TAX CASES
ESTATE TAX
1. SAN AGUSTIN v. CIR
- Interest of 25% justifiable.
Payment of interest was paid
two weeks after lapse of 30
days from receipt from BIR
2. MARCOS II (BONG BONG) v. CIR
- Moreover, notice need not be
served upon Bong Bong since
Petitioner Felisa L. Vda. De San Agustin, widow of the late Jose San Agustin, received on 23 September 1991 a pre-
assessment Notice from the Bureau of Internal Revenue showing a deficiency estate tax of P538,509.50, which, including
surcharge, interest and penalties, amounted to P976,540.00. Petitioner expressed readiness to pay the basic deficiency
estate tax but requested for the waiver of the amount of P438,040.38 representing the interest, surcharge and compromise
penalty. On October 04, 1991, petitioner received a notice from the Commissioner of Internal Revenue denying her request
and insisted payment of the tax due on or before the lapse of thirty (30) days from receipt thereof. Petitioner paid the basic
deficiency estate tax on 19 December 1991. Petitioner also paid the amount of P438,040.38 under protest and then filed
a petition for review before the Court of Tax Appeals praying for the refund of the said amount. The Commissioner opposed
the said petition on ground of lack of jurisdiction considering that no claim for tax refund of the deficiency tax collected was
filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National
Internal Revenue Code. The Court of Tax Appeals, however, upheld its jurisdiction and rendered a decision modifying the
deficiency assessment of the Commissioner of Internal Revenue for surcharge, interest and other penalties imposed
against the estate of the late Jose San Agustin. It ordered the refund to the estate the amount which it overpaid. On appeal,
the Court of Appeals granted the petition of the Commissioner of Internal Revenue and held that the decision of the Court
of Tax Appeals was null and void for lack of jurisdiction. Petitioner elevated the case before the Supreme Court.
The Court ruled that the tax court had aptly acted in taking cognizance of the taxpayer's appeal to it. The Court found no
cogent reason to abandon the dictum in the case of Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue
(4 SCRA 279) which allows an appeal from a decision of the Collector of Internal Revenue in cases involving disputed
assessments. The Court in the said case held that ". . . To hold that the taxpayer has now lost the right to appeal from the
ruling on the disputed assessment but must prosecute his appeal under Section 306 of the Tax Code, which requires a
taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require
of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Collector
(now Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest against
the assessment. The law should not be interpreted as to result in absurdities."
The Court, therefore, granted the petition, but it modified the deficiency assessment for surcharge, interest and penalties
and the amount to be refunded to the estate of the late Jose San Agustin.
ID.; DEFICIENCY ESTATE TAX; PENALTIES; SURCHARGES AND INTEREST; DELAY IN PAYMENT OF DEFICIENCY
TAX JUSTIFIES IMPOSITION OF 25% SURCHARGE; DEFICIENCY IN TAX DUE IS SUBJECT TO 20% INTEREST PER
ANNUM; COMPUTATION OF INTEREST; CASE AT BAR. — The delay in the payment of the deficiency tax within the
time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with
Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof
comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest
at the rate of twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed
for its payment until full payment is made.
TAXATION; NATIONAL INTERNAL REVENUE CODE; ESTATE TAX; NATURE OF PROCESS OF COLLECTION. — The
nature of the process of estate tax collection has been described as follows: "Strictly speaking, the assessment of an
inheritance tax does not directly involve the administration of a decedent's estate, although it may be viewed as an incident
to the complete settlement of an estate, and, under some statutes, it is made the duty of the probate court to make the
 it’s Ferdinand and Imelda’s
estate were delinquent;
- DOJ does not asses the
amount of the liability upon the
estate of Marcos based on its
findings but BIR;
- No protest filed by either BBM
or Imelda; hence prescription
set in;
- Levy on Real property proper
upon non-filing of estate return
and payment.
3. ESTATE OF HILARIO RUIZ v. CA
amount of the inheritance tax a part of the final decree of distribution of the estate. It is not against the property of decedent,
nor is it a claim against the estate as such, but it is against the interest or property right which the heir, legatee, devisee,
etc., has in the property formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor it is an adversary proceeding between the state and the person who owes the tax on
the inheritance. However, under other statutes it has been held that the hearing and determination of the cash value of the
assets and the determination of the tax are adversary proceedings. The proceeding has been held to be necessary a
proceeding in rem. In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as
the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. (Section 3 of the National Internal
Revenue Code) AS
ICDH
ID.; ID.; ID.; COLLECTION THEREOF DOES NOT REQUIRE APPROVAL OF PROBATE COURT. — The approval of the
court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of
estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's
sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or
estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. On
the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the
executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the
estate, unless it is shown a Certi􏰂cation by the Commissioner of Internal Revenue that the estate taxes have been paid.
This provision disproves the petitioner's contention that it is the probate court which approves the assessment and
collection of the estate tax.
ID.; ID.; ESTATE TAX; 10-YEAR PRESCRIPTIVE PERIOD FOR ASSESSMENT AND COLLECTION OF TAX
DEFICIENCY; CASE AT BAR. — The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Section 223 of the NIRC, which pertinently provides that the case of a false
or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court
for the collection of such tax may be begun without assessment, at any time within ten (10) years after the discovery of the
falsity, fraud, or omission. The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file
a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be
collected by levy upon real property within three years following the assessment of the tax. Since the estate tax assessment
had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment,
there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the
assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments
of internal revenue taxes.
ID.; ID.; ID.; ID.; WHEN DISTRIBUTION OF ESTATE PROPERTIES CAN BE MADE. — In settlement of estate
proceedings, the distribution of the estate properties can only be made: (1) after all the debts, funeral charges, expenses
of administration, allowance to the widow, and estate tax have been paid; or (2) before payment of said obligations only if
the distributees or any of them gives a bond in a sum fixed by the court conditioned upon the payment of said obligations
within such time as the court directs, or when provision is made to meet those obligations.
ID., ID., ID.; PAYMENT OF ESTATE TAX; AN OBLIGATION THAT MUST BE PAID BEFORE THE DISTRIBUTION OF
ESTATE. — The estate tax is one of those obligations that must be paid before distribution of the estate. If not yet paid,
the rule requires that the distributees post a bond or make such provisions as to meet the said tax obligation in proportion
to their respective shares in the inheritance.
4. ELEGADO v. CTA
- CIR had two assessments.
Petitioner thought second one
cancelled the first, and when
CIR told second one got
cancelled, he thought it did not
have the effect of reviving the
first. (Lol)
- First assessment was final and
executory, second was only
provisional since petitioner no
longer questioned it after denial
of its protest.
5. CIR v. CA, CTA, & PAJONAR
- Attorney’s fees, notarial fees
are deductible to the gross
estate of the deceased to arrive
at the net estate.
6. DIZON v. CTA
TAXATION; NATIONAL INTERNAL REVENUE CODE; ESTATE TAX; SECOND ASSESSMENT OF LESSER AMOUNT
DOES NOT CANCEL PREVIOUS ASSESSMENT WHICH HAS BECOME FINAL AND EXECUTORY. — It is noted that
in the letter of July 3, 1980, imposing the second assessment of P72,948.87, the Commissioner made it clear that "the
aforesaid amount is considered provisional only based on the estate tax return filed subject to investigation by this Office
for final determination of the correct estate tax due from the estate. Any amount that may be found due after said
investigation will be assessed and collected later." It is illogical to suggest that a provisional second assessment of
P72,948.87 can supersede an earlier assessment of P96,509.35 which had clearly become final and executory for failure
to contest the assessment for six (6) years.
Petitioner assailed the decision of the Court of Appeals which affirmed the Resolution of the Court of Tax Appeals granting
Josefina Pajonar, administratrix of the estate of Pedro Pajonar, a tax refund representing erroneously paid estate taxes for
the year 1988; and deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings. Here in issue is the allowance of said deductions.
Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the
value of the net estate, have been construed to include all expenses essential to the proper settlement of the estate. The
notarial fee paid for the extrajudicial settlement is clearly deductible expense since such settlement effected the distribution
of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro
Pajonar's property during his lifetime should also be considered as a deductible administration expense.
TAXATION; NATIONAL INTERNAL REVENUE CODE; ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE OF A
DECEDENT; DISCUSSED. — The deductions from the gross estate permitted under Section 79 of the Tax Code basically
reproduced the deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal
Revenue Code of 1939, and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also
provided for the deduction of the "judicial expenses of the testamentary or intestate proceedings" for purposes of
determining the value of the net estate. Philippine tax laws were, in turn, based on the federal tax laws of the United States.
In accord with established rules of statutory construction, the decisions of American courts construing the federal tax code
are entitled to great weight in the interpretation of our own tax laws. Judicial expenses are expenses of administration.
Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the
value of the net estate, have been construed by the federal and state courts of the United States to include all expenses
"essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it."
In other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for the
individual benefit of the heirs, devisees or legatees are not deductible.
Decedent Jose P. Fernandez's estate was administered by Arsenio P. Dizon and petitioner Rafael Dizon (petitioner) as
Special and Assistant Special Administrator, respectively. Petitioner filed a request for extension with the BIR to determine
and collate the assets and claims of the estate, which the BIR granted. Jesus Gonzales, an agent of Arsenio filed the
estate tax return with the same BIR Regional Office, showing therein a NIL estate tax liability.
The BIR then issued Certifications allowing decedent's properties may be transferred to his heirs.
 Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the purpose of
paying its creditors. Petitioner manifested that Manila Bank, a major creditor of the Estate was not included, as it did not
file a claim with the probate court since it had security over several real estate properties forming part of the Estate.
However, the BIR issued an Estate Tax Assessment Notice demanding the payment of P66,973,985.40 as deficiency
estate tax. Gonzales moved for the reconsideration but was denied.

The CTA and CA who affirmed, ruled that the evidence introduced by the BIR were admissible.

The specific question is whether the actual claims of the aforementioned creditors may be fully allowed as deductions from
the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors.

The Court agreed with an American ruling relating to the date-of-death valuation, a tax imposed on the act of transferring
property by will or intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the instance of
death, the net value of the property transferred should be ascertained, as nearly as possible, as of that time, to be followed.
Also the Court, emphasized the definition of claims which are debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable
deductions.

7. DEL ROSARIO v. FERRER On August 27, 1968 the spouses Leopoldo and Guadalupe Gonzales executed a document entitled “Donation
Mortis Causa” in favor of their two children, Asuncion and Emiliano, and their granddaughter, Jarabini (daughter of their
- “irrevocable” predeceased son, Zoilo) covering the spouses’ 126-square meter lot and the house on it in Pandacan, Manila in equal
shares.
The deed of donation reads:

It is our will that this Donation Mortis Causa shall be irrevocable and shall be
respected by the surviving spouse.

Although denominated as a donation mortis causa, which in law is the equivalent of a will, the deed had
no attestation clause and was witnessed by only two persons. The named donees, however, signified their acceptance of
the donation on the face of the document.
Guadalupe, the donor wife, died in September 1968. A few months later or on December 19, 1968, Leopoldo, the donor
husband, executed a deed of assignment of his rights and interests in subject property to their daughter Asuncion.
Leopoldo died in June 1972.
In 1998 Jarabini filed a “petition for the probate of the August 27, 1968 deed of donation mortis causa” before the Regional
Trial Court (RTC) of Manila in Sp. Proc. 98-90589. Asuncion opposed the petition, invoking his father Leopoldo’s
assignment of his rights and interests in the property to her.
The donation was inter vivos. That the document in question in this case was captioned “Donation Mortis Causa” is not
controlling. The Court has held that, if a donation by its terms is inter vivos, this character is not altered by the fact
that the donor styles it mortis causa.
In Austria-Magat v. Court of Appeals, the Court held that “irrevocability” is a quality absolutely incompatible with the
idea of conveyances mortis causa, where “revocability” is precisely the essence of the act. A donation mortis causa
has the following characteristics:

8. AUSTRIA-MAGAT v. CA & Basilisa Comerciante executed a deed of donation over a parcel of residential land together with the improvements thereon
LUMUBOS
- Inter vivos donation.
- Donor sold property. Action for
reconveyance by donees. 10
year prescriptive period, not 4
wherein fraud present.
- “Hindi mababawi”
- “Hindi mapapasangla o
maipagbibili ang lupa habang
may buhay ang nasabing
Basilisa Comerciante.
- Subsequent sale of property by
donor not an automatic
revocation.
- Donor and donee cannot sell or
alienate land in inter vivos,
unless donor expressly
provides otherwise.
- Donor merely usufruct of the
property. Naked title belongs to
donee.
1. It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to the same
thing, that the transferor should retain the ownership (full or naked) and control of the property while alive;
2. That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be
provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed; and
3. That the transfer should be void if the transferor should survive the transferee.
The Court thus said in Austria-Magat that the express “irrevocability” of the donation is the “distinctive standard
that identifies the document as a donation inter vivos.”
DONORS TAX
in favor of her four children with express irrevocability and prohibition to alienate the said property.
Thereafter, Basilisa executed a Deed of absolute Sale of the subject house and lot in favor of herein petitioner and as a
result of which a Transfer Certificate of Title was issued by the Register of Deeds in the name of petitioner.
Herein respondents filed an action against the petitioner for annulment of the Transfer Certificate of Title and other relevant
documents and for reconveyance and damages. The Regional Trial Court dismissed the case on the ground that the
donation was void because it did not comply with the formalities of a will, it being a donation mortis causa.
On appeal, the decision of the trial court was reversed by the Court of Appeals declaring null and void the Deed of Sale of
the subject property because the donation is inter vivos. Hence, the appeal.
The Supreme Court affirmed the appellate court's decision and held that in the case at bar, the donation is inter vivos. The
express irrevocability of the same ("hindi na mababawi") is the distinctive standard that identifies the document as a
donation inter vivos. The other provisions therein which seemingly make the donation mortis causa do not go against the
irrevocable character of the subject donation. SD
CIVIL LAW; DONATIONS; DONATION INTER VIVOS; IRREVOCABILITY, DISTINCTIVE STANDARD THEREOF; CASE
AT BAR. — Construing together the provisions of the deed of donation, we find and so hold that in the case at bar the
donation is inter vivos. The express irrevocability of the same ("hindi na mababawi") is the distinctive standard that identifies
that document as a donation inter vivos. The other provisions therein which seemingly make the donation mortis causa do
not go against the irrevocable character of the subject donation. Acceptance needed.
This Court enumerated the characteristics of a donation mortis causa, to wit:
1. It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to the
same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive;
2. That before his death, the transfer should be revocable by the transferor at will,ad nutum; but revocability may be
provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed;
3. That the transfer should be void if the transferor should survive the transferee.
ID.; ID.; ID.; SALE OF THE SUBJECT PROPERTY DOES NOT OPERATE AS AN AUTOMATIC REVOCATION OF THE
DEED OF DONATION IN CASE AT BAR. — The act of selling the subject property to the petitioner herein cannot be
considered as a valid act of revocation of the deed of donation for the reason that a formal case to revoke the donation
must be filed pursuant to Article 764 of the Civil Code which speaks of an action that has a prescriptive period of four (4)
years from non-compliance with the condition stated in the deed of donation. The rule that there can be automatic
revocation without benefit of a court action does not apply to the case at bar for the reason that the subject deed of donation
is devoid of any provision providing for automatic revocation in the event of non-compliance with any of the conditions set
forth therein. Thus, a court action is necessary to be filed within four (4) years from the non-compliance of the condition
violated.
9. GESTOPA v. CA & PILAPIL Sometime in 1965 and 1966, three (3) deeds of donation mortis causa over several parcels of unregistered land were
executed in favor of Mercedes Danlag y Pilapil by spouses Diego and Catalina Danlag. In January 1973, Diego, with the
consent of Catalina, executed a deed of donationinter vivos over said parcels of land again in favor of respondent
Mercedes. This contained the condition that the spouses Danlag shall continue to enjoy the fruits of the land during their
lifetime. Likewise, it imposed a limitation on Mercedes' right to sell the land during the lifetime of the spouses without their
consent and approval. However, years later, spouses Danlag sold several parcels of the land so donated to spouses
Gestopa. Thus, Mercedes filed with the Regional Trial Court a petition for quieting of title, the main issue being the nature
of the donation executed in favor of Mercedes. The trial court ruled in favor of the defendants. The Court of Appeals
reversed this judgment. Hence, this petition for review.

The granting clause in the Deed of Donation showed that Diego donated the properties out of love and affection for the
spouse. This is a mark of a donation inter vivos. The reservation of lifetime usufruct indicates that the donor intended to
transfer the naked ownership over the properties. The donor reserved sufficient properties for his maintenance indicating
that the donor intended to part with the parcels of land donated. Lastly, the donee accepted the donation. Acceptance is a
requirement for donations inter vivos.

ID.; ID.; ID.; ID.; CASE AT BAR. — The granting clause shows that Diego donated the properties out of love and affection
for the donee. This is a mark of a donation inter vivos. Second, the reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the properties. As correctly posed by the Court of Appeals, what was the
need for such reservation if the donor and his spouse remained the owners of the properties? Third, the donor reserved
sufficient properties for his maintenance in accordance with his standing in society, indicating that the donor intended to
part with the six parcels of land. Lastly, the donee accepted the donation.

ID.; ID.; ID.; REVOCATION; GENERALLY, A VALID DONATION, ONCE ACCEPTED IS IRREVOCABLE; EXCEPTIONS.
— A valid donation, once accepted, becomes irrevocable, except on account of officiousness, failure by the donee to
comply with the charges imposed in the donation, or ingratitude. The donor-spouses did not invoke any of these reasons
in the deed of revocation.

VALUE ADDED TAX

10. CIR v. CA & Commonwealth Commonwealth Management and Services Corporation (COMASERCO) is a corporation duly organized and existing
Management and Services under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the
Corporation (CSMC) latter to perform collection, consultative and other technical services, including functioning as an internal auditor of
Philamlife and its other affiliates. The Bureau of Internal Revenue (BIR) issued an assessment to private respondent
- Any exemption must be COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988. COMASERCO filed
expressly stated in the with the Court of Tax Appeals a petition for review contesting the Commissioner's assessment. COMASERCO asserted
language of the law that the services it rendered to Philamlife and its affiliates were on a "no-profit, reimbursement-of-cost-only" basis, thus
they were not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988.
COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT. The Court of Tax Appeals
rendered a decision in favor of the Commissioner of Internal Revenue. Respondent filed with the Court of Appeals a petition
for review of the decision of the Court of Tax Appeals. After due proceedings, the Court of Appeals rendered a decision
reversing that of the Court of Tax Appeals. The Commissioner of Internal Revenue filed with the Supreme Court a petition
for review on certiorari assailing the decision of the Court of Appeals. At issue in this case was whether COMASERCO
was engaged in the sale of services, and thus liable to pay VAT thereon.

11. CIR v. BURMEISTER AND WAIN
SCANDINAVIAN CONTRACTOR
MINDANAO, INC.
- Respondent, through
conformity, thinking it needed
to pay 10% VAT because
Revenue Regulation 5-96
became effective on April
1996 during the taxable year,
paid from April to December of
the same year.
- Its January to March was
subject to zero-rate.
The Supreme Court agreed with the Commissioner of Internal Revenue. Contrary to COMASERCO's contention, Sec. 105
of the National Internal Revenue Code of 1997 clarifies that even a non-stock, non-profit organization or government entity
is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of
profit attributable thereto. There was no merit to respondent's contention that the Court of Appeals' decision declaring the
COMASERCO as not engaged in business and not liable for the payment of fixed and percentage taxes, binds petitioner.
The issue in the appellate court is different from the present case, which involves COMASERCO's liability for VAT. Every
person who sells, barters, or exchanges goods and services, in the course of trade or business, as defined by law, is
subject to VAT. The Court reversed the decision of the Court of Appeals and reinstated the decision of the Court of Tax
Appeals.
ID.; ID.; BIR RULING NO. 010-98; EMPHASIZED THAT AS LONG AS THE ENTITY PROVIDES SERVICE FOR A FEE,
REMUNERATION OR CONSIDERATION, THEN THE SERVICE RENDERED IS SUBJECT TO VALUE ADDED TAX
(VAT). — On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 emphasizing that a
domestic corporation that provided technical, research, management and technical assistance to its affiliated companies
and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on
services rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or
profit generated by the entity in the conduct of its activities was subject to income tax. Hence, it is immaterial whether the
primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a
reimbursement-on- cost basis only, without realizing profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is
subject to VAT.
[Respondent] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with
principal address located at Davao City. It is represented that a foreign consortium composed of Burmeister and Wain
Scandinavian Contractor for the operation and maintenance of [NAPOCOR’s] two power barges. NAPOCOR paid capacity
and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). On the other hand, the Consortium
pays [respondent] in foreign currency inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling from the BIR which
responded with BIR Ruling No. 023-95 dated February 14, 1995, declaring therein that if [respondent] chooses to register
as a VAT person and the consideration for its services is paid for in acceptable foreign currency shall be subject to VAT at
zero-rate. Respondent chose to register as a VAT taxpayer. On December 29, 1997, [respondent] availed of the Voluntary
Assessment Program (VAP) of the BIR. In [conformity] with the aforecited Revenue Regulations, [respondent] subjected
its sale of services to the Consortium to the 10% VAT On the strength of the aforementioned rulings, [respondent] on April
22,1999, filed a claim for the issuance of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent]
believed that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP)
of the BIR. Respondent filed a petition for review with the CTA in order to toll the running of the two-year prescriptive period
under the Tax Code. CTA ordered petitioner to issue a tax credit certificate in favor of respondent. Petitioner filed a petition
for review with the Court of Appeals, which dismissed the petition for lack of merit and affirmed the CTA decision
The Court of Appeals found untenable petitioner’s contention that under VAT Ruling No. 040-98, respondent’s services
should be destined for consumption abroad to enjoy zero-rating.
Issue: WON respondent is entitled to the refund because of erroneously paid output VAT for the year 1996?
Held: No. At the outset, the Court declares that the denial of the instant petition is not on the ground that respondent’s
services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation of BIR Ruling No.

12. CIR v. PLACER DOME
TECHNICAL SERVICES (PHILS.),
INC.
023-9517 and VAT Ruling No. 003-99,18 which held that respondent’s services are subject to 0% VAT and which
respondent invoked in applying for refund of the output VAT. CIR’s filing of his Answer before the CTA challenging
respondent’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
However, such revocation cannot be given retroactive effect since it will prejudice respondent. Changing respondent’s
status will deprive respondent of a refund of a substantial amount representing excess output tax.30 Section 246 of the
Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive
application if the revocation will prejudice the taxpayer. Further, there is no showing of the existence of any of the
exceptions enumerated in Section 246 of the Tax Code for the retroactive application of such revocation.
Sometime in 1996, at the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper), mine
tailings from the Taipan Pit started to escape through the Makulapnit Tunnel and Boac Rivers, causing the cessation of
mining and milling operations, and causing potential environmental damage to the rivers and the immediate area. To
contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the owner of 39.9% of
Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary.
To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation
with office in Canada, to carry out the project. In turn, PDTSL engaged the services of Placer Dome Technical Services
(Philippines), Inc. (respondent), a domestic corporation and registered Value-Added Tax (VAT) entity, to implement the
project in the Philippines.
PDTSL and respondent entered into an Implementation Agreement. The Agreement further stipulated that PDTSL was to
pay respondent an amount of money, in U.S. funds, equal to all Costs incurred for Implementation Services performed
under the Agreement,[5] as well as a fee agreed to one percent (1%) of such Costs.
Later, respondent amended its quarterly VAT returns. In the amended returns, respondent declared a total input VAT
payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period.
Then respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the
project it had contracted from PDTSL, amounting to P43,015,461.98. In support of this claim for refund, respondent argued
that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-rated sales
under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines.
CIR did not act on this claim. Thus, respondent filed a Petition for Review with the Court of Tax Appeals (CTA), praying for
the refund of its total reported excess input VAT totaling P42,837,933.60.
ISSUE:
Whether respondent Placer is entitled to the refund as the revenues qualified as zero rated sales.
HELD: YES.
Section 102(b) Transactions Subject to Zero Percent (0%) Rate- The following services performed in the Philippines by
VAT-registered persons shall be subject to zero percent (0%) rate: (1) Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);(2) Services other than those mentioned in the preceding subparagraph, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP].
It is Section 102(b)(2) which finds special relevance to this case. The VAT is a TAX on consumption “expressed as a
percentage of the value added to goods or services” purchased by the producer or taxpayer. As an indirect tax on services,
 its main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course
of trade or business in the Philippines. These services must be regularly conducted in this country; undertaken in “pursuit
of a commercial or an economic activity;” for a valuable consideration; and not exempt under the Tax Code, other special
laws, or any international agreement. Yet even as services may be subject to VAT, our tax laws extend the benefit of zero-
rating the VAT due on certain services. Under the last paragraph of Scetion 102 (b), services performed by VAT-registered
persons in the Philippines, when paid in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP, are ZERO-RATED.
Petitioner invokes the “destination principle,” citing that respondent’s while rendered to a non-resident foreign corporation,
are not destined to be consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for VAT purposes,
is also within the Philippines. The Court in American Express debunked this argument. As a general rule, the VAT system
uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the
country where they are consumed. Thus, exports are zero-rated, while imports are taxed.

Confusion in zero rating arises because petitioner equates the performance of a particular type of service with the
consumption of its output abroad. In the present case, the facilitation of the collection of receivables is different from the
utilization or consumption of the outcome of such service. While the facilitation is done in the Philippines, the consumption
is not. Respondent renders assistance to its foreign clients the ROCs outside the country by receiving the bills of service
establishments located here in the country and forwarding them to the ROCs abroad. The consumption contemplated by
law, contrary to petitioner's administrative interpretation, does not imply that the service be done abroad in order to be
zero-rated.

Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term means the performance
or "successful completion of a contractual duty, usually resulting in the performer's release from any past or future liability
x x x" The services rendered by respondent are performed or successfully completed upon its sending to its foreign client
the drafts and bills it has gathered from service establishments here. Its services, having been performed in the Philippines,
are therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined.
Instead, there can only be a "predetermined end of a course" when determining the service "location or position x x x for
legal purposes." Respondent's facilitation service has no physical existence, yet takes place upon rendition, and therefore
upon consumption, in the Philippines. Under the destination principle, as petitioner asserts, such service is subject to VAT
at the rate of 10 percent.
However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for
services that are performed in the Philippines, "paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the [BSP]." Thus, for the supply of service to be zero-rated as an exception, the law merely
requires that first, the service be performed in the Philippines; second, the service fall under any of the categories in Section
102(b) of the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with BSP rules
and regulations.
The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. Under this
criterion, the place where the service is rendered determines the jurisdiction to impose the VAT. Performed in
the Philippines, such service is necessarily subject to its jurisdiction, for the State necessarily has to have "a
substantial connection" to it, in order to enforce a zero rate. The place of payment is immaterial; much less is the
place where the output of the service will be further or ultimately used.
13. PANASONIC COMMUNICATIONS BIR Denied Panasonic’s petition for a refund on its input VAT.
IMAGING CORPORATION OF Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word zero-rated for zero-
THE PHILIPPINES v. CIR rated sales covered by its receipts or invoices. Sections 113 and 237 — required the VAT-registered taxpayer's receipts
or invoices to indicate only the following information:
 - CTA: Panasonic’s export sales
did not qualify for zero-rating
because the word “zero-rated”
was not printed on
Panasonic’s export invoices.
14. FORT BONIFACIO
DEVELOPMENT CORPORATION
v. CIR
1. A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);
2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value-added tax;
3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service;
and
4. The name, business style, if any, address and taxpayer's identification number (TIN) of the purchaser, customer
or client.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the rule that
applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax Regulations, which the
Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the printing of
the word zero-rated on the invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on November 1,
2005, it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not
diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law.
The requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and
services. As aptly explained by the CTAs First Division, the appearance of the word zero-rated on the face of invoices
covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually
paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not
collect.
Further, the printing of the word zero-rated on the invoice helps segregate sales that are subject to 10% (now 12%) VAT
from those sales that are zero-rated.
In 1995, Fort Bonifacio Development Corporation purchased from the national government a portion of the Fort Bonifacio
reservation. On January 1, 1996, the enactment of RA 7716 extended the coverage of VAT to real properties held primarily
for sale to customers or held for lease in the ordinary course of trade or business. Thus, FBDC sought to register by
submitting to BIR an inventory of all its real properties, the book value of which aggregated to about P71 B.
In October 1996, FBDC started selling Global City lots to interested buyers. For the first quarter of 1997, it paid the output
VAT by making cash payments to the BIR and credited its unutilized input tax credit on purchases of goods and services.
Realizing that its 8% transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997,
FBDC filed with the BIR a claim for refund of the amount erroneously paid as output VAT for the said period.
The CTA denied refund on the ground that “the benefit of transitional input tax credit comes with the condition that business
taxes should have been paid first.” It contends that since FBDC acquired the Global City property under a VAT-free sale
transaction, it cannot avail of the transitional input tax credit. The CTA likewise pointed out that under RR 7-95,
implementing Section 105 of the old NIRC, the 8% transitional input tax credit should be based on the value of the
improvements on land such as buildings, roads, drainage system and other similar structures, constructed on or after
January 1, 1998, and not on the book value of the real property.
Issue 1: W/N prior payment of taxes is required in availing of the transitional input tax credit
No. First, nothing in Sec 105 of the NIRC indicates that prior payment of taxes is necessary to avail of the transitional input
tax credit. Clearly, all it requires is for the taxpayer to file a beginning inventory with the BIR. Courts cannot limit the
application or coverage of a law nor can it impose conditions not provided therein because to do so constitutes judicial
legislation.

15. CIR v. SONY PHILIPPINES INC.
Second, prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund per
se but a tax credit. Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid
and is thus returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from one’s total
tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus,
unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax credit.
Lastly, the fact that FBDC acquired the Global City property under a tax-free transaction makes no difference as prior
payment of taxes is not a pre-requisite.
Issue 2: W/N the transitional input tax credit applies only to the value of improvements
No. Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to the value of the improvement of the
real properties, is a nullity. The 8% transitional input tax credit should not be limited to the value of the improvements on
the real properties but should include the value of the real properties as well.
Hence, since FBDC is entitled to the 8% transitional input tax credit which is more than sufficient to cover its output tax for
the first taxable quarter, the amount of VAT output taxes erroneously paid must be refunded.
Issue 3: W/N the Tax Code allows either a cash refund or a tax credit for input VAT
Yes. First, a careful reading of Section 112 of the Tax Code shows that it does not prohibit cash refund or tax credit of
transitional input tax in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not have any
output VAT.
The phrase “except transitional input tax” in Section 112 of the Tax Code was inserted to distinguish creditable input tax
from transitional input tax credit. Transitional input tax credits are input taxes on a taxpayer’s beginning inventory of goods,
materials, and supplies equivalent to 8% (then 2%) or the actual VAT paid on such goods, materials and supplies,
whichever is higher. It may only be availed of once by first-time VAT taxpayers. Creditable input taxes, on the other hand,
are input taxes of VAT taxpayers in the course of their trade or business, which should be applied within two years after
the close of the taxable quarter when the sales were made.
As regard Section 110, while the law only provides for a tax credit, a taxpayer who erroneously or excessively pays his
output tax is still entitled to recover the payments he made either as a tax credit or a tax refund.
Here, since FBDC still has available transitional input tax credit, it filed a claim for refund to recover the output VAT it
erroneously or excessively paid for the 1st quarter of 1997. Thus, there is no reason for denying its claim for tax
refund/credit.
In 1998, the CIR issued Letter of Authority authorizing certain revenue officers to examine Sony’s books of accounts and
other accounting records regarding revenue taxes for “the period 1997 and unverified prior years.” In the following year,
a preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony protested. Afterwards,
the CIR issued final assessment notices, the formal letter of demand and the details of discrepancies. Then Sony filed a
petition for review before the CTA. The CTA-First Division ruled on the following: 1) disallowed the deficiency VAT
assessment because the subsidized advertising expense paid by Sony which was duly covered by a VAT invoice resulted
in an input VAT credit; 2) maintained the deficiency EWT assessment on Sony’s motor vehicles and on professional fees
paid to general professional partnership; 3) disallowed the EWT assessment on rental expense; 4) upheld the penalties
for the late payment of VAT on royalties. In sum, the CTA-First Division partly granted Sony’s petition by cancelling the
deficiency VAT assessment but upheld a modified deficiency EWT assessment as well as the penalties. Because the CTA-
First Division denied its motion for reconsideration, CIR filed a petition for review with the CTA-EB. However, the latter
dismissed the petition. Hence, this petition was filed before the SC.

Whether or not Sony Philippines is engaged in the sale of services to Sony International Singapore (SIS), thus liable to
pay VAT.

No. The deficiency VAT assessment should have been disallowed. CIR’s argument that Sony’s advertising expense could
not be considered as an input VAT credit because the same was eventually reimbursed by Sony International Singapore
(SIS) is erroneous.

Sony’s deficiency VAT assessment stemmed from the CIR’s disallowance of the input VAT credits that should have been
realized from the advertising expense of the latter. It is evident under Sec. 110 of the 1997 Tax Code that an advertising
expense duly covered by a VAT invoice is a legitimate business expense. There is also no denying that Sony incurred
advertising expense. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. The
said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony’s advertising expense for
it was but an assistance or aid in view of Sony’s dire or adverse economic conditions, and was only “equivalent to the
latter’s (Sony’s) advertising expenses.

There must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no
such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for
goods or properties sold, bartered or exchanged by Sony.

Sony did not render any service to SIS at all. The service rendered by the advertising companies, paid for by Sony using
SIS dole-out, were for Sony and not SIS. Therefore, Sony Philippines is not liable to pay VAT because there was no sale
of goods or services provided to SIS.