Beruflich Dokumente
Kultur Dokumente
BASIS OF TAXATION
Lifeblood Doctrine
Q. Can the Government require Manuel Pineda to pay the full amount of the taxes
assessed?
A. Yes, the Government can require Manuel Pineda to pay the full amount of the
taxes assessed. The remedy (tax lien) is the very avenue the Government took in
this case to collect the tax. The BIR should be given in instances like the case at
bar, the necessary discretion to avail itself of the most expeditious way to collect
the tax as may be envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of the government and their prompt and
certain availability is an imperious need.
A. No, it is a long and firmly settled rule of law that the Government is not bound by
the errors committed by its agents. In the performance of its government functions,
the State cannot be estopped by the neglect of its agents and officers. Although
the Government may generally be estopped through the affirmative acts of public
officers acting within their authority, their neglect or omission of public duties as
exemplified in this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It is
axiomatic that the Government cannot and must not be estopped particularly in
matters involving taxes. Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. The errors of certain administrative
officers should never be allowed to jeopardize the Government’s financial position,
especially in the case at bar where the amount involves millions of pesos the
collection whereof, if justified, stands to be prejudiced just because of bureaucratic
lethargy.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Marcos II vs. CA, June 5, 1997, 273 SCRA 47
Facts: Marcos II assailed the decision of the CA declaring the deficiency income tax
assessments and estate tax assessments upon the estate and properties of his late
father final despite the pendency of the probate proceedings of the will of the late
President. On the other hand, the BIR argued that the State’s authority to collect
internal revenue taxes is paramount.
Q. Can the BIR collect estate taxes without the approval of a probate court?
A. Yes, the approval of the court, sitting in probate, or as a settlement tribunal over
the deceased is not a mandatory requirement in the collection of estate taxes. The
enforcement of tax laws and the collection of taxes are of paramount importance
for the sustenance of government. Taxes are the lifeblood of the government and
should be collected without unnecessary hindrance. However, such collection
should be made in accordance with law as any arbitrariness will negate the reason
for the government itself. It is, therefore, necessary to reconcile the apparent
conflicting interests of the authorities and the taxpayer so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
A. No, since taxes are the lifeblood of the nation, a claim of statutory exemption
from taxation should be manifest and unmistakable from the language of the law on
which it is based. The claimed exemption must expressly be granted in a language
too clear to be mistaken
THEORIES ON TAXATION
Necessity Theory
LIABILITIES INVOLVED
A. No, a corporation’s tax delinquency cannot, for instance, be enforced against its
stockholders because not only would this run counter to the principle that taxes are
personal, but it would run counter to the principle that taxes are personal, but it
would also not be in accord with the rule that a corporation is vested by law with a
personality that is separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Facts: The Central Syndicate, a corporation organized under the laws of the Phil.,
sent a letter to the Collector of Internal Revenue advising the latter that it
purchased from Dee Hong Lue the entire stock of surplus properties and that it
assumed Lue's obligation to pay the 3-1/2% sales tax on said surplus goods, it was
remitting the sum of P43,750.00 in his behalf as deposit to answer for the payment
of said sales tax with the understanding that it would later be adjusted after the
determination of the exact consideration of the sale. The syndicate again wrote the
Collector requesting a refund due to the adjustment and reduction of the purchase
price. However, the Collector denied the claim for refund. The Collector filed a
motion requiring the syndicate to file a bond to guarantee the payment of the tax
assessed against it which motion was denied by the CTA on the ground that cannot
be legally done it appearing that the syndicate is already a non-existing entity due
to the expiration of its corporate existence, the case was dismissed. From this order
the syndicate appealed to the SC wherein it intimated that the appeal should not be
dismissed because it could be substituted by its successors-in-interest.
Q. The Central Syndicate having already been dissolved because of the expiration
of its corporate existence, can the sales tax in question be enforced against its
successors-in-interest who are the present petitioners?
A. Yes, the creditor of a dissolved corporation may follow its assets once they
passed into the hands of the stockholders. The dissolution of a corporation does not
extinguish the debts due or owing to it. A creditor of a dissolved corporation may
follow its assets, as in the nature of a trust fund, into the hands of its stockholders.
An indebtedness of a corporation to the federal government for income and excess
profit taxes is not extinguished by the dissolution of the corporation. And it has
been stated, with reference to the effect of dissolution upon taxes due from a
corporation, "that the hands of the government cannot, of course, collect taxes from
a defunct corporation, it loses thereby none of its rights to assess taxes which had
been due from the corporation, and to collect them from persons, who by reason of
transactions with the corporation, hold property against which the tax can be
enforced and that the legal death of the corporation no more prevents such action
than would the physical death of an individual prevent the government from
assessing taxes against him and collecting them from his administrator, who holds
the property which the decedent had formerly possessed." Hence, petitioners could
be held personally liable for the taxes in question as successors-in-interest of the
defunct corporation.
Liabilities of a taxpayer
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
court, which were prosecutions for failure to file income tax returns and for non-
payment of income taxes.
A. No, the acquittal in the said criminal cases cannot operate to discharge
defendant from the duty of paying the taxes which the law requires to be paid,
since that duty is imposed by statute prior to and independently of any attempts by
the taxpayer to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding nor is it a mere civil liability
arising from crime that could be wiped out by the judicial declaration of non-
existence of the criminal acts charged.
Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. The situation under the income tax law is the exact opposite. Civil
liability to pay taxes arises from the fact, for instance, that one has engaged himself
in business, and not because of any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his civil obligation.
Levy/ Imposition
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Senate was declared by the United States Supreme Court to be sufficiently broad to
enable it to make the alteration. [Flint v. Stone Tracy Company. 220 U.S. 107, 55 L.
ed. 389]
Q. Is the tax law increasing the existing tax on the manufacture of sugar valid?
A. Yes, the protection and promotion of the sugar industry is a matter of public
concern; the legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative discretion
must be allowed full play, subject only to the test of reasonableness. If objective
and methods alike are constitutionally valid, there is no reason why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the State’s police power.
A. No, the legislature has the inherent power to select the subjects of taxation and
to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more than in other areas,
the legislature possesses the greatest freedom in classification. In the case of the
anti-TB stamp, undoubtedly, the single most important and influential consideration
that led the legislature to select mail users as subjects of the tax is the relative ease
and convenience of collecting the tax through the post offices. The small amount of
five centavo does not justify the great expense and inconvenience of collecting
through the regular means of collection.
A. No, it is not for the courts to judge what particular cities or municipalities should
be empowered to impose occupation taxes in addition to those imposed by the
National Government. That matter is peculiarly within the domain of the political
departments and the courts would do well not to encroach upon it.
Sison, Jr. vs. Ancheta, July 25, 1984, 130 SCRA 652
Facts: The National Internal Revenue Code was amended by BP 135, effectively
broadening the rates of tax on individual income taxes. Petitioner brought a
taxpayer’s suit alleging that the amendatory provision was arbitrary amounting to
class legislation, oppressive and capricious in character. He concludes that both the
equal protection and due process clauses had been transgressed, as well as the rule
requiring uniformity in taxation. In response thereto, the Solicitor General stated in
his answer that BP 135 is a valid exercise of the State’s power to tax.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Facts: A lower court decision upholding the validity of an ordinance of the City of
Baguio imposing a license fee on any person, firm, entity or corporation doing
business in the City of Baguio is assailed by De Leon. He was held liable as a real
estate dealer and was obligated to pay under such ordinance an annual fee. In
addition, there has been a firm insistence by appellant of the lack of jurisdiction of
the City Court of Baguio, where the suit originated due to the fact that the issue of
constitutionality was raised.
Q. Does the City Court of Baguio have jurisdiction to decide on the constitutionality
of the ordinance?
A. Yes, since the City Court is possessed of judicial power and it is likewise
axiomatic that the judicial power embraces the ascertainment of facts and the
application of the law, the Constitution as the highest law superseding any statute
or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter.
While it remains undoubted that such a power to pass on the validity of an
ordinance alleged to infringe certain constitutional rights of a litigant exists, still it
should be exercised with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city court in the
judicial hierarchy.
PURPOSES OF TAXATION
Primary Purpose, To raise revenue
A. No, the raising of revenues is the principal object of taxation. Under Section 5,
Article XI of the New Constitution, "Each local government unit shall have the power
to create its own sources of revenue and to levy taxes, subject to such provisions as
may be provided by law. And one of those sources of revenue is what the Local Tax
Code points to in particular: "Local governments may collect fan or rentals for the
occupancy or use of public markets and premises * * *." They can provide for and
regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy
thereof. They can license, or permit the use of, lease, sell or otherwise dispose of
stands, stalls or marketing privileges.
Q. Can taxation be used as an implement for the exercise of the power of eminent
domain?
A. Yes, the taxation power can also be used as an implement for the exercise of the
power of eminent domain. Tax measures are but “enforced contributions exacted
on pain of penal sanctions” and “clearly imposed for a public purpose.” In recent
years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth. The 20% discount
given to senior citizens on pharmacy products was considered a property, in the
form of a supposed profit, taken from the drugstore and used for public use, by
means of giving it directly to individual senior citizen. Be it stressed that the
privilege enjoyed by senior citizens does not come directly from the State, but
rather from the private establishments concerned. Accordingly, the tax credit
benefit granted to these establishments can be deemed as their just compensation
for private property taken by the State for public use.
Regulatory Measure
A. No, the levy of a 30% tax is for a public purpose. It was imposed primarily for
answering the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic videotapes, and therefore valid. While the direct
beneficiary of the said decree is the movie industry, the citizens are held to be its
indirect beneficiaries.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. None, from the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses dedicated to
other purposes is not indefensible. Race horses are devoted to gambling if
legalized, their owners derive fat income and the public hardly any profit from horse
racing, and this business demands relatively heavy police supervision.
Q. Is the tax law increasing the existing tax on the manufacture of sugar valid?
A. Yes, the protection and promotion of the sugar industry is a matter of public
concern; the legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative discretion
must be allowed full play, subject only to the test of reasonableness. If objective
and methods alike are constitutionally valid, there is no reason why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the State’s police power.
Q. Were Roxas brothers and Roxas y Compania real estate dealers, hence are liable
to pay 100% of the net gain as income tax?
A. The act of subdividing a farm land and selling them to the farmer- occupants on
installment in response to the Government’s policy to allocate land to the landless
is not subject to real estate dealer’s tax. The business activity of the landowner in
selling the land involves an isolated transaction with its peculiar circumstances and
not to be considered as an act of a dealer even though there were hundreds of
vendees.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
instant case for the Government to persuade, the taxpayer to lend it a helping hand
and later on to penalize him for duly answering the urgent call.
A. No, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages or even definitely deters the activities taxed. The
power to impose taxes is one so unlimited in force and so searching in extent that
the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it.
Administrative Feasibility
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan,
June 30, 1988, 163 SCRA 371
Facts: This case has been consolidated because of the similarity of the main issues
involved therein which seek to nullify E.O. 273 which amended certain sections of
the NIRC and adopted VAT. Petitioners contend that VAT is unconstitutional for
being oppressive, discriminatory, regressive and violates the equal protection and
due process clause of the Constitution.
Q. Is VAT unconstitutional?
A. No, VAT is a tax levied on a wide range of goods and services. It is a tax on the
value, added by every seller, with aggregate gross annual sales of articles and/or
services, exceeding P200,000.00, to his purchase of goods and services, unless
exempt. VAT is principally aimed to rationalize the system of taxing goods and
services; simplify tax administration; and make the tax system more equitable, to
enable the country to attain economic recovery.
A. No, there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of lawsuit against the
government.
EXCEPTIONS
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. Yes, Sampaguita was entitled to a judgment against the Republic for the
payment of the face value of the certificate, the same having already been
presented and surrendered within the said period of ten (10) years to the Treasurer
of the Philippines (through the Municipal Treasurer of Bocaue.) In effect, while
judgment shall be rendered in favor of the Republic against Sampaguita for unpaid
taxes, judgment ought at the same time to issue for Sampaguita commanding
payment to it by Republic of the same sum representing the face value of the
certificate of indebtedness assigned to it and for recovery of which it had
specifically prayed in its counterclaim.
Q. Is the tax law increasing the existing tax on the manufacture of sugar valid?
A. Yes, the protection and promotion of the sugar industry is a matter of public
concern; the legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative discretion
must be allowed full play, subject only to the test of reasonableness. If objective
and methods alike are constitutionally valid, there is no reason why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the State’s police power.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. No, the levy of a 30% tax is for a public purpose. It was imposed primarily for
answering the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic videotapes, and therefore valid. While the direct
beneficiary of the said decree is the movie industry, the citizens are held to be its
indirect beneficiaries.
Q. May the legislature validly appropriate public funds for a private purpose?
A. No, the law appropriating public funds for the construction of feeder roads on
land belonging to a private person is not valid, and donation to the government of
the said land made over five (5) months after the approval and effectivity of the Act
for the purpose of giving a semblance of legality to the appropriation does not cure
the basic defect.
The rule is that if the public advantage or benefit is merely incidental in the
promotion of a particular enterprise, such defect shall render the law invalid. On
the other hand, if what is incidental is the promotion of a private enterprise, the tax
law shall be deemed for a public purpose.
Territoriality
Q. Are the questioned shares of stocks subject to the Philippine Inheritance Tax?
In the instant case, the actual situs of the shares of stock is in the Philippines, the
corporation being domiciled therein. And besides, the certificates of stock have
remained in this country up to the time when the deceased died in California. And
that one Syrena McKee, secretary of the Benguet Consolidated Mining Company,
has the legal title to the certificates of stock held in trust for the true owner thereof.
In other words, the owner residing in California has extended here her activities with
respect to her intangibles so as to avail herself of the protection and benefit of the
Philippine laws.
A. Yes, MCIAA can no longer invoke the general rule in Section 133 - that the taxing
power of LGU’s cannot extend to the levy of (a) taxes, fees or charges of any kind
on the National Government, its agencies or instrumentalities, and LGU’s.
A. Yes, the assessment and collection by the Philippine Government of the tax on
sales of merchandise made in the Philippines to the US Army and US Navy is illegal.
Sales made in the Philippines to the US Army and US Navy are made to
instrumentalities of the US Government, and therefore are not subject to tax by the
Philippine Government.
Q. Is the public land reserved by the President for warehousing purposes in favor of
a government-owned or controlled corporation (GOCC) as well as the warehouse
thereon exempt from tax?
A. With regard to the land, the answer is in the affirmative, the Republic, like any
individual, may form a corporation with personality and existence distinct from its
own. The separate personality allows a GOCC to hold and possess properties in its
own name and thus permit greater independence and flexibility in its operations. It
may therefore be stated that the tax exemption of property owned by the Republic
refers to properties owned by the Government and by its agencies which do not
have separate and distinct personalities (unincorporated entities).
What appears to have been ceded to NDC is merely the administration of the
property while the government retains ownership of what has been declared
reserved for warehousing purposes. The subject reserved public land remains tax
exempt.
However, the exemption of public property from taxation does not extend to
improvements on the public lands made by preemptioners, homesteaders and other
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
claimants or occupants. The warehouse constructed on the reserved land by NDC
should properly be assessed real estate tax as such improvement does not appear
to belong to the Republic.
CONSTITUTIONAL LIMITATIONS ON
THE POWER TO TAX
Due Process of Law
A. Yes, the use of the comparable sales approach result to the fact that the taxes
exceed the sum total of the yearly income or rental paid by the dweller. The due
process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to
amount to confiscation of property that would be a clear abuse of power.
A. No, equal protection clause applies only to persons or things identically situated
and does not bar a reasonable classification of the subject of legislation. A
classification is reasonable where:
A perusal of the requisites instantly show that the questioned ordinance does
not meet them, for it taxes only centrifugal sugar produced and exported by Ormoc
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Sugar Company, Inc. and none other. At the time of the taxing ordinance’s
enactment, Ormoc Sugar Company, it is true, was the only sugar central in the City
of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to
future conditions as well. The taxing ordinance should not be singular and exclusive
as to exclude any substantially established sugar central, of the same class as
plaintiff, from the coverage of the tax.
A. Yes, the P50.00 fee is unreasonable because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. The
Constitution does not prohibit classification but it is imperative that the
classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The fee is collected
from every employed alien, whether he is casual or permanent, part-time or full-
time, whether he is a lowly employee or a highly-paid executive.
The ordinance does not lay down any criterion or standard to guide the Major
in the exercise of his discretion.
Uniformity of Taxation
Q. Is the law invalid as it violates the rule on uniformity and equality in taxation?
A. No, the taxing power may make a reasonable and natural classification for
purposes of taxation but it must not be discriminatory. The law operates equally
and uniformly on all persons under the same circumstances.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Q. Does the Ordinance violates the rule on uniformity?
A. Yes, the Ordinance infringes the rule of uniformity. The said ordinance infringes
also the rule of uniformity of taxation ordained by our Constitution. It exacts the tax
upon all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither
does it distinguish between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and uses its streets
and public highways. There is no pretense that the ordinance equally applies to
motor vehicles which come to Manila for a temporary stay or for short errands, and
it cannot be denied that they contribute in no small degree to the deterioration of
the streets and public highways. As they are benefited by their use they should also
be made to share the corresponding burden. This is an inequality which is found in
the ordinance in question and which renders it offensive to the Constitution.
A. No, there is no undue delegation of legislative power but only of the discretion as
to the execution of a law. This is constitutionally permissible. Congress did not
delegate the power to tax but the mere implementation of the law. The intent and
will to increase the VAT rate to 12% came from Congress and the task of the
President is to simply execute the legislative policy. That Congress chose to use the
GDP as a benchmark to determine economic growth is not within the province of
the Court to inquire into, its task being to interpret the law.
The Court held that in making recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not acting as
the alter ego of the President or even her subordinate. He is acting as the agent of
the legislative department, to determine and declare the event upon which its
expressed will is to take effect. The Secretary of Finance becomes the means or tool
by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Facts: RA 7716 was enacted to widen the tax base of the existing VAT system and
enhance its administration by amending the National Internal Revenue Code (NIRC).
One of the petitioners is Philippine Press Institute (PPI),a non-profit organization of
newspaper publishers. Petitioner claims violations of their rights under Sections 4 of
the Bill of Rights as a result of the enactment of the VAT Law.
The PPI questions the law insofar as it has withdrawn the exemption previously
granted to the press under Section 103 (f) f the NIRC. Although the exemption was
subsequently restored by administrative regulation with respect to the circulation of
income of newspapers, PPI presses its claim because of the possibility that the
exemption may still be removed by mere revocation of the regulation of the
Secretary of Finance.
A. No, even with due recognition of its high estate and its importance in a
democratic society, however the press is not immune from general regulation by
the State. It has been held that the publisher of a newspaper has no immunity from
the application of general laws. He has no special privilege to invade the rights and
liberty of others. He must answer for libel. He may be punished for contempt of
court. Like others, he must pay equitable and nondiscriminatory taxes on his
business.
A. No, it is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. A bill originating in the House
of Representatives may undergo extensive changes in the Senate that may result in
the rewriting of the whole. To insist that the revenue statute and not only the bill
must substantially be the same as the House bill will be to violate the Senate’s
power to concur and propose amendments.
Q. Are the lot, building and other improvements used by St. Catherine’s Hospital
exempt from real property tax?
A. Yes, within the purview of constitutional exemption from taxation, St. Catherine
Hospital is therefore, a charitable institution and the fact that it admits pay-patients
does not bar it from claiming that is devoted exclusively to benevolent purposes, it
being admitted that the income derived from pay-patients is devoted to the
improvement of charity ward, which represents almost 2/3 of the bed capacity of
the hospital, aside from “charity out-patients” who come only for consultation.
Q. Are the parts of the school building used as residence and leased to commercial
establishments tax-exempt?
A. I qualify; the test for exemption from taxation is the use of the property for
purposes mentioned in the Constitution. However, the exemption extends to
facilities which are incidental to and reasonably necessary for the accomplishment
of the main purposes. The use of the second floor of the main building in the case at
bar for residential purposes of the Director and his family may find justification
under the concept of incidental use, which is complimentary to the main or primary
purpose – educational. While the use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence therefore not tax
exempt. The lease of the ground floor to the Northern Marketing Corporation cannot
by any stretch of imagination be considered incidental to the purpose of education.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
certiorari on
the decision
of CA which
affirmed the Facts: The petitioner Lung Center of the Philippines is a non-stock and non-profit
decision of entity. It is the registered owner of a 121,463 sq.m. parcel of land located at
the Central Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the
Board of Lung Center of the Philippines. A big space at the ground floor is being leased to
Assessment private parties, for canteen and small store spaces, and to medical or professional
Appeals practitioners who use the same as their private clinics for their patients whom they
holding that charge for their professional services. Almost one-half of the entire area on the left
the lot side of the building along Quezon Avenue is vacant and idle, while a big portion on
ownedby the the right side is being leased for commercial purposes to a private enterprise known
petitioner and as the Elliptical Orchids and Garden Center. Petitioner accepts paying and non-
its hospital paying patients. It also renders medical services to out-patients, both paying and
building are non-paying. Aside from its income from paying patients, the petitioner receives
subject to annual subsidies from the government. Both the land and the hospital building of
assessment the petitioner were assessed for real property taxes by the City Assessor of Quezon
City. Petitioner avers that it is a charitable institution within the context of Section
28(3), Article VI of the 1987 Constitution.
the Court held Q. Are the real properties of the petitioner exempt from real property taxes?
that the Lung
Center of the A. Those portions of its real property that are leased to private entities are not
Philippines exempt from real property taxes as these are not actually, directly and exclusively
did not lose used for charitable purposes. The Lung Center of the Philippines shall be exempt
its charitable from the payment of taxes, charges and fees imposed by the Government or any
character political subdivision or instrumentality thereof with respect to equipment purchases
when it used made by, or for the Lung Center. It is plain as day that under the decree, the
a portion of its petitioner does not enjoy any property tax exemption privileges for its real
lot for properties as well as the building constructed thereon.
commercial
purposes The tax exemption under Section 28(3), Article VI covers property taxes only. What
since the is exempted is not the institution itself but lands, buildings and improvements
effect of actually, directly and exclusively used for religious, charitable or educational
failing to meet purposes. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to
the use be entitled to the exemption, the petitioner is burdened to prove, by clear and
requirement is unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. What
simply to
is meant by actual, direct and exclusive use of the property for charitable purposes
remove from
is the direct and immediate and actual application of the property itself to the
the tax
purposes for which the charitable institution is organized. It is not the use of the
exemption
income from the real property that is determinative of whether the property is used
that portion of for tax-exempt purposes.
the property
not devoted to
charity. DOUBLE TAXATION
CIR vs. SC Johnson and Son, Inc., June 25, 1999, 309 SCRA
102
Facts: SC Johnson and Son, Inc., is a domestic corporation organized and operating
under the Philippine laws, entered into an agreement with SC Johnson and Son,
USA, a non-resident foreign corporation based in the USA pursuant to which
respondent was granted the right to use the trademark, patents and technology
owned by the latter including the right to manufacture, package and distribute the
products covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, USA. For the use of trademark
and technology respondent was obliged to pay SC Johnson and Son, USA royalties
and subjected the same to 25% withholding tax on royalty payments. Respondent
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
claim for refund of overpaid withholding tax on royalties and submit that the
royalties paid to SC Johnson and Son, USA is only subject to 10% withholding tax
pursuant to the most-favored nation clause. The CIR however, did not act on the
claim for refund.
Q. Is SC Johnson and Son, Inc. entitled to the “most favored nation” tax rate of 10%
on royalties?
A. No, since the RP-US Tax Treaty does not give a matching credit of 20% for the
taxes paid to the Philippines on royalties as allowed under the RP-West Germany
Tax Treaty, respondent cannot be deemed entitled to the 10% rate granted under
the latter treaty for the reason that there is no payment of taxes on royalties under
similar circumstances.
The “purpose of the “most favored nation clause” is to grant to the contracting
parties treatment not less favorable than that which has been or may be granted to
the “most favored” among other countries. The most favored nation clause is
intended to establish the principle of equality of international treatment by
providing that the citizens or subjects of the contracting nations may enjoy the
privileges accorded by either party to those of the most favored nation. The
essence of the principle is to allow the taxpayer in one state to avail of more liberal
provisions granted in another tax treaty to which the country of residence of such
taxpayer is also a party provided that the subject matter of taxation, in this case,
royalty income, is the same as that in the tax treaty under which the taxpayer is
liable.
Both Articles 13 of the RP-US Tax Treaty and Article 12(2) of the RP-West
Germany Tax Treaty, above-quoted, speaks of tax on royalties for the use of
trademark, patents, and technology. The entitlement of the 10% rate by US firms
despite the absence of matching credit (20% for royalties) would derogate from the
design behind the most favored nation clause to grant equality of international
treatment since the tax burden laid upon the income of the investor is not the same
in the two countries. The similarity in the circumstances of payment of taxes is a
condition for the enjoyment of most favored nation treatment precisely to
underscore the need for equality of treatment.
The RP-US Tax Treaty is just one of a number of bilateral treaties which the
Philippines has entered into for the avoidance of double taxation. The purpose of
these international agreements is to reconcile the national fiscal legislation of the
contracting parties in order to help the taxpayer avoid simultaneous taxation in two
different jurisdictions. More precisely, the tax conventions are drafted with a view
towards the elimination of international juridical double taxation which is defined as
the imposition of comparable taxes in two or more states on the same taxpayer in
respect of the same subject matter and for identical periods.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
The second method for the elimination of double taxation applies whenever the
state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation.
There are two methods of relief - the exemption method and the credit
method. In the exemption method, the income or capital which is taxable at the
state of source or situs is exempted at the state of residence, although in some
instances it may be taken into account in determining the rate of tax applicable to
the taxpayer’s remaining income or capital. On the other hand, in the credit
method, although the income or capital which is taxed in the state of source is still
taxable in the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is that in the
exemption method, the focus is on the income or capital, whereas the credit
method focuses upon the tax.
A. No, the contention that plaintiff-appellees are double-taxed because they are
paying real estate taxes and the tenement tax imposed by the ordinance in
question is devoid of merit. 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 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.
It has been shown that a real estate tax and the tenement tax imposed by
the ordinance, although imposed by the same taxing authority, are not of the same
kind or character. At all events, there is no constitutional prohibition against double
taxation in the Philippines.
TAX EVASION
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
CIR vs. Benigno Toda Jr., GR 147188, Sept. 14, 2004, 438
SCRA 290
Facts: The BIR sent an assessment notice and demand letter to the Cibeles
Insurance Corporation (CIC) for deficiency income tax for the year 1989 arising from
an alleged simulated sale of a 16-storey commercial building known as Cibeles
Building in Makati City. Prior to the transaction, the CIC authorized Benigno Toda,
Jr., President and owner of 99.991% of its issued and outstanding capital stock, to
sell the Cibeles Building and the two parcels of land on which the building stands.
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. For the sale of the property to RMI, Altonaga
paid capital gains tax in the amount of P10 million. Toda sold his entire shares of
stocks in CIC to Le Hun T. Choa for P12.5 million. Three and a half years later Toda
died.
The new CIC asked for a reconsideration asserting that the assessment should be
directed against the old CIC, 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
1987-1989. The BIR then proceeded against the estate of Toda. The administrator of
the estate of Toda paid the deficiency taxes under protest. However, this protest
was denied by the CIR stating that a fraudulent scheme was deliberately
perpetuated by the CIC wholly owned and controlled by Toda by covering up the
additional gain of P100 million, which resulted in the change in the income structure
of the proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of 35%.
Ruling: It is a tax evasion scheme. 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. 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.
The scheme resorted to by CIC in making it appear that there were two sales of the
subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot
be considered a legitimate tax planning (one way of tax avoidance). Such scheme
is tainted with fraud. Fraud in its general sense “is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is taken
of another.” Here, 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.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Ungab vs. Cusi, May 30, 1980, 97 SCRA 877
Facts: Upon examination of petitioner’s income tax return, it was discovered that
he failed to report his income derived from the sales of banana saplings. Convinced
that petitioner filed a fraudulent return, the BIR examiner recommended the filing of
a criminal prosecution for tax evasion. Petitioner filed a motion to quash the
information, alleging that the trial court has no jurisdiction to take cognizance of the
criminal case in view of his pending protest against the assessment made on him.
Q. Is the resolution of the protest of the assessment necessary before the filing of a
criminal case?
A. No, assessment is not a condition precedent to the filing of criminal charges for
tax evasion. Section 222 of NIRC provides that in cases where a false or fraudulent
return was submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Section 205 clearly mandates that the civil and criminal aspects of the case may be
pursued simultaneously. CIR has discretion in such tax evasion cases, whether to
file a criminal case against the taxpayer or to do both. It must be stressed that a
criminal complaint is instituted not to demand payment but to penalize the taxpayer
for violation of the Tax Code.
TAXPAYER’S SUIT
Q. Does the petitioner have the personality to question the validity of EO No. 30
based on a taxpayer’s suit?
A. No, Gonzales did not meet the requisite burden to warrant the reversal of the
trial court’s decision. It was pointed out therein that one valid reason why such an
outcome was unavoidable was that the funds administered by the Center came
from donations and contributions and not from taxation. Accordingly, there was the
absence of the pecuniary requisite or monetary interest. The stand of the lower
court finds support in judicial precedents. This is not to retreat from the liberal
approach followed in the earlier case of Pascual vs. Secretary of Public Works,
foreshadowed by People vs. Vera, where the doctrine was exhaustively discussed.
It is only to clarify that the Petitioner, judged by orthodox legal learning, has not
satisfied an element for a taxpayer’s suit.
INCOME TAXATION
Global System vs. Schedular System
Q. Is the law invalid for it runs counter to the constitutional rule that taxation shall
be uniform and equitable?
A. No, uniformity in taxation merely requires that all subjects or objects of taxation
similarly situated be treated alike in both privileges and liabilities. Uniformity does
not forbid classification as long as –
1) The standards that are used therefore are substantial and not arbitrary;
2) The categorization is germane to achieve the legislative purpose;
3) The law applies all things being equal, to both present and future
conditions, and
4) The classification applies equally well to all those belonging to the same
class.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
With the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. This court cannot freely delve into those matters which, by constitutional
fiat, rightly rest on legislative judgment. Where a tax measure becomes so
unconscionable and unjust as to amount of confiscation of property, courts will not
hesitate to strike it down, for, despite all its plenitude, the power to tax cannot
override constitutional proscriptions.
Schedular System -- employed where the income tax treatment varies and made
to depend on the kind or category of taxable income of the taxpayer.
Global System -- tax treatment views indifferently the tax base and generally
treats in common all categories of taxable income of the taxpayer.
Judicial Definition
A. No, stock dividends are not income and are therefore not taxable as such. A
stock dividend, when declared, is merely a certificate of stock which evidences the
interest of the stockholder in the increased capital of the corporation. A declaration
of stock dividend by a corporation involves no disbursement to the stockholder of
accumulated earnings, and the corporation parts with nothing to its stockholder.
The property represented by a stock dividend is still that of the corporation and not
of the stockholder. The stockholder has received nothing but a representation of an
interest in the property of the corporation and, as a matter of fact, he may never
receive anything, depending upon the final outcome of the business of the
corporation.
While income is the gain derived from capital, from labor, from both capital
and labor, including the gain derived from the sale or exchange of capital assets.
Sources of Income
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Facts: BOAC is engaged in the international airline business. It had no landing
rights in the Philippines, and was not granted a Certificate of public convenience
and necessity to operate in the Philippines by the Civil Aeronautics Board (CAB),
except for a nine-month temporary landing permit. It did not carry passengers or
cargo to or from the Philippines, although it maintained a general sales agent the
Philippines-Warner Barnes and Company, Ltd. (Qantas Airways), which was
responsible for selling BOAC tickets covering passengers and cargoes. The CIR
issued an assessment against BOAC for deficiency income taxes, interests, and
compromise penalties because the sale of the ticket does not constitute income in
the Philippines because no carriage of person or cargo was made by BOAC therein.
A. Yes, for the source of income to be derived in the Philippines, it is sufficient that
the income is derived from the activity in the Philippines. The source of an income
is the property, activity or service that produced the income. The sale of the tickets
is the activity that produces the income. The situs or the source of the payment is
in the Philippines. The flow of wealth proceeded form and occurred within the
Philippine territory enjoying the protection accorded by the Philippine Government.
The absence of flight operations is not determinative of the source of income
or the situs of income taxation. The test of taxability is the source. Hence, the
absence of flight operations cannot alter the fact that tickets were sold in the
Philippines and the revenue derived therefrom were derived from a business
activity regularly pursued in the Philippines.
Partnership Theory
A. No, double taxation becomes obnoxious only when the taxpayer is taxed twice
for the benefit of the same governmental entity. In the present case, while the
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
spouses would have to pay two taxes on the same income, the Philippine
Government only receives the proceeds of one tax. As between the Phil., where the
income was earned and where the taxpayer is domiciled, and the US, where the
income was not earned and where the taxpayer did not reside, it is undisputable
that justice and equity demand that the tax on the income should accrue to the
benefit of the Phil. xxx the right of a government to tax income emanates from its
partnership in the production of income, by providing the protection, resources,
incentives, and proper climate for such production xxx.
A. Yes, there was adequate basis for the writing off of the stock as worthless
securities. Assuming that the Company would later somehow realize some proceeds
from its sawmill and equipment, which were still existing, and that such proceeds
would later be distributed to its stockholders such as the taxpayer, the amount so
received by the taxpayer would then properly be reportable as income of the
taxpayer in the year it is received.
Constructive Receipt
A. No, the withdrawal in 1958 of the deposits in court pertaining to the 1957 rental
income is no sufficient justification for the non- declaration of said income in 1957,
since the deposit was resorted to due to the refusal of petitioner to accept the
same, and was not the fault of its tenants; hence, petitioner is deemed to have
constructively received such rentals in 1957. The payment by the sub- tenant in
1957 should have been reported as rental income in said year, since it is income
just the same regardless of its source.
Retirement Benefits
A. No, the commutation of leave credits is commonly known as terminal leave pay.
The same is applied for by an employee who retires or resigns or is separated from
service through no fault of his own. Since terminal leave pay is applied for by an
officer or employee who has already severed his connection with his employer and
who is no longer working, it necessarily follows that the terminal leave pay or its
cash equivalent is no longer compensation for services rendered. Therefore, it
cannot be received by the said employee as salary. Upon his compulsory
retirement, he is entitled to the commutation of his accumulated leave credits to its
monetary value. It is a cause beyond the control of the said official or employee.
Thus, it is one of those excluded from gross income and is therefore not subject to
tax.
Miscellaneous items
Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan
(Eximbank for short) obviously for purposes of its obligation under said contract.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were
made by the former to the latter. A claim for tax credit was filed by Atlas.
A. No, under Section 29 (b) (7) (A), excludes from gross income: "(A) Income
received from their investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on their deposits in banks in the Philippines by
(1) foreign governments, (2) financing institutions owned, controlled, or enjoying
refinancing from them, and (3) international or regional financing institutions
established by governments."
The loan and sales contract between Mitsubishi and Atlas does not contain
any direct or inferential reference to Eximbank whatsoever. The agreement is
strictly between Mitsubishi as creditor in the contract of loan and Atlas as the seller
of the copper concentrates. Meanwhile, the contract between Eximbank and
Mitsubishi is entirely different. It is too settled a rule in this jurisdiction, as to
dispense with the need for citations, that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The burden of proof
rests upon the party claiming exemption to prove that it is in fact covered by the
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
exemption so claimed, which onus petitioners have failed to discharge. Significantly,
private respondents are not even among the entities which, under Section 29 (b) (7)
(A) of the Tax code, are entitled to exemption and which should indispensably be
the party in interest in this case.
Q. Are the allowances given by his employer formed part of the taxable income?
A. Although the quarters they occupied exceeded their personal needs, the
exigencies of husband-taxpayer's high executive position demanded and compelled
them to live in more spawning and pretentious quarters like the ones they had
occupied. They had to entertain and put up house-guests in their apartments. This
is the reason why the husband-taxpayer's employer-corporation had to grant him
allowance for rental and utilities in addition to his annual basic salary to take care of
those extra expenses for rental and utilities in excess of their personal needs. The
fact that the taxpayers had to live or did not have to live in the apartment's chosen
by the husband-taxpayer's employer-corporation is of no moment, for no part of the
allowances in question redounded to their personal benefit or was retained by them.
Their bills for rental and utilities were paid directly by the employer-corporation to
the creditors. Nevertheless, the taxpayers are entitled only to a ratable value of the
allowances in question. Only the reasonable amount they would spent for house
rental and utilities such as light, water, telephone, etc., should be subject to tax.
The excess should be considered as expenses of the corporation.
Allowable Deductions from Gross Compensation
Income:
Personal Exemptions
A. Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of
her husband Vicente Madrigal during the life of the conjugal partnership. She has an
interest in the ultimate property rights and in the ultimate ownership of property
acquired as income after such income has become capital. Susana Paterno has no
absolute right to one-half the income of the conjugal partnership. Not being seized
of a separate estate, Susana Paterno cannot make a separate return in order to
receive the benefit of the exemption which would arise by reason of the additional
tax. As she has no estate and income, actually and legally vested in her and entirely
distinct from her husband's property, the income cannot properly be considered the
separate income of the wife for the purposes of the additional tax. Moreover, the
Income Tax Law does not look on the spouses as individual partners in an ordinary
partnership. The husband and wife are only entitled to the exemption of P8,000,
specifically granted by the law.
A. No, stock dividends, strictly speaking, represent capital and do not constitute
income to its recipient. So that the mere issuance thereof is not yet subject to
income tax as they are nothing but an “enrichment through increase in value of
capital investment.” In a loose sense, stock dividends issued by the corporation are
considered unrealized gain, and cannot be subjected to tax until that gain has been
realized.
EXCPS:
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
However, if a corporation cancels or redeems stock issued as a dividend at
such time and in such manner as to make the distribution and cancellation or
redemption in whole or in part, essentially equivalent to the distribution of a taxable
dividend, the amount so distributed in redemption or cancellation of stock shall be
considered as taxable income to the extent it represents a distribution of earning or
profits. The exception was designed to prevent the issuance and cancellation or
redemption of stock dividends, which is fundamentally not taxable, from being
made use as a device for the actual distribution of cash dividends.
A. There was no partnership formed. 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. (see Article 1769, NCC). 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. The
transactions were isolated. The character of habituality peculiar to business
transactions for the purpose of gain was not present.
A. No, Obillos children are co-owners, it is an isolated act which shows no intention
to from a partnership. To regard the Obillos children as having formed a taxable
unregistered partnership would result in oppressive taxation and confirm the dictum
that the power to tax involves the power to destroy. It appears that they decided to
sell it after they found it expensive to build houses. The division of the profit was
merely incidental to the dissolution of the co-ownership which was in the nature of
things a temporary state.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Collector vs. Batangas Co., 54 OG 6724 Joint Emergency
Operation
Facts: Batangas Transportation and Laguna Bus were registered and operating
separately. They were placed under one sole management called the "Joint
Emergency Operation" whereby the joint management operates the business affairs
of the two companies as though they constitute a single entity thereby obtaining
substantial economy and profit in operation. The theory of the Collector is that the
Joint Emergency Operation was a corporation distinct from the two respondent
companies, as defined in section 84 (b), and so liable to income tax under section
24, both of the National Internal Revenue Code.
A. Yes, Nankai was doing business in the Phil. this was corroborated by the
testimony of Nabuo Yoshida, one of the appellant's officers, revealed the
defendant's desire to continue engaging in business here, after receiving the
shipment of the scrap iron under consideration, making the Philippines a base
thereof.
The rule that the doing of a single act does not constitute business within the
meaning of statutes prescribing the conditions to be complied with by foreign
corporations must be qualified to this extent, that a single act may bring the
corporation within the purview of the statute where it is, an act of the ordinary
business of the corporation. In such a case, the single act or transaction is not
merely incidental or casual, but is of such character as distinctly to indicate a
purpose on the part of the foreign corporation to do other business in the state, and
to make the state a basis of operations for the conduct of a part of the corporation's
ordinary business.
A. No, the dividend income remitted to Marubeni Corporation of Japan arising from
its equity investments in Atlantic, Gulf and Pacific Company of Manila is considered
separate and distinct income from the branch office in the Philippines. There can be
no other logical conclusion that the investment was made for purposes peculiarly
germane to the conduct of the corporate affairs to Marubeni, Japan, but certainly
not of the branch in the Philippines.
A. Yes, under the Tax Code, dividends received from a domestic corporation liable
to tax, the tax rate shall be 15% of the dividends remitted, subject to the condition
that the country in which the non-resident corporation shall allow a credit against
the tax due from the non-resident corporation taxes deemed to be paid in the
Philippines equivalent to 20% which represents the difference between the regular
tax of 35% on corporations and 15% tax on dividends.
In the instant case, Switzerland did not impose any tax on dividends received
by Glaro. Such fact, however, should be considered as a full satisfaction of the
given conditions. To deny Wander to withhold the 15% tax would run counter to the
very spirit and intent of said law.
Q. Can Atlas claim the amount paid for the services of a public relations firm as
deduction?
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
MacKer & Co. concerning the operation of the Atlas was aimed at creating a
favorable image and goodwill to gain or maintain their patronage.
A. There is thus no hard and fast rule on the matter. The right to a deduction
depends in each case on the particular facts and the relation of the payment to the
type of business in which the taxpayer is engaged. The intention of the taxpayer
often may be the controlling fact in making the determination. Assuming that the
expenditure is ordinary and necessary in the operation of the taxpayer's business,
the answer to the question as to whether the expenditure is an allowable deduction
as a business expense must be determined from the nature of the expenditure
itself, which in turn depends on the extent and permanency of the work
accomplished by the expenditure.
The expenditure paid by Atlas for services carrying on the selling campaign in an
effort to sell Atlas' additional capital stock is not an ordinary expense. Reason:
Capital expenditures (such as recapitalization and reorganization expenses, the
cost of obtaining stock subscription, promotion expenses and commission or fees
paid for the sale of stock organization) are not deductible.
Visayan Cebu Terminal Co. vs. Collector, CTA Case No. 28,
June 29, 1957
A business expense is necessary where it is appropriate and helpful in the
development of the taxpayer’s business. It is intended to realize a profit or to
minimize a loss.
A. Yes, the fees paid by the taxpayer to recover its lost assets occasioned by the
war and to rehabilitate its business are a business connected expense. To carry on
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
its business, the taxpayer not only must have sufficient assets but must preserve
the same and recover any that should be lost.
A. No, the interests and dividends in question are merely incidental income to
petitioner's main activity, which is the operation of its hospital and nursing schools.
Mere holding of investments cannot be considered engaging in business so that the
expenses in managing the investments are not considered ordinary and necessary
in the pursuit of a trade or business. Hence, it is not deductible as business or
administrative expenses.
Q. Can the margin fees be considered ordinary and necessary expenses when paid?
A. The fees were paid not in the production of income, but in the disposition of said
income after it had already been earned. Hence, it is an expense properly
attributable to the head office and not in the carrying on of its trade or business in
the Philippines. ESSO has not shown that the remittance to the head office of part of
its profits was made in furtherance of its own trade or business. The petitioner
merely presumed that all corporate expenses are necessary and appropriate in the
absence of a showing that they are illegal or ultra vires.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Q. Who has the burden of proof?
A. The burden of proof that the expenses incurred are ordinary and necessary is on
the taxpayer and does not rest upon the Government. To avail of the claimed
deduction under Section 30(a) (1) of the National Internal Revenue Code, it is
incumbent upon the taxpayer to adduce substantial evidence to establish a
reasonably proximate relation petition between the expenses to the ordinary
conduct of the business of the taxpayer. A logical link or nexus between the
expense and the taxpayer's business must be established by the taxpayer.
However:
Q. Can the expenses be allowed as deductions even if they are not substantiated by
proof?
A. Yes, even if there are no records or receipts available, the oral testimony (CPA)
not contradicted by the government is sufficient. The petitioner further argues that
when the Bureau of Internal Revenue decided to investigate, petitioner had no more
obligation to keep the same since five years had lapsed from the time these
expenses were incurred (Sec. 337 of the Tax Code).
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Q. Is the promotional expense reasonable?
A. Yes, the promotional expense paid by Phil. Sugar Estate Development Co. to
Algue Inc. amounting to P125,000.00 was reasonable & not excessive. The private
respondent has proved that the payment of the fees was necessary and reasonable
in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise (Vegetable Oil Investment
Corp.) and involve themselves in a new business requiring millions of pesos.
BUSINESS EXPENSES
Factors or Tests to Determine Whether Compensation Paid
for Services Rendered is Deductible or Not:
The right to fix compensation may be conceded, but for income tax purposes
the employer cannot legally claim such bonuses as deductible expenses unless they
are shown to be reasonable. To hold otherwise would open the gate of rampant tax
evasion.
For the year 1957, petitioner filed two separate income tax returns one for its Fish
Nets Division and another for its Furniture Division. After investigation of these
returns, the examiners of the Bureau of Internal Revenue found that the Fish Nets
Division deducted from its gross income for that year the amount of P61,187.48 as
additional remuneration paid to the officers of petitioner.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Q. Is the bonus given to the officers of the petitioner upon the sale of its
Muntinglupa land is an ordinary and necessary business expense deductible for
income tax purposes?
A. No, bonuses granted to corporate officers for the successful sale of a piece of
land effected through a broker – no services rendered – not deductible as
reasonable and necessary expenses. There is absolutely no evidence of any service
actually rendered by Aguinaldo Industries’ officers which could be the basis of a
grant to them of a bonus out of the profit derived from the sale. This being so, the
payment of a bonus to them of the gain realized from the sale cannot be considered
as a selling expense; nor can it be deemed reasonable and necessary so as to make
it deductible for tax purposes.
Extraordinary Repairs
However:
INTEREST EXPENSES
There must be indebtedness
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Facts: Before Don Carlos Palanca Sr. died, he donated in favor of his son 12,500
shares of stock in La Tondeña, Inc. Palanca was assessed gift tax, surcharge and
interest which he paid. In March 1956, Palanca filed his income tax return for the
year 1955 claiming a deduction for interest. In November 1956, he filed an
amended return, claiming an additional deduction representing interest paid on the
donee's gift tax based on the provisions of Section 30(b) (1) of the Tax Code
authorizing the deduction from gross income of interest paid within the taxable year
on indebtedness. Meanwhile, the BIR considered the transfer of 12,500 shares of
stock as Palanca’s inheritance so he was assessed estate and inheritance tax.
Palanca claim a deduction representing interest on the estate and inheritance taxes
on the shares of stock.
Q. Is the amount paid by Palanca for interest on his delinquent estate and
inheritance tax deductible from the gross income for that year under section 30(b)
(1) of the NIRC?
A. Yes. While “taxes” and “debt” are distinguishable legal concepts on account of
their nature, the distinction becomes inconsequential in this case. The term ‘debt’ is
properly used in a comprehensive sense as embracing not merely money due by
contract, but whatever one is bound to render to another, either for contract or the
requirements of the law. The term ‘indebtedness’ as used in the Tax Code of the
United States has been defined as the unconditional and legally enforceable
obligation for the payment of money. Within the meaning of that definition it is
apparent that a tax may be considered an indebtedness.
Under the law, for interest to be deductible, it must be shown that there be
an indebtedness, that there should be interest upon it, and that what is claimed as
an interest deduction should have been paid or accrued within the year. It is here
conceded that the interest paid by respondent was in consequence of the late
payment of her donor's tax, and the same was paid within the year it is sought to he
deducted.
The term "indebtedness" as used in our Tax Code has been defined as an
unconditional and legally enforceable obligation for the payment of money. Within
the meaning of that definition, it is apparent that a tax may be considered
indebtedness. A tax is a debt for which a creditor's bill may be brought in a proper
case. It follows that the interest paid by herein respondent for the late payment of
her donor's tax is deductible from her gross income.
LOSSES
Requisites for Deductibility of Losses:
1. Taxpayer must prove that the loss was suffered by
him.
Q. May petitioner be allowed to deduct from the profits realized from its taxable
business activities, the losses sustained by its tax except industries?
The fact that the petitioner is a corporation organized with a single capital
that answers for all its financial obligations including those incurred in the tax
exempt industries is of no moment. The intent of the law is to treat taxable or non-
exempt industries as separate and distinct from new and necessary industries
which are tax- exempt for purposes of taxation.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Facts: Respondent is a corporation duly organized under the laws of the Phil. Since
its organization, respondent has been engaged in the manufacture of sugar from
sugar cane in its. On or about April 18, 1942, respondent was burned by the
retreating USAFFE under its scorch earth policy and/or to resist enemy attack. The
Central was totally destroyed and was reconstructed only on or about 1947 it then
filed on February 26, 1948, with the Philippine War Damage Commission a claim for
damages sustained on its properties during the war which was approved. Payment
was received in the year 1950. The petitioner in its income tax return for 1950, it
claimed a deduction as war losses. Upon proper verification petitioner disallowed all
deductions for war losses and consequently, notices of deficiency income tax
assessments were issued against the respondent. Respondent paid thereafter filed
a claim for refund.
Q. Were the war losses in question properly deductible in 1942, when the losses
were actually sustained, or in 1950 and 1951?
A. The war losses are properly deductible in 1950 and 1951 when the claim for
indemnity was properly determined. Section 30(d) (2) of the Revenue Code allows
the deduction from the gross income of a corporation of "all losses actually
sustained and charged off within the taxable year and not compensated for by
insurance or otherwise.' If property is not insured against loss, 'the amount of the
loss must be reduced by the amount of any insurance or other compensation
received, and by the salvaged value, if any, of the property'; and the amount not so
compensated for by insurance is deductible in the year the claim for indemnity is
finally determined, since it is required that losses, to be deductible, must be
evidenced by closed and completed transactions.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
The announcement of the Federal Loan Agency of the United States with the
of the approval of the President of the US, of the creation of the War Insurance
Corporation (later War Damage Corporation) by the Rehabilitation Finance
Corporation to provide protection against losses resulting from enemy attack which
might be sustained by owners of property in continental US and consequently, the
approval of the Philippine Rehabilitation Act of 1946, did not constitute in 1945 a
compensation "otherwise" than by insurance, and did not authorize petitioner here
in to postpone, to another year, its claim for deduction arising from the war losses
in question.
The words or 'otherwise' in law, when used as a general phrase following an
enumeration of particulars, are commonly interpreted in a restricted sense, as
referring to such other matters as are kindred to the classes before mentioned,
receiving an ejusdem generis interpretation
At any rate, there has 'never been any case in which the words "or
otherwise", in the 'income tax law, have been held to include the hope, or even the
moral certainty, that a proposed legislation authorizing payment of an indemnity,
not due, either under the general Principles of law, or under any particular statute-
would eventually be approved.
The indemnity provided for in the Philippine Rehabilitation Act of 1946 was
purely an obligation voluntarily assumed solely for moral considerations, and did
not exist as a legal obligation prior to the approval of said Act. Consequently,
petitioner is now estopped from maintaining that said war losses were
"compensated for by insurance or otherwise".
BAD DEBTS
Debts must be charged off within the year of
worthlessness.
Q. May the deductions claimed by Goodrich for bad debts and as representation
expenses be allowed?
A. No, the claim for deduction of the debts should be rejected. Goodrich has not
established either that the debts are actually worthless or that it had reasonable
grounds to believe them to be so in 1951. Our statute permits the deduction of
debts "actually ascertained to be worthless within the taxable year," obviously to
prevent arbitrary action by the taxpayer, to unduly avoid tax liability.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
The requirement of ascertainment of worthlessness requires proof of two
facts: (1) that the taxpayer did in fact ascertain the debt to be worthless, in the year
for which the deduction is sought; and (2) that, in so doing, he acted in good faith.
Q. Does PRC sufficiently proved its claim for deductions by reason of the alleged
bad debts?
A. No, for debts to be considered as worthless and thereby qualify as bad debts,
making them deductible, the taxpayer should show that:
1. There is a subsisting and valid debt;
2. The debt must be actually ascertained to be worthless and uncollectible
during the taxable year;
3. The debt must be charged off during the taxable year;
4. The debt must arise from the business or trade of the taxpayer.
Additionally, the taxpayer must also show that it is uncollectible even in the
future.
Furthermore, there are steps outlined to be undertaken by the taxpayer to
prove that he exerted diligent efforts to collect the debts, viz: (1) sending of
statement of accounts; (2) sending of collection letters; (3) giving the account to a
lawyer for collection; and (4) filing a collection case in court.
Said accounts have not satisfied the requirements of the 'worthlessness of a
debt.' Mere testimony of the Financial Accountant of the Petitioner explaining the
worthlessness of said debts is seen by this Court as nothing more than a selfserving
exercise which lacks probative value. There was no iota of documentary evidence to
give support to the testimony of an employee of the Petitioner. Mere allegations
cannot prove the worthlessness of such debts in 1985. The claim for deduction of
these thirteen (13) debts should be rejected.
DEPRECIATION
Definition
Depreciation commences with the acquisition of the property and its owner is
not bound to see his property gradually waste, without making provision out of
earnings for its replacement. It is entitled to see that from earnings the value of the
property invested is kept unimpaired, so that at the end of any given term of years,
the original investment remains as it was in the beginning. It is not only the right of
a company to make such a provision, but it is its duty to its bond and stockholders,
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
and, in the case of a public service corporation, at least, its plain duty to the
public.3 Accordingly, the law permits the taxpayer to recover gradually his capital
investment in wasting assets free from income tax.
Moreover, the recovery, free of income tax, of an amount more than the
invested capital in an asset will transgress the underlying purpose of a depreciation
allowance. For then what the taxpayer would recover will be, not only the
acquisition cost, but also some profit. Recovery in due time thru depreciation of
investment made is the philosophy behind depreciation allowance; the idea of profit
on the investment made has never been the undertying reason for the allowance of
a deduction for depreciation. Accordingly, the claim for depreciation beyond
P36,842.04 or in the amount of P10,500.49 has no justification in the law.
In contrast, the criminal charge need not go through the long and winding
process described above. The criminal charge is filed directly with the DOJ.
Thereafter, the taxpayer is notified that a criminal case had been filed against him,
not that the CIR has issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for
violation of the NIRC.
Sec. 222 of the Tax Code specifically states that in cases where a false or
fraudulent return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Sec. 205 of the same Code clearly mandates that the civil and criminal aspects of
the case may be pursued simultaneously. The CIR has discretion on whether to
issue an assessment or to file a criminal case against the taxpayer or to do both.
To reiterate, said Sec. 222 states that an assessment is not necessary before
a criminal charge can be filed. This is the general rule. Private respondents failed
to show that they are entitled to an exception. Moreover, the criminal charge need
only be supported by a prima facie showing of failure to file a required return. This
fact need not be proven by an assessment.
Presumption of Regularity
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. Since petitioner has not adduced proof that private respondent had in fact
received the demand letter of 16 July 1955, it can not be assumed that private
respondent received said letter. Records, however, show that petitioner wrote
private respondent a follow-up letter dated 19 September 1956, reiterating its
demand for the payment of taxes as originally demanded in petitioner's letter dated
16 July 1955. This follow-up letter is considered a notice of assessment in itself
which was duly received by private respondent in accordance with its own
admission.
On the other hand, Levy refers to the seizure of real properties and interest
in or rights to such properties for the satisfaction of taxes due from the delinquent
taxpayer. Levy can be made before, simultaneously, o after the distraint of
personal property.
Both remedies are summary in nature & either may be pursued in the
discretion of the authorities charged with the collection of tax independently, or
simultaneously with civil & criminal action once the assessment becomes final and
demandable.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Q. Are sugar quotas real (immovable) or personal properties? Should we adopt the
definition of personal and real properties under the Civil Code in order to determine
the requisites to be followed in levy or distraint proceedings?
A. Yes. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the estate of the decedent, and not necessarily, and
exclusively, the heir of the decedent. Thus, it follows that the services of notices of
levy in satisfaction of the tax delinquencies upon the heir is not required by law.
A. NO. Under the law (Commonwealth Act No. 470, section 35), the provincial
treasurer is enjoined to set forth in the notice, among other particulars, the date of
the tax sale. This mandatory requirement was not satisfied in the present case,
because the announcement that the sale would take place on December 15, 1940
and every day thereafter, is as general and indefinite as a notice for the sale "within
this or next year" or "some time within the month of December." In order to enable
a taxpayer to protect his rights, he should at least be apprised of the exact date of
the proceeding by which he is to lose his property. xxx Under section 35 of
Commonwealth Act No. 470, notice of the public sale must be given to the
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
delinquent taxpayer. This has reference to the registered owner, liable to pay taxes,
although the delinquent property remains assessed in the name of a former owner.
Facts: After publication of the corresponding notice, the City Treasurer of Manila
sold, at public auction, to Ricardo Velayo for the sum of P185.95, representing the
amount due by way of unpaid real estate taxes, plus penalty and costs, on the
property owned by the Ordovezas. When Fernando Ordoveza tried to pay the real
estate tax thereon, he was advised of the sale. He was surprised to hear about it, for
he had not received any previous notice thereof or read in the newspapers about
the public auction to be held in connection therewith. It appears that the description
in said deed of sale is different from the description appearing in Transfer
Certificate of Title No. 79178, the property in question.
A. NO. The owner of property registered under the Torrens System is justified in
relying upon the description given in his certificate of title as the one officially
identifying said property. The sale for non-payment of tax of the property with a
description distinct and different from that which appears in its certificate of title
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
can not be sanctioned without impairing the full faith and credence which the title is
meant to command and, hence, affects the essence of the Torrens System.
CIVIL ACTION
Q. When is Civil Action resorted to?
A. This is resorted to when a tax liability becomes collectible, that is, the
assessment becomes final and unappealable, OR the decision of the Commissioner
has become final, executory, and demandable. This occurs when:
a. A tax is assessed and the taxpayer fails to file an administrative protest by
filing a request for reconsideration or reinvestigation within 30 days from
receipt of the assessment.
b. A protest against the assessment is filed by the taxpayer but the
Commissioner’s decision denying in whole or in part the said protest, was not
appealed to the CTA within 30 days from receipt of such decision.
A. YES. When the Commissioner did not reply to the taxpayer’s request for
reconsideration & instead referred the case to the SolGen for judicial collection, this
was indicative of his decision against reinvestigation. This is an instance where the
Commissioner’s action is in effect a decision of denial which is appealable to the
Court of Tax Appeals.
Q. Can the CFI lawfully acquire jurisdiction over a contested assessment made by
the Commissioner of Internal Revenue against the deceased taxpayer Doroteo
Yabes, which has not yet become final, executory and incontestable, and which
assessment is being contested by petitioners in the Court of Tax Appeals, Case No.
2216, and still pending consideration?
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. The filing of a civil action in court to collect a tax which was the subject of a
pending protest in the BIR was a justifiable basis for the taxpayer to appeal to the
Court of Tax Appeals & to move for the dismissal in the trial court of the
Government’s action to collect the tax under dispute. The respondent Court of First
Instance of Cagayan can only acquire jurisdiction over this case filed against the
heirs of the taxpayer if the assessment made by the Commissioner of Internal
Revenue had become final and incontestable. If the contrary is established, as this
Court holds it to be, considering the aforementioned conclusion of the Court of Tax
Appeals on the finality and incontestability of the assessment made by the
Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction
over this case.
Q. Could the CTA take cognizance of an appeal despite the pendency of the
"Proof of Claim" and "Motion for Allowance of Claim and for an Order of Payment of
Taxes" filed by the CIR in Special Proceedings before the CFI?
A. NO. Once an action for collection is filed with the regular court, the taxpayer can
no longer assail the legality or validity of the assessment. An action involving a
disputed assessment for internal revenue taxes falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals (Sec. 7(1), Rep. Act 1125). It is in that forum
to the exclusion of the Court of First Instance where the taxpayer can ventilate his
or her defense against the assessment.
It would be worth mentioning that since the assessment for deficiency income tax
for 1947 has become final and executory, Ker & Co., Ltd. may not anymore raise
defenses which go into the merits of the assessment, i.e., prescription of the
Commissioner's right to assess the tax. In this case however, Ker & Co., Ltd. raised
the defense of prescription in the proceedings below and the Republic of the
Philippines, instead of questioning the right of the defendant to raise such defense,
litigated on it and submitted the issue for resolution of the court. By its actuation,
the Republic of the Philippines should be considered to have waived its right to
object to the setting up of such defense.
Q. Did the pendency of the taxpayer's appeal in the Court of Tax Appeals and in the
Supreme Court have the effect of legally preventing the Commissioner of Internal
Revenue from instituting an action in the Court of First Instance for the collection of
the tax?
A. YES. When Ker & Co., Ltd. filed a petition for review in the Court of Tax Appeals
contesting the legality of the assessments in question, until the termination of its
appeal in the Supreme Court, the Commissioner of Internal Revenue was prevented,
as recognized in this Court's ruling in Ledesma, et al. v. Court of Tax Appeals, from
filing an ordinary action in the Court of First Instance to collect the tax. Besides, to
do so would be to violate the judicial policy of avoiding multiplicity of suits and the
rule on lis pendens. If We were to sustain the taxpayer's stand, We would be
encouraging taxpayers to delay the payment of taxes in the hope of ultimately
avoiding the same.
Under the circumstances, the CIR was in effect prohibited from collecting the
tax in question. This being so, the provisions of Section 333 of the Tax Code will
apply.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
that it did not expressly show the approval of the Revenue Commissioner, as
required by Section 308 of the Tax Code.
A. NO. The question of whether a suit should bear the approval of the Revenue
Commissioner is not jurisdictional, but one relating to capacity to sue or affecting
the cause of action only.
CRIMINAL ACTION
A. NO. Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. Stated differently, the criminal liability gives birth to the civil obligation
such that generally, if one is not criminally liable under the Penal Code, he cannot
become civilly liable thereunder. The situation under the income tax law is the
exact opposite.
Civil liability to pay taxes arises from the fact, for instance, that one has
engaged himself in business, and not because of any criminal act committed by
him. The criminal liability arises upon failure of the debtor to satisfy his civil
obligation. The incongruity of the factual premises and foundation principles of the
two cases is one of the reasons for not imposing civil indemnity on the criminal
infractor of the income tax law.
Another reason, of course, is found in the fact that while Section 73 of the
National Internal Revenue Code has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a
return thereof, it failed to provide the collection of said tax in criminal proceedings.
Since the civil liability is not deemed included in the criminal action, acquittal of the
taxpayer in the criminal proceeding does not necessarily entail exoneration from his
liability to pay the taxes. The acquittal in a criminal case cannot operate to
discharge defendant from the duty of paying the taxes which the law requires to be
paid, since that duty is imposed by statute prior to and independently of any
attempts by the taxpayer to evade payment. Said obligation is not a consequence
of the felonious acts charged in the criminal proceeding nor is it a mere civil liability
arising from a crime that could be wiped out by the judicial declaration of non-
existence of the criminal acts charged.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Subsidiary imprisonment for failure to pay the tax in case of insolvency
cannot be imposed in criminal cases involving violations of the provisions of the Tax
Code.
Q. Does the protest against the assessment filed by the taxpayer deprive the CFI of
jurisdiction to hear the case for violation of the NIRC?
A. NO. A criminal complaint is instituted not to demand payment but to penalize the
taxpayer for violation of the Tax Code. Ungab’s contention that the filing of the
informations were precipitate and premature since the Commissioner has not yet
resolved his protests against the assessment of the Revenue District Officer is
without merit. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by the Court
of Tax Appeals, but a criminal prosecution for violations of the NIRC which is within
the cognizance of the CFI.
While there can be no civil action to enforce collection before the assessment
procedures provided in the Code have been followed, there is no requirement for
the precise computation and assessment of the tax before there can be a criminal
prosecution under the Code. An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and evade the income tax.
Besides, it has been ruled that a petition for reconsideration of an assessment may
affect the suspension of the prescriptive period for the collection of taxes, but not
the prescriptive period of a criminal action for violation of law.
COMPROMISE
Q. Can the BIR demand a compromise penalty from Abad in view of such refusal?
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. NO, the BIR cannot. A compromise penalty is a certain amount of money which
the taxpayer pays to compromise a tax violation. It is paid in lieu of criminal
prosecution, and cannot be imposed in the absence of a showing that the taxpayer
consented thereto.
Q. Does settlement of the case under Section 2307 extinguish the criminal liability
under Section 3601, both of Republic Act 1937, otherwise called the Tariff and
Customs Code?
A. NO. Section 2307 limits the effects of the aforesaid settlement to the liability that
attaches to the property, or to the bond that replaces the property. It does not
speak of the liability that falls on the person or offender. Clearly, therefore, the
interpretation of the accused is not supported by the law. Moreover, Section 2307
of Republic Act 1937 falls under part 2 of Title VI of said Act, which is entitled
"Administrative Proceedings". Settlement of the administrative proceedings does
not, in the absence of express provision to that effect, amount to settlement of the
criminal liability. Section 309 of said Code allows the Commissioner of Internal
Revenue to compromise the civil as well as criminal cases arising thereunder. No
similar provision exists, vis-a-vis the Collector or Commissioner of Customs, in
regard to violation of the Tariff and Customs Code.
Q. Can the CIR compromise the criminal aspect of a tax case if the information was
filed before the full payment of liability and compromise penalty?
A. YES. The compromise agreement was complied with as it did not set date within
which Magdaluyo should complete the payment. A compromise validly entered into
between the Commissioner and the taxpayer prior to the institution of the
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
corresponding criminal action arising out of a violation of the provisions of the Tax
Code is a bar to such criminal action.
Qs. Can the BOC reappraise confiscated items AFTER rendition of judgment? Can
the RP enter into a compromise after judgment?
TAX LIENS
Q. Does the lien follow the property subject to the tax into the hands of a third party
when at the time of transfer, no demand for payment had been made and when the
purchaser had no notice of the existence of the lien?
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. NO.
A TAX LIEN in its modern acceptation is understood to denote a legal claim or
charge on property, either real or personal, as security for the payment of some
debt or obligation. Its meaning is more extensive than the jus retentionis (derecho
de retencion) of the civil law. The tax lien does not establish itself upon property
which has been transferred to innocent purchasers prior to demand. In order that
the lien may follow the property into the hands of a third party, it is further essential
that the latter should have notice, either actual or constructive. The reason is the
benevolence of our Constitution which prohibits the taking of property without due
process of law. In the case of real estate or special assessment taxation a man
cannot get rid of his liability to a tax by buying without notice. (City of Seattle vs.
Kelleher [1904], 195 U. S., 351.) The rule, however, is different where the vendee
has no knowledge of the taxes on personality existing at the time, or had no means
of knowing from the public records that such taxes had accrued.
A. The tax lien attaches not only from the service of the warrant of distraint of
personal property but from the time the tax income becomes due and payable.
FORFEITURE
A. NO. The remedy by distraint of personal property and levy on realty may be
repeated if necessary until the full amount due, including all expenses, is collected.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
In a seizure to enforce a tax lien, the residue of such proceeds over and
above the tax sought to be realized, including expenses, is returned to the owner of
the property.
STATUTE OF LIMITATIONS
The CIR insists that his right to issue the assessment has not prescribed
inasmuch as the same was availed of before the 5-year period provided for in
Section 331 of the Tax Code expired, August 30, 1955, the date when the amended
return was filed.
A. The changes and alterations embodied in the amended income tax return were
substantial. The period of limitation of the right to issue the same should be
counted from the filing of the amended income tax return.
b.) 10 years
Basilan Estates vs. Commissioner, 21 SCRA 17
Facts: Basilan Estates claims that it never received notice of assessment of the
deficiency or if it did, it received the notice beyond the five-year prescriptive period.
Q. When is assessment deemed made for the purpose of counting the 5year
presciptive period?
A. The assessment is deemed made when notice to this effect is released, mailed or
sent by the Collector to the taxpayer. As long as the notice is released within the
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
prescriptive period, it is not required that the same be received by the taxpayer
within the prescriptive period.
Republic vs. Marsman Dev. Co., GRN L-18986, April 27, 1972
It was incumbent upon appellants to show that such a return had been
submitted. In order that the filing of a return may serve as the starting point of the
period for the making of an assessment, the return must be as substantially
complete as to include the needed details on which the full assessment may be
made.
A. NO. Internal revenue taxes, such as forest charges, cannot be the subject of set-
off or compensation. A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the remedy in an action
or any indebtedness of the State or municipality to one who is liable to the State or
municipality for taxes. Neither are they subject of recoupment since they do not
arise out of the contract or transaction sued on.
Taxes are not in the nature of contracts between the parties but grow out of
a duty to, and are the positive acts of the government, to the making and enforcing
of which, the personal consent of individual taxpayers is not required.
b.) 10 years
A. All that is required to start the running of the period of limitation therein
prescribed is to distraint or levy, or institute a proceeding in court, within 5 years
after the assessment of the tax. A judicial action for the collection of a tax is begun
by the filing of a complaint with the proper court, or where the assessment is
appealed to the CTA, by filing an answer to the taxpayer's petition for review
wherein payment of the tax is prayed for. The summary remedy of distraint and
levy is begun by the issuance of a warrant of distraint and levy. The right of the CIR
to collect by summary method has the effect of stopping the running of prescription
once a warrant of distraint and levy is issued.
Q. Does the filing of an answer to taxpayer’s petition for review stay the prescriptive
period?
A. YES. A judicial action for the collection of a tax is begun by the filing of a
complaint with the proper court of first instance, OR where the assessment is
appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition
for review wherein payment of the tax is prayed for.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
and thereby including the amount previously allowed by the Commissioner to be
refunded.
Q. Should tax “refunded erroneously” be imposed against the company, or has the
right to recover prescribed?
A. NO, it should not be imposed against the company. The demand on the taxpayer
to pay the sum of P16,593.87 is in effecct an assessment of deficiency franchise
tax. The right to assess, thus, and to collect is governed by Section 331 of the Tax
Code rather than by Article 1145 of the Civil Code, as a special law prevails over a
general law. Guagua Electric is absolved from the payment of the amount
erroneously refunded.
Gomez vs. Domingo, CTA case No. 1168, February 16, 1964
Mere understatement of the income in itself does not constitute fraud.
A. NO. The Commissioner’s finding on the facts constituting fraud, proven, and
found established by the Court of Tax Appeals, was not rebutted by the taxpayer.
Tan Guan did not present any evidence to disprove the findings that the expenses
are fictitious; considering that the investigation on Tan Guan’s liability was made
prior to the expiration of the 5-year period to preserve and keep receipts as set
fgorth in Section 337 of the Tax Code. As the determination of the Commissioner is
presumed correct, it behooves the taxpayers to rebut such presumption. For failure
to overcome the burden, Tan Guan or the company cannot claim the expenses as
deduction from gross income.
C. Criminal Liability
However:
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Prescription: Suspension of the Statutory Period for
Collection
A. YES. The act of the Commissioner, in filing an action for allowance of the claim for
estate and inheritance taxes, may be construed as a denial of the taxpayers’
request for reconsideration. From the date of receipt of the copy of the
Commissioner’s letter for collection of taxes, the taxpayers must contest and
dispute the same, and upon denial thereof, they have a period of 30 days to appeal
the case to the Court of Tax Appeals. Tax assessment made by tax examiners are
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
presumed correct and made in good faith. A taxpayer has to prove otherwise.
Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made the
assessments final, executory and demandable. Such failure to file a position paper
may be construed as abandonment of the petitioners' request for reconsideration.
The court notes that it took the respondent Commissioner a period of more than
one (1) year and five (5) months before finally instituting the action for collection.
Under the circumstances of the case, the act of the Commissioner in filing an action
for allowance of the claim for estate and inheritance taxes, may be considered as
an outright denial of petitioners' request for reconsideration. The taxpayer’s
remedy is to appeal to the CTA within 30 days from the date he is notified. The
petitioners, however failed to avail of this remedy.
Q. Was the petition for review of the decision of the Commissioner seasonably filed
with the CTA?
A. YES. As a rule, the warrant of distraint and levy is "proof of the finality of the
assessment" and "renders hopeless a request for reconsideration," being
"tantamount to an outright denial thereof and makes the said request deemed
rejected."
Exception: If the protest filed was not pro forma and was based on strong
legal considerations. In this case, the proven fact is that four days after the private
respondent received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the warrant of distraint
and levy was issued. The protest was not pro forma and it thus had the effect of
suspending reglementary period which started on the date the assessment was
received. The period started running again only when the private respondent was
definitely informed of the implied rejection of the said protest and the warrant was
finally served on it.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
The taxpayer requested the cancellation of the assessments in its letters of
September 13 and November 21. 1974. In 1978, the Commissioner issued two
warrants of distraint, directing the collection enforcement division to levy on the
taxpayer's personal properties as would be sufficient to satisfy the deficiency taxes.
The Acting Commissioner wrote a letter dated May 23, 1979 in answer to the
requests of the taxpayer for the cancellation of the assessments and the withdrawal
of the warrants of distraint. He closed his demand letter with this paragraph:
"This constitutes our final decision on the matter. If you are not agreeable, you may
appeal to the Court of Tax Appeals within 30 days from receipt of this letter."
The reviewable decision of the BIR is the letter it issued. The said letter
embodies the Commissioner's final decision within the meaning of Section 7 of
Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to
appeal it to the Tax Court. The directive is in consonance with this Court's dictum
that the Commissioner should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the disputed
assessment. That procedure is demanded by the pressing need for fair play,
regularity and orderliness in administrative action.
A. NO. Mandamus only lies to enforce the performance of a ministerial act or duty
and not to control the performance of discretionary power. Mandamus may not be
made against the Commissioner to compel him to impose a tax assessment not
found by him to be due or proper, for that would be tantamount to a usurpation of
executive functions. Purely administrative and discretionary functions may not be
interfered with by the Courts. The discretionary power vested in the proper
executive official, in the absence of arbitrariness or grave abuse so as to go beyonf
the statutory authority, is not subject tot he contrary judgment or control of others.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
The question of whether or not to impose a deficiency tax assessment on
Meralco Securities Corporation undoubtedly comes within the purview of the words
"disputed assessments" or of "other matters arising under the National Internal
Revenue Code ", hence, falling within the jurisdiction of the Court of Tax Appeals
and not of the Court of First Instance. The Court of Tax Appeals has exclusive
appellate jurisdiction to review, on appeal, any decision of the Collector of Internal
Revenue in cases involving disputed assessments and other matters arising under
the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue.
Moreover, since the office of the Commissioner of Internal Revenue is
charged with the administration of revenue laws, which is the primary responsibility
of the executive branch of the government, mandamus may not lie against the
Commissioner to compel him to impose a tax assessment not found by him to be
due or proper for that would be tantamount to a usurpation of executive functions.
A. NO. The term “decision” has been interpreted to mean the decisions of the CIR
on the protest of the taxpayer against the assessments and does not signify the
assessment itself. Thus, where a taxpayer questions an assessment and asks the
CIR to reconsider or cancel the same because he believes he is not liable therefore,
the CIR must decide and the taxpayer can appeal to the CTA only upon receipt of
the decision of the disputed assessment.
Since in the instant case the taxpayer appealed from the assessment of the
Commissioner of Internal Revenue without previously contesting the same, the
appeal was premature and the Court of Tax Appeals had no jurisdiction to entertain
said appeal. For, as stated, the jurisdiction of the Tax Court is to review by appeal
decisions of the Commissioner of Internal Revenue on disputed assessments. The
Tax Court is a court of special jurisdiction. As such, it can take cognizance only of
such matters as are clearly within its jurisdiction.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
was conducted and the respondent’s president refused to cooperate since he
contended that save for the current investigation, they have always cooperated in
the previous investigations before. Payment was demanded from the respondent
but it protested the assessment. The matter was elevated to the CTA and it ruled in
favor of the CIR, but was later on reversed by the CTA.
A. NO. It has always been the rule that those seeking tax refunds or credits bear the
burden of proving the factual bases of their claims and of showing, by words too
plain to be mistaken, that the legislature intended to entitle them to such claims.
The rule, in this case, required petitioner to (1) show that its sales qualified for zero-
rating under the laws then in force and (2) present sufficient evidence that those
sales resulted in excess input taxes. There is no dispute that respondent had
approved petitioner’s applications for the zero-rating of its sales to the Central
Bank, PASAR and Philphos prior to the transactions from which these claims arose.
However, it was also incumbent on petitioner to submit sufficient evidence to justify
the grant of refund or tax credit. It was here that petitioner fell short.
The CTA and the CA both found that petitioner failed to comply with the
evidentiary requirements for claims for tax credits or refunds set forth in Section
2(c) of Revenue Regulations 3-88 and in CTA Circular 1-95, as amended by CTA
Circular 10-97.
Q. May the assessment of sales tax liability may be enforced, i.e. to set off against
the refund, pending contest?
A. YES. The argument, that the assessment cannot as yet be enforced because it is
still being contested, lost sight of the urgency of the need to collect taxes as “the
life blood of the government.” If the payment of taxes could be postponed by
simply questioning their validity, the machinery of the state would grind to a halt
and all government functions would be paralyzed. To require the Commissioner to
actually refund to the company the amount of the judgment debt which he will later
have the right to distrait for payment of its sales tax liability, is an idle ritual.
A. YES. Under the Tax Code, dividends received from a domestic corporation liable
to tax, the tax rate shall be 15% of the dividends remitted, subject to the condition
that the country in which the non-resident corporation shall allow a credit against
the tax due from the non-resident corporation taxes deemed to be paid in the
Philippines equivalent to 20% which represents the difference between the regular
tax of 35% on corporations and 15% tax on dividends.
In the instant case, Switzerland did not impose any tax on dividends received
by Glaro. Such fact, however, should be considered as a full satisfaction of the
given conditions. To deny Wander to withhold the 15% tax would run counter to the
very spirit and intent of said law. The submission of petitioner that Wander is but a
withholding agent of the government and therefore cannot claim reimbursement of
the alleged overpaid taxes, is untenable. It will be recalled, that said corporation is
first and foremost a wholly owned subsidiary of Glaro. The fact that it became a
withholding agent of the government which was not by choice but by compulsion
under Tax Code, cannot by any stretch of the imagination be considered as an
abdication of its responsibility to its mother company. It is a device to insure the
collection by the Philippine Government of taxes on incomes, derived from sources
in the Philippines, by aliens who are outside the taxing jurisdiction of this Court. In
fact, Wander may be assessed for deficiency withholding tax at source, plus
penalties consisting of surcharge and interest. Therefore, as the Philippine
counterpart, Wander is the proper entity who should claim for the refund or credit of
overpaid withholding tax on dividends paid or remitted by Glaro.
The claim for refund must be filed within two (2) years
from date of payment of the tax or penalty regardless of
any supervening event.
A. NO. A taxpayer who has paid the tax whether under protest or not, and who is
claiming a refund of the same, must comply with the requirements of both section
306 o0f the NIRC and section 11 of RA 1125; (1) that is, he must file a claim for
refund with the CIR within 2 years from the date of his payment of the tax as
required by Sec. 306 of the NIRC and (2) appeal to the CTA within 30 days from
receipt of the CIR’s ruling or decision denying his claim for refund, as required by
Sec. 11 of RA 1125. If however, the Collector takes time in deciding the claim and
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
the period of 2 years is about to end, the suit or proceeding must be started with
the CTA before the end of the 2-year period without awaiting the Decision of the
Collector. This is so because the positive requirement of Sec. 306 and the doctrine
that delay of the Collector in rendering decision does not extend the peremptory
period fixed by the statute.
In the case of taxpayer who has not yet paid the tax and who is protesting
the assessment made by the CIR, he must file an appeal with the CTA within 30
days from his receipt of the Collector’s Assessment as required by Sec. 11 of RA
1125. Otherwise, his failure to comply with said statutory requirement would bar his
appeal and deprive the CTA of its jurisdiction to entertain or determine the same.
Sec. 7, in relation to Sec. 11 of RA 1125 gives the CTA exclusive appellate
jurisdiction to review by appeal decisions of the CIR involving disputed assessments
or refunds of internal revenue taxes, provided the case is filed within 30 days after
the receipt of such decision or ruling. Petitioners received the notice of denial on
November 14, 1956, they filed the petition more than 10 months thereafter on
September 27, 1957. The CTA will no longer entertain such petition for being filed
way beyond the 30-day reglamentary period.
A. The 2-yr period should be counted from the date of the final payment. This rule
proceeds from the theory that, in contemplation of tax laws, there is no payment
until the whole or entire tax liability is completely paid. Thus, a payment of a part or
portion thereof, can not operate to start the commencement of the statute of
limitations. In this regard the word "tax", or words "the tax" in statutory provions
comparable to section 306 of our Revenue Code have been uniformly held to refer
to the entire tax and not a portion thereof and the vocables "payment of tax" within
statutes requiring refund claim, refer to the date when all the tax was paid, not
when a portion was paid.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Facts: On April 15, 1982, the petitioner corporation filed with the Bureau of Internal
Revenue its annual corporate income tax return for the calendar year ending
December 31, 1981 reporting a net loss. In the said return, the petitioner
corporation declared as creditable all taxes withheld at source by various
withholding agents which were paid and remitted by the latter to the Bureau of
Internal Revenue from February to December 1981. On December 29, 1983, the
petitioner corporation filed a claim for refund inasmuch as it had no tax liability
against which to credit the amounts withheld.
Pending action of respondent CIR on its claim for refund, Petitioner filed a petition
for review with the CTA asking for the refund of the amounts withheld as overpaid
income taxes. The CTA dismissed the action after finding that the two-year period
within which the petitioner’s claim for refund should have been filed had already
prescribed pursuant to the Tax Code.
Q. Is CTA correct?
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Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
that the amount in question can no longer be refunded considering that more than
two years had already elapsed. The CTA ruled in favor of TMX Sales.
Q. When does the 2-year period to claim a refund of erroneously collected tax
provided for in Sec. 230 commence to run? Is it from the date the quarterly income
tax was paid or from the date of filing the adjusted return?
A. The most reasonable and logical application of the law would be to compute the
2-year prescriptive period at the time of filing the Final Adjustment Return or the
Annual Income Tax Return, when it can be finally ascertained if the taxpayer has
still to pay additional income tax or if he is entitled to a refund of overpaid income
tax.
It is the Final Adjustment Return where the figures of the gross receipts and
deductions have been audited and adjusted, that is truly reflective of the results of
the operations of a business enterprise. Thus, it is only when the Adjustments
Return covering the whole year is filed that the taxpayer would know whether a tax
is still due or a refund can be claimed based on the adjusted and audited figures.
Therefore, the filing of quarterly income tax returns required in sec.75, NIRC
and implemented per BIR Form 1702-Q and payment of quarterly income tax should
only be considered were installments of the annual tax due. These quarterly tax
payments which are computed on the cumulative figures of gross receipts and
deductions on order to arrive at a net taxable income, should be treated as
advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year.
TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on
April 15,1982, TMX Sales, Inc. is not yet barred by prescription.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Bank of the Philippines Islands vs. Commissioner of
Internal Revenue (Oct. 17, 2005)
FACTS: BPI, on two separate occasions, sold United States (US) $500,000.00 to the
Central Bank of the Philippines for the total sales amount of US$1,000,000.00. On
10 October 1989, the Bureau of Internal Revenue issued Assessment No. FAS-5-85-
89-002054, finding petitioner BPI liable for deficiency Documentary Stamp Tax on
its afore-mentioned sales of foreign bills of exchange to the Central Bank.
Petitioner BPI received the Assessment, together with the attached Assessment
Notice, on 20 October 1989 and protested such on Nov. 16, 1989. BPI did not
receive any immediate reply to its protest letter. However, on 15 October 1992, the
BIR issued a Warrant of Distraint and/or Levy, against petitioner BPI for the
assessed deficiency DST for taxable year 1985, in the amount of P27,720.00. It
served the Warrant on petitioner BPI only on 23 October 1992. Then again, BPI did
not hear from the BIR until 11 September 1997, when its counsel received a letter,
dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato,
denying its “request for reconsideration”. BPI then elevated the case to the CTA
which ruled that the BIR can still collect the said tax since its right to collect has not
yet prescribed, which was likewise affirmed by the Court of Appeals.
Q. Has the right of BIR to collect from BPI the alleged deficiency DST prescribed?
VALUE-ADDED TAX
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Commissioner of Internal Revenue vs. Cebu Toyo
Corporation (Feb. 16, 2005)
A. YES, the respondent’s claim should be granted. Under the fiscal incentives
granted to PEZA-registered enterprises under Section 23 of Rep. Act No. 7916, the
respondent had two options with respect to its tax burden. It could avail of an
income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from
income taxes for a number of years but not from other internal revenue taxes such
as VAT; or it could avail of the tax exemptions on all taxes, including VAT under P.D.
No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916.
Respondent availed of the income tax holiday for four (4) years starting from August
7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax
Returns, where respondent specified that it was availing of the tax relief under E.O.
No. 226. Hence, respondent is not exempt from VAT and it correctly registered
itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions. Taxable transactions are those transactions which are subject to
value-added tax either at the rate of ten percent (10%) or zero percent (0%). In
taxable transactions, the seller shall be entitled to tax credit for the value-added tax
paid on purchases and leases of goods, properties or services. An exemption means
that the sale of goods, properties or services and the use or lease of properties is
not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT
(input tax) previously paid. A VAT-registered purchaser of goods, properties or
services that are VAT exempt, is not entitled to any input tax on such purchases
despite the issuance of a VAT invoice or receipt. Under the system, a zero rated sale
by a VAT-registered person, which is a taxable transaction for VAT purposes, shall
not result in any output tax, but the input tax on his purchase of goods, properties
or services related to such zero-rated sale shall be available as tax credit or refund.
Q. Is Toshiba entitled to the tax credit/refund of its input VAT on its purchases of
capital goods and services?
Since the purchases of respondent are not exempt from the VAT, the rate to be
applied is zero. Its exemption under both PD 66 and RA 7916 effectively subjects
such transactions to a zero rate, because the ecozone within which it is registered is
managed and operated by the PEZA as a separate customs territory. This means
that in such zone is created the legal fiction of foreign territory. Under the cross-
border principle of the VAT system being enforced by the BIR, no VAT shall be
imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority. If exports of goods and services from the
Philippines to a foreign country are free of the VAT, then the same rule holds for
such exports from the national territory -- except specifically declared areas -- to an
ecozone.
Q. Does the VAT exemption embodied in Rep. Act No. 7227 apply to petitioner as a
purchaser. Is Petitioner entitled to the tax refund on its purchases of supplies and
raw materials?
A. No. A VAT exemption means that the sale of goods or properties and/or services
and the use or lease of properties is not subject to VAT (output tax) and the seller is
not allowed any tax credit on VAT (input tax) previously paid. This is a case wherein
the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or
exchange of the goods or properties).
The person making the exempt sale of goods, properties or services shall not bill
any output tax to his customers because the said transaction is not subject to VAT.
On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or
services which are exempt from VAT is not entitled to any input tax on such
purchase despite the issuance of a VAT invoice or receipt.
On the other hand, Zero-rated Sales are sales by VAT-registered persons which are
subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A
zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT
purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.
The petitioner’s claim to VAT exemption in the instant case for its purchases of
supplies and raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act
No. 7227, which basically exempts them from all national and local internal revenue
taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.
Petitioner rightly claims that it is indeed VAT-Exempt and this fact is not
controverted by the respondent. In fact, petitioner is registered as a NON-VAT
taxpayer per Certificate of Registration issued by the BIR. As such, it is exempt
from VAT on all its sales and importations of goods and services.
Petitioner’s claim, however, for exemption from VAT for its purchases of supplies
and raw materials is incongruous with its claim that it is VAT-Exempt, for only VAT-
Registered entities can claim Input VAT Credit/Refund. While it is true that the
petitioner should not have been liable for the VAT inadvertently passed on to it by
its supplier since such is a zero-rated sale on the part of the supplier, the petitioner
is not the proper party to claim such VAT refund. Since the transaction is deemed a
zero-rated sale because the sale was in favor of an ecozone firm, petitioner’s
supplier may claim an Input VAT credit with no corresponding Output VAT liability.
Congruently, no Output VAT may be passed on to the petitioner.
2. No. The petitioner is registered as a NON-VAT taxpayer and thus, is exempt from
VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax)
previously paid. In fine, even if we are to assume that exemption from the burden
of VAT on petitioner’s purchases did exist, petitioner is still not entitled to any tax
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
credit or refund on the input tax previously paid as petitioner is an exempt VAT
taxpayer.
Q. Did the CA acquire jurisdiction over Philcemcor’s petition? Are the factual
findings of the Tariff Commission on the existence or non existence conditions
warranting the imposition of general safeguard measures binding upon the DTI
Secretary?
A. The Court does not doubt that the Court of Appeals’ certiorari powers extend to
correcting grave abuse of discretion on the part of an officer exercising judicial or
quasi-judicial functions. However, the special civil action for certiorari is available
only when there is no plain, speedy and adequate remedy in the ordinary course of
law. Southern Cross relies on this limitation, stressing that Sec. 29 of the SMA, is a
plain, speedy and adequate remedy in the ordinary course of law which Philcemcor
did not avail of. Under Sec. 29, to wit: “Any interested party who is adversely
affected by the ruling of the Secretary in connection with the imposition of a
safeguard measure may file with the CTA, a petition for review of such ruling within
30 days from receipt thereof. Sec. 29 of the SMA is worded in such a way that it
places under the CTA’s judicial review of all rulings of the DTI Secretary, which are
connected with the imposition of safeguard measure. This is sound and proper in
light of the specialized jurisdiction of the CTA in tax matters.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
COMMISSIONER OF CUSTOMS vs. PHILIPPINE PHOSPHATE
FERTILIZER CORPORATION [G.R. No. 144440, September 1,
2004]
Facts: Respondent Philippine Phosphate Fertilizer Corporation (Philphos) is a
domestic corporation engaged in the manufacture and production of fertilizers for
domestic and international distribution. It is registered with the Export Processing
Zone Authority (EPZA), now known as the Philippine Export Zone Authority (PEZA).
Qs. Is Philphos entitled to refund? Has the claim for refund prescribed?
A. 1. Yes. The enunciated policy of the EPZA Law is to encourage and promote
foreign commerce as a means of making the Philippines a center of international
trade; strengthening our export trade and foreign exchange position; hastening
industrialization; reducing domestic unemployment; and accelerating the
development of the country, by establishing export processing zones in strategic
locations in the Philippines.
The incentives offered to enterprises duly registered with the PEZA consist, among
others, of tax exemptions. These benefits may, at first blush, place the government
at a disadvantage as they preclude the collection of revenue. Still, the expectation
is that the tax breaks ultimately redound to the benefit of the national economy,
enticing as they do more enterprises to invest and do business within the zones;
thus creating more employment opportunities and infusing more dynamism to the
vibrant interplay of market forces.
It is clear that Section 17(1) of EPZA Law considers such supplies exempt even if
they are used indirectly, as they had been in this case. Since Section 17(1) treats
these supplies for tax purposes as beyond the ambit of customs laws and
regulations, the arguments of the Commissioner invoking the provisions of the Tariff
and Customs Code must fail.
Moreover, reading Sec. 18 with Sec. 17 of the EPZA Law would mean that the
“additional incentives” under Section 18 which include allowance of net-operating
loss carry-over, accelerated depreciation, exemption from export tax, foreign
exchange assistance, financial assistance, exemptions for local taxes and licenses,
deductions for labor training services, and deductions for organizational and pre-
operating expenses are to be enjoyed in conjunction with the incentives under
Section 17. Section 17(1) is determinative of the fundamental question whether
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
there is legal basis for the claim of exemption. On the other hand, Section 18(i)
does not impose limitations on the exemptions granted in the preceding provisions,
but would only affect, if at all, the modality by which the exemption takes form.
The Tax Reform Act of 1997 authorizes either a refund or credit as a means of
recovery of tax erroneously or illegally collected. Formally, a tax refund requires a
physical return of the sum erroneously paid by the taxpayer, while a tax credit
involves the application of the reimbursable amount against any sum that may be
due and collectible from the taxpayer. On the practical side, the taxpayer to whom
the tax is refunded would have the option, among others, to invest for profit the
returned sum, an option not proximately available if the taxpayer chooses instead
to receive a tax credit.
2. No. The EPZA Law itself is silent on the matter, and the prescriptive periods under
the Tariff and Customs Code and other revenue laws are inapplicable, by specific
mandate of Section 17(1) of the EPZA Law. Thus, the Civil Code provisions on solutio
indebiti may find application. The Court has in the past sanctioned the application of
the provisions on solutio indebiti in cases when taxes were collected thru error or
mistake. Thus, the claim for refund must be commenced within six (6) years from
date of payment pursuant to Article 1145(2) of the New Civil Code.
LOCAL TAXATION
A. YES. RCPI’s radio relay station tower, radio station building, and machinery shed
are real properties and are thus subject to real property tax. The “in lieu of all
taxes” clause in Section 14 of RA 2036, as amended by RA 4054, cannot exempt
RCPI from the real estate tax because the same Section 14 expressly states that
RCPI “shall pay the same taxes x x x on real estate, buildings x x x.” Subsequent
legislations have radically amended the “in lieu of all taxes” clause in franchises of
public utilities. The Local Government Code of 1991 “withdrew all the tax
exemptions existing at the time of its passage — including that of RCPI’s” with
respect to local taxes like the real property tax. Also, Republic Act No. 7716 (“RA
7716”) abolished the franchise tax on telecommunications companies effective 1
January 1996. To replace the franchise tax, RA 7716 imposed a 10 percent value-
added-tax on telecommunications companies under Section 102 of the National
Internal Revenue Code. Lastly, it is an elementary rule in taxation that exemptions
are strictly construed against the taxpayer and liberally in favor of the taxing
authority. It is the taxpayer’s duty to justify the exemption by words too plain to be
mistaken and too categorical to be misinterpreted.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
City of Davao vs. RTC, Branch XII, Davao City (Aug. 18,
2005)
FACTS: The GSIS Davao City Branch received a Notice of Public Auction scheduling
the public bidding of GSIS properties located in Matina and Ulas, Davao City for non
payment of realty taxes for the years 1992-1994 totalling P295,721.61. GSIS filed a
Petition for Cetiorari, Prohibition, Mandamus and/or Declaratory Relief and further
sought to enjoin the auction sale by praying for a restraining order in the RTC of
Davao City. The said petition sought to determine whether the exemption of the
GSIS from paying realty axes has been withdrawn by the Local Government Code.
The said court subsequently ruled that notwithstanding, the enactment of the Local
Government Code, the GSIS retained its exemption.
FACTS: Bayantel was assessed real property taxes for its properties located in the
territorial jurisdiction of Quezon City. It opposed such claiming that its properties
were exempted by virtue of Sec. 11 of its franchise which exempts it from paying
such taxes. On the other hand, the said city anchors its actions on the provisions of
the LGC which allows local governments to collect real property tax.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
REAL PROPERTY TAXATION
MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT
OF APPEALS, CITY OF PARAÑAQUE, et al. [G.R. No. 155650,
July 20, 2006]
Q. Are the Airport Lands and Buildings of MIAA exempt from real estate tax
under existing laws?
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
where applicable as in the case of stock corporations, to the extent of at
least 51% of its capital stock.
Section 133 of the Local Government Code starts with the saving clause
“unless otherwise provided in this Code.” This means that unless the Local
Government Code grants an express authorization, local governments have
no power to tax the national government, its agencies and instrumentalities.
Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule,
local governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in
Section 234(a) of the Code, which makes the national government subject to
real estate tax when it gives the beneficial use of its real properties to a
taxable entity.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Properties of public dominion mentioned in Article 420 of the Civil Code, like
“roads, canals, rivers, torrents, ports and bridges constructed by the State,”
are owned by the State. The term “ports” includes seaports and airports.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the Republic of
the Philippines. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by the government
of a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads. Such fees
are often termed user’s tax.
While Section 234(a) of the Local Government Code states that real property
owned by the Republic loses its tax exemption only if the “beneficial use
thereof has been granted, for consideration or otherwise, to a taxable
person,” MIAA, as a government instrumentality, is not a taxable person
under Section 133(o) of the Local Government Code. Thus, even assuming
that the Republic has granted to MIAA the beneficial use of the Airport Lands
and Buildings, such fact does not make these real properties subject to real
estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is subject
to real estate tax. In such a case, MIAA has granted the beneficial use of
such land area for a consideration to a taxable person and therefore such
land area is subject to real estate tax. This was the ruling enunciated in the
case of Lung Center of the Philippines vs. Quezon City (G.R. No. 144104.
June 29, 2004)
Facts: The petitioner Lung Center of the Philippines is a non-stock and non-
profit entity. It is the registered owner of a 121,463 square meter parcel of
land located at Quezon City. Erected in the middle of the aforesaid lot is a
hospital known as the Lung Center of the Philippines. A big space at the
ground floor is being leased to private parties, for canteen and small store
spaces, and to medical or professional practitioners who use the same as
their private clinics for their patients whom they charge for their professional
services. Almost one-half of the entire area on the left side of the building
along Quezon Avenue is vacant and idle, while a big portion on the right side
is being leased for commercial purposes to a private enterprise known as the
Elliptical Orchids and Garden Center. Petitioner accepts paying and non-
paying patients. It also renders medical services to out-patients, both paying
and non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government. Both the land and the
hospital building of the petitioner were assessed for real property taxes
(P4,554,860) by the City Assessor of Quezon City. Petitioner avers that it is a
charitable institution within the context of Section 28(3), Article VI of the
1987 Constitution.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A. 1.) YES, petitioner is a charitable institution within the context of PD 1823
and RA 7160.
To determine whether an enterprise is a charitable institution/entity or
not, the elements which should be considered include the statute creating
the enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.
2.) NO, those portions of its real property that are leased to private entities
are not exempt from real property taxes as these are not actually, directly
and exclusively used for charitable purposes. The Lung Center of the
Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality
thereof with respect to equipment purchases made by, or for the Lung
Center. It is plain as day that under the decree, the petitioner does not enjoy
any property tax exemption privileges for its real properties as well as the
building constructed thereon.
The tax exemption under Section 28(3), Article VI covers property taxes only.
What is exempted is not the institution itself but lands, buildings and
improvements actually, directly and exclusively used for religious, charitable
or educational purposes. Under the 1973 and 1987 Constitutions and Rep.
Act No. 7160 in order to be entitled to the exemption, the petitioner is
burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes. What is meant by actual, direct
and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
which the charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property is used
for tax-exempt purposes.
Facts: From 1968 to 1972 the Manila Electric Company (MERALCO) erected 4
power generating plants in Sucat, Muntinlupa. From 1975 to 1978 MERALCO
paid the real property taxes on the said properties on the basis of their
assessed value as stated in the tax declarations. In 1978, MERALCO sold all
the power-generating plants including the landsite to the NAPOCOR. In 1985,
the Offices of the Municipal Assessor and Municipal Treasurer of Muntinlupa
discovered that MERALCO misdeclared and/or failed to declare for taxation
purposes a number of real properties, consisting of several equipment and
machineries, found in the said power plants. In 1986, the Municipal Treasurer
of Muntinlupa issued several collection notices to MERALCO, ordering it to
pay the deficiency in the real property taxes in the amount of
P36,000,000.00 covering the machineries and equipment in the said power
plants. MERALCO did not pay the tax assessed. Accordingly, after issuing the
requisite certification of non-payment of real property taxes and complying
with the additional requirement of public posting of the notice of
delinquency, the Municipal Treasurer issued warrants of garnishment
ordering the attachment of the bank deposits of MERALCO with the PCIB,
METROBANK and the BPI to the extent of its unpaid real property taxes.
MERALCO filed before the RTC of Makati a Petition for Prohibition. The
Municipal Treasurer filed a Motion to Dismiss on the grounds of: (1) lack of
jurisdiction since, under Sec. 64 of the Real Property Tax Code, courts are
prohibited from entertaining any suit assailing the validity of a tax assessed
until the taxpayer shall have paid, under protest, the tax; and (2) lack of
cause of action by reason of MERALCO’s failure to question the notice of
assessment before the Local Board of Assessment Appeals.
Qs. Does the trial court has jurisdiction over the questioned petition for
prohibition? Is petitioner a taxpayer contemplated under Sec. 64 of the Real
Property Tax Code? Were the 1986 notices equivalent to an assessment,
thus subject to protest to the LBAA? Should payment of real property tax be
made by proceeding against the real property itself or any personal property
located therein, and not the separate personal property of petitioner,
specifically its bank deposits?
4. No. While real property tax constitutes a lien on the property subject to
tax, the RPTC affords local government units three (3) concurrent and
simultaneous remedies to enforce the Code’s provisions, namely: (a)
distraint of personal property, (b) sale of delinquent real property, and (c)
collection of real property tax through ordinary court action. The remedy of
levy can be pursued by putting up for sale the real property subject of tax,
i.e., the delinquent property upon which the tax lien attaches, regardless of
the present owner or possessor thereof. The remedy of distraint and levy of
personal property meanwhile allows the taxing authority to subject any
personal property of the taxpayer to execution, save certain exceptions as
enumerated under Sec. 69 of the RPTC. Bank deposits are not among those
exceptions.
The Court issued a Resolution denying with finality the petitioner’s motion for
reconsideration. The Court, however, reversed its ruling that the notices sent
by the respondent to the petitioner were notices of assessment. It
categorically stated that the notices were, in fact, notices of collection. The
foregoing notwithstanding, the Court ruled against a remand of the case to
the trial court since the issue in the main case was one of jurisdiction and as
such the Court ruled that the RTC has none.
Q. Should the Decision be set aside and the case remanded to the trial court
for further proceedings, in view of the factual findings contained in the
Court’s February 1, 2002 Resolution?
In the Court’s February 1, 2002 Resolution, it said that it is apparent why the
foregoing cannot qualify as a notice of tax assessment. A notice of
assessment as provided for in the RPTC should effectively inform the
taxpayer of the value of a specific property, or proportion thereof subject to
tax, including the discovery, listing, classification, and appraisal of
properties. The September 3, 1986 and October 31, 1989 notices do not
contain the essential information that a notice of assessment must specify,
namely, the value of a specific property or proportion thereof which is being
taxed, nor does it state the discovery, listing, classification and appraisal of
the property subject to taxation. In fact, the tenor of the notices bespeaks an
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
intention to collect unpaid taxes, thus the reminder to the taxpayer that the
failure to pay the taxes shall authorize the government to auction off the
properties subject to taxes or, in the words of the notice. Furthermore, even
the Bureau of Local Government Finance (BLGF), upon whose
recommendation former Municipal Treasurer Alon relied in the collection of
back taxes against petitioner, deemed the September 3, 1986 notice as a
"collection letter."
Indeed, even the respondent admitted in his comment on the petition that
respondent did not issue any notice of assessment because statutorily, he is
not the proper officer obliged to do so. Under Chapter VIII, Sections 90 and
90-A of the RPTC, the functions related to the appraisal and assessment for
tax purposes of real properties situated within a municipality pertains to the
Municipal Deputy Assessor and for the municipalities within Metropolitan
Manila, the same is lodged on the Municipal Assessor.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO