CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.

- CTA, Double Taxation

FACTS:

Respondent paid the local business tax only as a manufacturers as it was expressly exempted
from the business tax under a different section and which applied to businesses subject to
excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended
the ordinance by deleting the provision exempting businesses under the latter section if they
have already paid taxes under a different section in the ordinance. This amending ordinance was
later declared by the Supreme Court null and void. Respondent then filed a protest on the
ground of double taxation. RTC decided in favor of Respondent and the decision was received by
Petitioner on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for
Extension of Time to File Petition for Review asking for a 15-day extension or until May 20, 2007
within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this
time asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on May
30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to timely
file the Petition.

ISSUES:

(1) Has Petitioner’s the right to appeal with the CTA lapsed?

(2) Does the enforcement of the latter section of the tax ordinance constitute double taxation?

HELD:

(1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20,
2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review
with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the
lapse of the 30-day period on 20 May 2007, in which they prayed for another extended period of
10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first
Motion for Extension of petitioners. Thus, when Petitioner filed their Petition via registered mail
their Petition for Review on 30 May 2007, they were able to comply with the period for filing
such a petition.

(2) YES. There is indeed double taxation if respondent is subjected to the taxes under both
Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject
matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to
make persons conducting business within the City of Manila contribute to city revenues; (3) by
the same taxing authority — petitioner City of Manila; (4) within the same taxing jurisdiction —
within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods — per
calendar year; and (6) of the same kind or character — a local business tax imposed on gross
sales or receipts of the business.

Villanueva v. City of Iloilo

G.R. No. L-26521 December 28, 1968

FACTS:

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing
license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2)
tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M.
Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged
in business in any other streets, P12.00 per apartment. The validity and constitutionality of this
ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva,
owners of four tenement houses containing 34 apartments. On January 15, 1960 the municipal
board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise
known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance
similar to that previously declared by this Court as ultra vires, thus enacted an “Ordinance
Imposing Municipal License Tax on Persons Engaged in the Business of Operating Tenement-
Houses”.

ISSUE:

Whether or not the tax imposed by the ordinance falls within any of the exception provided in
Section 2 of the Local Autonomy Act, thus imposing a double taxation

HELD:

It is necessary to determine the true nature of the tax. The appellees strongly maintain that it is
a “property tax” or “real estate tax,” and not a “tax on persons engaged in any occupation or
business or exercising privileges,” or a license tax, or a privilege tax, or an excise tax. The tax in
question is not a real estate tax. A real estate tax is a direct tax on the ownership of lands and
buildings or other improvements thereon and is payable regardless of whether the property is
used or not. The tax is usually single or indivisible, although the land and building or
improvements erected thereon are assessed separately, except when the land and building or
improvements belong to separate owners. It is a fixed proportion of the assessed value of the
property taxed, and requires, therefore, the intervention of assessors. It is collected or payable
at appointed times, and it constitutes a superior lien on and is enforceable against the property
subject to such taxation, and not by imprisonment of the owner. The tax imposed by the
ordinance in question does not possess the aforestated attributes. Clearly, therefore, the tax in
question is not a real estate tax. “The spirit, rather than the letter, or an ordinance determines
the construction thereof, and the court looks less to its words and more to the context, subject-
matter, consequence, and effect. Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in the letter, although not within
the spirit, is not within the ordinance.” It is within neither the letter nor the spirit of the
ordinance that an additional real estate tax is being imposed, otherwise, the subject-matter
would have been not merely tenement houses. It is plain from the context of the ordinance that
the intention is to impose a license tax on the operation of tenement houses, which is a form of
business or calling. Thus, there is no double taxation.
Mactan Int’l Airport vs. Lapu-lapu City, G.R. No. 181756, Case Digest

Petitioner, Mactan-Cebu International Airport Authority (MCIAA) was created by Congress under
Republic Act No. 6958. Upon its creation, petitioner enjoyed exemption from realty taxes
imposed by the National Government or any of its political subdivision. However, upon the
effectivity of the LGC the Supreme Court rendered a decision that the petitioner is no longer
exempt from realty estate taxes.

Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport which included the airfield, runway, taxi way and
the lots on which these are built. Petitioner contends that these lots, and the lots to which they
are built, are utilized solely and exclusively for public purposes and are exempt from real
property tax. Petitioner based its claim for exemption on DOJ Opinion No. 50.

Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner filed a
petition for Prohibition, TRO, and a writ of preliminary injunction with RTC Lapulapu which
sought to enjoin respondent City from issuing the warrant of levy against petitioner’s properties
from selling them at public auction for delinquency in realty tax obligations.

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and collect real property tax,
an additional tax for the SEF, and penalty interest from petitioner.

RTC granted the writ of preliminary which was later on lifted upon motion by the respondents.

(fait accompli)

RULING OF THE CA: Court of Appeals held that petitioner’s airport terminal building, airfield,
runway, taxiway, and the lots on which they are situated are not exempt from real estate tax
reasoning as follows: Under the Local Government Code (LGC for brevity), enacted pursuant to
the constitutional mandate of local autonomy, all natural and juridical persons, including
government-owned or controlled corporations (GOCCs), instrumentalities and agencies, are no
longer exempt from local taxes even if previously granted an exemption. The only exemptions
from local taxes are those specifically provided under the Code itself, or those enacted through
subsequent legislation.

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which
they are situated NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-
Lapu;

We DECLARE the imposition and collection of the real estate tax, the additional levy for the
Special Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code, respondent city can only collect an interest of 2%
per month on the unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;

We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture
and purchase of the subject property by the respondent City of Lapu-Lapu as NULL and VOID.
However, petitioner MCIAA’s property is encumbered only by a limited lien possessed by the
respondent City of Lapu-Lapu in accord with Section 257 of the Local Government Code.

RULING OF THE SUPREME COURT:

MIAA is not a government-owned or controlled corporation under Section 2(13) of the

Introductory Provisions of the Administrative Code because it is not organized as a stock or non-
stock corporation. Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local Government Code. The exception to
the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity
under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic.

As properties of public dominion owned by the Republic, there is no doubt whatsoever that the
Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of
the Local Government Code. This Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale.
Petitioner’s properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.

VOID all the real property tax assessments, including the additional tax for the special education
fund and the penalty interest, as well as the final notices of real property tax delinquencies,
issued by the City of Lapu-Lapu on petitioner’s properties, except the assessment covering the
portions that petitioner has leased to private parties.

NULL and VOID the sale in public auction of 27 of petitioner’s properties and the eventual
forfeiture and purchase of the said properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of Delinquent Property issued to respondent
City of Lapu-Lapu.

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AMP JOHN HAY VS. LIM G.R. No. 119775 MARCH 29, 2005 Taxation, Tax exemption

OCTOBER 25, 2017

FACTS:

Petitioners filed their Petition for prohibition, mandamus and declaratory relief assailing

(1) the constitutionality of Proclamation No. 420 and

(2) the legality of the Memorandum of Agreement and Joint Venture Agreement previously
entered into between public respondent BCDA and private respondents.

Section 3 of Proclamation No. 420 was declared NULL AND VOID and is accordingly declared of
no legal force and effect.

Intervener Camp John Hay Development Corp. (CJHDC) filed a Motion for Leave to Intervene
alleging that it, together with its consortium partners, entered into a Lease Agreement with
respondent BCDA for the development of the John Hay SEZ; and that it “stands to be most
affected” by this Court’s Decision “invalidating the grant of tax exemption and other financial
incentives” in the John Hay Special Economic Zone (SEZ) since “[i]ts financial obligations and
development and investment commitments under the Lease Agreement were entered into
upon the premise that these incentives are valid and subsisting.”
CJHDC, proffering grounds parallel to those of public respondents, prays that: (1) it be granted
leave to intervene in this case; (2) its attached Motion for Reconsideration in Intervention be
admitted; and (3) this Court’s Decision of October 24, 2003 be reconsidered and petitioners’
petition dismissed.

CJHDC’s Motion for leave to Intervene was granted and noted its Motion for Reconsideration in
Intervention.

ISSUE:

Whether the tax exemptions and other financial incentives granted to the Subic SEZ under
Section 12 of R.A. No. 7227 (Bases Conversion and Development Act of 1992), are applicable to
the John Hay SEZ.

RULING:

CJHDC’s argument that the President’s “power to create Special Economic Zones carries with it
the power to provide for tax and financial incentives,” does not lie. It is the legislative branch
which has the inherent power not only to select the subjects of taxation but to grant
exemptions.

Paragraph 4, Section 28 of Article VI of the Constitution is crystal clear: “[n]o law granting any
tax exemption shall be passed without the concurrence of a majority of all the Members of the
Congress.”

Hence, it is only the legislature, as limited by the provisions of the Constitution, which has full
power to exempt any person or corporation or class of property from taxation. The Constitution
itself may provide for specific tax exemptions or local governments may pass ordinances
providing for exemption from local taxes, but, otherwise, it is only the legislative branch which
has the power to grant tax exemptions, its power to exempt being as broad as its power to tax.
There is absolutely nothing in R.A. No. 7227 which can be considered a grant of tax exemption in
favor of public respondent BCDA. Rather, the beneficiaries of the tax exemptions and other
incentives in Section 12 (the only provision in R.A. No. 7227 which expressly grants tax
exemptions) are clearly the business enterprises located within the Subic SEZ.

Contrary to public respondents’ interpretation, the Decision of October 24, 2003 does not “tie
the hands” of executive or administrative agencies from implementing any present or future
legislation which affords tax or other financial incentives to qualified persons doing business in
the John Hay SEZ or elsewhere. The second sentence of Section 3 of Proclamation No. 420 was
declared null and void only insofar as it purported to grant tax exemptions and other financial
incentives to business enterprises located in John Hay SEZ. However, where there is statutory
basis for exemptions or incentives, there is nothing to prevent qualified persons from applying
for and availing thereof.

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FACTS: Petitioner, an educational corporation and institution of higher learning duly

incorporated with the Securities and Exchange Commission in 1948, filed a complaint to annul
and declare void the “Notice of Seizure’ and the “Notice of Sale” of its lot and building located at
Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said
“Notice of Seizure” by respondents Municipal Treasurer and Provincial Treasurer, defendants
below, was issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its
questioned decision. The trial court ruled for the government, holding that the second floor of
the building is being used by the director for residential purposes and that the ground floor used
and rented by Northern Marketing Corporation, a commercial establishment, and thus the
property is not being used exclusively for educational purposes. Instead of perfecting an appeal,
petitioner availed of the instant petition for review on certiorari with prayer for preliminary
injunction before the Supreme Court, by filing said petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for educational purposes.

HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly
grants exemption from realty taxes for cemeteries, churches and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious,
charitable or educational purposes.ﾝ Reasonable emphasis has always been made that the
exemption extends to facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. The use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of
the first floor of the building to the Northern Marketing Corporation cannot by any stretch of
the imagination be considered incidental to the purpose of education. The test of exemption
from taxation is the use of the property for purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the
assessed tax be returned to the petitioner. The modification is derived from the fact that the
ground floor is being used for commercial purposes (leased) and the second floor being used as
incidental to education (residence of the director).

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Facts: Sometime in the 1930’s, Don Andres Soriano, a citizen and resident of the United States,
formed the corporation “A. Soriano Y Cia”, predecessor of ANSCOR with a 1,000,000.00
capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is
wholly owned and controlled by the family of Don Andres, who are all non-resident aliens. In
1937, Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued.

On September 12, 1945, ANSCOR’s authorized capital stock was increased to P2,500,000.00
divided into 25,000 common shares with the same par value. Of the additional 15,000 shares,
only 10,000 was issued which were all subscribed by Don Andres, after the other stockholders
waived in favor of the former their pre-emptive rights to subscribe to the new issues. This
increased his subscription to 14,963 common shares. A month later, Don Andres transferred
1,250 shares each to his two sons, Jose and Andres Jr., as their initial investments in ANSCOR.
Both sons are foreigners.

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made
between 1949 and December 20, 1963. On December 30, 1964 Don Andres died. As of that
date, the records revealed that he has a total shareholdings of 185,154 shares. 50,495 of which
are original issues and the balance of 134,659 shares as stock dividend declarations.
Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife,
Doña Carmen Soriano, as her conjugal share. The offer half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further
increased it to P30M. In the same year (December 1966), stock dividends worth 46,290 and
46,287 shares were respectively received by the Don Andres estate and Doña Carmen from
ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common
shares each.
On December 28, 1967, Doña Carmen requested a ruling from the United States Internal
Revenue Service (IRS), inquiring if an exchange of common with preferred shares may be
considered as a tax avoidance scheme. By January 2, 1968, ANSCOR reclassified its existing
300,000 common shares into 150,000 common and 150,000 preferred shares.

In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization
scheme and not tax avoidance. Consequently, on March 31, 1968 Doña Carmen exchanged her
whole 138,864 common shares for 138,860 of the preferred shares. The estate of Don Andres in
turn exchanged 11,140 of its common shares for the remaining 11,140 preferred shares.

In 1973, after examining ANSCOR’s books of account and record Revenue examiners issued a
report proposing that ANSCOR be assessed for deficiency withholding tax-at-source, for the year
1968 and the 2nd quarter of 1969 based on the transaction of exchange and redemption of
stocks. BIR made the corresponding assessments. ANSCOR’s subsequent protest on the
assessments was denied in 1983 by petitioner. ANSCOR filed a petition for review with the CTA,
the Tax Court reversed petitioners ruling. CA affirmed the ruling of the CTA. Hence this position.

Issue: Whether or not a person assessed for deficiency withholding tax under Sec. 53 and 54 of
the Tax Code is being held liable in its capacity as a withholding agent.

Held: An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed
by petitioner for deficiency withholding tax, as such, it is being held liable in its capacity as a
withholding agent and not in its personality as taxpayer. A withholding agent, A. Soriano Corp. in
this case, cannot be deemed a taxpayer for it to avail of a tax amnesty under a Presidential
decree that condones “the collection of all internal revenue taxes including the increments or
penalties on account of non-payment as well as all civil, criminal, or administrative liabilities
arising from or incident to voluntary disclosures under the NIRC of previously untaxed income
and/or wealth realized here or abroad by any taxpayer, natural or juridical.” The Court explains:
“The withholding agent is not a taxpayer, he is a mere tax collector. Under the withholding
system, however, the agent-payer becomes a payee by fiction of law. His liability is direct and
independent from the taxpayer, because the income tax is still imposed and due from the latter.
The agent is not liable for the tax as no wealth flowed into him, he earned no income.”

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Commissioner of Internal Revenue vs. Estate of Benigno Toda Jr., et al.

G.R. No. 147188 September 14, 2004

483 SCRA 293

FACTS:

Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, Jr., President and owner of
99.991% of its issued and outstanding capital stock, to sell a 16-storey commercial building
known as Cibeles Building and the two parcels of land on which the building stands for an
amount of not less than P90 million.

Six months later, Toda purportedly sold the property for P100 million to Rafael A. Altonaga,
who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200
million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the
same day by the same notary public. For the sale of the property to RMI, Altonaga paid capital
gains tax in the amount of P10 million.

When CIC filed for corporate annual income tax return for the year 1989, it declared its gain
from the sale of real property in the amount of P75,728.021. After crediting withholding taxes of
P254,497.00, it paid P26,341,2078 for its net taxable income of P75,987,725.

On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million,
as evidenced by a Deed of Sale of Shares of Stocks.Three and a half years later, Toda died.

ISSUES:

1. Whether or not the tax planning scheme adopted by CIC constitutes tax evasion that would
justify an assessment of deficiency income tax.

2. Whether or not the Estate is liable for the 1989 deficiency income tax of Cibeles Insurance
Corporation.

RULING:

Yes. Tax evasion is a scheme not sanctioned by law and when it is availed of, it subjects the
taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration
of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;

(2) an accompanying state of mind which is described as being “evil,” in “bad faith,” “willfull,” or
“deliberate and not accidental”; and

(3) a course of action or failure of action which is unlawful.

All these factors are present in the instant case. It was proven that the real buyer of the
properties was RMI, and not the intermediary Altonaga. 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, thereby reducing the tax from 35% to 5%, cannot be considered
a legitimate tax planning because it is tainted with fraud.

2. Yes. Toda agreed to hold himself personally liable when he sold his shares of stock to Le Hun
T. Choa. In the Deed of Sale of Shares of Stock Toda, Toda undertook and agreed “to hold the
BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987,
1988, and 1989.

It is important to note that a corporation has a juridical personality distinct and separate from
the persons owning or composing it. Thus, the owners or stockholders of a corporation may not
generally be made to answer for the liabilities of a corporation and vice versa. However, there
are certain instances in which personal liability may arise. Personal liability of a corporate
director, trustee, or officer along with the corporation may validly attach when:

1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the
corporation, its stockholders, or other persons;

2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation; or

4. He is made, by specific provision of law, to personally answer for his corporate action.

NOTES:

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.”