TAX Week 4 Digests

2. Double Taxation a. Meaning of double taxation in the strict sense/in the broad sense b.
Instances of double taxation in its broad sense VILLANUEVA v CITY OF ILOILO December 28, 1968 Doctrine: In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax. Nature: Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance. Ponente: CASTRO, J. Facts: On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees on: (1) tenement houses; (2) tenement houses, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer; (3) tenement house, partly or wholly engaged in business in any other streets. The validity and constitutionality of this ordinance were challenged and this Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." On January 15, 1960 the municipal board of Iloilo City, believing that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960. Appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. By virtue of the ordinance, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the other appellees, for the years 1960-
Main Issues (for this section of the syllabus): WON Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation? Sub Issues : WON the City of Iloilo is empowered by the Local Autonomy Act to impose tenement taxes? WON Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause? WON Ordinance 11, series of 1960, violate the rule of uniformity of taxation? Held: -
No. There is no double taxation.
Yes. It is empowered by the Local Autonomy Act. No. It is not oppressive. No. It does not violate the rule of uniformity of taxation. Ratio (for Double Taxation) While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof. Plaintiffs-appellees are NOT doubly taxed just because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property
TAXATION 1 LAFORTEZA WEEK 4: d2014
1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property. On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. The lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation.
Quick Reference Ratio for sub issues (discussed already last time): On City of Iloilo being allowed: The provisions of Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute. Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act? Appellees strongly maintain that it is a "property tax" or "real estate tax," and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax. The Courts view is that t he tax in question is not a real estate tax. The appellees confuse the tax with the real estate tax within the meaning of the Assessment Law, which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter. A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate tax. On oppressive: It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition." Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. Therefore, the tax in question is not oppressive in the manner the lower court puts it.
Disposition: ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in question being valid, the complaint is hereby dismissed. No pronouncement as to costs. Vote: Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano, JJ., concur.. Concurring/Dissenting Opinion: None. -JP CIR V. SOLIDBANK G.R. No. 148191 25 November 2003 Commissioner of Internal Revenue, petitioner v. Solidbank Corporation, respondent PONENTE: Panganiban, J. DOCTRINE: Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the same person twice by the same jurisdiction for the same thing. NATURE: Petition for Review under R45 FACTS: For CY 1995, Solidbank filed its quarterly percentage tax return pertaining to 5% Gross Receipts Tax (GRT) in the amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60. This includes the passive income already subject to 20% withholding tax (FWT)
used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sense a double tax. "In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subjectmatter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax." It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or character. At all events, there is no constitutional prohibition against double taxation in the Philippines. It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated , such as the requirement that taxes must be uniform."
On uniformity: This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority." The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.
ISSUES: 1. W/N the 20% final withholding tax on a banks interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax. HELD/RATIO 1. YES Petitioner claims that although the 20% FWT on Solidbanks interest income was not actually received by respondent because it was remitted directly to the government, the fact that the amount redounded to the banks benefit makes it part of the taxable gross receipts in computing the 5% GRT First it must be said that the GRT and the FWT are two different taxes. The 5% GRT is provided in Sec. 119 of the NIRC: SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: (a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived. Short-term maturity not in excess of two (2) years 5% This 5% GRT is provided under Title V. Other Percentage Taxes and is not subject to withholding. The institutions liable therefor file a quarterly tax return The 20% FWT, on the other hand, falls under Section 24(e)(1) of Title II. Tax on Income. It is a tax on passive income, deducted and withheld at source by the payor-corporation and/or person as withholding agent Clearly, the FWT is income tax, while GRT is a percentage tax. A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year
The Court of Tax Appeals rendered a decision in the case of Asian Bank Corp. v. CIR which held that the final withholding tax of 20% should not form part of the taxable gross receipts for the purpose of computing the 5% GRT On the basis of this decision, Solidbank applied for a refund or issuance of a tax credit certificate representing its alleged overpayments of GRT for CY 1995 in the amount of some 3.5M Pesos At the same time, Solidbank filed a petition for review with the CTA to toll the 2 year prescriptive period to judicially claim the refund The CTA ordered the CIR to refund a reduced amount as overpaid GRT based on the ruling in Asian Bank, the 20% withholding tax should not form part of the gross receipts for computing GRT The CIR elevated the case to the CA which held that the 20% FWT on a banks interest income did not form part of the taxable gross receipts in computing the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to the government Hence this current recourse by the CIR under R45
In a withholding system, as in that of income tax, the payee is the taxpayer while the payor is merely an agent of the government. The amount to settle the tax liability is sourced from the proceeds constitutive of the tax base. Such proceeds can either be constructive or actual The amount withheld for tax purposes can be deemed constructively received by Solidbank. Thus it forms part of the gross receipts Solidbank relies on Revenue Regulation RR 12-80 which provides that only income actually received shall constitute the base for GRT On the other hand the CIR contends that RR 17-84, which is newer, provides also for constructive receipt By analogy, the Civil Code, Arts. 531 and 532, provides for actual and constructive possession. The withholding process is one such act of constructive possession. Possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt The case of Manila Jockey Club is inapplicable in this case. In that case, the funds were earmarked for some entity other than the taxpayer. Hence the amounts never became property of the race track. In this case, the amounts withheld became property of the financial institution since there was constructive delivery thereof Further, the case of Manila Jockey provides that gross earnings shall mean the entire earnings of the taxpayer. This is the gross income before any deductions. The 5% GRT must then be imposed on the gross amount where the 20% FWT has not been deducted yet Finally it must be said that there is no DOUBLE TAXATION Double taxation means taxing the same property twice when it should be taxed only once; that is taxing the same person twice by the same jurisdiction for the same thing It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as direct duplicate taxation, the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character The two taxes in this case are imposed on different subjects. A tax based on receipts as the GRT is a tax on business. It is an excise rather than a property tax. Its subject matter is the privilege of engaging in the business of banking On the other hand, the FWT is an income tax. Its subject matter is the passive income generated in the form of interest on deposits and yields on deposit substitutes Also the taxing periods are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned And finally, again, the taxes are of a different character. One is income tax, the other is percentage (excise) tax Thus there is clearly no double taxation Hence subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is not double taxation
DISPOSITION: Petition GRANTED, assailed orders of the Court of Appeals REVERSED and SET-ASIDE Votes: Davide, Jr., C.J., Ynares-Santiago, Carpio, and Azcuna, JJ., concur -Raffy CIR vs. CITY TRUST INVESTMENT PHILIPPINES and ASIABANK CORPORATION1 (September 27, 2006) DOCTRINE: There can be no double taxation when the Tax Code imposes two different kinds of taxes. NATURE: consolidated case questioning the decision of the CIR in including the FWT as part of the computation for GRT. PONENTE: SANDOVAL-GUTIERREZ, J FACTS: Under Section 27(D), formerly Section 24(e)(1) of the National Internal Revenue Code of 1997 (Tax Code), the earnings of banks from passive income are subject to a 20% final withholdings tax (FWT); Apart from the 20% FWT, banks are also subject to the 5% GRT on their gross receipts, which includes their passive income. Respondents had paid the 5% GRT from 1994 to 1996, until the SC decided upon Asian Bank Corporation v. Commissioner of Internal Revenue (ASIAN BANK case), ruled that the basis in computing the 5% GRT is the gross receipts minus the 20% FWT. In other words, the 20% FWT on a bank's passive income does not form part of the taxable gross receipts. o Respondents now asked for a tax refund or credit; The CIR, in the two separate cases of the respondents, stated that: o first, there is no law which excludes the 20% FWT from the taxable gross receipts for the purpose of computing the 5% GRT; o second, the imposition of the 20% FWT on the bank's passive income and the 5% GRT on its taxable gross receipts, which include the bank's passive income, does not constitute double taxation; o third, the ruling by this Court in Manila Jockey Club, cited in the ASIAN BANK case, is not applicable; and o fourth, in the computation of the 5% GRT, the passive income need not be actually received in order to form part of the taxable gross receipts. ISSUES: 1. Does the twenty percent (20%) final withholding tax (FWT) on a bank's passive income form part of the taxable gross receipts for the purpose of computing the five percent (5%) gross receipts tax (GRT)? YES. 2. Is the GRT to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received? NO.
3. [Only relevant issue, but you know how she is] Is there double taxation present due to the GRT being imposed on the banks passive income before the FWT is accounted for? NO. RATIO: 1. The Tax Code does not provide a definition of the term "gross receipts". Accordingly, the term is properly understood in its plain and ordinary meaning and must be taken to comprise of the entire receipts without any deduction. We, thus, made the following disquisition in Bank of Commerce The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole, entire, total, without deduction." A common definition is "without deduction." "Gross" is also defined as "taking in the whole; having no deduction or abatement; whole, total as opposed to a sum consisting of separate or specified parts." o The issue of whether the 20% FWT on a bank's interest income forms part of the taxable gross receipts for the purpose of computing the 5% GRT is no longer novel. This has been previously resolved by this Court in a catena of cases, such as China Banking Corporation v. Court of Appeals, Commissioner of Internal Revenue v. Solidbank Corporation, Commissioner of Internal Revenue v. Bank of Commerce, and the latest,Commissioner of Internal Revenue v. Bank of the Philippine Islands. Under Revenue Regulations No. 12-80 and No. 17-84, as well as several numbered rulings, the BIR has consistently ruled that the term "gross receipts" does not admit of any deduction. 2. Respondents contend that since the 20% FWT is withheld at source and is paid directly to the government by the entities from which the banks derived the income, the same cannot be considered actually received, hence, must be excluded from the taxable gross receipts. The Court does not agree. while it is true that Section 4(e) states that "the rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received," it goes on to distinguish actual receipt from accrual, i.e., that "mere accrual shall not be considered, but once payment is received in such accrual or in case of prepayment, then the amount actually received shall be included in the tax base of such financial institutions." Revenue Regulations No. 17-84 categorically states that if the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipt tax is imposed. 3. Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of character of tax. This is not the situation in the case at bar. The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other.
Stuff to know: FWT: Final Withholdings Tax; GRT: Gross Receipts Tax
DISPOSITIVE: CIR decision affirmed; FWT part of GRT computation. -Ice c. Constitutionality of double taxation CITY OF BAGUIO V DE LEON (Oct 31, 1968) Doctrine: Where one tax is imposed by the national government and the other is imposed by the city, double taxation may not be invoked. The reason is that there is nothing inherently wrong in the requirement that license fees or taxes be exacted from the same occupation, calling or activity by both the State and its political subdivisions. Facts: De Leon was held liable as a real estate dealer with a property valued within the P10k P50k range, and therefore was obliged to pay an annual fee of P50. De Leon assails the Ordinance as unconstitutional. TC upholds the Ordinance. Pepsi-Cola Bottling Co. of the Philippines vs City of Butuan (28 August 1968)
-Ivan
CONCEPT: DOUBLE TAXATION (from The Fundamentals of Taxation, de Leon) 1. In its strict sense (referred to as direct duplicate taxation or direct double taxation), double taxation means a. Taxing twice, b. by the same taxing authority, c. within the same jurisdiction or taxing district, d. for the same purpose, e. in the same year (or taxing period), f. some of the property in the territory. Both taxes must be imposed on the same property or subject matter. (Villanueva vs City of Iloilo, L-26521, 28 Dec 1968) 2. In its broad sense (referred to as indirect duplicate taxation or indirect double taxation), double taxation is taxation other than direct duplicate.
Issues: WON the City of Baguio has the power to issue the ordinance WON the exaction imposed y the Ordinance amounts to double taxation Held: Yes No
NOTE: Double taxation, while not forbidden, is something not favoured. Such taxation, it has been held, should, whenever possible, be avoided or prevented. Doubts as to whether double taxation has been imposed should be resolved in favour of the taxpayer. Obvious reason: to avoid injustice or unfairness. Where double taxation (in its narrow sense) occurs, the taxpayer may seek relief under the uniformity rule or equal protection guarantee.
A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. o An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Respondents cited the case of Manila Jockey Club, but their argument fails; o In said case, Manila Jockey Club paid amusement tax on its commission in the total amount of bets called wager funds from the period November 1946 to October 1950. But such payment did not include the 5 % of the funds which went to the Board on Races and to the owners of horses and jockeys. We ruled that the gross receipts of the Manila Jockey Club should not include the 5 % because although delivered to the Club, such money has been especially earmarked by law or regulation for other persons. o The Manila Jockey Club does not apply to the cases at bar because what happened there is earmarking and not withholding. Earmarking is not the same as withholding. o
Ratio:
RA 329 amending the city charter of Baguio is the source of authority for the ordinance. RA 239 empowers Baguio City to fix the license fee and regulate businesses, trades and occupations as may be established or practiced in the city. Justice Holmes stated that the 14th Amendment pertaining to the Due Process clause does not forbid double taxation. In a 1947 decision, this Court stated that if Congress has a clear expressed intention stated in the law, it must be sustained even if the same results to double taxation. This Court likewise has previously stated that where one tax is imposed by the national government and the other is imposed by the city, double taxation may not be invoked. The reason is that there is nothing inherently wrong in the requirement that license fees or taxes be exacted from the same occupation, calling or activity by both the State and its political subdivisions. Neither is the exaction violative of the constitutional requirement of uniformity in taxation. As stated by Justice Laurel, a tax is considered uniform if it operates with the same force and effect in every place where the subject may be found.
Doctrine: Indeed independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion - double taxation, in general, is not forbidden by our fundamental law. Ponente: Concepcion, C.J. Nature: Direct Appeal from the decision of the CFI of Agusan FACTS: Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board and its City Treasurer. Pepsi-Cola seeks to recover the sums paid by it to Butuan, when the latter collected such by virtue of Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122. Pepsi-Colas warehouse in Butuan serves as storage for its products for sale to customers in Butuan. Softdrinks are bottled in Cebu, shipped to the Butuan warehouse for distribution and sale. 16 August 1960 Ordinance Order No. 110, as amended by Ordinance No. 122 on November 1960 Ordinance No. 110 states that what products are "liquors", within the purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund."
The Ordinance imposes a tax on any person, association, etc., of 10 centavos per case of 24 bottles of Pepsi-Cola. Pepsi-Cola paid under protest. Pepsi-Cola filed the complaint for the recovery of the total amount paid under protest. Also alleged that the Ordinance is illegal, tax imposed is excessive, and Ordinance is unconstitutional. Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers.
(Note: Other issues were already discussed in earlier classes. Review, because we all know LaLocaKrungKrung is cray cray.) HELD + RATIO: NO 1. Indeed independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion - double taxation, in general, is not forbidden by our fundamental law. (In short, WoN the tax in issue amounts to double taxation, DOUBLE TAXATION is generally allowed by law.) 2. Why was Pepsi-Cola saying that there was double taxation under Ordinance No. 110? (What follows is my own understanding of the case, please use AT YOUR OWN RISK.) The tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. It would seem that the intent was then to levy a tax upon the sale of said merchandise. But as amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks." What happens then is that merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the
ISSUES: WoN the taxation imposed by Ordinance 110, as amended, amounts to double taxation
tax "shall be based and computed from the cargo manifest or bill of lading ... showing the number of cases" not sold but "received" by the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. So. Dealers na sila, agents pa. Two taxes to be paid. (But remember: the Court here annulled the Ordinance because it is discriminatory, violative of the uniformity rule. This is because only sales by agents or consignees of outside dealers would be subject to tax while sales by local dealers, not acting for or on behalf of other merchants, would be exempt from the disputed tax.) Dispositive: WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the latter , with interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It is so ordered. Votes: Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. -Kriszanne THE COLLECTOR (now Commissioner) OF INTERNAL REVENUE, petitioner, vs. MANILA JOCKEY CLUB, INC., respondent. (June 30, 1960| G.R. Nos. L-13887 and L-13890 | En Banc) DOCTRINE:
XXX Tax Involved: Amusement Tax NATURE: The Commissioner (formerly Collector) of Internal Revenue has appealed from two decisions of the Court of Tax Appeals from two decisionsof the Court of Tax appeals disapproving his levy of amusement taxes upon the Manila Jockey Club, a corporation duly organized and authorized to hold horse races in Manila. PONENTE: Bengzon, J. SHORT FACTS (Paraphrase):
Second case.The Manila Jockey Club holds once a year a so called "special Novato race", wherein only horses which are running for the first time in an official club race may take part. Owners of these horses must pay to the Club an inscription fee (P1.00), and a declaration fee per horse (P1.00). In addition, each of them must contribute to a common fund (P10.00 per horse). The Club contributes an equal amount (P10.00 per horse) to such common fund, the total amount of which is added to the 5% participation of horse owners already described herein-above in the first case. (CIR) claims payment, CTA agrees with Manila Jockey Club, CIR elevated the case to the SC. FACTS:
XXX The Secretary's opinion was correct. The Government could not have meant to tax as gross receipt of the Manila Jockey Club the 1/2 % which it directs same Club to turn over to the Board on Races. The latter being a Government institution , there would be double taxation, which should be avoided unless the statute admits of no other interpretation. In the same manner, the Government could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or knew the Club would give, to winning horses and jockeysadmittedly 5%. It is true that the law says that out of the total wager funds 12-1/2 % shall be set aside as the "commission" of the race track owner, but the law itself takes official notice, and actually approves or directs payment of the portion that goes to owners of horses as prizes and bonuses of jockeys, which portion is admittedly 5% out of that 12 1/2% commission. As it did not at that time contemplate the application of "gross receipts" revenue principle, the law in making distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped three items under one common denomination. First case.In (horse) races, betting is made through the sale of tickets to the public. The total amount of bets is called wager funds, which were distributed, pursuant to Executive Order 320 and Republic Act 309, as follows: [in regular races] 87-1/2 as dividends to holders of winning tickets; 12-1/2 as "commission" of the Manila Jockey Club, of which 1/2% was assigned to the Board on Races and 5% was distributed as prizes for owners of winning horses and authorized bonuses for jockeys.
During the period November 1946 to October 1950, the Manila Jockey Club paid amusement tax on its commission abovementioned but without including the 5 1/2% which, as stated, went to the Board on Races and to the owners of horses and jockeys. Under the Internal Revenue Law, sec. 260, the amusement tax was payable by the operator on its "gross receipts." Yet the Manila Jockey Club did not consider as part of its "gross receipts" subject to amusement tax the amounts which it had to deliver to
First case.Manila Jockey Club, according to a special law, must earmark 5 % of earnings from bets to the Board on Races (a government institution). The Collector of Internal Revenue (CIR) demanded a percentage of the said 5% as amusement tax claiming that this is part of the Clubs expenses. Secretary of Justice, as adviser of the Government, agrees with Manila Jockey Club that since the 5% is automatically earmarked to the Board on Races the Club never owned the said 5% and therefore should not pay a percentage of it as amusement tax. CTA agrees with the Club. Hence, CIR elevated the case to the SC.
the Board on Races, the horse owners and the jockeys. In this view it was fully sustained by three opinions of the Secretary of Justice rendered on three different occasions (Opinion No. 345, series of 1941; Opinion No. 249, series of 1952 and Opinion No. 340, series of 1955). Said the Secretary: There is no question that the Manila Jockey Club, Inc. owns only 7-1/2% of the total bets registered by the Totalizer. This portion represents its share or commission in the total amount of money it handles and goes to the funds thereof as its own property which it may legally disburse for its own purposes. The 5% does not belong to the club. It is merely held in trust for distribution as prizes to the owners of winning horses. It is destined for no other object than the payment of prizes and the club cannot otherwise appropriate this portion without incurring liability to the owners of winning horses. It can not be considered as an item of expense because the sum used for the payment of prizes is not taken from the funds of the club but from a certain portion of the total bets especially earmarked for that purpose. In view of all foregoing, I am of the opinion that in the submission of the returns for the amusement tax of 10% (now it is 20%) of the "gross receipts", provided for in section 260 of the National Internal Revenue Code, the 5% of the total bets that is set aside for prizes to owners of winning horses should not be included by the Manila Jockey Club, Inc. Notwithstanding the opinion of the legal adviser of the Government, in October 1955, the Collector of Internal Revenue demanded payment of amusement taxes amounting to P401,173.20 plus P39,810.00, for the period of November 1946 to October 1950. After resisting the demand and making appropriate representations, the Manila Jockey Club resorted to the Court of Tax Appeals wherein it obtained judgment unanimously reversing the Collector's stand in the matter. XXX Second case.The Manila Jockey Club holds once a year a so called "special Novato race", wherein only "novato" horses, (i.e. horses which are running for the first time in an official [of the club] race), may take part. Owners of these horses must pay to the Club an inscription fee of P1.00 and a declaration fee of P1.00 per horse. In addition, each of them must contribute to a common fund P10.00 per horse. The Club contributes an equal amount (P10.00 per horse) to such common fund, the total amount of which is added to the 5% participation of horse owners already described herein-above in the first case. Since the institution of this yearly special novato race in 1950, the Manila Jockey Club never paid amusement tax on the moneys thus contributed by horse owners (P10.00 each) because it entertained the belief that in accordance with the three opinions, of the Secretary of Justice herein-above described, such contributions never formed part of its gross receipts. On the inscription fee of the P1.00 per horse, it paid the tax. It did not on the declaration fee of P1.00 because it was imposed by the Municipal Ordinance of Manila and was turned over to the City officers. The Collector of Internal Revenue required the Manila Jockey Club to pay amusement tax on such contributed fund P10.00 per horse in a special novato race, holding they were part of its gross receipts. The Manila Jockey Club protested and resorted to the Court of Tax Appeals, where it obtained favorable judgment on the same grounds sustained by
said Court in connection with the 5% of the total wager funds in the herein-mentioned first case; they were not receipts of the Club. XXX ISSUE: (a) Should the Manila Jockey Club pay amusement tax on the 5% mentioned? (b) Should the Manila Jockey Club pay amusement tax on the contributions in the Novato races? HELD: (a) NO, The Secretary's opinion was correct. The Government could not have meant to tax as gross receipt of the Manila Jockey Club the 1/2 % which it directs same Club to turn over to the Board on Races. The latter being a Government institution, there would be double taxation, which should be avoided unless the statute admits of no other interpretation. (b) NO, The ten-peso contribution never belonged to the Club. It was held by it as a trust fund. And then, after all, when it received the ten-peso contribution, it at thesame time contributed ten pesos out of its own pocket, and thereafter distributed both amounts as prizes to horse owners. It would seem unreasonable to regard the ten-peso contribution of the horse owners as taxable receipt of the Club, since the latter, at the same moment it received the contribution necessarily lost ten pesos too. REASONING: A. (CIR) cites two opinion of the aforesaid Department Head, particularly Opinion No. 135, series of 1950. But the Department itself in subsequent opinions, explained that there is no conflict between this Opinion No. 135 and the Opinion No. 345 of October 1941. The former made a general statement of the rule about gross receipts (and referred to theater tickets). The latter specifically declared that the 5% reserved to horse owners and jockeys of the Manila Jockey Club should not be included in the computation of gross receipts for purposes of the amusement tax. Thus, for several years, the Executive Department (including previous Collectors of Internal Revenue who at one time or another, attempted to collect on this portion of the "commission" of the Jockey Club, but who had to desist it in view of the Secretary of Justice's opinions), proceeded on the principle that such funds are not included as "gross receipts" of the Jockey Club. As the court a quo holds, such interpretation deserves great weight. More so in this case, because the Legislature has lately amended the law making it clearer, and ordering distribution of the total wager funds. XXX (After) the Secretary of Justice rendered his official Opinion No. 345 (October 1945), "the Club necessarily could not and did not deduct any amount (amusement tax) from the prizes turned over (by it) to the owners of the winning horses. ... It is most unjust and unfair to say the least, for the government (now) to hold the Club liable for amusement tax on funds ... which it turned over without deductions to the parties entitled thereto" relying upon the advice of the Goverment's legal adviser. The Secretary's opinion was correct. The Government could not have meant to tax as gross receipt of the Manila Jockey Club the 1/2 % which it directs same
Club to turn over to the Board on Races. The latter being a Government institution, there would be double taxation, which should be avoided unless the statute admits of no other interpretation. In the same manner, the Government could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or knew the Club would give, to winning horses and jockeys admittedly 5%. It is true that the law says that out of the total wager funds 12-1/2 % shall be set aside as the "commission" of the race track owner, but the law itself takes official notice, and actually approves or directs payment of the portion that goes to owners of horses as prizes and bonuses of jockeys, which portion is admittedly 5% out of that 12 1/2% commission. As it did not at that time contemplate the application of "gross receipts" revenue principle, the law in making distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped three items under one common denomination. Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some person other than the proprietor. The appellants seem to labor under the impression that since the Jockey Club, at least for some time held possession of the money represented by12-1/2 % before paying over 5% to horse owners and jockeys and 1/2% to the Board on Races, the whole 12-1/2% should be considered its gross receipts. However, under the theory, the Club should also pay amusement tax on the 87--1/2% paid as dividends to winning tickets. Yet no claim of amusement tax on that portion has been laid. In fact, the appellant admits that the 871/2% paid as dividends to the winning tickets is "owned" by the holders of winning tickets. If so, there is no reason to hold that the "dividends" or prizes assigned to owners of winning horses are not also "owned" by the latter. These form part of the gross receipts from the sale of tickets (sec. 19, Republic Act 309)not gross receipts of the Club. They are, of course, moneys received by the racing track; but the moneys earmarked by law or regulation for horse owners and jockeys and do not for a single minute become the property of the race track. Indeed, there were reasons for such earmarking. As to the 1/2% for the Board on Races, it is self-evident; to insure its adequate functioning. As to the 5%, probably to give incentives to horse owners to develop a better breed of horses. B. We think the reasons for upholding the Tax Court's decision in the first case apply to this one. The ten-peso contribution never belonged to the Club. It was held by it as a trust fund. And then, after all, when it received the ten-peso contribution, it at thesame time contributed ten pesos out of its own pocket, and thereafter distributed both amounts as prizes to horse owners. It would seem unreasonable to regard the ten-peso contribution of the horse owners as taxable receipt of the Club, since the latter, at the same moment it received the contribution necessarily lost ten pesos too. DISPOSITIVE: Both decisions of the Court of Tax Appeals should be, and are hereby affirmed. No costs. VOTE: Paras, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, and Gutierrez David, JJ., concur. (No Dissents/Separate Opinions)
-Poy 3. Escape from Taxation a. Shifting of tax burden b. Tax Evasion Elements of tax evasion REPUBLIC v GONZALES (April 30, 1965)
NATURE: Appeal from a decision of CFI Manila PONENTE: Regala, J. FACTS: Since 1946, defendant-appellant Gonzales has been a private concessionaire in the US Military Base at Clark. He was engaged in the manufacture of furniture and supplied base authorities with his articles On March 1, 1947 and 1948, he filed his income tax returns for 46 and 47 to the municipal treasurer of Angeles Net Income 1946 1947 Aggregate Sales 9, 352.84 16,829.10 Tax Liability 111.17 1,395.95 Sales 80,459.75 1,707.355.57 1,787.848.32
Upon investigation, the BIR discovered that for 1946 and 1947 Gonzales had been paid P2,199,920.50 for furniture he delivered to the base authorities. Gonzales doesnt deny this since the record was furnished by the Purchasing Officer of Clark Base on BIRs representation. Compared against the sales figures provided by the base authorities, the amount Gonzales declared as his total sales for the 2 years was short of P412,072.18. Thus, appellee considered the 400k as unreported item of income of the appellant for 1946. Further investigation in the profit and loss statement disclosed local sales, sales to persons other than the US Army, in the amount of P124,510.43. Thus, appellee likewise considered this as unreported income for 1946. The whole P124k was considered because Gonzales cant produce books of account upon which any deduction could be based. Adding up these two items, appellee assessed Gonzales P340,179.84.
DOCTRINE: Fraud is a state of mind. It need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation purposes his true and actual income derived from his furniture business for 2 consecutive years is an indication of his fraudulent intent to cheat the government of its due taxes.
-Steph CIR v Estate of Toda, Jr. (September 14, 2004) Doctrine: Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the nonpayment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful. A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. There are, however, certain instances in which personal liability may arise. It has been held in a number of cases that personal liability of a corporate director, trustee, or officer along, albeit not necessarily, with the corporation may validly attach when: 1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons; 2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made, by specific provision of law, to personally answer for his corporate action.
ISSUES/HELD: 1. 2. 3. 1. WON appellant is subject to Philippine tax laws? Yes. WON declaration of default was proper? Yes. WON, based on the facts, appellant is guilty of fraud? Yes. Appellant argues that as a concessionaire in an American Air Base, he is not subject to Philippine tax laws pursuant to the US-Philippine Military Bases Agreement. It is agreed that US shall have right to establish on bases, free of all license, fees, sales, excise or other taxes or imposts, Govt agencies, including concessions xxx for the exclusive use of the US military forces and authorized civilian personnel and their families. The merchandise shall be free or fall taxes, duties xxx The above provision has already been interpreted in Canlas v Republic and Naguiat v JA Araneta. Per the latter case, The provision limits the exemption from licenses, fees and taxes to the right to establish concessions, and their merchandise. The income tax, which is certainly not on the right to establish agencies or on the merchandise or services sold or dispensed thereby, but on the owner or operator of such agencies is logically excluded. Appellant maintains that the rulings are inapplicable since they involved income of public utility operators in the Air Base who were not concessionaires like him. This is unmeritorious. Araneta v Manila Pencil Comp ruled that operators of freight and bus services are within the word concession in the Military Bases agreement. Orders of default lies within the discretion of courts and will not be interfered with either by mandamus or appeal unless a showing of grave abuse can be made against courts. Where absence of a party from trial is due to his own fault, he should not complain that he was denied his day in court. LC did not deem valid defendant-counsels excuse that there was a lack of transpo from his place
RATIO/RULING:
2.
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BIR sent a letter of demand to the appellant for the above amount as deficiency income tax, P300 as compromise for failure to keep his journal and ledger, and P153.75 as additional residence tax, all for 1946. On request of Gonzales, BIR reinvestigated the case but still insisted on the original 340k assessment. Upon review of the Conference Staff of the BIR, they recommended a reduction to P249, 289.26 as deficiency income tax, 50% surcharge for 1946 and 1% monthly interest and penalty incident to delinquency. This was approved by the Bureau. They segregated the liability for the 2 years. Another demand was made on Gonzales for P144,076.33 for 1946 and 1947. When appellant failed to pay, the appellee instituted the present suit. Gonzales filed MTD based on prescription and lack of jurisdiction which was denied. Neither Gonzales nor his counsel appeared during trial, and so he was declared in default. Appellee presented documentary evidence, and the lower court rendered the decision ordering Gonzales to pay deficiency income taxes, plus 50% surcharge and 1% monthly interest on the amount.
3.
in Tondo as there was torrential rain, since counsel for plaintiff, a lady attorney who lived in Sampaloc made it to court. As rightly argued by the SolGen, since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation purposes his true and actual income derived from his furniture business for 2 consecutive years is an indication of his fraudulent intent to cheat the government of its due taxes. In Perez v CA, The substantial undeclaration of income in the ITRs for 4 consecutive years, coupled with his intentional overstatement of deductions made the imposition of the fraud penalty proper.
DISPOSITION: Judgment is affirmed VOTE: Bengzon, Bautista, Angelo, Concepcion, Reyes JBL, Barrera, Paredes, Dizon, Makalintal, Bengzon JP and Zaldivar, concur.
Nature: The petitioner seeks the reversal of the decision of the CA affirming the decision of the CTA which held that the Estate of Toda, Jr. is not liable for the deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount of P79,099,999.22 for the year 1989, and ordered the cancellation and setting aside of the assessment issued by the CIR. Ponente: Davide 1. Cibeles Insurance Corporation (CIC) authorized Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building (in Ayala Avenue, Makati) and 2 parcels of land on which the building stands for an amount of not less than P90 million. 2. (1989) Toda purportedly sold the property for P100 million to Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. 3. (1990) CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of P75,728.021. After crediting withholding taxes of P254,497.00, it paid P26,341,207 for its net taxable income of P75,987,725. 4. (1990) Toda sold his entire shares of stocks in CIC to Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks. Three and a half years later, or in 1994, Toda died. 5. (1994) BIR assessed CIC for deficiency income tax for the year 1989 in the amount of P79,099,999.22. 6. New CIC (owned by Choa) asked for a reconsideration, asserting that the assessment should be directed against the old CIC (owned by Toda), and not against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 19871989. 7. (1995) CIR assessed the Estate of Toda, Jr. for deficiency income tax for the year 1989 in the amount of P79,099,999.22. The Estate filed a letter of protest. 8. CIR dismissed the protest, stating that a fraudulent scheme was deliberately perpetuated by the CIC to evade the higher corporation income tax rate of 35% 9. (1996) Estate filed a petition for review with the CTA. CTA set aside CIR decision for failure of CIR failed to prove that CIC committed fraud to deprive the government of the taxes due it. a. Even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. b. There being no proof of fraudulent transaction, the applicable period for the BIR to assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three years after the last day prescribed by law for the filing of the return. Thus, the governments right to assess CIC prescribed on 15 April 1993. c. The mere ownership by Toda of 99.991% of the capital stock of CIC was not in itself sufficient ground for piercing the separate corporate personality of CIC. 10. CTA denied MR. 11. CA affirmed CTA -- CTA, being more advantageously situated and having the necessary expertise in matters of taxation, is "better situated to determine the
correctness, propriety, and legality of the income tax assessments assailed by the Toda Estate." Petitioners arguments 1. Two transactions actually constituted a single sale of the property by CIC to RMI, and that Altonaga was neither the buyer of the property from CIC nor the seller of the same property to RMI. a. Sale by CIC of the Cibeles property was in connivance with its dummy Altonaga, who was financially incapable of purchasing it. b. Documents themselves prove the fact of fraud i. The two sales were done simultaneously on the same date ii. Deed of Absolute Sale between Altonaga and RMI was notarized ahead of the alleged sale between CIC and Altonaga, both registered in the Notarial Register of Pabelana2 iii. As early as 4 May 1989, CIC received P40 million from RMI, and not from Altonaga. The said amount was debited by RMI in its trial balance as of 30 June 1989 as investment in Cibeles Building. The substantial portion of P40 million was withdrawn by Toda through the declaration of cash dividends to all its stockholders. 2. The additional gain of P100 million (the difference between the second simulated sale for P200 million and the first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC. 3. Since such falsity or fraud was discovered by the BIR only on 8 March 1991, the assessment issued on 9 January 1995 was well within the prescriptive period prescribed by Section 223 (a) of the NIRC of 19863, which provides that. 4. With the sale being tainted with fraud, the separate corporate personality of CIC should be disregarded. Toda, being the registered owner of the 99.991% shares of stock of CIC and the beneficial owner of the remaining 0.009% shares registered in the name of the individual directors of CIC, should be held liable for the deficiency income tax, especially because the gains realized from the sale were withdrawn by him as cash advances or paid to him as cash dividends. Since he is already dead, his estate shall answer for his liability. Respondents arguments: 1. CIR failed to present the income tax return of Altonaga to prove that the latter is financially incapable of purchasing the Cibeles property. 2. CIR erred in holding the Estate liable for income tax deficiency 3. Inference of fraud of the sale of the properties is unreasonable and unsupported 4. Right of the CIR to assess CIC had already prescribed. ISSUES
Altonaga and RMI: Doc. 91, Page 20, Book I, Series of 1989; CIC and Altonaga: Doc. No. 92, Page 20, Book I, Series of 1989, of the same Notary Public 3 Tax may be assessed within ten years from the discovery of the falsity or fraud
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1. 2. 3.
WON this is a case of tax evasion? HELD: YES WON the period for assessment of deficiency income tax for the year 1989 prescribed? HELD: NO WON the Estate is liable for the deficiency income tax of CIC for the year 1989? HELD: YES
8.
Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997)4
WON this is a case of tax evasion? HELD: YES 1. Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. 2. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. 3. RMI was the real buyer: Prior to the purported sale of the Cibeles property by CIC to Altonaga, CIC received P40 million from RMI, and not from Altonaga. That P40 million was debited by RMI and reflected in its trial balance as "other inv. Cibeles Bldg." Also another P40 million was debited and reflected in RMIs trial balance as "other inv. Cibeles Bldg." 4. Altonaga was a mere conduit/dummy: This fact finds support in the admission of respondent Estate that the sale to him was part of the tax planning scheme of CIC. That admission is borne by the records. 5. It is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. 6. The intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion. 7. A sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title.
WON the Estate is liable for the deficiency income tax of CIC for the year 1989? HELD: YES 1. A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. 2. There are, however, certain instances in which personal liability may arise. It has been held in a number of cases that personal liability of a corporate director, trustee, or officer along, albeit not necessarily, with the corporation may validly attach when: a. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons; b. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; c. He agrees to hold himself personally and solidarily liable with the corporation; or d. He is made, by specific provision of law, to personally answer for his corporate action.
Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, and partnerships, no matter how created or organized but not including general professional partnerships, in accordance with the following: Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred thousand pesos; and Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos. 5 Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof .
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WON the period for assessment of deficiency income tax for the year 1989 prescribed? HELD: NO 1. Pertinent provision is Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997)5. In cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be. 2. The fact that 1) Altonaga asked the Opinion of the BIR on the tax consequence of the two sale transactions and 2) that the two sales were openly made with the execution of public documents and the declaration of taxes for 1989 do not negate the existence of fraud. 3. Even assuming arguendo that there was no fraud, we find that the income tax return filed by CIC for the year 1989 was false. It did not reflect the true or actual amount gained from the sale of the Cibeles property.
3. 4.
When the late Toda sold his shares of stock to Choa, he knowingly and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989. When the late Toda undertook and agreed "to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989," he thereby voluntarily held himself personally liable therefor. Respondent estate cannot, therefore, deny liability for CICs deficiency income tax for the year 1989 by invoking the separate corporate personality of CIC, since its obligation arose from Todas contractual undertaking, as contained in the Deed of Sale of Shares of Stock.
January 3, 1976, a deed of exchange was executed between lessors Pacheco and defendant Delpher Trades Corporation whereby the Pachecos conveyed to Delpher the leased property together with another parcel of land also located in Valenzuela for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00 On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco. CFI: Hydro Pipes has the preferential right to acquire the property (right of first refusal) IAC affirmed CFI ISSUE: W/N the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange." NO Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning." Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco coowners; hence the corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity of interest."
DISPOSITIVE: Petition is hereby GRANTED. CA decision reversed and set aside. -Zoilo c. Tax avoidance DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs. INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents. (January 26, 1988) GUTIERREZ, JR., J.: The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract. Briefly, the facts of the case are summarized as follows: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 sq.m. of real estate in Valenzuela April 3, 1974: co-owners leased to Construction Components International Inc. the property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer it to Construction Components International Inc. and be preferred. lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of the Pachecos The contract of lease, as well as the assignment of lease were annotated at the back of the title
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After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof. In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks6 of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." It is significant that the Pachecos took no par value shares in exchange for their properties. The Deed of Exchange of property between the Pachecos and Delpher Tra des Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract. Petition granted, CFI and IAC reversed -Justin YUTIVO SONS HARDWARE CO. v CTA (GR No. G.R. No. L-13203 | Jan 28, 1961) DOCTRINE: NATURE: Petition for review on certiorari PONENTE: Gutierrez David, J. FACTS: Yutivo Sons Hardware Co. (hereafter referred to as Yutivo) is a domestic corporation, organized under the laws of the Philippines, with principal office at 404 Dasmarias St., Manila. Incorporated in 1916, it was engaged, prior to the last world war, in the importation and sale of hardware supplies and equipment. After the liberation, it resumed its business and until June of 1946 bought a number of cars and trucks from General Motors Overseas Corporation (hereafter referred to as GM for short), an American corporation licensed to do business in the Philippines. As importer, GM paid sales tax prescribed by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on its sales to the public.
After the incorporation of SM and until the withdrawal of GM from the Philippines in the middle of 1947, the cars and tracks purchased by Yutivo from GM were sold by Yutivo to SM which, in turn, sold them to the public in the Visayas and Mindanao. When GM left they appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of selling exclusively to SM. In the same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as importer, paid sales tax prescribed on the basis of its selling price to SM, and since such sales tax, as already stated, is collected only once on original sales, SM paid no sales tax on its sales to the public. On November 7, 1950, after several months of investigation by revenue officers started in July, 1948, the Collector of Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as deficiency sales tax plus surcharge. CIR claimed that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being the subsidiary of the latter. (The contention in simpler words: Before GM imported cars sold it to Yutivo who then sold it to SM to be sold for retail. GM paid the sales tax as the importer, Yutivo and SM didnt pay as sales tax is only paid once. GM then stopped operations in the Phil and assigned Yutivo as importer. Yutivo was paying sales tax as importer, selling wholesale exclusively to SM. CIR comes in and says that they should be paying sales tax on the Retail price, as Yutivo and SM are one entity.) ISSUES: WON SM/Yutivo committed tax evasion through fraud? No WON SM and Yutivo had separate juridical personalities? Yes HELD: RATIO/RULING: It should be stated that the intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified by a mere speculation. This is because fraud is never lightly to be presumed. SM was organized and it operated, under circumstance that belied any intention to evade sales taxes. "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private and public documents, constantly subject to inspection by the tax authorities. As a matter of fact, after Yutivo became the importer of GM cars and trucks for Visayas and Mindanao, it merely continued the method of distribution that it had initiated long before GM withdrew from the Philippines. In the third place, sections 184 to 186 of the said Code provides that the sales tax shall be collected "once only on every original sale, barter, exchange . . , to be paid by the manufacturer, producer or importer." The use of the word "original" and the express provision that the tax was collectible "once only" evidently has made the provisions susceptible of different interpretations. In this connection, it should be stated that a
A no-par value share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer in the assets of the corporation. But this character of proportionate interest is not hidden beneath a false appearance of a given sum in money, as in the case of par value shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money, but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the financial condition of a corporation is focused upon the value of assets and the amount of its debts.
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taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. The amount involved, moreover, is extremely small inducement for Yutivo to go thru all the trouble of organizing SM. Besides, the non-inclusion of these small arrastre charges in the sales tax returns of Yutivo is clearly shown in the records of Yutivo, which is uncharacteristic of fraud. However, the Court agreed that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail and maintaining stores for spare parts as well as service repair shops. 1) 2) 3) 4) 5) 6) The founders of the corporation are closely related to each other either by blood or affinity, and most of its stockholders are members of the Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by the leading stockholders of Yutivo headed by Yu Khe Thai. Subscription of shares were credited from Yutivo, and no money actually passed hands. The shareholders in SM are mere nominal stockholders holding the shares for and in behalf of Yutivo, so even conceding that the original subscribers were stockholders bona fide Yutivo was at all times in control of the majority of the stock of SM and that the latter was a mere subsidiary of the former. The cash assets of SM was actually handled by Yutivo.
COMMISSIONER OF INTERNAL REVENUE v LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMA LIFE INSURANCE COMPANY, INC.) and THE COURT OF APPEALS (19 March 2002) Doctrine: Finally, it should be emphasized that while tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the increase in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance) should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured by the policy. Nature: Petition for review on certiorari of a decision of the CA. Ponente: Kapunan, J. Facts: 1. Private respondent Lincoln Philippine Life Insurance Co., Inc. is a domestic corporation registered with the Securities and Exchange Commission and engaged in life insurance business. In the years prior to 1984, private respondent issued a special kind of life insurance policy known as the "Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. The clause was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid by petitioner only on the initial sum assured. In 1984, private respondent also issued 50,000 shares of stock dividends with a par value of P100.00 per share or a total par value of P5,000,000.00. The actual value of said shares, represented by its book value, was P19,307,500.00. Documentary stamp taxes were paid based only on the par value of P5,000,000.00 and not on the book value. Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984 in the amounts of (a) P464,898.75, corresponding to the amount of automatic increase of the sum assured on the policy issued by respondent, and (b) P78,991.25 corresponding to the book value in excess of the par value of the stock dividends. Private respondent questioned the deficiency assessments and sought their cancellation in a petition filed in the Court of Tax Appeals, which ruled for the respondents and cancelled both assessments. Petitioner appealed to the CA which affirmed the CTAs ruling on the insurance policy part but reversed on the stock dividends part. The CTA ruled that the correct basis of the documentary stamp tax due on the stock dividends is the actual value or book value represented by the shares. Both parties appealed. CIR filed the present petition questioning the CAs decision on the insurance policy part. WON the insurance policy is validly assessed as being more than one policy and hence subject to deficiency tax assessment.
SM being merely an instrumentality of Yutivo, the sales tax should be paid on the Retail sale to the public. We find merit, however, in petitioner's contention that the Court of Tax Appeals erred in the imposition of the 5% fraud surcharge. As already shown in the early part of this decision, no element of fraud is present. Pursuant to Section 183 of the National Internal Revenue Code the 50% surcharge should be added to the deficiency sales tax "in case a false or fraudulent return is willfully made." Although the sales made by SM are in substance by Yutivo this does not necessarily establish fraud nor the willful filing of a false or fraudulent return. Yutivo and SM was a single entity but their payment of Sales tax was not seen to be fraudulent. DISPOSITION: IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under review is hereby modified in that petitioner shall be ordered to pay to respondent the sum of P820,549.91, plus 25% surcharge thereon for late payment. So ordered without costs. VOTE: EN BANC. Bengzon, Labrador, Concepcion, Reyes, J.B.L., Barrera and Paredes, JJ., concur. Padilla, J., took no part. -Miggy Issue: 1. 4. 2.
3.
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Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase clause" already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age. It is clear from Section 1737 that the payment of documentary stamp taxes is done at the time the act is done or transaction had and the tax base for the computation of documentary stamp taxes on life insurance policies under Section 1838 is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary measurement.7 What then is the amount fixed in the policy? Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever increases will take effect in the future by reason of the "automatic increase clause" embodied in the policy without the need of another contract. Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever increases will take effect in the future by reason of the "automatic increase clause" embodied in the policy without the need of another contract.
Dispositive: The petition is hereby given DUE COURSE. The decision of the Court of Appeals is SET ASIDE. Vote: FIRST DIVISION. Davide, Jr., C.J. and Ynares-Santiago, J., concur. Puno, J., on official leave. -Wiggy d. Exemption from taxation i. Meaning of exemption from taxation GREENFIELD v. MEER Milton Greenfield, appellant v. Bibiano Meer, appellee Doctrine: [An] exemption would have to be deducted from the gross income in order to determine the net income subject to tax Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected. Date: September 27, 1946 Nature: Appeal from judgment of CFI against plaintiff Greenfield Ponente: Feria, J. Facts: This is a case for refund of taxes allegedly wrongly disallowed by defendant Commissioner of Internal Revenue. The relevant issue for our purposes is the method of computing the exemptions in relation to the tax on net income. The facts are as follows: Plaintiff is engaged in the embroidery business since 1933. On 1935, he began engaging in buying and selling mining stocks and securities for his own exclusive account and not for the account of others. Plaintiff does not have an established place of business for the purchase and sale of mining stocks.
Sec. 173. Stamp taxes upon documents, instruments and papers. - Upon documents, instruments, loan agreements, and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following section of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted, or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. (As amended by PD No. 1994) The basis for the value of documentary stamp taxes to be paid on the insurance policy is Section 183 of the National Internal Revenue Code which states in part: 8 Sec. 183. Stamp tax on life insurance policies. - On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected a documentary stamp tax of thirty (now 50c) centavos on each Two hundred pesos per fractional part thereof, of the amount insured by any such policy.
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Held & Ratio: 1. Yes. Petitioner claims that the "automatic increase clause" in the subject insurance policy is separate and distinct from the main agreement and involves another transaction; and that, while no new policy was issued, the original policy was essentially re-issued when the additional obligation was assumed upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment based on the additional insurance not covered in the main policy is in order. Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument in which a contract of insurance is set forth.5 Section 50 of the same Code provides that the policy, which is required to be in printed form, may contain any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance.6 It is thus clear that any rider, clause, warranty or endorsement pasted or attached to the policy is considered part of such policy or contract of insurance.
Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy. (ITO LANG ANG RELEVANT SA TOPIC) Finally, it should be emphasized that while tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the increase in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance) should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured by the policy.
Plaintiff filed an income tax return for 1935 showing that he made a net profit of P52,449.29 on his embroidery business, P17850 on dividends from various corporations; and a net loss of P67,807.80 from the purchase and sale of mining stocks and securities. o Relevant: for the purchase and sale of said stocks: Profit of P10,741.30 and losses in the amount of P78,049.10 = net loss of P67,307.80 Plaintiff claims said P67,807.80 as allowable deductions representing net loss sustained in the conduct of his trade or business. Defendant on the other hand, disallowed said item of deduction on the ground that said losses were sustained from the sale of mining stocks and securities which are capital assets. Hence, it should be allowed only to the extent of the gains from such sales, which was already taken into consideration in the computation of the alleged net loss. Defendant assessed plaintiff in the following manner: Net income as per return of plaintiff for P70,299.29 1939 Add: Net Loss on sale of mining stocks and P67,307.80 securities disallowed in audit Total net income as per office audit ========= Amount of tax on net income as per office P13,821.06 audit Less: Tax on exemptions: Personal exemption Additional exemption Total Tax on exemption Net amount of tax due ========= P2,500.00 P1,000.00 P3,500.00 P50.00 P13,771.06 P137,607.09
Whether, under the present law, the personal and additional exemptions granted by section 23 of the same Act, should be considered as a credit against or be deducted from the net income, or whether it is the tax on such exemptions that should be deducted from the tax on the total net income. o Old law: the personal and additional exemptions are subtracted from the total net income, before the tax is determined; o New law (as interpreted by defendant CIR): The exemptions are added, and the tax on said total exemptions is then subtracted from the tax due on the total net income. They are capital losses. The losses do not fall within the meaning of losses "incurred in trade or business" under Section 30 (D) (1) (a) of CA No. 446. The National Assembly defined beforehand in section 84 (t) of said law who may be considered as persons engaged in the trade or business of buying and selling securities within the meaning of the phrase "incurred in trade or business" used in section 30 (d) (1) (A), in order to avoid any question or doubt as to deductibility of all losses incurred by a merchant in securities from his net income from whatever source. o Section 84 (t): The term "dealer in securities" means a merchant of stocks or securities, whether an individual, partnership, or corporation, with an established place of business, regularly engaged in the purchase of securities and their resale of customers; that is, one who as a merchant buys securities and sells them to customers with a view to the gains and profits that may be derived therefrom. o Appellant cites Opinion No. 1818 of the US Internal Revenue Service, to support the definition of trade or business to comprehend "all his activities for gain, profit, or livelihood, entered into with sufficient frequency, or occupying such portion of his time or attention as to constitute a vocation." But even with this more liberal interpretation, it has been uniformly held that the rule is, where a taxpayer devoted all his time, or the major portion of it, to buying and selling securities on his own account, this occupation was his "business"; and therefore he was permitted to deduct losses sustained in such dealings as being "incurred in his business." o Even in the said opinion, appellant can not be considered as having been engaged in the business of buying and selling securities within the meaning of section 30 (d) (1) (A) of Act No. 466. According to said opinion, in order that he may so be considered, it is necessary that he must devote all his time or at least a major portion thereof to said business and that the latter must be regularly carried on by him. o Appellant has not been continuously engaged in selling securities, his primary business being that of embroidery. There is nothing therein to show that plaintiff and appellant has regularly devoted all his time or the major portion thereof to the business of buying and selling mining securities for his own account. On the contrary, it having been stipulated that he has been continuously engaged in the embroidery business during the same time, it necessarily follows that he has not and could not have devoted regularly all his time or a major portion thereof to the buying and selling of mining securities.
Held:
Plaintiff objected to the assessment of P13,771.06 as shown above, claiming from the defendant the refund of P9,008.14 or in the alternative case P475.
Issues: Whether the losses sustained by the plaintiff from the buying and selling of mining securities during the year 1939 are losses incurred in trade and business, deductible under section 30 (d) (1)(A) of Commonwealth Act No. 466; or whether they are capital losses from sales of capital assets which shall be allowed only to the extent of the gains from such sales under section 34 of the same Commonwealth Act No. 466. o If incurred in trade and business: allowed deduction o If capital losses from sales of capital assets: allowed only to the extent of gains, in other words, the P67,307.80 should be taxed
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Section 7, old Tax Code: For the purpose of the normal tax only, there shall be allowed as an exemption in the nature of a deduction from the amount of the net income... Section 23, new Tax Code: For the purpose of the tax provided for in this Title there shall be allowed the following exemptions...
Disposition: Appeal granted in part, CIR ordered to refund appellant the sum of P475 claimed in the second cause of action. Voting: 7-2 (2 Justices concurring in part (Issue 1) and dissenting in part) -Sandra CIR v. Magsaysay Lines, Inc. July 18, 2006 | Ponente: Tinga, J. NOTES Case discussion VAT: VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage End user of the consumer goods or services ultimately shoulders the tax. o The final purchase by the end consumer represents the final link in a production chain that itself involves several transactions and several acts of consumption. VAT system assures fiscal adequacy through collection of taxes on every level of consumption, yet assuages the manufacturers or providers of goods and services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability.
Court: the change in language did not result to any change in interpretation. The old system prevails. Legislative history: the National Assembly, instead of adopting or incorporating said proposed section 22 in the National Internal Revenue Code, C. A. No. 466, copied substantially in section 23 of the latter provision of section 7 of the old law relating to personal and additional exemptions, with the only modification that the amount of personal exemption of single individuals has been reduced... If it were the intention of the National Assembly to adopt the "Wisconsin plan" proposed by the tax Commission, it would have adopted literally, or at least substantially, the provisions of said section 22 as section 23 of Commonwealth Act No. 466, instead of substantially incorporating section 7 of the old Income Tax Law as section 23 of the new Tax Code. It should be remembered that condensation is a necessity in the work of compilation or codification. Very frequently words which do not materially affect the sense will be
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The old interpretation prevails. The National Assembly in legislating the new NIRC did not intent to change the prevailing system of crediting tax deductions. Change of phraseology alone does not lead to the conclusion that it was the intention of the lawmaker to amend or change the constructions of the old law as contended by the appellee. It is a well-established rule "that in the revision of statutes, neither an alteration in phraseology nor the omission or addition of words in the latter statute, shall be held, necessarily, to alter the construction of the former act. And the court is only warranted in holding the construction of a statute, when revised, to be changed, where the intent of the legislature to make such change is clear, or the language used in the new act plainly requires such change of construction..." o Appellant's contention (same with the reasoning of the lower court): The omission in section 23 of Act No. 466 of the phrase "in the nature of a deduction" found in section 7 of the old law, shows that it was the intention of the National Assembly to adopt the innovation proposed by the Tax Commission, based on what is known as the "Wisconsin Plan" now in operation in several American states. Under said plan, the cumulative amount of the tax is fixed on any given amount of net income without regard to the status of the taxpayer, and then this amount is reduced by the tax credit fixed in the law according to the status of the taxpayer and the number of his dependents. (refer to the new interpretation above)
omitted from the statutes as incorporated in the code, or that same general idea will be expressed in briefer phrases. No design of altering the law itself could rightly be predicated upon such modifications of the language. [The discussion about definition of exemption is only peripheral in the discussion that the legislature did not intend to change the prevailing tax system. Here is the part]: The mere fact that the phrase "in the nature of a deduction" found in section 7 of the old law was omitted in section 23 of the new or National Internal Revenue Code did not and could not effect any change in the law. It is evident that said phrase was added or inserted in said section 7 only out of extreme caution, because, even without it, the exemption would have to be deducted from the gross income in order to determine the net income subject to tax. Had the provision in the old law been drafted in exactly the same term as that of said section 23, the same construction should have been adopted. Because "Exception is an immunity or privilege; it is freedom from a charge or burden to which others are subjected." (Florar vs. Sherifan, 137 Ind., 28; 36 N. E., 365, 369.) If the amounts of personal and additional exemptions fixed in section 23 are exempt from taxation, they should not be included as part of the net income, which is taxable. There is nothing in said section 23 to justify the contention that the tax on personal exemptions (which are exempt from taxation) should first be fixed, and then deducted from the tax on the net income.
Not a singular-minded tax on every transactional level but the assessment bears direct relevance to the taxpayers role or link in the production chain.
ISSUE Whether the sale by the NDC of the five vessels to respondents is subject to valueadded tax. NOT SUBJECT TO VAT. [For the Courts discussion on the nature of VAT, refer to the Note s above] Court referred to SECTION 99 of Tax Code = VAT is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. Sale of the vessels was not in the ordinary course of trade or business of NDC; it was an isolated transaction, even involuntary because of the declared policy of the Government for privatization. [cited Imperial v. CIR] carrying on business does not mean the performance of single disconcerted act by means conducting, prosecuting and continuing business by performing progressively all the acts normally incident thereof. doing business conveys the idea of business being done not from time to time but all the time course of business is what is usually done in the management of trade or business. ON THE TOPIC OF TAX EXEMPTION
BIR: 1. 2. VAT Ruling 568-88 sale of vessels was subject to 10% VAT ; NDC was a VATregistered enterprise VAT Ruling 007-89 reiterated the earlier rulings By virtue of the VAT Rulings, NDC drew on the Letter of Credit to pay for VAT in the amount of P15.120M -
CTA: Sale not subject to VAT Sale of a vessel was an isolated transaction not done in the ordinary course of NDCs business Sec. 99 of the Tax Code is applied only to sales in the course of trade or business Sale of vessels could not be deemed sale by virtue of Section 100(b) because the transaction did not fall within the enumeration Any case of doubt should be resolved in favor of private respondent since Sec. 99 of the Tax Code which implemented the VAT is not an exemption provision BUT a classification provision = warranted the resolution of doubts in favor of the taxpayer. CA: Reversed the CTA Transaction fell within the classification of those deemed sale under R.R. 5 -87 since the sale brought about a change of ownership in NMC. Applied the principle governing tax exemptions that such should be strictly construed against the taxpayer and liberally in favor of the government. Upon MR, CA Reversed itself Change of ownership of business must be a consequence of the retirement from or cessation of business by the owner of goods,as provided in Section 10. Classification of transactions deemed sale was a classification statute and NOT an exemption statute thus warranting the resolution any doubt in favor of taxpayer. -
Section 100 of the Tax Code which is implemented by Section 4 (E)(i) of R.R. No. 5-879 should be read in light of Section 9910 o That Sec. 99 is the very first provision in the Title IV of Tax Code covering VAT = before any part of Sec 100 or the rest of the law may be applied to subject a transaction to VAT, it must first be satisfied that the taxpayer and transaction is liable for VAT under Sec. 99 o What Sec. 100 and Sec. 4(E)(i) elaborate on is not the meaning of in the course of trade or business but instead the identification of transactions which may be deemed as sale. It would become necessary to ascertain whether under those two provisions the transaction may be deemed a sale, only if it is settled that the transaction occurred in the course of trade or business in the first place. Given the undisputed finding that the transaction in question was not made in the course of trade or business of the seller, the sale is NOT subject to VAT pursuant to Sec. 99, no matter how the sale may hew to those transactions deemed sale under Sec. 100. -Mae
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Captioned Value-added tax on sale of goods reads there shall be levied, assessed and collected on every sale, barter or exchange of goods a value added tax 10 Sec 99 lays down the general rule on which persons are liable for VAT
FACTS National Development Company (NDC) decided to sell to private enterprise all its shares in the National Marine Corporation (NMC) including five of its ships. The shares and vessels were offered for public bidding. One of the terms and conditions for the public bidding was that the winning bidder was to pay a value added tax of 10% of the value of the vesels. Magsaysay Lines, Inc. was the winning bidder who offered to buy the shares and vessels for P168M. The bid was for a new company to be foremd by Magsaysay, Baliwag Navigation and FIM Group. September 1988 Implementing Contract of Sale executed between NDC as seller and Magsaysay, Baliwag, FIM as purchasers. o Sycip (on behalf of the buyers) filed a formal request for a ruling with the BIR on whether or not the sale of the vessels was subject to VAT. o Irrevocable Letter of Credit was accepted by NDC as security for payment of VAT in case the BIR ruled against the Magsaysay, et.al.
ii. Compared with/differentiated from other terms (a) Tax remission/tax condonation
JUAN LUNA SUBDIVISION v. M. SARMIENTO (May 28, 1952) JUAN LUNA SUBDIVISION, INC., plaintiff-appellee, vs. M. SARMIENTO, ET AL., defendants-appellants.
In light of Commonwealth Act No. 70311 granting certain tax remissions, whether or plaintiff (Juan Luna Subdivision) is entitled to the refund of the entire amount of the check drawn by the plaintiff. OR ALTERNATIVELY: Does CA 703 cover 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?
DOCTRINE: NATURE: This is an appeal from the judgment of the lower court PONENTE: TUASON, J. FACTS: 1. On December 29, 1941 the plaintiff issued to the City Treasurer of Manila, and the City Treasurer accepted checks for P2,210.52 drawn upon the Philippine Trust Company. This check was to be applied to plaintiff's land tax for the second semester of 1941 the exact amount of which was yet undetermine and so it was entered in the ledger as deposit by the taxpayer. 2. On February 20, 1942, presumably after the exact amount had been verified, which was P341.60, the balance of P1,868.92, covered by voucher No. 1487 of the City Treasure's office, was noted in the ledger as a credit to the Juan Luna Subdivision, Inc. The records of the City Treasurer's office do not show what was done with the check. But the books of the Philippine Trust Company do reveal that it was deposited with the Philippine National Bank, the City Treasurer's sole depository, on December 29, 1941, and that it was presented by that Bank to the Philippine Trust Company on May 1, 1944 and was cashed by the drawee. 3. Manuel F. Garcia, Assistant Treasurer of the Philippine Trust Company, testified that soon after his bank was authorized in March, 1942, to reopen for business (it had been closed by order of the Japanese military authorities,) it received from the Philippine National Bank a bundle of checks, These include the appellees check, drawn upon the Philippine Trust Company before the Japanese occupation and held in abeyance by the Philippine National Bank pending resumption of operation by the Philippine Trust Company; that these checks, including the appellee's check, were accepted and the amounts thereof debited against the respective drawer's accounts; that with respect to check No. 628334, the operation was effected on May 1, 1944. 4. The City refused after liberation to refund the plaintiff's deposit or apply it to such future taxes as might be found due, while the Philippine Trust Company was unwilling to reverse its debit entry against the Juan Luna Subdivision, Inc. 5. Juan Luna Subdivision, Inc. brought this suit against the City Treasurer and the Philippine Trust Company as defendants in the alternative. ISSUES: (1) Which of the two defendants (City Treasurer of Manila or the Philippine Trust Bank) is liable for plaintiff's check? (2) (RELEVANT ISSUE)
COURT: HELD: That the plaintiff's check was deposited by the City Treasurer with the Philippine National Bank, and the latter was paid the cash equivalent thereof by the Philippine Trust Company, admits of no doubt. The entries in the books of the latter bank are not in the least impugned. Whether the City Treasurer was paid that amount by the Philippine National Bank or given credit for it, the City Treasurer would neither admit nor deny. From the fact that the Philippine National Bank was open throughout the Japanese occupation and the other facts heretofore admitted or not denied, it is to be presumed that the Philippine National Bank credited the City Treasurer with the amount of the check in question, and that the City Treasurer, taking ordinary care of his concerns, withdrew that amount. This is in accordance with the presumption that things happened according to the ordinary course of business and habits. The burden is on the City Treasurer, not on the plaintiff, to rebut these presumptions. What became of the check or where the money went is a matter between the City Treasurer and the Philippine National Bank.
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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.
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HELD/RATIO/RULING: (1) CITY TREASURERs CONTENTION His office was not benefited by the check. He denies that the said check was cashed "or rather there was no proof that it was." The courts finding that sum P2,210.52 was in fact and in truth added to the actual cash of the Treasurer of the City of Manila is based on conjectures and surprises without any support of pertinent and competent proof The special ledger sheet of the City Treasurer simply showed that some accounting transaction in the book value was done or accomplished but these accounting processes did not show that actual payment had been made (by the Philippine National Bank) to the City Treasurer, and that the City Treasurer had in effect received said amount represented by said checks
The drawer of the check had funds on deposit to meet it; the City Treasurer accepted it and deposited it with the Philippine National Bank, and the Philippine National Bank, collected the equivalent amount from the drawee Bank. If the City Treasurer did not collect his credit from the Philippine National Bank or otherwise make use of it, he alone was to blame and should suffer the consequences of his neglect. That the City Treasurer held the check merely in trust for plaintiff does not alter the situation as far as his branch of the case goes.
COURT HELD: There is no ambiguity in the language of CA 703 and it only covers taxes which have not yet been paid. The plaintiff is entitled to the refund of the balance of the check deposited (P1,868.92), which were in effect held in trust by the City treasurer, but not the P341.60 it already paid for. 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" means to desist or refrain from exacting, inflicting, or enforcing something as well as to restore what has already been taken. We do not see that literal interpretation of Commonwealth Act No. 703 runs counter and does violence to its spirit and intention, nor do we think that such interpretation would be "constitutionally bad" in that "it would unduly discriminate against taxpayers who had paid in favor of delinquent taxpayers." The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. They are not. As to the justice of the measure, the confinement of the condonation to deliquent taxes was not without good reason. The property owners who had paid their taxes before liberation and those who had not were not on the same footing on the need of material relief. It is true that the ravages and devastations wrought by was operations had rendered the bulk of the people destitute or impoverished and that it was this situation which prompted the passage of Commonwealth Act No. 703. But it is also true that the 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 military notes, many of them at a time when those notes were well-nigh worthless. To refund those taxes with the restored currency, even if the Government could afford to do so, would be unduly to enrich many of the payers at a greater expense to the people at large.
-David SURIGAO CONSOLIDATED MINING Co., INC. vs COLLECTOR OF INTERNAL REVENUE (December 26, 1963) Doctrine: The condonation of a tax liability is equivalent and is in the nature of tax exemption. Being so, it should be sustained only when expressed in explicit terms and it cannot be extended beyond the plain meaning of those terms. It is the universal rule that he who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be mistaken. Tax Involved: excise tax specifically, ad valorem tax on minerals Excise tax: tax imposed on certain specified goods or articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines. Ad valorem: tax imposed and based on selling price or other specified value of the good. Nature: Petition for review of a decision of the Court of Tax Appeals Ponente: Regala J. Facts: Before the outbreak of World War II, petitioner was operating its mining concessions in Mainit, Surigao. Pursuant to Section 246 of the NIRC, which prescribes the time and manner of payment of royalties or ad valorem taxes, it filed a bond and had been regularly filing its returns for minerals removed from its mines during each calendar quarter and paying ad valorem tax thereon within 20 days after the close every quarter. The computation of the ad valorem tax as based on the market value of the minerals set forth in the returns, subject to adjustments upon the receipt of
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(2) JUAN LUNA SUBDs CONTENTION: The plaintiff claims the whole amount of the check contending that taxes for the last semester of 1941 have been remitted by Commonwealth Act No. 703.
Also, the process of refunding would entail a tremendous amount of work and difficulties, what with the destruction of tax records and the great number of claimants who would take advantage of such grace. PLAINTIFFS LAST CONTENTION: the check was in the nature of deposit, held trust by the City Treasurer, and that for this reason, plaintiff's taxes are to be regarded as still due and payable. This argument is well taken but only to the extent of P1,868.92. The amount of P341.60 as early as February 20, 1942, had been applied to the second half of plaintiff's 1941 tax and become part of the general funds of the city treasury. From that date that tax was legally and actually paid and settled.
DISPOSITION: The appealed judgment should, therefore, be modified so that the defendant City Treasurer shall refund to the plaintiff the sum of P1,868.92 instead P2,210.52, without costs. It is so ordered. VOTE: EN BANC; Paras, C.J., Feria, Pablo, Bengzon, Montemayor, Bautista Angelo and Labrador, JJ., concur.
SECTION 1. Any provision of existing law to the contrary notwithstanding:
(d) All unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or concessions existing and in force on January first, nineteen hundred and forty-two, and which minerals were lost by reason of the war or circumstances arising therefrom, are hereby condoned: Provided, That if said minerals had been or shall be recovered by the miner or producer, such royalties, ad valorem or specific taxes on the same shall be immediately due and demandable. Petitioners contention: Since the law condones the taxes due from taxpayers who failed to pay their taxes, it would be unfair to deny this benefit to those taxpayers who had been prompt in paying theirs. SC: The aforequoted section clearly refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of a tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. It is the universal rule that he who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be mistaken. (Statutory Construction by Francisco, citing Government of P. I. v. Monte de Piedad, 25 Phil. 42.) Petitioner having failed to point to Us any portion of the law that explicitly provides for a refund of those taxpayers who had paid their taxes on the items and under circumstances mentioned in the abovequoted provision, We are constrained to hold that the benefits of said provision does not extend to it.
Issues: Whether or not Surigao Consolidated is entitled to the refund of ad valorem tax in the total amount of P17,051.14, itemized as follows: 1. Ad valorem tax on minerals removed from the mines but allegedly lost in transit on account of war P1,191.46
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the smelter returns showing the actual market value of the minerals shipped to the United States. Due to the interruption of the communications at the outbreak of the war, the principal office of Surigao Consolidated lost contact with its mines and never received the production reports for the 4th quarter of 1941. In order to void incurring any tax penalty, petitioner deposited a check in the amount of Php27,000 on January 19, 1942 payable to and indorsed in favor of the City Treasurer of Iloilo in payment of the ad valorem taxes for the 4th quarter of 1941. After the termination of the war, Commonwealth Act No. 722 was enacted, which provided for the filing of returns for minerals removed during the last quarter of 1941 up to December 31, 1945 and the payment of ad valorem tax on said minerals to February 28, 1946. Availing of the provisions of the aforementioned Act, the Surigao Consolidated, on December 28, 1945, ad valorem tax returns for the fourth quarter declaring as its tax liability the amount of P43,486.54. Applying the amount of P27,000.00 previously deposited with the City Treasurer of Iloilo, the returns indicated an unpaid balance of P16,486.54 as the " tax subject to revision." However, on February 26, 1946, the Surigao Consolidated filed an amended ad valorem tax returns under which amendment it declared a reduced ad valorem tax in the amount of P37,189.00. And crediting itself with the amount of P27,000.00 previously deposited with the City Treasurer of Iloilo, it paid the remaining balance of P10,189.00. On September 24, 1946, the Surigao Consolidated again filed a statement of adjustment allegedly containing figures and data of the complete smelter returns for minerals shipped to the United States. In the accompanying letter, a request was made, this time not only for the reduction of tax, but for the refund of the amount of P18,107.87. On October 19, 1946, another statement of adjustment was filed reducing the claim for refund to P17,158.01. Finally, on March 15, 1947, a third statement of adjustment was submitted further reducing the claim for refund to the amount of P 17,051.14. Collector of Internal Revenue: denied the request for the refund of P17,051.14 on the ground that the money already paid as ad valorem tax was legally due to the Government. Surigao Consolidated instituted with the Court of First Instance of Manila civil action for its recovery. However, upon the enactment of Republic Act No. 1125 creating the Court of Tax Appeals, the case was remanded to the latter court for proper disposition. Court of Tax Appeals: denied the claim for refund after finding that the amount sought to be refunded has been lawfully collected. Surigao Consolidated filed a motion for new trial on the ground that the decision was "not justified by the overwhelming weight of evidence" and that it was contrary to law. CTA: denied the motion. Hence, this petition for review.
2. Ad valorem tax on minerals extracted from the mines but allegedly looted during the Japanese occupation 3. Alleged overpayment of ad valorem tax on minerals shipped to the United States
15,609.73 249.95
P17,051.14 Held: NO. Item 1: Petitioners claim for refund in the amount of P1,191.46 representing the amount of ad valorem tax paid on minerals removed from the mines but alleged to have been lost in transit on account of the war. The refund is sought under section 1 (d) of Republic Act No. 81, which provides as follows:
Even assuming arguendo that the provisions of Republic Act No. 81 authorizes the refund of taxes already paid by petitioner, the latter would not still be entitled because petitioner's evidence did not sufficiently establish that the minerals were in fact lost. Petitioner only offered testimony of witnesses who did not have personal knowledge of the circumstances which gave rise to the loss of the said items. ITEM No. 2: Petitioner seeks to recover the amount of P15,609.73 representing the ad valorem tax paid on minerals extracted from its mines but alleged to have been looted during the enemy occupation. SC: We find no reason to disturb the above findings of the Court of Tax Appeals, there being no showing that they are not substantiated by the evidence. CTA ruled as follows: We are again confronted with the case where plaintiff has, to our mind, failed to present adequate evidence to prove such loss. The evidence, if at all, is merely limited to the general and uncorroborated statements of plaintiff's officers that the same were lost in the mines. These testimonies cannot be taken on their full face value, especially because they had no direct supervision over the handling of such minerals at the time of the alleged loss. Much less had these officers have personal knowledge of the loss. Under the circumstances, we cannot make the finding that the minerals were in fact lost. With this observation, it would be useless ceremony to delve into the issue of whether ad valorem tax should be or should not be paid on minerals extracted from the mines but not removed therefrom. Item 3: Petitioners alleged overpayment of ad valorem tax in the amount of P249.95 on the minerals shipped to the United States. Petitioners contention: An ad valorem tax in the amount of P20,387.81 was originally paid on the minerals shipped to the United States with a gross value of P410,299.49; that the smelter returns from the United States show that the actual market value of the minerals shipped to the States was P416,895.28; and that after deducting all allowable deductions amounting in all to P1,828,34, the true and correct amount of ad valorem tax on said minerals was P20,137.86. Therefore, petitioner is entitled to claim the difference between the amount of P20,387.81 and P20,137.86 as overpayment. SC: It is not disputed that, as indicated above, the amount of ad valorem tax on the minerals shipped to the United States is subject to adjustment upon the receipt of the smelter returns showing their actual market value. Petitioner contends that the statements of adjustment alleged to contain the figures and data set forth in the smelter returns are adequate evidence of the actual market value of the minerals shipped to the United States. The best evidence of the actual market value minerals shipped to the United States are the smelter returns themselves. These returns are admittedly petitioner's possession, but for unknown reasons, petitioner failed to produce them during the trial. As there is no credible and satisfactory explanation for the non-production of said returns, there
arises the presumption that if produced they would be adverse to petitioner. Under the circumstances, the Court of Tax Appeals cannot be said to have committed error, much less abused its discretion, in refusing to give any probative value statements of adjustment. It is a settled doctrine that in a suit for the recovery of the payment of taxes or any portion thereof as having been illegally or erroneously collected, the burden is upon the taxpayer to establish the facts which show the illegality of the tax or that the determination thereof is erroneous. In this case, petitioner failed to show that the amount of taxes sought to be refunded have been erroneously collected.
Vote: Bengzon, C.J., Padilla, Bautista, Labrador, Concepcion, Reyes, Barrera, Paredes, Dizon, and Makalintal concur. Concurring/Dissenting Opinion: None. -Dana (b) Tax amnesty Commissioner vs. Court of Tax Appeals GR 108358, 20 January 1995 Third Division, Vitug (J): 4 concur Facts: On 22 August 1986, Executive Order 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donors taxes and taxes on business for the taxable years 1981 to 19985. Availing itself of the amnesty, ROH Autoparts Philippines Inc. filed its Tax Amnesty Return and paid the corresponding amnesty taxes due. The Company requested that the deficiency tax notice (13 August 1986 worth P1,410,157.71 assesed from 1981) be cancelled and withdrawn as it has availed of the tax amnesty. The Commissioner denied the request, construing that the amnesty coverage include only assessments issued by the BIR after the promulgation of EO41 and not to assessments theretofore made. Issue: Whether the assessment can withstand effects of tax amnesty. Held: A tax amnesty, being a general pardon or intentional overlooking by the state its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the government itself of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, to give tax evaders, who wish to relent and are willing to reform a chance to forso and thereby become a part of the new society with a clean slate. Section 4 of EO 41 enumerated, in no uncertain terms, taxpayers who may not avail to the amnesty granted. The company does not fall under any of the exceptions. The added exception urged by the Commissioner based on Revenue Memorandum Order
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Disposition: The decision appealed from is hereby affirmed.
4-87, further restricting the scope of the amnesty, work against the raison detre of EO 41 and clearly amounts to an act of administrative legislation contrary to the mandate of the law which the regulation ought to implement. The rule in the order that only assessments issued after 21 August 1986 shall be abated is beyond the contemplation of the law. Notes: EO 41 was promulgated through the legislative powers of Cory Aquino Please look at the law in the case. -Kester Republic v. IAC and Sps. Pastor 26 April 1991 | Ponente: Grino-Aquino, J. Notes: 1. On Tax Amnesty general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate 2. This case also reiterated the principle that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of the taxpayer, for taxes, being burdens are not to be presumed beyond what the applicable statute expressly and clearly declares. RP filed a case in the CFI to collect from Sps. Antoion and Clara Pastor, deficiency income taxes for years 1955-1959 amountng to P17,117.08 + 5% surcharge + 1% monthly interest and costs. Sps Pastors defense in their Answer: there was an assemssment but no liability therefor they availed of the tax amnesty under PD Nos. 23, 213 and 370 and paid corresponding amnesty taxes that Government is in estoppel to demand and compel further payment of income taxes
Tax amnesty payment was made by defendants under PD 213, hence it had the effect of remission of the Income Tax deficiency PD 213 did not make any exceptions nor impose any conditions for application. Revenue Regulation 7-73 which excludes taxpayers is null and void because there was nothing in the LOI which can be construed as authority for the BIR to introduce exceptions
SC Petition is devoid of merit PD 213 not merely granted an exemption but an amnesty for their past tax failings The Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. [Kindly refer to Notes above for the Courts discussion on tax amnesty] -Mae PEOPLE V. CASTAEDA G.R. No. 180197 23 June 2009
People of the Philippines, petitioner v. Hon. Mariano Castaeda, Jr., Judge of the Court of First Instance of Pampanga, Branch III, Vicente Lee Teng, Priscilla Castillo vda. De Cura, and Francisco Valencia, respondents.
FACTS
Feliciano, J. DOCTRINE: A tax amnesty, much like to a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. NATURE: Petition for Certiorari and Mandamus FACTS: Sometime in 1971, 2 informants submitted sworn information under Republic Act No. 2338 ("An Act to Provide for Reward to Informers of Violations of the Internal Revenue and Customs Laws" to the BIR concerning alleged violations of provisions of the Internal Revenue Code committed by the private respondents Following an investigation and examination by the BIR, the State Prosecutor filed with the CFI of Pampanga several informations against private respondents
ISSUE Whether or not the payment of deficiency income tax under PD 23 and the acceptance by the Government operated to divest the Government the right to further recover from the taxpayer, even if there was an existing assessment against the latter at the time the amnesty tax was paid. YES. BY ACCEPTING THE PAYMENT OF AMNESTY INCOME TAXES, GOVERNMENT WAIVED ITS RIGHT TO FURTHER RECOVER DEFICIENCY INCOME TAXES. RTC: Defendants had settled their income tax deficiency for the years 1966 to 1959 under PD 213 as evidenced by the Annual Income Tax Returns Summary Statement and the Payment Acceptance Order with receipt.
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CA Dismissed Governments appeal Acceptance of the tax amnesty payment operated to divest the Government of its right to further recover Revenue Regulation 7-73 providing for an exeption to the coverage of PD 213 is null and void for being contrary to or restrictive of the clear mandate of PD 213
In the instant case, the violations of the National Internal Revenue Code with which the respondent accused were charged, had already been discovered by the BIR when P.D. No. 370 took effect on 9 January 1974, by reason of the sworn information or affidavit-complaints filed by informers with the BIR The information referred to in the PD refers to information provided by informants under PD 2338 which is the situation obtaining in this case Thus, it is clear from the provisions of the amnesty that the acts of the respondents, not having been voluntarily disclosed, are not subject to the benefits under the same Valencia further contends that the People were estopped from questioning his entitlement to the benefits of the tax amnesty, considering that agents of the BIR had already accepted his application for tax amnesty and his payment of the required fifteen percent (15%) special tax At the time he paid the special fifteen percent (15%) tax under P.D. No. 370, accused Francisco Valencia had in fact already been subjected by the BIR to extensive investigation such that the criminal charges against him could not be condoned under the provisions of the amnesty statute. Further, acceptance by the BIR agents of accused Valencia's application for tax amnesty and payment of the fifteen percent (15%) special tax was no more than a ministerial duty on the part of such agents It is also axiomatic that the State is not bound by the mistakes of its agents Still further, a tax amnesty, much like to a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.
ISSUE: 1. W/N private respondents are entitled to the benefits of the tax amnesty? HELD/RATIO 1. NO PD 370 provides for a tax amnesty in broad terms:
A tax amnesty is hereby granted to any person, natural or juridical, xxx failed to include all that were required to be declared therein if he now voluntarily discloses under this decree all his previously untaxed income and/or wealth such as earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever which are or were previously taxable under the National Internal Revenue Code, realized here or abroad by condoning all internal revenue taxes including the increments or penalties on account of non-payment as well as all civil, criminal or administrative liabilities, under the National Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative Code, the Civil Service Laws and Regulations, laws and regulations on Immigration and Deportation, or any other applicable law or proclamation, as it is hereby condoned, provided a tax of fifteen (15%) per centum on such previously untaxed income and/or wealth is imposed subject to the following conditions: a. Such previously untaxed income and/or wealth must have been earned or realized prior to 1973, except the following: xxx e. Tax cases which are the subject of a valid information under Republic Act No. 2338 as of December 31, 1973; and xxx
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Respondents were charged with various violations of the NIRC including possession of counterfeit internal revenue labels (170, par 2, NIRC), possession of liquors and spirits whose specific taxes have not been paid (174, (c)), and finally, manufacture of alcoholic products without paying the privilege tax therefor (178 in rel. 182 and 208, NIRC) After arraignment, accused Valencia filed a Motion to Quash upon the grounds that the informations had been filed without conducting the necessary preliminary investigation and that he was entitled to the benefits of the tax amnesty provided by P.D. No. 370 The State Prosecutor opposed saying that the lack of a preliminary investigation is not grounds for quashal. The prosecutor further argued that the accused Valencia was not entitled to avail himself of the benefits of P.D. No. 370 since his tax cases were the subject of valid information submitted under R.A. No. 2338 as of 31 December 1973 The trial court judge granted the Motion to Quash. Reconsideration by the People denied The co-accused also filed Motions to Quash on the theory that the dismissal of the action as to Valencia inured to their benefit. Such motions were also granted by the respondent judge Petitioner people now file a petition for certiorari and mandamus seeking the annulment of the order granting quashal
The amnesty provides for the extinction of ALL liability arising from such acts such as those of the respondents Thus the amnesty also eliminates the criminal liabilities attendant to the acts HOWEVER, to avail of the benefits of the amnesty, it is required that the claimant must have VOLUNTARILY disclosed of his untaxed income or wealth Where the disclosure of such previously untaxed income or wealth was not voluntary but rather the accompaniment or result of tax cases or tax assessments already pending as of 31 December 1973, the claimant is not entitled to the benefits of P.D. No. 370 Section 1 (a) (4) of P.D. No. 370, expressly excluded from the coverage of P.D. No. 370: "tax cases which are the subject of a valid information under R.A. No. 2338 as of December 31, 1973."
The corollary issue is whether or not, assuming arguendo that Valencia is entitled to an amnesty, the dismissal of his case redounded to the benefit of his co-accused The fact that conspiracy was alleged does not automatically free the co-accused from liability It must be shown that they themselves complied with requirements of the grant of amnesty The defense of the tax amnesty under P.D. No. 370 is, like insanity, a personal defense for that defense relates to the circumstances of a particular accused and not to the character of the acts charged in the criminal information The statute makes the defense of extinguishment of liability available only under very specific circumstances and on the basis of reciprocity, as it were: the claimant must disclose his previously untaxed income or wealth (which then may be effectively subjected to future taxation) and surrender to the Government fifteen percent (15%) of such income or wealth; then, and only then, would the claimant's liability be extinguished However, as was established, Valencia was not entitled to the benefits of the amnesty. Hence nothing could have inured to the benefit of his co-accused
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970. Petitioners protested the said assessment asserting that they had availed of tax amnesties way back in 1974. Respondent Commissioner: in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code; the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed. CTA: affirmed the decision and action taken by respondent commissioner with costs against petitioners. Court based its decision on the ruling in Evangelista v. Collector. In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this case, although there might in fact be a coownership between the petitioners, there was no adequate basis for the conclusion that they thereby formed an unregistered partnership which made them liable for corporate income tax under the Tax Code. Issues\Held: WON petitioners formed an unregistered partnership subject to corporate income tax NO Ratio: The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds they used in buying several real properties. They appointed their brother to manage their properties with full power to lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various tenants for several years and they gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from them. Evangelista is not at all fours with the case at bar. Pursuant to Article 1767 of the Civil Code, the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his
DISPOSITION: Petition GRANTED, assailed orders SET ASIDE. Judge ordered to PROCEED with the criminal cases. Votes: Fernan, C.J., Gutierrez, Jr., Bidin, Cortes, JJ., concur -Ann Mariano PASCUAL, Renato Dragon v. CIR, CTA 18 Oct 1988 Doctrine: even assuming for the sake of argument petitioners can be held individually liable as partners for this unpaid obligation of the partnership, however, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom. Ponente: Gancayco, J. Facts: In 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. These were sold by them to Marenir Devt Corp. in 1968, realizing a net profit of P165,224.70. In 1966, they bought another three (3) parcels of land from Juan Roque. These they sold in 1970, realizing a net profit of P60,000.00. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.
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representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof. In Evangelista, there was a series of transactions where petitioners purchased twentyfour (24) lots showing that the purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present. In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present. In Evangelista, the properties were leased out to tenants for several years. The business was under the management of one of the partners. Such condition existed for over fifteen (15) years. None of the circumstances are present in the case at bar. The co-ownership started only in 1965 and ended in 1970. The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property. In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes. And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership. However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom. Disposition: petition GRANTED. CTA decision reversed and set aside. Votes: Cruz, Grio-Aquino and Medialdea, JJ., concur. Narvasa, J., took no part. Separate opinion: none Note: theres really no discussion in the case on tax amnesty. The last sentence in my digest was the only time the court mentioned it. -Barbie Definition of Terms:
CIR vs. Marubeni Corp (Dec. 18, 2001)
Branch Profit Remittance Tax- Any profit remitted by a branch to its head office shall be subject to a tax of fifteen (15%) Contractors tax A contractors tax is a tax imposed upon the privilege of engaging in business. It is generally in the nature of an excise tax Income tax- Tax on income
PONENTE: PUNO, J. FACTS: Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan, engaged in general import + export trading + financing + construction business. It is duly registered to engage in such business in the Philippines and maintains a branch office in Manila. Sometime in November 1985, CIR issued a letter of authority to examine the books of accounts of the Manila branch office for the fiscal year ending March 1985. They found respondent to have undeclared income from 2 contracts in the Philippines, both of which were completed in 1984. Contracts: (1) with the National Development Company (NDC) for the construction and installation of a wharf/port complex at the Leyte Industrial Development Estate (LIDE) in Isabel, Leyte. (2) with the Philippine Phosphate Fertilizer Corporation (Philphos) for the construction of an ammonia storage complex also at the LIDE.
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DOCTRINE: A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. For the right of taxation is inherent in government. The State cannot strip itself of the most essential power of taxation by doubtful words. He who claims an exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to the intent of the legislature, that doubt must be resolved in favor of the state
On March 1, 1986, petitioners revenue examiners recommended an assessment for deficiency income, branch profit remittance, contractors and commercial brokers taxes. The assessed deficiency internal revenue taxes, inclusive of surcharge and interest, were as follows: (For March 31, 1985) Deficiency Income Tax: P 290,583,972.40, Deficiency Branch Profit Remittance Tax: P 83,036,965.16, Deficiency Commercial Brokers Tax: P 3,600,535.68 (see case for computation) On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals. CTA Case No. 4109, questioned the deficiency income, branch profit remittance and contractors tax assessments in petitioners assessment letter. CTA Case No. 4110, questioned the deficiency commercial brokers assessment in the same letter. Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. E.O., a taxpayer who wished to avail of the income tax amnesty should, on or before October 31, 1986 upon submission of certain requirements (see original for requirements) In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986 and attached thereto its sworn statement of assets and liabilities and net worth as of Fiscal Year (FY) 1981 and FY 1986. The return was received by the BIR on November 3, 1986 and respondent paid the amount of P2,891,273.00 equivalent to ten percent (10%) of its net worth increase between 1981 and 1986. The period of the amnesty in E.O. No. 41 was later extended from October 31, 1986 to December 5, 1986 by E.O. No. 54 dated November 4, 1986. On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64. In addition to the income tax amnesty granted by E.O. No. 41 for the years 1981 to 1985, E.O. No. 64 included estate and donors taxes under Title III and the tax on business under Chapter II, Title V of the National Internal Revenue Code, also covering the years 1981 to 1985. E.O. No. 64 further provided that the immunities and privileges under E.O. No. 41 were extended to the foregoing tax liabilities, and the period within which the taxpayer could avail of the amnesty was extended to December 15, 1986. Those taxpayers who already filed their amnesty return under E.O. No. 41, as amended, could avail themselves of the benefits, immunities and privileges under the new E.O. by filing an amended return and paying an additional 5% on the increase in net worth to cover business, estate and donors tax liabilities. The period of amnesty under E.O. No. 64 was extended to January 31, 1987 by E.O No. 95 dated December 17, 1986.
On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64 and paid a further amount of P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase of its net worth between 1981 and 1986. On July 29, 1996, The CTA rendered a decision finding tha respondent had properly availed of the tax amnesty under E.O. Nos. 41 and 64 and declared the deficiency taxes subject of said case as deemed cancelled and withdrawn. Petitioner challenged the decision of the tax court with the CA CA dismissed + affirmed CTA
ISSUES:
W/N: Marubeni corp could avail of the tax amnesty granted by E.O.41 and E.O. 64, considering that one of the exceptions under E.O. 41 of corps who can apply for amnesty are those with income tax cases already filed in the CTA as of its effectivity? W/N: Contractors tax is included in the tax amnesty considering that E.O. 64 amended E.O. 41 by including business tax in the coverage of tax amnesty W/N: Assuming that the contractors tax was not covered in the tax amnesty such tax was still exempted because it arose out of offshore activities HELD: 1. 2. 3. Yes. This applies to both the income and branch remittance tax No. It does not have retroactive effect. There was already a pending case in the CTA. The exception in E.O. 41 applies regardless if the words expressly used wasincome Yes. The Onshore activities were already declared and unquestioned. The Offshore activities were not subject to tax as they were completed in Japan.
RATIO: 1. The main controversy in this case lies in the interpretation of the exception to the amnesty coverage of E.O. Nos. 41 and 64. There are three (3) types of taxes involved herein income tax, branch profit remittance tax and contractors tax. These taxes are covered by the amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however, that respondent is disqualified from availing of the said amnesties because the latter falls under the exception in Section 4 (b) of E.O. No. 41:
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b) Those with income tax cases already filed in Court as of the effectivity hereof; Petitioner argues that at the time respondent filed for income tax amnesty on October 30, 1986, The CTA Case had already been filed and was pending. Petitioners claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax amnesty those taxpayers with income tax cases already filed in court as of the effectivity hereof. The point of reference is the date of effectivity of E.O. No. 41. The filing of income tax cases in court must have been made before and as of the date of effectivity of E.O. No. 41. Thus, for a taxpayer not to be disqualified under Section 4 (b) there must have been no income tax cases filed in court against him when E.O. No. 41 took effect. This is regardless of when the taxpayer filed for income tax amnesty, provided of course he files it on or before the deadline for filing. E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency income, branch profit remittance and contractors tax assessments was filed by respondent with the Court of Tax Appeals on September 26, 1986. When E.O. No. 41 became effective on August 22, 1986, CTA Case No. 4109 had not yet been filed in court. Respondent corporation did not fall under the said exception in Section 4 (b), hence, respondent was not disqualified from availing of the amnesty for income tax under E.O. No. 41. The same ruling also applies to the deficiency branch profit remittance tax assessment. A branch profit remittance tax is defined and imposed in Section 24 (b) (2) (ii), Title II, Chapter III of the National Internal Revenue Code. In the tax code, this tax falls under Title II on Income Tax. It is a tax on income. Respondent therefore did not fall under the exception in Section 4 (b) when it filed for amnesty of its deficiency branch profit remittance tax assessment. 2. The difficulty herein is with respect to the contractors tax assessment and respondents availment of the amnesty under E.O. No. 64. E.O. No. 64 expanded the coverage of E.O. No. 41 by including estate and donors taxes and tax on business.. The contractors tax is provided in Section 205, Chapter II, Title V of the Tax Code; it is defined and imposed under the title on business taxes, and is therefore a tax on business. When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to the coverage of the amnesty for business, estate and donors taxes. Instead, Section 8 of E.O. No. 64 provided that Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or inconsistent with this amendatory Executive Order shall remain in full force and effect. By virtue of Section 8 as afore-quoted, the provisions of E.O. No. 41 not contrary to or inconsistent with the amendatory act were reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the exceptions to amnesty coverage also applied to
E.O. No. 64. With respect to Section 4 (b) in particular, this provision excepts from tax amnesty coverage a taxpayer who has income tax cases already filed in court as of the effectivity hereof. As to what Executive Order the exception refers to, respondent argues that because of the words income and hereof, they refer to Executive Order No. 41. In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to E.O. No. 41 and its date of effectivity. The general rule is that an amendatory act operates prospectively. While an amendment is generally construed as becoming a part of the original act as if it had always been contained therein, it may not be given a retroactive effect unless it is so provided expressly or by necessary implication and no vested right or obligations of contract are thereby impaired. There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original issuance. Neither is it implied. Executive Order No. 64 is a substantive amendment of E.O. No. 41. It does not merely change provisions in E.O. No. 41. It supplements the original act by adding other taxes not covered in the first. It has been held that where a statute amending a tax law is silent as to whether it operates retroactively, the amendment will not be given a retroactive effect so as to subject to tax past transactions not subject to tax under the original act. In an amendatory act, every case of doubt must be resolved against its retroactive effect. Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. For the right of taxation is inherent in government. The State cannot strip itself of the most essential power of taxation by doubtful words. He who claims an exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to the intent of the legislature, that doubt must be resolved in favor of the state. The vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore be construed strictly against the taxpayer. The term income tax cases should be read as to refer to estate and donors taxes and taxes on business while the word hereof, to E.O. No. 64. Since Executive Order No. 64 took effect on November 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivity referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986. Respondent filed CTA Case No. 4109 on September 26, 1986. When E.O. No. 64 took effect on November 17, 1986, CTA Case No. 4109 was already filed and pending in court.
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3.
It is respondents other argument that assuming it did not validly avail of the amnesty under the two Executive Orders, it is still not liable for the deficiency contractors tax because the income from the projects came from the Offshore Portion of the contracts. The two contracts were divided into two parts, i.e., the Onshore Portion and the Offshore Portion. All materials and equipment in the contract under the Offshore Portion were manufactured and completed in Japan, not in the Philippines, and are therefore not subject to Philippine taxes. Under the Philippine Onshore Portion, respondent does not deny its liability for the contractors tax on the income from the two projects. In fact respondent claims, which petitioner has not denied, that the income it derived from the Onshore Portion of the two projects had been declared for tax purposes and the taxes thereon already paid to the Philippine government. It is with regard to the gross receipts from the Foreign Offshore Portion of the two contracts that the liabilities involved in the assessments subject of this case arose. Petitioner argues that since the two agreements are turn-key, they call for the supply of both materials and services to the client, they are contracts for a piece of work and are indivisible. The situs of the two projects is in the Philippines, and the materials provided and services rendered were all done and completed within the territorial jurisdiction of the Philippines. Accordingly, respondents entire receipts from the contracts, including its receipts from the Offshore Portion, constitute income from Philippine sources. The total gross receipts covering both labor and materials should be subjected to contractors tax in accordance with the ruling in Commissioner of Internal Revenue v. Engineering Equipment & Supply A contractors tax is imposed in the National Internal Revenue Code (NIRC) as follows: Sec. 205. Contractors, proprietors or operators of dockyards, and others .A contractors tax of four percent of the gross receipts is hereby imposed on proprietors or operators of the following business establishments and/or persons engaged in the business of selling or rendering the following services for a fee or compensation: (a) General engineering, general building and specialty contractors, as defined in Republic Act No. 4566;
Philippines and which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region. xxx xxx x x x.[43]
A contractors tax is a tax imposed upon the privilege of engaging in business. It is generally in the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on products; and is directly collectible from the person exercising the privilege. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or business are done or performed within the jurisdiction of said authority. Like property taxes, it cannot be imposed on an occupation or privilege outside the taxing district. The court examined the history of the relations between Marubeni and the two Philippine corporations and their contract and held that: These acts occurred in two countries Japan and the Philippines. While the construction and installation work were completed within the Philippines, the evidence is clear that some pieces of equipment and supplies were completely designed and engineered in Japan. The two sets of ship unloader and loader, the boats and mobile equipment for the NDC project and the ammonia storage tanks and refrigeration units were made and completed in Japan. They were already finished products when shipped to the Philippines. The other construction supplies listed under the Offshore Portion such as the steel sheets, pipes and structures, electrical and instrumental apparatus, these were not finished products when shipped to the Philippines. They, however, were likewise fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication, engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. These services were rendered outside the taxing jurisdiction of the Philippines and are therefore not subject to contractors tax. DISPOSITIVE: IN VIEW WHEREOF, the petition is denied. The decision in CA-G.R. SP No. 42518 is affirmed. SO ORDERED. VOTE: Davide, Jr., C.J., (Chairman), Kapunan, Pardo, and Ynares-Santiago, JJ., concur. -Jamie
xxx
xxx
xxx
(q) Other independent contractors. The term independent contractors includes persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. It does not include regional or area headquarters established in the Philippines by multinational corporations, including their alien executives, and which headquarters do not earn or derive income from the
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Under the afore-quoted provision, an independent contractor is a person whose activity consists essentially of the sale of all kinds of services for a fee, regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. The word contractor refers to a person who, in the pursuit of independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details.
(c) Zero-rating (VAT) (d) Exclusion/deduction iii. Kinds of tax exemption ATLAS FERTILIZER CORP, v. COMMISSION OF INTERNAL REVENUE (October 30, 1980) DOCTRINE: Partial Tax Exemptions (no doctrinal statements in the case) xxx R.A. No. 901 grants partial exemption while R.A. 3050 grants total exemption. Once a manufacturer of fertilizer chose to come under R.A. 3050, his partial exemption under R.A. 901 ceased. xxx xxx when AFC availed of the total exemption under R.A. No. 3050, it has in effect given up the partial exemption which it was enjoying under R.A. No. 901. xxx NATURE: Appeals by way of certiorari (both the CIR and AFC appealed) PONENTE: De Castro, J. FACTS: 1. Atlas Mining & Development Corporation was granted a certificate of tax exemption under Republic Act No. 901 as a new and necessary industry for engaging in the manufacture of fertilizer. In 1957, the tax exemption privileges were later transferred to the petitioner Atlas Fertilizer Corp (AFC for brevity). under the written authority of the Department of Finance (DOF for brevity) 2. During the period from June 26, 1961 to October 24, 1962, petitioner imported raw materials, equipment, spare parts, containers and other supplies on which it paid one-half or 50% of the compensating taxes due thereon, pursuant to RA 901. 3. June 17, 1961 Republic Act No. 3050 took effect: a. It granted tax exemption to any person, partnership, company or corporation engaged or which shall engage in the manufacture of fertilizer of whatever nature from the payment, among others, of compensating taxes on their importation of capital goods, equipment, spare parts, raw materials, supplies containers and fuel. b. To implement this, DoF issued DO No. 105, dated September 15, 1961, which provides, among others, as follows: "Fertilizer manufacturer x x x which are granted tax exemption under Republic Act No. 901 should likewise file applications for tax exemption under Republic Act No. 3050, indicating therein, among other things, that the applicant waives the benefits of tax exemption authorized under Republic Act No. 3127. 4. 5. 6. January 25, 1962 Petitioner filed with the DoF an application for tax exemption under the provisions of Republic Act No. 3050. February 19, 1962, this application was approved by the Secretary of Finance. The tax exemption granted to petitioner was made retroactive commencing on June 17, 1961 (effectivity date of RA 3050) June 21, 1963, on the basis of the tax exemption, petitioner filed with Commission on Internal Revenue (CIR for brevity) a claim for tax credit of the
ISSUE/HELD: (the arguments of each side will be discussed in the ratio) CIRs Appeal 1. WON AFC need not prove that the materials imported were used for the manufacture of fertilizer. YES 2. WON AFC need not prove that it secured specific authority from the Secretary of Finance. YES 3. WON AFC has in effect abandoned its previous partial tax exemption under RA 901. YES. 4. WON AFC is entitled to tax exemption. YES AFCs APPEAL 1. WON CIR is liable for the payment of interest on refunds (on tax credit) of taxes erroneously or illegally paid to it on the ground that the commissioner is guilty of unjust and unreasonable delay in performing an obligation of the Government. RATIO/DISCUSSION: (relevant to the topic #3) CIRs APPEAL 1. Burden of Proof to establish right to Exemption CIR: The Commissioner points out that exemptions are strictly construed and are never presumed. And the burden of proof is on the claimant to establish clearly his right to exemption. AFC must show that the materials imported were used for manufacturing fertilizer. AFC: The certificate of exemption granted by the Secretary of Finance was sufficient proof that it used the imported articles in the manufacture of fertilizer, because actual
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compensating taxes amounting to P83,629.00 which petitioner allegedly paid to the Bureau of Customs on petitioner's importations of tax exempt goods, equipment, materials and supplies during the period from June 26, 1961 to October 24, 1962. 7. June 22, 1963, petitioner filed a petition for review with CTA seeking an order to compel respondent to issue the corresponding letter of tax credit. 8. During the pendency of this case, petitioner's claim for tax credit of P83,629.00 filed with respondent was referred to the Regional Director of Manila, BIR Reg District No. 3, for investigation, report and recommendation. Shortly thereafter, the Manila Regional Office (District No. 3) was divided into two (2) districts - North Manila and South Manila (District Nos. 5 and 6). 9. As a consequence thereof and the confusion which ensued as a result of the sorting and transfer of revenue dockets and records, allocation and assignment of personnel, and the division and transfer of supplies, equipment and furniture, the papers bearing on the tax credit claim of petitioner were misplaced. 10. It was only on January 25, 1965 when the investigating examiner submitted his report and recommended therein that petitioner be granted a tax credit of P76,935.00, instead of P83,629.00 as claimed, because the importations and payment of the compensating taxes under Item Nos. 1, 17, 35, 50, 58, 61, 62, 64, 65, 67 and 68 were not supported with import entry declarations and receipts of tax payment.
use is assumed to be one of the matters considered by the official in granting the exemption. SC: AFC need no longer adduce evidence to prove it is entitled to tax exemption There is no dispute that AFC is engaged in the manufacture of fertilizer, as the very name of AFC suggests the nature of its business. When R.A. 3050 took effect, AFC was already enjoying partial exemption under R.A. 901 as a new and necessary industry engaged in the manufacture of fertilizer. When the Secretary of Finance, on February 19, 1962, approved AFC's application for tax exemption under R.A. 3050, We believe that he already considered that the importations were needed by AFC for the manufacture of fertilizer. This may be inferred from the fact that before the Secretary of Finance approves an application, he requires applicants to submit an application which "shall be in the form prescribed by the Secretary of Finance and contain detailed and complete information including a complete list of raw materials, equipment, etc. This shall be notarized and filed in quadruplicate. Presumption of regularity of business The certificate of exemption was granted after the imported goods have already arrived. 2. Requirement of Specific Authority
"Fertilizer manufacturers who or which are granted tax exemption under R.A. No. 901 should likewise file applications for tax exemption under R.A. No. 3050. x x x." In compliance with said directive, AFC filed its application for total exemption under R.A. No. 3050 which was granted by the Secretary of Finance. The Commissioner's argument that AFC enjoyed simultaneous exemption under R.A. No. 901 and R.A. No. 3050, is without factual basis. R.A. No. 901 grants partial exemption while R.A. 3050 grants total exemption. Once a manufacturer of fertilizer chose to come under R.A. 3050, his partial exemption under R.A. 901 ceased. In effect, he enjoyed only one exemption benefit, the full exemption under R.A. No. 3050. As correctly ruled by the respondent court, when AFC availed of the total exemption under R.A. No. 3050, it has in effect given up the partial exemption which it was enjoying under R.A. No. 901. AFCs APPEAL 1. Entitlement to Interest on Tax Refund due to Delay AFC: The Commissioner received the claim for tax credit on June 21, 1963 but it was only on January 11, 1965 or more than eighteen (18) months later that a BIR examiner came to the premises of the taxpayer to investigate the claim. In other words, the Commissioner did not act on the claim of AFC and this inaction is the essence of the delay incurred by the Commissioner in the performance of an obligation which entitled AFC to reparation in the form of interest payment SC: The delay in processing the claim of AFC for tax credit was neither premeditated nor intentional. The Commissioner did not sit on the claim of AFC. If there was any delay, it was due to the splitting into two (2) districts of Regional District No. 3 where the claim was filed, as a result of which the documents requesting for refund was misplaced. It is the well settled rule that in the absence of a statutory provision clearly or expressly directing or authorizing payment of interest on the amount to be refunded to taxpayer, the Government cannot be required to pay interest. Likewise, it is the rule that interest may be awarded only when the collection of tax sought to be refunded was attended with arbitrariness. Such circumstance is not present in the case at bar as the payment of compensating taxes in question was made freely and voluntarily and conformably with the partial exemption granted by Republic Act No. 901. DISPOSITIVE: WHEREFORE, judgment is hereby rendered affirming the decision of the Court of Tax Appeals. Without special pronouncement as to cost. VOTE: First Division. 3 concur, 1 concurs in the result, 1 reserves vote -Jenin
CIR: An authority is a prerequisite for the enjoyment of tax exemption SC: It would be illogical for the AFC to produce the required specific authority to import because when the tax exemption was granted on February 19, 1962, sixty-one (61) of the imported goods have already arrived, and the AFC has paid the corresponding compensating taxes pursuant to R.A. 901 granting manufacturer of fertilizer partial exemption from payment of compensating taxes. With respect to the seven (7) importation which arrived after the grant of exemption, it should be noted that AFC was able to withdraw them from customs custody. We must not lose sight of the fact that before goods may be withdrawn from customs custody, it is necessary that "a true or photostat copy of the letter-grant authorizing the tax-free importation of the articles applied to be withdrawn from customs custody" be presented, pursuant DO No. 105-A issued by the Sec of Finance. Since AFC has successfully withdrawn all the seven (7) imported articles from customs custody, after payment of the compensating taxes, it may be inferred that AFC has complied with the above provision of Department Order No. 105-A -- to produce AFC's authority to import. 3. Abandonment of Partial Tax Exemption CIR: According to the Commissioner, AFC could not have abandoned or given up its exemption under R.A. No. 901 because it has already applied the same to the importations involved herein, and that one cannot abandon or give up what he has already taken advantage of. Furthermore, tax exemptions under R.A. 901 and R.A. 3050 cannot be enjoyed simultaneously. SC: The Commissioner's contention is without merit. In DO No. 105, Secretary of Finance expressly directed fertilizer manufacturers enjoying benefits under R.A. No. 901 to likewise apply for the benefits of R.A. No. 3050:
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COMMISSIONER OF INTERNAL REVENUE v PHILIPPINE ACE LINES, INC. (October 31, 1968) Doctrine: No tax exemption is given without any reason therefor. Its avowed purpose is some public benefit or interest, which the law-making body considers sufficient to offset the monetary loss entailed in the grant of the exemption. Indeed, section 20 of Republic Act No. 3079 exacts a valuable consideration for the retroactivity of its favorable provision, namely, the voluntary assumption, by the end-user, who bought reparations goods prior to June 17, 1961, of "all the new obligations provided for in" said Act. Nature: Appeal by the Government from the decision of the Court of Tax Appeals, reversing the rulings of the CIR holding the Philippine Ace Lines, Inc. liable to pay compensating taxes on four ocean-going cargo vessels acquired by said company. Ponente: ANGELES, J. Facts: The Reparations Commission agreed to sell to the Philippine Ace Lines the cargo vessel M/S YAKAL and M/S MOLAVE under the Philippine- Japanese Reparations Agreement and later, the M/S TINDALO and M/S NARRA for a total of (approximately) 19 million pesos in the year 1959. All these agreements invariably denominated as "Contract of Conditional Purchase and Sale of Reparations Goods" stipulated, among others, that the Reparations Commission retains title and ownership of the above-described vessels until they were fully paid for. The four vessels referred to were thereafter delivered to Philippine Ace Lines and thereafter, the vessels were operated and utilized by Philippine Ace Lines in its shipping business. Later, however, the Commissioner of Internal Revenue assessed against the Philippine Ace lines the amounts of around 1.3 million pesos as compensating taxes on the cargo vessels and demanded payment of the said amounts. The Commisioner of Customs placed the vessels under custody and refused to give due course to the "clearance" of said vessels unless the compensating taxes were first paid. Philippine Ace Lines protested said actions of the Commissioners of Internal Revenue and of Customs, alleging that the legal title and ownership of the vessels operated by it were still vested with the Reparations Commission which, under Section 14 of the Reparations Act, was exempt from payment of all duties, fees and taxes on all reparations goods obtained by it. Officials rejected the protest. While the cases were pending trial, Congress enacted Republic Act No. 3079 which amended Republic Act No. 1789, otherwise known as the Reparations Act, and provided as follows: SEC. 14. Exemption from tax. All reparations goods obtained by the Government shall be exempt from the payment of all duties, fees and taxes. Reparations goods obtained by private parties shall be exempt from the payment of customs duties, compensating tax, consular fees and the special import tax.
xxx
xxx
xxx
SEC. 20. This Act shall take effect upon its approval... Provided, That any end-user may apply the renovation of his utilization contract with the commission in order to avail of any provision of this amendatory Act which is more favorable to an applicant end-user than has heretofore been granted in like manner and to the same extent as an end-user filing his application after the approval of this amendatory Act, and the Commission may agree to such renovation on condition that the end-user shall voluntarily assume all the new obligations provided for in this amendatory Act. [Emphasis supplied]
NOW THEREFORE, for and in consideration of the premises above stated and of the payments to be made by the herein Conditional Vendee as stipulated in Annex "B" hereof which is made an integral part of this contract, the parties herein agree to execute this renovation of contract of Conditional Purchase and Sale and the Conditional Vendor hereby transfers and conveys unto the herein Conditional Vendee the ocean-going vessels above-described ...; subject further to the pertinent provisions of Republic Act No. 1789 as amended, including particularly the exempting provisions of Section 14 thereof relative to the exemption from payment of compensating tax which the herein Conditional Vendee, as an implemented machinery, do hereby, by these presents, implement. ... The CIR and Customs claimed, that even if Philippine Ace Lines and the Reparations Commission have agreed to implement the provisions of the new law in the "Renovated Contract entered into between them, such implementation did not relieve the Philippine Ace Lines from the payment of the compensating taxes in question. CTA reversed the CIR and Customs orders stating that the laws intention was to place persons who acquired reparations goods before the enactment of the amendatory Act on the same footing as those who acquire reparations goods after its enactment. This is so because of the provision that once an application for renovation of a utilization contract has been approved, the favorable provisions of said Act shall be available to the applicant "in like manner and to the same extent as an end-user filing his application after the approval of this amendatory Act."
33
Using the favorable provisions of the new law, Philippine Ace Lines then entered into "Renovated Contract(s) of Conditional Purchase and Sale of Reparations Goods" with the Reparations Commission, and alleged that "expressly implementing section 14 of Republic Act No. 3079 in the aforesaid renovated contracts," the Reparations Commission and the Philippine Ace Lines have agreed as follows:
Issues: WON the CTA erred in holding that the renovation of the contracts after the approval of Republic Act No. 3079, entitled Philippine Ace Lines to the exemption from payment of compensating tax under the provisions of the said law, even if they were acquired long before the approval of said amendatory Act which also,did not expressly authorize such exemption. WON Congress intended to include exemption from compensating tax, when it did not provide for such exemption in clear and explicit terms and that the tax exemption contained in Section 14 of the amendatory Act cannot have retroactive application in the absence of any provision for retroactivity. Held: No. The CTA ruled correctly in favor of the respondent-appellees. Yes. Congress indirectly provided for the exemption from compensating tax. It is manifest, from the language of said section 20, that the same intended to give such buyers the opportunity to be treated "in like manner and to the same extent as an end-user filing his application after the approval of this Amendatory Act. A similar case was decided earlier by the Court, speaking through Chief Justice Roberto Concepcion in Commissioner of Internal Revenue vs. Bothelo Shipping Corporation. The tax exemption that the Government labelled here as prejudicial may actually exist when Congress allows it so. No tax exemption like any other legal exemption or exception is given without any reason therefor. In much the same way as other statutory commands, its avowed purpose is some public benefit or interest, which the law-making body considers sufficient to offset the monetary loss entailed in the grant of the exemption. Indeed, section 20 of Republic Act No. 3079 exacts a valuable consideration for the retroactivity of its favorable provision, namely, the voluntary assumption, by the end-user, who bought reparations goods prior to June 17, 1961, of "all the new obligations provided for in" said Act. Actually, there is no constitutional injunction against granting tax exemptions to particular persons. In fact, it is not unusual to grant legislative franchises to specific individuals or entities, conferring tax exemptions thereto. What the fundamental law forbids is the denial of equal protection such as through unreasonable discrimination or classification. Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, not particular persons but persons belonging to a particular class. From the view point of Constitutional Law, especially the equal protection clause, there is no difference between the grant of exemption to said end-users, and the extension of the grant to those whose contracts of purchase and sale were made before said date, under Republic Act No. 1789. Republic Act No. 3079 does not explicitly declare that those who purchased reparations goods prior to June 17, 1961, are exempt from the compensating tax, because they do not really enjoy such exemption, unless they comply with the proviso in Section 20 of said Act, by applying for the renovation of their respective utilization contracts, "in order to avail of any provision of the Amendatory Act which is more favorable" to the applicant. Like the "most favored nation clause" in international
agreements, the aforementioned section 20 thus seeks, not to discriminate or to create an exemption or exceptions, but to abolish the discrimination, exemption or exception that would otherwise result, in favor of the end-user who bought after June 17, 1961 and against one who bought prior thereto. Disposition: WHEREFORE, the decision of the Court of Tax Appeals appealed from in these cases is affirmed; no pronouncement as to costs. Vote: Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Fernando and Capistrano, JJ., concur. Zaldivar, J., is on leave. Concurring/Dissenting Opinion: None.
CALTEX V. COA G.R. No. 92585 8 May 1992

Caltex Philippines, Inc., petitioner v. The Honorable Commission on Audit, Honorable Commissioner Bartolome C. Fernandez and Honorable Alberto P. Cruz, respondents.
Ratio: -
Davide, Jr. J. DOCTRINE: Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent. NATURE: Petition for Certiorari
NOTE this is not an exhaustive digest. It focuses on the core issue of offset as well as the tax exemptions of NPC and the mining firms.
FACTS: Sometime in 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 1988 of the additional tax on petroleum products authorized under Section 8 of PD 1956 That pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offseting remittances and reimbursements for the current and ensuing years
34
-JP
Further COA disallowed the claims for reimbursement by Caltex for underrecovery arising from sales of petroleum products to National Power Corporation as well as to Marcopper and Atlas Mining Thus Caltex filed the present petition for certiorari seeking to annul the orders of the COA
crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation (NPC);xxx Thus it is clear that the sales to NPC, as tax exempt entity, is reimbursable to the oil company
ISSUE: 1. W/N Caltex may offset its OPSF dues with its outstanding claims against the fund? 2. W/N Caltex may recover from the OPSF losses due to sales to NPC? 3. W/N Caltex may recover from the OPSF losses due to sales to Marcopper and Atlas? HELD/RATIO 1. NO Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government Taxes may be levied with a regulatory purpose as means for the rehabilitation and stabilization of a threatened industry affected with public interest as to be within the police power of the state (as is the oil industry in this case) PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. Also it is hornbook that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other, and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off
NOTE (My interpretation of how NPCs exemption works and why Caltex is entitled to a refund): Caltex is liable for tax on all its petroleum sales, regardless of whom it sells it to. If it sells to a taxable person, it can shift the burden to that person by tacking on the tax to the purchase price. However if it sells to NPC, it cannot add that tax to the selling price since NPC is tax exempt. But Caltex still has to pay the tax to the government since it is levied on all its sales. So in effect Caltex bears the burden of the tax. Hence to remedy the situation, Caltex may now apply for reimbursement of the tax it paid from the OPSF.)
2. YES COA itself admits that underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of taxes FIRB Resolution No. 17-87 provides that the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987 Further, the intent to exempt petroleum sales to NPC is evident in a related law (RA 6952) creating the Petroleum Price Standby Fund to support the OPSF. It provides that: Sec. 2. Application of the Fund shall be subject to the following conditions:
3. NO Caltex relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the national government. Pursuant to this LOI, the Minister of Energy issued Memorandum Circular No. 8411-22 advising the oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are among those declared to be in distress On the other hand, COA claimed and the Court sustained, that when the LOI was issued, the OPSF was not yet in existence Moreover, it is evident that OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices." It must also be noted that LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the National and Local Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed copper companies but by oil companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil products Finally it must be noted that LOI 1416 was not published in the Official Gazette As an epilogue the Court noted that tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent. Hence, not having proved that the mining sales are the subject of an exemption, the claims of Caltex must necessarily fail
(1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported crude oil and finished petroleum products resulting from foreign exchange rate adjustments and/or increases in world market prices of
DISPOSITION: COA orders AFFIRMED except for claims of Caltex for underrecovery due to sales to NPC. Votes: Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Grino-Aquino, Medialdea, Regalado, Romero and Nocon, JJ., concur -Raffy
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2. Double Taxation a. Meaning of double taxation in the strict sense/in the broad sense b.

No. There is no double taxation.

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SECTION 1. Any provision of existing law to the contrary notwithstanding:

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Disposition: The decision appealed from is hereby affirmed.

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CIR vs. Marubeni Corp (Dec. 18, 2001)

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CALTEX V. COA G.R. No. 92585 8 May 1992

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