute. Genieralia specialibs naw derogaut. Where there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment. {Batangas City & Pilipinas Shell Petroleuin Corporation, 762 SCRA 153, 155] 15. FLEXIBLE CLAUSE UNDER THE CUSTOMS MODERNIZATION AND TARIFF ACT (CMTA) In the interest of the general welfare and national security, the President, upon recommendation of the National Economic and Development Authority (NEDA): (1)increase, reduce or remove existing protective tariff rates of import duty, but in no case shall be higher than one hundred percent (100%) ad valorem; (2) establish import quota or ban importation of any commodity as may be necessary; and (3) impose additional duty on all imports not exceeding ten percent (10%) ad valorem, whenever necessary This is known as the Flexible Clause enshrined in Section 1608 of R.A. 10863 otherwise known as the Customs Modernization and Tariff Act (CMTA). IL PROCEDURAL LAW (TAX REMEDIES) 1, ASSESSMENT IS A WRITTEN NOTICE AND DEMAND In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an ‘opportunity to contest or disprove the BIR examiner's findings is not an assessment since it is yet indefinite, We rule that the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points: 1. It was not addressed to the taxpayers, 2. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein, 3. The letier was never mailed or sent to the taxpayers by the Commissioner. In fine, the said recommendation letter served merely as the prime facie basis for filing criminal informations that the taxpayers had violated Section 45 (a) and (4), and 110, in gelation to Section 100, as penalized under Section 255, and for violation of Section 253, jn relation to Section 252 9{b) and (a) of the Tax Code. [Adanisons n, Court of Appeals, 588 SCRA 27) 2. LIQUIDATION UNDER THE TARIFF AND CUSTOMS CODE OF THE PHILIPPINES (TCCP) IS AKIN TO AN ASSESSMENT UNDER THE NIRC A tax protest case, under the TCCP, involves a protest of the liquidation of import entries. A liquidation is the final computation and ascertainment by the collector of the duties on imported merchandise, based on official reports as to the quantity, character, and value thereof, and the collector's own finding as to the applicable tate of duty; it is akin to an assessment of internal revenue taxes under the National Internal Revenue Code where the tax liability of the taxpayer is definitely determined. (Pilipinas Shell Petrotenm Corporation @, Conumissioner of Customs, 589 SCRA 574]3. THE SENDING OF A PRELIMINARY ASSESSMENT NOTICE (PAN) ‘TO TAXPAYER TO INFORM HIM OF THE ASSESSMENT MADE IS BUT 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 The use of the word “shall” in subsection 3.1.2 of Revenue Regulations 12-99 (sow Subsection 3.1.1, Revenue Regulations 18-2013) describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own mules is a denial of Metro Star's right to due pracess, Thus, lor its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. 8424, the assessment made by the CIR is void. {See Commissioner of Internal Revenue ¢, Metro Star Superuna, Ine., 637 SCRA 633] 4 A MOTION FOR RECONSIDERATION OF THE DENIAL OF THE, ADMINISTRATIVE PROTEST DOES NOT TOLL THE 30-DAY PERIOD TO APPEAL TO THE COURT OF TAX APPEALS Petitioner’s administrative protest was denied by Final Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent's denial of its protest to the CTA. Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed! out of time, Indeed, a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. {See Fishtoealtl: Canning Corporation 0, Conimissioner of hnternal Revenue, 610 SCRA 524] 3. AN APPEAL TO THE CTA EN BANC MUST BE PRECEDED BY THE FILING OF A TIMELY MOTION FOR RECONSIDERATION OR NEW TRIAL WITH THE CTA DIVISION Section 1, Rule 8 of the Revised Rules of the CTA states: SECTION 1. Revicar of cases is the Court ext bare. — In eases falling under the exclusive appellate jurisdiction of the Court en dare, the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division, Thus, in order for the CTA En Bane to take cognizance ef an appeal via a petitionfor review, a timely motion for reconsideration or new trial must first be filed with the CTA Division that issued the assailed decision or resolution, Failure to do so is a ground for the dismissal of the appeal as the word “must” indicates that the filing of a prior motion is mandatory, and not merely directory The same is true in the case of an amended decision, Section 3, Rule 1 of the same rules defines an amended decision as “any action modifying or reversing a decision of the Court en banc or in Division.” As explained in CE Luzon Geothermal Power Company, Inc. 2. Comauissioncr of Internal Reventee, an amencled decision is 8 different decision, and thus, is a proper subject of a motion for reconsideration In this case, the CIR's failure to move for a reconsideration of the Amended Decision of the CTA Division is a ground for the dismissal of its Petition for Review before the CTA Ext Banc, Thus, the CEA En Bec diel not err in denying the CIR’s appeal on procedural grounds. (Asin Trust Development! Bank, Ine. v. CIR, 823 SCRA 648) 6 A FORMAL LETTER OF DEMAND WITH ASSESSMENT NOTICES STATING THAT IT IS BIR'S FINAL DECISION BASED ON INVESTIGATION IS APPEALABLE TO THE CTA Allied Banking Corporation received the Formal Letter of Demand with Assessment Notices, which partly reads: “It is requested that the above deficiency tax be pail immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disayree, you may appeal the final decision with thirty (30) days from receipt hereof, otherwise said dleticiency tax assessment shall become final, executory and demandable.” ‘A careful reading, of the Formal Letter of Demand with Assessment Notices leads tus to agree with Allied Banking Corporation that the instant case is an exception to the rale on exhaustion of administrative remedies, ic, estoppel on the part of the administrative agency concerned. {Allied Banking Corporation v. Conintissioner of Intersenl Revenue, 611 SCRA 692} 7 ‘TAXPAYER HAS TWO OPTIONS IN CASE THE BIR COMMISSIONER FAILED TO ACT ON THE DISPUTED ASSESSMENT WITHIN THE 180-DAY PERIOD FROM THE DATE OF SUBMISSION OF RELEVANT SUPPORTING DOCUMENTS. In RCBC 2. CHR, 522 SCRA 14, the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days aftcr the expiration of the 180-day period; or (2) await the final decision of theCommissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 20 days aéter receipt of a copy of such cecision, {Lascon Land Co,, Ine. v Connuissioner of fetentad Reventie, 667 SCRA 455} ‘THE PROPER PARTY TO SEEK A REFUND FOR INDIRECT TAX 1S THE STATUTORY TAXPAYER Excise taxes, which apply to atticles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines, is basically an indirect tax. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production or from the customs custody, the tax, in reality, is actually passed on to the end consumer as part of the transfer value or selling price of the goods, sold, bartered or exchanged, In early cases, we have ruled that for indirect taxes (such as valued-added tax or VAT), the proper party to question or seek a refund of the tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even when he shifts the burden thereof to another. Thus, in Conter Corponntion &. Conanissioner of Internal Revenue, we held that while itis true that petitioner corporation should not have been liable for the VAT inadvertently passed! on to it by its supplier since their transaction is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund, Rather, its the petitioner’ suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter. [Silair Singapore) Pre Ltd x, Conmulssioner of ternal Revenue, 664 SCRA 33) 1 IN APPLYING THE TWO-YEAR PERIOD FOR CLAIM FOR TAX REFUND, THE ADMINISTRATIVE CODE OF 1987 TAKES PRECEDENCE OVER THE CIVIL CODE Both Article 13 of the Civil Code and Section 31, Chapter VIL, Book | of the Administrative Code of 1987 deal with the same subject matter—the computation of legal periods, Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. 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. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VILL, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. {Commissioner of fnternal Revenue ® Prinetoren Property Group, tc., $31 SCRA 436}10. REQUISITES FOR CLAIMING UNUTILIZED/ EXCESS IN INPUT VAT Pursuant to Section 112 of the National Internal Revenue Code (NIRC) of 1997, the requisites for claiming unutilized /excess VAT, except transitional input VAT, are as foilows: 1) The taxpayer-claimant is VAT-registered: 2) The taxpaver-claimant is engaged in zero-rated or effectively zero-rated sales; 3) There are creditable input taxes due or paid attributable to the zero-rated or effectively zero-rated sales; 4) This input tax has not been applied against the output tax; 3) The application and claim for a refund have been filed within the prescribed period. {CIR v, Toledo Power Company, 765 SCRA 517] ll. THE IRREVOCABILITY RULE APPLIES ONLY TO THE OPTION OF CARRY-OVER In the recent case of Linitwrsity Physicians Serciees, Inc. % CIR, GR. No. 205955, 7 March 2018, the Supreme Court, passing upon a novel issue, held that the irrevocability rule is Limited only to the option of carry-over such that a taxpayer is still free to change its choice after electing a refund of its excess tax credit, But once it opts tw carry over such excess creditable tax, after electing zefund or issuance of tax credit certificate, the carry-over option becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if subsequently pursued, may no longer be granted, xxx Sections 76 and 228, paragraph (c) of the NIRC, as amended, unmistakably evince that choice of refund. or tax credit certificate is not irrevocable. 12. A TAX ORDINANCE MAY BE ASSAILED BEFORE THE SECRETARY OF JUSTICE WITHIN THIRTY (30) DAYS FROM EFFECTIVITY THEREOF Clearly, 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 thercof. 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 thureon, 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 weson the courts construe these provisions of statutes as mandatory. {Cagayan Electric Power and Light Co., Inc. 0. City of Cugayan De Ore, 685 SCRA 609}13. THERE 1S NO EXPRESS PROVISION IN THE LOCAL GOVERNMENT CODE (LGC) PROHIBITING COURTS FROM ISSUING AN INJUNCTION TO RESTRAIN LOCAL GOVERNMENTS FROM COLLECTING TAXES A principle deeply embedded i our jurisprudence is that taxes being the lifeblood of the government should be collected promptly, without unnecessary hindrance or delay. In line with this principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue fax, fee or charge imposed by the code. An exception to this rule obtains only when in the opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the government and/or the taxpayer. Unlike the National Internal Revenue Code, the Local lax Code dees not contain any specific provision prohibiting courts from enjoining, the collection of local taxes, Such statutory lapse or intent, however it may be viewed, mat have allowed preliminary injunction where local taxes are involved but cannot negate the procedural rules and reyuirements under Rule 58. [Angeles City 2. Angeles Electric Corporation, 622 SCRA 43} 14. ‘THE CTA HAS JURISDICTION OVER PETITIONERS FOR CERTIORARI The CTA, by constitutional mandate, is vested with the jurisdiction to issue writs of certiorari Reasons: 1. The judicial power of the CTA inchuices that of determining whether or not there has been grave abuse of discretion amounting to lack oF 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 2. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also stich power as is deemed necessary, if not indispensable, in aid of such appellate jurisdiction 3, The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aicl of its appellate jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction to review, by appeal, the final orders and decisions of the RTC, in order to have complete supervision over the acts of the latter. {City of Manila v. Grecia-Cuerdo, 715 SCRA 182}15. ‘THE CTA EN BANC HAS NO JURISDICTION OVER PETITION FOR ANNULMENT OF JUDGMENT OF ITS DIVISION The Revised! Rules of the CTA provide for no instance of an annulment of judgment. The CTA en bane may not reverse, annul or void a final decision of division. Instead, whet remained as a remedy for the aggrieved party was to file a petition for certiorari undcr Rule 65, which could have been filed as an original action before the Supreme Court and not before the CTA Ey Banc. {CIR x, Kepco Rijan Corporation, 794 SCRA 193} 16. THE SECRETARY OF JUSTICE HAS JURISDICTION OVER THE DISPUTE BETWEEN PSALM (POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION) AND NPC AND BIR OVER THE IMPOSITION OF VAT ON THE SALE OF THE TWO POWER PLANTS ‘A dispute between PSALM and NPC and BIR, which are both wholly government-owned corporations, and the BIR, a government office, aver the imposition of VAT on the sale of the two power plants is vested in the Secretary of Justice, There is no question that original jurisdiction is with the CIR, who issues the preliminary and the final tax assessments, However, if the government entity disputes the tax assessment, the dispute is already between the BIR (represented by the CIR) and another government entity, in this case, the petitioner PSALM. Under Presidential Decree No. 242 (PD 242), all disputes and claims solely between government agencies and offices, including government-owned or controlled corporations, shall be administratively settled or adjudicated by the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel, depending on the issues and government agencies involved. [PSAIM v. CIR, G.R. No. 198146, August 8, 2017) 17. THE COURT OF TAX APPEALS MAY TAKE COGNIZANCE OF CASES DIRECTLY CHALLENGING THE CONSTITUTIONALITY OR VALIDITY OF A TAX LAW OR REGULATION OR ADMINISTRATIVE ISSUANCE The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund, It is only in the awful exercise of its power to pass upon alll the matters brought before it, as sanctioned by Section 7 of Republic Act No. 1125, as amended Republic Act No. 9282, @ special and later faw than Batas Pambansa Big, 129 provides an exception to the original jurisdiction of the Regional Trial Courts over actions questioning the constitutionality or validity of tax laws or regulations. Except for local tax cases, actions directly challenging the constitutionality or vafidity of a tax lawor regulation or administrative issuance may be filed directly before the Court of Tax Appeals. (Banco De Oro, el al. . Secretary of Finnuce, 300 SCRA 39: 18. BOND MAY BE DISPENSED WITH UNDER EXCEPTIONAL CASES In the recent case of Pacquiao &, CTA, 789 SCRA 19, the Supreme Court echoed the recognized exceptions to the filing of the requited bond, viz 1) The taxpayer need not file @ bond if the method employed by the collector in the collection of the tax is not sanctioned by law. 2) The order of the Collector of Internal Revenue to etfect collection of the alleged income taxes through summary administrative proceeding had been issued wolf beyond the thrce-vear period of limitation. The purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more importantly, to prevent the absurd situation wherein the court would declare that the collection by the summary methods of distraint and levy was violative of law, and then, in the same breath, require the taxpayer to deposit or file a bond asa prerequisite for the issuance of a writ of injunction.