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COMMERCIAL LAW

I. PARTNERSHIP

1. Emmarck denied the employment relationship with Pedro and Maricel and contended that they were his
industrial partners. Emmarck explained that, in 1993, Pedro became an industrial partner of her mother
in the fishpond business with an agreement to be entitled to 1/3 of the total harvest made, as well as
receive a weekly allowance of P230.00. Emmarck merely adopted this arrangement with Pedro when he
took over the business. They agreed that Pedro was entitled to 1/3 of the total harvest. Pedro was also
given a weekly allowance of P230 as an industrial partner and overseer. Similarly, Maricel was taken in
as an industrial partner to manage the store inside the beach property, and she was entitled to a
P1,000.00 monthly allowance and a 15% commission on the rent of the resort facilities. She was also
allowed to sell anything in the store, with the profits solely belonging to her. Is the contention of
Emmarck correct?
No. The contention of Emmarck is incorrect. There is a partnership if two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits among
themselves.The existence of a partnership is established when it is shown that: (1) two or more persons bind
themselves to contribute money, property, or industry to a common fund; and (2) they intend to divide the profits
among themselves. It is undisputed that Pedro and Maricel rendered their services at Ralco Beach and received
compensation sourced from rentals and sales of the resort. Moreover, Emmarck's allegation that Pedro was his
industrial partner in the fishpond business is inconsequential because Pedro's complaint and claims were for his
services rendered in the beach resort. Even if it is true, being an industrial partner in the fishpond business is
immaterial to Pedro's status as an employee at Ralco Beach. Hence, Emmarck failed to prove the existence of
an industrial partnership between them. (Pedro D. Dusol and Maricel M. Dusol v. Emmarck A. Lazo, G.R. No. 200555, January
20, 2021)
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TAXATION LAW

I. WITHHOLDING TAXES

2. Distinguish indirect taxes (e.g. VAT and excise tax) from withholding taxes.

Indirect Taxes Withholding Taxes

The incidence of taxation falls on one person The incidence and burden of taxation fall on the same
but the burden thereof can be shifted or passed entity, the statutory taxpayer. The burden of taxation is
on to another person, such as when the tax is not shifted to the withholding agent who merely collects,
imposed upon goods before reaching the by withholding, the tax due from income payments to
consumer who ultimately pays for it. entities arising from certain transactions and remits the
same to the government.
(Commissioner of Internal Revenue v. Commission on Elections, G.R. No. 244155, May 11, 2021)

3. COMELEC leased electronic voting machines (EVMs) from Smartmatic and Avante. COMELEC did not
withhold Expanded Withholding Tax (EWT) on its payments on the belief that the procurement of
election materials and equipment are free from taxes and import duties. Is COMELEC liable for
deficiency EWT as assessed by BIR?
Yes. COMELEC is liable for deficiency EWT. Section 251 of the Tax Code makes the agent “personally liable for
the tax” not withheld, or not accounted for and remitted. A “person liable for tax” has been held to be a “person
subject to tax” and properly considered a “taxpayer.” The terms “liable for tax” and “subject to tax” both connote
legal obligation or duly to pay a tax. The COMELEC admitted that it did not withhold EWT on the payments
made to Smartmatic and Avante for the lease contracts. It failed to perform its duty as a withholding agent
required to deduct, withhold and remit the tax to the government. Consequently, the COMELEC becomes
personally liable for deficiency tax. (Commissioner of Internal Revenue v. Commission on Elections, G.R. No. 244155, May 11,
2021)

II. VALUE-ADDED TAX

4. What is the “Cross Border Doctrine” under the VAT System?

Under the Cross Border Doctrine, no value-added tax shall form part of the cost component of products which
are destined for consumption outside of the territorial border of the Philippines. This principle is achieved
through the application of VAT zero-rating products exported from the Philippines to foreign countries.
(Commissioner Internal Revenue v. Filminera Resources Corporation, G.R. No. 236325, September 16, 2020)

5. What are the requisites to qualify for VAT zero-rating under the Tax Code?
Section 108 (B)(2) of the Tax Code requires the concurrence of the following four conditions: First, the services
rendered should be other than “processing, manufacturing or repacking of goods”; second, the services are
performed in the Philippines; third, the service-recipient is (a) a person engaged in business conducted outside
the Philippines; or (b) a non-resident person not engaged in a business which is outside the Philippines when
the services are performed; and, fourth, the services are paid for in acceptable foreign currency inwardly
remitted and accounted for in conformity with BSP rules and regulations. (Chevron Holdings, Inc. v. Commissioner of
Internal Revenue, G.R. No. 215159, July 05, 2022)

6. Chevron Holdings, Inc., a corporation organized under the laws of the USA, and registered as a VAT
taxpayer in the Philippines, is licensed by the SEC to operate as a Regional Operating Headquarter
(ROHQ) that will provide the following services to its affiliates, subsidiaries, or branches in its
Philippine and abroad: general administration and planning, sourcing and procurement of raw materials
and components, corporate finance advisory services, among others. For the taxable year 2006, it
incurred unutilized input taxes from its zero-rated services, for which it claimed a refund. The CTA
denied the refund and required Chevron to substantiate its prior quarters' excess input taxes so that
there would be a sufficient amount to cover its output tax liability, and, only after the output tax had
been paid or covered that refund may be allowed. Is the CTA correct?
No. Under Section 112 of the Tax Code, the input tax attributable to zero-rated sales may, at the option of the
VAT-registered taxpayer, be: (1) charged against output tax from regular 12% VAT-able sales, and any unutilized
or “excess” input tax may be claimed for refund or the issuance of tax credit certificate; or (2) claimed for refund
or tax credit in its entirety. The remedies of charging the input tax against the output tax and applying for a
refund or tax credit are alternative and cumulative. Furthermore, the option is vested with the taxpayer-claimant.
The taxpayer only needs to prove non-application or non-charging of the input-VAT subject of the claim.
Requiring taxpayers to prove that they did not charge the input tax claimed for refund against the output tax is
one thing; requiring them to prove that they have “excess” input tax after offsetting it from output tax is another.
The former is essential to the entitlement of the refund under Section 112 (A); the latter is not. Here, the courts
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cannot condition the refund of input taxes allocable to zero-rated sales on the existence of "excess" creditable
input taxes, which includes the input taxes carried over from the previous periods, from the output taxes.
(Chevron Holdings, Inc. v. Commissioner of Internal Revenue, G.R. No. 215159, July 05, 2022)

7. What are the requirements for entitlement to a refund or the issuance of tax credit certificate of
unutilized input VAT from zero-rated sales?
The following must be complied with: (1) The input tax is a creditable input tax due or paid; (2) The input tax is
attributable to the zero-rated sales; (3) The input tax is not transitional; (4) The input tax was not applied against
the output tax; and (5) In case the taxpayer is engaged in mixed transactions i.e., VAT-able, exempt, and
zero-rated sales and the input taxes cannot be directly and entirely attributable to any of these transactions,
only the input taxes proportionately allocated to zero-rated sales based on sales volume may be refunded or
issued a tax credit certificate. (Chevron Holdings, Inc. (Formerly Caltex Asia Limited) v. Commissioner of Internal Revenue, G.R. No.
215159, July 05, 2022)

8. What are the conditions to be satisfied by a taxpayer engaged in zero-rated sales to apply for the
issuance of a tax credit certificate, or refund of excess input tax due or paid, attributable to the sale?
Under Section 112 (A) of the Tax Code, a taxpayer engaged in zero-rated sales may apply for the issuance of a
tax credit certificate, or refund of excess input tax due or paid, attributable to the sale, subject to the following
conditions: (1) the taxpayer must be VAT-registered; (2) the taxpayer must be engaged in sales which are
zero-rated or effectively zero-rated; (3) the claim must be filed within two (2) years after the close of the taxable
quarter when such sales were made; (4) the creditable input tax due or paid must be attributable to such sales,
except the transitional input tax, to the extent that such input tax has not been applied against the output tax;
and (5) in case of zero-rated sales under Section 106 (A)(2)(a)(1), the acceptable foreign currency exchange
proceeds have been duly accounted for in accordance with Bangko Sentral ng Pilipinas rules and
regulations.(Commissioner of Internal Revenue v. Philex Mining Corporation, G.R. No. 230016, November 23, 2020)

9. Was Philex Mining Corporation’s failure to maintain subsidiary sales and purchase journals or to file the
monthly VAT declarations result in the outright denial of its claim for refund or credit of unutilized input
VAT attributable to its zero-rated sales?
No. Under Section 112 (A) of the Tax Code, a taxpayer engaged in zero-rated sales may apply for the issuance
of a tax credit certificate, or refund of excess input tax due or paid, attributable to the sale, subject to the
following conditions: (1) the taxpayer must be VAT-registered; (2) the taxpayer must be engaged in sales which
are zero-rated or effectively zero-rated; (3) the claim must be filed within two (2) years after the close of the
taxable quarter when such sales were made; (4) the creditable input tax due or paid must be attributable to such
sales, except the transitional input tax, to the extent that such input tax has not been applied against the output
tax; and (5) in case of zero-rated sales under Section 106 (A)(2)(a)(1), the acceptable foreign currency
exchange proceeds have been duly accounted for in accordance with Bangko Sental ng Pilipinas rules and
regulations. Further, under Section 110, the taxpayer claiming the refund must further comply with the invoicing
and accounting requirements mandated by the NIRC, as well as by revenue regulations implementing them.
Subsidiary journals may be sources of information from which the CIR may utilize in making assessments but
their submission is not indispensable to substantiate the input taxes. (Commissioner of Internal Revenue v. Philex Mining
Corporation, G.R. No. 230016, November 23, 2020)

10. Filminera Resources and Philippine Gold Processing and Refining Corporation (PGPRC), a domestic
corporation registered with the Bureau of Investments (BOI), entered into an Ore Sales and Purchase
Agreement. Filminera filed its VAT returns and also filed administrative claims for refund or issuance of
TCC of its unutilized input VAT attributable to its zero-rated sales. It submitted a certified true copy of
BOI Certification to establish that PGPRC was a BOI-registered enterprise that exported its total sales
volume. CIR insisted that the BOI Certification was not sufficient to support Filminera Resources' claim
for refund because there must be proof of actual exportation of PGPRC's products. Is the contention of
the CIR correct?
Yes. Sales made to a BOI-registered buyer are export sales subject to the zero percent rate if the following
conditions are met: (1) the buyer is a BOI-registered manufacturer/producer; (2) the buyer's products are 100%
exported; and (3) the BOI certified that the buyer exported 100% of its products. For this purpose, the BOI
Certification is vital for the seller-taxpayer to avail of the benefits of zero-rating. But while the BOI certification
allows the seller to accord VAT zero-rating status to sales made to the BOI-registered buyer during the
extended period of the certification, this must be pre-empted by the condition that the BOI-registered buyer
actually and eventually exported such products. This is consistent with the Cross Border Doctrine and
Destination Principle of the Philippine VAT system. To hold otherwise would render nugatory the principle that
goods are taxed only in the country where these are consumed and that no VAT shall form part of the cost of
products which are destined for consumption outside of the territorial border of the Philippines. (Commissioner
Internal Revenue v. Filminera Resources Corporation, G.R. No. 236325, September 16, 2020)
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III. LOCAL TAXATION

11. What are the due process requirements for issuing a local tax assessment?
To comply with due process requirements in issuing a local tax assessment, the notice of assessment must
state the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. The
notice of assessment which stands as the first instance the taxpayer is officially made aware of the pending tax
liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195 of the
Local Government Code does not go as far as to expressly require that the notice of assessment specifically
cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge,
the amount of deficiency, surcharges, interests and penalties. (National Power Corporation v. The Province of Pampanga
et.al, G.R. No. 230648, October 06, 2021)

IV. REAL PROPERTY TAXATION

12. Is Metropolitan Waterworks and Sewerage System (MWSS) subject to real property tax?
No. MWSS is exempt from payment of real property taxes to the local government of Pasay City. The Executive
and the Legislative Branches have explicitly classified MWSS as a government instrumentality with corporate
powers. Under Section 234(a) of the Local Government Code, real property owned by the Republic of the
Philippines or any of its political subdivisions are exempted from payment of the real property tax. This tax
exemption however ceases when the beneficial use of the real properties is alleged and proved to have been
granted, for a consideration or otherwise, to a taxable person. Beneficial use means actual use or possession of
the property. Actual use refers to the purpose for which the property is principally or predominantly utilized by
the person in possession thereof. (Metropolitan Waterworks and Sewerage System (MWSS) v. Central Board of Assessment
Appeals, G.R. No. 215955, January 13, 2021)

13. The real property tax assessments issued in the name of Metropolitan Waterworks and Sewerage
System (MWSS), a government instrumentality with corporate powers, were declared void. Is MWSS
entitled to automatic refund of erroneously paid real property taxes?
No. MWSS entitlement to a tax refund is not automatic. Under Section 253 of the LGC, when an assessment of
basic real property tax, or any other tax levied under this Title (Real Property Taxation), is found to be illegal or
erroneous and the tax is accordingly reduced or adjusted, the taxpayer may file a written claim for refund or
credit for taxes and interests with the provincial or city treasurer within two (2) years from the date the taxpayer
is entitled to such reduction or adjustment. MWSS's claim for tax refund should, therefore, be filed with the city
treasurer within two (2) years from the finality of the decision upholding the invalidity of the assessment, as it is
only then that the invalidity of the Pasay City assessment is finally settled. (Metropolitan Waterworks and Sewerage
System (MWSS) v. Central Board of Assessment Appeals, G.R. No. 215955, January 13, 2021)

V. JUDICIAL REMEDIES

14. NPC, a GOCC created by virtue of R.A. 6395, received an Assessment Letter in 2009 from the Provincial
Treasurer of the Province of Pampanga demanding payment of local franchise tax. NPC protested citing
its exemption under the EPIRA Law. The RTC ruled against NPC, prompting them to appeal to the CTA.
The CTA upheld NPC's liability but remanded the case due to incomplete details in the Assessment
Letter. NPC appealed to the CTA En Banc, which agreed to remand the case to the RTC. NPC filed a
petition for certiorari before the Supreme Court. The Province of Pampanga argued NPC's petition
should have been filed with the Court of Appeals. Is the Province of Pampanga correct?
No. Under RA No. 9282, approved in 2004, the CTA was elevated to the same level and equal rank as the
Court of Appeals. Upon its effectivity on April 23, 2004, decisions or rulings of the CTA En Banc are now
appealable to the Supreme Court via a petition for review on certiorari under Rule 45 of the Rules of Court.
Furthermore, Section 1, Rule 16, of the Revised Rules of the Court of Tax Appeals provides that a party
adversely affected by a decision or ruling of the CTA En Banc may appeal by filing with the Supreme Court a
verified petition for review under Rule 45 of the Rules of Court. Hence, NPC properly filed a petition for review
on certiorari with this Court. (National Power Corporation v. The Province of Pampanga et.al, G.R. No. 230648, October 06, 2021)

15. Is the issue on the validity of the assessment letter deemed waived when it is only raised in the motion
for reconsideration before the CTA En Banc?
No. The CTA, in the exercise of its appellate jurisdiction to review decisions on local taxes cases, may not limit
itself to the issues stipulated by the parties but may also rule upon related issues necessary to achieve an
orderly disposition of the case. It has been said that where the issues already raised also rest on other issues
not specifically presented, as long as the latter issues bear relevance and close relation to the former and as
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long as they arise from matters on record, the Court has the authority to include them in its discussion of the
controversy as well as to pass upon them. An appellate court has an inherent authority to review unassigned
errors (i) which are closely related to an error properly raised, or (ii) upon which the determination of the error
properly assigned is dependent, or (iii) where the Court finds that consideration of them is necessary in arriving
at a just decision of the case. Indeed, the validity or invalidity of the Assessment Letter is integral to the issue of
NPC's liability for local franchise tax under the Provincial Tax Code of 1992 of Pampanga. If the assessment is
void, NPC is not liable for the franchise tax. (National Power Corporation v. The Province of Pampanga et.al, G.R. No. 230648,
October 06, 2021)

16. COMELEC, a constitutional commission, received a Final Assessment Notice and Formal Letter of
Demand from the BIR in relation to its lease contracts with Smartmatic and Avante. On denial of its
appeal with the BIR, the COMELEC filed a petition for review with the CTA Division, then with CTA En
Banc. Three judges of CTA En Banc opined that the CTA is bereft of jurisdiction to take cognizance of
the petition as the dispute is between the BIR and the COMELEC, which are government agencies, thus,
jurisdiction lies with the Secretary of Justice. Does the CTA have jurisdiction to resolve the dispute
between BIR and the COMELEC?
Yes. Section 4 of the Tax Code provides that the power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. Since the issue
here is the disputed assessment for deficiency basic EWT against the COMELEC, arising from its failure to
withhold the tax on income payments made to Smartmatic and Avante under the lease contracts, the CTA has
the exclusive appellate jurisdiction to take cognizance of the COMELEC's petition. (Commissioner of Internal Revenue
v. Commission on Elections, G.R. No. 244155, May 11 , 2021)

17. COMELEC filed a petition for review with the CTA Division for the Final Assessment Notice and Formal
Letter of Demand issued by the BIR. The CTA Division partly granted the petition. The COMELEC sought
reconsideration but the CTA merely issued an Amended Decision which indicated COMELEC’s correct
liability. Only the CIR filed a reconsideration of the amended decision. COMELEC filed a petition before
the CTA En Banc. May the CTA En Banc take cognizance of the COMELEC's petition for review even
without a prior reconsideration of the CTA Division's Amended Decision?
Yes. As a rule, an appeal to the CTA En Banc must be preceded by the filing of a timely motion for
reconsideration or new trial with the CTA Division that issued the decision or resolution. The same is true in the
case of an amended decision where it is a different decision, and thus, is a proper subject of a motion for
reconsideration. In the instant case, the Amended Decision of the CTA Division is not a "new" decision, but a
reiteration of the initial Decision. It was not based on a re-evaluation or re-examination of documentary exhibits
presented by the parties. The CTA Division, without any modification, repeated in toto its discussion and ruling
in the original decision. The CTA Division merely corrected in the Amended Decision the COMELEC's liability.
The Amended Decision is a mere clarification, a correction at best, of the amount due from the COMELEC.
(Commissioner of Internal Revenue v. Commission on Elections, G.R. No. 244155, May 11, 2021)