GENERAL PRINCIPLES

1 COCOFED v Republic (2012)

Facts​: The relevant facts, as culled from the records and as gathered from Decisions of
the Court in a batch of coco levy and illegal wealth cases, are:
In 1971, Republic Act No. (R.A.) 6260 was enacted creating the Coconut
Investment Company (CIC) to administer the Coconut Investment Fund (CIF), which
was to be sourced from a PhP 0.55 levy on the sale of every 100 kg. of copra. Of the
PhP 0.55 levy of which the copra seller was, or ought to be, issued COCOFUND
receipts, PhP 0.02 was placed at the disposition of Philippine Coconut Producers
Federation, Inc. (COCOFED), the national association of coconut producers declared by
the Philippine Coconut Administration (PHILCOA, now Philippine Coconut Authority
PCA) as having the largest membership.
The declaration of martial law in September 1972 saw the issuance of several
presidential decrees (“P.Ds.”) purportedly designed to improve the coconut industry
through the collection and use of the coconut levy fund.
Charged with the duty of collecting and administering the Fund was PCA. Like
COCOFED with which it had a legal linkage, the PCA, by statutory provisions scattered
in different coco levy decrees, had its share of the coco levy.
There are several issuances on the coco levy, its collection and utilization, how
the proceeds of the levy will be managed and by whom, and the purpose it was to
serve.
Then came the 1986 EDSA event. One of the priorities of then President
Corazon Aquino’s revolutionary government was the recovery of ill-gotten wealth
reportedly amassed by the Marcos family and close relatives, their nominees and
associates. She issued Executive Order Nos. (E.Os.) 1, 2 and 14, as amended by E.O.
14-A. E.O. 1 created the PCGG and provided it with the tools and processes it may
avail of in the recovery efforts;36 E.O. No. 2 asserted that the ill-gotten assets and
properties come in the form of shares of stocks, etc.; while E.O. No. 14 conferred on the
Sandiganbayan exclusive and original jurisdiction over ill-gotten wealth cases, with the
proviso that “technical rules of procedure and evidence shall not be applied strictly” to
the civil cases filed under the E.O. Pursuant to these issuances, the PCGG issued
numerous orders of sequestration, among which were those handed out, as earlier
mentioned, against shares of stock in United Coconut Planters Bank (UCPB)
purportedly owned by or registered in the names of (a) more than a million coconut
farmers and (b) the Coconut Industry Investment Fund (CIIF) companies, including the
San Miguel Corporations (SMC) shares held by the CIIF companies. The PCGG
instituted before the Sandiganbayan a recovery suit
 After filing and subsequent amendments of the complaint, events transpired
revolving around Re: Anomalous Purchase and Use of First United Bank (FUB) now
UCPB and Re: Acquisition of San Miguel Corporation Shares of Stock, the first civil
case pivoting mainly on the series of transactions culminating in the alleged anomalous
purchase of 72.2% of FUB’s outstanding capital stock and the transfer by PCA of a
portion thereof to private individuals. On the other hand, the subject of the second civil
case are two (2) blocks of SMC shares of stock, the first referring to shares purchased
through and registered in the name of the CIIF holding companies. The purported
ownership of the second block of SMC shares is for the nonce irrelevant to the
disposition of this case. During the time, the CIIF block of SMC shares represented 27%
of the outstanding capital stock of SMC.
In the first civil case, the Sandiganbayan issued the assailed Partial Summary
Judgment (PSJ)-A finding for the Republic, the judgment accentuated by (a) the
observation that COCOFED has all along manifested as representing over a million
coconut farmers and (b) a declaration on the issue of ownership of UCPB shares and
the unconstitutionality of certain provisions of coco levy issuances and its implementing
regulations. On the matter of ownership in particular, the anti-graft court declared that
the 64.98% sequestered “Farmers’ UCPB shares,” plus other shares paid by PCA are
“conclusively” owned by the Republic.
In the second civil case, the Sandiganbayan ruled that x x x CIIF BLOCK OF
SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALLING 33,133,266
SHARES AS OF 1983 … ARE DECLARED OWNED BY THE GOVERNMENT IN
TRUST FOR ALL THE COCONUT FARMERS GOVERNMENT AND ORDERED
RECONVEYED TO THE GOVERNMENT x x x
Hence, the instant petitions.

Issue​: ​WON coconut levy imposed was in the exercised of the State’s inherent power of
taxation?

Ruling​: ​Yes. The coconut levy funds are in the nature of taxes and can only be used for
public purpose. Consequently, they cannot be used to purchase shares of stocks to be
given for free to private individuals.
In Republic v COCOFED, the court ruled that ​coconut levy funds partake of the
nature of taxes, which, in general, are enforced proportional contributions from persons
and properties, exacted by the State by virtue of its sovereignty for the support of
government and for all public needs.
x x x ​Based on its definition, a ​tax has three elements​, namely: ​a) it is an
enforced proportional contribution from persons and properties; b ​ ) it is imposed by the
State by virtue of its sovereignty; and c) ​it is levied for the support of the government.
The coconut levy funds fall squarely into these elements for the following reasons:
(a) They were generated by virtue of statutory enactments imposed on the
coconut farmers requiring the payment of prescribed amounts.
(b) The coconut levies were imposed pursuant to the laws enacted by the proper
legislative authorities of the State.
(c) They were clearly imposed for a public purpose. There is absolutely no
question that they were collected to advance the government’s avowed policy of
protecting the coconut industry.
Taxation is done not merely to raise revenues to support the government, but
also to provide means for the rehabilitation and the stabilization of a threatened
industry, which is so affected with public interest as to be within the police power of the
State​ x x x
We have ruled time and again that ​taxes are imposed only for a public purpose.
“​They cannot be used for purely private purposes or for the exclusive benefit of private
persons.” When a law imposes taxes or levies from the public, with the intent to give
undue benefit or advantage to private persons, or the promotion of private enterprises,
that law cannot be said to satisfy the requirement of public purpose.
The coconut levy funds were sourced from forced exactions decreed under P.D.
Nos. 232, 276 and 582, among others, with the end-goal of developing the entire
coconut industry. Clearly, to hold therefore, even by law, that the revenues received
from the imposition of the coconut levies be used purely for private purposes to be
owned by private individuals in their private capacity and for their benefit, would
contravene the rationale behind the imposition of taxes or levies.

2 Osmeña v Orbos (1993)

Facts​: President Marcos issued P.D. 1956 creating a Special Account in the General
Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed
to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil. crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue
of E.O 1024, and ordered released from the National Treasury to the Ministry of Energy.
The same Executive Order also authorized the investment of the fund in government
securities, with the earnings from such placements accruing to the fund.
President Corazon Aquino amended P.D. 1956 by expanding the grounds for
reimbursement to oil companies for possible cost underrecovery incurred as a result of
the reduction of domestic prices of petroleum products.
 The petition alleges that the status of the OPSF showed a "Terminal Fund
Balance deficit" of some P12.877 billion; that to abate the worsening deficit, "the Energy
Regulatory Board (ERB) ** issued an Order approving the increase in pump prices of
petroleum products," but the respondents —"are poised to accept, process and pay
claims not authorized under P.D. 1956."
The petition further avers that the creation of the trust fund violates Sec. 29(3),
Article VI of the Constitution.
x x x "(3) All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purposes only. If the purpose for which a
special fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government." x x x
The petitioner argues that "the monies collected pursuant to ** P.D.1956, must
be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a
special tax is collected for a specific purpose, the revenue generated therefrom shall be
treated as a special fund' to be used only for the purpose indicated, and not channeled
to another government objective." ​Petitioner further points out that since "a 'special fund'
consists of monies, collected through the taxing power of a State, such amounts belong
to the State, although the use thereof is limited to the special purpose/objective for
which it was created."

Issue​: ​WON the petitioners are correct in saying that powers granted to the ERB under
P.D. 1956 partake of the nature of the taxation power of the State?

Ruling​: The petitioner’s perceptions are not correct.

In Valmonte v. Energy Regulatory Board, the Court ruled that the OPSF is a
Trust Account' which was established 'for the purpose of minimizing the frequent price
changes brought about by exchange rate adjustment and/or changes in world market
prices of crude oil and imported petroleum products.' ​It appears that the establishment
and maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign authority we designate as
the police power of the state.
In Gaston v. Republic Planters Bank, the ​court upheld the legality of the sugar
stabilization fees because the tax collected is not in a pure exercise of the taxing power.
It is ​levied with a regulatory purpose, to provide a means for the stabilization of the
sugar industry. ​The ​levy is primarily in the exercise of the police power of the State
Hence, it seems clear that while the funds collected may be referred to as taxes,
they are exacted in the exercise of the police power of the State. Moreover, that the
OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is
segregated from the general fund; and while it is placed in what the law refers to as a
"trust liability account," the fund nonetheless remains subject to the scrutiny and review
of the COA. The Court is satisfied that these measures comply with the constitutional
description of a "special fund."
What petitioner would wish is the fixing of some definite, quantitative restriction,
or "a specific limit on how much to tax." The Court is cited to this requirement by the
petitioner on the premise that what is involved here is the power of taxation; but as
already discussed, this is not the case. What is here involved is not so much the power
of taxation as police power. ​Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with
expediency in carrying out the objectives of funds of the government."

Dispositive​: the petition is GRANTED insofar as it prays for the nullification of the
reimbursement of financing charges and DISMISSED in all other respects.

3 CIR v Central Luzon Drug Corp. (2005)

Relevant doctrine​: The power to tax has become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth.

Facts​: ​Respondents operated six drugstores under the business name Mercury Drug.
Respondent granted 20% sales discount to qualified senior citizens on their purchases
of medicines pursuant to RA 7432 for a total of ₱ 904,769.
Respondent filed its annual Income Tax Return for taxable year 1996 declaring
therein net losses. Respondent filed with petitioner a claim for tax refund/credit of
₱904,769.00 allegedly arising from the 20% sales discount. Unable to obtain affirmative
response from petitioner, respondent elevated its claim to the Court of Tax Appeals.
The court dismissed the same but upon reconsideration, the latter reversed its earlier
ruling and ordered petitioner to issue a Tax Credit Certificate in favor of respondent
citing citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or
erroneously paid taxes but that there are other situations which may warrant a tax
credit/refund.
CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required
neither a tax liability nor a payment of taxes by private establishments prior to the
availment of a tax credit. Moreover, such credit is not tantamount to an unintended
benefit from the law, but rather a just compensation for the taking of private property for
public use.
Issue​: ​Whether or not respondent, despite incurring a net loss, may still claim the 20%
sales discount as a tax credit.

Ruling​: ​Yes​, ​it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of
obtaining a 20% discount on their purchase of medicine from any private establishment
in the country. The latter may then claim the cost of the discount as a tax credit. Such
credit can be claimed even if the establishment operates at a loss.
A ​tax credit generally ​refers to an amount that is “subtracted directly from one’s
total tax liability.​” It is an “​allowance against the tax itself” or “a deduction from what is
owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these
is ​tax deduction – which is ​subtraction “from income for tax purposes,” or an amount
that is “allowed by law to reduce income prior to the application of the tax rate to
compute the amount of tax which is due.” ​In other words, whereas a ​tax credit reduces
the tax due, ​tax deduction reduces the income subject to tax in order to arrive at the
taxable income.
A ​tax credit is ​used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied. Without that liability, any tax credit
application will be useless. There will be no reason for deducting the latter when there
is, to begin with, no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is not the same as the
availment or use of such credit. ​While the grant is mandatory, the availment or use is
not. ​If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can be
applied. For the establishment to choose the immediate availment of a tax credit will be
premature and impracticable.

Issue​: ​May the power of taxation be used as an implement of the power of eminent
domain?

Ruling​: Tax measures are but “enforced contributions exacted on pain of penal
sanctions” and “clearly imposed for a public purpose.”
While it is declared commitment under Sec. 1 of R.A. 7432, social justice “cannot
be invoked to trample on the rights of property owners who under our Constitution and
laws are also entitled to protection. The social justice consecrated in our Constitution is
not intended to take away rights from a person and give them to another who is not
entitled thereto. For this reason, a just compensation for income that is taken away from
an establishment becomes necessary.
 It is in the tax credit that our legislators find support to realize social justice, and
no administrative body can alter that fact.

Dispositive​: the Petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals AFFIRMED

4 Carlos Superdrug Corp. v DSWD (2007)

Facts​: R.A. No. 9257, amending R.A. No. 7432 was enacted granting 20% discount
from all establishments for the purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, among others. The Drug Stores
Association of the Philippines (DSAP) questioned the meaning of a ​tax deduction under
the same law, the Department of Finance clarified that under a ​tax deduction scheme,
the ​tax deduction on discounts was subtracted from Net Sales together with other
deductions which are considered as operating expenses before the Tax Due was
computed based on the Net Taxable Income. On the other hand, under a ​tax credit
scheme, the amount of discounts which is the ​tax credit item, was deducted directly
from the tax due amount. Petitioners assert that Section 4(a) of the law is
unconstitutional; compelling drugstore owners and establishments to grant the discount
will result in a loss of profit

Issue​: Is the tax deduction scheme valid as a reimbursement mechanism for the twenty
percent (20%) discount that establishments extend to senior citizens?

Ruling​: Yes. This is because the discount is treated as a deduction, a tax-deductible

expense that is subtracted from the gross income and results in a lower taxable income.
Stated otherwise, it is an amount that is allowed by law to reduce the income prior to the
application of the tax rate to compute the amount of tax which is due. Being a tax
deduction, the discount does not reduce taxes owed on a peso for peso basis but
merely offers a fractional reduction in taxes owed.

Theoretically, the treatment of the discount as a deduction reduces the net income of
the private establishments concerned. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments, were it not for
R.A. No. 9257.

5 Gerochi v Dept. of Energy (2007)

Facts​: ​Section 34 of Republic Act (RA) 9136, otherwise known as the "Electric Power
Industry Reform Act of 2001" (EPIRA), imposed the Universal Charge. On June 26,
2003, the ERC rendered a Decision approving that the amount of ₱0.0373 per
kilowatt-hour be withdrawn from the Special Trust Fund managed by PSALM as the
NPC’s share from the Universal Charge for Missionary Electrification (UC-ME). Based
on such decision, respondent Panay Electric Company, Inc. (PECO) charged petitioner
Romeo P. Gerochi and all other end-users with the Universal Charge as reflected in
their respective electric bills. Petitioners contend that the Universal Charge has the
characteristics of a tax and is collected to fund the operations of the NPC. Thus, there
was a need to delegate powers to administrative bodies.

Issue: ​Is the Universal charge a tax?

Ruling: ​No. it can be gleaned that the assailed Universal Charge is not a tax, but an
exaction in the exercise of the State's police power​. Public welfare is surely promoted.

If generation of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that revenue is
incidentally raised does not make the imposition a tax. In exacting the assailed
Universal Charge through Sec. 34 of the EPIRA, the State's police power, particularly its
regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates
the purposes for which the Universal Charge is imposed and which can be amply
discerned as regulatory in character.

Issue​: Is there undue delegation of legislative power the part of the ERC?

Ruling​: No. ​All that is required for the valid exercise of this power of subordinate
legislation is that the regulation be germane to the objects and purposes of the law and
that the regulation be not in contradiction to, but in conformity with, the standards
prescribed by the law. These requirements are denominated as the completeness test
and the sufficient standard test. Under the ​first test​, the law ​must be complete in all its
terms and conditions when it leaves the legislature such that when it reaches the
delegate, the only thing he will have to do is to enforce it. The ​second test ​mandates
adequate guidelines or limitations in the law to determine the boundaries of the
delegate's authority and prevent the delegation from running riot.
The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec.
34 thereof, is complete in all its essential terms and conditions, and that it contains
sufficient standards.
Issue: ​What are the distinctions between the power to tax and police power?

Ruling: The power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it. It is based on the principle that taxes are the lifeblood of
the government, and their prompt and certain availability is an imperious need. Thus,
the theory behind the exercise of the power to tax emanates from necessity; without
taxes, government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.
On the other hand, police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property. It is the most pervasive, the
least limitable, and the most demanding of the three fundamental powers of the State.
The justification is found in the Latin maxims ​salus populi est suprema lex (the welfare
of the people is the supreme law) and ​sic utere tuo ut alienum non laedas ​(so use your
property as not to injure the property of others). As an inherent attribute of sovereignty
which virtually extends to all public needs, police power grants a wide panoply of
instruments through which the State, as ​parens patriae,​ gives effect to a host of its
regulatory powers. We have held that the power to "regulate" means the power to
protect, foster, promote, preserve, and control, with due regard for the interests, first
and foremost, of the public, then of the utility and of its patrons.

6 Philex Mining v CIR (1998)

Facts​: ​The BIR demanded that Philex settle its tax liabilities of P123,821.982.52. Philex
protested stating that it’s pending claims for VAT input credit/refund for the taxes it paid
for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest should be
applied against the tax liabilities.The BIR denied Philex’ contention, thus Philex raised
the issue to the Court of Tax Appeals. Despite the reduction of its tax liabilities, the CTA
still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest ruling
that "taxes cannot be subject to set-off on compensation since claim for taxes is not a
debt or contract." Philex appealed the case before the CA which affirmed the CTA’s
observation. Philex was able to obtain its VAT input credit/refund for the taxable year
1989 to 1991 and 1992 and 1994. Philex now contends that the same should, ​ipso jure,​
off-set its excise tax liabilities since both had already become "due and demandable, as
well as fully liquidated;" hence, legal compensation can properly take place.

Issue​: Can taxes be subject to set-off or compensation?

Ruling​: No. ​taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other. There is a
material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. We
find no cogent reason to deviate from the aforementioned distinction.

In ​Francia v. Intermediate Appellate Court,​ we categorically held that taxes cannot be

subject to set-off or compensation, thus:
We have consistently ruled that 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 a lawsuit against
the government.

The ruling in ​Francia has been applied to the subsequent case of ​Caltex Philippines,
Inc. v. Commission on Audit,​ which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for taxes
is not such a debt, demand, contract or judgment as is allowed to be set-off.

We fail to see the logic of Philex's claim for this is an outright disregard of the basic
principle in tax law that taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical
reason would render ineffective our tax collection system. Too simplistic, it finds no
support in law or in jurisprudence.

7 CIR v CA (1994)
Facts​:Court of Tax Appeals ordered herein petitioner Commissioner of Internal
Revenue to grant a refund to herein private respondent Citytrust Banking Corporation
(Citytrust) representing its overpaid income taxes for 1984 and 1985, but denied its
claim for the alleged refundable amount reflected in its 1983 income tax return on the
ground of prescription.

in a letter private respondent corporation filed a claim for refund with the Bureau of
Internal Revenue (BIR) representing the alleged aggregate of the excess of its
carried-over total quarterly payments over the actual income tax due, plus carried-over
withholding tax payments on government securities and rental income, as computed in
its final income tax return for the income tax return for the calendar year ending 1985.

Two days later, in order to interrupt the running of the prescriptive period, Citytrust filed
a petition with the Court of Tax Appeals, claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985.

In the answer filed by the Office of the Solicitor General, for and in behalf of therein
respondent commissioner, it was asserted that the mere averment that Citytrust
incurred a net loss in 1985 does not ipso facto merit a refund;

Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government

securities investments, as well as on rental income, respectively, are not properly
documented. assuming arguendo that petitioner is entitled to refund, the right to claim
the same has prescribed pursuant
to Sections 292 and 295 of the National Internal Revenue Code of 1977.

the case was submitted for decision based solely on the pleadings and evidence
submitted.

petitioner could not present any evidence by reason of the repeated failure of the Tax
Credit/ Refund Division of the BIR to transmit the records of the case, as well as the
investigation report thereon, to the Solicitor General.

petitioner filed with the tax court a manifestation and motion praying for the suspension
of the proceedings in the said case on the ground that the claim of Citytrust for tax
refund was already being processed by the Tax Credit/Refund Division of the BIR, and
that said bureau was only awaiting the submission by Citytrust of the required
confirmation receipts which would show whether or not the aforestated amount was
actually paid and remitted to the BIR.

Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals
already acquired jurisdiction over the case, it could no longer be divested of the same
and, further, that the proceedings therein could not be suspended by the mere fact that
the claim for refund was being administratively processed.

The tax court denied the motion to suspend proceedings on the ground that the case
had already been submitted for decision.
A motion for the reconsideration of said decision was initially filed by the Solicitor
General on the sole ground that the statements and certificates of taxes allegedly
withheld are not conclusive evidence of actual payment and remittance of the taxes
withheld to the BIR.

A Supplemental motion for reconsideration was thereafter filed.

Oppositions to both the basic and supplemental motions for reconsideration were filed
by private respondent Citytrust.

Court of Tax Appeals issued a resolution denying both motions.

Petitioner eventually elevated the case to the Supreme Court.

Issue​: WON the CA erred in affirming the grant of the claim for refund of Citytrust?

Ruling​: ​Yes. The Supreme court found that under the peculiar circumstances of this
case, the ends of substantial justice and public interest would be better subserved by
the remand of this case to the Court of Tax Appeals for further proceedings.

the BIR was denied its day in court by reason of the mistakes and/or negligence of its
officials and employees.

readily be gleaned from the records that when it was herein petitioner’s turn to present
evidence, several postponements were sought by its counsel, the Solicitor General, due
to the unavailability of the necessary records which were not transmitted by the Refund
Audit Division of the BIR to said counsel, as well as the investigation report made by the
Banks/ Financing and
Insurance Division of the said bureau, despite repeated requests.

the BIR officials and/or employees concerned also failed to heed the order of the Court
of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of
the Court of Tax Appeals.

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 governmental functions, the State
cannot be estopped by the neglect of its agent 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.
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.

it is also worth noting that the Court of Tax Appeals erred in denying petitioner’s
supplemental motion for reconsideration alleging and bringing to said court’s attention
the existence of the deficiency income and business tax assessment.

The fact of such deficiency assessment is intimately related to and inextricably

intertwined with the right of respondent bank to claim for a tax refund for the same year.

To award such refund despite the existence of that deficiency assessment is an

absurdity and a polarity in conceptual effects. Herein private respondent cannot be
entitled to refund and at the
same time be liable for a tax deficiency assessment for the same year.

grant of a refund is founded on the assumption that the tax return is valid, that is, the
facts stated therein are true and correct. The deficiency assessment, although not yet
final, created a doubt as to and constitutes a challenge against the truth and accuracy of
the facts stated in said return which, by itself and without unquestionable evidence,
cannot be the basis for the grant of the refund.
 8 South African Airways v CIR (2010)

Facts​: South African Airways is a foreign corporation organized and existing under and
by virtue of the laws of the Republic of South Africa. It is an internal air carrier having no
landing rights in the country. Petitioner has a general sales agent in the Philippines,
Aerotel Limited Corporation (Aerotel). Aerotel sells passage documents for
compensation or commission for petitioner’s off-line flights for the carriage of
passengers and cargo between ports or points outside the territorial jurisdiction of the
Philippines. Petitioner is not registered with the Securities and Exchange Commission
as a corporation, branch office, or partnership. It is not licensed to do business in the
Philippines.

For the taxable year 2000, petitioner filed separate quarterly and annual income tax
returns for its off-line flights.

Thereafter, petitioner filed with the Bureau of Internal Revenue a claim for the refund as
erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such
claim was unheeded. petitioner filed a Petition for Review with the CTA for the refund of
the above mentioned amount.

CTA First Division issued a Decision denying the petition for lack of merit. Petitioner’s
Motion for Reconsideration of the above decision was denied by the CTA First Division.

petitioner filed a Petition for Review before the CTA En Banc, This was denied by the
CTA.

Hence, petitioner went to the Supreme Court.

Issue​:

1.) WON petitioner is engaged in trade or business in the Philippines is subject to

32% income tax?
2.) WON petitioner is entitled to refund?
Ruling​:

1.) Yes. Since it does not maintain flights to or from the Philippines, it is not taxable
under Sec. 28(A)(3)(a) of the 1997 NIRC. This much was also found by the CTA.
But petitioner further posits the view that due to the non-applicability of Sec.
28(A)(3)(a) to it, it is precluded from paying any other income tax for its sale of
passage documents in the Philippines. But, Sec. 28 (A)(1) of the 1997 NIRC
does not exempt all international air carriers from the coverage of Sec. 28 (A) (1)
of the 1997 NIRC being a general rule. Petitioner, being an international carrier
with no flights originating from the Philippines, does not fall under the exception.
As such, petitioner must fall under the general rule. This principle is embodied in
the Latin maxim, exception firmat regulam in casibus non exceptis, which means,
a thing not being excepted must be regarded as coming within the purview of the
general rule.

2.) ​Indeterminable. Although offsetting of tax refund with tax deficiency is

unavailing under Art. 1279 of the Civil Code, in CIR v. CTA it granted when
deficiency assessment is intimately related and inextricably intertwined with the
right to claim for a tax refund. Sec. 72 Chapter XI of 1997 NIRC is not applicable
where petitioner's tax refund claim assumes that the tax return that it filed were
correct because petitioner is liable under Sec. 28 (A)(1), the correctness is now
put in doubt and refund cannot be granted. It cannot be assumed that the
liabilities for two different provisions would be the same. There is a necessity for
the remand to the CTA to receive evidence and establish the correct amount
before a refund can be granted.

9 MCIAA v Marcos (1996)

Facts​: Petitioner Mactan Cebu International Airport Authority (MCIAA) was Created by
virtue of Republic Act No. 6958, mandated to “principally undertake the economical,
efficient and effective control, management and supervision of the Mactan International
Airport in the Province of Cebu and the Lahug Airport in Cebu City, and such other
airports as may be established in the Province of Cebu”.
● Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with ​Section 14 of its
Charter​:
 ○ Sec. 14. Tax Exemptions: The Authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions,
agencies and instrumentalities.
● On October 11, 1994, however, Mr. Eustaquio B. Cesa, OfficerinCharge, Office
of the Trasurer of the City of Cebu, demanded payment for realty taxes on
several parcels of land belonging to the petitioner in the total amount of P2,
229,078.79.
● Petitioner objected to such demand for payment claiming in its favor the
aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes.
It was also asserted that it is an instrumentality of the government performing
governmental functions, citing Section 133 of the Local Government Code of
1991 which puts limitations on the taxing powers of local government units.
● Respondent City refused to cancel and set aside petitioner’s realty tax account,
insisting that the MCIAA is a government controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the
Local Government Code.
● As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account ​“under protest” and
thereafter filed a ​Petition for Declaratory Relief with the Regional Trial Court of
Cebu.

CONTENTION OF MCIAA:
● MCIAA contended that the taxing powers of local government units do not extend
to the levy of taxes or fees of any kind on an instrumentality of the national
government.
● Petitioner insisted that while it is indeed a government-owned corporation, it
nonetheless stands on the s ​ ame footing as an agency or instrumentality of
the national government by the very nature of its powers and functions​.

CONTENTION OF CEBU CITY:

● MCIAA is not an instrumentality of the government but merely a
government-owned corporation performing proprietary functions. As such, all
exemptions previously granted to it were deemed withdrawn by operation of law,
​ ections 193 and 234 of the Local Government Code.
as provided under S

RTC OF CEBU:
● the trial court dismissed the petition
● Its motion for reconsideration having been denied by the trial court, the petitioner
filed the instant petition
Issue​:
1. Whether the parcels of land in question belong to the Republic of the Philippines
whose beneficial use has been granted to the petitioner
2. whether the petitioner is a “taxable person”

Ruling​:

1. Section 15 of the petitioner’s Charter (​Transfer of Existing Facilities and

Intangible Assets)​ involves a “transfer” of the lands to the petitioner and not just
the transfer of the beneficial use thereof, with the ownership being retained by
the Republic of the Philippines. This transfer is actually an absolute conveyance
of the ownership thereof because the petitioner’s authorized capital stock
consists of the value of such real estate owned and/or administered by the
airports. Hence, ​the petitioner is now the ​owner of the land in question and the
exception in Section 234(c) of the LGC is inapplicable.
2. The petitioner cannot claim that it was never a taxable person under its Charter.
It was only exempted from the payment of real property taxes. The grant of
the privilege only in respect of this tax is conclusive proof of the legislative intent
to make it a taxable person subject to all taxes, except real property tax. Finally,
even if the petitioner was originally not a taxable person for purposes of real
property tax, it had already become, even if it be conceded to be an “agency” or
“instrumentality” of the Government, a taxable person for such purpose in view of
the withdrawal in the last paragraph of ​Section 234 of exemptions from the
payment of real property taxes, which applies to the petitioner.

DISPOSITION:
● The petition is denied.
● The challenged order and decision of the RTC is affirmed.

NOTES:
SEC. 234. Exemptions from Real Property Tax
The following are exempted from payment of the real property tax:
a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof had been granted, for consideration
or otherwise, to a taxable person;
b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable or educational purposes;
c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or controlled corporations engaged in the
supply and distribution of water and/or generation and transmission of electric power;
d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and Machinery and equipment used for pollution control and
environmental protection.

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government owned or controlled corporations are hereby withdrawn upon the effectivity
of this Code.

10 CIR v Lincoln
Facts​: Private respondent Lincoln Philippine Life Insurance Co., Inc is a domestic
corporation registered with the Securities and Exchange Commission and engaged in
life insurance business.

In the years prior to 1984, private respondent issued a special kind of life insurance
policy known as the “Junior Estate Builder Policy,” the distinguishing feature of which is
a clause providing for an automatic increase in the amount of life insurance coverage
upon attainment of a certain age by the insured without the need of issuing a new
policy.

Documentary stamp taxes due on the policy were paid by petitioner only on the initial
sum assured.

petitioner issued deficiency documentary stamps tax assessment for the year 1984.

Private respondent questioned the deficiency assessments and sought their

cancellation in a petition filed in the Court of Tax Appeals.

the Court of Tax Appeals found no valid basis for the deficiency tax assessment on the
stock dividends, as well as on the insurance policy.

Petitioner appealed the CTA’s decision to the Court of Appeals.

Court of Appeals promulgated a decision affirming the CTA’s decision insofar as it
nullified the deficiency assessment on the insurance policy, but reversing the same with
regard to the deficiency assessment on the stock dividends.

A motion for reconsideration of the decision having been denied both the Commissioner
of Internal Revenue and private respondent appealed to the Supreme Court.

Issue​: ​Whether or not the new insurance policy is distinct from the main policy making
it liable for additional taxes?

Ruling​: ​YES.

The subject insurance policy at the time it was issued contained an automatic increase
clause. Although the clause was to take effect on a later date, it was written into the
policy at the time of its issuance.

Section 173 of the NIRC provides that the payment of documentary stamp taxes is done
at the time the act is done. Section 183 of the NIRC provides that the tax base for the
computation of documentary stamp taxes on life insurance policies is the amount fixed
in policy.

Here, although the automatic increase in the amount of life insurance coverage was to
take effect later on, the amount of the increase was already definite at the time of the
issuance of the policy. Thus, the amount insured by the policy at the time of its issuance
necessarily included the additional sum covered by the automatic increase clause
because it was already determinable at the time the transaction was entered into and
formed part of the policy.

The additional insurance was an obligation subject to a suspensive obligation, but still a
part of the insurance sold to which respondent was liable for the payment of the
documentary stamp tax. The deficiency of documentary stamp tax imposed on
respondent is not on the amount of the original insurance coverage, but on the increase
of the amount insured upon the effectivity of the Junior Estate Builder Policy.
Finally, it should be emphasized that while tax avoidance schemes and arrangements
are not prohibited tax laws cannot be circumvented in order to evade the payment of
just taxes. In the case at bar, to claim that the increase in the amount insured (by virtue
of the automatic increase clause incorporated into the policy at the time of issuance)
should not be included in the computation of the documentary stamp taxes due on the
policy would be a clear evasion of the law requiring that the tax be computed on the
basis of the amount insured by the policy.

11. Diaz vs. Secretary of Finance

Relevant doctrine​: VAT and toll fees

Facts​: Petitioners filed this petition for declaratory relief assailing the validity of the
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the
collections of tollway operators.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend
to include toll fees within the meaning of “sale of services” that are subject to VAT; that
a toll fee is a “user’s tax,” not a sale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that, since VAT was never factored into the
formula for computing toll fees, its imposition would violate the non-impairment clause of
the constitution.
The government avers that the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations, except where the law provides
otherwise; that the Court should seek the meaning and intent of the law from the words
used in the statute; and that the imposition of VAT on tollway operations has been the
subject of several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the
non-impairment of contracts clause since they clearly have no personal interest in
existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the State’s sovereign
taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric
formula for computing toll rates cannot exempt tollway operators from VAT.

Issue​:
PROCEDURAL
1. Whether or not the Court may treat the petition for declaratory relief as
one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file
the action.
 SUBSTANTIVE
1. Whether or not the government is unlawfully expanding VAT coverage
by including tollway operators and tollway operations in the terms “franchise grantees”
and “sale of services” under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts
to a tax on tax and not a tax on services; b) will impair the tollway operators’ right to a
reasonable return of investment under their TOAs; and c) is not administratively feasible
and cannot be implemented.

Ruling​:
PROCEDURAL
1. Yes. there are precedents for treating a petition for declaratory relief as
one for prohibition if the case has far-reaching implications and raises
questions that need to be resolved for the public good. Here, the
imposition of VAT on toll fees has far-reaching implications. Its imposition
would impact, not only on the more than half a million motorists who use
the tollways everyday, but more so on the government’s effort to raise
revenue for funding various projects and for reducing budgetary deficits.
2. Yes. The same may be said of the requirement of locus standi which is a
mere procedural requisite.

SUBSTANTIVE
1. No. It is plain that the law imposes VAT on “all kinds of services” rendered
in the Philippines for a fee, including those specified in the list. The
enumeration of affected services is not exclusive. By qualifying “services”
with the words “all kinds,” Congress has given the term “services” an
all-encompassing meaning. The listing of specific services are intended to
illustrate how pervasive and broad is the VAT’s reach rather than establish
concrete limits to its application. Thus, every activity that can be imagined
as a form of “service” rendered for a fee should be deemed included
unless some provision of law especially excludes it.

Note: Do tollway operators render services for a fee? Yes. When a

tollway operator takes a toll fee from a motorist, the fee is in effect for the
latter’s use of the tollway facilities over which the operator enjoys private
proprietary rights that its contract and the law recognize. In this sense, the
tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee.
 Not only do tollway operators come under the broad term “all kinds
of services,” they also come under the specific class described in Section
108 as “all other franchise grantees” who are subject to VAT, “except
those under Section 119 of this Code.” Tollway operators are franchise
grantees and they do not belong to exceptions (the low-income radio
and/or television broadcasting companies with gross annual incomes of
less than P10 million and gas and water utilities) that Section 119 spares
from the payment of VAT.

2a. No. Toll roads and toll fees was made, not to establish a rule that tollway fees are
user’s tax, but to make the point that airport lands and buildings are properties of public
dominion and that the collection of terminal fees for their use does not make them
private properties. Tollway fees are not taxes. Indeed, they are not assessed and
collected by the BIR and do not go to the general coffers of the government.
What the government seeks to tax here are fees collected from tollways that are
constructed, maintained, and operated by private tollway operators at their own
expense under the build, operate, and transfer scheme that the government has
adopted for expressways. Except for a fraction given to the government, the toll fees
essentially end up as earnings of the tollway operators.
Tax vs Toll Fee. A tax is imposed under the taxing power of the government
principally for the purpose of raising revenues to fund public expenditures. Toll fees, on
the other hand, are collected by private tollway operators as reimbursement for the
costs and expenses incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income. Taxes may be
imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an attribute of
ownership.

VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for
the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on
the amount of VAT it paid on goods, properties or services to the buyer. In such a case,
what is transferred is not the seller’s liability but merely the burden of the VAT.
Consequently, VAT on tollway operations is not really a tax on the tollway user,
but on the tollway operator.

2b. No. Petitioner Timbol has no personality to invoke the non-impairment of contract
clause on behalf of private investors in the tollway projects.
 Besides, her allegation that the private investors’ rate of recovery will be
adversely affected by imposing VAT on tollway operations is purely speculative. The
Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the
State from exercising its sovereign taxing power based on uncertain, prophetic grounds.

2c. No. Administrative feasibility is one of the canons of a sound tax system. It simply
means that the tax system should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer. Non-observance of the canon,
however, will not render a tax imposition invalid “except to the extent that specific
constitutional or statutory limitations are impaired.” Thus, even if the imposition of VAT
on tollway operations may seem burdensome to implement, it is not necessarily invalid
unless some aspect of it is shown to violate any law or the Constitution.

Dispositive​: petition is DISMISSED

12. Commissioner of Internal Revenue vs. Santos

Relevant doctrine​: authority of courts to decide constitutionality of tax laws

Facts​: RTC declared Sec. 104 of the Tariff and the Customs Code (which imposed tariff
on imported Jewelry and precious stones) as amended INOPERATIVE and WITHOUT
FORCE and EFFECT.
The petitioners now assail the decision rendered by the RTC, contending that the
latter has no authority to pass judgment upon the taxation policy of the government.

Issue​: Can the Regional Trial Courts declare a law inoperative and without force and
effect or otherwise unconstitutional? If it can, under what circumstances?

Ruling​: Yes. In J.M. Tuason and Co. v. Court of Appeals, we said that “plainly the
Constitution contemplates that the inferior courts should have jurisdiction in cases
involving constitutionality of any treaty or law, for it speaks of appellate review of final
judgments of inferior courts in cases where such constitutionality happens to be in
issue.”
But this authority does not extend to deciding questions which pertain to
legislative policy.

However, in this case, respondent judge encroached upon matters properly

falling within the province of legislative functions.
In advocating the abolition of local tax and duty on jewelry simply because other
countries have adopted such policies, the respondent judge overlooked the fact that
such matters are not for him to decide. There are reasons why jewelry, a non-essential
item, is taxed as it is in this country, and these reasons, deliberated upon by our
legislature, are beyond the reach of judicial questioning.
What we see here is a debate on the WISDOM of the laws in question. This is a
matter on which the RTC is not competent to rule. As Cooley observed: “Debatable
questions are for the legislature to decide. The courts do not sit to resolve the merits of
conflicting issues.” In Angara vs. Electoral Commission, Justice Laurel made it clear that
“the judiciary does not pass upon questions of wisdom, justice or expediency of
legislation.” And fittingly so, for in the exercise of judicial power, we are allowed only “to
settle actual controversies involving rights which are legally demandable and
enforceable,” and may not annul an act of the political departments simply because we
feel it is unwise or impractical.

Dispositive​: petition is GRANTED

13. Kilosbayan, Incorporated vs. Guingona, Jr.

Relevant doctrine​: taxpayer’s suit - transcendental importance

Facts​: Philippine Charity Sweepstakes Office (PCSO) decided to establish an on-line

lottery system for the purpose of increasing its revenue base and diversifying its
sources of funds.
KILOSBAYAN sent an open letter to President Fidel V. Ramos strongly opposing
the setting up of the on-line lottery system on the basis of serious moral and ethical
considerations.

Issue​: WON the petitioners have locus standi

Ruling​: The preliminary issue on the locus standi of the petitioners should, indeed, be
resolved in their favor. A party’s standing before this Court is a procedural technicality
which it may, in the exercise of its discretion, set aside in view of the importance of the
issues raised.
Insofar as taxpayers’ suits are concerned, this Court had declared that it “is not
devoid of discretion as to whether or not it should be entertained,” or that it “enjoys an
open discretion to entertain the same or not.”
In line with the liberal policy of this Court on locus standi, ordinary taxpayers,
members of Congress, and even association of planters, and non-profit civic
organizations were allowed to initiate and prosecute actions before this Court to
question the constitutionality or validity of laws, acts, decisions, rulings, or orders of
various government agencies or instrumentalities.
We find the instant petition to be of transcendental importance to the public. The
issues it raised are of paramount public interest and of a category even higher than
those involved in many of the aforecited cases. The ramifications of such issues
immeasurably affect the social, economic, and moral well-being of the people even in
the remotest barangays of the country and the counterproductive and retrogressive
effects of the envisioned online lottery system are as staggering as the billions in pesos
it is expected to raise. The legal standing then of the petitioners deserves recognition
and, in the exercise of its sound discretion, this Court hereby brushes aside the
procedural barrier which the respondents tried to take advantage of.

Dispositive​: petition is GRANTED

14. Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr.

Relevant doctrine​: tax avoid vs tax evasion

Facts​: Toda (President of CIC) purportedly sold the subject property for P100 million to
Altonaga, who, in turn, sold it to Royal Match Inc (RMI) for P200 million. CIC filed its
corporate annual income tax return for the year 1989, declaring, among other things, its
gain from the sale of real property of P75,728.021. It paid P26,341,207 for its net
taxable income of P75,987,725.

The BIR sent an assessment notice and demand letter to the CIC for deficiency income
tax for the year 1989 of P79,099,999.22. In 1994, Toda died and his Estate thereafter
filed a letter of protest. The Commissioner dismissed the protest, stating that a
fraudulent scheme was deliberately perpetuated by the CIC by covering up the
additional gain of P100 million.The Estate filed a petition for Review with the CTA
alleging that the Commissioner erred in holding the Estate liable for income tax
deficiency; the Commissioner argued that the two transactions actually constituted a
single sale of the property by CIC to RMI, and that Altonaga was neither the buyer of
the property from CIC nor the seller of the same property to RMI. The additional gain of
P100 million (the difference between the second simulated sale for P200 million and the
first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5%
purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as corporate
income tax of CIC. The income tax return filed by CIC for 1989 with intent to evade
payment of the tax was thus false or fraudulent. The CTA held that the Commissioner
failed to prove that CIC committed fraud to deprive the government of the taxes due it.
The CA affirmed the decision, thus the present petition by Commissioner on Internal
Revenue.

Issue​: Did CIC commit tax evasion?

Ruling​: Yes. 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, willful, or deliberate and not
accidental; and (3) a course of action or failure of action which is unlawful.

All these factors are present in the instant case. 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. 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.
Altonaga’s sole purpose of acquiring and transferring title of the subject properties on
the same day was to create a tax shelter. Altonaga never controlled the property and
did not enjoy the normal benefits and burdens of ownership. The sale to him was merely
a tax ploy, a sham, and without business purpose and economic substance. Doubtless,
the execution of the two sales was calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was
prompted more on the mitigation of tax liabilities than for legitimate business purposes
constitutes one of tax evasion.

Dispositive​: Petition is granted.

15. Nursery Care Corporation vs. Acevedo

Relevant doctrine​: double taxation
Facts​: The City of Manila assessed and collected taxes from individual petitioners
pursuant to Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17
(Tax on Retailers) of the Revenue Code of Manila. The City of Manila also imposed
additional taxes upon the
petitioners under Section 21 of the Revenue Code of Manila as a condition for the
renewal of their business licenses for 1999. Petitioners paid the taxes under protest and
requested the Office of the City Treasurer for the tax credit or refund of the local
business taxes paid under protest; such request was denied. Petitioners filed petitions
for certiorari in the RTC in Manila. The parties submitted among others the issue of
whether or not the collection of taxes under Section 21 of Ordinance No. 7794, as
amended, constitutes double taxation. The RTC ruled that that there is no double
taxation. The CA dismissed petitioners’ subsequent appeal. Hence the present petition.

Issue​: Does the collection of taxes under Sec. 21 of the Revenue Code of Manila
constitute double taxation so as to entitle petitioners to a tax credit/ refund?

​ ouble taxation
Ruling​: Yes. In ​City of Manila vs Coca- cola bottlers Philippines, D
means taxing the same property twice when it should be taxed only once​; that is,
taxing the same person twice by the same jurisdiction for the same thing​. It is
obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise
described as, ​direct duplicate taxation​, the ​two taxes must be imposed on the
same subject matter​, ​for the same purpose, by the same taxing authority, within
the same jurisdiction, during the same taxing period; and the taxes must be of the
same kind or character.

All the elements of double taxation concurred upon the City of Manila’s assessment on
and collection from the petitioners of taxes for the first quarter of 1999 pursuant to
Section 21 of the Revenue Code of Manila. ​Firstly, ​because Section 21 of the Revenue
Code of Manila imposed the tax on a person who sold goods and services in the course
of trade or business based on a
certain percentage of his gross sales or receipts in the preceding calendar year, while
Section 15 and Section 17 likewise imposed the tax on a person who sold goods and
services in the course of trade or business but only identified such person with
particularity, namely, the wholesaler, distributor or dealer (Section 15), and the retailer
(Section 17), all the taxes · being imposed on the privilege of doing business in the City
of Manila in order to make the taxpayers contribute to the city’s revenues were imposed
on the same subject matter and for the same
Purpose. ​Secondly,​ the taxes were imposed by the same taxing authority (the City of
Manila) and within the same jurisdiction in the same taxing period (i.e., per calendar
year). ​Thirdly,​ the taxes were all in the nature of local business taxes.

Dispositive​: Petition is granted.

16. La Suerte Cigar & Cigarette Factory vs. Court of Appeals

Relevant doctrine​: no double taxation

Facts​: This is a consolidation of six petitions for review of several decisions of the Court
of Appeals, involving three cigarette manufacturers and the Commissioner of Internal
Revenue. The cigarette manufacturers contends that CA erred in holding that subjecting
stemmed leaf tobacco to specific tax is not prohibited form of double taxation, since a
tax on both stemmed leaf tobacco under Sec 141(b) and cigarettes under Sec. 142 of
the 1986 Tax Code into which it is manufactured is double taxation.

Issue​: Does taxation of the stemmed leaf tobacco under Sec 141 (b) and the finished
product of cigarettes under Sec. 142 of the 1986 Tax Code constitute as double
taxation?

Ruling​:No. For double taxation in the objectionable or prohibited sense to exist, the
same property must be taxed twice when it should be taxed but once. Both taxes must
be imposed on the same property or subject-matter, for the same purpose, by the same
taxing authority, within the same jurisdiction or taxing district, during the same taxing
period, and they must be the same kind or character of tax. At all events, there is no
constitutional prohibition against double taxation in the Philippines.

This court has explained in ​Pepsi-Cola Bottling Company of the Philippines, Inc. v.
Municipality of Tanauan, Leyte: D ​ ouble taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed by the
State and the other by the city or municipality. Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the same governmental entity or by
the same jurisdiction for the same purpose, but not in a case where one tax is imposed
by the State and the other by the city or municipality. Excise taxes are essentially taxes
on property because they are levied on certain specified goods or articles manufactured
or produced in the Philippines for domestic sale or consumption or for any other
disposition, and on goods imported. In this case, there is no double taxation in the
prohibited sense because the specific tax is imposed by explicit provisions of the Tax
Code on two different articles or products: (1) on the stemmed leaf tobacco; and (2) on
cigar or cigarette.

Dispositive​: Petition is denied.

17. SMART COMMUNICATIONS, INC., petitioner, vs. MUNICIPALITY OF MALVAR,

BATANGAS, respondent.
Relevant doctrine​: regulatory purpose

Facts​: Smart Communications, Inc. (Smart) is a domestic corporation engaged in the

business of providing telecommunications services to the general public while
respondent Municipality Of Malvar, Batangas (Municipality) is a local government unit
created by law.

Smart constructed a telecommunications tower within the territorial jurisdiction of the

Municipality. The construction of the tower was for the purpose of receiving and
transmitting
cellular communications within the covered area.

Municipality passed Ordinance No. 18, entitled “An Ordinance Regulating the
Establishment of Special Projects.”

Smart received from the Permit and Licensing Division of the Office of the Mayor of the
Municipality an assessment letter with a schedule of payment for the total amount of
P389,950.00 for Smart’s telecommunications tower.

Due to the alleged arrears in the payment of the assessment, the Municipality also
caused the posting of a closure notice on the telecommunications tower.

Smart filed a protest, claiming lack of due process in the issuance of the assessment
and closure notice. In the same protest, Smart challenged the validity of Ordinance No.
18.
Municipality denied Smart’s protest.

Smart filed with Regional Trial Court, assailing the validity of Ordinance No. 18.
trial court rendered a Decision partly granting Smart’s Appeal/Petition.

The trial court denied the motion for reconsideration.

Smart filed a petition for review with the CTA First Division, CTA First Division denied
the
petition for review.

Issue​: WON Ord. No. 18 is a tax?

Ruling​:

No. Since the main purpose of Ordinance No. 18 is to regulate certain construction
activities of the identified special projects, which included cell sites or
telecommunications towers, the fees imposed in Ordinance No. 18 are primarily
regulatory in nature, and not primarily revenue-raising; Thus, the fees imposed in
Ordinance No. 18 are not taxes.·Since the main purpose of Ordinance No. 18 is to
regulate certain construction activities of the identified special
Projects, which included “cell sites” or telecommunications towers, the fees imposed in
Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-raising.
While the fees may contribute to the revenues of the Municipality, this effect is merely
incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.

Dispositive​: WHEREFORE, the Court DENIES the petition. SO ORDERED.

18. Manila Electric Company vs. The City Assessor

Relevant doctrine​: tax exemptions

Facts​: MERALCO is a private corporation organized and existing under Philippine laws
to operate as a public utility engaged in electric distribution.
MERALCO has been successively granted franchises to operate in Lucena City
beginning 1922 by several ordinances and by virtue of an act of congress.

At some point, MERALCO received from the City Assessor of Lucena a copy of Tax
Declaration No. 019-6500. covering the following electric facilities, classified as capital
investment, of the company: (a) transformer and electric post (b) transmission line; (c)
insulator; and (d) electric meter.

Under Tax Declaration No. 019-6500, these electric facilities had a market value of
P81,811,000.00 and an assessed value of P65,448,800.00, and were subjected to real
property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA, it argued that
MERALCO was exempted from payment of real property tax on said substation
facilities.

The LBAA rendered a Decision finding that under its franchise, MERALCO was required
to pay the City Government of Lucena a tax equal to 5% of its gross earnings, and
„[s]aid tax shall be due and payable quarterly and shall be in lieu of any and all taxes of
any kind, nature, or description levied, established, or collected on its poles, wires,
insulators, transformers
and structures, installations, conductors, and accessories, from which taxes the grantee
(MERALCO) is hereby expressly exempted.
The LBAA lastly ordered that Tax Declaration No. 019- 6500 would remain and the
poles, wires, insulators, transformers, and electric meters of MERALCO would be
continuously assessed, but the City Assessor would stampon the said Tax Declaration
the word “exempt”.

City Assessor of Lucena filed an appeal.

CBAA affirmed the assailed LBAA judgment.

Six years later, MERALCO received a letter from the City Treasurer of Lucena, which
stated that the company was being assessed real property tax delinquency on its
machineries beginning.

City Treasurer of Lucena requested that MERALCO settle the payable amount soon to
avoid accumulation of penalties.
MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of
Lucena City and posted a surety bond to guarantee payment of its real property tax
delinquency.

MERALCO asked the LBAA to cancel and nullify the Notice of Assessment dated
October 20, 1997 and declare the properties covered by Tax Declaration Nos. 019-6500
and 019-7394 exempt from real property tax.

LBAA declared that Sections 234 and 534(f) of the Local Government Code repealed
the provisions in the franchise of MERALCO and Presidential Decree No. 55124
pertaining to the exemption of MERALCO from payment of real property tax on its
poles, wires, insulators, transformers, and meters.

The Court of Appeals further ruled that there was no more basis for the real property tax
exemption of MERALCO under the Local Government Code and that the withdrawal of
said exemption did not violate the non impairment clause of the Constitution.

Issue​: WON Meralco was exempted from tax?

Ruling​: No.

Just when the franchise of MERALCO in Lucena City was about to expire, the Local
Government Code took effect on January 1, 1992,.

The Local Government Code, in addition, contains a general repealing clause under
Section 534(f) which states that “all general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly.”

Taking into account the above mentioned provisions, the evident intent of the Local
Government Code is to withdraw/repeal all exemptions from local taxes, unless
otherwise provided by the Code. The limited and restrictive nature of the tax exemption
privileges under the Local Government.
Code is consistent with the State policy to ensure autonomy of local governments and
the objective of the Local Government Code to grant genuine and meaningful autonomy
to enable local government units to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national goals. The
obvious intention of the law is to broaden the tax base of local government units to
assure them of substantial sources of revenue.

Section 234 of the Local Government Code particularly

identifies the exemptions from payment of real property
tax, based on the ownership, character, and use of the
property, viz.:

“Other Exemptions Withdrawn. All other exemptions previously granted to natural or

juridical persons including government-owned or -controlled corporations are withdrawn
upon the effectivity of the Code”

The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of
the Local Government Code, exemptions from payment of real property taxes granted
to natural or juridical persons, including government-owned or -controlled corporations,
except as provided in the same section.

MERALCO, a private corporation engaged in electric distribution, and its transformers,

electric posts, transmission lines, insulators, and electric meters used commercially do
not qualify under any of the ownership, character, and usage exemptions enumerated in
Section 234 of the Local Government Code. It is a basic precept of statutory
construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. Not being among the recognized
exemptions from real property tax in Section 234 of the Local Government Code, then
the exemption of the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO from real property tax granted under its franchise was
among the exemptions withdrawn upon the effectivity of the Local Government Code.

Furthermore, It is settled that tax exemptions must be clear and unequivocal. A taxpayer
claiming a tax exemption must point to a specific provision of law conferring on the tax
payer, in clear and plain terms, exemption from a common burden. Any doubt whether a
tax exemption exists is resolved against the taxpayer MERALCO has failed to present
herein any express grant of exemption from real property tax of its transformers, electric
posts, transmission lines, insulators, and electric meters that is valid and binding even
under the Local Government Code.

Dispositive​:

19. Commissioner of Internal Revenue vs. Nippon Express (Phils.) Corporation

Relevant doctrine​: govt not estopped

Facts​:​Nippon is a domestic corporation duly organized and existing under Philippine

laws, which is primarily engaged in the business of freight forwarding, and a VAT
registered entity. It filed its quarterly VAT returns for the year 2002 on April 25, 2002,
July 25, 2002, October 25, 2002, and January 27, 2003, respectively. It maintained that
during the said period it incurred input VAT attributable to its zero-rated sales in the
amount of P28,405,167.60, from which only P3,760,660.74 was applied as tax credit,
thus, reflecting refundable excess input VAT in the amount of P24,644,506.86. ​Nippon
filed an administrative claim for refund of its unutilized input VAT in the amount of
P24,644,506.86 for the year 2002 before the BIR. A day later, it filed a judicial claim for
tax refund, by way of petition for review, before the CTA. For its part, petitioner CIR
asserted that the amounts being claimed as unutilized input VAT were not properly
documented, hence, should be denied.

CTA Division partially granted Nippon's claim for tax refund, and thereby ordered the
CIR to issue a tax credit certificate in the reduced amount of P2,614,296.84,
representing its unutilized input VAT which was attributable to its zero-rated sales.
Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed
a motion to withdraw, considering that the BIR, acting on its administrative claim,
already issued a tax credit certificate in the amount of P21,675,128.91 on July 27, 2011.
In a Resolution dated July 31, 2012, the CTA Division granted Nippon's motion to
withdraw and, thus, considered the case closed and terminated. The CTA En Banc
affirmed the July 31, 2012 Resolution of the CTA Division granting Nippon's motion to
withdraw.

Issue​: W​hether the CTA properly granted Nippon's motion to withdraw.

Ruling​: NO. ​The primary reason, however, that militates against the granting of the
motion to withdraw is the fact that the CTA Division, in its August 10, 2011 Decision,
had already determined that Nippon was only entitled to refund the reduced amount of
P2,614,296.84 since it failed to prove that the recipients of its services were
non-residents "doing business outside the Philippines"; hence, Nippon's purported sales
therefrom could not qualify as zero-rated sales, necessitating the reduction in the
amount of refund claimed. Markedly different from this is the BIR's determination that
Nippon should receive P21,675,128.91 as per the July 27, 2011 Tax Credit Certificate,
which is, in all, P19,060,832.07 larger than the amount found due by the CTA Division.
Therefore, as aptly pointed out by Associate Justice Teresita J. Leonardo-De Castro
during the deliberations on this case, the massive discrepancy alone between the
administrative and judicial determinations of the amount to be refunded to Nippon
should have already raised a red flag to the CTA Division. Clearly, the interest of the
government, and, more significantly, the public, will be greatly prejudiced by the
erroneous grant of refund - at a substantial amount at that - in favor of Nippon. Hence,
under these circumstances, the CTA Division should not have granted the motion to
withdraw.

In this relation, it deserves mentioning that the CIR is not estopped from assailing the
validity of the July 27, 2011 Tax Credit Certificate which was issued by her subordinates
in the BIR. In matters of taxation, the government cannot be estopped by the mistakes,
errors or omissions of its agents for upon it depends the ability of the government to
serve the people for whose benefit taxes are collected.

Dispositive​: ​Petition is GRANTED

20. CIR vs Covanta

Relevant doctrine​: Tax Amnesty
Facts​: On December 6 2004, the CIR issued Formal Letters of Demand and
Assessment Notices against CEPHI for deficiency VAT and expanded withholding tax.
The deficiency assessments were an aggregate amount of P754,496.99, representing
CEPHI's VAT and EWT liabilities for the taxable year 2001. CEPHI protested the
assessments by filing 2 separate Letters of Protest on Jan 19 2005. However, the CIR
issued another Formal Letter of Demand and Assessment Notice dated January 11,
2005, assessing CEPHI for deficiency minimum corporate income tax (MCIT) in the
amount of P467,801.99, likewise for the taxable year 2001.
This assessment lead to CEPHI filing a Letter of Protest on the MCIT assessment on
February 16, 2015. The protests remained unacted upon. Thus, CEPHI filed separate
petitions before the CTA, seeking the cancellation and withdrawal of the deficiency
assessments. The petitions were filed on October 10, 2005, for the deficiency VAT and
EWT and on November 9, 2005, for the deficiency MCIT. Then the CIR filed an answer
which were eventually consolidated upon the CIR's motion. After the parties' respective
submission of their formal offer of evidence, CEPHI filed a Supplemental Petition on
October 7, 2008, informing the CTA that it availed of the tax amnesty under R.A. No.
9480. CEPHI afterwards submitted a Supplemental Formal Offer of Evidence, together
with the documents relevant to its tax amnesty. In a Decision dated July 27, 2010, the
CTA Second Division partially, granted the petitions of CEPHI with respect to the
deficiency VAT and MCIT assessments for 2001. The CIR moved for the
reconsideration of this decision, which the CTA Second Division denied.

Issue​: WON CEPHI cannot enjoy the privileges attendant to the tax amnesty program
because its SALN failed to comply with the requirements of R.A. No. 9480.

Ruling​: NO. 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 Bureau of
Internal Revenue (BIR) and thereafter, paying the applicable amnesty tax.

The implementing rules and regulations of R.A. No. 9480, as embodied in Department
of Finance (DOF) Department Order No. 29-07, laid down the procedure for availing of
the tax amnesty:
SEC. 6. Method of Availment of Tax Amnesty. –
1. Forms/Documents to be filed​. -To avail of the general tax amnesty, concerned
taxpayers shall file the following documents/requirements:
a. Notice of A vailment in such forms as may be prescribed by the BIR.
b. [SALN] as of December 31, 2005 in such forms, as may be prescribed by the BIR.
c. Tax Amnesty Return in such form as may be prescribed by the BIR.

Upon the taxpayer's full compliance with the requirements, 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.

In this case, it is undisputed that CEPHI submitted all the documentary requirements for
the tax amnesty program.

The CIR specifically points to CEPHI's supposed omission of the information relating to
the Reference and Basis for Valuation columns in CEPHI's original and amended
SALNs.
The required information that should be reflected in the taxpayer's SALN is enumerated
in Section 3 of R.A. No. 9480. The essential contents of the SALN are also itemized
under the implementing rules and regulations.

I​t is evident from CEPHI's original and amended SALN that the information
statutorily mandated in R.A. No. 9480 were all reflected in its submission to the
BIR. ​While the columns for Reference and Basis for Valuation were indeed left
blank, CEPHI attached schedules to its SALN (Schedules 1 to 7), both original and
amended, which provide the required information under R.A. No. 9480 and its
implementing rules and regulations. A review of the SALN form likewise reveals
that the information required in the Reference and Basis for Valuation columns
are actually the specific description of the taxpayer's declared assets. As such,
these were deemed filled when CEPHI referred to the attached schedules in its
SALN. On this basis, the CIR cannot disregard or simply set aside the SALN
submitted by CEPHI. More importantly, ​CEPHI's SALN is presumed true and
correct, pursuant to Section 4 of R.A. No. 9480. This presumption may be
overturned if the CIR is able to establish that CEPHI understated its net worth by
the required threshold of at least 30%. However, aside from the bare allegations of
the CIR, there is no evidence on record to prove that the amount of CEPHI's net worth
was understated. Parties other than the BIR or its agents did not initiate proceedings
within one year from the filing of the SALN or Tax Amnesty Return, in order to challenge
the net worth of CEPHI. Neither was the CIR able to establish that there were findings
or admissions in a congressional, administrative, or court proceeding that CEPHI indeed
understated its 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.

Dispositive​: Petition is DENIED for lack of merit. The Decision dated March 30, 2012
and Resolution dated August 16, 2012 of the CTA en bane in CTA EB Case No. 713
are AFFIRMED.

II. INHERENT LIMITATIONS

Planters Products v Fertiphil ​Mikko

Facts​: Pursuant to LOI No. 1495, Fertiphil paid P10 for every bag of fertilizer it sold in
the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted
the amount collected to the Far East Bank and Trust Company, the depositary bank of
petitioner Planters Product Inc. (PPI). After the 1986 Edsa Revolution, FPA stopped
imposing the P10 levy and Fertiphil demanded a refund from PPI, the latter refused.
Fertiphil filed a complaint for collection and damages against FPA and PPI with the RTC
in Makati. It questioned the constitutionality of LOI No. 1465. The RTC ruled in favor of
Fertiphil, invalidating the levy for violating the basic principle that taxes can only be
levied for public purpose. The CA affirmed the RTC’s ruling with modification. PPI
moved for reconsideration, but its motion was denied. It then filed the present petition
with this Court.

Issue​: Was the P10 levy under LOI No. 1465 an exercise of the power of taxation?

Ruling​: Yes. We agree with the RTC that the imposition of the levy was an exercise by
the State of its taxation power. While it is true that the power of taxation can be used as
an implement of police power, ​the primary purpose of the levy is revenue generation. If
the purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax. ​The P10 levy under LOI
No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no doubt, was
a big burden on the seller or the ultimate consumer. It increased the price of a bag of
fertilizer by as much as five percent. ​A plain reading of the LOI also supports the
conclusion that the levy was for revenue generation. The LOI expressly provided that
the levy was imposed ​until adequate capital​ ​is raised to make PPI viable.

Issue: ​Is the power to tax unlimited?

Ruling: ​No. An inherent limitation on the power of taxation is public purpose. Taxes are
exacted only for a public purpose. They cannot be used for purely private purposes or
for the exclusive benefit of private persons. ​The reason for this is simple. The power to
tax exists for the general welfare; hence, implicit in its power is the limitation that it
should be used only for a public purpose. It would be a robbery for the State to tax its
citizens and use the funds generated for a private purpose. As an old United States
case bluntly put it: “To lay with one hand, the power of the government on the property
of the citizen, and with the other to bestow it upon favored individuals to aid private
enterprises and build up private fortunes, is nonetheless a robbery because it is done
under the forms of law and is called taxation.”

Issue: ​What is meant by the word “Public purpose”?

Ruling: ​Jurisprudence states that “public purpose” should be given a broad

interpretation. It does not only pertain to those purposes which are traditionally viewed
as essentially government functions, such as building roads and delivery of basic
services, but also includes those purposes designed to promote social justice. Thus,
public money may now be used for the relocation of illegal settlers, low-cost housing
and urban or agrarian reform.
Public purpose is the heart of a tax law.

Issue: ​Did the P10 levy under the LOI No. 1495 satisfy the “public purpose”
requirement for validity?

Ruling: ​No. When a tax law is only a mask to exact funds from the public when its true
intent is to give undue benefit and advantage to a private enterprise, that law will not
satisfy the requirement of “public purpose”. The Court agrees with the RTC and that CA
that the levy imposed under LOI No. 1465 was not for a public purpose.
First,​ the LOI expressly provided that the levy be imposed to benefit PPI, a private
company. In this case, the text of the LOI is plain that the levy was imposed in
order to raise capital for PPI.
Second​, the LOI provides that the imposition of the P10 levy was conditional and
dependent upon PPI becoming financially “viable”. This suggests that the levy was
actually imposed to benefit PPI. The LOI notably does not fix a maximum amount when
PPI is deemed financially “viable”. Worse, the liability of Fertiphil and other domestic
sellers of fertilizer to pay the levy is made indefinite. They are required to continuously
pay the levy until adequate capital is raised for PPI.
Third​, the RTC and the CA held that the levies paid under the LOI were directly remitted
and deposited by FPA to Far East Bank and Trust Company, the depositary bank of
PPI. ​This proves that PPI benefited from the LOI. It is also proves that the main purpose
of the law was to give undue benefit and advantage to PPI.
Fourth,​ the levy was used to pay the corporate debts of PPI. A reading of the Letter of
Understanding ​dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals
that PPI was in deep financial problem because of its huge corporate debts. There were
pending petitions for rehabilitation against PPI before the Securities and Exchange
Commission. The government guaranteed payment of PPI’s debts to its foreign
creditors. To fund the payment, President Marcos issued LOI No. 1465.

Deutsche Bank Manila ​Monique

Facts​: Petitioner Deutsche Bank Manila remitted to respondent BIR the amount Php
67,688,553.51, which represented 15% branch profit remittance tax (BPRT) under
Section 28(A)(5) of the NIRC. Believing that it made an overpayment, petitioner filed
with the BIR an administrative claim for refund. Petitioner also requested from the
International Tax Affairs Division (ITAD) a confirmation of its entitlement to the
preferential tax rate of 10% under the RP-Germany Tax Treaty. BIR issued RMO No.
1-2000, which requires that any availment of the tax treaty relief must be preceded by
an application with ITAD at least 15 days before the transaction. Because of BIR’s
inaction, petitioner filed a Petition for Review with the CTA and reiterated its claim for
the refund. The CTA Second Division denied the claim because of failure to comply with
RMO No. 1-2000 The CTA ​En Banc ​affirmed the decision.

Issue​:Does failure to comply with RMO No. 1-2000 deprive corporations or persons the
benefit of a tax treaty?

Ruling​: No. Tax treaties are entered into “to reconcile the national fiscal legislations of
the contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in
two different jurisdictions.” ​CIR v. S.C. Johnson and Son, Inc. ​further clarifies that “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 t​ axpayer in respect of the same subject matter and for
identical periods. The apparent rationale for doing away with double taxation is to
encourage the free flow of goods and services and the movement of capital, technology
and persons between countries, conditions deemed vital in creating robust and dynamic
economies.

Thus, laws and issuances must ensure that the reliefs granted under tax treaties are
accorded to the parties entitled thereto. The BIR must not impose additional
requirements that would
negate the availment of the reliefs provided for under international agreements. More
so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the
availment of the benefits under said agreement. Likewise, it must be stressed that there
is nothing in RMO No. 1-2000 which would indicate a deprivation of entitlement to a tax
treaty relief for failure to comply with the 15-day period.

The denial of the availment of tax relief for the failure of a taxpayer to apply within the
prescribed period under the administrative issuance would impair the value of the tax
treaty. At most, the application for a tax treaty relief from the BIR should merely operate
to confirm the entitlement of the taxpayer to the relief.

Dispositive​: Petition Granted.

CIR v Johnson ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

Osmeña v Orbos ​Airah

Relevant doctrine​: Non-delegation of the Power to Tax

Facts​: President Marcos issued P.D. 1956 creating a Special Account in the General
Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed
to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil. crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O
1024, and ordered released from the National Treasury to the Ministry of Energy. The
same Executive Order also authorized the investment of the fund in government
securities, with the earnings from such placements accruing to the fund.

President Corazon Aquino amended P.D. 1956 by expanding the grounds for
reimbursement to oil companies for possible cost underrecovery incurred as a result of
the reduction of domestic prices of petroleum products.

One of petitioner’s contentions is that the "delegation of legislative authority" to the ERB
violates Section 8 par. (2). Article VI of the Constitution, ​viz​.:

(2) The Congress may, by law, authorize the President to fix, within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government; and, inasmuch as
the delegation relates to the exercise of the power of taxation, "​the limits, limitations and
restrictions must be quantitative, that is, the law must not only specify how to tax, who
(shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to
tax.​ "

Issue​: WON Section 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive
Order No. 137, is the unconstitutionality for "being an undue and invalid delegation of
legislative power to the Energy Regulatory Board”?

Ruling​: NO. The Court finds that the provision conferring the authority upon the ERB to
impose additional amounts on petroleum products provides a sufficient standard by
which the authority must be exercised. In addition to the general policy of the law to
protect the local consumer by stabilizing and subsidizing domestic pump rates, Section
8(c) of P.D. 1956 expressly authorizes the ERB to impose additional amounts ​to
augment the resources of the Fund.​

What is here involved is not so much the power of taxation as police power. Although
the provision authorizing the ERB to impose additional amounts could be construed to
refer to the power of taxation, it cannot be overlooked that the overriding consideration
is to enable the delegate to act with expediency in carrying out the objectives of the law
which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the
determination of the price of oil and petroleum products, and the frequently shifting need
to either augment or exhaust the Fund, do not conveniently permit the setting of fixed or
rigid parameters in the law as proposed by the petitioner. To do so would render the
ERB unable to respond effectively so as to mitigate or avoid the undesirable
consequences of such fluidity. As such, the standard as it is expressed, suffices to
guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be
(1) complete in itself, that is it must set forth the policy to be executed by the delegate
and (2) it must fix a standard — limits of which
are sufficiently determinate or determinable — to which the delegate must conform.

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must
be a standard, which implies at the very least that the legislature itself determines
matters of principle and lays down fundamental policy. Otherwise, the charge of
complete abdication may be hard to repel. A ​standard thus defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to apply
it. It indicates the circumstances under which the legislative command is to be
effected. It is the criterion by which the legislative purpose may be carried out.
Thereafter, the executive or administrative office designated may in pursuance of the
above guidelines promulgate supplemental rules and regulations. The ​standard may
either be express or implied​. If the former, the non-delegation objection is easily met.
The standard though does not have to be spelled out specifically. It could be implied
from the policy and purpose of the act considered as a whole.

It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there
can be no ground upon which to sustain the petition, inasmuch as the challenged law
sets forth a determinable standard which guides the exercise of the power granted to
the ERB. By the same token, the proper exercise of the delegated power may be tested
with ease. It seems obvious that what the law intended was to permit the additional
imposts for as long as there exists a need to protect the general public and the
petroleum industry from the adverse consequences of pump rate fluctuations. "Where
the standards set up for the guidance of an administrative officer and the action taken
are in fact recorded in the orders of such officer, so that Congress, the courts and the
public are assured that the orders in the judgment of such officer conform to the
legislative standard, there is no failure in the performance of the legislative functions."
This Court thus finds no serious impediment to sustaining the validity of the legislation;
the express purpose for which the imposts are permitted and the general objectives and
purposes of the fund are readily discernible, and they constitute a sufficient standard
upon which the delegation of power may be justified.

Dispositive​: The petition is GRANTED insofar as it prays for the nullification of the
reimbursement of financing charges and DISMISSED in all other respects.

Pepsi v Tanuan ​Mikko

Facts​: The plaintiff-appellant, Pepsi- Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the CFI of Leyte for that court
to declare Sec 2 of RA No. 2264, otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare
Ordinances Nos. 23 (levies and collects from soft drinks producers and manufacturers a
tax of 1/16 of a centavo for every bottle of soft drink corked) and 27 (levies and collects
on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of P0.01 on each gallon of volume capacity) null and void. The tax
imposed under said ordinances are called” municipal production tax”. The CFI
dismissed the complaint and upholding the constitutionality of Sec 2, RA No. 2264;
declaring Ordinances Nos. 23 and 27 valid, legal and constitutional. From this judgment,
the plaintiff appealed to the Court of Appeals, which, in turn, elevated the case to the
SC.

Issue​: Is Section 2, Republic Act No. 2264 an undue delegation of [taxation] power to
municipalities?

Ruling​: No. ​Taxation is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or judicial department of the
government without infringing upon the theory of separation of powers. The exception,
however, lies in the case of municipal corporations, to which, said theory does not
apply. Legislative powers may be delegated to local governments in respect of matters
of local concern. This is sanctioned by immemorial practice​. By necessary i​ mplication,
the legislative power to create political corporations for purposes of local
self-government carries with it the power to confer on such local governmental ​agencies
the power to tax. Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy taxes.
 The plenary nature of the taxing power thus delegated, contrary to
plaintiff-appellant’s pretense, would not suffice to invalidate the said law as confiscatory
and oppressive. In delegating the authority, the State is not limited to the exact measure
of that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant taxes there may be delegated such
measure of power to impose and collect taxes as the legislature may deem expedient.
Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes.

Issue: ​Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?

Ruling: ​No. The difference between the two ordinances clearly lies in the tax rate of the
soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle
corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect, Plaintiff appellant in its brief admitted that defendants-appellees are only seeking
to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the
fact that the Acting Municipal Treasurer of Tanauan, Leyte sought to compel compliance
by the plaintiff-appellant of the of said Ordinance No. 27, series of 1962 Even the
Provincial Fiscal counsel for defendants-appellees admits in his brief „that Section „7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of
the latter are inconsistent with the provisions of the former.
For purposes of this particular limitation, a municipal ordinance which prescribes
a set ratio between the amount of the tax and the volume of sale of the taxpayer
imposes a sales tax and is null and void for being outside the power of the municipality
to enact.
But, the imposition of “a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity” on all soft drinks produced or manufactured under
Ordinance No.27 does not partake of the nature of a percentage tax on sales, or other
taxes in any form based thereon. The tax is levied on the ​produce (​ whether sold or not)
and not on sales. The volume capacity of the taxpayer’s production of soft drinks is
considered solely for purposes of determining the tax rate on the products, but there is
not set ratio between the volume of sales and the amount of the tax. Nor can the tax
levied be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other
than cigars and cigarettes, matches, firecrackers, manufactured oils and other fuels,
coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine,
opium and other habit-forming drugs. Soft drink is not one of those specified.

III. CONSTITUTIONAL LIMITATIONS

Coconut Oil Refineries v Torres ​Monique

Facts​: RA 7227 converted the Clark and Subic military reservations into special
economic zones. President Fidel V. Ramos issued EO No. 80, which provided that
Clark Special Economic Zone (CSEZ) shall have all the applicable incentives granted to
the Subic Special Economic and Free Port Zone (SSEZ) under RA 7227. The Bases
Conversion Development Authority (BCDA) issued Board Resolution No. 93-05-034
allowing the tax and duty-free sale at retail of consumer goods imported ​via ​Clark for
consumption outside CSEZ.

Issue​: Is E.O. No. 80 and Board Resolution No. 93-05-034 null and void for extending
the tax and duty- free sale incentives under RA 7227 to CSEZ?

Ruling​: Yes. The incentives under Republic Act No. 7227 are exclusive only to the
SSEZ. In the present case, while Section 12 of Republic Act No. 7227 expressly
provides for the grant of incentives to the SSEZ, it fails to make any similar grant in
favor of other economic zones, including the CSEZ. Tax and duty-free incentives being
in the nature of tax exemptions, the basis thereof should be categorically and
unmistakably expressed from the language of the statute. Consequently, in the absence
of any express grant of tax and duty-free privileges to the CSEZ in Republic Act No.
7227, there would be no legal basis to uphold the questioned portions of two issuances:
Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No.
93-05-034, which both pertain to the CSEZ.

Issue: ​Who may grant tax exemptions?

Ruling: ​It is the legislature, unless limited by a provision of a state constitution, that has
full power to exempt any person or corporation or class of property from taxation, its
power to exempt being as broad as its power to tax. Other than Congress, the
Constitution may itself provide for specific tax exemptions, or local governments may
pass ordinances on exemption only from local taxes.
The challenged grant of tax exemption would circumvent the Constitution’s imposition
that a law granting any tax exemption must have the concurrence of a majority of all the
members of
Congress. Tax exemption cannot be implied as it must be categorically and
unmistakably expressed.

Dispositive​: Petition Denied.

Camp John Hay v Lim ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

Tolentino v Sec. of Finance ​Airah

Facts​:

Issue​:

Ruling​:

Dispositive​:

Tan v Del Rosario ​Mikko

Doctrine: ​Uniformity of taxation requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities

Facts: ​Petitioner intimates that RA No. 7496 or Simplified Net Income Taxation Scheme
(SNIT) amending certain provisions of the NIRC, desecrates the constitutional
requirement that taxation “shall be uniform and equitable” in that the law would now
attempt to tax single proprietorships and professionals differently from the manner it
imposes the tax on corporations and partnerships.
Issue: ​Does RA No. 7496 violate the constitutional requirement that taxation “shall be
just and equitable” in taxing single proprietorships and professionals differently from
corporations and partnerships?

Ruling: ​No. The contention clearly forgets that such a system of income taxation has
long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that
all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity
does not forfend classification as long as: (1) the standards that are used therefor 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.
What may instead be perceived to be apparent from the amendatory law is the
legislative intent to increasingly shift the income tax system towards the scheduler
approach in the income taxation of individual taxpayers and to maintain, by and large,
the present global treatment on taxable corporations. Such classification is not arbitrary
and inappropriate.

Ormoc v CIR ​Monique

Facts​:Ordinance No. 4, S. of 1964 imposed on all productions of centrifugal sugar
​ municipal tax ​of ​1% ​per export sale. Ormoc
milled ​at the ​Ormoc Sugar Company, Inc., a
Sugar paid under protest and filed before the CFI of Leyte a complaint against the City
of Ormoc, the City Treasurer, Municipal Board and Mayor, alleging that the ordinance is
unconstitutional for being violative of the equal protection clause and the rule of
uniformity of taxation. CFI upheld the ordinance’s constitutionality, hence the instant
petition.

Issue​: Does Ordinance No. 4, s. of 1964 infringe the constitutional limits on the power
of taxation, specifically the equal protection clause and rule of uniformity of taxation?

Ruling​: Yes. The equal protection clause applies only to persons or things identically
situated and does not bar a reasonable classification of the subject of legislation, and a
classification is reasonable where (1) it is based on substantial distinctions which make
real differences; (2) these are germane to the purpose of the law; (3) the classification
applies not only to present conditions but also to future conditions which are
substantially identical to those of the present; (4) the classification applies only to those
who belong to the same class
A perusal of the requisites instantly shows that the questioned ordinance does not meet
them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of the taxing ordinance's enactment, Ormoc
Sugar Company, Inc., 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
subsequently established sugar central, of the same class as plaintiff, for the coverage
of the tax. As it isnow, even if later a similar company is set up, it cannot be subject to
the tax because the ordinance expressly points only to Ormoc City Sugar Company,
Inc. as the entity to be levied upon.

Dispositive​: Petition Granted.

Shell v Vaño ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

IV. COURT OF TAX APPEALS

TFS v. CIR​ ​Airah

Facts​:

Issue​:

Ruling​:

Dispositive​:

CIR v. FBDC (2010)​ ​Mikko

Facts​: Petitioner filed a Motion for Re-Extension of Time to File Petition for Review
CTA) granted the petition of FBDC and ordered the CIR and the Revenue District
Officer to refund or issue a Tax Credit Certificate in the total amount of P15,036,891.26
in favor of FBDC for the fourth quarter of taxable year 1997. The CIR sought to appeal
the CTA decision to the CA. Petitioner filed a Motion for Re-Extension of Time to File
Petition for Review. The CA dismissed the petition. The Revenue District Officer filed an
Amended Petition for Review. The CA denied the prayer of petitioners to admit the
amended petition for review. The MR being denied, petitioner seeks relief from this
Court via this petition for review.

Issue​: ​Did the Court of Appeals correctly dismiss the original Petition for Review, and
deny admission of the Amended Petition for Review?

Ruling​: Yes. It bears emphasizing that the dismissal of the petition for review and the
denial of the amended petition were premised rather on: ​(1) ​the late filing of the original
petition for review by the CIR; ​(2) ​the absence of a motion for reconsideration of the
January 29, 2002 Resolution; and ​(3) ​lack of authority of Atty. Alberto R. Bomediano,
Jr., legal officer of the BIR Region 8, Makati City, to pursue the case on behalf of
petitioner CIR. It has been ruled that ​perfection of an appeal ​in the manner and within
the period laid down by law is ​not only ​mandatory but also jurisdictional​. The failure
to perfect an appeal as required by the rules has the effect of defeating the right to
appeal of a party and precluding the appellate court from acquiring jurisdiction over the
case. At the risk of being repetitious, we declare that the right to appeal is not a natural
right nor a part of due process. It is merely a statutory privilege, and may be exercised
only in

Smart v Malvar (2014)​ ​Monique

Facts​:Smart filed a protest and challenged the validity of Ordinance No. 18 issued by
the Municipality of Malvar Batangas. The Municipality denied Smart’s protest. Smart
filed with the Regional Trial Court a petition assailing the validity of Ordinance No. 18.
Trial court rendered a Decision partly granting Smart’s Appeal/Petition. Smart filed a
petition for review with the CTA First Division, CTA First Division denied the petition for
review. Smart filed a petition for review with the CTA En Banc, which ​dismissed the
petition on the ground of lack of jurisdiction. Citing Section 7(a), paragraph 3, of RA No.
9282, the CTA ​En Banc ​held that the CTA has no jurisdiction to resolve cases where
the constitutionality of a law or rule is challenged.

Issue​: Does the CTA have jurisdiction over cases where the constitutionality of a law or
rule is challenged?

Ruling​: No. Jurisdiction is conferred by law. Republic Act No. 1125, as amended by
Republic Act No. 9282, created the Court of Tax Appeals. Section 7, paragraph (a),
sub-paragraph (3)​15 of the law vests the CTA with the exclusive appellate jurisdiction
over „decisions, orders or resolutions of the Regional Trial Courts in local ​tax ​cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction.”
The question now is whether the trial court resolved a local tax case in order to fall
within the ambit of the CTA’s appellate jurisdiction. This question, in turn, depends
ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes.

The Court finds that the fees imposed under Ordinance No. 18 are not taxes. Since the
main purpose of Ordinance No. 18 is to regulate certain construction activities of the
identified special projects, which included “cell site” or telecommunications towers, the
fees imposed in Ordinance No. 18 are ​primarily regulatory in nature, and not
primarily revenue-raising.​ While the fees may contribute to the revenues of the
Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18
are not taxes.

Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and
Smart is questioning the constitutionality of the ordinance, the CTA correctly dismissed
the petition for lack of jurisdiction.

Dispositive​: Petition Denied.

PPA v Fuentes (1991)​ ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

PSALM v CIR (2017)​ ​Airah

Facts​:

Issue​:

Ruling​:

Dispositive​:
 V. INCOME

1. ​Conwi vs. Court of Tax Appeals​ ​Mikko

Facts​: Petitioners pray that the SC reverse the Decision of the Court of Tax Appeals
denying petitioners’ claim for tax refunds, and order the Commissioner of Internal
Revenue to refund to them their income taxes which they claim to have been
erroneously or illegally paid or collected.
Petitioners are Filipino citizens and employees of Procter and Gamble, Philippine
Manufacturing Corporation. Said corporation is a subsidiary of Procter & Gamble, a
foreign corporation based in Cincinnati, Ohio, U.S.A. During the years 1970 and 1971
petitioners were assigned, for certain periods, to other subsidiaries of Procter &
Gamble, outside of the Philippines, during which petitioners were paid U.S. dollars as
compensation for services in their foreign assignments. ​When petitioners in the CTA
case filed their income tax returns for the year 1970, they computed the tax due by
applying the dollar-to-peso conversion on the basis of the floating rate ordained by the
B.I.R.
However, petitioners amended their income tax returns, this time using the par
value of the peso as prescribed in Section 48 of Republic Act No. 265 in relation to
Section 6 of Commonwealth Act No. 699 as the basis for converting their respective
dollar income into Philippine pesos for purposes of computing and paying the
corresponding income tax due from them. The amended income tax returns resulted in
the alleged overpayments, refund and/or tax credit. Accordingly, claims for refund of
said over-payments were filed with respondent Commissioner.
Court of Tax Appeals held that the proper conversion rate for the purpose of
reporting and paying the Philippine income tax on the dollar earnings of petitioners are
the rates prescribed under Revenue Memorandum Circulars Nos. 7-71 and 41-71.
Accordingly, the claim for refund and/or tax credit of petitioners in the above-entitled
cases was denied and the petitions for review dismissed, with costs against petitioners.
Hence, this petition for review on certiorari.

Issue​: What is an income?

Ruling​: Income may be defined as an amount of money coming to a person or

corporation within a specified time, whether as payment for services, interest or profit
from investment. Unless otherwise specified, it means cash or its equivalent. Income
can also be thought of as a flow of the fruits of one’s labor.
Issue​: Are the dollar earnings of the petitioners receipts derived from foreig exchange
transactions?

Ruling​: No. For a foreign exchange transaction is simply that·a transaction in foreign
exchange, foreign exchange being “the conversion of an amount of money or currency
of one country into an equivalent amount of money or currency of another.” When
petitioners were assigned to the foreign subsidiaries of Procter & Gamble, they were
earning in their assigned nation’s currency and were ALSO spending in said currency.
There was no conversion, therefore, from one currency to another.

Issue​: What exchange rate should be used to determine the peso equivalent of the
foreign earnings of petitioners for income tax purposes?

Ruling​: Revenue Memorandum Circular Nos. 7-71 and 41-71 were issued to prescribe
a uniform rate
Schedule of Exchange Rates
In all cases of transactions involving remittances and acceptances of U.S.
dollars occurring during the period from January 1 to February 20, 1970, the
official rate of exchange of P3.90 to $1.00 shall be used.
In the case of transactions involving remittances or acceptance of U.S.
dollars occurring after February 20, 1970 the following rules shall govern:
In the case of regular or habitual transactions involving remittances
and acceptances of U.S. dollars, such as salaries, royalty payments and
the like, the uniform rate of P6.25 to U.S. $1.00 shall be used; provided
however, that in the case of transactions involving the computation of
advance sales or compensating taxes, the rates used by the Bureau of
Customs at the time of the payment of such taxes shall prevail.
In the case of an isolated or casual transaction involving
remittances or acceptances of U.S. dollars, such as dividends, occasional
sales of property and the like the exchange rate quoted by the Foreign
Exchange Department of the Central Bank of the Philippines prevailing at
the time of such remittances or acceptance shall be used.
Schedule of Exchange Rates
In all cases of transactions involving remittances and acceptances of U.S.
dollars and other foreign currencies occurring during the year 1971, the following
rules shall govern:
In the case of regular or habitual transactions involving remittances
or acceptances of US dollars or other foreign currencies such as salaries,
wages, fees or other renominations for personal services, royalties, rents,
 interests or other fixed or determinable annual or periodical income, the
uniform rate of P6.25 to U.S. $1.00 shall be used.
In the case of transactions involving the computation of advance
sales or compensating taxes, the rate of exchange used by the Bureau of
Customs at the time of the payment of such taxes shall prevail.
In the case of an isolated or casual transaction involving
remittances of acceptances of U.S. dollars or other foreign currencies
such as dividends, interests, capital gains or other gains from occasional
sales of property and the like, the exchange rate quoted by the Foreign
Exchange Department of the Central Bank of the Philippines prevailing at
the time of such remittances or acceptances shall be used.
Where the currency involved is other than U.S. dollars, the foreign
currency shall first be converted to U.S. dollars at the prevailing rate of
exchange between the two currencies. The resulting amount shall then be
converted to Philippine pesos in accordance with the above-promulgated
rules.

Issue​: Are petitioners exempt from the coverage of such circulars since there were no
remittances and acceptances of their salaries and wages in US dollars into the
Philippines?

Ruling​: No. Petitioners forget that they are citizens of the Philippines, and their income,
within or without, and in these cases wholly without, are subject to income tax. Sec. 21,
NIRC, as amended, does not brook any exemption.
Since petitioners have already paid their 1970 and 1971 income taxes under the
uniform rate of exchange prescribed under the aforestated Revenue Memorandum
Circulars, there is no reason for respondent Commissioner to refund any taxes to
petitioner as said Revenue Memorandum Circulars, being of long standing and not
contrary to law, are valid.

Dispositive​: petitions DENIED

2. CIR vs. Marubeni Corporation​ ​Monique

Facts​: Respondent Marubeni availed of the tax amnesty on October 30, 1986 under
E.O. 41. In addition to income tax, E.O. 64. expanded E.O. 41’s coverage which
included estate and donor’s taxes and the period within which the taxpayer could avail
of the amnesty was extended to December 15, 1986 and respondent filed a
supplemental tax amnesty return under E.O. 64. Petitioner Commissioner of Internal
Revenue examined the books of accounts of respondent Marubeni Corp. and found
undeclared income from two (2) contracts in the Philippines; the NDC and Philphos
contracts. On August 27, 1986, respondent received from petitioner assessments of
deficiency income, branch profit remittance and contractor’s tax. Respondent filed two
(2) petitions for review with the Court of Tax Appeals. The tax court found that
respondent had properly availed of the tax amnesty under E.O. Nos. 41 and 64 and
declared the deficiency taxes subject of said case as deemed cancelled and withdrawn.
Petitioner appealed with the Court of Appeals which dismissed the petition and affirmed
the decision of the CTA. Hence, this recourse. Petitioner argues that at the time
respondent filed for
income tax amnesty on October 30, 1986, CTA Case No. 4109 had already been filed
and was pending before the Court of Tax Appeals. Respondent therefore fell under the
exception in Section 4 (b) of E.O. No. 41.

Issue​: Is respondent is liable to pay the income, branch profit remittance, and assessed
by petitioner?

Ruling​:​No. ​Petitioner’s claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very
clear and unambiguous. It excepts from income tax amnesty those taxpayers “with
income tax cases already filed in court as of the effectivity hereof.” ​The ​point of
reference is the date of ​effectivity ​of E.O. No. 41. The filing of income tax cases in court
must have been made before and as of the date of effectivity of E.O. No. 41. Thus, for a
taxpayer not to be disqualified under Section 4 (b) there must have been no income tax
cases filed in court against him when E.O. No. 41 took effect. This is regardless of when
the taxpayer filed for income tax amnesty, provided of course he files it on or before the
deadline for filing.

E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985
deficiency income, branch profit remittance and contractor’s tax assessments was
filed by respondent with the Court of Tax Appeals on September 26, 1986. When E.O.
No. 41 became effective on August 22, 1986, CTA Case No. 4109 had not yet been
filed
in court. ​Respondent corporation did not fall under the said exception in Section 4 (b),
hence, respondent was not disqualified from availing of the amnesty for income tax
under E.O. No. 41. The same ruling also applies to the deficiency branch profit
remittance tax assessment​. A ​branch profit remittance tax ​is defined and imposed in
Section 24 (b) (2) (ii), Title II, Chapter III of the National Internal Revenue Code. In the
tax code, this tax falls under Title II on Income Tax. It is a ​tax on income. ​Respondent
therefore did not fall under the exception in Section 4 (b) when it filed for amnesty of its
deficiency branch profit remittance tax assessment.
Dispositive​: Petition denied.

3. ​CIR vs. British Overseas Airways Corporation​ ​Gerard

Facts​: Court of Tax Appeals (CTA)... set aside petitioner's assessment of deficiency
income... taxes against respondent British Overseas Airways Corporation (BOAC) for
the fiscal years 1959 to 1967, 1968-69 to 1970-71
BOAC is a 100% British Government-owned corporation organized and existing under
the laws of the United Kingdom... it operates air... transportation service and sells
transportation tickets over the routes of the other airline members.

BOAC had no landing rights for traffic purposes in the Philippines, and was not granted
a Certificate of public convenience and necessity to operate in the Philippines... it did
not carry... passengers and/or cargo to or from the Philippines, although during the
period covered by the assessments, it maintained a general sales agent in the
Philippines Warner Barnes and Company, Ltd., and later Qantas Airways which was
responsible for selling BOAC tickets covering... passengers and cargoes.

new assessment, dated 16 January 1970 for the years 1959 to 1967 in the amount of
P858,307.79.

BOAC paid this new assessment under protest.

BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by
the CIR

BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years
1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional
amounts of P1,000.00 and P1,800.00 as compromise penalties

This prompted BOAC to file the Second Case before the Tax Court... praying that it be
absolved of liability for deficiency income tax for the years 1969 to 1971.

The Tax Court held that the proceeds of sales of BOAC passage tickets in the
Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during
the period in... question, do not constitute BOAC income from Philippine sources "since
no service of carriage of passengers or freight was performed by BOAC within the
Philippines" and, therefore, said income is not subject to Philippine income tax.
Issue​: WON ​the revenue derived by BOA from sales of tickets in the Philippines for air
transportation constitute income of BOAC from Philippine sources and, accordingly,
taxable.

Ruling​: the term '​resident foreign corporation​' applies to a foreign corporation engaged
in trade or business within the Philippines or having an office or place of business
therein.
The term '​non-resident foreign corporation​' applies to a foreign corporation not engaged
in trade or business within the Philippines and not having any office or place of business
therein."

It is our considered opinion that BOAC is a resident foreign corporation.

There is no specific criterion as to what constitutes "​doing​" or "​engaging in" or

"transacting" busines​s. Each case must be judged in the light of its peculiar
environmental... circumstances.

implies a continuity of commercial dealings and arrangements, and contemplates, to

that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of commercial gain or for... the
purpose and object of the business organization.

that a foreign corporation may be regarded as doing business within a State, ​there must
be continuity of conduct and intention to establish a continuous business, such as the
appointment of a... local agent, and not one of a temporary character'

BOAC, during the periods covered by the subject assessments, ​maintained a general
sales agent in the Philippines.

Those activities were in exercise of the functions which are normally incident to, and are
in progressive pursuit of, the purpose and object of its organization as an... international
air carrier.

the regular sale of tickets, its main activity, is the very lifeblood of the airline business,
the generation of sales being the paramount objective... ​no doubt then that BOAC was
"engaged in" business in the Philippines through a local agent during the period covered
by the assessments.

it is a ​resident foreign corporation subject to tax upon its total net income received in the
preceding taxable year from all sources within the Philippines.

"'​Gross income​' includes gains, profits, and income derived from salaries, wages or
compensation for personal service of whatever kind and in whatever form paid, or from
profession, vocations, trades, business, commerce, sales, or dealings in property,
whether... real or personal, growing out of the ownership or use of or interest in such
property; also from interests, rents, dividends, securities, or the transactions of any
business carried on for gain or profit, or gains, profits, and income derived from any
source whatever"... broad and comprehensive to include proceeds from sales of
transport documents.

'income from any source whatever'

Income means "cash received or its equivalent"; it is the amount of money coming to a
person within a specific time x x x; it means something distinct from principal or capital.
For, while capital is a fund, income is a flow. As used in our income tax... law, "income"
refers to the flow of wealth.

The source of an income is the property, activity or service that produced the income.[8]
For the source of income to be considered as coming from the Philippines, it is sufficient
that the income is derived from activity within the Philippines.

In BOAC's case, the sale of tickets in the Philippines is the activity that produces the
income.

The tickets exchanged hands here and payments for fares were also made here in
Philippine currency. The situs of the source of payments is the Philippines.

The flow of... wealth proceeded from, and occurred within, Philippine territory, enjoying
the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government.

A transportation ticket is not a mere piece of paper.

The ordinary ticket issued to members of the travelling public in general embraces
within its terms all the elements to constitute it a valid contract, binding upon the...
parties entering into the relationship

Section 37(a) of the Tax Code, which enumerates items of gross income from sources
within the Philippines, namely: (1) interest, (2) dividends, (3) service, (4) rentals and
royalties, (5) sale of real property, and (6) sale of personal property... does not
mention... income from the sale of tickets for international transportation. However, that
does not render it less an income from sources within the Philippines.

Section 37, by its language, does not intend the enumeration to be exclusive.
merely directs that the types... of income listed therein be treated as income from
sources within the Philippines... the section will show that it does not state that it is an
all-inclusive enumeration, and that no other kind of income maybe so considered

The absence of flight operations to and from the Philippines is not determinative of the
source of income or the situs of income taxation.

The ​test of taxability is the "source", and the source of an income is that activity x x x
which produced the income

The... word "source" conveys one essential idea, that of origin, and the origin of the
income herein is the Philippines... the assessments upheld herein apply only to the
fiscal years covered by the questioned deficiency income tax assessments in these
cases, or, from 1959 to 1967, 1968-69 to 1970-71

Presidential Decree No. 69,... promulgated on 24 November, 1972, international carriers

are now taxed as follows:

"x x x Provided, however, That international carriers shall pay a tax of 2-1/2 percent on
their gross Philippine billings.

Gross Philippine billings' includes gross revenue realized from uplifts anywhere in the
world by any international carrier doing business in the Philippines of passage
documents sold therein, whether for passenger, excess baggage or mail, provided the
cargo... or mail originates from the Philippines.

The 2 1/2% tax on gross Philippine billings is an income tax.

the common carrier's... tax is an excise tax, being a tax on the activity of transporting,
conveying or removing passengers and cargo from one place to another. It purports to
tax the business of transportation.[14] Being an excise tax, the same can be levied by
the State... only when the acts, privileges or businesses are done or performed within
the jurisdiction of the Philippines. The subject matter of the case under consideration is
income tax, a direct tax on the income of persons and other entities "of whatever kind
and in whatever form... derived from any source."

Dispositive​:

4. ​South African Airways vs. CIR​ ​Airah

Facts​: South African Airways is a foreign corporation organized and existing under and
by virtue of the laws of the Republic of South Africa. It is an internal air carrier having no
landing rights in the country. Petitioner has a general sales agent in the Philippines,
Aerotel Limited Corporation (Aerotel). Aerotel sells passage documents for
compensation or commission for petitioner’s off-line flights for the carriage of
passengers and cargo between ports or points outside the territorial jurisdiction of the
Philippines. Petitioner is not registered with the Securities and Exchange Commission
as a corporation, branch office, or partnership. It is not licensed to do business in the
Philippines.

For the taxable year 2000, petitioner filed separate quarterly and annual income tax
returns for its off-line flights.

Thereafter, petitioner filed with the Bureau of Internal Revenue a claim for the refund as
erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such
claim was unheeded. petitioner filed a Petition for Review with the CTA for the refund of
the above mentioned amount.

CTA First Division issued a Decision denying the petition for lack of merit. Petitioner’s
Motion for Reconsideration of the above decision was denied by the CTA First Division.

petitioner filed a Petition for Review before the CTA En Banc, This was denied by the
CTA.

Hence, petitioner went to the Supreme Court.

RELATED TO THE TOPIC

Issue 1​: WON petitioners are no longer liable under Sec. 28(A)(3)(a) due to its
amendment

RULING: Yes. Essentially, prior to the 1997 NIRC, Gross Philippine Billings (GPB)
referred to revenues from uplifts anywhere in the world, provided that the passage
documents were sold in the Philippines. Legislature departed from such concept in the
1997 NIRC where GPB is now defined under Sec. 28(A)(3)(a):

Gross Philippine Billings refers to the amount of gross revenue derived from carriage of
persons, excess baggage, cargo and mail originating from the Philippines in a
continuous and uninterrupted flight, irrespective of the place of sale or issue and the
place of payment of the ticket or passage document.

Now, it is the place of sale that is irrelevant; as long as the uplifts of passengers and
cargo occur to or from the Philippines, income is included in GPB.

As correctly pointed out by petitioner, inasmuch as it does not maintain flights to or from
the Philippines, it is not taxable under Sec. 28(A)(3)(a) of the 1997 NIRC. This much
was also found by the CTA.

ISSUE 2: ​Due to the non-applicability of Sec. 28(A)(3)(a) to it, WON it is precluded from
paying any other income tax for its sale of passage documents in the Philippines.

Ruling​: NO. We point out that ​Sec. 28(A)(3)(a) of the 1997 NIRC does not, in any
categorical term, exempt all international air carriers from the coverage of Sec.
28(A)(1) of the 1997 NIRC. ​Certainly, had legislatures intentions been to completely
exclude all international air carriers from the application of the general rule under Sec.
28(A)(1), it would have used the appropriate language to do so; but the legislature did
not. ​Thus, the logical interpretation of such provisions is that, if Sec. 28(A)(3)(a) is
applicable to a taxpayer, then the general rule under Sec. 28(A)(1) would not
apply. If, however, Sec. 28(A)(3)(a) does not apply, a resident foreign corporation,
whether an international air carrier or not, would be liable for the tax under Sec.
28(A)(1).

Clearly, no difference exists between British Overseas Airways and the instant case,
wherein petitioner claims that the former case does not apply. Thus, British Overseas
Airways applies to the instant case. The findings therein that an off-line air carrier is
doing business in the Philippines and that income from the sale of passage documents
here is Philippine-source income must be upheld.

In the instant case, the general rule is that resident foreign corporations shall be
liable for a 32% income tax on their income from within the Philippines, except for
resident foreign corporations that are international carriers that derive income
from carriage of persons, excess baggage, cargo and mail originating from the
Philippines which shall be taxed at 2 1/2% of their Gross Philippine Billings.
Petitioner, being an international carrier with no flights originating from the Philippines,
does not fall under the exception. As such, petitioner must fall under the general rule.
This principle is embodied in the Latin maxim, exception firmat regulam in casibus non
exceptis, which means, a thing not being excepted must be regarded as coming within
the purview of the general rule.

To reiterate, the correct interpretation of the above provisions is that, if an international

air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2
1/2% of its Gross Philippine Billings, while international air carriers that do not have
flights to and from the Philippines but nonetheless earn income from other activities in
the country will be taxed at the rate of 32% of such income

ISSUE 3: ​Whether the existence of petitioner’s tax liability would preclude their claim for
a refund of tax paid on the basis of Sec. 28(A)(3)(a)

RULING: NO. Article 1279 of the Civil Code contains the elements of legal
compensation and it was ruled in Philex Mining Corporation v. Commissioner of Internal
Revenue, thus:

In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each other. There is a
material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. We
find no cogent reason to deviate from the aforementioned distinction.

Petitioners argument is correct that the offsetting of its tax refund with its alleged tax
deficiency is unavailing under Art. 1279 of the Civil Code.

Commissioner of Internal Revenue v. Court of Tax Appeals, however, granted the

offsetting of a tax refund with a tax deficiency by stating that:

The grant of a refund is founded on the assumption that the tax return is valid, that is,
the facts stated therein are true and correct. The deficiency assessment, although not
yet final, created a doubt as to and constitutes a challenge against the truth and
accuracy of the facts stated in said return which, by itself and without unquestionable
evidence, cannot be the basis for the grant of the refund.

Here, petitioners similar tax refund claim assumes that the tax return that it filed was
correct. Given, however, the finding of the CTA that petitioner, although not liable under
Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the correctness of the
return filed by petitioner is now put in doubt. As such, we cannot grant the prayer for a
refund.

Dispositive​:

5. ​CIR vs. CA (1999)​ ​Mikko

Facts​: Sometime in the 1930s, Soriano, a citizen and resident of the US, formed a
corporation, predecessor of ANSCOR. ANSCOR is wholly owned and controlled by the
family of Don Andres, who are all non-resident aliens. In 1973, after examining
ANSCORÊs books of account
and records, Revenue examiners issued a report proposing that ANSCOR be assessed
for deficiency withholding tax-at-source. The Bureau of Internal Revenue (BIR) made
the corresponding assessments despite the claim of ANSCOR that it availed of the tax
amnesty under Presidential Decree (P.D.) 23 which were amended by P.D.’s 67 and
157.

Issue​: Whether ANSCOR’s (1) redemption of stocks from its stockholder as well as the
(2) exchange of common with preferred shares can be considered as “essentially
equivalent to the distribution of taxable dividend,” making the proceeds thereof taxable?

Ruling​: (1) Yes. It is not the stock dividends but the proceeds of its redemption that may
be deemed as taxable dividends.
The two purposes invoked by ANSCOR, under the facts of this case are no
excuse for its tax liability. First, the alleged “filipinization” plan cannot be considered
legitimate as it was not implemented until the BIR started making assessments on the
proceeds of the redemption. Such corporate plan was not stated in nor supported by
any Board Resolution but a mere afterthought interposed by the counsel of ANSCOR.
Being a separate entity, the corporation can act only through its Board of Directors. The
Board Resolutions authorizing the redemptions state only one purpose·reduction of
foreign exchange remittances in case cash dividends are declared. Not even this
purpose can be given credence. Records show that despite the existence of enormous
corporate profits no cash dividend was ever declared by ANSCOR from 1945 until the
BIR started making assessments in the early 1970’s. Although a corporation under
certain exceptions, has the prerogative when to issue dividends, yet when no cash
dividends was issued for about three decades, this circumstance negates the legitimacy
of ANSCOR’s alleged purposes. Moreover, to issue stock dividends is to increase the
shareholdings of ANSCOR’s foreign stockholders contrary to its “filipinization” plan. This
would also increase rather than reduce their need for foreign exchange remittances in
case of cash dividend declaration, considering that ANSCOR is a family corporation
where the majority shares at the time of redemptions were held by Don Andres’ foreign
heirs.
Secondly, assuming arguendo, that those business purposes are legitimate, the
same cannot be a valid excuse for the imposition of tax. Otherwise, the taxpayer’s
liability to pay income tax would be made to depend upon a third person who did not
earn the income being taxed. Furthermore, even if the said purposes support the
redemption and justify the issuance of stock dividends, the same has no bearing
whatsoever on the imposition of the tax herein assessed because the proceeds of the
redemption are deemed taxable dividends since it was shown that income was
generated therefrom.
Thirdly, ANSCOR argued that to treat as ‘taxable dividend’ the proceeds of the
redeemed stock dividends would be to impose on such stock an undisclosed lien and
would be extremely unfair to intervening purchasers, i.e. those who buy the stock
dividends after their issuance. Such argument, however, bears no relevance in this case
as no intervening buyer is involved. And even if there is an intervening buyer, it is
necessary to look into the factual milieu of the case if income was realized from the
transaction.

(2) No. Reclassification of shares does not always bring any substantial alteration
in the subscriber’s proportional interest. But the exchange is different·there would be a
shifting of the balance of stock features, like priority in dividend declarations or absence
of voting rights. Yet neither the reclassification nor exchange per se, yields realize
income for tax purposes. A common stock represents the residual ownership interest in
the corporation. It is a basic class of stock ordinarily and usually issued without
extraordinary rights or privileges and entitles the shareholder to a pro rata division of
profits. Preferred stocks are those which entitle the shareholder to some priority on
dividends and asset distribution.
Both shares are part of the corporation’s capital stock. Both stockholders are no
different from ordinary investors who take on the same investment risks. Preferred and
common shareholders participate in the same venture, willing to share in the profits and
losses of the enterprise. Moreover, under the doctrine of equality of shares-all stocks
issued by the corporation are presumed equal with the same privileges and liabilities,
provided that the Articles of Incorporation is silent on such differences.
In this case, the exchange of shares, without more, produces no realized income
to the subscriber. There is only a modification of the subscriber’s rights and privileges·
which is not a flow of wealth for tax purposes. The issue of taxable dividend may arise
only once a subscriber disposes of his entire interest and not when there is still
maintenance of proprietary interest.

Issue​: On tax amnesty. May the withholding agent, in such capacity, be deemed a
taxpayer for it to avail of the amnesty?

Ruling​: No. An income taxpayer covers all persons who derive taxable income.
ANSCOR was held liable in its capacity as a withholding agent and not in its personality
as a taxpayer.
 In the operation of the withholding tax system, the withholding agent is the payor,
a separate entity acting no more than an agent of the government for the collection of
the tax in order to ensure its payments; the payer is the taxpayer·he is the person
subject to tax imposed by law; and the payee is the taxing authority. In other words, the
withholding agent is merely a tax collector, not a taxpayer. Under the withholding
system, however, the agent-payor becomes a payee by fiction of law. His (agent)
liability is direct and independent from the taxpayer, because the income tax is still
imposed on and due from the latter. The agent is not liable for the tax as no wealth
flowed into him-he earned no income. The Tax Code only makes the agent personally
liable for the tax arising from the breach of its legal duty to withhold as distinguished
from its duty to pay tax
Not being a taxpayer, a withholding agent, like ANSCOR in this transaction, is
not protected by the amnesty under the decree.

Issue​: Tax on stock dividends.

Ruling​: General rule: “A stock dividend representing the transfer of surplus to capital
account shall not be subject to tax.”
Exception: “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 the stock shall be
considered as taxable income to the extent it represents a distribution of earnings or
profits accumulated after March first, nineteen hundred and thirteen.”

Although redemption and cancellation are generally considered capital

transactions, as such, they are not subject to tax. However, it does not necessarily
mean that a shareholder may not realize a taxable gain from such transactions. Simply
put, depending on the circumstances, the proceeds of redemption of stock dividends
are essentially distribution of cash dividends, which when paid becomes the absolute
property of the stockholder. Thereafter, the latter becomes the exclusive owner thereof
and can exercise the freedom of choice. Having realized gain from that redemption, the
income earner cannot escape income tax.

Issue​: What is a stock dividend?

Ruling​: 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.” As capital, the stock dividends postpone the realization of profits because
the “fund represented by the new stock has been transferred from surplus to capital and
no longer available for actual distribution.”
In a loose sense, stock dividends issued by the corporation, are considered
unrealized gain, and cannot be subjected to income tax until that gain has been
realized. Before the realization, stock dividends are nothing but a representation of an
interest in the corporate properties. As capital, it is not yet subject to income tax. It
should be noted that capital and income are different. Capital is wealth or fund; whereas
income is profit or gain or the flow of wealth. The determining factor for the imposition of
income tax is whether any gain or profit was
derived from a transaction.

Issue​: What is the criteria in determining when should distribution be treated as taxable
dividend​?

Ruling​: 1. the presence or absence of real business purpose, 2. the amount of earnings
and profits available for the declaration of a regular dividend and the corporation’s past
record with respect to the declaration of dividends, 3. the effect of the distribution as
compared with the declaration of regular dividend, 4. the lapse of time between
issuance and redemption, 5. the presence of a substantial surplus and a generous
supply of cash which invites suspicion as does a meager policy in relation both to
current earnings and accumulated surplus.

Issue​: What is redemption?

Ruling​: Redemption is repurchase, a reacquisition of stock by a corporation which

issued the stock in exchange for property, whether or not the acquired stock is
cancelled, retired or held in the treasury. Essentially, the corporation gets back some of
its stock, distributes cash or property to the shareholder in payment for the stock, and
continues in business as before. The redemption of stock dividends previously issued is
used as a veil for the constructive distribution of cash dividends.

Issue​: What are the elements in the imposition of income tax?

Ruling​: The three elements in the imposition of income tax are: (1) there must be gain
or profit, (2) that the gain or profit is realized or received, actually or constructively, and
(3) it is not exempted by law or treaty from income tax.

Issue​: What is an exchange?

Ruling​: Exchange is an act of taking or giving one thing for another involving reciprocal
transfer and is generally considered as a taxable transaction.

Dispositive​: WHEREFORE, premises considered, the decision of the Court of Appeals

is MODIFIED in that ANSCOR’s redemption of 82,752.5 stock dividends is herein
considered as essentially equivalent to a distribution of taxable dividends for which it is
LIABLE for the withholding tax-at- source. The decision is AFFIRMED in all other
respects.

6. CIR v Goodyear (2016)​ ​Monique

Facts​: All the preferred shares of Respondent Goodyear Philippines all the preferred
shares were solely and exclusively subscribed by Goodyear Tire and Rubber Company
(GTRC), which was a foreign company organized and existing under the laws of the US
and is unregistered in the Philippines. The Board of Directors of respondent authorized
the redemption of GTRC’s 3,729,216 preferred shares at the redemption price of
P470,653,914.00, broken down as follows: P372,921,600.00 representing the
aggregate par value and P97,732,314.00, representing accrued and unpaid dividends.
Respondent filed an application for relief from double taxation before the International
Tax Affairs Division of the BIR to confirm that the redemption was not subject to
Philippine income tax, pursuant to the Republic of the Philippines (RP)-US Tax Treaty.
On October 21, 2010​, respondent filed an administrative claim for refund or issuance of
TCC, representing 15% FWT. Thereafter, or ​on ​November 3, 2010​, it filed a judicial
claim, by way of petition for review, before the CTA. The CTA Division granted the
petition and thereby ordered petitioner to refund or issue a TCC in the sum of
P14,659,847.10 to respondent for being erroneously withheld and remitted as FWT. the
CTA ​En Banc a ​ ffirmed the findings of the CTA Division. Petitioner filed a motion for
reconsideration, which ​was, however, denied in a Resolution34 dated January 5, 2015;
hence, this petition.

Issue​: Did the CTA ​En Banc ​correctly ruled that the gain derived by GTRC was not
subject to 15% FWT on dividends?

Ruling​: Yes. GTRC is a nonresident foreign corporation, specifically a resident of the

US. Thus, pursuant to the cardinal principle that treaties have the force and effect of law
in this jurisdiction,40 the RP-US Tax Treaty complementarily governs the tax
implications of respondent’s transactions with GTRC. Under Article 11(5)41 of the
RP-US Tax Treaty, the term “dividends” should be understood according to the taxation
law of the State in which the corporation making the distribution is a resident, which, in
this case, pertains to respondent, a resident of the Philippines.”
The Court therefore holds that the redemption price representing the amount of
P97,732,314.00 received by GTRC could not be treated as accumulated dividends in
arrears that could be subjected to 15% FWT. All told, the amount of P97,732,314.00
received by GTRC from respondent for the redemption of its 3,729,216 preferred shares
were not accumulated dividends in arrears. Contrary to petitioner’s claims, it is therefore
not subject to 15% FWT on dividends in accordance with Section 28(B)(5)(b) of the Tax
Code.

Dispositive​: Petition denied.

7. CIR vs. Solidbank Corporation​ ​Gerard

Facts​: Solidbank filed its Quarterly Percentage Tax Returns reflecting gross receipts
amounting to P1,474,693.44. It alleged that the total included P350,807,875.15
representing gross receipts from passive income which was already subjected to
20%final withholding tax (FWT).

The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20%
FWT should not form part of its taxable gross receipts for purposes of computing the
tax.

Solidbank, relying on the strength of this decision, filed with the BIR a letter-request for
the refund or tax credit. It also filed a petition for review with the CTA where the it
ordered the refund.

The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross
receipts because the FWT was not actually received by the bank but was directly
remitted to the government.

The Commissioner claims that although the FWT was not actually received by
Solidbank, the fact that the amount redounded to the bank’s benefit makes it part of the
taxable gross receipts in computing the Gross Receipts Tax. Solidbank says the CA
ruling is correct.

Issue​: What is a percentage tax? Is it the same as Income tax?

Ruling​: No. A ​percentage tax ​is a national tax measured by a certain percentage of the
gross selling price or gross value in money of goods sold, bartered or imported; or of the
gross receipts or earnings derived by any person engaged in the sale of services. It is
not subject to withholding. An income tax, on the other hand, is a national tax imposed
on the net or the gross income realized in a taxable year. It is subject to withholding.

In a withholding tax system, the payee is the taxpayer, the person on whom the tax is
imposed; the payor, a separate entity, acts as no more than an agent of the government
for the collection of the tax in order to ensure its payment. Obviously, this amount that is
used to settle the tax liability is deemed sourced from the proceeds constitutive of the
tax base. These proceeds are either actual or constructive. Both parties herein agree
that there is no actual receipt by the bank of the amount withheld. What needs to be
determined is if there is constructive receipt thereof. Since the payee·not the payor·is
the real taxpayer, the rule on constructive receipt can be easily rationalized, if not made
clearly manifest.

The Court applied provisions of the Civil Code on actual and constructive possession.
Article 531 of the Civil Code clearly provides that the acquisition of the right of
possession is through the proper acts and legal formalities established. The withholding
process is one such act. There may not be ​actual receipt of the income withheld;
however, as provided for in Article 532, possession by any person without any power
shall be considered as acquired when ratified by the person in whose name the act of
possession is executed.

In our withholding tax system, possession is acquired by the payor as the withholding
agent of the government, because the taxpayer ratifies the very act of possession for
the government. There is thus constructive receipt.

The processes of bookkeeping and accounting for interest on deposits and yield on
deposit substitutes that are subjected to FWT are tantamount to delivery, receipt or
remittance. Besides, Solidbank admits that its income is subjected to a tax burden
immediately upon “receipt”, although it claims that it derives no pecuniary benefit or
advantage through the withholding process.

There being constructive receipt, part of which is withheld, that income is included as
part of the tax base on which the gross receipts tax is imposed.
Dispositive​:

8. B. Van Zuiden Bros., Ltd. vs. GTVL Manufacturing Industries, Inc.​ ​Airah

Facts​: Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong
and is not engaged in business in the Philippines. The corporation is engaged in the
importation and exportation of several products, including lace products. On several
occasions, GTVL purchased lace products from [ZUIDEN]. The procedure for these
purchases, as per the instructions of GTVL, was that ZUIDEN delivers the products
purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd.
(KENZAR), x x x and the products are then considered as sold, upon receipt by
KENZAR of the goods purchased by GTVL.

KENZAR had the obligation to deliver the products to the Philippines and/or to follow
whatever instructions GTVL had on the matter.

Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong Kong,
the transaction is concluded; and GTVL became obligated to pay the agreed purchase
price. However, GTVL has failed and refused to pay the agreed purchase price for
several deliveries ordered by it and delivered by ZUIDEN. In spite of said demands and
in spite [sic] of promises to pay and/or admissions of liability, GTVL has failed and
refused, and continues to fail and refuse, to pay the overdue amount of U.S.$32,088.02
[inclusive of interest].

Thus, on 13 July 1999, B. Van Zuiden Bros., Ltd. (petitioner) filed a complaint for sum of
money against GTVL Manufacturing Industries, Inc. (respondent).

Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that
petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing
business in the Philippines without securing the required license. Accordingly, petitioner
cannot sue before Philippine courts.

The trial court issued an Order on 10 November 1999 dismissing the complaint.

On appeal, the Court of Appeals sustained the trial courts dismissal of the complaint.
Issue 1​: Whether petitioner is doing business in the Philippines

Ruling​: NO. Under Section 3(d) of Republic Act No. 7042 (RA 7042) or The Foreign
Investments Act of 1991, the phrase doing business is described to include:

x x x soliciting orders, service contracts, opening offices, whether called liaison offices
or branches; appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods totalling one
hundred eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the Philippines; and any
other act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some of
the functions normally incident to, and in progressive prosecution of, commercial gain or
of the purpose and object of the business organization: Provided, however, That the
phrase doing business shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own
account.

The series of transactions between petitioner and respondent cannot be classified as

doing business in the Philippines under Section 3(d) of RA 7042. ​An essential
condition to be considered as doing business in the Philippines is the actual
performance of specific commercial acts within the territory of the Philippines for
the plain reason that the Philippines has no jurisdiction over commercial acts
performed in foreign territories. Here, there is no showing that petitioner performed
within the Philippine territory the specific acts of doing business mentioned in Section
3(d) of RA 7042. Petitioner did not also open an office here in the Philippines, appoint a
representative or distributor, or manage, supervise or control a local business. While
petitioner and respondent entered into a series of transactions implying a continuity of
commercial dealings, the perfection and consummation of these transactions were done
outside the Philippines.

As earlier stated, the series of transactions between petitioner and respondent

transpired and were consummated in Hong Kong. We also find no single activity which
petitioner performed here in the Philippines pursuant to its purpose and object as a
business organization. Moreover, petitioners desire to do business within the Philippines
is not discernible from the allegations of the complaint or from its attachments.
Therefore, there is no basis for ruling that petitioner is doing business in the Philippines.

Issue 2: ​Whether petitioner, an unlicensed foreign corporation, has legal capacity to

sue before Philippine courts.

Ruling:​ YES. Section 133 of the Corporation Code provides:

Doing business without license. No foreign corporation transacting business in the

Philippines without a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or administrative agency of
the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.

The law is clear. An unlicensed foreign corporation doing business in the Philippines
cannot sue before Philippine courts. On the other hand, an unlicensed foreign
corporation not doing business in the Philippines can sue before Philippine courts.

In Eriks, respondent therein alleged the existence of a distributorship agreement

between him and the foreign corporation. If duly established, such distributorship
agreement could support respondents claim that petitioner was indeed doing business
in the Philippines. Here, there is no such or similar agreement between petitioner and
respondent.

We disagree with the Court of Appeals ruling that the proponents to the transaction
determine whether a foreign corporation is doing business in the Philippines, regardless
of the place of delivery or place where the transaction took place. To accede to such
theory makes it possible to classify, for instance, a series of transactions between a
Filipino in the United States and an American company based in the United States as
doing business in the Philippines, even when these transactions are negotiated and
consummated only within the United States.

To be doing or transacting business in the Philippines for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the
Philippines, that is, perform specific business transactions within the Philippine territory
on a continuing basis in its own name and for its own account. Actual transaction of
business within the Philippine territory is an essential requisite for the Philippines to
acquire jurisdiction over a foreign corporation and thus require the foreign corporation to
secure a Philippine business license. If a foreign corporation does not transact such
kind of business in the Philippines, even if it exports its products to the Philippines, the
Philippines has no jurisdiction to require such foreign corporation to secure a Philippine
business license.

Considering that petitioner is not doing business in the Philippines, it does not need a
license in order to initiate and maintain a collection suit against respondent for the
unpaid balance of respondents purchases.

Dispositive​: GRANTED the petition and REVERSED the Decision dated 18 April 2001
of the Court of Appeals.

9. Mobil Philippines, Inc. vs. The City Treasurer of Makati​ ​Mikko

Facts​: Petitioner is a domestic corporation engaged in the manufacturing, importing,
exporting and wholesaling of petroleum products, while respondents are the local
government officials of the City of Makati charged with the implementation of the
Revenue Code of the City of Makati, as well as the collection and assessment of
business taxes, license fees and permit fees within said city.
Petitioner filed an application with the City Treasurer of Makati for the retirement
of its business within the City of Makati as it moved its principal place of business to
Pasig City.
Upon evaluation of petitioner’s application, the OIC of the License Division issued
to petitioner, a billing slip with a TOTAL ASSESSED BUSINESS TAXES OF
P1,898,106.96.
Petitioner paid the amount under protest and subsequently filed a claim for
refund which was denied.

Issue​: Distinguish business tax from an income tax.

Ruling​: ​Business taxes imposed in the exercise of police power for regulatory purposes
are paid for the privilege of carrying on a business in the year the tax was paid. It is paid
at the beginning of the year as a fee to allow the business to operate for the rest of the
year. It is deemed a prerequisite to the conduct of business.
Income tax​, on the other hand, is a tax on all yearly profits arising from property,
professions, trades or offices, or as a tax on a person’s income, emoluments, profits
and the like. It is tax on income, whether net or gross realized in one taxable year. It is
due on or before the 15th day of the 4th month following the close of the taxpayer’s
taxable year and is generally regarded as an excise tax, levied upon the right of a
person or entity to receive income or profits.
Issue​: Are the business taxes paid by petitioner in 1998, business taxes for 1997 or
1998?

Ruling​: No. A newly-started business is already liable for business taxes (i.e. license
fees) at the start of the quarter when it commences operations. In computing the
amount of tax due for the first quarter of operations, the business’ capital investment is
used as the basis. For the subsequent quarters of the first year, the tax is based on the
gross sales/receipts for the previous quarter. In the following year(s), the business is
then taxed based on the gross sales or receipts of the previous year. The business
taxes paid in the year 1998 is for the privilege of engaging in business for the same
year, and not for having engaged in business for 1997.
Upon its transfer, petitioner was apparently subjected to Sec. 3A.11 par. (g)
which states:
...
(g) Retirement of business.
...
For purposes thereof, termination shall mean that business operation are
stopped completely.
...
(2) If it is found that the retirement or termination of the business is
legitimate, and the tax due therefrom be less than the tax due for the current year
based on the gross sales or receipts, the difference in the amount of the tax shall
be paid before the business is considered officially retired or terminated.
Based on this foregoing provision, on the year an establishment retires or
terminates its business within the municipality, it would be required to pay the difference
in the amount if the tax collected, based on the previous year’s gross sales or receipts,
is less than the actual tax due based on the current year’s gross sales or receipts.

Issue​: Is the petitioner still liable for business taxes based on its gross income/revenue
for January to August 1998?

Ruling​: For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer
of Makati as business taxes for the year 1998. The amount of tax as computed based
on petitioner’s gross sales for 1998 is only P1,331,638.84. Since the amount paid is
more than the amount computed based on petitioner’s actual gross sales for 1998,
petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus,
we find that the respondent erroneously treated the assessment and collection of
business tax as if it were income tax, by rendering an additional assessment of
P1,331,638.84 for the revenue generated for the year 1998.

Dispositive​: assailed Decision is hereby REVERSED and respondents City Treasurer

and Chief of the License Division of Makati City are ordered to REFUND to petitioner
business taxes paid

10. CIR vs. Baier-Nickel​ ​Monique

Facts​: Respondent Juliane Baier-Nickel, a non-resident German citizen, is the
President of JUBANITEX, Inc., In 1995, respondent received the amount of
P1,707,772.64, representing her sales commission income from which JUBANITEX
withheld the corresponding 10% withholding tax or P170,777.26, and remitted it to BIR.
On April 14, 1998, respondent filed a claim to refund the amount alleged to have been
mistakenly
withheld and remitted by JUBANITEX to the BIR. Respondent contended that her sales
commission income is not taxable in the Philippines because it was a compensation for
her services rendered in Germany and therefore considered as income from sources
outside the Philippines. She filed a petition for review with the CTA contending that no
action was taken by the BIR on her claim for refund. The CTA rendered a decision
denying her claim. On petition with the Court of Appeals, the latter reversed the
Decision of the CTA, holding that respondent received the commissions as sales agent
of JUBANITEX and not as President thereof. Petitioner filed a motion for
reconsideration but was denied. Hence, the instant recourse.

Issue​: Is respondent’s sales commission income is taxable in the Philippines?

Ruling​: No. Under the NIRC, nonresident aliens, whether or not engaged in trade or
business, are subject to Philippine income taxation on their income received from all
sources within the Philippines. Thus, the keyword in determining the taxability of
nonresident aliens is the income’s “source.”
The important factor therefore which determines the source of income of personal
services is not the residence of the payor, or the place where the contract for service is
entered into, or the place of payment, but the place where the services were actually
rendered.

The settled rule is that tax refunds are in the nature of tax exemptions and are to be
construed ​strictissimi juris​ against the taxpayer. To those therefore, who claim a
refund rest the burden of proving that the transaction subjected to tax is actually exempt
from taxation.

In sum, we find that the faxed documents presented by respondent did not constitute
substantial evidence, or that relevant evidence that a reasonable mind might accept as
adequate to support the conclusion that it was in Germany where she performed the
income producing service which gave rise to the reported monthly sales in the months
of March and May to September of 1995. She thus failed to discharge the burden of
proving that her income was from sources outside the Philippines and exempt from the
application of our income tax law. Hence, the claim for tax refund should be denied.
Dispositive​: Petition granted.

11. CIR vs. CA (1991)​ ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

12. IBC v Amarilla (2006)​ ​Airah

Facts​:

Issue​:

Ruling​:

Dispositive​:

13. Commissioner of Internal Revenue vs. Bank of the Philippine Islands​ ​Mikko
Facts​:

Issue​:

Ruling​:

Dispositive​:
 14. Cyanamid Philippines, Inc. vs. Court of Appeals​ ​Monique
Facts​:

Issue​:

Ruling​:

Dispositive​:

15. Manila Banking Corporation vs. Commissioner of Internal Revenue​ ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

16. CREBA v. Romulo​ ​Airah

Facts​:

Issue​:

Ruling​:

Dispositive​:

17. Commissioner of Internal Revenue vs. Court of Appeals (1998)​ ​Mikko

Facts​:

Issue​:

Ruling​:

Dispositive​:

18. Republic vs. Aquafresh Seafood, Inc.​ ​Monique

Facts​:
Issue​:

Ruling​:

Dispositive​:

19. Republic vs. Soriano​ ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

20. HSBC vs. CIR​ ​Airah

Facts​:

Issue​:

Ruling​:

Dispositive​:

21. CIR vs. La Tondeña Distillers, Inc. (LTDI [now Ginebra San Miguel])​ ​Mikko
Facts​:

Issue​:

Ruling​:

Dispositive​:

22. Reyes vs. NLRC​ ​Monique

Facts​:

Issue​:

Ruling​:
Dispositive​:

23. Far East Bank vs. CIR​ ​Gerard

Facts​:

Issue​:

Ruling​:

Dispositive​:

24. Ossorio Pension Foundation vs. CA​ ​Airah

Facts​:

Issue​:

Ruling​:

Dispositive​:

25. CIR vs. St. Luke's​ ​Mikko

Facts​:

Issue​:

Ruling​:

Dispositive​:

26. Agra vs. Commission on Audit​ ​Monique

Facts​:

Issue​:

Ruling​:

Dispositive​:
 27. PAGCOR v CIR (2017)​ ​Gerard
Facts​:

Issue​:

Ruling​:

Dispositive​:

VI. VAT
monique
1. Abakada guro party list vs ermita
FACTS:
ISSUE:
RULING:

2. Abakada Guro party list vs Hon. ermita

FACTS:
ISSUE:
RULING:

3. CIR vs Seagate Technology

FACTS:
ISSUE:
RULING:

4. CIR vs Benguet Corp

FACTS:
ISSUE:
RULING:

Mikko
5. Contex Corp vs CIR
Nature: The CTA had ordered the Commissioner of Internal Revenue (CIR) to refund
the sum of P683,061.90 to petitioner as erroneously paid input value-added tax (VAT)
or in the alternative, to issue a tax credit certificate for said amount. Petitioner also
assails
the appellate court’s Resolution, dated December 19, 2001, denying the motion for
reconsideration.

FACTS:
·​ ​Petitioner is a domestic corporation engaged in the business of manufacturing
hospital textiles and garments and other hospital supplies for export.
o​ ​ Its place of business is at the Subic Bay Freeport Zone (SBFZ).
o​ ​It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay
Freeport Enterprise.
·​ ​As an SBMA-registered firm, petitioner is exempt from all local and national internal
revenue taxes except for the preferential tax provided for in Section 12 (c) of Rep. Act
No. 7227.
·​ ​Petitioner also registered with the Bureau of Internal Revenue (BIR) as a
non-VAT taxpayer.
·​ ​From January 1, 1997 to December 31, 1998, petitioner purchased various supplies
and materials necessary in the conduct of its manufacturing business.
o​ ​The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased
items, which led the petitioner to pay input taxes in the amounts of P539,411.88 and
P504,057.49 for 1997 and 1998, respectively.
·​ ​Acting on the belief that it was exempt from all national and local taxes, including
VAT, pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund or
tax credit of the VAT it paid. Mr. Edilberto Carlos, revenue district officer of BIR RDO
No. 19, denied the first application letter.
·​ ​Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax
refund/credit, this time directly with Atty. Alberto Pagabao, the regional director of BIR
Revenue Region No. 4.
o​ ​The second letter sought a refund or issuance of a tax credit certificate in the amount
of P1,108,307.72, representing erroneously paid input VAT for the period January 1,
1997 to November 30, 1998.
·​ ​When no response was forthcoming from the BIR Regional Director, petitioner then
elevated the matter to the Court of Tax Appeals.
o​ ​ Petitioner stressed that Section 112(A) if read in relation to Section 106(A)(2)(a) of
the National Internal Revenue Code, as amended and Section 12(b) and (c) of Rep. Act
No. 7227 would show that it was not liable in any way for any value-added tax.
o​ ​Petitioner stressed that Section 112(A) if read in relation to Section 106(A)(2)(a) of
the National Internal Revenue Code, as amended and Section 12(b) and (c) of Rep. Act
No. 7227 would show that it was not liable in any way for any value-added tax.
·​ ​The CTA partially granted the petition.
o​ ​In granting a partial refund, the CTA ruled that petitioner misread Sections
106(A)(2)(a) and 112(A) of the Tax Code.
o​ ​The tax court stressed that these provisions apply only to those entities registered as
VAT taxpayers whose sales are zero-rated. Petitioner does not fall under this category,
since it is a non-VAT taxpayer as evidenced by the Certificate of Registration RDO
Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO No. 18 of
the Subic Bay Freeport Zone and thus it is exempt from VAT, pursuant to Rep. Act No.
7227, said the CTA.
o​ ​Nonetheless, the CTA held that the petitioner is exempt from the imposition of input
VAT on its purchases of supplies and materials. It pointed out that under Section 12(c)
of Rep. Act No. 7227 and the Implementing Rules and Regulations of the Bases
Conversion and Development Act of 1992, all that petitioner is required to pay as a
SBFZ registered enterprise is a 5% preferential tax.
o​ ​The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June
29, 1997 for being barred by the two-year prescriptive period under Section 229 of the
Tax Code. The tax court also limited the refund only to the input VAT paid by the
petitioner on the supplies and materials directly used by the petitioner in the
manufacture of its goods.
·​ ​Respondent CIR then filed a petition for review of the CTA decision by the Court of
Appeals.
o​ ​Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227
was limited only to direct taxes and not to indirect taxes such as the input component of
the VAT.
o​ ​The Commissioner pointed out that from its very nature, the value-added tax is a
burden passed on by a VAT registered person to the end users; hence, the direct
liability for the tax lies with the suppliers and not Contex.
·​ ​The CA ​reversed​ the decision of the CTA.
o​ ​In reversing the CTA, the Court of Appeals held that the exemption from duties and
taxes on the importation of raw materials, capital, and equipment of SBFZ-registered
enterprises under Rep. Act No. 7227 and its implementing rules covers only “the VAT
imposable under Section 107 of the [Tax Code], which is a direct liability of the importer,
and in no way includes the value-added tax of the seller exporter the burden of which
was passed on to the importer as an additional costs of the goods.”
o​ ​This was because the exemption granted by Rep. Act No. 7227 relates to the act of
importation and Section 107 of the Tax Code specifically imposes the VAT on
importations.
o​ ​The appellate court applied the principle that tax exemptions are strictly construed
against the taxpayer.
o​ ​The Court of Appeals pointed out that under the implementing rules of Rep. Act No.
7227, the exemption of SBFZ-registered enterprises from internal revenue taxes is
qualified as pertaining only to those for which they may be directly liable. It then stated
that apparently, the legislative intent behind Rep. Act No. 7227 was to grant exemptions
only to direct taxes, which SBFZ registered enterprise may be liable for and only in
connection with their importation of raw materials, capital, and equipment as well as the
sale of their goods and services.
·​ ​Petitioner timely moved for reconsideration of the Court of Appeals decision, but the
motion was denied.
·​ ​Hence, the instant petition.

ISSUE​: WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL
INTERNAL REVENUE TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS
THE VALUE ADDED TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT
ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND MATERIALS.

RULING: YES
·​ ​Petitioner argues that the appellate court’s restrictive interpretation of petitioner’s
VAT exemption as limited to those covered by Section 107 of the Tax Code is
erroneous and devoid of legal basis.
o​ ​It contends that the provisions of Rep. Act No. 7227 clearly and unambiguously
mandate that no local and national taxes shall be imposed upon SBFZregistered firms
and hence, said law should govern the case.
o​ ​Petitioner calls our attention to regulations issued by both the SBMA and BIR clearly
and categorically providing that the tax exemption provided for by Rep. Act No. 7227
includes exemption from the imposition of VAT on purchases of supplies and materials.
·​ ​Exemptions from VAT are granted by express provision of the Tax Code or special
laws. Under VAT, the transaction can have preferential treatment in the following ways:
o​ ​VAT Exemption.​ An 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.
o​ ​Zero-rated Sales.​ These 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.
·​ ​Under Zero-rating, all VAT is removed from the zerorated goods, activity or firm.
·​ ​In contrast, exemption only removes the VAT at the exempt stage, and it will actually
increase, rather than reduce the total taxes paid by the exempt firm’s business or
nonretail customers.
·​ ​It is for this reason that a sharp distinction must be made between zero-rating and
exemption in designating a value-added tax.
APPLICATION:
·​ ​Apropos, 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.
·​ ​On this point, 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.

ISSUE:​ Whether or not the petitioner may claim a refund on the Input VAT erroneously
passed on to it by its suppliers.

RULING: NO
·​ ​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
VATRegistered 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.
·​ ​Section 4.100-2 of BIR’s Revenue Regulations 7-95, as amended, or the
“​Consolidated Value-Added Tax Regulations​” provide:
o​ ​Sec. 4.100-2. ​Zero-rated Sales.​ ·A zero-rated sale by a VATregistered 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 following sales by VAT-registered persons shall be subject to 0%:
A.​ ​Export Sales
“Export Sales” shall mean
...
5.​ Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987, and other special laws,
e.g​. Republic Act No. 7227, otherwise known as the Bases Conversion and
Development Act of 1992.
...
C.​ Sales to persons or entities whose exemption under special laws, ​e.g. ​R.A. No. 7227
duly registered and accredited enterprises with Subic Bay Metropolitan Authority
(SBMA) and Clark Development Authority (CDA), R.A. No. 7916, Philippine Economic
Zone Authority (PEZA), or international agreements, ​e.g. A ​ sian Development Bank
(ADB), International Rice Research Institute (IRRI), ​etc​. to which the Philippines is a
signatory effectively subject such sales to zero-rate.”
·​ ​Since the transaction is deemed a zero-rated sale, 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.
·​ ​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 credit or
refund on the input tax previously paid as petitioner is an exempt VAT taxpayer.
·​ ​Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax
credit and accordingly refund the petitioner of the VAT erroneously passed on to the
latter.
·​ ​Accordingly, we find that the Court of Appeals did not commit any reversible error of
law in holding that petitioner’s VAT exemption under Rep. Act No. 7227 is limited to the
VAT on which it is directly liable as a seller and hence, it cannot claim any refund or
exemption for any input VAT it paid, if any, on its purchases of raw materials and
supplies.

DISPOSITION:​ WHEREFORE, the petition is DENIED for lack of merit. The Decision
dated September 3, 2001, of the Court of Appeals in CA-G.R. SP No. 62823, as well as
its Resolution of December 19, 2001 are AFFIRMED. No pronouncement as to costs.
SO ORDERED.
NOTES:
·​ ​At this juncture, it must be stressed that the VAT is an indirect tax. As such, the
amount of tax paid on the goods, properties or services bought, transferred, or leased
may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee
or lessee.
o​ ​Unlike a direct tax, such as the income tax, which primarily taxes an individual’s ability
to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on
consumption of goods, services, or certain transactions involving the same.
o​ ​The VAT, thus, forms a substantial portion of consumer expenditures.
·​ ​Further, in indirect taxation, there is a need to distinguish between the liability for the
tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be
shifted or passed on by the seller to the buyer.
o​ ​What is transferred in such instances is not the liability for the tax, but the tax burden.
In adding or including the VAT due to the selling price, the seller remains the person
primarily and legally liable for the payment of the tax.
o​ ​What is shifted only to the intermediate buyer and ultimately to the final purchaser is
the burden of the tax.
o​ ​Stated differently, a seller who is directly and legally liable for payment of an indirect
tax, such as the VAT on goods or services is not necessarily the person who ultimately
bears the burden of the same tax.
It is the final purchaser or consumer of such goods or services who, although not
directly and legally liable for the payment thereof, ultimately bears the burden of the tax.

6. CIR vs Cebu Toyo Corp

Facts:

● Respondent Cebu Toyo Corporation is a domestic corporation engaged in the

manufacture of lenses and various optical components used in television sets,
cameras, compact discs and other similar devices. Its principal office is located at
the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It is a
subsidiary of Toyo Lens Corporation, a non-resident corporation organized under
the laws of Japan.
○ Respondent is a zone export enterprise registered with the Philippine
Economic Zone Authority (PEZA). ​It is also registered with the Bureau of
Internal Revenue (BIR) as a VAT taxpayer.
● As an export enterprise, respondent sells 80% of its products to its mother
corporation, the Japan-based Toyo Lens Corporation, pursuant to an Agreement
of Offsetting. The rest are sold to various enterprises doing business in the
MEPZ.
● Inasmuch as both sales are considered export sales subject to Value-Added Tax
(VAT) at 0% rate under Section 106(A)(2)(a) of the National Internal Revenue
Code, as amended, ​respondent filed its quarterly VAT returns from April 1, 1996
to December 31, 1997 showing a total input VAT of P4,462,412.63.
● respondent filed with the Tax and Revenue Group of the One-Stop Inter-Agency
Tax Credit and Duty Drawback Center of the Department of Finance, an
application for tax credit/refund of VAT paid for the period April 1, 1996 to
December 31, 1997 amounting to P4,439,827.21 representing excess VAT input
payments.
● Respondent, however, did not bother to wait for the Resolution of its claim by the
CIR. Instead, on June 26, 1998, it filed a Petition for Review with the CTA to toll
the running of the two-year prescriptive period pursuant to Section 230 of the Tax
Code.
● The respondent posits that as a VAT-registered exporter of goods, it is subject to
VAT at the rate of 0% on its export sales that do not result in any output tax.
Hence, the unutilized VAT input taxes on its purchases of goods and services
related to such zero-rated activities are available as tax credits or refunds.
● The petitioners position is that respondent was not entitled to a refund or tax
credit since:
○ (1) it failed to show that the tax was erroneously or illegally collected;
○ (2) the taxes paid and collected are presumed to have been made in
accordance with law; and
○ (3) claims for refund are strictly construed against the claimant as these
partake of the nature of tax exemption.
● the CTA denied the petition for insufficiency of evidence.
○ The tax court sustained respondents argument that it was a
VAT-registered entity. It also found that the petition was timely, as it was
filed within the prescription period.
○ also ruled that the respondents sales to Toyo Lens Corporation and to
certain establishments in the Mactan Export Processing Zone were export
sales subject to VAT at 0% rate. It found that the input VAT covered by
respondents claim was not applied against any output VAT.
○ However, the tax court decreed that the petition should nonetheless be
denied because of the respondents failure to present documentary
evidence​ to show that there were foreign currency exchange proceeds
from its export sales. The CTA also observed that respondent failed to
submit the approval by BSP of its Agreement of Offsetting with Toyo Lens
Corporation and the certification of constructive inward remittance.
● respondent filed MR arguing that:
 ○ (1) proof of its inward remittance was not required by law;
○ (2) BSP and BIR regulations do not require BSP approval on its
Agreement of Offsetting nor do they require certification on the amount
constructively remitted;
○ (3) it was not legally required to prove foreign currency payments on the
remaining sales to MEPZ enterprises; and
○ (4) it had complied with the substantiation requirements under Section
106(A)(2)(a) of the Tax Code. Hence, it was entitled to a refund of
unutilized VAT input tax.
● TAX COURT PARTLY GRANTED the MR.
○ Respondent is hereby ordered to refund or to issue a tax credit certi to
petitioner
○ the tax court found that there was no need for BSP approval of the
Agreement of Offsetting since the same may be categorized as an
inter-company open account offset arrangement. Hence, the respondent
need not present proof of foreign currency exchange proceeds from its
sales to MEPZ enterprises pursuant to Section 106(A)(2)(a) of the Tax
Code.
○ However, the CTA stressed that respondent must still prove that there was
an actual offsetting of accounts to prove that constructive foreign currency
exchange proceeds were inwardly remitted as required under Section
106(A)(2)(a).
○ It found that only the amount of Y274,043,858.00 covering respondents
sales to Toyo Lens Corporation and purchases from said mother company
for the period August 7, 1996 to August 26, 1997 were actually offset
against respondents related accounts receivable and accounts payable as
shown by the Agreement for Offsetting dated August 30, 1997. Resort to
the respondents Accounts Receivable and Accounts Payable subsidiary
ledgers corroborated the amount.
○ The tax court also found that out of the total export sales for the period
April 1, 1996 to December 31, 1997 amounting to Y700,654,606.15,
respondents sales to MEPZ enterprises amounted only to
Y136,473,908.05 of said total. Thus, allocating the input taxes supported
by receipts to the export sales, the CTA determined that the refund/credit
amounted to only P2,158,714.46.
● Petitioner filed a ​MR​ on June 21, 2000 based on the following theories:
○ (1) that respondent being registered with the PEZA as an ecozone
enterprise is not subject to VAT pursuant to Sec. 24 of Rep. Act No. 7916;
and
 ○ (2) since respondents business is not subject to VAT, the capital goods it
purchased are considered not used in a VAT taxable business and
therefore is not entitled to a refund of input taxes.
● CTA denied MR.
○ grounds relied upon were only raised for the first time and
○ that Section 24 of Rep. Act No. 7916 was not applicable since respondent
has availed of the income tax holiday incentive under EO No. 226 or the
Omnibus Investment Code of 1987 pursuant to Section 23 of Rep. Act No.
7916.
○ The tax court pointed out that E.O. No. 226 granted PEZA-registered
enterprises an exemption from payment of income taxes for 4 or 6 years
depending on whether the registration was as a pioneer or as a
non-pioneer enterprise, but subject to other national taxes including VAT.
● The petitioner then filed a ​Petition for Review​ with the CA, praying for the
reversal of the CTA Resolutions and reiterating its claim that respondent is not
entitled to a refund of input taxes since it is VAT-exempt. CA decided in favor of
respondents.
○ found no reason to set aside the conclusions of the Court of Tax Appeals.
○ It agreed with the ruling of the tax court that respondent had two options
under Section 23 of Rep. Act No. 7916, namely:
■ (1) to avail of an income tax holiday under E.O. No. 226 and be
subject to VAT at the rate of 0%; or
■ (2) to avail of the 5% preferential tax under P.D. No. 66 and enjoy
VAT exemption.
■ Since respondent availed of the incentives under E.O. No. 226,
then the 0% VAT rate would be applicable to it and any unutilized
input VAT should be refunded to respondent upon proper
application with and substantiation by the BIR.
● Hence this petition
● CIR and the OSG argue that respondent Cebu Toyo Corporation, as a
PEZA-registered enterprise, is exempt from national and local taxes, including
VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus,
they contend that respondent Cebu Toyo Corporation is not entitled to any refund
or credit on input taxes it previously paid as provided under Section 4.103-1 of
Revenue Regulations No. 7-95, notwithstanding its registration as a VAT
taxpayer.
● The respondent counters that it availed of the income tax holiday under E.O. No.
226 for four years from August 7, 1995 making it exempt from income tax but not
from other taxes such as VAT.
 ○ According to respondent, its export sales are not exempt from VAT,
contrary to petitioners claim, but its export sales is subject to 0% VAT.
Moreover, it argues that it was able to establish through a report certified
by an independent CPA that the input taxes it incurred from April 1, 1996
to December 31, 1997 were directly attributable to its export sales. Since it
did not have any output tax against which said input taxes may be offset, it
had the option to file a claim for refund/tax credit of its unutilized input
taxes.

Issue: Whether or not respondent is subject to VAT at 0% rate and is entitled to a refund
or credit of the unutilized input taxes?
Ruling: YES.
● Petitioners contention that respondent is not entitled to refund for being exempt
from VAT is untenable.
● This argument turns a blind eye to the fiscal incentives granted to
PEZA-registered enterprises under Section 23 of Rep. Act No. 7916.
● Note that under said statute, the respondent had two options with respect to its
tax burden.
○ 1. 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
○ 2. 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.
○ Both the Court of Appeals and the Court of Tax Appeals found that
respondent availed of the income tax holiday for 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 10% or 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. 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. Thus, ​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​.
● It must be recalled that generally, sale of goods and supply of services performed
in the Philippines are taxable at the rate of 10%. However, export sales, or sales
outside the Philippines, shall be subject to value-added tax at 0% if made by a
VAT-registered person.
● Under the value-added tax 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. However, 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.
● In principle, the purpose of applying a 0% rate on a taxable transaction is to
exempt the transaction completely from VAT previously collected on inputs. It is
thus the only true way to ensure that goods are provided free of VAT. While the
zero rating and the exemption are computationally the same, they actually differ
in several aspects, to wit:
○ (a) A zero-rated sale is a taxable transaction but does not result in an
output tax while an exempted transaction is not subject to the output tax;
○ (b) The input VAT on the purchases of a VAT-registered person with
zero-rated sales may be allowed as tax credits or refunded while the seller
in an exempt transaction is not entitled to any input tax on his purchases
despite the issuance of a VAT invoice or receipt.
○ (c) Persons engaged in transactions which are zero-rated, being subject to
VAT, are required to register while registration is optional for VAT-exempt
persons.

Application:
In this case, it is undisputed that respondent is engaged in the export business and is
registered as a VAT taxpayer per Certificate of Registration of the BIR. Further, the
records show that the respondent is subject to VAT as it availed of the income tax
holiday under E.O. No. 226. Perforce, respondent is subject to VAT at 0% rate and is
entitled to a refund or credit of the unutilized input taxes, which the Court of Tax
Appeals computed at P2,158,714.46, but which we find after recomputation should be
P2,158,714.52.

7. CIR vs American Express

G.R. No. 152609 June 29, 2005
PANGANIBAN, ​J.:

FACTS:
·​ ​Respondent is a Philippine branch of American Express International, Inc., a
corporation duly organized and existing under and by virtue of the laws of the State of
Delaware, U.S.A., with office in the Philippines
o​ ​It is a servicing unit of American Express International, Inc. - Hongkong Branch
(Amex-HK) and is engaged primarily to ​facilitate the collections of Amex-HK
receivables from card members situated in the Philippines and payment to
service establishments in the Philippines.
·​ ​Amex Philippines registered itself with the Bureau of Internal Revenue (BIR)​ ​as a
value-added tax (VAT) taxpayer effective March 1988 and was issued VAT Registration
Certificate No. 088445 bearing VAT Registration No. 32A-3-004868.
·​ ​For the period January 1, 1997 to December 31, 1997, [respondent] filed with the
BIR its quarterly VAT
·​ ​"On April 13, 1999, [respondent] filed with the BIR a letter-request for the ​refund of
its 1997 excess input taxes in the amount of ₱3,751,067.04.
o​ ​amount was arrived at after deducting from its total input VAT paid of ₱3,763,060.43
its applied output VAT liabilities only for the third and fourth quarters of 1997 amounting
to ₱5,193.66 and ₱6,799.43, respectively.
· ​There being no immediate action on the part of the [petitioner], [respondent’s] petition was

filed on April 15, 1999.

·​ ​"In support of its Petition for Review, the following arguments were raised by [respondent]:
· ​Export sales by a VAT-registered person, the consideration for which is paid for in

acceptable foreign currency inwardly remitted to the Philippines and accounted for in
accordance with existing regulations of the Bangko Sentral ng Pilipinas, are subject to [VAT] at
zero percent (0%).
· ​According to [respondent], being a VAT-registered entity, it is subject to the VAT imposed

under Title IV of the Tax Code

·​ ​In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the
pertinent portion of which reads as follows:
o​ ​
as a VAT registered entity whose service is paid for in acceptable foreign currency
which is remitted inwardly to the Philippines and accounted for in accordance with the
rules and regulations of the Central [B]ank of the Philippines, your service income is
automatically zero rated effective January 1, 1998. [Section 102(a)(2) of the Tax Code
as amended].
o​ ​For this, there is no need to file an application for zero-rate.
·​ ​"[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and
Affirmative Defenses that:
o​ ​The claim for refund is subject to investigation by the Bureau of Internal Revenue;
o​ ​Taxes paid and collected are presumed to have been made in accordance with laws
and regulations, hence, not refundable.
o​ ​Claims for tax refund are construed strictly against the claimant as they partake of the
nature of tax exemption from tax and it is incumbent upon the [respondent] to prove that
it is entitled thereto under the law and he who claims exemption must be able to justify
his claim by the clearest grant of organic or statu[t]e law.
·​ ​From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta
rendered a decision​7​ in favor of the herein respondent holding that its services are
subject to zero-rate pursuant to Section 108(b) of the Tax Reform Act of 1997 and
Section 4.102-2 (b)(2) of Revenue Regulations 5-96.
·​ ​Ruling of the Court of Appeals
o​ ​In affirming the CTA, the CA held that respondent’s services fell under the first type
enumerated in Section 4.102-2(b)(2) of RR 7-95, as amended by RR 5-96.
o​ ​the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By
requiring that respondent’s services be consumed abroad in order to be zero-rated,
petitioner went beyond the sphere of interpretation and into that of legislation.
o​ ​Even granting that it is valid, the ruling cannot be given retroactive effect, for it will be
harsh and oppressive to respondent, which has already relied upon VAT Ruling No.
080-89 for zero rating.
·​ ​Hence, this Petition.

ISSUE: Whether or not the destination principle applies?

·​ ​No, this case falls squarely as one exception to the destination principle.
·​ ​The VAT is a tax on consumption expressed as a percentage of the value added to
goods or services purchased by the producer or taxpayer.
·​ ​As an indirect tax on services, its main object is the transaction itself or, more
concretely, the performance of all kinds of services conducted in the course of trade or
business in the Philippines.
·​ ​These services must be regularly conducted in this country; undertaken in pursuit of
a commercial or an economic activity; for a valuable consideration; and not exempt
under the Tax Code, other special laws, or any international agreement.
·​ ​As a general rule, the VAT system uses the destination principle as a basis for
the jurisdictional reach of the tax.
o​ ​Goods and services are taxed only in the country where they are consumed.
o​ ​Thus, exports are zero-rated, while imports are taxed.
·​ ​The law clearly provides for an exception to the destination principle;
o​ ​that is, for a zero percent VAT rate for services that are performed in the Philippines,
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the [BSP].
o​ ​Thus, for the supply of service to be zero-rated as an exception, the law merely
requires that ​first,​ the service be performed in the Philippines; ​second,​ the service fall
under any of the categories in Section 102(b) of the Tax Code; and, ​third​;,it be paid in
acceptable foreign currency accounted for in accordance with BSP rules and
regulations.
·​ ​The law neither makes a qualification nor adds a condition in determining the tax
situs of a
·​ ​zero-rated service.
·​ ​Under this criterion, the place where the service is rendered determines the
jurisdiction to impose the VAT.
·​ ​Performed in the Philippines, such service is necessarily subject to its jurisdiction,
for the State necessarily has to have a substantial connection to it, in order to enforce a
zero rate.
·​ ​The place of payment is immaterial; much less is the place where the output of the
service will be further or ultimately used.
APPLICATION:
·​ ​Indeed, these three requirements for exemption from the destination principle are
met by respondent.
·​ ​Its facilitation service is performed in the Philippines.
·​ ​It falls under the second category found in Section 102(b) of the Tax Code, because
it is a service other than "processing, manufacturing or repacking of goods" as
mentioned in the provision.
·​ ​Undisputed is the fact that such service meets the statutory condition that it be paid
in acceptable foreign currency duly accounted for in accordance with BSP rules.
·​ ​Thus, it should be zero-rated.

ISSUE: ​Whether or not the respondent’s income earned from parent company is
zero-rated?
RULING:
·​ ​Yes, respondent’s income earned is zero rated.
·​ ​Under the last paragraph quoted above, services performed by VAT-registered
persons in the Philippines (other than the processing, manufacturing or repacking of
goods for persons doing business outside the Philippines), when paid in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the
BSP, are zero-rated.
·​ ​Respondent is a VAT-registered person that facilitates the collection and payment of
·​ ​receivables belonging to its non-resident foreign client, for which it gets paid in
acceptable foreign currency inwardly remitted and accounted for in conformity with BSP
rules and regulations.
·​ ​Certainly, the service it renders in the Philippines is not in the same category as
processing, manufacturing or repacking of good and should, therefore, be zero-rated. In
reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the
income respondent earned from its parent company’s regional operating centers
(ROCs) was automatically zero-rated effective January 1, 1988.

DISPOSITIVE PORTION: ​WHEREFORE, the Petition is hereby ​DENIED​, and the

assailed Decision ​AFFIRMED​.​ No pronouncement as to costs.

NOTES:
·​ ​As a general rule, the value-added tax (VAT) system ​uses the destination
principle.
·​ ​However, our VAT law itself provides for a clear exception, under which the supply
of service shall be zero-rated when the following requirements are met:
o​ ​the service is performed in the Philippines;
o​ ​the service falls under any of the categories provided in Section 102(b) of the Tax
Code;
o​ ​it is paid for in acceptable foreign currency that is accounted for in accordance with
the regulations of the Bangko Sentral ng Pilipinas.
o​ ​Since respondent’s services meet these requirements, they are zero-rated.
Petitioner’s Revenue Regulations that alter or revoke the above requirements are ​ultra
vires a ​ nd invalid.

·​ ​‘​Section 102.(sic) Value-added tax on sale of services.​ - (​ a) ​Rate and base of tax.
-​ There shall be levied, assessed and collected, a value-added tax equivalent to 10%
percent of gross receipts derived by any person engaged in the sale of services. The
phrase "sale of services" means the performance of all kinds of services for others for a
fee, remuneration or consideration, including those performed or rendered by
construction and service contractors: stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of whether o[r] not the
performance thereof calls for the exercise or use of the physical or mental faculties:
Provided​ That the following services performed in the Philippines by VAT-registered
persons shall be subject to 0%​:
o​ ​(1) x x x
(2) ​Services other than those mentioned in the preceding subparagraph, the consideration is
paid for in acceptable foreign currency which is remitted inwardly to the Philippines and
accounted for in accordance with the rules and regulations of the BSP. x x x.​’

Airah
8. CIR vs Toshiba Information
FACTS:
·​ ​Respondent Toshiba was organized and established as a domestic corporation,
duly-registered with the Securities and Exchange Commission, with the primary purpose
of engaging in the business of manufacturing and exporting of electrical and mechanical
machinery, equipment, systems, accessories, parts, components, materials and goods
of all kinds, including, without limitation, to those relating to office automation and
information technology, and all types of computer hardware and software, such as HDD,
CD-ROM and personal computer printed circuit boards.
·​ ​It registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer and a
withholding agent.
·​ ​Toshiba filed its VAT returns for the first and second quarters of taxable year 1996,
reporting input VAT in the amount of P13,118,542.00 and P5,128,761.94, respectively,
or a total of P18,247,303.94. It alleged that the said input VAT was from its purchases of
capital goods and services which remained unutilized since it had not yet engaged in
any business activity or transaction for which it may be liable for any output VAT.
·​ ​Toshiba filed with DOF applications for tax credit/refund of its unutilized input VAT.
To toll the running of the two-year prescriptive period for judicially claiming a tax
credit/refund Toshiba, filed with the CTA a Petition for Review.
·​ ​CTA ordered CIR to refund, or in the alternative, to issue a tax credit certificate to
Toshiba in the amount of P16,188,045.44.
·​ ​CA AFFIRMED.
ISSUE:​ ​Whether or not Toshiba is entitled to the tax credit/refund of its input VAT
on its purchases of capital goods and services.
RULING: YES.
·​ ​An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and
services by persons from the Customs Territory to ECOZONE enterprises shall be
subject to VAT at zero percent (0%).
·​ ​It would seem that CIR failed to differentiate between VAT-exempt transactions from
VAT-exempt entities.
o​ ​An ​exempt transaction​, on the one hand, involves goods or services which, by their
nature, are specifically listed in and expressly exempted from the VAT under the Tax
Code, without regard to the tax status – VAT-exempt or not – of the party to the
transaction…
o​ ​An ​exempt party,​ on the other hand, is a person or entity granted VAT exemption
under the Tax Code, a special law or an international agreement to which the
Philippines is a signatory, and by virtue of which its taxable transactions become
exempt from VAT…
·​ ​CIR, bases its argument on VAT-exempt transactions. Since such transactions are
not subject to VAT, the sellers cannot pass on any output VAT to the purchasers of
goods, properties, or services, and they may not claim tax credit/refund of the input VAT
they had paid thereon.
·​ ​This cannot apply to transactions of Toshiba because although the transactions
covered by special laws may be exempt from VAT, those falling under Presidential
Decree No. 66 (EPZA) are not.
·​ ​The Philippine VAT system adheres to the ​Cross Border Doctrine,​ according
to which, 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. Hence,
actual export of goods and services from the Philippines to a foreign country
must be free of VAT; while, those destined for use or consumption within the
Philippines shall be imposed with ten percent (10%) VAT.
·​ ​No output VAT may be passed on to an ECOZONE enterprise since it is a
VAT-exempt entity. The VAT treatment of sales to it, however, varies depending on
whether the supplier from the Customs Territory is VAT-registered or not.
·​ ​Sales of goods, properties and services by a VAT-registered supplier from the
Customs Territory to an ECOZONE enterprise shall be treated as export sales. If such
sales are made by a VAT-registered supplier, they shall be subject to VAT at zero
percent (0%). In zero-rated transactions, the VAT-registered supplier shall not pass on
any output VAT to the ECOZONE enterprise, and at the same time, shall be entitled to
claim tax credit/refund of its input VAT attributable to such sales. Zero-rating of export
sales primarily intends to benefit the exporter (i.e., the supplier from the Customs
Territory), who is directly and legally liable for the VAT, making it internationally
competitive by allowing it to credit/refund the input VAT attributable to its export sales.
·​ ​Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or unregistered
supplier would only be exempt from VAT and the supplier shall not be able to claim
credit/refund of its input VAT.
·​ ​Even conceding, however, that respondent Toshiba, as a PEZA-registered
enterprise, is a VAT-exempt entity that could not have engaged in a VAT-taxable
business, this Court still believes, given the particular circumstances of the present
case, that it is entitled to a credit/refund of its input VAT.
·​ ​The sale of capital goods by suppliers from the Customs Territory to Toshiba took
place way before the issuance of RMC No. 74-99, and when the old rule was accepted
and implemented by no less than the BIR itself.
o​ ​Since Toshiba opted to avail itself of the income tax holiday under Exec. Order No.
226, as amended, then it was deemed subject to the ten percent (10%) VAT.
o​ ​It was very likely therefore that suppliers from the Customs Territory had passed on
output VAT to Toshiba, and the latter, thus, incurred input VAT.
·​ ​Accordingly, this Court gives due respect to and adopts herein the CTA’s findings
that the suppliers of capital goods from the Customs Territory did pass on output VAT to
Toshiba and the amount of input VAT which Toshiba could claim as credit/refund.

DISPOSITION:​ WHEREFORE, based on the foregoing, this Court AFFIRMS the

decision of the Court of Appeals in CA-G.R. SP. No. 59106, and the order of the CTA in
CTA Case No. 5593, ordering said petitioner CIR to refund or, in the alternative, to issue
a tax credit certificate to respondent Toshiba, in the amount of P16,188,045.44,
representing unutilized input VAT for the first and second quarters of 1996.

9. CIR vs Burmeister and Wain

NATURE: ​PETITION for review on certiorari of a decision of the Court of Appeals.
Carpio, J.
FACTS: ​The CTA summarized the facts, which the Court of Appeals adopted, as
follows:
·​ ​Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (Respondent)
· ​is a domestic corporation duly organized and existing under and by virtue of the laws
of the Philippines with principal address located at Daruma Building, Jose P. Laurel
Avenue, Lanang, Davao City
· ​a foreign consortium composed of BSWC-Denmark, Mitsui Engineering & Shipping,

Ltd. and Mitsui & Co., Ltd entered into a contract with NAPOCOR for the operation and
maintenance of NAPOCOR’s two power barges.
·​ ​The Consortium appointed BWSC-Denmark as its coordination manager.
· ​BWSC-Denmark established BWSC-Mindanao which subcontracted the actual

operation and maintenance of NAPOCOR’s two power barges as well as the

performance of other duties and acts which necessarily have to be done in the
Philippines
· ​NAPOCOR paid capacity and energy fees to the Consortium in a mixture of

currencies (Mark, Yen and Peso)

· ​The freely convertible non-Peso component is deposited directly to the Consortium’s
bank accounts in Denmark and Japan, while the Peso-denominated component is
deposited in a separate and special designated bank account in the Philippines.
· ​The Consortium pays BWSC-Mindanao in foreign currency inwardly remitted to the

Philippines through the banking system.

· ​Respondent sought a ruling from the BIR which responded that if [respondent]

chooses to register as a VAT person and the consideration for its services is paid for in
acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to
VAT at zero-rate.
·​ ​Respondent chose to register as a VAT taxpayer
· ​For the year 1996, respondent seasonably filed its quarterly VAT Returns reflecting,

among others, a total zerorated sales of P147,317,189.62 with VAT input taxes of
P3,361,174.14.
· ​On December 29, 1997, [respondent] availed of the Voluntary Assessment Program

(VAP) of the BIR.

· ​Revenue Regulations No. 5-96 provides in part thus: ​SECTIONS 4.102-2(b)(2) and

4.103-1(B)(c) of Revenue Regulations No. 795 are hereby amended to read as

follows: Section 4.102-2(b)(2)·”Services other than processing, manufacturing or
repacking for other persons doing business outside the Philippines for goods which are
subsequently exported, as well as services by a resident to a non-resident foreign client
such as project studies, information services, engineering and architectural designs and
other similar services, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP.” x
x x x x x x x x x.
· ​In conformity, respondent subjected its sale of services to the Consortium to the

10% VAT in the total amount of P103,558,338.11 representing April to December 1996
sales since said Revenue Regulations No. 5-96 became effective only on April 1996
· ​The sum of P43,893,951.07, representing January to March 1996 sales was

subjected to zero rate.

· ​Respondent filed its 1996 amended VAT return consolidating therein the VAT output
and input taxes for the four calendar quarters of 1996.
· ​It paid the amount of P6,994,659.67 through BIR’s collecting agent, PCIBank, as its

output tax liability for the year 1996

· ​On January 7,1999, respondent was able to secure VAT Ruling No. 003-99 from the
VAT Review Committee which reconfirmed BIR Ruling No. 023-95 “insofar as it held
that the services being rendered by BWSCMI is subject to VAT at zero percent (0%).”
· ​Respondent on April 22, 1999, filed a claim for the issuance of a tax credit

certificate. It believed that it erroneously paid the output VAT for 1996 due to its
availment of the Voluntary Assessment Program (VAP) of the BIR.
· ​On 27 December 1999, respondent filed a petition for review with the CTA in order

to toll the running of the two year prescriptive period under the Tax Code.
· ​CTA ​ordered petitioner to issue a tax credit certificate for P6,994,659.67 in favor of

respondent.
·​ ​Petitioner filed a petition for review with CA
·​ ​CA​ dismissed the petition for lack of merit and affirmed CTA decision
·​ ​Hence this petition
ISSUE: ​Whether respondent is entitled to the refund of P6,994,659.67 as erroneously
paid output VAT for the year 1996
RULING: PARTIALLY. ​Respondent is entitled to the refund but only for the period
covered prior the filing of CIR’s Answer in the CTA.
· ​The Tax Code not only requires that the services be other than “processing,

manufacturing or repacking of goods” and that payment for such services be in

acceptable foreign currency accounted for in accordance with BSP rules. ​Another
essential condition for qualification to zero-rating under Section 102(b)(2) is that
the recipient of such services is doing business outside the Philippines. While this
requirement is not expressly stated in the second paragraph of Section 102(b), this is
clearly provided in the first paragraph of Section 102(b) where the listed services must
be ​“for other persons doing business outside the Philippines.” The ​phrase “for other
persons doing business outside the Philippines” ​not ​only refers to the services
enumerated in the first paragraph of Section 102(b), but ​also pertains to the general
term “services” appearing in the second paragraph of Section 102(b). In short,
services other than processing, manufacturing, or repacking of goods must likewise be
performed for persons doing business outside the Philippines.
· ​When Section 102(b)(2) stipulates payment in “acceptable foreign currency” under

BSP rules, the law clearly envisions the ​payer-recipient of services to be doing
business ​outside the Philippines. Only those not doing business in the Philippines
can be required under BSP rules to pay in acceptable foreign currency for their
purchase of goods or services from the Philippines. In a domestic transaction, where
the provider and recipient of services are both doing business in the Philippines,
the BSP cannot require any party to make payment in foreign currency​. Services
covered by Section 102(b) (1) and (2) are in the nature of export sales since the
payer-recipient of services is doing business outside the Philippines. Under BSP rules,
the proceeds of export sales must be reported to the Bangko Sentral ng Pilipinas.
· ​Thus, there is reason to require the provider of services under Section 102(b) (1)

and (2) to account for the foreign currency proceeds to the BSP. T​he same rationale
does not apply if the provider and recipient of the services are both doing
business in the Philippines since their transaction is not in the nature of an export
sale even if payment is denominated in foreign currency.
· ​APPLICATION: Respondent, as subcontractor of the Consortium, operates and

maintains NAPOCOR’s power barges in the Philippines. NAPOCOR pays the

Consortium, through its non-resident partners, partly in foreign currency outwardly
remitted. In turn, the Consortium pays respondent also in foreign currency inwardly
remitted and accounted for in accordance with BSP rules. ​This payment scheme does
not entitle respondent to 0% VAT.
· ​As the Court held in ​Commissioner of Internal Revenue v. American Express

International, Inc. (Philippine Branch), 462 SCRA 197 (2005), the ​place of payment is
immaterial, much less is the place where the output of the service is ultimately used​.
An essential condition for entitlement to 0% VAT under Section 102(b)(1) and (2) ​is
that the recipient of the services is a person doing business outside the
Philippines.
· ​In this case, the recipient of the services is the Consortium, which is doing business

not outside, but within the Philippines because it has a 15-year contract to operate and
maintain NAPOCOR’s two 100-megawatt power barges in Mindanao.
· ​The Court recognizes the rule that the VAT system generally follows the

“destination principle” (exports are zero-rated whereas imports are taxed). However,
as the Court stated in American Express, there is an ​exception to this rule. This
exception ​refers to the 0% VAT on services enumerated in Section 102 and
performed in the Philippines. For services covered by Section 102(b)(1) and (2), the
recipient of the services must be a person doing business outside the Philippines. Thus,
to be exempt from the destination principle under Section 102(b)(1) and (2), ​the
services must be (a) performed in the Philippines; (b) for a person doing business
outside the Philippines; and (c) paid in acceptable foreign currency accounted for in
accordance with BSP rules.
· ​In seeking a refund of its excess output tax, respondent relied on VAT Ruling No.

003-99, which reconfirmed BIR Ruling No. 023-95 “insofar as it held that the services
being rendered by BWSCMI is subject to VAT at zero percent (0%).” ​Respondent’s
reliance on these BIR rulings binds petitioner. Petitioner’s filing of his Answer before
the CTA challenging respondent’s claim for refund effectively serves as a revocation of
VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, ​such revocation cannot
be given retroactive effect since it will prejudice respondent. Changing respondent’s
status will deprive respondent of a refund of a substantial amount representing excess
output tax. ​Section 246 of the Tax Code provides that any revocation of a ruling by the
Commissioner of Internal Revenue shall not be given retroactive application if the
revocation will prejudice the taxpayer. Further, ​there is no showing of the existence
of any of the exceptions enumerated in Section 246 of the Tax Code for the
retroactive application of such revocation.

DISPOSITIVE: ​WHEREFORE, the Court DENIES the petition. SO ORDERED.

NOTES:
· ​Section 102(b) of the Tax Code​, the applicable provision in 1996 when respondent

rendered the services and paid the VAT in question, enumerates which services are
zerorated, thus: (b) Transactions subject to zero-rate. – The following services
performed in the Philippines by VATregistered persons shall be subject to 0%:
1. ​Processing, manufacturing or repacking goods ​for other persons doing business
outside the Philippines which goods are subsequently exported, where the services
are paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2. ​Services other than those mentioned in the preceding sub-paragraph​, the

consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
3. ​Services rendered to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory effectively subjects the

supply of such services to zero rate;
4.​ ​Services rendered to vessels engaged exclusively in international shipping; and
5. ​Services performed by subcontractors and/or contractors in processing, converting,
or manufacturing goods for an enterprise whose export sales exceed seventy percent
(70%) of total annual production.
· ​Under the value-added tax 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. In principle, the purpose of applying a
zero percent (0%) rate on a taxable transaction is to exempt the transaction completely
from VAT previously collected on inputs. (Commissioner of Internal Revenue vs. Cebu
Toyo Corporation, 451 SCRA 447 [2005])
The VAT is a tax on spending or consumption·it is levied on the sale, barter, exchange
or lease of goods or properties and services. Being an indirect tax on expenditure, the
seller of goods or services may pass on the amount of tax paid to the buyer. (Abakada
Guro Party List vs. Ermita, 469 SCRA 1 [2005])

10. CIR vs Magsaysay Lines Inc.

G.R. No. 146984 July 28, 2006

FACTS:

• ​Pursuant to a government program of privatization, NDC decided to sell to private

enterprise all of its shares in its wholly-owned subsidiary the National Marine
Corporation (NMC).
 • ​The NDC decided to sell in one lot its NMC shares and five (5) of its ships,
which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.

• ​The vessels were constructed for the NDC between 1981 and 1984, then
initially leased to Luzon Stevedoring Company, also its wholly-owned
subsidiary. Subsequently, the vessels were transferred and leased, on a
bareboat basis, to the NMC.

• ​The NMC shares and the vessels were offered for public bidding. Among the
stipulated terms and conditions for the public auction was that the winning bidder
was to pay "a value added tax of 10% on the value of the vessels.”

• ​On 3 June 1988, Magsaysay Lines offered to buy the shares and the vessels for
P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new
company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM
Limited of the Marden Group based in Hongkong (collectively, private respondents).

•​ T
​ he bid was approved and a Notice of Award was issued to Magsaysay Lines.

• ​On 28 September 1988, the implementing Contract of Sale was executed between
NDC, on one hand, and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on
the other.

• ​By this time, a formal request for a ruling on whether or not the sale of the vessels
was subject to VAT had already been filed with the BIR by the law firm of Sycip
Salazar Hernandez & Gatmaitan, presumably in behalf of private respondents.

• ​Thus, the parties agreed that should no favorable ruling be received from the BIR,
NDC was authorized to draw on the Letter of Credit upon written demand the
amount needed for the payment of the VAT on the stipulated due date, 20
December 1988.

• ​In January of 1989, private respondents through counsel received VAT Ruling No.
568-88 dated 14 December 1988 from the BIR, holding that the sale of the vessels
was subject to the 10% VAT.

• ​The ruling cited the fact that NDC was a VAT-registered enterprise, and thus
its "transactions incident to its normal VAT registered activity of leasing out
 personal property including sale of its own assets that are movable, tangible
objects which are appropriable or transferable are subject to the 10% [VAT]."

• ​Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as
well as VAT Ruling No. 395-88 (dated 18 August 1988), which made a similar ruling
on the sale of the same vessels in response to an inquiry from the Chairman of the
Senate Blue Ribbon Committee.

• ​Their motion was denied when the BIR issued VAT Ruling Nos. 007-89 dated 24
February 1989, reiterating the earlier VAT rulings.

• ​At this point, NDC drew on the Letter of Credit to pay for the VAT, and the amount of
P15,120,000.00 in taxes was paid on 16 March 1989.

• ​On 10 April 1989, private respondents filed an Appeal and Petition for Refund with
the CTA, followed by a Supplemental Petition for Review. They prayed for the
reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well as the refund of the
VAT payment made amounting to P15,120,000.00.

•​ ​ The Commissioner of Internal Revenue (CIR) opposed the petition:

• ​first arguing that private respondents were not the real parties in interest as
they were not the transferors or sellers as contemplated in Sections 99 and
100 of the then Tax Code.

• also squarely defended the VAT rulings holding the sale of the vessels liable
for VAT, especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No.
5-87), which provided that "[VAT] is imposed on any sale or transactions
‘deemed sale’ of taxable goods (including capital goods, irrespective of the
date of acquisition)."

• ​The CIR argued that the sale of the vessels were among those transactions
"deemed sale," as enumerated in Section 4 of R.R. No. 5-87. It seems that the
CIR particularly emphasized Section 4(E)(i) of the Regulation, which classified
"change of ownership of business" as a circumstance that gave rise to a
transaction "deemed sale."

•​ T
​ he CTA rejected the CIR’s arguments and granted the petition.
 • ​The CTA ruled that the sale of a vessel was an "isolated transaction," not done
in the ordinary course of NDC’s business, and was thus not subject to VAT,
which under Section 99 of the Tax Code, was applied only to sales ​in the
course of trade or business​.

• The CTA further held that the sale of the vessels could not be "deemed sale,"
and thus subject to VAT, as the transaction did not fall under the enumeration
of transactions deemed sale as listed either in Section 100(b) of the Tax Code,
or Section 4 of R.R. No. 5-87.

• ​Finally, the CTA ruled that any case of doubt should be resolved in favor of
private respondents since Section 99 of the Tax Code which implemented VAT
is not an exemption provision, but a classification provision which warranted
the resolution of doubts in favor of the taxpayer.

ISSUE:

Whether the sale by the National Development Company(NDC) of five (5) of its vessels
to the private respondents is subject to value-added tax (VAT) under the National
Internal Revenue Code of 1986 (Tax Code) then prevailing at the time of the sale.

RULING: ​NO​. The sale of the vessels was not in the ordinary course of trade or
business of NDC was appreciated by both the CTA and the Court of Appeals, the latter
doing so even in its first decision which it eventually reconsidered. We cite with approval
the CTA’s explanation on this point:

• ​In ​Imperial v. Collector of Internal Revenue​, G.R. No. L-7924, September 30,
1955 (97 Phil. 992), the term "carrying on business" does not mean the performance
of a single disconnected act, but means conducting, prosecuting and continuing
business by performing progressively all the acts normally incident thereof; while
"​doing business​" conveys the idea of business being done, not from time to time,
but all the time. ”​Course of business​" is what is usually done in the management of
trade or business.

• ​What is clear therefore, based on the aforecited jurisprudence, is that "course of

business" or "doing business" connotes regularity of activity. In the instant case, the
sale was an isolated transaction. The sale which was involuntary and made pursuant
to the declared policy of Government for privatization could no longer be repeated or
 carried on with regularity. It should be emphasized that the normal VAT-registered
activity of NDC is leasing personal property.​21

• ​Any sale, barter or exchange of goods or services ​not in the course of trade or
business​ is not subject to VAT.

•​ A
​ brief reiteration of the basic principles governing VAT is in order:

• ​VAT is ultimately a tax on consumption, even though it is assessed on many levels

of transactions on the basis of a fixed percentage.​15 It is the end user of consumer
goods or services which ultimately shoulders the tax, as the liability therefrom is
passed on to the end users by the providers of these goods or services​16 who in
turn may credit their own VAT liability (or input VAT) from the VAT payments they
receive from the final consumer (or output VAT).​17 The final purchase by the end
consumer represents the final link in a production chain that itself involves several
transactions and several acts of consumption. The VAT system assures fiscal
adequacy through the collection of taxes on every level of consumption,​18 yet
assuages the manufacturers or providers of goods and services by enabling them to
pass on their respective VAT liabilities to the next link of the chain until finally the
end consumer shoulders the entire tax liability.

• ​Yet VAT is not a singular-minded tax on every transactional level. Its assessment
bears direct relevance to the taxpayer’s role or link in the production chain. Hence,
as affirmed by Section 99 of the Tax Code and its subsequent incarnations,​19 the
tax is levied only on the sale, barter or exchange of goods or services by persons
who engage in such activities, ​in the course of trade or business​.

• ​These transactions outside the course of trade or business may invariably contribute
to the production chain, but they do so only as a matter of accident or incident. As
the sales of goods or services do not occur within the course of trade or business,
the providers of such goods or services would hardly, if at all, have the opportunity to
appropriately credit any VAT liability as against their own accumulated VAT
collections since the accumulation of output VAT arises in the first place only
through the ordinary course of trade or business.

• ​This finding is confirmed by the Revised Charter of the NDC which bears no
indication that the NDC was created for the primary purpose of selling real property.

Important Notes:
 • ​Section 100 of the Tax Code​, which is implemented by Section 4(E)(i) of R.R. No.
5-87 now relied upon by the CIR, is captioned "Value-added tax on sale of goods,"
and it expressly states that "[t]here shall be levied, assessed and collected on every
sale, barter or exchange of goods, a value added tax x x x." Section 100 should be
read in light of Section 99, which lays down the general rule on which persons are
liable for VAT in the first place and on what transaction if at all. It may even be noted
that Section 99 is the very first provision in Title IV of the Tax Code, the Title that
covers VAT in the law. Before any portion of Section 100, or the rest of the law for
that matter, may be applied in order to subject a transaction to VAT, it must first be
satisfied that the taxpayer and transaction involved is liable for VAT in the first place
under Section 99.

•​ A
​ PPLICATION:

• ​In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find
application in this case, the Court finds the discussions offered on this point by the
CTA and the Court of Appeals (in its subsequent Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed
sale those involving "change of ownership of business."

• ​However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the Tax Code,
clarifies that such "change of ownership" is only an attending circumstance to
"retirement from or cessation of business[, ] with respect to all goods on hand [as] of
the date of such retirement or cessation."​25

• ​Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the ​"change of
ownership of business" as only a "circumstance" that attends those
transactions "deemed sale," which are otherwise stated in the same section.​26

WHEREFORE, the petition is DENIED. No costs. SO ORDERED.

11. CIR v Gotamco (1987) - ​Monique

FACTS: ​The World Health Organization (WHO) constructed a building in Manila with
respondent John Gotamco & Sons Inc. as contractor. It entered into an agreement with
the Government called “Host Agreement” that it may import into the country materials
and fixtures required for the construction free from all duties and taxes. In May 1958,
the BIR rendered an opinion that the gross receipts derived by contractors from their
contracts with the WHO for the construction of its new building, are exempt from tax in
accordance with the Host Agreement. On June 3, 1958, the Commissioner of Internal
Revenue said that the 3% contractor's tax is not a direct nor an indirect tax on the WHO,
but a tax that is primarily due from the contractor, it is not covered by the Host
Agreement.'' The CIR demanded from Gotamco payment of P16,970.40, representing
the 3% contractor's tax plus surcharges on the gross receipts. Respondent Gotamco
appealed to the Court of Tax Appeals, which reversed the Commissioner's decision.
Hence, the present petition.

ISSUE: ​Is respondent exempted from the 3% contractor’s tax in accordance with the
Host Agreement?

RULING: Yes. ​The Host Agreement, in specifically exempting the WHO from "indirect
taxes," contemplates taxes which, although not imposed upon or paid by the
Organization directly, form part of the price paid or to be paid by it. This is made clear in
Section 12 of the Host Agreement. The provision, although referring only to purchases
made by the WHO, elucidates the clear intention of the Agreement to exempt the WHO
from "indirect" taxation. The certification issued by the WHO, dated January 20, 1960,
sought exemption of the contractor, Gotamco, from any taxes in connection with the
construction of the WHO office building. The 3% contractor's tax would be within this
category and should be viewed as a form of an "indirect tax" on the Organization, as the
payment thereof or its inclusion in the bid price would have meant an increase in the
construction cost of the building.

12. PSALM vs CIR - ​Gerard

FACTS: Petitioner Power Sector Assets and Liabilities Management Corporation

(PSALM) is a government-owned and controlled corporation created under Republic Act
No. 9136 (RA 9136), also known as the Electric Power Industry Reform Act of 2001
(EPIRA). Section 50 of RA 9136 states that the principal purpose of PSALM is to
manage the orderly sale, disposition and privatization of the National Power Corporation
(NPC) generation assets, real estate and other disposable assets, and Independent
Power Producer (IPP) contracts with the objective of liquidating all NPC financial
obligations and stranded contract costs in an optional manner.
PSALM conducted public biddings for the privatization of the
Pantabangan-Masiway Hydroelectric Power Plant and Magat Hydroelectric Power
Plant. First Gen Hyrdropower Corporation with its $126 Million bid and SN Aboitiz
Power Corporation with its $530 Million bid were the winning bidders for the
Pantabangan-Masiway Plant and Magat Plant, respectively.NPC received a letter from
the Bureau of Internal Revenue demanding immediate payment of P3,813,080,472
deficiency value-added tax for the sale of the Pantabangan-Masiway Plant and Magat
Plant. The NPC indorsed BIR’s letter to PSALM.The BIR, NPC and PSALM executed a
Memorandum of Agreement.In compliance with the MOA, PSALM remitted under
protest to the BIR the amount of P3,813,080,472, representing the total basic VAT due.
PSALM filed with the Department of Justice (DOJ) a petition for the adjudication of the
dispute with the BIR to resolve the issue of whether the sale of the power plants should
be subject to VAT. The DOJ ruled in favor of PSALM.The DOJ denied BIR’s Motion for
Reconsideration.The BIR Commissioner filed with the Court of Appeals a petition for
certiorari. The Court of Appeals dismissed the petition. Upon motion for reconsideration,
the Court of Appeals reinstated the petition.
PSALM paid under protest to the BIR and moved for reconsideration, which the Court of
Appeals denied. Hence, this petition.

ISSUE: whether the sale of the Pantabangan-Masiway and Magat Power Plants by
petitioner PSALM to private entities is subject to VAT.

HELD​: No. PSALM is not a successor-in-interest of NPC. Under its charter, NPC is
mandated to “undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis. With the passage of the EPIRA
law, which restructured the electric power industry into generation, transmission
distribution, supply sectors, the NPC is now primarily mandated to perform missionary
electrification function through the Small Power Utilities Group (SPUG) and is
responsible for providing power generation and associated power delivery systems in
areas that are not connected to the transmission system. On the other hand, PSALM, a
government-owned and controlled corporation, was created under the EPIRA law to
manage the orderly sale and privatization of NPC assets with the objective of liquidating
all of NPC’s financial obligations in an optimal manner. Clearly, NPC and PSALM have
different functions. Since PSALM is not a successor-in-interest of NPC, the repeal by
RA 9337 of NPC’s VAT exemption does not affect PSALM.
Even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power
plants is not “in the course of trade or business” as contemplated under Section 105 of
the NIRC, and thus, not subject to VAT. The sale of the power plants is not in pursuit of
a commercial or economic activity but a governmental function mandated by law to
privatize NPC generation assets. PSALM was created primarily to liquidate all NPC
financial obligations and stranded contract costs in an optimal manner. The purpose
and objective of PSALM are explicitly stated in Section 50 of the EPIRA law.
Similarly, the sale of the power plants in this case is not subject to VAT since the sale
was made pursuant to PSALM’s mandate to privatize NPC assets, and was not
undertaken in the course of trade or business. In selling the power plants, PSALM was
merely exercising a governmental function for which it was created under the EPIRA
law.

13. Mindanao II Geothermal Partnership vs. CIR (2013) - ​Airah

Relevant ​doctrine​: The sale of a VAT taxpayer (engaged in catering business) of its
delivery van or vehicle, while an isolated event, is considered an incidental transaction
in the course of trade or business. In the course of its business, MKI bought and
eventually sold its delivery van. Prior to the sale, the van was part of MKI’s property,
plant, and equipment.

FACTS: ​Mindanao I and II (Mindanao) are value-added taxpayers, and Block Power
Production Facilities accredited by the Department of Energy. They had a
Build-Operate-Transfer contract with the Philippine National Oil Corporation–Energy
Development Company (PNOC-EDC), whereby Mindanao converts steam supplied to it
by PNOC-EDC into electricity, and then delivers the electricity to the National Power
Corporation (NPC) in behalf of PNOC-EDC.
The Electric Power Industry Reform Act of 2000 (EPIRA, RA 9136), amended the Tax
Reform Act of 1997 (RA 8424), when it decreed that sales of power by generation
companies shall be subjected to a zero rate of VAT. Pursuant to EPIRA, Mindanao I
and II filed their claims for the issuance of tax credit certificates on unutilized or excess
input taxes from their sales of generated power and delivery of electric capacity and
energy to NPC.
The CTA En Banc denied Mindanao II’s claims for refund tax credit for the first and
second quarters of 2003, and Mindanao I’s claims for refund/tax credit for the first,
second, third, and fourth quarters of 2003, for being filed out of time.

CTA (En Banc):

Mindanao II’s judicial claims were filed beyond the period allowed in Sec. 112(A), by
which the reckoning of the two-year prescriptive period for filing the application for
refund or credit of input VAT attributable to zero-rated sales or effectively zero-rated
sales shall be counted from the close of the taxable quarter when the sales were made
(regardless of whether the tax was actually paid), according to ​CIR v. Mirant Pagbilao
Corporation (Mirant)​. Also, the sale of the fully-depreciated Nissan Patrol is incidental
to Mindanao II’s VAT zero-rated transactions and is VATable pursuant to Sec. 105.
Mindanao I’s claims for the first, second, third and fourth quarters of 2003 were filed out
of time. Section 229 is inapplicable in light of Mirant. Moreover, the procedure
prescribed under Section 112(C) should be followed first before the CTA En Banc can
act on Mindanao I’s claim.

Mindanao I and II went up to the Supreme Court arguing that their claims were timely
filed pursuant to the case of Atlas, which was then the controlling ruling at the time of
the filing. The Mirant case, which uses the close of the taxable quarter when the sales
were made as the reckoning date in counting the two-year prescriptive period, cannot
be applied retroactively to their prejudice.

ISSUE #1: ​Whether the reckoning date for counting the two-year prescriptive period in
Section 112 should be counted from the end of the taxable quarter when the sales were
made (Mirant) or the date of filing the return (Atlas)?

RULING: ​Neither Atlas nor Mirant applies, because when Mindanao II and Mindanao I
filed their respective administrative and judicial claims in 2005, neither case had been
promulgated. Atlas was promulgated on 8 June 2007, Mirant on 12 September 2008.
Besides, Atlas merely stated that the two-year prescriptive period should be counted
from the date of payment of the output VAT, not from the close of the taxable quarter
when the sales involving the input VAT were made. The Atlas doctrine did not interpret,
expressly or impliedly, the 120+30 day periods.

Prescriptive Period for the Filing of Administrative Claims

Section 112(A) of the 1997 Tax Code was the applicable law at the time of filing of the
claims in issue, therefore the claims needed to have been filed within two (2) years after
the close of the taxable quarter when the sales were made. Mindanao I and II’s
administrative claims for the first quarter of 2003 had prescribed, but their claims for the
second, third and fourth quarters of 2003 were filed on time.

Prescriptive Period for the Filing of Judicial Claims

In determining whether the claims for the second, third and fourth quarters of 2003 had
been properly appealed, there is still see no need to refer to either Atlas or Mirant, or
even to Sec. 229. The second paragraph of Sect. 112(C) is clear that the taxpayer can
appeal to the CTA “​within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty day-period.”
The 120+30 day periods are mandatory and jurisdictional. The taxpayer cannot simply
file a petition with the CTA without waiting for the Commissioner’s decision within the
120-day period, because otherwise there would be no “decision” or “deemed a denial”
decision for the CTA to review. Moreover, Sec. 112(C) expressly grants a 30-day period
to appeal to the CTA, and this period need not necessarily fall within the two-year
prescriptive period, as long as the administrative claim is filed within such time. The said
prescriptive period does not refer to the filing of the judicial claim with the CTA, but to
the administrative claim with the Commissioner.

San Roque: Recognition of BIR Ruling No. DA-489-03

BIR Ruling No. DA-489-03 provided that the “taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief with the CTA.” In the
consolidated cases of ​CIR v. San Roque​, however, the Supreme Court En Banc held
that the taxpayer cannot simply file a petition with the CTA without waiting for the
Commissioner’s decision within the 120-day jurisdictional period. Notwithstanding, the
Court also held in San Roque that BIR Ruling No. DA-489-03 constitutes equitable
estoppel in favor of taxpayers. Being a general interpretative rule, it can be relied on by
all taxpayers from the time of its issuance on 10 December 2003 up to its reversal by
the Court in ​Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi) on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional.”

APPLICATION: ​Mindanao II filed its administrative claims for the second, third, and
fourth quarters of 2003 on 13 April 2005. Counting 120 days after filing of the
administrative claim (11 August 2005) and 30 days after the CIR’s denial by inaction,
the last day for filing a judicial claim with the CTA for the second, third, and fourth
quarters of 2003 was on 12 September 2005. However, the judicial claim could not be
filed earlier than 11 August 2005, which was the expiration of the 120-day period for the
Commissioner to act.
Mindanao II filed its judicial claim for the second quarter before the expiration of the
120-day period; it was thus prematurely filed. However, pursuant to San Roque, the
claim qualifies under the exception to the strict application of the 120+30 day periods.
Its judicial claims for the third quarter and fourth quarter of 2003 were filed on time.
Mindanao I filed its administrative claims for the second, third, and fourth quarters of
2003 on 4 April 2005. Counting 120 days after filing of the administrative claim with the
CIR (2 August 2005) and 30 days after the CIR’s denial by inaction, the last day for filing
a judicial claim was on 1 September 2005. However, the judicial claim cannot be filed
earlier than 2 August 2005, which is the expiration of the 120-day period for the
Commissioner to act on the claim. Mindanao I prematurely filed its judicial claim for the
second quarter of 2003 but claim qualifies under the exception in San Roque. Its judicial
claims for the third and fourth quarters of 2003, however, were filed after the
prescriptive period.

ISSUE #2: ​WON the sale of the Nissan Patrol is subject to VAT?

RULING: ​Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an
incidental transaction in the course of its business; hence, it is an isolated transaction
that should not have been subject to 10% VAT.

Section 105 of the 1997 Tax Code does not support Mindanao II’s position:
SEC. 105. Persons Liable. ​- Any person who, in the course of trade or business, sells
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to
108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of goods, properties or services at
the time of the effectivity of Republic Act No. 7716.

The phrase "in the course of trade or business" means the regular conduct or pursuit of
a commercial or an economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a nonstock, nonprofit
private organization (irrespective of the disposition of its net income and whether or not
it sells exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
rendered in the course of trade or business. (Emphasis supplied)

Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc.

(Magsaysay) and Imperial v. Collector of Internal Revenue (Imperial) to justify its
position. Magsaysay, decided under the NIRC of 1986, involved the sale of vessels of
the National Development Company (NDC) to Magsaysay Lines, Inc. We ruled that the
sale of vessels was not in the course of NDC’s trade or business as it was involuntary
and made pursuant to the Government’s policy for privatization. Magsaysay, in quoting
from the CTA’s decision, imputed upon Imperial the definition of "carrying on business."
Imperial, however, is an unreported case that merely stated that "‘to engage’ is to
embark in a business or to employ oneself therein."
Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction.
However, it does not follow that an isolated transaction cannot be an incidental
transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the
1997 Tax Code would show that a transaction "in the course of trade or business"
includes "transactions incidental thereto."

Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into

electricity and to deliver the electricity to NPC. In the course of its business,
Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the
Nissan Patrol was part of Mindanao II’s property, plant, and equipment. Therefore,
the sale of the Nissan Patrol is an incidental transaction made in the course of
Mindanao II’s business which should be liable for VAT.

14.Commissioner of Internal Revenue vs. Manila Mining Corporation - ​Mikko

Facts:
· ​Respondent, a mining corporation is registered with the (BIR) as a VAT-registered

enterprise
·​ ​In 1991, respondents sales of gold to the Central Bank amounted to P200,832,364.70
· ​On April 22, 1991, July 23, 1991, October 21, 1991 and January 20, 1992, it filed its VAT

Returns for the 1st, 2nd, 3rd and 4th quarters of 1991, respectively, with the BIR
· ​Respondent, relying on a letter dated October 10, 1988 from then BIR Deputy

Commissioner Victor Deoferio that:

o ​xxx under Sec. 2 of E.O. 581 as amended, gold sold to the Central Bank is considered an
export sale which under Section 100(a)(1) of the NIRC, as amended by E.O. 273, is subject to
zero-rated if such sale is made by a VAT-registered person
· ​Respondent filed on April 7, 1992 with the Commissioner of Internal Revenue (CIR), an

application for tax refund/credit of the input VAT it paid from July 1- December 31, 1999 in the
amount of P8,173,789.60
· ​Petitioner subsequently filed on March 5, 1991 another application for tax refund/credit of

input VAT it paid the amount of P5,683,035.04 from January 1 June 30, 1991.
· ​As the CIR failed to act upon respondents application within sixty (60) days from the dates

of filing, it filed on March 22, 1993 a Petition for Review against the CIR before the CTA seeking
the issuance of tax credit certificate or refund in the amount of P5,683,035.04 covering its input
VAT payments for the 1st and 2nd quarters of 1991
· ​And it filed on May 24, 1993 another Petition for Review, seeking the issuance of tax credit

certificates in the amount of P8,173,789.60 covering its input VAT payments for the 3rd and 4th
quarters of 1991
· ​CIR filed its Answer admitting that respondent filed its VAT returns for the 1st and 2nd

quarters of 1991 and an application for credit/refund of input VAT payment.

o ​It, however, specifically denied the veracity of the amounts stated in respondents VAT returns
and application for credit/refund as the same continued to be under investigation.
· ​The CIR filed on August 16, 1993 its Answer, it averring that sales of gold to the Central

Bank may not be legally considered export sales for purposes of Section 100(a) in relation to
Section 100(a)(1)[21] of the Tax Code; and that assuming that a refund is proper, respondent
must demonstrate that it complied with the provisions of Section 204(3) in relation to Section
230 of the Tax Code
· ​Through its Chief Accountant Danilo Bautista, respondent claimed that in 1991, it sold a total
of 20,288.676 ounces of gold to the Central Bank valued at P200,832,364.70, as certified by the
Director of the Mint and Refinery Department of the Central Bank and that in support of its
application for refund filed with the BIR, it submitted copies of all invoices and official receipts
covering its input VAT payments to the VAT Division of the BIR, the summary and schedules of
which were certified by its external auditor, the Joaquin Cunanan & Co
· ​Senior Audit Manager of Joaquin Cunanan & Co., Irene Ballesteros, who was also

presented by respondent, declared that she conducted a special audit work for respondent for
the purpose of determining its actual input VAT payments for the second semester of 1991 and
examined every original suppliers invoice, official receipts, and other documents supporting the
payments; and that there were no discrepancies or errors between the summaries and
schedules of suppliers invoices prepared by respondent and the VAT invoices she examined
· ​The CTA held that said sales are not subject to 10% output VAT, citing Atlas Consolidated

Mining and Development Corporation v. Court of Appeals, Manila Mining Corporation v.

Commissioner of Internal Revenue, and Benguet Corporation v. Commissioner of Internal
Revenue.
· ​Nonetheless, the CTA denied respondents claim for refund of input VAT for failure to prove

that it paid the amounts claimed as such for the year 1991, no sales invoices, receipts or other
documents as required under Section 2(c)(1) of Revenue Regulations No. 3-88 having been
presented
o ​The CTA explained that a mere listing of VAT invoices and receipts, even if certified to have
been previously examined by an independent certified public accountant, would not suffice to
establish the truthfulness and accuracy of the contents of such invoices and receipts unless
offered and actually verified by it (CTA) in accordance with CTA Circular No. 1-95, as amended
by CTA Circular No. 10-97, which requires that photocopies of invoices, receipts and other
documents covering said accounts of payments be pre-marked by the party concerned and
submitted to the court
· ​The Court of Appeals reversed the decision of the CTA and granted respondents claim for

refund or issuance of tax credit certificates in the amounts of P5,683,035.04 for CTA Case No.
4968 and P8,173,789.60 for CTA Case No. 4991
o ​The appellate court held that there was no need for respondent to present the photocopies of
the purchase invoices or receipts evidencing the VAT paid in view of Rule 26, Section 2 of the
Revised Rules of Court and the Resolutions of the CTA holding that the matters requested in
respondents Request for Admissions in CTA No. 4968 were deemed admitted by the CIR in
light of its failure to file a verified reply thereto.
·​ ​Hence, the present petition for review
· ​The CIR arguing that respondents failure to submit documentary evidence to confirm the

veracity of its claims is fatal; and that the CTA, being a court of record, is not expected to go out
of its way and dig into the records of the BIR to supply the insufficient evidence presented by a
party, and in fact it may set a definite rule that only evidence formally presented will be
considered in deciding cases before it
· ​Respondent, in its Comment, avers that it complied with the provisions of Section 2(c)(1) of

Revenue Regulation No. 3-88 when it submitted the original receipts and invoices to the BIR,
which fact of submission had been deemed admitted by petitioner, as confirmed by the CTA in
its Resolutions in both cases granting respondents Requests for Admissions therein
· ​To respondents Comment the Office of the Solicitor General (OSG), on behalf of petitioner,

filed its Reply, arguing that the documents required to be submitted to the BIR under Revenue
Regulation No. 3-88 should likewise be presented to the CTA to prove entitlement to input tax
credit.
· ​In addition, it argues that, contrary to respondents position, a certification by an independent

Certified Public Accountant (CPA) as provided under CTA Circulars 1-95 and 10-97 does not
relieve respondent of the onus of adducing in evidence the invoices, receipts and other
documents to show the input VAT paid on its purchase of goods and services

ISSUE:
Did respondent adduce sufficient evidence to prove its claim for refund of its input VAT for
taxable year 1991 in the amounts of P5,683,035.04 and P8,173,789.60?

RULING:
·​ ​NO
· ​In Commissioner of Internal Revenue v. Benguet Corporation, this Court had the occasion to
note that as early as 1988, the BIR issued several VAT rulings to the effect that sales of gold to
the Central Bank by a VAT-registered person or entity are considered export sales
o ​The transactions in question occurred during the period from 1988 and 1991. Under Sec. 99
of the National Internal Revenue Code (NIRC), as amended by Executive Order (E.O.) No. 273
s. 1987, then in effect, any person who, in the course of trade or business, sells, barters or
exchanges goods, renders services, or engages in similar transactions and any person who
imports goods is liable for output VAT at rates of either 10% or 0% (zero rated) depending on
the classification of the transaction under Sec. 100 of the NIRC. Xxx
o ​In January of 1988, respondent applied for and was granted by the BIR zero-rated status on
its sale of gold to the Central Bank. On 28 August 1988, Deputy Commissioner of Internal
Revenue Eufracio D. Santos issued VAT Ruling No. 3788-88, which declared that [t]he sale of
gold to Central Bank is considered as export sale subject to zero-rate pursuant to Section 100 of
the Tax Code, as amended by Executive Order No. 273. The BIR came out with at least six (6)
other issuances, reiterating the zero-rating of sale of gold to the Central Bank, the latest of
which is VAT Ruling No. 036-90 dated 14 February 1990.
· ​As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is

chargeable to it as purchaser. Zero rating is primarily intended to be enjoyed by the seller

respondent herein, which charges no output VAT but can claim a refund of or a tax credit
certificate for the input VAT previously charged to it by suppliers.
· ​For a judicial claim for refund to prosper, however, respondent must not only prove that it is

a VAT registered entity and that it filed its claims within the prescriptive period. It must
substantiate the input VAT paid by purchase invoices or official receipts.
·​ ​This respondent failed to do.
· ​Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the

requirements in claiming tax credits/refunds.

o​ ​Sec.2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows:
o​ ​Sec. 16. Refunds or tax credits of input tax
o ​(a) Zero-rated sales of goods and services Only a VAT-registered person may be granted a
tax credit or refund of value-added taxes paid corresponding to the zero-rated sales of goods
and services, to the extent that such taxes have not been applied against output taxes, upon
showing of proof of compliance with the conditions stated in Section 8 of these Regulations

For export sales, the application should be filed with the Bureau of Internal Revenue within two
years from the date of exportation. For other zero-rated sales, the application should be filed
within two years after the close of the quarter when the transaction took place

o ​(c) Claims for tax credits/refunds. - Application for Tax Credit/Refund of Value-Added Tax
Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or
municipality where the principal place of business of the applicant is located or directly with the
Commissioner, Attention: VAT Division.
o ​A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt, however,
shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund.
· ​Under Section 8 of RA 1125, the CTA is described as a court of record. As cases filed

before it are litigated de novo, party litigants should prove every minute aspect of their cases.
No evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the
rules on documentary evidence require that these documents must be formally offered before
the CTA.
·​ ​This Court thus notes with approval the following findings of the CTA:
o ​xxx [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but
this does not ipso facto mean that [the seller] is entitled to the amount of refund sought as it is
required by law to present evidence showing the input taxes it paid during the year in question.
What is being claimed in the instant petition is the refund of the input taxes paid by the herein
petitioner on its purchase of goods and services. Hence, it is necessary for the Petitioner to
show proof that it had indeed paid the said input taxes during the year 1991. In the case at bar,
Petitioner failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts
or other documents showing the input value added tax on the purchase of goods and services.
[55]
· ​Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides

categorically that the Court of Tax Appeals shall be a court of record and as such it is required
to conduct a formal trial (trial de novo) where the parties must present their evidence
accordingly if they desire the Court to take such evidence into consideration
· ​A sales or commercial invoice is a written account of goods sold or services rendered

indicating the prices charged therefor or a list by whatever name it is known which is used in the
ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods
and services
· ​A receipt on the other hand is a written acknowledgment of the fact of payment in money or

other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer
· ​These sales invoices or receipts issued by the supplier are necessary to substantiate the

actual amount or quantity of goods sold and their selling price, and taken collectively are the
best means to prove the input VAT payments.
· ​Respondent contends, however, that the certification of the independent CPA attesting to

the correctness of the contents of the summary of suppliers invoices or receipts which were
examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as
amended by CTA Circular No. 10-97 should substantiate its claims
· ​There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No.

10-97, which either expressly or impliedly suggests that summaries and schedules of input VAT
payments, even if certified by an independent CPA, suffice as evidence of input VAT payments
· ​The circular, in the interest of speedy administration of justice, was promulgated to avoid the
time-consuming procedure of presenting, identifying and marking of documents before the
Court. It does not relieve respondent of its imperative task of pre-marking photocopies of sales
receipts and invoices and submitting the same to the court after the independent CPA shall
have examined and compared them with the originals. Without presenting these pre-marked
documents as evidence from which the summary and schedules were based, the court cannot
verify the authenticity and veracity of the independent auditors conclusions
· ​There is, moreover, a need to subject these invoices or receipts to examination by the CTA

in order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation No.
5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled to a
refund of input VAT.
· ​Mere listing of VAT invoices and receipts, even if certified to have been previously examined
by an independent certified public accountant, would not suffice to establish the truthfulness and
accuracy of the contents thereof unless offered and actually verified by this Court. CTA Circular
No. 1-95, as amended by CTA Circular No. 10-97, requires that the photocopies of invoices,
receipts and other documents covering said accounts or payments must be pre-marked by the
party and submitted to this Court.

APPLICATION:
· ​The records show that respondent miserably failed to substantiate its claim for input VAT

refund for the first semester of 1991. Except for the summary and schedules of input VAT
payments prepared by respondent itself, no other evidence was adduced in support of its claim
· ​As for respondents claim for input VAT refund for the second semester of 1991, it employed

the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.)
executed a certification that:
o ​We have examined the information shown below concerning the input tax payments made by
the Makati Office of Manila Mining Corporation for the period from July 1 to December 31, 1991.
Our examination included inspection of the pertinent suppliers invoices and official receipts and
such other auditing procedures as we considered necessary in the circumstances.
· ​As the certification merely stated that it used auditing procedures considered necessary and

not auditing procedures which are in accordance with generally accepted auditing principles and
standards, and that the examination was made on input tax payments by the Manila Mining
Corporation, without specifying that the said input tax payments are attributable to the sales of
gold to the Central Bank, this Court cannot rely thereon and regard it as sufficient proof of
respondents input VAT payments for the second semester.
· ​Finally, respecting respondents argument that it need not prove the amount of input VAT it

paid for the first semester of taxable year 1991 as the same was proven by the implied
admission of the CIR, which was confirmed by the CTA when it admitted its Request for
Admission, the same does not lie.
· ​Respondents Requests for Admission do not fall within Section 2 Rule 26 of the Revised

Rules of Court.[68] What respondent sought the CIR to admit are the total amount of input VAT
payments it paid for the first and second semesters of taxable year 1991, which matters have
already been previously alleged in respondents petition and specifically denied by the CIR in its
Answers dated May 10, 1993 and August 16, 1993 filed in CTA Case Nos. 4869 and 4991,
respectively.
For failure of respondent then not only to strictly comply with the rules of procedure but also to
establish the factual basis of its claim for refund, this Court has to deny its claim. A claim for
refund is in the nature of a claim for exemption and should be construed in strictissimi juris
against the taxpayer and liberally in favor of the taxing authority

15. Atlas Consolidated Mining and Development Corporation vs. Commissioner of

Internal Revenue (2007) - ​Monique
FACTS:

16. Hitachi Global Storage Technologies Philippines Corp. vs. Commissioner of

Internal Revenue - ​Gerard

17. J.R.A. Philippines, Inc. vs. Commissioner of Internal Revenue - ​Airah

18. AT_T Communication Service Philippines, Inc. vs, Commissioner of Internal

Revenue - ​Mikko
Facts:
· ​Petitioner AT&T Communications Services Philippines, Inc. is a domestic corporation primarily engaged in the
business of providing information, promotional, supportive and liaison services to foreign corporations such as AT&T
Communications Services International Inc., AT&T Solutions, Inc., AT&T Singapore, Pte. Ltd.,, AT&T Global
Communications Services, Inc. and Acer, Inc., an enterprise registered with the Philippine Economic Zone Authority
(PEZA).
· ​Under Service Agreements forged by petitioner with the above-named corporations, remuneration is paid in U.S.
Dollars and inwardly remitted in accordance with the rules and regulations of the BSP.
· ​For the calendar year 2002, petitioner incurred input VAT when it generated and recorded zero-rated sales in
connection with its Service Agreements in the peso equivalent of ₱56,898,744.05, and also incurred input VAT from
purchases of capital goods and other taxable goods and services, and importation of capital goods.
· ​Despite the application of petitioner’s input VAT against its output VAT, an excess of unutilized input VAT in the
amount of ₱2,050,736.69 remained. As petitioner’s unutilized input VAT could not be directly and exclusively
attributed to either of its zero-rated sales or its domestic sales, an allocation of the input VAT was made which
resulted in the amount of ₱1,801,826.82 as petitioner’s claim attributable to its zero-rated sales.
· ​Petitioner filed with respondent CIR an application for tax refund and/or tax credit of its excess/unutilized input
VAT from zero-rated sales in the said amount of ₱1,801,826.82. To prevent the running of the prescriptive period,
petitioner subsequently filed a petition for review with the CTA First Division.
· ​In support of its claim, petitioner presented documents including its Summary of Zero-Rated Sales with
corresponding supporting documents; VAT invoices on which were stamped "zero-rated" and bank credit advices;
copies of Service Agreements; and report of the commissioned certified public accountant.
· ​After petitioner presented its evidence, respondent did not, despite notice, proffer any opposition to it and
eventually declared to have waived his right to present evidence.
· ​The CTA First Division, conceding that petitioner’s transactions fall under the classification of zero-rated sales,
nevertheless denied petitioner’s claim "for lack of substantiation,".
o ​considering that the subject revenues pertain to gross receipts from services rendered by petitioner, ​valid VAT
official receipts ​and ​not mere sales invoices should have been submitted​ in support thereof.
o ​Without proper VAT official receipts, the foreign currency payments received by petitioner from services rendered
for the 4 quarters of taxable year 2002 in the sum of US$1,102,315.48 with the peso equivalent of ₱56,898,744.05
cannot qualify for zero-rating for VAT purposes.
o ​The claimed input VAT payments allegedly attributable thereto in the amount of ₱1,801,826.82 cannot be granted.
It is clear from the provisions of Section 112 (A) of the NIRC of 1997 that there must be zero-rated or effectively
zero-rated sales in order that a refund of input VAT could prosper.
·​ ​CTA en Banc affirmed CTA First Division

Issue: What are the requirements to apply for a tax refund in zero-rated transactions?
Ruling:
· ​A taxpayer engaged in zero-rated transactions may apply for tax refund or issuance of tax credit certificate for
unutilized input VAT, subject to the following requirements:
o​ (​ 1) the taxpayer is engaged in sales which are zero-rated (i.e., export sales) or effectively zero-rated;
o​ (​ 2) the taxpayer is VAT-registered;
o​ (​ 3) the claim must be filed within two years after the close of the taxable quarter when such sales were made;
o ​(4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the
extent that such input tax has not been applied against the output tax; and
o ​(5) in case of zero-rated sales under Section 106 (A) (2) (a) (1) and (2), Section 106 (B) and Section 108 (B) (1)
and (2), the acceptable foreign currency exchange proceeds thereof have been duly accounted for in accordance
with BSP rules and regulations.
· ​Commissioner of Internal Revenue v. Seagate Technology teaches that petitioner, as zero-rated seller, hence,
directly and legally liable for VAT, can claim a refund or tax credit certificate.
· ​Zero-rated transactions generally refer to the export sale of goods and supply of services​. The tax rate is set at
zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller
of such transactions charges no output tax but can claim a refund or a tax credit certificate for the VAT previously
charged by suppliers. x x x
· ​Applying the destination principle to the exportation of goods, ​automatic zero rating is primarily intended to be
enjoyed by the seller who is directly and legally liable for the VAT​, making such seller internationally competitive by
allowing the refund or credit of input taxes that are attributable to export sales.
· ​Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the requirements in claiming tax
credits/refunds:
Sec. 2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows: x x x
(c) Claims for tax credits/refunds – Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552)
shall be filed with the Revenue District Office of the city or municipality where the principal place of business of the
applicant is located or directly with the Commissioner, Attention: VAT Division.
A photocopy of the ​purchase invoice or receipt evidencing the value added tax paid shall be submitted together
with the application. The original copy of the said invoice/receipt, however shall be presented for cancellation prior to
the issuance of the Tax Credit Certificate or refund. x x x (emphasis and underscoring supplied)
·​ ​Section 113 of the Tax Code does not create a distinction between a sales ​invoice​ and an official ​receipt.
Sec. 113. ​Invoicing and Accounting Requirements for VAT-Registered Persons.​ –
(A) Invoicing Requirements. – ​A VAT-registered person shall, for every sale, issue an invoice or receipt​. In
addition to the information required under Section 237, the following information shall be indicated in the invoice or
receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer’s identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount
includes the value-added tax. (emphasis, italics and underscoring supplied)
·​ ​Section 110 of the 1997 Tax Code in fact provides:
Section 110. Tax Credits –
A. Creditable Input Tax. –
(1) ​Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 ​hereof
on the following transactions shall be creditable against the output tax:
(b) Purchase of services on which a value-added tax has actually been paid. (emphasis, italics and underscoring
supplied)
· ​Parenthetically, to determine the validity of petitioner’s claim as to unutilized input VAT, an invoice would suffice
provided the requirements under Sections 113 and 237 of the Tax Code are met.1avvphi1
· ​Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs
that a business transaction has been concluded, hence, should not be considered bereft of probative value. Only the
preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a claim for tax
refund proper.
IN FINE, the Court finds that petitioner has complied with the substantiation requirements to prove entitlement to
refund/tax credit. The Court is not a trier of facts, however, hence the need to remand the case to the CTA for
determination and computation of petitioner’s refund/tax credit.

19. Atlas Consolidated Mining and Development Corporation vs. Commissioner of

Internal Revenue (2011) - ​Monique

20. Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc. -
Gerard

21. Commissioner of Internal Revenue vs. San Roque Power Corporation - ​Airah
FACTS: ​[CIR] is the duly appointed Commissioner of Internal Revenue, empowered,
among others, to act upon and approve claims for refund or tax credit, with office at the
Bureau of Internal Revenue ("BIR") National Office Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue
of the laws of the Philippines with principal office at Barangay San Roque, San Manuel,
Pangasinan. It was incorporated in October 1997 to design, construct, erect, assemble,
own, commission and operate power-generating plants and related facilities pursuant to
and under contract with the Government of the Republic of the Philippines, or any
subdivision, instrumentality or agency thereof, or any governmentowned or controlled
corporation, or other entity engaged in the development, supply, or distribution of
energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No.
005-017-501. It is likewise registered with the Board of Investments ("BOI") on a
preferred pioneer status, to engage in the design, construction, erection, assembly, as
well as to own, commission, and operate electric power-generating plants and related
activities, for which it was issued Certificate of Registration No. 97-356 on February 11,
1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA")
with the National Power Corporation ("NPC") to develop hydro-potential of the Lower
Agno River and generate additional power and energy for the Luzon Power Grid, by
building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The
PPA provides, among others, that [San Roque] shall be responsible for the design,
construction, installation, completion, testing and commissioning of the Power Station
and shall operate and maintain the same, subject to NPC instructions. During the
cooperation period of twenty-five (25) years commencing from the completion date of
the Power Station, NPC will take and pay for all electricity available from the Power
Station.
On the construction and development of the San Roque Multi- Purpose Project which
comprises of the dam, spillway and power plant, [San Roque] allegedly incurred, excess
input VAT in the amount of ₱559,709,337.54 for taxable year 2001 which it declared in
its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR
separate claims for refund, in the total amount of ₱559,709,337.54, representing
unutilized input taxes as declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for
the year 2001 since it increased its unutilized input VAT to the amount of
₱560,200,283.14. Consequently, [San Roque] filed with the BIR on even date, separate
amended claims for refund in the aggregate amount of ₱560,200,283.14.
[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for
Review with the Court [of Tax Appeals] in Division on April 10, 2003.

ISSUE: ​WON​ the Court of Tax Appeals En Banc erred in holding that [San Roque's] claim for
refund was not prematurely filed

RULING:

22. CBK Power Company Limited vs. CIR - ​Mikko

Facts​: CBK Power Company Limited filed two petitions for review assailing the
dismissal of its judicial claim for tax credit of unutilized input taxes on the ground of
premature filing.
BIR issued a ruling stating that “petitioner is an entity engaged in hydropower
generation, and that its billings and fees for the sale of electricity to NPC are subject to
VAT at zero percent (0%) rate under Section 108(B)(7) of the Tax Code.
Petitioner filed an administrative claim for the issuance of a tax credit certificate.
The next day, petitioner filed a petition for review with the CTA since respondent had
not yet issued a final decision on its administrative claim. Respondent raised
prematurity of judicial claim as one of its defenses in its answer.

Issue​: Timeliness of petitioner’s judicial claims for the issuance of tax credit certificates
considering Section 112(C) of the Tax Code

Ruling​: Before amendment, the taxpayer may appeal the denial or the inaction of the
Commissioner of Internal Revenue only within thirty (30) days from receipt of the
decision that denied the claim or the expiration of the 120-day period given to the
Commissioner to decide the claim.
In G.R. No. 202066, petitioner filed its judicial claim on March 27, 2009, only a
day after it had filed its administrative claim on March 26, 2009.
In G.R. No. 205353, petitioner filed its judicial claim on April 23, 2008 for the
taxable period of January 1, 2006 to March 31, 2006, just 23 days after it had filed its
administrative claim on March 31, 2008. Petitioner also filed its judicial claim on July 24,
2008 for the taxable period of April 1, 2006 to December 31, 2006, only a day after it
had filed its administrative claim on July 23, 2008.
Clearly, petitioner failed to comply with the 120-day waiting period, the time
expressly given by law to the Commissioner of Internal Revenue to decide whether to
grant or deny its application for tax refund or credit.
 Nevertheless, since the judicial claims were filed within the window created in
San Roque,​ the petitions are exempted from the strict application of the 120-day
mandatory period.

With the close of the second taxable quarter of 2006 being June 30, 2006,
petitioner should have filed its administrative claim for this quarter on or before June 30,
2008, and not on July 23, 2008. This applies the clear text of Section 112(A).
The Atlas doctrine, which held that claims for refund or credit of input VAT must
comply with the two-year prescriptive period under Section 229, should be effective only
from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in
Mirant. The Atlas doctrine was limited to the reckoning of the two-year prescriptive
period from the date of payment of the output VAT. Prior to the Atlas doctrine, the
two-year prescriptive period for claiming refund or credit of input VAT should be
governed by Section 112(A) following the verba legis rule. The Mirant ruling, which
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section
112(A) in computing the two-year prescriptive period in claiming refund or credit of input
VAT.
Since July 23, 2008 falls within the window of effectivity of Atlas, petitioner’s
administrative claim for the second quarter of 2006 was filed on time considering that
petitioner filed its original VAT return for the second quarter on July 25, 2006.

23. SILICON PHILIPPINES, INC. (formerly INTEL PHILIPPINES MANUFACTURING,

INC.) v CIR (2015) - ​Monique

24. Commisioner of Internal Revenue vs. Toledo Power Company (2015) - ​Gerard

25. CE Luzon Geothermal Power Company, Inc. vs. CIR (2015) - ​Airah

26. Cargill Philippines, Inc. vs. Commissioner of Internal Revenue - ​Mikko

Facts:

· ​Cargill is a domestic corporation duly organized and existing under Philippine laws whose primary
purpose is to own, operate, run, and manage plants and facilities for the production, crushing, extracting,
or otherwise manufacturing and refining of coconut oil, coconut meal, vegetable oil, lard, margarine,
edible oil, and other articles of similar nature and their by- products. It is a VAT-registered entity
· ​As such, it filed its quarterly VAT returns for the second quarter of calendar year 2001 up to the third
quarter of fiscal year 2003, covering the period April 1, 2001 to February 28, 2003, which showed an
overpayment of 44,920,350.92 and, later, its quarterly VAT returns for the fourth quarter of fiscal year
2003 to the first quarter of fiscal year 2005, covering the period March 1, 2003 to August 31, 2004 which
reflected an overpayment of 31,915,642.26.
· ​Cargill maintained that said overpayments were due to its export sales of coconut oil, the proceeds of
which were paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP and, thus, are zero-rated for VAT purposes.
· ​Cargill filed an administrative claim for refund of its unutilized input VAT in the amount of
26,122,965.81 for the period of April 1, 2001 to February 28, 2003 (​first refund claim)​ before the BIR.
Thereafter, it filed a judicial claim for refund, by way of a petition for review, before the CTA. It
subsequently filed a supplemental application with the BIR increasing its claim for refund of unutilized
input VAT to the amount of 27,847,897.72.
· ​Cargill filed a second administrative claim for refund of its unutilized input VAT in the amount of
22,194,446.67 for the period of March 1, 2003 to August 31, 2004 (​second refund claim)​ before the BIR.
On even date, it filed a petition for review before the CTA.
· ​Respondent CIR claimed, inter alia, that the amounts being claimed by Cargill as unutilized input VAT
in its first and second refund claims were not properly documented and, hence, should be denied.
·​ ​the CTA Division partially granted Cargill’s claims for refund of unutilized input VAT
o ​It found that while Cargill timely filed its administrative and judicial claims within the 2-year prescriptive
period, as held in the case of CIR v. Mirant Pagbilao Corp., it, however, failed to substantiate the
remainder of its claims for refund of unutilized input VAT, resulting in the partial denial thereof.
o ​however, the CTA Division superseded and consequently reversed its August 24, 2010 Decision.
Citing the case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi), it held that the 120-day period
provided under Section 112 (D) of the National Internal Revenue Code (NIRC) must be observed prior to
the filing of a judicial claim for tax refund. As Cargill failed to comply therewith, the CTA Division, without
ruling on the merits, dismissed the consolidated cases for being prematurely filed.
·​ ​CTA En Banc affirmed the CTA Division decision

Issue: Whether or not the CTA En Banc correctly affirmed the CTA Division’s outright dismissal of
Cargill’s claims for refund of unutilized input VAT on the ground of prematurity?

Ruling:
· ​Allowing the refund or credit of unutilized input VAT finds its genesis in EO No. 273, series of 1987,
which is recognized as the "Original VAT Law." Thereafter, it was amended through the passage of
Republic Act No. RA7716, RA 8424, and, finally by RA 9337, which took effect on November 1, 2005.
Considering that Cargill’s claims for refund covered periods before the effectivity of RA 9337, Section 112
of the NIRC, as amended by RA 8424, should, therefore, be the governing law.
· ​In the landmark case of Aichi, it was held that the observance of the 120-day period is a mandatory
and jurisdictional requisite to the filing of a judicial claim for refund before the CTA. As such, its
non-observance would warrant the dismissal of the judicial claim for lack of jurisdiction. It was, withal,
delineated in Aichi that the 2-year prescriptive period would only apply to administrative claims, and not to
judicial claims. Accordingly, once the administrative claim is filed within the 2-year prescriptive period, the
taxpayer-claimant must wait for the lapse of the 120- day period and, thereafter, he has a 30-day period
within which to file his judicial claim before the CTA, even if said 120-day and 30-day periods would
exceed the aforementioned 2-year prescriptive period.
· ​Nevertheless, the Court, in the case of ​CIR v. San Roque Power Corporation,​ recognized an
exception to the mandatory and jurisdictional nature of the 120-day period. San Roque enunciated that
BIR Ruling No. DA-489-03 dated December 10, 2003, which expressly declared that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA by way of petition for review," provided a valid claim for equitable estoppel under Section 246 of
the NIRC.
· ​In the more recent case of ​Taganito Mining Corporation v. CIR​, the Court reconciled the
pronouncements in Aichi and San Roque, holding that from December 10, 2003 to October 6, 2010 which
refers to the interregnum when BIR Ruling No. DA-489-03 was issued until the date of promulgation of
Aichi, taxpayer-claimants need not observe the stringent 120-day period; but before and after said
window period, the mandatory and jurisdictional nature of the 120-day period remained in force, viz.:
o ​Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that
during the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010
(when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period before
it could file a judicial claim for refund of excess input VAT before the CTA. Before and after the
aforementioned period (i.e., December 10, 2003 to October 6, 2010), the observance of the 120-day
period is mandatory and jurisdictional to the filing of such claim.
Application
· ​In this case, records disclose that anent Cargill’s ​first refund claim​, it filed its administrative claim
with the BIR on June 27, 2003, and its judicial claim before the CTA on June 30, 2003, or before the
period when BIR Ruling No. DA-489-03 was in effect, i.e., from December 10, 2003 to October 6, 2010.
o ​As such, ​it was incumbent upon Cargill to wait for the lapse of the 120-day period before seeking relief
with the CTA, and considering that its judicial claim was filed only after three (3) days later, the CTA En
Banc, thus, correctly dismissed Cargill’s petition in CTA Case No. 6714 for being prematurely filed.
· ​In contrast, records show that with respect to Cargill’s ​second refund claim​, its administrative and
judicial claims were both filed on May 31, 2005, or during the period of effectivity of BIR Ruling NO.
DA-489-03, and, thus, fell within the exemption window period contemplated in San Roque, i.e., when
taxpayer-claimants need not wait for the expiration of the 120-day period before seeking judicial relief.
Verily, the CTA En Banc erred when it outrightly dismissed CTA Case No. 7262 on the ground of
prematurity.
· ​This notwithstanding, the Court finds that Cargill’s second refund claim in the amount of
22,194,446.67 which allegedly represented unutilized input VAT covering the period March 1, 2003 to
August 31, 2004 should not be instantly granted.
o ​This is because the determination of Cargill’s entitlement to such claim, if any, would necessarily
involve factual issues and, thus, are evidentiary in nature which are beyond the pale of judicial review
under a Rule 45 petition where only pure questions of law, not of fact, may be resolved.
Accordingly, the prudent course of action is to remand CTA Case No. 7262 to the CTA Division for
resolution on the merits, consistent with the Court’s ruling in Panay Power Corporation v. CIR.

27. Pilipinas Total Gas, Inc. vs. Commissioner of Internal Revenue - ​Monique

FACTS: ​On May 15, 2008, Total Gas filed an administrative claim for refund of
unutilized input VAT for the first two quarters of taxable year 2007, inclusive of
supporting documents. On August 28, 2008, Total Gas submitted additional supporting
documents to the BIR. Total Gas elevated the matter to the CTA in view of the inaction
of the CIR. The CTA Division dismissed the petition for being prematurely filed saying
that Total Gas failed to complete the necessary documents to substantiate a claim for
refund of unutilized input VAT. Total Gas sought for reconsideration from the CTA
Division, but its motion was denied for lack of merit. The CTA En Banc likewise denied
the petition for review of Total Gas for lack of merit. Total Gas filed a motion for
reconsideration, but it was denied in the assailed resolution of the CTA En Banc.
Hence, the present petition. the CTA En Banc explained that the CIR had 120
days to act on the claim (until September 12, 2008), and
Total Gas had 30 days from then, or until October 12, 2008,
to question the inaction before the CTA. Considering that
Total Gas only filed its petition on January 23, 2009, the
CTA En Banc concluded that the petition for review was
belatedly filed. For the tax court, the 120-day period could
not commence on the day Total Gas filed its last supporting
document on August 28, 2008,

ISSUE: ​Was the judicial claim for refund belatedly filed on 23 January 2009, or way
beyond the 30-day period to appeal as provided in Section 112(c) of the Tax Code?

RULING: ​No. From Section 112(C) of the NIRC

28. Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) vs. CIR
(2016) - ​Gerard

29. Mindanao I v CIR (2017) - ​Airah

FACTS: ​[M1] entered into a Build-Operate-Transfer [BOT] contract with the Philippine National
Oil Company-Energy Development Corporation (PNOC-EDC) for the finance, design,
construction, testing, commissioning, operation, maintenance, and repair of a 47-megawatt
geothermal power plant, provided that PNOC-EDC shall supply and deliver steam to [Ml] at no
cost. In turn, [Ml] shall convert the steam into electric capacity and energy for PNOC-EDC and
shall deliver the same to the National Power Corporation (NPC) for and in behalf of PNOC-EDC.
[Ml's] 47-megawatt geothermal power plant project has been accredited by the Department of
Energy (DOE) as a Private Sector Generation Facility, pursuant to the provision of Executive
Order No. 215 and evidenced by Certificate of Accreditation No. 95-03-07. In order to facilitate
the operations and management of the said geothermal plant, it entered into an Operations and
Maintenance Agreement with Marubeni Energy Services Corporation (MESC).

For the second to fourth quarters of taxable year 2004, [Ml] filed its Quarterly [Value-Added Tax
(VAT)] Returns. On August 16, 2005, [Ml] filed a letter-request for the issuance of [TCC] with the
BIR Large Taxpayers Service arising from its excess and unutilized creditable input taxes in the
amount of [₱]9,470,500.39, accumulated from the first to fourth quarters of taxable year 2004.
However, said application for issuance of [TCC] remains unacted (sic) upon by respondent
[Commissioner of Internal Revenue (CIR)] despite the lapse of the one hundred twenty
(120)-day period provided under Section l 12(D) of the National Internal Revenue Code (NIRC)
of 1997, as amended.

On July 21, 2006, [Ml] filed [its] Petition for Review, praying for the issuance of [a TCC] in the
amount of [₱]6,199,278.90 instead of the amount of [₱]9,470,500.39, which covers merely the
second to fourth quarters of taxable year 2004.

CTA First Division rendered a Decision, PARTIALLY GRANTING [Ml's] claim for issuance of
[TCC]. The CTA First Division granted Ml's claim for unutilized input value-added tax (VAT) for
the third and fourth quarters of 2004, but denied Ml's claim corresponding to the second quarter
of the same year for having been filed out of time. It held that under Section 112(A) of the
National Internal Revenue Code of 1997 (NIRC), administrative ​and judicial claims for issuance
of a TCC or refund of unutilized creditable input VAT arising from VAT zero-rated sales must be
filed within two (2) years from the end of the quarter when the pertinent sales were made,
regardless of when the corresponding input VAT had been paid.

Considering that the last day of the second quarter of 2004 fell on June 30, 2004, the CTA First
Division found that Ml only had until June 30, 2006 within which to file its administrative and
judicial claims. Thus, the CTA First Division found that while Ml's administrative claim (filed on
August 16, 2005) was filed within the said period, its judicial claim (filed on July 21, 2006) was
not.

ISSUE: ​Whether the CTA ​En Banc​ erred when it dismissed Ml's judicial claim for being filed out
of time.

RULING: ​NO. Section 112 of the NIRC provides the procedure for filing claims for VAT
refunds, and prescribes the corresponding periods therefor.Moreover in ​Aichi, the Court
unequivocally ruled that the two (2)-year period under Section 112(A) should be reckoned from
the close of the taxable quarter when the sales were made consistent with the plain import of
the NIRC. The Court also clarified that the two (2)-year period only applies to administrative
claims, and does ​not extend to judicial claims. Anent judicial claims, the Court held that the one
hundred twenty (120) and thirty (30)-day periods under Section 112(C) are mandatory and
jurisdictional, such that judicial claims filed before the denial of the taxpayers' administrative
claim or the lapse of the one hundred twenty (120)-day period in case of the CIR's inaction
would be deemed premature, while judicial claims filed beyond the thirty (30)-day period after
such denial or lapse would be deemed filed out of time.

Subsequently, the Court's ruling in ​San Roque set out exceptions to the mandatory periods
under Section 112(C). The first exception is if the Commissioner, through a specific ruling,
misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific
ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CT A. In these cases, the
Commissioner cannot be allowed to later on question the CTA's assumption of jurisdiction over
such claim since equitable estoppel has set in as expressly authorized under Section 246 of the
Tax Code.

The principles decreed in Aichi and San Roque were later synthesized in the consolidated
cases of Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue and
Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue. ​The summarized
the relevant periods under Section 112, as follows:

(1) An administrative claim must be filed with the CIR within two [2] years after the close of the
taxable quarter when the zero-rated or effectively zero-rated sales were made.
(2) The CIR has [one hundred twenty (120)] days from the date of submission of complete
documents in support of the administrative claim within which to decide whether to grant a
refund or issue a tax credit certificate. The [one hundred twenty (120)]-day period may extend
beyond the two [2]-year period from the filing of the administrative claim if the claim is filed in the
later part of the two [2]-year period. If the [one hundred twenty (120)]-day period expires without
any decision from the CIR, then the administrative claim may be considered to be denied by
inaction.
(3) A judicial claim must be filed with the CTA within [thirty] 30 days from the receipt of the CIR's
decision denying the administrative claim or from the expiration of the [one hundred twenty
(120)]-day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489- 03 from the time of its issuance
on [December 10, 2003] up to its reversal by this Court in Aichi on [October 6, 2010], as an
exception to the mandatory and jurisdictional 120+30 day periods.32 (Emphasis supplied)

APPLICATION: ​Proceeding therefrom, it becomes clear that Ml's judicial claim for the second,
third and fourth quarters of 2004 were filed out of time. The thirtieth (30th) day following October
20, 2005 (which is the date when the CIR's period to act expired) fell on November 19, 2005, a
Saturday. Accordingly, Ml had until November 21, 2005, the next working day, to file its judicial
claim before the CTA. As Ml filed its judicial claim over seven (7) months beyond the expiration
of the thirty (30)-day period, the CTA ​En Banc correctly ordered its dismissal. To be sure, while
BIR Ruling No. DA-489-03 was in effect at the time Ml filed its judicial claim, said ruling only
constitutes a valid claim for equitable estoppel with respect to premature judicial claims, and not
those filed beyond the 120+30-day periods under Section 112(C).
 IX. BEST EVIDENCE OBTAINABLE

1. Mindanao Bus vs CTA (1961) - ​Mikko

FACTS: ​An agent of respondent CIR examined the books of accounts of the petitioner
Mindanao Bus Co. and found that the freight tickets used by it do not contain the
required documentary stamp tax. Assuming that each freight ticket was more than
P5.00, the CIR assessed documentary stamp taxes exclusive of penalty. Petitioner
appealed to the CTA wherein it was ordered to pay the assessed amount without any
penalty. Upon petitioner's motion for reconsideration, the case was reopened, and
petitioner was allowed to present as evidence the 500 booklets and 17 sacksful of
passenger and freight tickets. Petitioner failed to submit the said evidence; instead
presented stub tickets already in its possession during the first hearing. The motion for
reconsideration was denied hence the present appeal.

ISSUE: ​Did the CTA err in presuming the correctness of the tax assessment since it
was not based on “best evidence obtainable”?

RULING: ​No. The agent of the Bureau of Internal Revenue who investigated the
petitioner's books of accounts found it impossible to count one by one the freight tickets
contained in used booklets dumped inside the petitioner's bodega, because the booklets
were so numerous and most of them were either torn or destroyed. The procedure
followed by said agent, which is the average method, in ascertaining the total number of
freight tickets used during the period under review cannot be improved because an
actual count of the freight tickets is practically impossible. The average method is the
only way by which the agent could determine the number of booklets used during the
period in question. The agent also correctly assumed that the value of the goods
covered by each freight ticket is not less than P5.00. It was the duty of petitioner to
present evidence to show inaccuracy in the above method of assessment but it failed to
do so.

2. Sy Po v CTA (1988) - ​Monique

FACTS: ​A letter and a subpoena duces tecum were issued against Silver Cup Wine
Factory requesting production of the accounting records and other related documents.
The sole proprietor, Mr. Po Bien Sing did not comply which prompted the team to enter
its factory bodega and seize alcohol products. Based on the report of investigation, the
respondent CIR assessed deficiency income taxes. Petitioner, Po Bien Sing’s widow
protested the assessments which were referred to reinvestigation. A corresponding
report reiterated the assessment because of the consistent failure to produce the books
of account; warrants of distraint and levy were issued by respondent. Hence, petitioner's
appeal.

ISSUE: ​Do the assessments have a valid legal basis?

RULING: ​Yes. The applicable legal provision is Section 16(b) of the National Internal
Revenue Code of 1977 as amended. The law is specific and clear. The rule on the "best
evidence obtainable" applies when a tax report required by law for assessment is not
available or when the tax report is incomplete or fraudulent. In the instant case, the
persistent failure of the late Po Bien Sing and the herein petitioner to present their
books of accounts for examination for the taxable years involved left the Commissioner
of Internal Revenue no other legal option except to resort to the power conferred upon
him under Section 16 of the Tax Code. The tax figures arrived at by the Commissioner
of Internal Revenue are by no means arbitrary. Tax assessments by tax examiners are
presumed correct and made in good faith. The taxpayer has the duty to prove
otherwise. 7 In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and approved by his
superior officers will not be disturbed. 8 All presumptions are in favor of the correctness
of tax assessments

3. CIR v Hantex (2005) - ​Gerard

FACTS: ​Based on certified copies of the respondent’s Profit and Loss Statement for
1987 and 1988 filed with the SEC and machine copies of the Consumption Entries of
1987 the EIIB found that respondent had unreported sales and an income tax liability.
The EIIB transmitted such records to the BIR and after investigation, it was found that
respondent had unrecorded importation of P70,661,694.00, and such was not declared
in its income tax return for 1987. Petitioner CIR demanded payment of tax liability due
for 1987. Respondent protested and questioned the assessment claiming the EIIB failed
to present the original, or authenticated, or duly certified copies of the Consumption and
Import Entry Accounts and that it only presented mere machine copies. The BIR denied
respondent’s request to set aside the assessment. The respondent forthwith filed a
petition for review in the CTA which was denied. The CA granted the petition. Hence,
the present petition.

ISSUE: ​Is the final assessment of the petitioner against the respondent for deficiency
income tax and sales tax for the latter’s 1987 based on competent evidence and the
law?
RULING: ​No. The best evidence obtainable under Section 16 of the 1977 NIRC, as
amended, does not include mere photocopies of records/documents. The petitioner, in
making a preliminary and final tax deficiency assessment against a taxpayer, cannot
anchor the said assessment on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no probative weight if offered as proof of
the contents thereof. The reason for this is that such copies are mere scraps of paper
and are of no probative value as basis for any deficiency income or business taxes
against a taxpayer. The original copies of the Consumption Entries were of prime
importance to the BIR. This is so because such entries are under oath and are
presumed to be true and correct under penalty of falsification or perjury. Admissions in
the said entries of the importers’ documents are admissions against interest and
presumptively correct. In fine, then, the petitioner acted arbitrarily and capriciously in
relying on and giving weight to the machine copies of the Consumption Entries in fixing
the tax deficiency assessments against the respondent.

X. TAX REMEDIES

Ungab vs. Cusi, Jr. - ​Airah

FACTS​: BIR Examiner Ben Garcia examined the income tax returns filed by Quirico P. Ungab,
for the calendar year ending December 31, 1973. In the course of his examination, he
discovered that the petitioner failed to report his income derived from sales of banana saplings.
As a result, the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the
petitioner informing him that there is due from him (Ungab) the amount of P104,980.81,
representing income, business tax and forest charges for the year 1973 and inviting petitioner to
an informal conference where the petitioner, duly assisted by counsel, may present his
objections to the findings of the BIR Examiner. Upon receipt of the notice, the petitioner wrote
the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer
or agent on commission basis in the banana sapling business and that his income. BIR
Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent
income tax return so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the
BIR. Consequently, the Special Investigation Division of the BIR found sufficient proof that the
herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution. Ungab filed a motion to quash the informations on the ground that his pending
protest with the CIR has not yet been acted upon hence the assessment is not yet final and
executory and therefore the trial court has no jurisdiction yet over the criminal cases.

ISSUE​: WON the filing of the informations was precipitate and premature since the
Commissioner of Internal Revenue has not yet resolved his protests against the assessment of
the Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals.
RULING​. NO. 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 National Internal Revenue Code which is within the cognizance
of courts of first instance. 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.
The contention is made, and is here rejected, that an assessment of the deficiency tax
due is necessary before the taxpayer can be prosecuted criminally for the charges
preferred. The crime is complete when the violator has, as in this case, knowingly and
willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax.
An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator has
knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax.
The perpetration of the crime is grounded upon knowledge on the part of the taxpayer
that he has made an inaccurate return, and the government's failure to discover the error
and promptly to assess has no connections with the commission of the crime.

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. Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his prosecution for violation of the
National Internal Revenue Code. Accordingly, the respondent Judge did not abuse his
discretion in denying the motion to quash filed by the petitioner.

CIR vs. CA (1996) - ​Mikko

Facts​:

CASES ON ASSESSMENT

1. Commissioner of Internal Revenue vs. Pascor Realty and Development

Corporation - ​Monique
FACTS: ​Revenue Officers examined the books of accounts and other accounting
records of Pascor Realty and Development Corporation (PRDC) for the years ending
1986, 1987 and 1988. Assessments in the amounts of P7,498,434.65 and
P3,015,236.35 for the years 1986 and 1987 were issued by the BIR contained in an
Affidavit- Report. The CIR filed a criminal complaint before the DOJ against the PRDC
alleging evasion of taxes in the total amount of P10,513,671.00. The CIR denied the
request for reinvestigation of the private respondents. Private respondents elevated the
case to the CTA where CIR’s motion to dismiss on the ground that the CTA has no
jurisdiction over the subject matter of the petition, as there was no formal assessment,
was denied. The CTA said that the criminal case for tax evasion is already an
assessment. The CA sustained the CTA and dismissed the petition.

ISSUE: ​Can the affidavit-report containing the details of the supposed taxes due from
respondent for taxable years ending 1987 and 1988 be construed as an assessment?

RULING: No. ​Neither the NIRC nor the revenue regulations governing the protest of
assessments provide a specific definition or form of an assessment. However, the NIRC
defines the specific functions and effects of an assessment. Not all documents coming
from the BIR containing a computation of the tax liability can be deemed assessments.

To start with, an assessment must be sent to and received by a taxpayer and must
demand payment of the taxes described therein within a specific period. Thus, the
NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails
to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may
be prescribed by rules and regulations, is to be collected from the date prescribed for
its payment until the full payment

It should also be stressed that the said document is a notice duly sent to the taxpayer.
Indeed, an assessment is deemed made only when the collector of internal revenue
releases, mails or sends such notice to the taxpayer. In the present case, the revenue
officers’ Affidavit merely contained a computation of respondents’ tax liability. It did not
state a demand or a period for payment. Worse, it was addressed to the justice
secretary, not to the taxpayers.

That the BIR examiners’ Joint Affidavit attached to the Criminal Complaint contained
some details of the tax liabilities of private respondents does not ipso facto make it an
assessment. The purpose of the Joint Affidavit was merely to support and substantiate
the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the
tax due and a demand to the private respondents for payment thereof.

ISSUE: ​What is the significance of the issuance of a tax assessment?

RULING: ​The issuance of an assessment is vital in determining the period of limitation

regarding its proper issuance and the period within which to protest it. Section 203 of
the NIRC provides that internal revenue taxes must be assessed within three years from
the last day within which to file the return. Section 222, on the other hand, specifies a
period of ten years in case a fraudulent return with intent to evade was submitted or in
case of failure to file a return. Also, Section 228 of the same law states that said
assessment may be protested only within thirty days from receipt thereof.
Necessarily, the taxpayer must be certain that a specific document constitutes an
assessment. Otherwise, confusion would arise regarding the period within which to
make an assessment or to protest the same, or whether interest and penalty may
accrue thereon.

ISSUE: ​Is an assessment necessary before the filing of a criminal complaint?

RULING: No. ​Section 222 of the NIRC 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, Section
205 of the same Code clearly mandates that the civil and criminal aspects of the
case may be pursued simultaneously.

To reiterate, said Section 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 prima facie showing of failure to file a required return. This fact need not
be proven by an assessment.

ISSUE: ​What are the distinctions between issuance of an assessment and filing of a
complaint?

RULING: ​The issuance of an assessment must be distinguished from the filing of a

complaint. Before an assessment is issued, there is, by practice, a pre-assessment
notice sent to the taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or her is then sent to the
taxpayer informing the latter specifically and clearly that an assessment has been made
against him or her. In contrast, the criminal charge need not go through all these. 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 commissioner 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 Tax Code.

2. Commissioner of Internal Revenue vs. Reyes - ​Gerard

FACTS: In 1993, Maria Tancino died leaving behind an estate worth P32 million. In
1997, a tax audit was conducted on the estate. Meanwhile, the National Internal
Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a
final assessment notice (FAN) demanding the estate to pay P14.9 million in taxes
inclusive of surcharge and interest; the estate’s liability was based on Section 229 of the
[old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The
Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint
and/or levy. Reyes again protested the warrant but in March 1999, she offered a
compromise and was willing to pay P1 million in taxes. Her offer was denied. She
continued to work on another compromise but was eventually denied. The case reached
the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes
received a favorable judgment.

ISSUE​: Whether or not the formal assessment notice is valid.

RULING​: No. The NIRC of 1997 was already in effect when the FAN was issued. Under
Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts
on which the assessment is made: otherwise, the assessment shall be void. In the case
at bar, the FAN merely stated the amount of liability to be shouldered by the estate and
the law upon which such liability is based. However, the estate was not informed in
writing of the facts on which the assessment of estate taxes had been made. The estate
was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial
in nature can be applied retroactively even though the tax investigation was conducted
prior to the law’s passage. Consequently, the invalid FAN cannot be a basis of a
compromise, any proceeding emanating from the invalid FAN is void including the
issuance of the warrant of distraint and/or levy.

3. Commissioner of Internal Revenue vs. Bank of the Philippine Islands - ​Airah

FACTS: ​On 28 October 1988 petitioner Commissioner of Internal Revenue (CIR)

assessed respondent Bank of the Philippine Islands’ (BPI) ​deficiency percentage​ and
documentary stamp taxes​ in the total amount of P129,488,656.63.

In a letter dated 10 December 1988, BPI requested for the CIR to state or to inform the
taxpayer why he is being assessed a deficiency, and as to what particular percentage
tax the assessment refers to.

Subsequently, BPI received a letter on 27 June 1991 ​dated​ May 8, 1991 from CIR
stating that it constitutes the final decision on the matter, and the basis of the
assessments.
BPI filed a petition for review in the CTA but the latter dismissed the case for lack of
jurisdiction since the subject assessments had become final and unappealable. The
CTA ruled that BPI failed to protest on time under Section 270 of the National Internal
Revenue Code (NIRC) and Section 7 in relation to Section 11 of RA 1125.

On appeal, the CA reversed the tax court’s decision and resolution and remanded the
case to the CTA for a decision on the merits. It ruled that the October 28, 1988 notices
were not valid assessments because they did not inform the taxpayer of the legal and
factual bases. It declared that the proper assessments were those contained in the May
8, 1991 letter which provided the reasons for the claimed deficiencies. Thus, it held that
BPI filed the petition for review in CTA on time.
Hence, CIR filed this case.

ISSUE # 1: Were the October 28, 1988 notices valid assessments?

RULING​: Yes the notices sufficiently met the requirements of a valid assessment under
the old law and jurisprudence. The CIR merely relied on the provisions of the ​former
Section 270 prior to its amendment by RA 8424 (Tax Reform Act of 1997). Accordingly,
when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to “notify” or inform the taxpayer of his “findings.” Nothing
in the old law required a written statement to the taxpayer of the law and facts on which
the assessments were based.

Jurisprudence, on the other hand, simply required that the assessments contain a
computation of tax liabilities, the amount the taxpayer was to pay and a demand for
payment within a prescribed period.

The sentence “​The taxpayers shall be informed in writing of the law and the facts on
which the assessments is made; otherwise, the assessments shall be void”​ was not in
the old Section of 270 but was later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former Section 270 by inserting the
aforequoted sentence. The fact that the amendment was necessary showed that, prior
to the introduction of the amendment, the statute had an entirely different meaning. The
amendment introduced by RA 8424 was an innovation and could not be reasonably
inferred from the old law. Clearly, the legislature intended to insert a new provision
regarding the form and substance of assessments issued by the CIR.

Under the former Section 270, there were two instances when an assessment became
final and unappealable: 1) when it was not protested within 30 days and 2) when the
adverse decision on the protest was not appealed to the CTA within 30 days from
receipt of the final decision.

ISSUE # 2: Whether or not the assessments made by the CIR were valid, final, and
unappealable?
Failure to protest within the 30-day period: 1)final and unappealable; 2)
presumption of correctness

RULING: ​Yes, BPI should have protested within 30 days from receipt of the notices
dated October 28, 1988. BPI’s failure to protest meant that the assessments made are
final and unappealable. The December 10, 1988 reply it sent to the CIR did not qualify
as a protest since BPI did not even consider the October 28, 1988 notices as valid or
proper assessments.

Moreover, BPI was from then on barred from disputing the correctness of the
assessments or invoking any defense that would reopen the question of its liability on
the merits.

Presumption of Correctness​. T ​ here arose a presumption of correctness when BPI

failed to protest the assessments: ​Tax assessments by tax examiners are presumed
correct and made in good faith. The taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities … an assessment duly made by a Bureau of
Internal Revenue examiner and approved by his superior officers will not be disturbed.
All presumptions are in favor of the correctness of tax assessments.

Even if we consider the December 10, 1988 letter as a protest, BPI must nevertheless
be deemed to have failed to appeal the CIR’s final decision within the 30-day period.
The CIR, in his May 8, 1991 response, stated that it was his “final decision on the
matter.” BPI therefore had 30 days from the time it received the decision on June 27,
1991 to appeal but it did not. Instead, it filed a request for reconsideration and lodged its
appeal in the CTA.

BPI is still liable under the subject tax assessments:​ That state will be deprived of
the taxes validly due it and the public will suffer if taxpayers will not be held liable for the
proper taxes assessed against them: ​Taxes are the lifeblood of the government, for
without taxes, the government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very existence of
the state whose social contract with its citizens obliges it to promote public interest and
common good. The theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting general
welfare and well-being of the people.

4. Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal Revenue - ​Mikko

FACTS​: Petitioner Barcelon, Roxas Securities Inc., is a corporation engaged in the
trading of securities. It filed its Annual Income Tax Return for taxable year on April 14,
1988. After the BIR conducted its audit, respondent CIR issued an assessment for
deficiency income tax in the amount of Php 826,698.31. This assessment was covered
by Formal Assessment Notice No. FAN-1-87-91-000649 dated February 1, 1991, which
respondent alleges, was sent to petitioner through registered mail on February 6 1991.
However, petitioner denies receiving the formal assessment notice.

Petitioner filed a formal protest which the respondent denied with finality. Petitioner then
filed a petition for review with the CTA that rendered a decision in favor of the former on
the primary issue of prescription. Respondent moved for reconsideration but was
denied, thereafter it appealed to the CA which granted its petition. Hence this Petition
for Review on Certiorari.

ISSUE: ​Whether or not respondent’s right to assess petitioner’s alleged deficiency

income tax is barred by prescription.

RULING: ​Respondent failed to discharge its duty. No substantial evidence was ever presented to prove
that the assessment notice or other supposed notices subsequent thereto were in fact issued or sent to
the taxpayer. Evidence presented is insufficient to give rise to the presumption that the assessment notice
was received in the regular course of mail. Consequently, the right of the government to assess and
collect the alleged deficiency tax is barred by prescription.

5. Philippine Journalists, Inc. vs. Commissioner of Internal Revenue - ​Monique

FACTS: ​Petitioner filed its Annual Income Tax Return for December 31, 1994.
Petitioner’s Comptroller, Lorenza Tolentino, executed a waiver of the prescriptive
period provided by Sections 223 and 224 and other relevant provisions of the
NIRC and consented to the assessment and collection of taxes which may be
found due after the examination at any time after the lapse of the period. BIR
issued an assessment on December 9, 1998. Petitioner asked to be clarified how
the tax liability was reached and contested that the assessment had no factual
and legal basis. On March 28, 2000, a Warrant of Distraint and/or Levy was
received by the petitioner. Petitioner filed a Petition for Review with the CTA,
asserting among others that the assessment, having been made beyond the
3-year prescriptive period, is null and void. The petition was granted, on appeal
the CA disagreed with the ruling of the CTA. Hence, this appeal.

ISSUE: ​Is the Waiver valid?

RULING: ​No. The Waiver of Statute of Limitations signed by petitioner’s

comptroller on is not valid and binding because it does not conform with the
provisions of RMO No. 20-90. It did not specify a definite agreed date between
the BIR and petitioner, within which the former may assess and collect revenue
taxes. Thus, Petitioner’s waiver became unlimited in time, violating Section
222(b) of the NIRC.

The waiver is also defective from the government side because it was signed
only by a revenue district officer, not the Commissioner, as mandated by the
NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or
the BIR but is a bilateral agreement between two parties to extend the period to a
date certain.

The other defect noted in this case is the date of acceptance (of the BIR) which
makes it difficult to fix with certainty if the waiver was actually agreed before the
expiration of the three-year prescriptive period.

Finally, the records show that petitioner was not furnished a copy of the waiver.
Under RMO No. 20-90, the waiver must be executed in three copies with the
second copy for the taxpayer. There is compliance with the provision of RMO No.
20-90 only after the taxpayer received a copy of the waiver accepted by the BIR.
The​ ​requirement to furnish the taxpayer with a copy of the waiver is not only to
give notice of the existence of the document but of the acceptance by the BIR
and the perfection of the agreement.

ISSUE: ​Is the assessment valid?

RULING: ​No. The waiver document is incomplete and defective and thus the
three-year prescriptive period was not tolled or extended and continued to run
until April 17, 1998. Consequently, the Assessment issued on December 9, 1998
was invalid because it was issued beyond the three (3) year period. In the same
manner Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received
on March 28, 2000 is also null and void for having been issued pursuant to an
invalid assessment.

6. CIR v Trans Optical (2017) - ​Gerard

7. Commissioner of Internal Revenue vs. FMF Development Corporation - ​Airah

FACTS: ​On April 15, 1996, FMF filed its Corporate Annual Income Tax Return
for taxable year 1995 and declared a loss of P3,348,932. The BIR sent FMF
pre-assessment notices informing it of its alleged tax liabilities. FMF filed a protest
against these notices with the BIR and requested for a
reconsideration/reinvestigation. RDO Rogelio Zambarrano informed FMF that the
reinvestigation had been referred to Revenue OfficerAlberto Fortaleza.

On February 9, 1999, FMF President executed a waiver of the three-year

prescriptive period for the BIR to assess internal revenue taxes to extend the
assessment period until October 31, 1999. The waiver was accepted and signed by
RDO Zambarrano.

On October 18, 1999, FMF received amended pre-assessment notices dated

October 6, 1999 from the BIR. FMF immediately filed a protest on November 3,
1999 but on the same day, it received BIR’s Demand Letter and Assessment Notice
dated October 25, 1999reflecting FMF’s alleged deficiency taxes and accrued
interests the total of which amounted to P2,053,698.25. FMF filed a letter of
protest on the assessment invoking the defense of prescription by reason of the
invalidity of the waiver. The BIR insisted that the waiver is valid. It ordered FMF
to immediately settle its tax liabilities, otherwise, judicial action will be taken.
Treating this as BIR’s final decision, FMF filed a petition for review with the CTA.
The CTA granted the petition and cancelled Assessment Notice made by the BIR
because it was already time-barred. The CTA ruled that the waiver did not extend
the three-year prescriptive period within which the BIR can make a valid
assessment because it did not comply with the procedures laid down in Revenue
Memorandum Order (RMO) No. 20-90. On appeal, the Court of Appeals affirmed
the decision of the CTA.

ISSUE #1: ​Was the waiver valid?

RULING: ​Petitioner contends that the waiver was validly executed mainly
because it complied with Section 222 (b) of the National Internal Revenue Code
(NIRC). On the other hand, respondent counters that the waiver is void because it
did not comply with RMO No. 20-90Moreover, a waiver of the statute of
limitations is not a waiver of the right to invoke the defense of prescription.

Petition lacks merit. Under Section 203 of the NIRC, internal revenue taxes must
be assessed within three years counted from the period fixed by law for the filing
of the tax return or the actual date of filing, whichever is later. This mandate
governs the question of prescription of the government’s right to assess internal
revenue taxes primarily to safeguard the interests of taxpayers from unreasonable
investigation. Accordingly, the government must assess internal revenue taxes on
time so as not to extend indefinitely the period of assessment and deprive the
taxpayer of the assurancethat it will no longer be subjected to further investigation
for taxes after the expiration of reasonable period of time.
An exception to the three-year prescriptive period on the assessment of taxes is
Section 222 (b) of the NIRC, which provides:

(b) If before the expiration of the time prescribed in Section 203 for the assessment
of the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement
made before the expiration of the period previously agreed upon.

The above provision authorizes the extension of the original three-year period by
the execution of a valid waiver. Under RMO No. 20-90, which implements
Sections 203 and 222 (b), the following procedures should be followed:
1. The waiver must be in the form identified as Annex "A" hereof….
2. The waiver shall be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials.

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal
Revenue or the revenue official authorized by him, as hereinafter provided, shall
sign the waiver indicating that the Bureau has accepted and agreed to the waiver.
The date of such acceptance by the Bureau should be indicated. Both the date of
execution by the taxpayer and date of acceptance by the Bureau should be before
the expiration of the period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.

ISSUE #2: ​Did the three-year period to assess internal revenue taxes already
prescribe?

RULING: Firstly, it was not proven that respondent was furnished a copy of the
BIR-accepted waiver. ​Secondl​y, the waiver was signed only by a revenue district
officer, when it should have been signed by the Commissioner as mandated by the
NIRC and RMO No. 20-90, considering that the case involves an amount of more
than P1 million, and the period to assess is not yet about to prescribe. ​Lastly, it did
not contain the date of acceptance by the Commissioner of Internal Revenue, a
requisite necessary to determine whether the waiver was validly accepted before
the expiration of the original three-year period. Bear in mind that the waiver in
question is a bilateral agreement, thus necessitating the very signatures of both the
Commissioner and the taxpayer to give birth to a valid agreement.

The waiver of the statute of limitations under the NIRC, to a certain extent being a
derogation of the taxpayer’s right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed. ​The waiver of the statute
of limitations does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally, particularly where the language of the document is
equivocal. Notably, in this case, the waiver became unlimited in time because it
did not specify a definite date, agreed upon between the BIR and respondent,
within which the former may assess and collect taxes. It also had no binding effect
on respondent because there was no consent by the Commissioner. On this basis,
no implied consent can be presumed, nor can it be contended that the concurrence
to such waiver is a mere formality. Consequently, petitioner cannot rely on its
invocation of the rule that the government cannot be estopped by the mistakes of
its revenue officers in the enforcement of RMO No. 20-90 because the law on
prescription should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation
of the Commission which recommended the approval of the law.

8. Commissioner of Internal Revenue vs. Kudos Metal Corporation - ​Mikko

FACTS: ​On April 15, 1999, Kudos Metal Corporation filed its Annual Income Tax Return
for the taxable year 1998. The BIR served upon respondent 3 Notices of Presentation of
Records which the latter failed to comply. The BIR issued a ​Subpeona Duces Tecum
which was acknowledged by respondent’s President on October 20, 2000. On
December 10, 2001 and February 18, 2003, respondent’s accountant, executed two
Waiver of the Defense of Prescription, respectively. On August 25, 2003, the BIR issued
a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This
was followed by a Formal Letter of Demand with Assessment Notices for taxable year
1998, dated September 26, 2003 which was received by respondent on November 12,
2003. Respondent challenged the assessments arguing that the government’s right to
assess has already prescribed. Petitioner, on the other hand, does not deny that the
assessment notices were issued beyond the three-year prescriptive period but claims
that the period was extended by such two waivers.

ISSUES:
1. Whether or not the government’s right to assess unpaid taxes of the respondent
has already prescribed despite the Waiver of Prescription executed by the respondent

2. Whether or not respondent is estopped from claiming prescription since by

executing the waivers, it was the one which asked for additional time to submit the
required documents

RULING:
1. Yes. Section 203 of the National Internal Revenue Code of 1997 (NIRC)
mandates the government to assess internal revenue taxes within three years from the
last day prescribed by law for the filing of the tax return or the actual date of filing of
such return, whichever comes later. Hence, an assessment notice issued after the
three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 222 of the NIRC, to wit, “the period to
assess and collect taxes may only be extended upon a written agreement between the
CIR and the taxpayer executed before the expiration of the three-year period.” RMO
20-90 (April 4, 1990) and RDAO 05-01 (August 2, 2001) lay down the procedure for the
proper execution of the waiver, to wit:

i. ​ ​The waiver must be in the proper form prescribed by RMO 20-90. The

phrase "but not after ______ 19 ___", which indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular three-year period of prescription,
should be filled up.

ii. ​The waiver must be signed by the taxpayer himself or his duly authorized
​

representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.

iii.​
​ The waiver should be duly notarized.
​

iv. ​The CIR or the revenue official authorized by him must sign the waiver
​

indicating that the BIR has accepted and agreed to the waiver. The date of such
acceptance by the BIR should be indicated. However, before signing the waiver, the
CIR or the revenue official authorized by him must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or his duly authorized
representative.

v. ​Both the date of execution by the taxpayer and date of acceptance by the
​

Bureau should be before the expiration of the period of prescription or before the lapse
of the period agreed upon in case a subsequent agreement is executed.

vi. ​The waiver must be executed in three copies, the original copy to be
​

attached to the docket of the case, the second copy for the taxpayer and the third copy
for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file
copy must be indicated in the original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement.​19
In the case at bar, the waivers executed by respondent’s accountant, however, were (1)
executed without the notarized written authority of the latter to sign the waiver in behalf
of respondent; (2) failed to indicate the date of acceptance; and, (3) the fact of receipt
by the respondent of its file copy was not indicated in the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the
three-year period and are void.
2. The doctrine of estoppel cannot be applied in this case as an exception to the
statute of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly follow. The
doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined,
is justice according to natural law and right. As such, the doctrine cannot give validity to
an act that is prohibited by law or one that is against public policy.
The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01. Having caused the defects in the waivers, the BIR must
bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of
the statute of limitations, being a derogation of the taxpayer’s right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed.
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be
taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond
the three-year period because with or without the required documents, the CIR has the power to make
assessments based on the best evidence obtainable.

9. Commissioner of Internal Revenue vs. Metro Star Superama Inc. - ​Monique

FACTS: ​On April 11, 2002, petitioner received a Formal Letter of Demand
assessing the amount of P292,874.16 for deficiency value-added and withholding
taxes for the taxable year 1999. Subsequently, a Final Notice of Seizure was also
sent to petitioner. On February 6, 2004, petitioner received a Warrant of Distraint
and/or Levy demanding payment. Petitioner filed with the Office of respondent
Commissioner a Motion for Reconsideration which was denied. Denying that it
received a Preliminary Assessment Notice ​(PAN) ​and claiming that it was not
accorded due process, Metro Star filed a petition for review with the CTA-Second
Division which granted the petition. CTA-​En Banc d ​ enied CIR’s subsequent
petition. Hence the present petition by the CIR.

ISSUE: ​Is the failure to strictly comply with notice requirements prescribed under
Section 228 of the NIRC and Revenue Regulations (R.R.) No. 12-99 tantamount
to a denial of due process?

RULING: ​Yes. Section 228 of the NIRC provides:

Protesting of Assessment.​ When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, ​he shall first notify​ the taxpayer of his findings:
xxx
The taxpayers shall ​be informed in writing​ of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.

This is confirmed under the provisions R.R. No. 12-99 of the BIR:

3.1.1​ ​Notice for informal conference - ​ x x x ​the said Office shall issue to the taxpayer, at

least by registered mail, ​a Preliminary Assessment Notice (PAN​) for the proposed
assessment, showing in detail, the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based (see illustration in ANNEX
A hereof).

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first
be informed that he is liable for deficiency taxes through the sending of a
Preliminary Assessment Notice (PAN). He must be informed of the facts and the
law upon which the assessment is made. The law imposes a substantive, not
merely a formal, requirement.

The sending of a PAN to taxpayer to inform him of the assessment made is but
part of the “due process requirement in the issuance of a deficiency tax
assessment” the absence of which renders nugatory any assessment made by
the tax authorities. Thus, for its failure to send the PAN stating the facts and the
law on which the assessment was made as required by Section 228 of R.A. No.
8424, the assessment made by the CIR is void.

10. ALLIED BANKING CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE - ​Gerard

11. Commissioner of Internal Revenue vs. Gonzalez - ​Airah

12. Pacquiao vs. Court of Tax Appeals, First Division - ​Mikko

CASES ON PRESCRIPTION

1. Commissioner of Internal Revenue vs. Tulio - ​Monique

FACTS: ​On February 28, 1991 petitioner CIR, sent respondent Tulio a demand
letter with two final assessment notices for payment of his deficiency percentage
taxes. Respondent failed to act on the assessment notices. Hence, the same
became final and executory pursuant to Section 229 of the NIRC. Petitioner
issued a warrant of distraint and/or levy against respondent. Petitioner sent
letters to respondent giving him the last opportunity to settle his tax liabilities. But
respondent was obstinate. Thus, on October 29, 1997, petitioner filed with the
RTC a civil action for the collection of the deficiency percentage taxes.
Respondent filed a motion to dismiss alleging that the complaint was filed beyond
the three-year prescriptive period. The RTC dismissed the case. Petitioner filed
a motion for reconsideration but was denied. Hence, this petition for review on
certiorari​.

ISSUE: ​Has petitioner’s cause of action for the collection of deficiency

percentage taxes against respondent prescribed?
RULING: ​No. The 3- year prescriptive period under Sec. 203 of the NIRC does
not apply. Such period should be counted from the day the return was filed, or
from August 15, 1990 up to August 15, 1993.

As shown by the records, respondent ​failed to file a tax return.​ Respondents

failure to file his tax returns is thus covered by Section 223 providing for a
10-year prescriptive period within which a proceeding in court may be filed.

Section 223 (Now Section 222) specifies three (3) instances when the running
of ​the three-year prescriptive period does not apply.​ These are: (1) filing a
false return, (2) filing a fraudulent return with intent to evade tax or ​(3) failure to
file a return.​ The
period within which to assess tax is 10 years from discovery of the fraud,
falsification or omission.

Here, respondent failed to file his tax returns for 1986 and 1987. On September
14, 1989, petitioner found respondent’s omission. Hence, the running of the
10-year prescriptive period within which to assess and collect the taxes due from
respondent commenced on that date until September 14, 1999. The two final
assessment notices were issued on February 28, 1991, well within the
prescriptive ​period of three (3) years​. ​(feel nako sayop ni, dapat 10 years ni
pero mao naa sa case)​ When respondent failed to question or protest the
deficiency assessments thirty (30) days therefrom, or until March 30, 1991, the
same became final and executory.

The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal, considering that under Section
223 of the NIRC, in case of failure to file a return, the tax may be assessed at
any time ​within ten (10) years after the omission,​ and any tax so assessed may
be collected by levy upon real property within three years following the
assessment of the tax (as was done here). Since the estate tax assessment had
become final and unappealable, there is now no reason why petitioner should not
enforce its authority to collect respondent’s deficiency percentage taxes for 1986
and 1987.
 2. Bank of the Philippine Islands vs. Commissioner of Internal Revenue - ​Gerard

3. Bank of the Philippine Islands vs. Commissioner of Internal Revenue (2008) -

Airah

FACTS: Petitioner, the surviving bank after its merger with Far East Bank and Trust Company,
is a corporation duly created and existing under the laws of the Republic of the Philippineswith
principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City.
Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a
pre-assessment notice (PAN) dated November 26, 1986.
Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts
alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN.
On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to
86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap
Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63,
respectively, for the years 1982 to 1986.
On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8,
1989, petitioner filed a supplemental protest.
On March 12, 1993, petitioner requested for an opportunity to present or submit additional
documentation on the Swap Transactions with the then Central Bank (page 240, BIR Records).
Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the
abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central
Bank.
Petitioner executed several Waivers of the Statutes of Limitations, the last of which was
effective until December 31, 1994.
On August 9, 2002, respondent issued a final decision on petitioners protest ordering the
withdrawal and cancellation of the deficiency withholding tax assessment in the amount of
P190,752,860.82 and considered the same as closed and terminated. On the other hand, the
deficiency DST assessment in the amount of P24,587,174.63 was reiterated and the petitioner
was ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner
received a copy of the said decision on January 15, 2003. Thereafter, on January 24, 2003,
petitioner filed a Petition for Review before the Court.
On August 31, 2004, the Court rendered a Decision denying the petitioners Petition for Review
On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned
Decision which was denied for lack of merit in a Resolution dated February 14, 2005.
On March 9, 2005, petitioner filed with the Court ​En Banc a Motion for Extension of Time to File
Petition for Review praying for an extension of fifteen (15) days from March 10, 2005 or until
March 25, 2005. Petitioners motion was granted in a Resolution dated March 16, 2005.
On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review
ISSUE: ​whether the collection of the deficiency DST is barred by prescription
RULING: Section 318 of the Tax Code of 1977 provides:
Sec. 318. ​Period of limitation upon assessment and collection.​Except as provided in the
succeeding section, internal revenue taxes shall be assessed within five years after the
return was filed, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period. For the purposes of this
section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: ​Provided, T ​ hat this limitation shall not apply to
cases already investigated prior to the approval of this Code.

The statute of limitations on assessment and collection of national internal revenue

taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700.
Thus, the CIR has three (3) years from the date of actual filing of the tax return to
assess a national internal revenue tax or to commence court proceedings for the
collection thereof without an assessment.

When it validly issues an assessment within the three (3)-year period, it has another
three (3) years within which to collect the tax due by distraint, levy, or court proceeding.
The assessment of the tax is deemed made and the three (3)-year period for collection
of the assessed tax begins to run on the date the assessment notice had been
released, mailed or sent to the taxpayer.

As applied to the present case, the CIR had three (3) years from the time he issued
assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect
the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to
pay the deficiency.

In order to determine whether the prescriptive period for collecting the tax deficiency
was effectively tolled by BPIs filing of the protest letters dated 20 April and 8 May 1989
as claimed by the CIR, we need to examine Section 320 of the Tax Code of 1977. In
order to suspend the running of the prescriptive periods for assessment and collection,
the request for reinvestigation must be granted by the CIR.

In ​BPI v. Commissioner of Internal Revenue, ​the Court emphasized the rule that the
CIR must first grant the request for reinvestigation as a requirement for the suspension
of the statute of limitations.

The Court went on to declare that the burden of proof that the request for reinvestigation
had been actually granted shall be on the CIR. Such grant may be expressed in its
communications with the taxpayer or implied from the action of the CIR or his
authorized representative in response to the request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that
the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the
records is the piercing silence and inaction of the CIR on the request for reinvestigation,
as he considered BPIs letters of protest to be.

In fact, it was only in his comment to the present petition that the CIR, through the OSG,
argued for the first time that he had granted the request for reinvestigation. His
consistent stance invoking the ​Wyeth Suaco c​ ase, as reflected in the records, is that the
prescriptive period was tolled by BPIs request for reinvestigation, without any assertion
that the same had been granted or at least acted upon.
Neither did the waiver of the statute of limitations signed by BPI supposedly effective
until ​31 December 1994 suspend the prescriptive period. The CIR himself contends that the
waiver is void as it shows no date of acceptance in violation of RMO No. 20-90.​[16] At any rate,
the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue
to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when
it finally issued a decision on the protest.
ISSUE:​ whether BPI is liable for DST on its SWAP loan transactions.
RULING: ​In this case, BPIs letters of protest and submission of additional documents
pertaining to its SWAP transactions, which were never even acted upon, much less
granted, cannot be said to have persuaded the CIR to postpone the collection of the
deficiency DST.

The inordinate delay of the CIR in acting upon and resolving the request for
reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had
resulted in the prescription of the governments right to collect the deficiency. As this
Court declared in ​Republic of the Philippines v. Ablaza:

The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax
officers would be obliged to act promptly in the making of assessment, and to citizens
because after the lapse of the period of prescription citizens would have a feeling of
security against unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latters real liability, but to take advantage of
every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense
taxpayers would furthermore be under obligation to always keep their books and keep
them open for inspection subject to harassment by unscrupulous tax agents. The law on
prescription being a remedial measure should be interpreted in a way conducive to
bringing about the beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval of the law.

Given the prescription of the governments claim, we no longer deem it necessary to

pass upon the validity of the assessment.

4. Commissioner of Internal Revenue vs. Philippine Global Communication, Inc. -

Mikko

CIR vs Phil Global

GR 167146, 31October 2006

FACTS: Philippine Global Communications, Inc. (respondent), a corporation engaged in

telecommunications, filed its Annual Income Tax Return for taxable year 1990 on April 15, 1991.
On April 13, 1992, the CIR authorized the appropriate BIR officials to examine the books of
account and other accounting records of respondent, in connection with the investigation of
respondent’s 1990 income tax liability. BIR sent a letter to respondent requesting the latter to
present for examination certain records and documents, but respondent failed to present any
document. Respondent received a Preliminary Assessment Notice dated April 13, 1994 for
deficiency income tax of P 118,271,672.00 inclusive of surcharge, interest, and compromise
penalty, arising from deductions that were disallowed for failure to pay the withholding tax and
interest expenses that were likewise disallowed. On the following day, April 22, 1994,
respondent received a Formal Assessment Notice dated April 14, 1994 for deficiency income
tax.
Respondent then filed two letters of protests requesting for the cancellation of the tax
assessment. More than 8 years after the assessment was presumably issued, respondent
received from the CIR a Final Decision dated October 8, 2002 denying the respondent’s protest
against Assessment and affirming the said assessment in toto.
In the petition for review, the CTA rendered a decision in favor or respondent. It decided that the
protest letters filed by the respondent ​cannot constitute a ​request for reinvestigation which
could suspend the running of the prescriptive period to collect the assessed deficiency income
tax. Thus, since more than three years had lapsed from the time the Assessment Notice was
issued, the CIR’s right to collect the same has prescribed in conformity with Section 269 of the
National Internal Revenue Code of 1977.

ISSUES:
1) Whether or not CIR’s right to collect respondent’s alleged deficiency income tax is barred
by prescription under Section 269(c) of the Tax Code of 1977?
2) Whether or not the prescription on assessment was suspended by virtue of the alleged
request of reinvestigation by Philippine Global Communication, Inc.?

RULING:
1) Yes, CIR is now prescribed to collect the assessed tax. T​ he law prescribed 3-year period
from the date the return was actually filed or from the last date prescribed by law for the filing of
such return, whichever came later, within which the BIR may assess a national internal revenue
tax. However, the law increased the prescriptive period to assess or to begin a court proceeding
for the collection without an assessment to 10 years when a false or fraudulent return was filed
with the intent of evading the tax or when no return was filed at all. In such cases, the 10-year
period began to run only from the date of discovery by the BIR of the falsity, fraud or omission.
If the BIR issued this assessment within the 3-year period or the 10-year period, whichever was
applicable, the law provided another 3 years after the assessment for the collection of the tax
due thereon through the administrative process of distraint and/or levy or through judicial
proceedings. The 3-year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR.

In this case, the Assessment was presumably issued on April 14, 1994 since the respondent did
not dispute the CIR’s claim. Therefore, the BIR had until April 13, 1997. However, as there was
no Warrant of Distraint and/or Levy served on the respondent nor any judicial proceedings
initiated by the BIR. The earliest attempt of the BIR to collect the tax due based on this
assessment was when it filed its Answer on January 9, 2003 several years beyond the 3-year
prescriptive period. ​Thus, the CIR is now prescribed from collecting the assessed tax.
Prescription in the assessment and in the collection of taxes is provided by the Legislature for
the benefit of both the Government and the taxpayer; for the Government for the purpose of
expediting the collection of taxes, so that the agency charged with the assessment and
collection may not tarry too long or indefinitely to the prejudice of the interests of the
Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time
after filing his return, he may know the amount of the assessment he is required to pay, whether
or not such assessment is well founded and reasonable so that he may either pay the amount of
the assessment or contest its validity in court.

2) No, the prescription on assessment was not suspended because the protest letters filed
by the respondent were request for reconsideration and not requests for reinvestigation. The
Tax Code of 1977, as amended, provides instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could be
suspended, even in the absence of a waiver​. Among the exceptions (which are the basis of
CIR’s petition) is ​when the taxpayer requests for a reinvestigation which is granted by the
Commissioner.​ However, this exception does not apply to this case since the respondent never
requested for a reinvestigation.
Section 6 of Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests
of Assessment of the Bureau of Internal Revenue defines the two types of protest, the request
for reconsideration and the request for reinvestigation.
(a) Request for reconsideration- refers to a plea for a re-evaluation of an assessment on the
basis of existing records without need of additional evidence. It may involve both a question of
fact or of law or both.
(b) Request for reinvestigation - refers to a plea for re-evaluation of an assessment on the basis
of newly-discovered evidence or additional evidence that a taxpayer intends to present in the
investigation. It may also involve a question of fact or law or both.
A re-evaluation of existing records which results from a request for r​ econsideration does not
toll the running of the prescription period for the collection of an assessed tax.​ ​Section 271
distinctly limits the suspension of the running of the statute of limitations to instances when
reinvestigation ​is requested by a taxpayer and is granted by the CIR.​ A reinvestigation, which
entails the reception and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence already at hand; this
justifies why the former can suspend the running of the statute of limitations on collection of the
assessed tax, while the latter cannot.
The distinction between a request for reconsideration and a request for reinvestigation is
significant. If both types of protest can effectively interrupt the running of the statute of
limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest,
then the erroneous assessment would become final and unappealable. On the other hand, if the
taxpayer does file the protest on a patently erroneous assessment, the statute of limitations
would automatically be suspended and the tax thereon may be collected long after it was
assessed. Meanwhile the interest on the deficiencies and the surcharges continue to
accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are
burdened with the costs of preserving their books and records. This is the predicament that the
law on the statute of limitations seeks to prevent.
In the present case, the protest letters filed by respondent are requests for reconsideration.
CIR’s allegation is inconceivable since BIR could not have conducted a reinvestigation because
no new or additional evidence was submitted, hence, the running of statute of limitations cannot
be interrupted. The tax which is the subject of the Decision issued by the CIR on October 8,
2002 affirming the Formal Assessment issued on April 14, 1994 can no longer be the subject of
any proceeding for its collection. Consequently, the right of the government to collect the
alleged deficiency tax is barred by prescription.

5. Commissioner of Internal Revenue vs. Hambrecht _ Quist Philippines, Inc. -

Monique
FACTS: ​Respondent received a letter dated October 11, 1993 demanding for
payment of deficiency income and expanded withholding taxes for the taxable
year 1989. On December 3, 1993, respondent filed its protest with request for
reinvestigation. On November 7, 2001, BIR denied its protest on the ground that
the protest against the disputed tax assessment was allegedly filed beyond the
30-day reglementary period. Respondent filed a Petition for Review before the
CTA. The CTA held that the CIR failed to collect the assessed taxes within the
prescriptive period; and directed the cancellation and withdrawal of Assessment
Notice. The CIR filed a Petition for Review with the CTA ​En Banc ​but this was
denied. Hence, the instant Petition. The CIR insists that its right to collect the tax
deficiency it assessed on respondent is not barred by prescription since the
prescriptive period thereof was allegedly suspended by respondent’s request for
reinvestigation.

ISSUE: ​Was the period to collect the taxes suspended by the respondent’s
request for reinvestigation?

RULING: No. ​The plain and unambiguous wording of the said provision dictates
that two requisites must concur before the period to enforce collection may be
suspended: (a) that the taxpayer requests for reinvestigation, and (b) that
petitioner grants such request. Consequently, the mere filing of a protest letter
which is not granted does not operate to suspend the running of the period to
collect taxes. In the case at bar, the records show that respondent filed a request
for reinvestigation on December 3, 1993, however, there is no indication that
petitioner acted upon respondent’s protest.

6. Commissioner of Internal Revenue vs. GJM Philippines Manufacturing, Inc. -

Gerard

TAX CREDIT-REFUND

1. Vda. de San Agustin vs. Commissioner of Internal Revenue - ​Airah

FACTS​: Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving his
wife Dra. Felisa L. San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all
his estate to his widow, and naming retired Justice Jose Y. Feria as Executor thereof.
On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on
behalf of the estate, with a request for an extension of two years for the payment of the tax, inasmuch as
the decedent’s widow (did) not personally have sufficient funds, and that the payment (would) have to
come from the estate.
In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor A. Deoferio, Jr., granted
the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under
Sections 248 and 249 of the National Internal Revenue Code, as amended.
On October 1, 1991, within the ten-day period given in the pre-assessment notice, the executor filed a
letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of
P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof, but, requesting that the
surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the
assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the
BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the
extension period.
On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand in the
pre-assessment notice and requesting payment on or before thirty (30) days upon receipt thereof.

In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the
assessment of P976,549.00 and waiver of the surcharge, interest, etc.
On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount of
P538,509.50 through its Receivable Accounts Billing Division.
The request for reconsideration was not acted upon until January 21, 1993, when the executor received a
letter, dated September 21, 1992, signed by the Commissioner, stating that there is no legal justification
for the waiver of the interests, surcharge and compromise penalty in this case, and requiring full payment
of P438,040.38 representing such charges within ten (10) days from receipt thereof.
In view thereof, the respondent estate paid the amount of P438,040.38 under protest on January 25,
1993.

ISSUE #1: ​WON the filing of a claim for refund is ​not​ essential before the filing of the petition for review.

RULING: ​The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu
vs. Collector of Internal Revenue. The petitioner in that case paid under protest the sum of P5,201.52 by
way of income tax, surcharge and interest and, forthwith, filed a petition for review before the Court of Tax
Appeals. Then respondent Collector (now Commissioner) of Internal Revenue set up several defenses,
one of which was that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of
the Tax Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to
petitioners recourse to it, the Court of Tax Appeals dismissed the petition for lack of jurisdiction. On
appeal to this Court, the tax courts ruling was reversed; the Court held:

We agree with petitioner that Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in
providing for appeals from -
`(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or part of the law administered by the
Bureau of Internal Revenue -
allows an appeal from a decision of the Collector in cases involving `disputed assessments as
distinguished from cases involving `refunds of internal revenue taxes, fees or other charges, x x x; that
the present action involves a disputed assessment; because from the time petitioner received
assessments Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him
in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the same,
questioning the correctness and legality of such assessments; and that the petitioner paid the disputed
assessments under protest before filing his petition for review with the Court ​a quo,​ only to forestall the
sale of his properties that had been placed under distraint by the respondent Collector since December 4,
1957​. To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed
assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer
to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect
require of him to go through a useless and needless ceremony that would only delay the disposition of the
case, for the Collector (now Commissioner) would certainly disallow the claim for refund in the same way
as he disallowed the protest against the assessment. The law, should not be interpreted as to result in
absurdities.

The Court sees no cogent reason to abandon the above ​dictum and to require a useless formality that
can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking
cognizance of the taxpayers appeal to it.

ISSUE #2: ​Whether the imposition by the respondent of surcharge, interest and penalties on the
deficiency estate tax is not in accord with the law and therefore illegal.

RULING: ​The delay in the payment of the deficiency tax within the time prescribed for its payment in the
notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of
the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof
comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be
subject to interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and
collected from the date prescribed for its payment until full payment is made.

The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed
on petitioner, a compromise being, by its nature, mutual in essence. The payment made under protest by
petitioner could only signify that there was no agreement that had effectively been reached between the
parties.

ISSUE #3: ​Whether the the need for an authority from the probate court in the payment of the deficiency
estate tax can negate the application of the tax code?

RULING​: Regrettably for petitioner, the need for an authority from the probate court in the payment of the
deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that can
negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government,
are meant to be paid without delay and often oblivious to contingencies or conditions.
(In sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or a
total of P148,090.00.

WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge, interest
and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37
and interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent
Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of
P289,950.38. No costs.

2. Commissioner of Internal Revenue vs. Philippine National Bank - ​Mikko

FACTS: In 1991, PNB issued to the BIR PNB Cashier’s Check for P180M which
represented PNB’s advance income tax payment for the bank’s 1991 operations and
was remitted in response to then President Corazon Aquino’s call to generate more
revenues for national development. PNB then requested the issuance of a tax credit
certificate (TCC) to be utilized for future tax obligations. By the end of 1991, PNB had
credit balance in its favor in the amount of P73.3M. This credit balance was carried-over
to cover tax liability for the years 1992 to 1996, but was never applied owing to the
bank’s negative tax position for the said inclusive years, having incurred losses during
the 4-year period.
On 1997, PNB requested for the issuance of a TCC for the unutilized balance of its
advance payment made in 1991 amounting to P73.3M. BIR denied PNB’s claim for tax
credit on the ground that it has already prescribed having been filed beyond the 2-year
period provided in the Tax Code.

ISSUE: Is the two-year prescriptive period as provided for in the Tax Code applicable?

RULING: No. PNB’s request for issuance of a tax credit certificate on the balance of its
advance income tax payment cannot be treated as a simple case of excess payment as
to be automatically covered by the 2-year limitation. The tax credit sought by PNB is not
simply a case of excess payment, but rather for the application of the balance of
advance income tax payment for subsequent taxable years after failure or impossibility
to make such application over the preceding 4-year period when no tax liability was
incurred by petitioner due to losses in its operations. It is truly inequitable to strictly
impose the 2-year prescriptive period as to legally bar any request for such TCC. Thus,
PNB is entitled an issuance of a TCC.

3. Commissioner of Internal Revenue vs. Central Luzon Drug Corporation -

Monique

4. Silkair (Singapore) Pte, Ltd. vs. Commissioner of Internal Revenue - ​Gerard

FACTS: Silkair Pte. Ltd., a corporation organized under the laws of Singapore which
has a Philippine representative office, is an online international air carrier. On Dec. 19,
2001, Silkair filed with the BIR a written application for the refund of P4,567,450.79
excise taxes it claimed to have paid on its purchase of jet fuel from Petron Corporation
from January-June 2000. Silkair then filed a petition for review before the CTA since the
BIR had not acted on the application yet. The Commission on Internal Revenue (CIR)
opposed Silkair’s petition on the ground that the excise tax on petroleum products once
added to the cost of the goods sold to the buyer, is no longer a tax but part of the price
which the buyer has to pay to obtain the article.
CTA ruled that any claim for refund of the subject excise taxes should be filed by Petron
Corporation as taxpayer since the excise tax was imposed upon it as the manufacturer
of petroleum products, and not petitioner Silkair since it cannot be considered as the
taxpayer because it merely shouldered the burden of the excise tax and not the excise
tax itself; but Silkair may only claim from Petron the reimbursement of the tax burden
shifted to the former by the latter; the amount passed on to purchaser Silkair is no
longer a tax but an added cost on the goods purchased which constitutes a part of the
purchase price.

ISSUE:
(a) Is Silkair entitled to a refund?
(b) Whether or not Silkair is exempt from indirect taxes.
RULING:
(a) No. The proper party to question or seek refund of an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another. Sec. 130(A)(2) of the NIRC
provides that “unless otherwise specifically allowed, the return shall be filed and the
excise tax paid by the manufacturer or producer before removal of domestic products
from place of production.” Thus, Petron Corporation, not Silkair, is the statutory taxpayer
which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and Singapore.
Even if Petron passed on to Silkair the burden of the tax, the additional amount
billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a
purchaser.
(b) No. The exemption granted under Section 135(b) of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without
a clear showing of legislative intent, be construed as including indirect taxes. Statutes
granting tax exemptions must be construed in strictissimi juris against the taxpayer ad
liberally in favour of the taxing authority, and if an exemption is found to exist, it must
not be enlarged by construction. 

5. Commissioner of Internal Revenue vs. Fortune Tobacco Corporation - ​Airah

FACTS​: Fortune Tobacco Corporation is a domestic corporation duly organized and

existing under and by virtue of the laws of the Republic of the Philippines and is the
manufacturer/producer of, among others, the cigarette brands, Champion, Salem,
Camel, and Winston.
However, on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the ad
valorem tax (AVT) system to the specific tax system was made and subjecting the
aforesaid cigarette brands to specific tax under Section 142 thereof, now renumbered
as Sec. 145 of the Tax Code of 1997, pertinent provisions of which are quoted thus:
​Section 145. Cigars and Cigarettes-
(A) ​Cigars​. – There shall be levied, assessed and collected on cigars a tax of One
peso (P1.00) per cigar.
(B) ​Cigarettes packed by hand​. – There shall be levied, assessed and collected on
cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.
(C) ​Cigarettes packed by machine​. – There shall be levied, assessed and collected
on cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price is above ​Ten pesos (P10.00) per pack, the tax shall be
Twelve (P12.00) per pack;
(2) If the net retail price ​exceeds Six pesos and Fifty centavos (P6.50) but does
not exceed Ten pesos (P10.00) per pack, the tax shall be ​Eight Pesos (P8.00) per pack​.
(3) If the net retail price is ​Five pesos (P5.00) but does not exceed Six Pesos and
fifty centavos (P6.50) per pack​, the tax shall be ​Five pesos (P5.00) per pack​;
(4) If the net retail price is below ​Five pesos (P5.00) per pack​, the tax shall be ​One
peso (P1.00)​ per pack;
xxx
The excise tax from any brand of cigarettes within the next three (3) years from the
effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each
brand on October 1, 1996. xxx
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and
(4) hereof, shall be increased by twelve percent (12%) on January 1, 2000​.
Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1
thereof, “(​t)hat the new specific tax rate for any existing brand of cigars, cigarettes
packed by machine, distilled spirits, wines and fermented liquor shall not be
lower than the excise tax that is actually being paid prior to January 1, 2000.”
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on
all brands manufactured and removed in the total amounts of P585,705,250.00.
On February 7, 2000, petitioner filed with respondent’s Appellate Division a claim for
refund or tax credit of its purportedly overpaid excise tax for the month of January 2000
in the amount ofP35,651,410.00. The Tax Court granted the refund.

ISSUE #1:​ Whether or not Fortune Tobacco (respondent) is granted a tax refund.
 ​ ithin the next
RULING​: Yes. Section 145 states that during the transition period, ​i.e., w
three (3) years from the effectivity of the Tax Code, the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This
qualification, however, is conspicuously absent as regards the 12% increase which is to
be applied on cigars and cigarettes packed by machine, among others, effective on 1
January 2000. Clearly and unmistakably, Section 145 mandates a new rate of excise
tax for cigarettes packed by machine due to the 12% increase effective on 1 January
2000 without regard to whether the revenue collection starting from this period may turn
out to be lower than that collected prior to this date.

By adding the qualification that the tax due after the 12% increase becomes
effective shall not be lower than the tax actually paid prior to 1 January 2000, Revenue
Regulation No. 17-99 effectively imposes a tax which is the higher amount between the
ad valorem ​tax being paid at the end of the three (3)-year transition period and the
specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12%—a
situation not supported by the plain wording of Section 145 of the Tax Code.
As we have previously declared, rule-making power must be confined to details for
regulating the mode or proceedings in order to carry into effect the law as it has been
enacted, and it cannot be extended to amend or expand the statutory requirements or to
embrace matters not covered by the statute. Administrative regulations must always be
in harmony with the provisions of the law because any resulting discrepancy between
the two will always be resolved in favor of the basic law.

The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed
indefensibly flawed. The Commissioner cannot seek refuge in his claim that the purpose
behind the passage of the Tax Code is to generate additional revenues for the
government. Revenue generation has undoubtedly been a major consideration in the
passage of the Tax Code. However, as borne by the legislative record, the shift from
the ​ad valorem s​ ystem to the specific tax system is likewise meant to promote fair
competition among the players in the industries concerned, to ensure an equitable
distribution of the tax burden and to simplify tax administration by classifying cigarettes,
among others, into high, medium and low-priced based on their net retail price and
accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as we
have held, the meaning of the law is clear on its face and free from the ambiguities that
the Commissioner imputes. We simply cannot disregard the letter of the law on the
pretext of pursuing its spirit.
Fortune Tobacco was granted a P680,387,025.00 tax refund.
ISSUE #2:​ Whether or not a tax refund partakes the nature of a tax exemption.

RULING: ​No. A tax refund does not partake the nature of a tax exemption. There is
parity between tax refund and tax exemption only when the former is based either on a
tax exemption statute or a tax refund statute. Obviously, that is not the situation here.
Quite the contrary, Fortune Tobacco’s claim for refund is premised on its erroneous
payment of the tax, or better still the government’s exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an exemption from
the burden of taxation must justify his claim by showing that the legislature intended to
exempt him by words too plain to be mistaken. The rule is that tax exemptions must be
strictly construed such that the exemption will not be held to be conferred unless the
terms under which it is granted clearly and distinctly show that such was the intention.
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative
grace but on the legal principle which underlies all quasi-contracts abhorring a person’s
unjust enrichment at the expense of another. The dynamic of erroneous payment of tax
​ hich covers not only mistake
fits to a tee the prototypic quasi-contract, ​solutio indebiti, w
in fact but also mistake in law.

ISSUE #3: Whether or not the Government is exempt from the application of ​solutio
indebiti​.

RULING: ​No. The Government is not exempt from the application of ​solutio indebiti.​
Indeed, the taxpayer expects fair dealing from the Government, and the latter has the
duty to refund without any unreasonable delay what it has erroneously collected. If the
State expects its taxpayers to observe fairness and honesty in paying their taxes, it
must hold itself against the same standard in refunding excess (or erroneous) payments
of such taxes. It should not unjustly enrich itself at the expense of taxpayers. And so,
given its essence, a claim for tax refund necessitates only preponderance of evidence
for its approbation like in any other ordinary civil case.

6. Commissioner of Internal revenue vs.Far East Bank _ Trust Company (now

Bank of the Philippine Island) - ​Mikko
FACTS​: Far East filed Corporate Annual Income Tax Return for 1994 for Corporate
Banking Unit and Foreign Currency Deposit Unit with reflected refundable income tax of
P12M. The P12M refund was carried over and applied for the1995 income tax return. In
1995, Far East claimed that it overpaid tax payments by P17M. P13M is being sought
for refund and chose that the remaining will be carried over. FarEast then claimed for
the refund of the P13.6M, which the CIR did not act upon. Far East filed a claim for
refund.CTA denied claim for refund. CA reversed the CTA, ruling that Far East duly
proved that the income derived from rentals and sale of real property upon which the
taxes were withheld were included in the return as part of the gross income.

ISSUE​: WON respondent is entitled to the refund.

RULING​: NO, The burden of proof for the claim is with the claimant which it failed to
establish. A taxpayer claiming for a tax credit or refund of creditable withholding tax
must comply with the following requisites:1) The claim must be filed with the CIR within
the two-year period from the date of payment of the tax;2) It must be shown on the
return that the income received was declared as part of the gross income; and3) The
fact of withholding must be established by a copy of a statement duly issued by the
payor to the payee showing the amount paid and the amount of the tax withheld.
Moreover, the fact that the petitioner failed to present any evidence or to refute the
evidence presented by respondent does not ipso facto entitle the respondent to a tax
refund. It is not the duty of the government to disprove a Taxpaye’s claim for refund.
Rather, the burden of establishing the factual basis of a claim for a refund rests on the
taxpayer.
And while the petitioner has the power to make an examination of the returns and to
assess the correct amount of tax, his failure to exercise such powers does not create a
presumption in favor of the correctness of the returns. The taxpayer must still present
substantial evidence to prove his claim for refund.
As we have said, there is no automatic grant of a tax refund.

7. Commissioner of Internal Revenue vs. Smart Communication, Inc. - ​Monique

FACTS: ​Prism billed respondent Smart Communications in the amount of

US$547,822.45 for the programming and consultancy services it provided in the
for the Installation of the Channel Manager (CM), and implementation of Smart
Money and Mobile Banking Service SIM Applications (SIM Applications).
Thinking that these payments constitute royalties, respondent withheld the
amount of US$136,955.61 or P7,008,840.43,​ ​representing the 25% royalty tax
under the RP-Malaysia Tax Treaty. On September 25, 2001, respondent filed its
Monthly Remittance Return of Final Income Taxes Withheld for the month of
August 2001. On September 24, 2003 respondent filed with the Bureau of
Internal Revenue (BIR), through the International Tax Affairs Division (ITAD), an
administrative claim for refund​ ​of the amount of P7,008,840.43.
Due to BIR’s inaction on the claim, respondent filed a Petition for Review​ ​with the
CTA. The Second Division found respondent entitled only to a partial refund.
Both parties appealed to the CTA ​En Banc​ which affirmed the partial refund
granted to respondent. Unfazed, petitioner availed of the present recourse.

ISSUE: ​Does respondent, as a withholding agent, have the right to file the claim
for refund?

RULING: ​Yes. The person entitled to claim a tax refund is the taxpayer.
However, in case the taxpayer does not file a claim for refund, the withholding
agent may file the claim. In ​Commissioner of Internal Revenue v. Procter &
Gamble Philippine Manufacturing Corporation​,​ ​a​ w ​ ithholding agent was
considered a proper party to file a​ c​ laim for refund of the withheld taxes of its
foreign parent​ c​ ompany.

What is clear in the decision is that a withholding agent has a legal right to file a
claim for refund for two reasons. ​First,​ he is considered a “taxpayer” under the
NIRC as he is personally liable for the withholding tax as well as for deficiency
assessments, surcharges, and penalties, should the amount of the tax withheld
be finally found to be less than the amount that should have been withheld under
law. ​Second​, as an agent of the taxpayer, his authority to file the necessary
income tax return and to remit the tax withheld to the government impliedly
includes the authority to file a claim for refund and to bring an action for recovery
of such claim.

While the withholding agent has the right to recover the taxes erroneously or
illegally collected, he nevertheless has the obligation to remit the same to the
principal taxpayer. As an agent of the taxpayer, it is his duty to return what he
has recovered; otherwise, he would be unjustly enriching himself at the expense
of the principal taxpayer from whom the taxes were withheld, and from whom he
derives his
legal right to file a claim for refund.

ISSUE​: ​Do the payments for the CM and the SIM Application Agreements
constitute “business profits”, hence not taxable?
RULING: ​Yes. Under the RP-Malaysia Tax Treaty, the “business profits” of an
enterprise of a Contracting State is taxable only in that State, unless the
enterprise carries on business in the other Contracting State through a
permanent establishment. The term “permanent establishment” is defined as a
fixed place of business where the enterprise is wholly or partly carried on.
However, even if there is no fixed place of business, an enterprise of a
Contracting State is deemed to have a permanent establishment in the other
Contracting State if it carries on supervisory activities in that other State for more
than six months in connection with a construction, installation or assembly project
which is being undertaken in that other State. In the instant case, it was
established during the trial that Prism does not have a permanent establishment
in the Philippines. Hence, “business profits” derived from Prism’s dealings with
respondent are not taxable.

Prism has intellectual property right over the SDM program, but not over the CM
and SIM Application programs as the proprietary rights of these programs belong
to respondent. In other words, out of the payments made to Prism, only the
payment for the SDM program is a royalty subject to a 25% withholding tax. A
refund of the erroneously withheld royalty taxes for the payments pertaining to
the CM and SIM Application Agreements is therefore in order.