9. Exxonmobil Petroleum & Chemical Holdings, Inc., (Phil. Br.) v.

CIR, 640
SCRA 203
NARRATION: Petitioner Exxon is a foreign corporation duly organized and existing
under the laws of the State of Delaware, United States of America. It is authorized to
do business in the Philippines through its Philippine Branch. Exxon is engaged in the
business of selling petroleum products to domestic and international carriers. Thus,
Exxon purchased from Caltex Philippines, Inc. (Caltex) and Petron Corporation
(Petron) Jet A-1 fuel and other petroleum products, the excise taxes on which were
paid for and remitted by both Caltex and Petron. Said taxes, however, were passed
on to Exxon which ultimately shouldered the excise taxes on the fuel and petroleum
products. From November 2001 to June 2002, Exxon sold a total of 28,6 35,841
liters of Jet A-1 fuel to international carriers, free of excise taxes amounting to
Php105,093,536.47.On various dates, it filed administrative claims for refund with
the Bureau of Internal Revenue (BIR) amounting to Php105,093,536.47.
GOVERNMENT'S ARGUMENT: Exxon is not a proper party to seek a refund taxes
because excise taxes are indirect taxes, the liability for payment of which falls on
one person, but the burden of payment may be shifted to another. Here, the sellers
of the petroleum products or Jet A-1 fuel subject to excise tax are Petron and Caltex,
while Exxon was the buyer to whom the burden of paying excise tax was shifted.
While the impact or burden of taxation falls on Exxon, as the tax is shifted to it as
part of the purchase price, the persons statutorily liable to pay the tax are Petron
and Caltex. As Exxon is not the taxpayer primarily liable to pay, and not exempted
from paying, excise tax, it is not the proper party to claim for the refund of excise
taxes paid.
TAX PAYER'S ARGUMENT: Exxon argues that having paid the excise taxes on the
petroleum products sold to international carriers, it is a real party in interest. It
reasons out that the subject of the exemption in Section 135 of thte NIRC is neither
the seller nor the buyer of the petroleum products, but the products themselves, so
long as they are sold to international carriers for use in international flight
operations, or to exempt entities covered by tax treaties, conventions and other
international agreements for their use or consumption, among other conditions.
ISSUE:
whether or not the petitioner is the proper party that may ask a refund
RULING: Excise taxes are imposed under Title VI of the NIRC. They apply to specific
goods manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition, and to those that are imported. In effect,
these taxes are imposed when two conditions concur: first, that the articles subject
to tax belong to any of the categories of goods enumerated in Title VI of the NIRC;
and second, that said articles are for domestic sale or consumption, excluding those
that are actually exported. There are, however, certain exemptions to the coverage

of excise taxes, such as petroleum products sold to international carriers and

exempt entities or agencies. The confusion here stems from the fact that excise
taxes are of the nature of indirect taxes, the liability for payment of which may fall
on a person other than he who actually bears the burden of the tax. Accordingly,
the party liable for the tax can shift the burden to another, as part of the purchase
price of the goods or services. Although the manufacturer/seller is the one who is
statutorily liable for the tax, it is the buyer who actually shoulders or bears the
burden of the tax, albeit not in the nature of a tax, but part of the purchase price or
the cost of the goods or services sold. Therefore, as Exxon is not the party
statutorily liable for payment of excise taxes under Section 130, in relation to
Section 129 of the NIRC, it is not the proper party to claim a refund of any taxes
erroneously paid.

11. City of Pasig v. Republic, 656 SCRA 271

NARRATION: Mid-Pasig Land Development Corporation (MPLDC) owned two parcels
of land in Pasig City under its name. Portions of the properties are leased to different
business establishments. In 1986, the registered owner of MPLDC, Jose Y. Campos
(Campos), voluntarily surrendered MPLDC to the Republic of the Philippines. On
September 30, 2002, the Pasig City Assessors Office sent MPLDC two notices of tax
delinquency for its failure to pay real property tax on the properties for the period
1979 to 2001 totaling P256,858,555.86. . In a letter dated 29 October 2002,
Independent Realty Corporation (IRC) informed the Pasig City Treasurer that the tax
for the period 1979 to 1986 had been paid, and that the properties were exempt
from tax beginning 1987. In letters dated 10 July 2003 and 8 January 2004, the
Pasig City Treasurer informed MPLDC and IRC that the properties were not exempt
from tax. However, MPLDC and IRC againt informed them that the properties were
exempt from tax. Finally, on October 20, 2005, the Pasig City Assessors Office sent
MPLDC a notice of final demand for payment of a tax for the period 1987 to 2005
totaling P389,027,814.48. On the same day, MPLDC paid P2,000,000 partial
payment under protest.On 9 November 2005, MPLDC received two warrants of levy
on the properties. On 1 December 2005, respondent Republic of the Philippines,
through the Presidential Commission on Good Government (PCGG), filed with the
RTC a petition for prohibition with prayer for issuance of a temporary restraining
order or writ of preliminary injunction to enjoin petitioner Pasig City from auctioning
the properties and from collecting real property tax. However, the Pasig City
Treasurer offered the properties for sale at public auction and bought the properties
and was issued certificates of sale. Thus, PCGG filed with the RTC an amended
petition for certiorari, prohibition and mandamus against Pasig City.
GOVERNMENT'S ARGUMENT: Pasig City Treasurer argued that the undisputed
property is not exempted to real property tax
TAX PAYER'S ARGUMENT: That they are exempted from real property tax because
the property is owned by the State.
ISSUE: whether the lower courts erred in granting PCGGs petition for certiorari,
prohibition and mandamus and in ordering Pasig City to assess and collect real
property tax from the lessees of the properties.
RULING: By virtue of PCGG's May 28, 1986 resolution, , Jose Campos, Jr. was given
full immunity from both civil and criminal prosecutions in exchange for the full

cooperation of Mr. Jose Y. Campos to thes Commission for the surrender of the
undisputed property. So, in the meantime, the Republic of the Philippines is the
presumptive owner of the properties for taxation purposes. Section 234(a) of
Republic Act No. 7160 states that properties owned by the Republic of the
Philippines are exempt from real property tax except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person. In the
present case, the parcels of land are not properties of public dominion because they
are not intended for public use. Neither they are intended for some public service or
for the development of the national wealth. MPLDC leases portions of the properties
to different business establishments. Thus, the portions of the properties leased to
taxable entities are not only subject to real estate tax, they can also be sold at
public auction to satisfy the tax delinquency.
In sum, only those portions of the properties leased to taxable entities are subject to
real estate tax for the period of such leases. Pasig City must, therefore, issue to
respondent new real property tax assessments covering the portions of the
properties leased to taxable entities. If the Republic of the Philippines fails to pay
the real property tax on the portions of the properties leased to taxable entities,
then such portions may be sold at public auction to satisfy the tax delinquency.

PERSONAL NOTE:

10. Diaz v. Secretary of Finance

NARRATION: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol filed this petition
for declaratory relief assailing the validity of the impending imposition of valueadded tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators. Petitioners hold the view that Congress did not, when it enacted
the NIRC, intend to include toll fees within the meaning of sale of services that are
subject to VAT; that a toll fee is a users tax, not a sale of services; that to impose
VAT on toll fees would amount to a tax on public service; and that, since VAT was
never factored into the formula for computing toll fees, its imposition would violate
the non-impairment clause of the constitution.
GOVERNMENT'S ARGUMENT: The government avers that the NIRC imposes VAT
on all kinds of services of franchise grantees, including tollway operations, except
where the law provides otherwise. The government also argues that petitioners
have no right to invoke the non-impairment of contracts clause since they clearly
have no personal interest in existing toll operating agreements (TOAs) between the
government and tollway operators. At any rate, the non-impairment clause cannot
limit the States sovereign taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric
formula for computing toll rates cannot exempt tollway operators from VAT.
TAX PAYER'S ARGUMENT: Petitioners point out that tollway operators cannot be
regarded as franchise grantees under the NIRC since they do not hold legislative
franchises. Further, the BIR intends to collect the VAT by rounding off the toll rate
and putting any excess collection in an escrow account. But this would be illegal
since only the Congress can modify VAT rates and authorize its disbursement.
Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which
directs toll companies to record an accumulated input VAT of zero balance in their
books as of August 16, 2010, contravenes Section 111 of the NIRC which grants
entities that first become liable to VAT a transitional input tax credit of 2% on
beginning inventory. Petitioners argue that a toll fee is a users tax and to impose
VAT on toll fees is tantamount to taxing a tax.

ISSUE: May toll fees collected by tollway operators be subjected to value- added
tax?
RULING: VAT is levied, assessed, and collected, according to Section 108 of the
NIRC, on the gross receipts derived from the sale or exchange of services as well as
from the use or lease of properties. It is plain from the law imposes VAT on all kinds
of services rendered in the Philippines for a fee, including those specified in the
third paragraph of Section 108 list. By qualifying services with the words all kinds,
Congress has given the term services an all-encompassing meaning. Thus, every
activity that can be imagined as a form of service rendered for a fee should be
deemed included unless some provision of law especially excludes it. Presidential
Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the
services that tollway operators render. When a tollway operator takes a toll fee
from a motorist, the fee is in effect for the latters use of the tollway facilities over
which the operator enjoys private proprietary rights that its contract and the law
recognize. In this sense, the tollway operator is no different from the following
service providers under Section 108 who allow others to use their properties or
facilities for a fee. And not only do tollway operators come under the broad term all
kinds of services, they also come under the specific class described in Section 108
as all other franchise grantees who are subject to VAT, except those under Section
119 of this Code. Tollway operators are franchise grantees and they do not belong
to exceptions. That Section 119[13] spares from the payment of VAT. What the
government seeks to tax here are fees collected from tollways that are constructed,
maintained, and operated by private tollway operators at their own expense under
the build, operate, and transfer scheme that the government has adopted for
expressways. Except for a fraction given to the government, the toll fees essentially
end up as earnings of the tollway operators. In sum, fees paid by the public to
tollway operators for use of the tollways, are not taxes in any sense. A tax is
imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures. Thus, the seller remains directly and
legally liable for payment of the VAT, but the buyer bears its burden since the
amount of VAT paid by the former is added to the selling price. Once shifted, the
VAT ceases to be a tax[30] and simply becomes part of the cost that the buyer must
pay in order to purchase the good, property or service.
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative
or expand the VAT laws coverage when she sought to impose VAT on tollway
operations. Section 108(A) of the Code clearly states that services of all other
franchise grantees are subject to VAT, except as may be provided under Section 119
of the Code. Tollway operators are not among the franchise grantees subject to
franchise tax under the latter provision. Neither are their services among the VATexempt transactions under Section 109 of the Code.

Tax exemptions must be justified by clear statutory grant and based on language in
the law too plain to be mistaken.[37] But as the law is written, no such exemption
obtains for tollway operators. Lastly, the grant of tax exemption is a matter of
legislative policy that is within the exclusive prerogative of Congress. The Courts
role is to merely uphold this legislative policy.

12. RCBC v. CIR, 657 SCRA 70

NARRATION: Petitioner Rizal Commercial Banking Corporation (RCBC) is a
corporation engaged in general banking operations. It seasonably filed its
Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the
calendar years 1994 and 1995. On August 15, 1996, RCBC received Letter of
Authority issued by the Commissioner of Internal Revenue authorizing a special
audit team to examine the book of accounts and other accounting records for all
internal revenue taxes from January 1, 1994 to December 31, 1995. On January 23,
1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute
of Limitations of the NIRC covering the internal revenue taxes due for the years
1994 and 1995, effectively extending the period of the Bureau of Internal Revenue
(BIR) to assess up to December 31, 2000. Then, on January 27, 2000, RCBC received
a Formal Letter of Demand together with Assessment Notices from the BIR for the
deficiency tax assessment. Aggrieved, RCBC filed a protest on February 24, 2000
and on November 20, 2000 filed a petition for review before the CTA pursuant to
Section 288 of the 1997 Tax Code. On December 6, 2000, RCBC received a Formal
Letter of Demand with Assessment Notices dated October 20, 2000 which
drastically reduced the original amount of deficiency taxes. On the same day, RCBC
paid the deficiency taxes but refused to pay the deficiency onshore tax and
documentary stamp tax.
GOVERNMENT'S ARGUMENT: RCBC is liable for deficiency on shore tax for
taxable years 1994 and 1995

TAX PAYER'S ARGUMENT: RCBC argued that the waivers of the Statute of
Limitations which it executed on January 23, 1997 were not valid because the same
were not signed or conformed to by the respondent CIR as required under Section
222(b) of the Tax Code. As regards the deficiency FCDU onshore tax, RCBC
contended that because the onshore tax was collected in the form of a final
withholding tax, it was the borrower, constituted by law as the withholding agent,
that was primarily liable for the remittance of the said tax. RCBC is convinced that it
is the payor-borrower, as withholding agent, who is directly liable for the payment of
onshore tax, citing Section 2.57(A) of Revenue Regulations No. 2-98.
ISSUE:
1. Whether petitioner, by paying the other tax assessment covered by the waivers
of the statute of limitations, is rendered estopped from questioning the validity of
the said waivers with respect to the assessment of deficiency onshore tax
2. Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax,
which is mandated by law to be collected at source in the form of a final withholding
tax
RULING:
1. Estoppel is clearly applicable to the case at bench. RCBC, through its partial
payment of the revised assessments issued within the extended period as provided
for in the questioned waivers, impliedly admitted the validity of those waivers. Had
petitioner truly believed that the waivers were invalid and that the assessments
were issued beyond the prescriptive period, then it should not have paid the
reduced amount of taxes in the revised assessment. RCBCs subsequent action
effectively belies its insistence that the waivers are invalid. The records show that
on December 6, 2000, upon receipt of the revised assessment, RCBC immediately
made payment on the uncontested taxes. Thus, RCBC is estopped from questioning
the validity of the waivers.
2. That RCBC erred in citing the abovementioned Revenue Regulations No. 2-98
because the same governs collection at source on income paid only on or after
January 1, 1998. . The deficiency withholding tax subject of this petition was
supposed to have been withheld on income paid during the taxable years of 1994
and 1995. Hence, Revenue Regulations No. 2-98 obviously does not apply in this
case.
The liability of the withholding agent is independent from that of the taxpayer. The
former cannot be made liable for the tax due because it is the latter who earned the
income subject to withholding tax. The withholding agent is liable only insofar as he
failed to perform his duty to withhold the tax and remit the same to the
government. The liability for the tax, however, remains with the taxpayer because
the gain was realized and received by him. While the payor-borrower can be held

accountable for its negligence in performing its duty to withhold the amount of tax
due on the transaction, RCBC, as the taxpayer and the one which earned income on
the transaction, remains liable for the payment of tax as the taxpayer shares the
responsibility of making certain that the tax is properly withheld by the withholding
agent, so as to avoid any penalty that may arise from the non-payment of the
withholding tax due. RCBC cannot evade its liability for FCDU Onshore Tax by
shifting the blame on the payor-borrower as the withholding agent. As such, it is
liable for payment of deficiency onshore tax on interest income derived from foreign
currency loans, pursuant to Section 24(e)(3) of the National Internal Revenue Code
of 1993.

PERSONAL NOTE:

13. CIR V. GONZALES

FACTS: Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948,
leaving two heirs. Intestate proceedings for the settlement of his estate were
instituted in the cfi OF Iloilo. Jose Yusay was appointed administrator. Thus, he filed
with the BIR an estate and inheritance tax return. The BIR Revenue assessed on
October 29, 1953 estate and inheritance taxes. Meanwhile, the CFI of Iloilo required
him to show proof of payment of said estate. Husay asked for extension but CIR
denied the same. More than a year later, an agent of the Bureau of Internal
Revenue apprised the CIR of the existence of said reamended project of partition.
Whereupon, the Internal Revenue Commissioner caused the estate of Matias Yusay
to be reinvestigated for estate and inheritance tax liability. Accordingly, on February
13, 1958 the same was assessed. In view of the demise of Jose Yusay, said
assessment was sent to his widow, Florencia Piccio vda. de Yusay, who succeeded
him in the administration of the estate of Matias. No payment having been made

despite repeated demands. Commissioner of Internal Revenue filed a proof of claim

for the estate and inheritance taxes due and a motion for its allowance with the
settlement court in voting priority of lien pursuant to Section 315 of the Tax
Code.On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an
answer to the proof of claim alleging non-receipt of the assessment.

GOVERNMENT'S ARGUMENT: Commissioner argued that right to assess the taxes

in question has not been lost by prescription since the return which did not name
the heirs cannot be considered a true and complete return sufficient to start the
running of the period of limitations of five years under Section 331 of the Tax Code
and pursuant to Section 332 of the same Code he has ten years within which to
make the assessment counted from the discovery on September 24, 1953 of the
identity of the heirs; and (2) that the estate's administrator waived the defense of
prescription when he filed a surety bond on March 3, 1955 to guarantee payment of
the taxes in question and when he requested postponement of the payment of the
taxes pending determination of who the heirs are by the settlement court.

TAX PAYER'S ARGUMENT: Lilia disputed the legality of the assessment. She
claimed tht the right to make the same had prescribed inasmuch as more than five
years had elapsed since the filing of the estate and inheritance tax return on May
11, 1949. She would rest her stand on Section 331 of the Tax Code which limits the
right of the Commissioner to assess the tax within five years from the filing of the
return.

ISSUE: Has the right of the Commissioner of Internal Revenue to assess the estate
and inheritance taxes in question prescribed?

RULING: The conclusion, however, that the return filed by Jose S. Yusay was
sufficient to commence the running of the prescriptive period under Section 331 of
the Tax Code rests on no solid ground. There is no question that the state and
inheritance tax return filed by Jose S. Yusay was substantially defective.
First, it was incomplete. It declared only ninety-three parcels of land representing
about 400 hectares and left out ninety-two parcels covering 503 hectares.Second,
the return mentioned no heir. Thus, no inheritance tax could be assessed. The
return filed in this case was so deficient that it prevented the Commissioner from
computing the taxes due on the estate. It was as though no return was made. The
Commissioner had to determine and assess the taxes on data obtained, not from
the return, but from other sources. We therefore hold the view that the return in

question was no return at all as required in Section 93 of the Tax Code. Accordingly,
for purposes of determining whether or not the Commissioner's assessment of
February 13, 1958 is barred by prescription, Section 332(a) which is an exception to
Section 331 of the Tax Code finds application.As stated, the Commissioner came to
know of the identity of the heirs on September 24, 1953 and the huge
underdeclaration in the gross estate on July 12, 1957. From the latter date, Section
94 of the Tax Code obligated him to make a return or amend one already filed based
on his own knowledge and information obtained through testimony or otherwise,
and subsequently to assess thereon the taxes due. The running of the period of
limitations under Section 332(a) of the Tax Code should therefore be reckoned from
said date for, as aforesaid, it is from that time that the Commissioner was expected
by law to make his return and assess the tax due thereon. From July 12, 1957 to
February 13, 1958, the date of the assessment now in dispute, less than ten years
have elapsed. Hence, prescription did not abate the Commissioner's right to issue
said assessment.

14. JAKA INVESTMENTS CORP. V. CIR

FACTS: Sometime in 1994, petitioner sought to invest in JAKA Equities

Corporation (JEC), which was then planning to undertake an initial public offering

(IPO) and listing of its shares of stock with the Philippine Stock Exchange. Petitioner
proposed Subscription Agreement and Deed of Assignment of Property in Payment
of Subscription. Under this Agreement, as payment for its subscription, petitioner
will assign and transfer to JEC several shares of stock.The intended IPO and listing of
shares of JEC did not materialize but JEC still decided to proceed. Thus, petitioner
and JEC executed the Amended Subscription Agreement wherein several shares of
stock were transferred to JEC. Petitioner paid P1,003,895.65 for basic documentary
stamp tax inclusive of the 25% surcharge for late payment on the Amended
Subscription Agreement. In lieu of the FEBTC shares, however, the amount of
(P370,766,000.00) was paid for in cash by petitioner to JEC.
Petitioner, after seeing the RDOs certifications, the total amount of which was less
than the actual amount it had paid as documentary stamp tax, concluded that it
had overpaid. Petitioner subsequently sought a refund for the alleged excess
documentary stamp tax and surcharges in the amount of Four Hundred Ten
Thousand Three Hundred Sixty-Seven Pesos (P410,367.00), the difference between
the amount of documentary stamp tax it had paid and the amount of documentary
stamp tax certified to by the RDO. Thus, petitioner filed a petition for refund before
the CTA.
GOVERNMENT'S ARGUMENT: Respondent maintains that the documentary stamp
tax imposed in this case is on the original issue of certificates of stock of JEC on the
subscription by the petitioner of the P508,806,200.00 shares out of the increase in
the authorized capital stock of the former pursuant to Section 175 of the NIRC.. The
documentary stamp tax was not imposed on the shares of stock owned by
petitioner in RGHC, PGCI, and UCPB, which merely form part of the partial payment
of the subscribed shares in JEC.
TAX PAYER'S ARGUMENT: Petitioner argued that the tax base for the
documentary stamp tax should have been only the shares of stock in RGCH, PGCI,
and UCPB that petitioner had transferred to JEC as payment for its subscription to
the JEC shares and should have not included the cash portion of its payment based
on Section 176 of the NIRC of 1977, as amended. It Respondent argues that the
documentary stamp tax attaches upon acceptance by the corporation of the
stockholders subscription in the capital stock of the corporation, and that the term
original issue of the certificate of stock means the point at which the stockholder
acquires and may exercise attributes of ownership over the stocks.
ISSUE: whether petitioner is entitled to a partial refund of the documentary stamp
tax and surcharges it paid on the execution of the Amended Subscription
Agreement

HELD: Petitioner failed to show that it is entitled to refund. The rights and
obligations between petitioner JAKA Investments Corporation and JAKA Equities
Corporation are established and enforceable at the time the Amended Subscription
Agreement and Deed of Assignment of Property in Payment of Subscription were
signed by the parties and their witness, so is the right of the state to tax the
aforestated document evidencing the transaction. DST is a tax on the document
itself and therefore the rate of tax must be determined on the basis of what is
written or indicated on the instrument itself independent of any adjustment which
the parties may agree on in the future. The DST upon the taxable document should
be paid at the time the contract is executed or at the time the transaction is
accomplished. The overriding purpose of the law is the collection of taxes. So that
when it paid in cash the amount of P370,766,000.00 in substitution for, or
replacement of the 1,313,176 FEBTC shares, its payment of P1,003,835.65
documentary stamps tax pursuant to Section 175 of NIRC is in order. DST is imposed
on the original issue of shares of stock. The DST, as an excise tax, is levied upon the
privilege, the opportunity and the facility of issuing shares of stock.

15. CHAMBER OF REAL ESTATE AND BUILDERS ASSOC INC.V. ROMULO

FACTS: Petitioner is an association of real estate developers and builders in the
Philippines. It impleaded former Executive Secretary Alberto Romulo, then acting
Secretary of Finance Juanita D. Amatong and then Commissioner of Internal
Revenue Guillermo Parayno, Jr. as respondents. Petitioner assails the validity of the
imposition of minimum corporate income tax (MCIT) on corporations and creditable
withholding tax (CWT) on sales of real properties classified as ordinary assets.
It seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 298, and Section 4(a)(ii) and (c)(ii) of RR 7-2003, all of which prescribe the rules and
procedures for the collection of CWT on the sale of real properties categorized as
ordinary assets.

GOVERNMENT'S ARGUMENT: Executive Secretary Romula argued that there is no

actual case calling for judicial review and that the petitioner is not the property
party to file the case

TAX PAYER'S ARGUMENT: Petitioner contends that these revenue are contrary to
law for they ignore the different treatment by RA 8424 of ordinary assets and capital
assets and that respondent Secretary of Finance has no authority to collect CWT,
much less, to base the CWT on the gross selling price or fair market value of the real
properties classified as ordinary assets. Petitioner also asserts that the enumerated
provisions of the subject revenue regulations violate the due process clause
because, like the MCIT, the government collects income tax even when the net
income has not yet been determined. They contravene the equal protection clause
as well because the CWT is being levied upon real estate enterprises but not on
other business enterprises, more particularly those in the manufacturing sector.

ISSUE:
1. whether or not the imposition of the MCIT on domestic corporations is
unconstitutional

2. whether or not the imposition of CWT on income from sales of real properties
classified as ordinary assets under RRs 2-98, 6-2001 and 7-2003, is
unconstitutional.

RULING:

1. No. MCIT is not a tax on capital.

The MCIT is imposed on gross income which is arrived at by deducting the capital
spent by a corporation in the sale of its goods, i.e., the cost of goods and other
direct expenses from gross sales. Clearly, the capital is not being
taxed.Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu
of the normal net income tax, and only if the normal income tax is suspiciously low.
The MCIT merely approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and uses as the base the
corporations gross income. Besides, there is no legal objection to a broader tax base
or taxable income by eliminating all deductible items and at the same time reducing
the applicable tax rate. Absent any other valid objection, the assignment of gross
income, instead of net income, as the tax base of the MCIT, taken with the reduction
of the tax rate from 32% to 2%, is not constitutionally objectionable. In sum,
petitioner failed to support, by any factual or legal basis, its allegation that the MCIT
is arbitrary and confiscatory.

2. Petitioners argument has no merit. RR 2-98 imposes a graduated CWT on income

based on the GSP or FMV of the real property categorized as ordinary assets. On the
other hand, Section 27(D)(5) of RA 8424 imposes a final tax and flat rate of 6% on
the gain presumed to be realized from the sale of a capital asset based on its GSP or
FMV. This final tax is also withheld at source. The differences between the two forms
of withholding tax, i.e., creditable and final, show that ordinary assets are not
treated in the same manner as capital assets. As previously stated, FWT is imposed
on the sale of capital assets. On the other hand, CWT is imposed on the sale of
ordinary assets.The inherent and substantial differences between FWT and CWT
disprove petitioners contention that ordinary assets are being lumped together with,
and treated similarly as, capital assets in contravention of the pertinent provisions
of RA 8424.