TAXREV 2018 CASE DIGEST

PHILIPPINE AIRLINES, INC. PAL v. CIR

G.R. Nos. 206079-80
January 17, 2018

FACTS:
• PAL in its petition before the SC asserts that it is entitled to a refund of the withheld taxes because it is exempted
from paying the tax on interest income under its franchise, Presidential Decree No. 1590. H
• However, the Commissioner refused to grant the claim, arguing that PAL failed to prove the remittance of the
withheld taxes to the Bureau of Internal Revenue.

ISSUE: WON PAL is entitled to its claim for refund.

RULING: Yes. PAL is entitled to its claim for refund for taxes withheld by Chinabank, PBCom, and Standard
Chartered. Remittance need not be proven. PAL needs only to prove that taxes were withheld from its interest
income.

First, PAL is uncontestedly exempt from paying the income tax on interest earned under its franchise, Presidential
Decree No. 1590. Although Sec. 22 of Republic Act No. 9337 abolished the franchise tax and subjected PAL to
corporate income tax and to value-added tax, it still maintained PAL's exemption from "any taxes, duties, royalties,
registration, license, and other fees and charges, as may be provided by their respective franchise agreement
provided it pays the corporate income tax as granted in its franchise agreement. Moreover, Sec. 14 of Presidential
Decree No. 1590 provides that any excess payment over taxes due from PAL's shall either be refunded or credited
against its tax liability for the succeeding taxable year.

Second, PAL is entitled to a refund because it is not responsible for the remittance of tax to the Bureau of Internal
Revenue. The taxes on interest income from bank deposits are in the nature of a withholding tax. Thus, the party
liable for remitting the amounts withheld is the withholding agent of the Bureau of Internal Revenue. The withholding
agent is the payor liable for the tax, and any deficiency in its amount shall be collected from it. Should the Bureau of
Internal Revenue find that the taxes were not properly remitted, its action is against the withholding agent, and not
against the taxpayer. Therefore, proof of actual remittance is not a condition to claim for a refund of unutilized tax
credits. To claim a refund, this Court rules that PAL needs only to prove that taxes were withheld.

This Court notes that the case of Commissioner of Internal Revenue v. Philippine National Bank involves a refund of
creditable withholding tax and not of final withholding tax. However, its ruling that proof of remittance is not necessary
to claim a tax refund applies to final withholding taxes. The same principles used to rationalize the ruling apply to final
withholding taxes: (i) the payor-withholding agent is responsible for the withholding and remitting of the income taxes;
(ii) the payee-refund claimant has no control over the remittance of the taxes withheld from its income; (iii) the
Certificates of Final Tax Withheld at Source issued by the withholding agents of the government are prima facie proof
of actual payment by payee-refund claimant to the government itself and are declared under perjury

Lastly, while tax exemptions are strictly construed against the taxpayer, the government should not misuse
technicalities to keep money it is not entitled to. Substantial justice, equity and fair play are on the side of petitioner.
Technicalities and legalisms, however exalted, should not be misused by the government to keep money not
belonging to it, thereby enriching itself at the expense of its law-abiding citizens. Under the principle of solutio indebiti
provided in Art. 2154, Civil Code, the BIR received something "when there [was] no right to demand it," and thus, it
has the obligation to return it. Heavily militating against respondent Commissioner is the ancient principle that no one,
not even the state, shall enrich oneself at the expense of another. Indeed, simple justice requires the speedy refund
of the wrongly held taxes.

Considering that PAL presented sufficient proof that: (i) it is exempted from paying withholding taxes; (ii) amounts
were withheld and deducted from its accounts; (iii) and the Commissioner did not contest the withholding of these
amounts and only raises that they were not proven to be remitted, this Court finds that PAL sufficiently proved that it
is entitled to its claim for refund.

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TAXREV 2018 CASE DIGEST

CIR v. COVANTA ENERGY PHILIPPINEHOLDINGS, INC.

G.R. No. 203160
January 24, 2018

FACTS:
• In 2004, the CIR issued Formal Letters of Demand and Assessment Notices against CEPHI for deficiency VAT,
EWT and MCIT
• The CTA Second Division partially granted the petitions of CEPHI with respect to the deficiency VAT and MCIT
assessments for 2001. Since tax amnesty does not extend to withholding agents with respect to their withholding
tax liabilities.
• The CTA en banc upheld the ruling that, without any evidence that CEPHI's net worth was underdeclared by at least
30%, there is a presumption of compliance with the requirements of the tax amnesty law. For this reason, CEPHI
may immediately enjoy the privileges of the tax amnesty program.
• The CIR elevated the matter to this Court, by again assailing the validity of CEPHI's tax amnesty. The CIR
reiterated its argument that CEPHI's failure to provide complete information in its Statement of Assets, Liabilities
and Net worth (SALN), particularly the columns requiring the Reference and Basis of Valuation, is sufficient basis to
disqualify CEPHI from the tax amnesty program.

ISSUE: WON CEPHI’S tax amnesty valid.

RULING: Yes. CEPHI is entitled to the immunities and privileges of the tax amnesty program upon full compliance
with the requirements of R.A. No. 9480. R.A. No. 9480 governs the tax amnesty program for national internal revenue
taxes for the taxable year 2005 and prior years. Subject to certain exceptions, a taxpayer may avail of this program
by complying with the documentary submissions to the BIR and thereafter, paying the applicable amnesty tax.

Upon the taxpayer's full compliance with requirements embodied in DOF Department Order No. 29-07, the taxpayer
is immediately entitled to the enjoyment of the immunities and privileges of the tax amnesty program. But when: (a)
the taxpayer fails to file a SALN and the Tax Amnesty Return; or (b) the net worth of the taxpayer in the SALN as of
December 31, 2005 is proven to be understated to the extent of 30% or more, the taxpayer shall cease to enjoy these
immunities and privileges.

As the Court previously held in CS Garment, Inc. v. CIR, taxpayers are eligible to the immunities of the tax amnesty
program as soon as they fulfill the suspensive conditions imposed under R.A. No. 9480. However, this does not mean
that the amnesty taxpayers would go scot-free in case they substantially understate the amounts of their net worth in
their SALN. The 2007 Tax Amnesty Law imposes a resolutory condition insofar as the enjoyment of immunities
and privileges under the law is concerned. Pursuant to Section 4 of the law, third parties may initiate proceedings
contesting the declared amount of networth of the amnesty taxpayer within one year following the date of
the filing of the taxamnesty return and the SALN. Section 6 then states that "All these immunities and
privileges shall not apply x x x where the amount of networth as of December 31, 2005 is proven to be understated to
the extent of thirty percent (30%) or more, in accordance withthe provisions of Section 3 hereof." Accordingly,
Section 10 provides that “amnesty taxpayers who willfully understate their net worth shall be (a) liable for perjury
under the Revised Penal Code; and (b) subject to immediate tax fraud investigation in order to collect all taxes due
and to criminally prosecute those found to have willfully evaded lawful taxes due.”

Considering that CEPHI completed the requirements and paid the corresponding amnesty tax, it is considered to
have totally complied with the tax amnesty program. As a matter of course, CEPHI is entitled to the immediate
enjoyment of the immunities and privileges of the tax amnesty program. Nonetheless, the Court emphasizes that the
immunities and privileges granted to taxpayers under R.A. No. 9480 is not absolute. It is subject to a resolutory
condition insofar as the taxpayers' enjoyment of the immunities and privileges of the law is concerned. These
immunities cease upon proof that they underdeclared their net worth by 30%.

Unfortunately for the CIR, however, there is no such proof in CEPHI's case. The Court, thus, finds it necessary to
deny the present petition. While tax amnesty is in the nature of a tax exemption, which is strictly construed against
the taxpayer, the Court cannot disregard the plain text of R.A. No. 9480.

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