Tax Amnesty, Condonation, or Remission

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JUAN LUNA SUBDIVISION v. SARMIENTO

FACTS:
Plaintiff issued to the City Treasurer of Manila checks to be applied to plaintiff’s land tax. After liberation
from Japanese, plaintiff wants to claim amount of the check issued because taxes during those periods
have been remitted by Commonwealth Act No. 703.

ISSUE: WON remission (in CA 703) cover taxes paid before its enactment or only to taxes which
were still unpaid?

RULING:
It covers only taxes which were still unpaid. There is no ambiguity in the language of the law. It says
"taxes and penalties due and payable," the remission of taxes due and payable to the exclusion of taxes
already collected does not constitute unfair discrimination. The taxpayers who paid their taxes before
liberation and those who had not were not on the same footing on the need of material relief.

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JUAN LUNA SUBDIVISION v. SARMIENTO
G.R. No. L-3538; 28 May 1952
FACTS:
Plaintiff issued to the City Treasurer of Manila checks amounting for P2,210.52 drawn upon the
Philippine Trust Company.

This check was to be applied to plaintiff’s land tax, the exact amount of which was yet undetermined. The
City after liberation from Japanese to refund the plaintiff’s deposit or apply it to such future taxes as
might be found due. Plaintiff, however, claims that the whole amount of the check contending that taxes
during period have been remitted by Commonwealth Act No. 703.

ISSUE:
WON CA 703 Section 1 provision covers taxes paid before its enactment as the plaintiff maintains and
the court below held, or does it refer, as the City Treasurer believes, only to taxes which were still
unpaid?

RULING:
There is no ambiguity in the language of the law. It says "taxes and penalties due and payable," the literal
meaning of which taxes owned or owing. Note that the provision speaks of penalties, and note that
penalties accrue only when taxes are not paid on time. The word "remit" underlined by the appellant does
not help its theory, for to remit to desist or refrain from exacting, inflicting, or enforcing something as
well as to restore what has already been taken.

Section 1 of this Act, which was approved on November 1, 1945, provides:

 All land taxes and penalties due and payable for the years nineteen hundred and forty-two
nineteen hundred and forty-three nineteen hundred and forty-four and fifty per cent of the tax due
for nineteen hundred and forty-five, are hereby remitted. The land taxes and penalties due and
payable for the second semester of the year nineteen hundred and forty-one shall also be remitted
the if the remaining fifty per cent corresponding to the year nineteen hundred and forty-five shall
been paid on or before December thirty-first, nineteen hundred and forty-five.

The law is clear that it applies to “taxes and penalties due and payable”, i.e. taxes owed and owing. The
remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair
discrimination. The taxpayers who paid their taxes before liberation and those who had not were not on
the same footing on the need of material relief. Taxpayers who had been in arrears in their obligation
would have to satisfy their liability with genuine currency, while the taxes paid during the occupation had
been satisfied in Japanese War Notes, many of them at a time when those notes were well-nigh worthless.
To refund those taxes with restored currency would unduly enrich many of the payers at a greater expense
to the people at large. 

Tax Refund
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CIR v. SC JOHNSON

FACTS: Respondent filed to BIR a claim for refund of overpaid withholding tax on royalties arguing that
the preferential tax rate of 10% should apply to them instead of 25% on the basis of a case law.

ISSUE: Whether SC Johnson is entitled of a tax refund.

RULING: NO. Tax refunds are in the nature of tax exemptions hence construed strictly against the party
claiming it.

Private respondent is claiming for a refund of the alleged overpayment of tax on royalties; however there
is nothing on record to support a claim that the tax on royalties under the RP-US Treaty is paid under
similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.
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CIR v. SC JOHNSON
G.R. No. 127105; 25 June 1999
FACTS:
Respondent is a domestic corporation organized and operating under the Philippine Laws, entered into a
licensed agreement with the SC Johnson and Son, USA, a non-resident foreign corporation based in the
USA pursuant to which the respondent was granted the right to use the trademark, patents and technology
owned by the later including the right to manufacture, package and distribute the products covered by the
Agreement and secure assistance in management, marketing and production from SC Johnson and Son
USA.

For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA
royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty
payments which respondent paid for the period covering July 1992 to May 1993 in the total amount of
P1,603,443.00.

On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the BIR a
claim for refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending
respondents case fall squarely within the same circumstances under which said MacGeorge and Gillette
rulings were issued. Since the agreement was approved by the Technology Transfer Board, the
preferential tax rate of 10% should apply to the respondent. So, royalties paid by the respondent to SC
Johnson and Son, USA is only subject to 10% withholding tax.

The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son, Inc. then
filed a petition for review before the CTA, to claim a refund of the overpaid withholding tax on royalty
payments from July 1992 to May 1993.

On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue a tax
credit certificate in the amount of P163,266.00 representing overpaid withholding tax on royalty
payments beginning July 1992 to May 1993.

The CIR thus filed a petition for review with the CA which rendered the decision subject of this appeal on
November 7, 1996 finding no merit in the petition and affirming in toto the CTA ruling.

ISSUES:
(1) WON SC JOHNSON AND SON, USA is entitled to the "most favored nation" tax rate of 10% on
royalties as provided in the RP-US tax treaty in relation to the RP-West Germany tax treaty.
(2) Whether or not tax refunds are considered as tax exemptions.

RULING:
(1) We accordingly agree with petitioner that since the RP-US Tax Treaty does not give a matching
tax credit of 20 percent for the taxes paid to the Philippines on royalties as allowed under the RP-
West Germany Tax Treaty, private respondent cannot be deemed entitled to the 10 percent rate
granted under the latter treaty for the reason that there is no payment of taxes on royalties under
similar circumstances.

(2) It bears stressing that tax refunds are in the nature of tax exemptions. As such they are registered
as in derogation of sovereign authority and to be construed strictissimi juris against the person or
entity claiming the exemption. The burden of proof is upon him who claims the exemption in his
favor and he must be able to justify his claim by the clearest grant of organic or statute law.
Private respondent is claiming for a refund of the alleged overpayment of tax on royalties;
 however there is nothing on record to support a claim that the tax on royalties under the RP-US
Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany
Tax Treaty.
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FAR EAST BANK v. CA
FACTS: CDB incurred negative taxable income or losses. Since there was no tax against which to credit
or offset the taxes withheld by CDB, it had excess creditable withholding tax. Far East Bank, being the
surviving entity of the merger, filed for tax refund.
ISSUES: WON petitioner adduced sufficient evidence to prove its entitlement to a refund.
RULING: NO.
Taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare
the income payments it received as part of its gross income and (b) establish the fact of withholding.
Petitioner relies heavily on the confirmation receipts with the corresponding official receipts and payment
orders to support its case. Standing alone, these evidences are not enough to support their entitlement for
refund.
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FAR EAST BANK v. CA

G.R. No. 129130; 09 December 2005

FACTS:
Petitioner is a domestic banking corporation duly organized and existing under and by virtue of Philippine
laws. In 1992, Cavite Development Bank [CDB], also a domestic banking corporation, was merged with
Petitioner with the latter as its surviving entity [under] the merger. Petitioner being the surviving entity
acquired all the assets of CDB.
During the period from 1990 to 1991, CDB sold some acquired assets in the course of which it allegedly
withheld the creditable tax from the sales proceeds which amounted to ₱755,715.00.
In said years, CDB filed income tax returns which reflected that CDB incurred negative taxable income or
losses for both years. Since there was no tax against which to credit or offset the taxes withheld by CDB,
the result was that CDB, according to petitioner, had excess creditable withholding tax.
Thus, petitioner, being the surviving entity of the merger, filed this Petition for Review after its
administrative claim for refund was not acted upon.
CA held that the evidence presented by petitioner consisting of:
(1) confirmation receipts, payment orders, and official receipts issued by the Central Bank and the BIR
with CDB as the payor;
(2) Income Tax Returns for 1990 and 1991 with attached financial statements filed by petitioner with the
BIR;
(3) a list prepared by the Accounting Department of petitioner purportedly showing the CDB schedule of
creditable withholding tax applied for refund for 1990 and 1991
all failed to clearly establish that the taxes arising from the sale of its acquired assets sometime in 1990
and 1991 were properly withheld and remitted to the BIR. It also ruled that it was incumbent upon
petitioner to present BIR Form No. 1743.1 as required under Revenue Regulation to conclusively prove
its right to the refund,failure to do so was fatal to its cause.

ISSUE: Whether petitioner adduced sufficient evidence to prove its entitlement to a refund.

RULING:
NO.
Taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare
the income payments it received as part of its gross income and (b) establish the fact of withholding.
Section 10. Claims for tax credit or refund. -- Claims for tax credit or refund of income tax deducted and
withheld on income payments shall be given due course only when it is shown on the return that the
income payment received was declared as part of the gross income and the fact of withholding is
established by a copy of the statement duly issued by the payor to the payee showing the amount paid and
the amount of tax withheld therefrom.
As mentioned, petitioner relies heavily on the confirmation receipts with the corresponding official
receipts and payment orders to support its case. Standing alone, however, these documents only establish
that CDB withheld certain amounts in 1990 and 1991. It does not follow that the payments reflected in the
confirmation receipts relate to the creditable withholding taxes arising from the sale of the acquired
properties. The claim that CDB had excess creditable withholding taxes can only be upheld if it were
clearly and positively shown that the amounts on the various confirmation receipts were the amounts
withheld by virtue of the sale of the acquired assets.
This is because a cursory examination of the said Confirmation Receipts, Payment Orders and Official
Receipts will show that what are reflected therein are merely the names of the payors and the amount of
tax. The nature of the tax paid, or at the very least, the income payments from which the taxes paid were
withheld are not reflected therein.
The court emphasized that tax refunds, like tax exemptions, are construed strictly against the taxpayer and
liberally in favor of the taxing authority.30 In the event, petitioner has not met its burden of proof in
establishing the factual basis for its claim for refund and we find no reason to disturb the ruling of the
lower courts.