CIR vs. Pilipinas Shell, G.R. No. 188497, 19 Feb.

2014

Facts:

Respondent is engaged in the business of processing, treating and refining petroleum for the purpose of
producing marketable products and the subsequent sale thereof. Respondent filed several formal claims
with the Large Taxpayers Audit &Investigation Division II of the BIR for tax refund or tax credit.

Since no action was taken by the petitioner on its claims, respondent filed petitions for review before the
CTA on September and December of 2003.

CTA’s First Division ruled that respondent is entitled to the refund of excise taxes in the reduced amount
of P95,014,283.00. The CTA First Division relied on a previous ruling rendered by the CTA En Banc in the
case of “Pilipinas Shell Petroleum Corporation v. CIR (Nov. 2006)” where the CTA also granted
respondent’s claim for refund on the basis of excise tax exemption for petroleum products sold to
international carriers of foreign registry for their use or consumption outside the Philippines. Petitioner’s
MR denied.

On appeal, CTA En Banc upheld the ruling of the First Division. Petitioner’s MR with CTA likewise denied.
Hence, this petition. Respondent claims it is entitled to a tax refund because those petroleum products it
sold to international carriers are not subject to excise tax, hence the excise taxes it paid upon withdrawal
of those products were erroneously or illegally collected and should not have been paid in the first place.
Since the excise tax exemption attached to the petroleum products themselves, the manufacturer or
producer is under no duty to pay the excise tax thereon.

Issue:

Whether or not Pilipinas Shell is exempt from the payment of excise tax for petroleum products it sold to
international carriers.

Ruling:

No. Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods or
articles manufactured or produced in the Philippines for domestic sales or consumption or for any other
disposition and to things imported into the Philippines. These taxes are imposed in addition to the value-
added tax (VAT). As to petroleum products, Sec. 148 provides that excise taxes attach to the following
refined and manufactured mineral oils and motor fuels as soon as they are in existence.

Admittedly, the proffered definition of an excise tax as "a tax upon the performance, carrying on, or
exercise of some right, privilege, activity, calling or occupation" derives from the compendium American
Jurisprudence, popularly referred to as Am Jur and has been cited in previous decisions of this Court,
including those cited by Petron itself. Such a definition would not have been inconsistent with previous
incarnations of our Tax Code, such as the NIRC of 1939, as amended, or the NIRC of 1977 because in
those laws the term "excise tax" was not used at all. In contrast, the nomenclature used in those prior
laws in referring to taxes imposed on specific articles was "specific tax." Yet beginning with the National
Internal Revenue Code of 1986, as amended, the term "excise taxes" was used and defined as applicable
"to goods manufactured or produced in the Philippines… and to things imported." This definition was
carried over into the present NIRC of 1997. Further, these two latest codes categorize two different kinds
of excise taxes: "specific tax" which is imposed and based on weight or volume capacity or any other
physical unit of measurement; and "ad valorem tax" which is imposed and based on the selling price or
other specified value of the goods. In other words, the meaning of "excise tax" has undergone a
transformation, morphing from the Am Jur definition to its current signification which is a tax on certain
specified goods or articles.
CIR vs. Campos Rueda, 42 SCRA 23
Facts:

In January 1955, Maria Cerdeira died in Tangier, Morocco (an international zone [foreign country] in
North Africa). At the time of her death, she was a Spanish citizen and was a resident of Tangier. She
however left some personal properties (shares of stocks and other intangibles) in the Philippines. The
designated administrator of her estate here is Antonio Campos Rueda. In the same year, the Collector of
Internal Revenue (CIR) assessed the estate for deficiency tax amounting to about P161k. Campos Rueda
refused to pay the assessed tax as he claimed that the estate is exempt from the payment of said taxes
pursuant to section 122 of the Tax Code which provides: Campos Rueda was able to prove that there is
reciprocity between Tangier and the Philippines. However, the CIR still denied any tax exemption in favor
of the estate as it averred that Tangier is not a “state” as contemplated by Section 22 of the Tax Code and
that the Philippines does not recognize Tangier as a foreign country.

Issue:

Whether or not Tangier is a state.

Ruling:

Yes. For purposes of the Tax Code, Tangier is a foreign country. A foreign country to be identified as a
state must be a politically organized sovereign community independent of outside control bound by
penalties of nationhood, legally supreme within its territory, acting through a government functioning
under a regime of law. The stress is on its being a nation, its people occupying a definite territory,
politically organized, exercising by means of its government its sovereign will over the individuals within
it and maintaining its separate international personality. Further, the Supreme Court noted that there is
already an existing jurisprudence (Collector vs De Lara) which provides that even a tiny principality, that
of Liechtenstein, hardly an international personality in the sense, did fall under the exempt category
provided for in Section 22 of the Tax Code. Thus, recognition is not necessary. Hence, since it was proven
that Tangier provides such exemption to personal properties of Filipinos found therein so must the
Philippines honor the exemption as provided for by our tax law with respect to the doctrine of
reciprocity.
CIR vs. Fisher, 1 SCRA 93

DOCTRINE: “Reciprocity must be total. If any of the two states collects or imposes or does not exempt
any transfer, death, legacy or succession tax of any character, thereciprocity does not
work.”FACTS:Walter G. Stevenson was born in the Philippines of Britishparents, married in Manila to
another British subject,Beatrice. He died in 1951 in California where he and hiswife moved to. In his
will, he instituted Beatrice as his sole heiress tocertain real and personal properties, among
which are210,000 shares of stocks in Mindanao Mother Lode Mines(Mines). Ian Murray Statt (Statt),
the appointed ancillaryadministrator of his estate filed an estate and inheritancetax return. He
made a preliminary return to secure thewaiver of the CIR on the inheritance of the Mines shares
ofstock. In 1952, Beatrice assigned all her rights and interests in theestate to the spouses Fisher. Statt
filed an amended estate and inheritance tax returnclaiming ADDITIOANL EXEMPTIONS, one of
which is theestate and inheritance tax on the Mines’ shares of stockpursuant to a reciprocity
proviso in the NIRC, hence,warranting a refund from what he initially paid. The collectordenied the
claim. He then filed in the CFI of Manila for thesaid amount.CFI ruled that (a) the ½ share of
Beatrice should bededucted from the net estate of Walter, (b) the intangiblepersonal property
belonging to the estate of Walter isexempt from inheritance tax pursuant to the
reciprocityproviso in NIRC.
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OF INTERNAL REVENUE

GR. No. 155541. January 27, 2004

Facts:

During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the
Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death,
PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR
conducted an administrative investigation of the decedent’s tax liability and found a deficiency income
tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by
registered mail a demand letter and assessment notice addressed to the decedent “c/o PhilTrust, Sta.
Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent
Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of
decedent’s deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On
November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency
tax. The Court denied BIR’s claim against the estate on the ground that no proper notice of the tax
assessment was made on the proper party. On appeal, the CA held that BIR’s service on PhilTrust of the
notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the
respondent of antecedent’s death. Consequently, as the estate failed to question the assessment within
the statutory period of thirty days, the assessment became final, executory, and incontestable.

Issue:

(1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana
through PhilTrust was a valid service as to bind the estate.

(2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and
incontestable.

Held:

(1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of
the taxpayer’s death, none of the PhilTrust’s acts or omissions could bind the estate of the taxpayer.
Although the administrator of the estate may have been remiss in his legal obligation to inform
respondent of the decedent’s death, the consequence thereof merely refers to the imposition of certain
penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period
for making deficiency tax assessment or waiver of the notice requirement for such assessment.

(2) The assessment was served not even on an heir or the estate but on a completely disinterested party.
This improper service was clearly not binding on the petitioner. The most crucial point to be
remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate.
There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent
this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could
not have become final, executory and incontestable. Respondent’s claim for collection filed with the
court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive
period set by law.
CIR v. PINEDA

GR No. L-22734, September 15, 1967

21 SCRA 105

FACTS:

Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty.
Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and
awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings
were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and
1948 and it found that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment
and charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to
extent of his proportional share in the inheritance.

ISSUE:

Can BIR collect the full amount of estate taxes from an heir's inheritance.

HELD:

Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.

The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his
share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the
Government has the right to subject the property in Pineda's possession to satisfy the income tax
assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an
adjustment of the proper share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance received;
and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to
the payment of the tax due. This second remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the
necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in
the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government
and their prompt and certain availability is an imperious need.
Marcos II vs. CA

273 SCRA 47 1997

FACTS:

Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to
levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the
period of his exile in the US. The Marcos family was assessed by the BIR, and notices were constructively
served to the Marcoses, however the assessment were not protested administratively by Mrs. Marcos
and the heirs of the late president so that they became final and unappealable after the period for filing
of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax
dues because they are still pending probate with the court, and settlement of tax deficiencies could not
be had, unless there is an order by the probate court or until the probate proceedings are terminated.

Issue:

Is the contention of Marcos, correct?

Held:

No. The approval of the court, sitting in probate or as a settlement tribunal over the deceased’s estate, is
not a mandatory requirement in the collection of estate taxes.

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.

The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance
of government. Taxes are the lifeblood of government and should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the existence of government itself.

It is not the Department of Justice which is the government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and
assessments are presumed correct and made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon
the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error
in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has
not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to
the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged.
But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.
PNB vs. SANTOS GR No. 208295

December 10, 2014

Doctrine: Taxes are created primarily to generate revenues for the maintenance of the government.
However, this particular tax (estate tax) may also serve as guard against the release of deposits to
persons who have no sufficient and valid claim over the deposits. Based on the assumption that only
those with sufficient and valid claim to the deposit will pay the taxes for it, requiring the certificate from
the BIR increases the chance that the deposit will be released only to them.

Facts:

Sometime in May 1996, respondents discovered that their father maintained a premium savings account
with PNB. They went to PNB to withdraw their father's deposit. Aguilar, PNB’s Branch Manager, required
them to submit the following: "(1) original or certified true copy of the Death Certificate of Angel C.
Santos; (2) certificate of payment of, or exemption from, estate tax issued by the Bureau of Internal
Revenue (BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of the Deed of
Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and in an amount equal to the
balance of the deposit to be withdrawn." By April 26, 1998, respondents had already obtained the
necessary documents, and tried to withdraw the deposit. However, Aguilar informed them that the
deposit had already been released to Manimbo on April 1, 1997." A special power of attorney was
purportedly executed by Reyme L. Santos in favor of Manimbo and a certain Angel P. Santos for purposes
of withdrawing and receiving the proceeds of the certificate of time deposit. Respondents filed before
the RTC a complaint for sum of money and damages against PNB, Aguilar, and a John Doe, questioning
the release of the deposit amount to Manimbo who had no authority from them to withdraw their
father’s deposit and who failed to present to PNB all the requirements for such withdrawal. PNB and
Aguilar, on the hand, averred that Manimbo submitted all documents, which appeared regular, including
among others a certificate of payment of estate tax. The RTC held that PNB and Aguilar were jointly and
severally liable to pay respondents.

Issue:

Whether or not PNB was negligent in releasing the deposit to Manimbo though the later submitted an
authority to accept payment

Ruling:

Yes. In this case, petitioners PNB and Aguilar released Angel C. Santos’ deposit to Manimbo without
having been presented the BIR-issued certificate of payment of, or exception from, estate tax. This is a
legal requirement before the deposit of a decedent is released. Presidential Decree No. 1158, the tax
code applicable when Angel C. Santos died in 1991, which was reproduced in Section 97 of the 1997
NIRC, thus: SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall
not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any share, obligation, bond or right by
way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. If a bank has
knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has
certified that the taxes imposed thereon by this Title have been paid: Provided, however, That the
administrator of the estate or any one (1) of the heirs of the decedent may, upon authorization by the
Commissioner, withdraw an amount not exceeding Twenty thousand pesos (20,000) without the said
certification. For this purpose, all withdrawal slips shall contain a statement to the effect that all of the
joint depositors are still living at the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors. (Emphasis supplied) Taxes are created primarily to
generate revenues for the maintenance of the government. However, this particular tax may also serve
as guard against the release of deposits to persons who have no sufficient and valid claim over the
deposits. Based on the assumption that only those with sufficient and valid claim to the deposit will pay
the taxes for it, requiring the certificate from the BIR increases the chance that the deposit will be
released only to them. In their compulsory counterclaim, petitioners PNB and Aguilar claimed that
Manimbo presented a certificate of payment of estate tax. During trial, however, it turned out that this
certificate was instead an authority to accept payment, which is not the certificate required for the
release of bank deposits. It appears that Manimbo was not even required to submit the BIR certificate.
He, thus, failed to present such certificate. Petitioners PNB and Aguilar provided no satisfactory
explanation why Angel C. Santos’ deposit was released without it.
Lladoc vs. CIR, 14 SCRA 292

G.R. No. L-19201 June 16, 1965

Fact:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin
Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the
construction of a new Catholic Church in the locality. The total amount was actually spent for the
purpose intended. On March 3, 1958, the donor M.B. Estate, Inc., filed the donor’s gift tax return. Under
date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for
donee’s gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the
priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958
to June 15, 1960, and the compromise for the late filing of the return. Petitioner lodged a protest to the
assessment and requested the withdrawal thereof. The protest and the motion for reconsideration
presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court
of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed,
among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no
legal entity or juridical person known as the “Catholic Parish Priest of Victorias,” and, therefore, he
should not be liable for the donee’s gift tax. It was also asserted that the assessment of the gift tax, even
against the Roman Catholic Church, would not be valid, for such would be a clear violation of the
provisions of the Constitution.

Issue:

Whether the petitioner is liable for the assessed donee’s gift tax on the donated for the construction of
the Victorias Parish Church.

Held:

Yes, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious purposes. The exemption is only
from the payment of taxes assessed on such properties enumerated, as property taxes, as contra
distinguished from excise taxes. In the present case, what the Collector assessed was a donee’s gift tax;
the assessment was not on the properties themselves. It did not rest upon general ownership; it was an
excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties
(Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of
the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos, the imposition of which on property used exclusively for religious
purposes, does not constitute an impairment of the Constitution. As well observed by the learned
respondent Court, the phrase “exempt from taxation,” as employed in the Constitution (supra) should
not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or
express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied.
Pirovano v. CIR (14 SCRA 232)

Sec. 32[B] of the NIRC provides that Gifts, bequests and devises are excluded from gross income liable to
tax. Instead, such donations are subject to estate or gift taxes. However, if the amount is received on
account of services rendered, whether constituting a demandable debt or not (such as remuneratory
donations under Civil Law), the donation is considered taxable income.

Facts:

De la Rama Steamship Co. insured the life of Enrico Pirovano who was then its President and General
Manager. The company initially designated itself as the beneficiary of the policies but, after Pirovano’s
death, it renounced all its rights, title and interest therein, in favor of Pirovano’s heirs.

The CIR subjected the donation to gift tax. Pirovano’s heirs contended that the grant was not subject to
such donee’s tax because it was not a simple donation, as it was made for a full and adequate
compensation for the valuable services by the late Priovano (i.e. that it was remuneratory).

Issue:

WON the donation is remuneratory and therefore not subject to donee’s tax, but rather taxable as part
of gross income.

Held:

No. the donation is not remuneratory. There is nothing on record to show that when the late Enrico
Pirovano rendered services as President and General Manager of the De la Rama Steamship Co. and was
“largely responsible for the rapid and very successful development of the activities of the company", he
was not fully compensated for such services. The fact that his services contributed in a large measure to
the success of the company did not give rise to a recoverable debt, and the conveyances made by the
company to his heirs remain a gift or a donation. The company’s gratitude was the true consideration for
the donation, and not the services themselves.
Abello vs. CIR

G.R. No. 120721, 23 Feb. 2005

FACTS:

During the 1987 national elections, petitioners, who are partners in the ACCRA law firm, contributed
P882,661.31 each to the campaign funds of Senator Edgardo Angara, then running for the Senate. The
BIR then assessed each of the petitioners P263,032.66 for their contributions. Petitioners questioned the
assessment claiming that political or electoral contributions are not considered gifts under NIRC
therefore, not liable for donor’s tax. The claim for exemption was denied by the Commissioner.

The BIR denied their motion. They then filed a petition with the CTA, which was granted.

On appeal, the CA again held in favor of the BIR.

ISSUE:

Whether the contributions are liable for donor's tax.

RULING:

Yes. The NIRC does not define transfer of property by gift. However, the Civil Code, by reference,
considers such as donations. The present case falls squarely within the definition of a donation. There
was intent to do an act of liberality or animus donandi was present since each of the petitioners gave
their contributions without any consideration.

Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and
unambiguous, thereby leaving no room for construction.

Petitioners’ contribution of money without any material consideration evinces animus donandi. The fact
that their purpose for donating was to aid in the election of the donee does not negate the presence of
donative intent.

Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up to 1988 the BIR never
attempted to subject political contributions to donor’s tax.

This Court holds that the BIR is not precluded from making a new interpretation of the law, especially
when the old interpretation was flawed. It is a well-entrenched rule that

"erroneous application and enforcement of the law by public officers do not block subsequent
correct application of the statute" (PLDT v. Collector of Internal Revenue, 90 Phil. 676), "and that
the Government is never estopped by mistake or error on the part of its agents" (Pineda v. Court
of First Instance of Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98
Phil. 711, 724)”.
Philamlife vs. SOF
G.R. No. 210987, 24 Nov. 2014
FACTS:

The Philippine American Life and General Insurance Company (Philamlife) used to own 498,590 Class A
shares in Philam Care Health Systems, Inc. (PhilamCare), representing 49.89% of the latter’s outstanding
capital stock. In 2009, Philamlife offered to sell its shareholdings in PhilamCare through competitive
bidding. Thus, on September 24, 2009, petitioner’s Class A shares were sold for USD 2, 190,000, or PhP
104,259,330 to STI Investments, the highest bidder.

Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of
Internal Revenue (BIR) to facilitate the transfer of the shares. Months later, petitioner was informed that
it needed to secure a BIR ruling in connection with its application due to potential donor’s tax liability. In
compliance, Philamlife, requested a ruling to confirm that the sale was not subject to donor’s tax.
However, the Commissioner on Internal Revenue (Commissioner) denied Philamlife’s request through a
BIR Ruling. The CIR stated that donor’s tax is imposable on the price difference of the book value and the
selling price.

Philamlife then requested the Secretary of Finance to review the BIR Ruling issued by the CIR. However,
the Secretary affirmed the BIR Ruling. Philamlife then elevated the case to the Court of Appeals via a
petition for review. The CA dismissed the case for lack of jurisdiction stating that the case should have
been filed with the Court of Tax Appeals.

ISSUE:

Whether or not the subject transaction is a taxable donation

RULING:

YES. The absence of donative intent, if that be the case, does not exempt the sales of stock transaction
from donor's tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market
value of the property exceeded the value of the consideration shall be deemed a gift. Thus, even if there
is no actual donation, the difference in price is considered a donation by fiction of law. Moreover, Sec. 7
(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for determining
the "fair market value" of a sale of stocks. Such issuance was made pursuant to the Commissioner's
power to interpret tax laws and to promulgate rules and regulations for their implementation.
The Philippine American Life and General Insurance Company v. Sec. of Finance

GR No. 210987, November 24, 2014

DOCTRINE: The absence of donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically states that the amount by which the
fair market value of the property exceeded the value of the consideration shall be deemed a gift. Thus,
even if there is no actual donation, the difference in price is considered a donation by fiction of law.

FACTS:

Philamlife used to own 498,5990 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), which
represents 49.89% of the latter’s outstanding capital stock. Philamlife offered to sell its shareholdings in
PhilamCare through competitive bidding. Philamlife’s shares were sold to STI Investments, Inc., the
highest bidder. After the sale and necessary DST and CGT were paid, Philamlife filed with the BIRLarge
Taxpayers Service Division an application for a certificate authorizing registration/tax clearance.
Philamlife was informed it needed a BIR Ruling due to potential donor’s tax liability. Philamlife pointed
out that the sale was not subject to donor’s tax since there was no donative intent and, thus, no taxable
donation. It cited a BIR Ruling wherein the sahres were sold at their actual fair market value and at arm’s
length; since it is arm’s length, such is a bona fide business arrangement of the dealings is done in the
ordinary course of business. Further, donor’s tax does not apply to sale of shares sold in an open bidding
process. CIR denied Philamlife’s request. CIR determined the selling price of the sahres thus sold was
lower than their book value based on the financial statements of PhilamCare. As such, CIR held, donor’s
tac became imposable on the price difference as per Sec. 100 of the NIRC: ○ SEC. 100. Transfer for Less
Than Adequate and full Consideration. — Where property, other than real property referred to in Section
24(D), is transferred for less than an adequate and full consideration in money or money's worth, then
the amount by which the fair market value of the property exceeded the value of the consideration shall,
for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing
the amount of gifts made during the calendar year. RR 6-2008 also implemented the above provision: ○
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than
the amount of money and/or fair market value of the property received, the excess of the fair market
value of the shares of stock sold, bartered or exchanged over the amount of money and the fair market
value of the property, if any, received as consideration shall be deemed a gift subject to the donor's tax
under Section 100 of the Tax Code, as amended. CIR ruled the difference between the book value and
the selling price in the sales transaction is taxable donation subject to a donor’s tax. BIR ruling in which
Philamlife relied on has been revoked. Seeking review, Sec. of Finance affirmed CIR in its ruling.

ISSUE:

W/N the price difference in Philamlife’s adverted sale of shares in PhilamCare is subject to Donor’s tax.