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Commissioner of Internal Revenue
[CTA Case No. 8831, June 2, 2016]
On May 21, 2014, taxpayers filed their administrative claims for refund of capital
gains tax (CGT) allegedly paid erroneously on June 26 and 28, 2012. Citing inaction on
their claims for refund, petitioners filed the instant Petition for Review on June 6, 2014.
The BIR claims that one of the requirements for recovery of tax erroneously or illegally
collected under Section 229 of the NIRC, as amended, is that a written administrative
claim for refund must be filed by the taxpayer with the BIR. In the instant case, it was not
the taxpayers but the Zambrano and Gruba Law Offices who filed on May 21, 2014 the
administrative claim for refund. In effect, no administrative claims for refund were filed by
taxpayers before resorting to judicial action, thereby depriving the Court of jurisdiction
over the case. The BIR argued that while the Special Power of Attorney (SPA) in favor of
Zambrano and Gruba Law Offices was executed by taxpayers on May 20, 2014, it was
notarized only on May 23, 2014. Thus, the SPA constituting Zambrano and Gruba Law
Offices as duly authorized representative of petitioner became a public document binding
upon third persons only after it was notarized on May 23, 2014. Hence, at the time the
administrative claim for refund was filed on May 21, 2014, the said law firm was not yet
deemed to be the duly authorized representative of taxpayers. Accordingly, the filing of
the administrative claim for refund on May 21, 2014, could not be deemed as valid written
claims for refund or tax credit filed by petitioner-taxpayer with the BIR.
Whether or not the Court has jurisdiction to entertain the instant Petition for
YES. Zambrano and Gruba Law Offices had the authority to represent taxpayers
in their administrative claims for refund filed with the BIR even if the SPA was notarized
only after its filing. Consequently, the Court properly acquired jurisdiction over the case.
In the subject SPA, taxpayers gave Zambrano and Gruba Law Offices the authority to
represent them in administrative cases and in any other proceedings in connection with
their application and/or claim for tax refund of the CGT. In the same SPA, taxpayers also
ratified all previous acts done or may lawfully do or cause to be done by the law office, by
virtue of the authority granted unto them. Even an unauthorized appearance of an
attorney may be ratified by the client either expressly or impliedly. Ratification retroacts
to the date of the lawyer's first appearance and validates the action taken by him.
[CTA Case no. 8601 March 21, 2016]
Lufthansa was assessed with deficiency income tax. The deficiencies were mainly
derived from two sources of income: 1) Income from Gross Philippine Billings; and 2)
Income subject to regular income tax rate. As to the first item, the BIR contends that
Lufthansa cannot use the preferential tax rate for Gross Philippine Billings under the RP-
Germany Tax Treaty as it failed to file for a Tax Treaty Relief Application (TTRA) with the
International Tax Affairs Division (ITAD). Lufthansa, on the other hand, invokes the
Supreme Court Rulings in the cases of Deutsche Bank and CBK. For the second item,
the BIR contends that Lufthansa under declared its income subject to regular income tax
rates based on the IATA BSP Report. Said report contains the ticket agents, the amount
of tickets sold, as well as the agents’ commissions. Lufthansa, on the other hand,
contends that said report does not faithfully capture its true revenue. It claims that it only
makes income on flights that it has actually flown. There are instances where certain legs
of a particular flight that are flown by other carriers. In such cases, Lufthansa holds the
payment as a mere agent, and is required to turn over the funds to the other airline.
1) Whether or not Lufthansa may avail of the preferential tax rate under the RP-
Germany Tax Treaty;
2) Whether or not Lufthansa under declared its income based on the IATA BSP
1) YES. The CTA declared that the denial of the BIR has no legal basis. The doctrine in
Deutsche Bank prevails. The CTA made a finding, and eventually found, that Lufthansa
is indeed entitled to the preferential rate.
2) NO. Lufthansa was able to establish its processes. Clearly, it earns income only in
instances where it is actually carrying the passenger in its planes. On legs that are flown
by other airlines, it is obliged to surrender the payment corresponding to that leg. As such,
Lufthansa earns no income therefrom. However, Lufthansa failed to establish that the
amount it is claiming as actual income, was indeed the income from flights it actually flown
passengers in. Thus, the assessment of BIR stands.
The CTA also affirmed the doctrine that Courts cannot force parties to pay compromise
penalties abse8nt a clear agreement. It also found that the payment made by Lufthansa
should have been deducted from the amount in the FDDA.
Kep (Philippines) Realty Corporation v. Commissioner of Internal Revenue
[CTA Case No. 8983, April 20, 2016]
Kep (Philippines) Realty Corporation (“KPRC”) purchased parcels of land within
the Cebu Light Industrial Park, a special economic zone. It then leased the same to
Knowles Electronics (Philippines) Corporation (KEPC). KEPC is a registered PEZA entity
and qualified for VAT zero-rating on its transactions with local suppliers. KPRC then
applied for VAT refund with the BIR. However, the BIR did not act on the application after
120 days. Thus, KPRC elevated the matter to the CTA. The BIR alleged that KPRC failed
to meet the requirements for VAT refund attributable to zero-rated sales.

Whether or not KPRC is entitled to refund.

YES. The CTA ruled that KPRC met the following requirements for VAT refund: (1)
that the claimant must be a VAT-registered person; (2) that there must be zero-rated or
effectively zero-rated sales; (3) that input taxes were incurred or paid; (4) that such input
taxes are attributable to zero-rated or effectively zero-rated sales; (5) that the input taxes
were not applied against any output VAT liability; and (6) that the claim for refund was
filed within the two-year prescriptive period. The above was proved as follows:
BIR insists that petitioner failed to submit the needed documents, thus, its claim must fail.
However, as borne by the records, KPRC simultaneously submitted the supporting
documents when it filed its administrative claim for refund or issuance of tax credit
certificate. Even if KPRC was remiss in submission of documents, this Court has
consistently ruled in a number of cases that the alleged non-submission of complete
documents at the administrative level is not fatal to a claim for refund or issuance of tax
credit certificate at the judicial level. Moreover, if there is indeed truth to the allegation of
non-submission of complete documents before the BIR, the latter could have simply
denied outright the administrative claim on that ground, and not allow the lapse of
considerable length of time without action on KPRC's claim.