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(CREBA) is a n association of real estate developers and builders in the Philippines. It filed a petitionfor certiorari and mandamus questioning the constitutionality of Section 27 (E) of Republic Act (RA) 8424 and the revenue regulations (RRs) issued by the Bureau of Internal Revenue (BIR) to implement said provision and those involving creditablewithholding taxes. It impleaded former Executive Secretary Alberto Romulo, thenacting Secretary of Finance Juanita D. Amatong and then Commissioner of InternalRevenue Guillermo Parayno, Jr. as respondents. CREBA assails the validity of theimposition of minimum corporate income tax (MCIT) on corporations and creditablew i t h h o l d i n g t a x ( C W T ) o n s a l e s o f r e a l p r o p e r t i e s c l a s s i f i e d a s o r d i n a r y a s s e t s . CREBA argues that the MCIT violates the due process clause because it levies incometax even if there is no realized gain. CREBA also seeks to nullify Sections 2.57.2(J)(as amended by RR 6 -2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) and (c)(ii)of RR 7-2003, all of which prescribe the rules and procedures for the collection of C W T o n t h e s a l e o f r e a l p r o p e r t i e s c a t e g o r i z e d a s o r d i n a r y a s s e t s . P e t i t i o n e r contends that these revenue regulations are contrary to law for two reasons: first ,they ignore the different treatment by RA 8424 of ordinary assets and capital assetsand second , respondent Secretary of Finance has no authority to collect CWT, muchl e s s , t o b a s e t h e C W T o n t h e g r o s s s e l l i n g p r i c e o r f a i r m a r k e t v a l u e o f t h e r e a l properties classified as ordinary assets. ISSUE: Whether or not the imposition of the MCIT on domestic corporations i s unconstitutional. : Whether or not the imposition of CWT on income from sales of r e a l properties classified as ordinary assets under RRs 2 -98, 6-2001 and 7 - 2 0 0 3 , i s unconstitutional. DECISION: No.U n d e r t h e M C I T s c h e m e , a c o r p o r a t i o n , b e g i n n i n g o n i t s f o u r t h ye a r o f operation, is assessed an MCIT of 2% of its gross income when such MCIT is greaterthan the normal corporate income tax imposed under Section 27(A). If the regularincome tax is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the MCIT over the normal tax shall be carried forward and credited againstthe normal income tax for the three immediately succeeding taxable years.T h e S C r u l e d t h a t M C I T i s n o t v i o l a t i v e o f d u e p r o c e s s a n d t h u s i s n o t unconstitutional. MCIT was devised as a relatively simple and effective revenue-raising instrument compared to the normal income tax which is more difficult to control and enforce. It is a means to ensure that everyone will make some minimumcontribution to the support of the public sector.T h e c o n t e n t i o n o f C R E B A t h a t p e g g i n g t h e t a x b a s e o f t h e M C I T t o a corporation’s gross income is tantamount to a confiscation of capital because grossincome, unlike net income, is not "realized gain" is untenable. MCIT is not a tax
Absent any other valid objection.C W T i s i m p o s e d o n t h e s a l e o f o r d i n a r y a s s e t s . c a p i t a l a s s e t s i n contravention of the p e r t i n e n t p r o v i s i o n s o f R A 8 4 2 4 . t h e capital is not being taxed. it adversely affects property rights. the mechanics of the FWT are distinct fromthose of the CWT. nationalor juridical. .oncapital. On the other hand. instead of net income. The MCIT is imposed on gross income which is arrived at by deducting thecapital spent by a corporation in the sale of its goods. Respondent Secretary has the authority torequire the withholding of a tax on items of income payable to any person. t h e M C I T i s n o t a n a d d i t i o n a l tax imposition. T h e i n h e r e n t a n d s u b s t a n t i a l differences between FWT and CWT disprove CREBA’s contention that ordinary assetsa r e b e i n g l u m p e d t o g e t h e r w i t h . as the tax base of the MCIT. T h e M C I T m e r e l y a p p r o x i m a t e s t h e a m o u n t o f n e t i n c o m e t a x d u e f r o m a corporation. i.CREBA does not cite any actual. The Court cannot strike down a law asunconstitutional simply because of its yokes. by its nature. Final Withholding Tax (FWT) is imposed on the sale of capital assets. taken with the reductionof the tax rate from 32% to 2%. Taxation is necessarily burdensomebecause. pegging the rate at a very much reduced 2% and uses as the base thecorporation’s gross income. a n d t r e a t e d s i m i l a r l y a s . T h e f a c t t h a t t h e t a x i s withheld at source does not automatically mean that it is treated exactly the same way as capital gains. t h e S C r u l e d t h a t i t i s n o t unconstitutional. the assignment of gross income. C l e a r l y. F u r t h e r m o r e . by any factual or legal basis.T h e c o n t e n t i o n t h a t r e s p o n d e n t S e c r e t a r y o f F i n a n c e h a s n o a u t h o r i t y t o collect CWT is likewise unmeritorious.T h e c o n t e n t i o n t h a t t h e a s s a i l e d r e v e n u e r e g u l a t i o n s i g n o r e t h e d i f f e r e n t treatment by RA 8424 of ordinary assets and capital assets is unmeritorious. specific and concrete negative experiences of its members nor does it present empirical data to show that the implementation of theMCIT resulted in the confiscation of their property. The withholding agent/buyer’s act of collecting the tax at the timeof the transaction by withholding the tax due from the income payable is the essenceof the withholding tax method of tax collection. Besides. the cost of goods ando t h e r d i r e c t e x p e n s e s f r o m g r o s s s a l e s .In sum. As aforementioned. The party alleging thelaw’s unconstitutionality has the burden to demonstrate the supposed violations inunderstandable terms.e. CREBA failed to support. is not constitutionally objectionable. residing in .As to the issue on the validity of the imposition of CWT on income from saleso f r e a l p r o p e r t i e s c l a s s i f i e d a s o r d i n a r y a s s e t s . its allegationthat the MCIT is arbitrary and confiscatory. It is imposed inlieu of the normal net income tax. and only if the normal income tax is suspiciouslyl o w . there is no legal objection to a broader tax base taxable income by eliminating all deductible items and at the same time reducingthe applicable tax rate. Moreover.
It should be used by the taxpayer in goodfaith and at arms length . the graduated rate of 1. declaring.021. are well within the authority given bySection 57(B) to the Secretary.e. Toda. .to sell the Cibeles Building and the two parcels of land onwhich the building stands for an amount of not less than P90million. it paidP26.728.5 million. Issue: WON this is a case of tax evasion or tax avoidance. thequestioned provisions of RR 2-98. it usuallysubjects the taxpayer to further or additional civil or criminalliabilities.On 12 July 1990.30 August 1989. Toda sold his entire shares of stocks in CICto Le Hun T. the withholding tax is imposed on the income payable and the tax iscreditable against the income tax liability of the taxpayer for the taxable year CIR v.Held/Ratio: Tax avoidance and tax evasion are the two mostcommon ways used by taxpayers in escaping from taxation. who. among other things.On 16 April 1990.5%-5% is between the1%-32% range. President andowner of 99. Toda purportedly sold the property for P100million to Altonaga.207 for its net taxable income of P75. Estate of Benigno Toda (Tax evasion) Facts: CIC authorized Benigno P.the Philippines based on Section 57 (B) of RA 8424. as amended.987.497.After crediting withholding taxes of P254. sold the same property on thesame day to Royal Match Inc.991% of its issued and outstanding capital stock. Jr. in turn. Thesetwo transactions were evidenced by Deeds of Absolute Salenotarized on the same day by the same notary public. Choa for P12. Tax avoidance is the tax saving device within the meanssanctioned by law. Tax evasion is a scheme usedoutside of those lawful means and when availed of.For the sale of the property to RMI.725. as evidenced by a Deedof Sale of Shares of Stocks. Altonaga paid capital gainstax in the amount of P10 million. i. Tax evasion connotes the integration of three factors : . CIC filed its corporate annual income taxreturn for the year 1989. Thus.. its gainfrom the sale of real property in the amount of P75.00.341. (RMI) for P200 million.
Here. or the non-payment of tax when it is shown that a tax is due.. Altonaga never controlled the property and did not enjoy the normal benefitsand burdens of ownership. which was prompted more on the mitigationof tax liabilities than for legitimate business purposesconstitutes tax evasion. fromCIC to Altonaga. Doubtless." or "deliberate and not accidental".e. and then from Altonaga to RMI cannot beconsidered a legitimate tax planning. the intermediary transaction." "willfull..In a nutshell. (2) an accompanying state of mind which is described as being"evil. the execution of the two sales wascalculated to mislead the BIR with the end in view of reducingthe consequent income tax liability.e. i. the payment of less than thatknown by the taxpayer to be legally due. and without business purpose and economicsubstance.Estate that the sale to him was partof the tax planning scheme of CIC..The scheme resorted to by CIC in making it appear that there were two sales of the subject properties. That Altonaga was a mere conduit finds support in theadmission of respondent . it is obvious that the objective of the sale toAltonaga was to reduce the amount of tax to be paid." in "bad faith. . instead of 35% corporate income tax. thesale of Altonaga.e. i. i. Thetransfer from him to RMI would result to 5% individual capitalgains tax. The sale to him was merely a taxploy. a sham.(1) the end to be achieved. All these factors are present in the instant case. It is tainted with fraud. (3) a course of action or failure of action which is unlawful. Altonaga’ssole purpose of acquiring and transferring title of the propertieson the same day was to create a tax shelter.