25. CIR v. Procter and Gamble, GR No.

66838, 16 Dec 1991;

FACTS: Procter and Gamble Philippines declared dividends payable to its
parent company and sole stockholder, P&G USA. Such dividends
amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to
the BIR which amounted to Php 8.3M It subsequently filed a claim with the
Commissioner of Internal Revenue for a refund or tax credit, claiming that
pursuant to Section 24(b)(1) of the National Internal Revenue Code, as
amended by Presidential Decree No. 369, the applicable rate of withholding
tax on the dividends remitted was only 15%.
ISSUE: Whether or not P&G Philippines is entitled to the refund or tax
credit.
RULING: YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC
states that an ordinary 35% tax rate will be applied to dividend remittances
to non-resident corporate stockholders of a Philippine corporation. This rate
goes down to 15% ONLY IF he country of domicile of the foreign
stockholder corporation “shall allow” such foreign corporation a tax credit
for “taxes deemed paid in the Philippines,” applicable against the tax
payable to the domiciliary country by the foreign stockholder corporation.
However, such tax credit for “taxes deemed paid in the Philippines” MUST,
as a minimum, reach an amount equivalent to 20 percentage points which
represents the difference between the regular 35% dividend tax rate and
the reduced 15% tax rate. Thus, the test is if USA “shall allow” P&G USA a
tax credit for ”taxes deemed paid in the Philippines” applicable against the
US taxes of P&G USA, and such tax credit must reach at least 20
percentage points. Requirements were met.

26. CIR v. CA, 20 January 1999

FACTS: Don Andres Soriano, a citizen and resident of the United States,
formed the corporation A. Soriano Y Cia, predecessor of ANSCOR, which
is wholly owned and controlled by the family of Don Andres, who are all
non-resident aliens. When Don Andres died he has a total shareholdings of
185,154 shares; 50,495 of which are original issues and the balance of
134,659 shares as stock dividend declarations. Pursuant to a Board
Resolution, ANSCOR redeemed a total of 108,000 common shares from
the Don Andres estate. ANSCORs business purpose for both redemptions
of stocks is to partially retire said stocks as treasury shares in order to
reduce the company’s foreign exchange remittances in case cash
dividends are declare. After examining ANSCORs books of account and
records, it was assessed for deficiency withholding tax-at-source by the
BIR, pursuant to Sections 53 and 54 of the 1939 Revenue Code for the
transactions of exchange and redemption of stocks. ANSCOR claimed that
it availed of the tax amnesty under Presidential Decree (P.D.) 23 which
were amended by P.D.s 67 and 157, hence, is not liable to pay the
deficiency tax. However, petitioner-CIR ruled that the invoked decrees do
not cover Sections 53 and 54 in relation to Article 83(b) of the 1939
Revenue Act under which ANSCOR was assessed. ANSCORs subsequent
protest on the assessments was denied by petitioner.
ISSUE: Whether or not ANSCORs redemption of stocks from its
stockholder as well as the exchange of common with preferred shares can
be considered as essentially equivalent to the distribution of taxable
dividend, making the proceeds thereof taxable under the provisions the
Section 83(b) of the Tax Code.

RULING: Yes. Stock dividends represent capital and do not constitute

income to its recipient. The mere issuance thereof is not yet subject to
income tax as they are only an increase in value of capital investment.
Stock dividends issued by the corporation are considered unrealized gain,
and cannot be subjected to income tax until that gain has been realized.
Before the realization, stock dividends are representation of an interest in
the corporate properties. As capital, it is not yet subject to income tax.
However, under Section 83(b) of the Tax Code, if a corporation cancels or
redeems stock issued as a dividend at such time and in such manner as to
make the distribution and cancellation or redemption, in whole or in part,
essentially equivalent to the distribution of a taxable dividend, the amount
so distributed in redemption or cancellation of the stock shall be considered
as taxable income to the extent it represents a distribution of earnings or
profits accumulated after March 1, 1913. For the exempting clause of
Section 83(b) to apply, it is indispensable that: (a) there is redemption or
cancellation; (b) the transaction involves stock dividends and (c) the time
and manner of the transaction makes it essentially equivalent to a
distribution of taxable dividends. Of these, the most important is the third.
The test of taxability under the exempting clause of Section 83(b) is,
whether income was realized through the redemption of stock dividends.
The redemption converts into money the stock dividends which become a
realized profit or gain and consequently, the stock holders separate
property. Profits derived from the capital invested cannot escape income
tax. As realized income, the proceeds of the redeemed stock dividends
shall be subject to income tax. Otherwise, to rule that the said proceeds are
exempt from income tax when the redemption is supported by legitimate
business reasons would defeat the very purpose of imposing tax on
income. The three elements in the imposition of income tax are: (1) there
must be gain or profit, (2) that the gain or profit is realized or received,
actually or constructively,[108] and (3) it is not exempted by law or treaty
from income tax The ruling in the American cases cited in the instant case
and relied upon by ANSCOR that the redeemed shares are the equivalent
of dividend only if the shares were not issued for genuine business
purposes or the redeemed shares have been issued by a corporation bona
fide bears no relevance in determining the non-taxability of the proceeds of
redemption. ANSCOR, relying heavily and applying said cases, argued that
so long as the redemption is supported by valid corporate purposes the
proceeds are not subject to tax. The Court, after considering the manner
and the circumstances by which the issuance and redemption of stock
dividends were made, concluded that the proceeds thereof are essentially
considered equivalent to a distribution of taxable dividends. As taxable
dividend under Section 83(b), it is part of the entire income subject to tax
under Section 22 in relation to Section 21 of the 1939 Code. Moreover,
under Section 29(a) of said Code, dividends are included in gross income.
As income, it is subject to income tax which is required to be withheld at
source.

27. Silkair v. CIR, GR Nos. 171383 & 172379, 14 Nov 2008

FACTS: Petitioner is a foreign corporation organized under the laws of

Singapore with a Philippine representative office in Cebu City. It is engaged
in business as an on-line international carrier, operating the Singapore-
Cebu-Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-
Davao-Singapore routes.
From 1 January 1999 to 31 December 1999, petitioner purchased aviation
jet fuel from Petron for use on petitioner's international flights. Based on the
Aviation Delivery Receipts and Invoices presented, P3.67 per liter as
excise (specific) tax was added to the amount paid by petitioner on its
purchases of aviation jet fuel. Petitioner, through its sister company
Singapore Airlines Ltd., paid P4,239,374.81 from 1 January 1999 to 30
June 1999 and P4,831,224.70 from 1 July 1999 to 31 December 1999, as
excise taxes for its purchases of the aviation jet fuel from Petron. Petitioner,
contending that it is exempt from the payment of excise taxes, filed a formal
claim for refund with the Commissioner of Internal Revenue (respondent).
Petitioner claims that it is exempt from the payment of excise tax under the
1997 National Internal Revenue Code (NIRC), specifically Section 135, and
under Article 4 of the Air Transport Agreement between the Governments
of the Republic of the Philippines and the Republic of Singapore (Air
Agreement).
Petitioner contends that in reality, it paid the excise taxes due on the
transactions and Petron merely remitted the payment to the Bureau of
Internal Revenue (BIR). Petitioner argues that to adhere to the view that
Petron is the legal claimant of the refund will make petitioner's right to
recover the erroneously paid taxes dependent solely on Petron's action
over which petitioner has no control. If Petron fails to act or acts belatedly,
petitioner's claim will be barred, depriving petitioner of its private property.
Petitioner also maintains that to hold that only Petron can legally claim the
refund will negate the tax exemption expressly granted to petitioner under
the NIRC and the Air Agreement. Petitioner argues that a tax exemption is
a personal privilege of the grantee, which is petitioner in this case.
Petitioner further argues that a tax exemption granted to the buyer cannot
be availed of by the seller; hence, in the present case, Petron as seller
cannot legally claim the refund. On the other hand, if only the entity that
paid the tax - Petron in this case - can claim the refund, then petitioner as
the grantee of the tax exemption cannot enjoy its tax exemption. In short,
neither petitioner nor Petron can claim the refund, rendering the tax
exemption useless. Petitioner submits that this is contrary to the language
and intent of the NIRC and the Air Agreement.
Petitioner believes that its tax exemption under Section 135 of the NIRC
also includes its entitlement to a refund from the BIR in any case of
erroneous payment of excise tax.
Respondent claims that as explained in Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue, the nature of an indirect tax allows the
tax to be passed on to the purchaser as part of the commodity's purchase
price. However, an indirect tax remains a tax on the seller. Hence, if the
buyer happens to be tax exempt, the seller is nonetheless liable for the
payment of the tax as the same is a tax not on the buyer but on the seller.
Respondent insists that in indirect taxation, the manufacturer or seller has
the option to shift the burden of the tax to the purchaser. If and when
shifted, the amount added by the manufacturer or seller becomes part of
the purchase price of the goods. Thus, the purchaser does not really pay
the tax but only the price of the commodity and the liability for the payment
of the indirect tax remains with the manufacturer or seller Since the liability
for the excise tax payment is imposed by law on Petron as the
manufacturer of the petroleum products, any claim for refund should only
be made by Petron as the statutory taxpayer.
CTA ruled that the excise tax imposed on the removal of petroleum
products by the oil companies is an indirect tax. Although the burden to pay
an indirect tax can be passed on to the purchaser of the goods, the liability
to pay the indirect tax remains with the manufacturer or seller. When the
manufacturer or seller decides to shift the burden of the indirect tax to the
purchaser, the tax becomes a part of the price; therefore, the purchaser
does not really pay the tax per se but only the price of the commodity
ISSUE: whether petitioner is the proper party to claim a refund/tax credit for
the excise taxes paid

HELD: NO. The proper party to question, or seek a refund of, an indirect
tax is the statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even if he shifts the burden thereof to another.
Section 130 (A) (2) of the NIRC provides that "unless otherwise specifically
allowed, the return shall be filed and the excise tax paid by the
manufacturer or producer before removal of domestic products from place
of production." Thus, Petron Corporation, not Silkair, is the statutory
taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP
and Singapore. Silkair bases its claim for refund or tax credit on Section
135 (b) of the NIRC of 1997 which reads Sec. 135. Petroleum Products
sold to International Carriers and Exempt Entities of Agencies. – Petroleum
products sold to the following are exempt from excise tax: (b) Exempt
entities or agencies covered by tax treaties, conventions, and other
international agreements for their use and consumption: Provided,
however, That the country of said foreign international carrier or exempt
entities or agencies exempts from similar taxes petroleum products sold to
Philippine carriers, entities or agencies; and Article 4(2) of the Air Transport
Agreement between the Government of the Republic of the Philippines and
the Government of the Republic of Singapore (Air Transport Agreement
between RP and Singapore)
The exemption granted under Section 135 (b) of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore
cannot, without a clear showing of legislative intent, be construed as
including indirect taxes. Statutes granting tax exemptions must be
construed in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority, and if an exemption is found to exist, it must not be
enlarged by construction.

28. Philex Mining Corp. v. CIR, GR No. 125704, 28 Aug 1998

FACTS: On August 5, 1992, the BIR sent a letter to Philex asking it to settle
its excise tax liabilities amounting to P123,821,982.52. Philex protested the
demand for payment of the tax liabilities stating that it has pending claims
for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in
the amount of P119,977,037.02 plus interest. Therefore, these claims for
tax credit/refund should be applied against the tax liabilities. In reply, the
BIR held that since these pending claims have not yet been established or
determined with certainty, it follows that no legal compensation can take
place. Hence, the BIR reiterated its demand that Philex settle the amount
plus interest within 30 days from the receipt of the letter. Philex raised the
issue to the Court of Tax Appeals and in the course of the proceedings, the
BIR issued a Tax Credit Certificate SN 001795 in the amount of
P13,144,313.88 which, applied to the total tax liabilities of Philex of
P123,821,982.52; effectively lowered the latter’s tax obligation of
P110,677,688.52. Despite the reduction of its tax liabilities, the CTA still
ordered Philex to pay the remaining balance of P110,677,688.52 plus
interest, elucidating its reason that “taxes cannot be subject to set-off on
compensation since claim for taxes is not a debt or contract. Philex
appealed the case before the Court of Appeals. Nonetheless, the Court of
Appeals affirmed the Court of Tax Appeals observation. Philex filed a
motion for reconsideration which was again denied. However, a few days
after the denial of its motion for reconsideration, Philex was able to obtain
its VAT input credit/refund not only for the taxable year 1989 to 1991 but
also for 1992 and 1994, computed amounting to 205,595,289.20. In view of
the grant of its VAT input credit/refund, Philex now contends that the same
should, ipso jure, off-set its excise tax liabilities since both had already
become “due and demandable, as well as fully liquidated;” hence, legal
compensation can properly take place.

ISSUE: Whether or not the petitioner is correct in its contention that tax
liability and VAT input credit/refund can be subjected to legal
compensation.
HELD:

The Supreme Court has already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other.
There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. Philex’s claim is an outright
disregard of the basic principle in tax law that taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance.
Evidently, to countenance Philex’s whimsical reason would render
ineffective our tax collection system. Philex is not allowed to refuse the
payment of its tax liabilities on the ground that it has a pending tax claim for
refund or credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is compulsory
rather than a matter of bargain. Hence, a tax does not depend upon the
consent of the taxpayer.If any payer can defer the payment of taxes by
raising the defense that it still has a pending claim for refund or credit, this
would adversely affect the government revenue system. A taxpayer cannot
refuse to pay his taxes when they fall due simply because he has a claim
against the government or that the collection of the tax is contingent on the
result of the lawsuit it filed against the government. Moreover, Philex's
theory that would automatically apply its VAT input credit/refund against its
tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and
offset their tax liabilities. "The power of taxation is sometimes called also
the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the 'hen that lays the
golden egg.' And, in the order to maintain the general public's trust and
confidence in the Government this power must be used justly and not
treacherously." The petition is hereby dismissed.