1 abakada

Valid

In United States v. Matthews,17 the U.S. Supreme Court validated a law which
awards to officers of the customs as well as other parties an amount not
exceeding one-half of the net proceeds of forfeitures in violation of the laws
against smuggling. Citing Dorsheimer v. United States,18 the U.S. Supreme
Court said:
The offer of a portion of such penalties to the collectors is to stimulate
and reward their zeal and industry in detecting fraudulent attempts to
evade payment of duties and taxes.
In the same vein, employees of the BIR and the BOC may by law be entitled
to a reward when, as a consequence of their zeal in the enforcement of tax
and customs laws, they exceed their revenue targets. In addition, RA 9335
establishes safeguards to ensure that the reward will not be claimed if it will
be either the fruit of "bounty hunting or mercenary activity" or the product of
the irregular performance of official duties. One of these precautionary
measures is embodied in Section 8 of the law:
SEC. 8. Liability of Officials, Examiners and Employees of the BIR and
the BOC. The officials, examiners, and employees of the [BIR] and the
[BOC] who violate this Act or who are guilty of negligence, abuses or
acts of malfeasance or misfeasance or fail to exercise extraordinary
diligence in the performance of their duties shall be held liable for any
loss or injury suffered by any business establishment or taxpayer as a
result of such violation, negligence, abuse, malfeasance, misfeasance
or failure to exercise extraordinary diligence.
YES. R.A. No. 9335 is constitutional, except for Section 12 of the law which creates a Joint
Congressional Oversight Committee to review the laws IRR.
That RA No. 9335 will turn BIR and BOC employees and officials into bounty hunters and
mercenaries is purely speculative as the law establishes safeguards by imposing liabilities on
officers and employees who are guilty of negligence, abuses, malfeasance, etc. Neither is the equal
protection clause violated since the law recognizes a valid classification as only the BIR and BOC
have the common distinct primary function of revenue generation. There are sufficient policy and
standards to guide the President in fixing revenue targets as the revenue targets are based on the
original estimated revenue collection expected of the BIR and the BOC.

However, the creation of a Joint Congressional Oversight Committee for the purpose of reviewing the
IRR formulated by agencies of the executive branch (DOF, DBM, NEDA, etc.) is unconstitutional
since it violates the doctrine of separation of powers since Congress arrogated judicial power upon
itself.

The equal protection clause recognizes a valid classification, that is, a

classification that has a reasonable foundation or rational basis and not
arbitrary.22 With respect to RA 9335, its expressed public policy is the
optimization of the revenue-generation capability and collection of the BIR and
the BOC.23 Since the subject of the law is the revenue- generation capability
and collection of the BIR and the BOC, the incentives and/or sanctions
provided in the law should logically pertain to the said agencies. Moreover, the
law concerns only the BIR and the BOC because they have the common
distinct primary function of generating revenues for the national government
through the collection of taxes, customs duties, fees and charges.
Sec. 18. The Bureau of Internal Revenue. The Bureau of Internal
Revenue, which shall be headed by and subject to the supervision and
control of the Commissioner of Internal Revenue, who shall be
appointed by the President upon the recommendation of the Secretary
[of the DOF], shall have the following functions:
(1) Assess and collect all taxes, fees and charges and account for
all revenues collected;
(2) Exercise duly delegated police powers for the proper performance of
its functions and duties;
(3) Prevent and prosecute tax evasions and all other illegal economic
activities;
(4) Exercise supervision and control over its constituent and subordinate
units; and
(5) Perform such other functions as may be provided by law.24
xxx

xxx

xxx (emphasis supplied)

On the other hand, the BOC has the following functions:

Sec. 23. The Bureau of Customs. The Bureau of Customs which shall
be headed and subject to the management and control of the
Commissioner of Customs, who shall be appointed by the President
upon the recommendation of the Secretary[of the DOF] and hereinafter
referred to as Commissioner, shall have the following functions:
(1) Collect custom duties, taxes and the corresponding fees,
charges and penalties;
(2) Account for all customs revenues collected;
(3) Exercise police authority for the enforcement of tariff and customs
laws;
(4) Prevent and suppress smuggling, pilferage and all other economic
frauds within all ports of entry;
(5) Supervise and control exports, imports, foreign mails and the
clearance of vessels and aircrafts in all ports of entry;
(6) Administer all legal requirements that are appropriate;
(7) Prevent and prosecute smuggling and other illegal activities in all
ports under its jurisdiction;
(8) Exercise supervision and control over its constituent units;
(9) Perform such other functions as may be provided by law.25
xxx

xxx

xxx (emphasis supplied)

2 guaranty
The reinsurance contracts, however, show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original
insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers
commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original
insurances. Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign
reinsurers. Entries made in such register bound the foreign resinsurers, localizing in the Philippines
the actual cession of the risks and premiums and assumption of the reinsurance undertaking by the
foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of
doing insurance business in the Philippines were payable by the foreign reinsurers when the same
were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty Co.,

Inc. an amount equivalent to 5% of the ceded premiums, in consideration for administration and
management by the latter of the affairs of the former in the Philippines in regard to their reinsurance
activities here. Disputes and differences between the parties were subject to arbitration in the City of
Manila. All the reinsurance contracts, except that with Swiss Reinsurance Company, were signed by
Philippine Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad.
Although the contract between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was
signed by both parties in Switzerland, the same specifically provided that its provision shall be
construed according to the laws of the Philippines, thereby manifesting a clear intention of the
parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within
the Philippines. The word "sources" has been interpreted as the activity, property or service giving
rise to the income.1 The reinsurance premiums were income created from the undertaking of the
foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc., against liability for loss
under original insurances. Such undertaking, as explained above, took place in the Philippines.
These insurance premiums, therefore, came from sources within the Philippines and, hence, are
subject to corporate income tax.
The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions 2 while activity may consist
of only a single transaction. An activity may occur outside the place of business. Section 24 of the
Tax Code does not require a foreign corporation to engage in business in the Philippines in
subjecting its income to tax. It suffices that the activity creating the income is performed or done in
the Philippines. What is controlling, therefore, is not the place of business but the place ofactivity that
created an income.

Hoi section 37
ection 37 is not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned
therein should be treated as income from sources within the Philippines but it does not require that
other kinds of income should not be considered likewise.
1wph1.

withholding

In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax
Code, suffice it to state that this question has already been answered in the affirmative in Alexander
Howden & Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.
, petitioner contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not
remit any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.
wi

The applicable portion of Section 53 provides:

(b) Nonresident aliens. All persons, corporations and general copartnerships
(compaias colectivas), in what ever capacity acting, including lessees or mortgagors of real
or personal property, trustees acting in any trust capacity, executors, administrators,
receivers, conservators, fiduciaries, employers, and all officers and employees of the

Government of the Philippines having the control, receipt, custody, disposal, or payment of
interest, dividends, rents, salaries, wages, premiums, annuities, compensation,
remunerations, emoluments, or other fixed or determinable annual or periodical gains,
profits, and income of any nonresident alien individual, not engaged in trade or business
within the Philippines and not having any office or place of business therein, shall (except in
the case provided for in subsection [a] of this section) deduct and withhold from such annual
or periodical gains, profits, and income a tax equal to twelve per
centum thereof: Provided That no deductions or withholding shall be required in the case of
dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or
business within the Philippines or has an office or place of business therein, and (2) more
than eighty-five per centum of the gross income of such corporation for the three-year period
ending with the close of its taxable year preceding the declaration of such dividends (or for
such part of such period as the corporation has been in existence)was derived from sources
within the Philippines as determined under the provisions of section thirtyseven:Provided, further, That the Collector of Internal Revenue may authorize such tax to be
deducted and withheld from the interest upon any securities the owners of which are not
known to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in determining
the amount to be withheld. According, in computing the withholding tax due on the reinsurance
premium in question, no deduction shall be recognized.
33.hilado

general Circular No. V- 123 but laid down the rule that losses of property which
occurred during the period of World War II from fires, storms, shipwreck or other
casualty, or from robbery, theft, or embezzlement are deductible in the year of
actual loss or destruction of said property.
Dapat nung 1950
To begin with, assuming that said a mount represents a portion of the 75% of his
war damage claim which was not paid, the same would not be deductible as a loss
in 1951 because, according to Petitioner, the last installment he received from the
War Damage Commission, together with the notice that no further payment would
be made on his claim, was in 1950. In the circumstance, said amount would at most
be a proper deduction from his 1950 gross income. In the second place, said
amount cannot be considered as a business asset which can be deducted as a
loss in contemplation of law because its collection is not enforceable as a matter of
right, but is dependent merely upon the generosity and magnanimity of the U. S.
government. Note that, as of the end of 1945, there was absolutely no law under
which Petitioner could claim compensation for the destruction of his properties
during the battle for the liberation of the Philippines. And under the Philippine
Rehabilitation Act of 1946, the payments of claims by the War Damage Commission
merely depended upon its discretion to be exercised in the manner it may see fit,
but the non-payment of which cannot give rise to any enforceable right, for, under
said Act, All findings of the Commission concerning the amount of loss or damage
sustained, the cause of such loss or damage, the persons to whom compensation

pursuant to this title is payable, and the value of the property lost or damaged, shall
be conclusive and shall not be reviewable by any court. (section 113).
Di business asset
In line with this opinion, the Secretary of Finance, through the Collector of Internal
Revenue, issued General Circular No. V-139 which not only revoked and declared
void his previous Circular No. V 123 but laid down the rule that losses of property
which occurred during the period of World War II from fires, storms, shipwreck or
other casualty, or from robbery, theft, or embezzlement are deductible for income
tax purposes in the year of actual destruction of said property. We can hardly argue
against this opinion. Since we have already stated that the amount claimed does
not represent a business asset that may be deducted as a loss in 1951, it is clear
that the loss of the corresponding asset or property could only be deducted in the
year it was actually sustained. This is in line with section 30 (d) of the National
Internal Revenue Code which prescribes that losses sustained are allowable as
deduction only within the corresponding taxable year.
Not political in nature

It is well known that our internal revenue laws are not political in nature and as such
were continued in force during the period of enemy occupation and in effect were
actually enforced by the occupation government. As a matter of fact, income tax
returns were filed during that period and income tax payment were effected and
considered valid and legal. Such tax laws are deemed to be the laws of the occupied
territory and not of the occupying enemy.
Authority
It cannot be denied, however, that the Secretary of Finance is vested with authority
to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office
because the construction of a statute by those administering it is not binding on
their successors if thereafter the latter become satisfied that a different
construction should be given. [Association of Clerical Employees vs. Brotherhood of
Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.]
Retroactivity
The reason is obvious:

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a vested right cannot spring from a wrong interpretation.

This is too clear to require elaboration. Once a regulation which merely interprets a

statute is determined erroneous, it becomes a nullity.

5 pbcom
Petitioner argues that its claims for refund and tax credits are not yet
barred by prescription relying on the applicability of Revenue
Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states
that overpaid income taxes are not covered by the two-year prescriptive
period under the tax Code and that taxpayers may claim refund or tax
credits for the excess quarterly income tax with the BIR within ten (10)

years under Article 1144 of the Civil Code. The pertinent portions of the
circular reads:

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the
prescriptive period of two years to ten years on claims of excess quarterly income tax payments,
such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so
doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings
(in the sense of more specific and less general interpretations of tax laws) which are issued from
time to time by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts.Nevertheless, such interpretation is not conclusive and will
be ignored if judicially found to be erroneous.[20] Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony with, the law they seek
to apply and implemen
Further, fundamental is the rule that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents. [24] As pointed out by the respondent
courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative interpretation which is not in harmony with
Sec. 230 of 1977 NIRC, for being contrary to the express provision of a
statute. Hence, his interpretation could not be given weight for to do so would, in
effect, amend the statute.
Hindi cir ngdeny

. Estoppel has no application in the case at bar because it was not

the Commissioner of Internal Revenue who denied petitioners claim
of refund or tax credit. Rather, it was the Court of Tax Appeals who
denied (albeit correctly) the claim and in effect, ruled that the RMC
No. 7-85 issued by the Commissioner of Internal Revenue is an
administrative interpretation which is out of harmony with or
contrary to the express provision of a statute (specifically Sec. 230,
NIRC), hence, cannot be given weight for to do so would in effect
amend the statute
Anong gagawin s excess
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any excess
of the total quarterly payments over the actual income tax computed in the
adjustment or final corporate income tax return, shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking
the option box provided in the BIR form) its intention, whether to request for a
refund or claim for an automatic tax credit for the succeeding taxable year. To ease
the administration of tax collection, these remedies are in the alternative, and the
choice of one precludes the other.

Finally, as to the claimed refund of income tax over-paid in 1986 the Court of Tax Appeals, after examining the adjusted final
corporate annual income tax return for taxable year 1986, found out
that petitioner opted to apply for automatic tax credit. This was the
basis used (vis-avis the fact that the 1987 annual corporate tax
return was not offered by the petitioner as evidence) by the CTA in
concluding that petitioner had indeed availed of and applied the
automatic tax credit to the succeeding year, hence it can no longer
ask for refund, as to [sic] the two remedies of refund and tax credit
are alternative.
6 sablan

In any event, the CTA held that there was no need to issue a
subpoena duces tecum to obtain the Affidavit of the Informer as
the same formed part of the BIR records of the case, the
production of which had been ordered by it.
Kahit illegal ahaha
o examine any book, paper, record or other data which may be
relevant or material to such query;
(B)
To obtain on a regular basis from any person other
than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or
officer of the national and local governments,
government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned
and controlled corporations, any information such as, but
not limited to, costs and volume of production, receipts
or sales and gross incomes of taxpayers, and the names,
addresses, and financial statements of corporations,
mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint
accounts, associations, joint ventures or consortia and
registered partnerships and their members;

(C)

To summon the person liable for tax or required to file a

return, or any officer or employee of such person, or any
person having possession, custody, or care of the
books of accounts and other accounting records
containing entries relating to the business of the
person liable for tax, or any other person, to appear
before the Commissioner or his duly authorized
representatives at a time and place specified in the
summons and to produce such books, papers, records, or
other data, and to give testimony;

7. hantex
Best evidence

The best evidence envisaged in Section 16 of the 1977 NIRC, as

amended, includes the corporate and accounting records of the taxpayer who
is the subject of the assessment process, the accounting records of other
taxpayers engaged in the same line of business, including their gross profit
and net profit sales.[ 6 7 ] Such evidence also includes data, record, paper,
document or any evidence gathered by internal revenue officers from other
taxpayers who had personal transactions or from whom the subject taxpayer
received any income; and record, data, document and information secured
from government offices or agencies, such as the SEC, the Central Bank of
the Philippines, the Bureau of Customs, and the Tariff and Customs
Commission.
The law allows the BIR access to all relevant or material records and data
in the person of the taxpayer. It places no limit or condition on the type or form
of the medium by which the record subject to the order of the BIR is kept. The
purpose of the law is to enable the BIR to get at the taxpayers records in
whatever form they may be kept. Such records include computer tapes of the
said records prepared by the taxpayer in the course of business. [ 6 8 ] In this era
of developing information-storage technology, there is no valid reason to
immunize companies with computer-based, record-keeping capabilities from
BIR scrutiny. The standard is not the form of the record but where it might
shed light on the accuracy of the taxpayers return.
Pede hearsay
We agree with the contention of the petitioner that the best evidence obtainable may consist of
hearsay evidence, such as the testimony of third parties or accounts or other records of other
taxpayers similarly circumstanced as the taxpayer subject of the investigation, hence,
inadmissible in a regular proceeding in the regular courts.[ 7 2 ] Moreover, the general rule is that

administrative agencies such as the BIR are not bound by the technical rules of evidence. It can
accept documents which cannot be admitted in a judicial proceeding where the Rules of Court
are strictly observed. It can choose to give weight or disregard such evidence, depending on its
trustworthiness.
8. bdo
Procedural
[The doctrine of exhaustion of administrative remedies] is a relative one and its flexibility is called upon by
the peculiarity and uniqueness of the factual and circumstantial settings of a case. Hence, it is disregarded
(1) when there is a violation of due process, (2) when the issue involved is purely a legal question, 155 (3)
when the administrative action is patently illegal amounting to lack or excess of jurisdiction,(4) when there
is estoppel on the part of the administrative agency concerned,(5) when there is irreparable injury, (6) when
the respondent is a department secretary whose acts as an alter ego of the President bears the implied and
assumed approval of the latter, (7) when to require exhaustion of administrative remedies would be
unreasonable, (8) when it would amount to a nullification of a claim, (9) when the subject matter is a
private land in land case proceedings, (10) when the rule does not provide a plain, speedy and adequate
remedy, (11) when there are circumstances indicating the urgency of judicial intervention. 156 (Emphasis
supplied, citations omitted)
The exceptions under (2) and (11) are present in this case. The question involved is purely legal, namely:
(a) the interpretation of the 20-lender rule in the definition of the terms public and deposit substitutes under
the 1997 National Internal Revenue Code; and (b) whether the imposition of the 20% final withholding tax
on the PEACe Bonds upon maturity violates the constitutional provisions on non-impairment of contracts and
due process. Judicial intervention is likewise urgent with the impending maturity of the PEACe Bonds on
October 18, 2011.
Jurisdiction
We agree with respondents that the jurisdiction to review the rulings of the Commissioner of Internal
Revenue pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011
were issued in connection with the implementation of the 1997 National Internal Revenue Code on the
taxability of the interest income from zero-coupon bonds issued by the government.
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No.
9282,

160

such rulings of the Commissioner of Internal Revenue are appealable to that court, thus:

SEC.

7. Jurisdiction. -

The

CTA

shall

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exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1.

Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

In exceptional cases, however, this court entertained direct recourse to it when dictated by public welfare
and the advancement of public policy, or demanded by the broader interest of justice, or the orders
complained of were found to be patent nullities, or the appeal was considered as clearly an inappropriate
164

remedy.

chanRoble svirtualLawlibra

y, non-compliance with the rules on exhaustion of administrative remedies and hierarchy of courts had been
rendered moot by this courts issuance of the temporary restraining order enjoining the implementation of
the 2011 BIR Ruling. The temporary restraining order effectively recognized the urgency and necessity of
direct resort to this court.

Mali dati bir rulings

The Bureau of Internal
Revenue rulings
The Bureau of Internal Revenues interpretation as expressed in the three 2001 BIR Rulings is not consistent
207

with law.
restrictive.

Its interpretation of at any one time to mean at the point of origination alone is unduly

BIR Ruling No. 370-2011 is likewise erroneous insofar as it stated (relying on the 2004 and 2005 BIR
Rulings) that all treasury bonds . . . regardless of the number of purchasers/lenders at the time of
208

origination/issuance are considered deposit substitutes.

Being the subject of this petition, it is, thus,
declared void because it completely disregarded the 20 or more lender rule added by Congress in the 1997
National Internal Revenue Code. It also created a distinction for government debt instruments as against
those issued by private corporations when there was none in the law.
Tax statutes must be reasonably construed as to give effect to the whole act. Their constituent provisions
209

must be read together, endeavoring to make every part effective, harmonious, and sensible.
That
construction which will leave every word operative will be favored over one that leaves some word, clause,
or sentence meaningless and insignificant.

210
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It may be granted that the interpretation of the Commissioner of Internal Revenue in charge of executing
the 1997 National Internal Revenue Code is an authoritative construction of great weight, but the principle is
not absolute and may be overcome by strong reasons to the contrary. If through a misapprehension of law
an officer has issued an erroneous interpretation, the error must be corrected when the true construction is
ascertained.
This court further held that [a] memorandum-circular of a bureau head could not operate to vest a
taxpayer with a shield against judicial action [because] there are no vested rights to speak of respecting a
wrong construction of the law by the administrative officials and such wrong interpretation could not place
the Government in estoppel to correct or overrule the same.
Fraud e, di tlga rcbc bumili
SEC. 222. 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 for the collection of such tax may be filed without assessment, at
any time within ten (10) 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 the collection thereof.
Thus, should it be found that RCBC Capital/CODE-NGO sold the PEACe Bonds to 20 or more
lenders/investors, the Bureau of Internal Revenue may still collect the unpaid tax from RCBC Capital/CODENGO within 10 years after the discovery of the omission.
BIR Ruling No. 370-2011 is likewise erroneous insofar as it stated (relying on the 2004 and 2005 BIR
Rulings) that all treasury bonds . . . regardless of the number of purchasers/lenders at the time of
208

origination/issuance are considered deposit substitutes.

Being the subject of this petition, it is, thus,
declared void because it completely disregarded the 20 or more lender rule added by Congress in the 1997
National Internal Revenue Code. It also created a distinction for government debt instruments as against
those issued by private corporations when there was none in the law.
9 abs cbn

Sec. 338-A. Non-retroactivity of rulings. Any revocation, modification, or reversal of and of the
rules and regulations promulgated in accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive
application if the relocation, modification, or reversal will be prejudicial to the taxpayers, except in the

following cases: (a) where the taxpayer deliberately mis-states or omits material facts from his return
or any document required of him by the Bureau of Internal Revenue: (b) where the facts
subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on
which the ruling is based; or (c) where the taxpayer acted in bad faith.
The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in
this case. It provides that "the re-enactment of a statute substantially unchanged is persuasive
indication of the adoption by Congress of a prior executive construction. 7 Note should be taken of the
fact that this case involves not a mere opinion of the Commissioner or ruling rendered on a mere query,
but a Circular formally issued to "all internal revenue officials" by the then Commissioner of Internal
Revenue.
It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of
Revenue Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to 35%
of the "gross income."
This Court is not unaware of the well-entrenched principle that the Government is never estopped
from collecting taxes because of mistakes or errors on the part of its
agents. 8 In fact, utmost caution should be taken in this regard. 9 But, like other principles of law, this also
admits of exceptions in the interest of justice and fairplay. The insertion of Sec. 338-A into the National
Internal Revenue Code, as held in the case of Tuason, Jr. vs. Lingad, 10 is indicative of legislative intention
to support the principle of good faith. In fact, in the United States, from where Sec. 24 (b) was patterned, it
has been held that the Commissioner of Collector is precluded from adopting a position inconsistent with
one previously taken where injustice would result therefrom, 11 or where there has been a
misrepresentation to the taxpayer. 12
We have also noted that in its Decision, the Court of Tax Appeals further required the petitioner to
pay interest and surcharge as provided for in Sec. 51 (e) of the Tax Code in addition to the
deficiency withholding tax of P 525,897.06. This additional requirement is much less called for
because the petitioner relied in good faith and religiously complied with no less than a Circular
issued "to all internal revenue officials" by the highest official of the Bureau of Internal Revenue and
approved by the then Secretary of Finance. 13
10 deutsuche

Our Constitution provides for adherence to the general principles of international law as part of the
law of the land.15 The time-honored international principle of pacta sunt servanda demands the
performance in good faith of treaty obligations on the part of the states that enter into the agreement.
Every treaty in force is binding upon the parties, and obligations under the treaty must be performed
by them in good faith.16 More importantly, treaties have the force and effect of law in this jurisdiction.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We
recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTAs outright
denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony
with the objectives of the contracting state to ensure that the benefits granted under tax treaties are
enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty
relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it
would constitute a violation of the duty required by good faith in complying with a tax treaty. The
denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period

under the administrative issuance would impair the value of the tax treaty. At most, the application
for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to
the relief.
Likewise, both the administrative and the judicial actions were filed within the two-year prescriptive
period pursuant to Section 229 of the NIRC.24
Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of 10% BPRT
in accordance with the RP-Germany Tax Treaty.
4 filinvest

In its appeal before the CA, the CIR argued that the foregoing
ruling was later modified in BIR Ruling No. 108-99 dated 15 July
1999, which opined that inter-office memos evidencing lendings
or borrowings extended by a corporation to its affiliates are akin
to promissory notes, hence, subject to documentary stamp taxes.
[64]
In brushing aside the foregoing argument, however, the CA
applied Section 246 of the 1993 NIRC[65] from which proceeds the
settled principle that rulings, circulars, rules and regulations
promulgated by the BIR have no retroactive application if to so
apply them would be prejudicial to the taxpayers. [66] Admittedly,
this rule does not apply: (a) where the taxpayer deliberately
misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue; (b)
where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the
ruling is based; or (c) where the taxpayer acted in bad faith.
[67]
Not being the taxpayer who, in the first instance, sought a
ruling from the CIR, however, FDC cannot invoke the foregoing
principle on non-retroactivity of BIR rulings.