Villanueva v City of Iloilo (privilege tax) Relying on the passage of RA 2264 or the Local Autonomy

Act, Iloilo enacted Ordinance 11 Series of 1960, imposing a

municipal license tax on tenement houses in accordance with

the schedule of payment provided by therein.

Villanueva and the other appellees are apartment owners from

whom, the city collected license taxes by virtue of Ordinance

11. Appellees aver that the said ordinance is unconstitutional

for RA 2264 does not empower cities to impose apartment

taxes; that the same is oppressive and unreasonable for it

penalizes those who fail to pay the apartment taxes; that it

constitutes not only double taxation but treble taxation; and,

that it violates uniformity of taxation.

Issues:

1. Does the ordinance impose double taxation?

2. Is Iloilo city empowered by RA 2264 to impose tenement

taxes?

Held:

1. While it is true that appellees are taxable under the NIRC

as real estate dealers, and taxable under Ordinance 11,

double taxation may not be invoked. This is because the

same tax may be imposed by the national government as

well as by the local government. The contention that

appellees are doubly taxed because they are paying real

estate taxes and the tenement tax is also devoid of merit.

A license tax may be levied upon a business or occupation

although the land or property used in connection therewith

is subject to property tax. In order to constitute double

taxation, both taxes must be the same kind or character.

Real estate taxes and tenement taxes are not of the same

character.

2. RA 2264 confers local governments broad taxing powers.

The imposition of the tenement taxes does not fall within

the exceptions mentioned by the same law. It is argued

however that the said taxes are real estate taxes and thus,

the imposition of more the 1 per centum real estate tax

which is the limit provided by CA 158, makes the said

ordinance ultra vires. The court ruled that the tax in

question is not a real estate tax. It does not have the

attributes of a real estate tax.1 By the title and the terms of

the ordinance, the tax is a municipal tax which means an

imposition or exaction on the right to use or dispose of

property, to pursue a business, occupation or calling, or to

exercise a privilege. Tenement houses being offered for

rent or lease constitute a distinct form of business or

calling and as such, the imposition of municipal tax finds

support in Section 2 of RA 2264.

1 It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. Te tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of the assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint.

Assoc. of Custom Brokers v Municipal Board (privilege tax) Facts: The disputed ordinance (Ordinance 3379) was passed by the Municipal Board of the City of Manila under the authority conferred by section 18(p) of RA 409 which confers upon the municipal board the power “to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding. “ The plaintiff, an association composed of all brokers and public service operators of Motor Vehicles in the City of Manila filed this petition for declaratory relief challenging the validity of the ordinance on the following grounds; that it while it levies a so-called property tax, it is in reality a license fee which is beyond the power of the board to impose; that the said ordinance goes against the rule on uniformity of taxation; and, that the said imposition constitutes double taxation. Issues: Can the city validly enact such ordinance?

Held: No. The Motor Vehicle Law (Section 70[b]) provides that no fees may be exacted or demanded for the operation of any motor vehicle other than those therein provided , the only exception being that which refers to property tax which may be imposed by municipal corporations. While the ordinance refers to property tax and it is fixed ad valorem, it is merely levied on motor vehicles operating within the city of Manila with the main purpose of raising funds to be expanded exclusively for the repair, maintenance and improvement of streets and bridges in said city. Because of this, the ordinance in question merely imposes a license fee although under the cloak of being an ad valorem tax to circumvent the prohibition provided by the Motor Vehicle Law.

2

2 If a tax is in its nature an excise, it does not become a property tax because it is proportioned

in the amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise by necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered excise.

Philippine Acetylene Co., Inc. v CIR (Indirect Tax; also in Nature of Tax Exemption) Facts: Petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. It made various sales of its product to the National Power Corporation (NPC) an agency of the government and to Voice of America (VOA) an agency of the US government. The respondent assessed against and demanded from the petitioner the payment of deficiency sales tax and surcharge as provided by Sections 186 and 183 of the NIRC. Petitioner denied liability on the payment of the tax based on the sales made to these agencies stating that the same are exempt from taxation because the NPC is exempt from taxation by virtue of RA 947 Sec2 and because VOA is exempt as well because of the Bases Agreement. Issue: Is petitioner exempt from paying the percentage taxes on the sales made to NPC and VOA? Held: No. The percentage tax provided by Section 286 of the NIRC is a tax on the producer or manufacturer and not a tax on the purchaser. Section 183 of the NIRC provide that sales tax shall be paid by the manufacturer or producer who must make a true and complete return of the amount of his or her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within twenty days after the end of each month, pay the tax due thereon. Since the tax imposed by section 186 is a tax on the manufacturer or producer and not a tax on the purchaser, petitioner could not be considered exempt. As regards VOA, petitioner is also not exempt from percentage tax because the Bases Agreement only exempts from tax sales made “for exclusive use in the construction, maintenance and operation or defense of the bases,” or sales to the quartermaster. Sales of goods to any other party even if it be an agency of the US, or even the quartermaster but for a different purpose are not exempt from tax. It is a familiar learning in the American law of taxation that tax exemption must be strictly construed and 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 of the parties.

CIR v. Gotamco (Indirect Tax ; Nature of Tax Exemption) FACTS: The World Health Organization entered into a Host

Agreement between the Philippine government. Section 11 of

that Agreement provides, that "the Organization, its assets,

income and other properties shall be: (a) exempt from all direct

and indirect taxes. It is understood, however, that the

Organization will not claim exemption from taxes which are, in

fact, no more than charges for public utility services; . . .

* When the WHO decided to construct a building for its office, it

informed the bidders that building to be constructed belonged

to an organization with diplomatic status and thus exempt from

the payment of all fees, licenses, and taxes, and that therefore

their bids "must take this into account and should not include

items for such taxes, licenses and other payments to

Government agencies."

* John Gotamco and Sons, Inc. won the bid.

* CIR gave an Opinion that the 3% contractors tax was exempt

but CIR reversed his opinion and stated that "as 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, the same is

not covered by . . . the Host Agreement."

* CIR demanded from Gotamco the 3% tax plus surcharge

* CIR alleges that Host Agreement void. Even if valid,

contractor’s tax is not indirect tax in view of the Agreeement.

* Gotamco appealed to the CTA. CTA for Gotamco.

ISSUE: WON Gotamco should pay the 3% contractor's tax

under Section 191 of NIRC on the gross receipts it realized

from the construction of the WHO office?

HELD: NO, contractor’s tax is indirect tax coming within

purview of the Host Agreement.

As to the Agreement, it is valid since less formal types of

international agreements may be entered into by the Chief

Executive and become binding without the concurrence of the

legislative body. The Agreement comes within this category; it

is a valid and binding international agreement even without the

concurrence of the Philippine Senate.

As to the tax, as correctly held by CTA: In context, direct

taxes are those that are demanded from the very person who,

it is intended or desired, should pay them; while indirect taxes

are those that are demanded in the first instance from one

person in the expectation and intention that he can shift the

burden to someone else. (Pollock vs. Farmers, L & T Co.) The

contractor's tax is of course payable by the contractor but in

the last analysis it is the owner of the building that shoulders

the burden of the tax because the same is shifted by the

contractor to the owner as a matter of self-preservation. Thus,

it is an indirect tax. And it is an indirect tax on the WHO

because, although it is payable by the petitioner, the latter can

shift its burden on the WHO. In the last analysis it is the WHO

that will pay the tax indirectly through the contractor and it

certainly cannot be said that 'this tax has no bearing upon the

World Health Organization.

Phil. Acetylene not applicable since 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. It is the clear intention of the Agreement to exempt

the WHO from "indirect" taxation.

Wells Fargo Bank v CIR (Situs of Taxation) Facts:

Birdie Lillian Eye, died on September 16, 1932 at Los Angeles California, the place of her alleged last residence and domicile. Among the properties she left was her one half conjugal shares in 70,000 shares of stock in Benguet Consolidated Mining Company, an anonymous partnership organized and existing under the laws of the Philippines, with its principal office in Manila. She left a will which was duly admitted to probate in California where her estate was administered and settled. Petitioner is the trustee of the trust created by the will. The Federal and State of California’s inheritance taxes due on said shares have been duly paid. The respondent now claims that the same shares of stocks are also subject to inheritance tax here in the Philippines. Hence, this petition for declaratory judgment was instituted by plaintiff to ascertain whether the shares are still subject to inheritance tax. Issue: May inheritance taxes be imposed on the said shares? Held: Yes. Originally the settled law in the US is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has been relaxed due to (1) the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is hardly possible considering the multiple, distinct relationships which may be entered into with respect thereto.

It is the identity or association of intangibles with the person of their owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or property within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains. In this case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The owner residing in California has extended her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. The jurisdiction of the Philippine government to impose tax must be upheld.

CIR v Japan Airlines (JAL) (Situs of Taxation) Facts:

JAL is a foreign corporation engaged in the business of International air carriage. Since mid-July of 1957, JAL had maintained an office at the Filipinas Hotel, Roxas Boulevard Manila. The said office did not sell tickets but was merely for the promotion of the company. On July 17 1957, JAL constituted PAL as its agent in the Philippines. PAL sold tickets for and in behalf of JAL. On June 1972, JAL then received deficiency income tax assessments notices and a demand letter from petitioner for years 1959 through 1963. JAL protested against said assessments alleging that as a non-resident foreign corporation, it as taxable only on income from Philippines sources as determined by section 37 of the Tax Code, there being no income on said years, JAL is not liable for taxes. Issue: WON proceeds from sales of JAL tickets sold in the Philippines are taxable as income from sources within the Philippines. Held: The ticket sales are taxable.

Citing the case of CIR v BOAC, the court reiterated that the source of an income is the property, activity or service that produced the income. 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. 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 the income is that activity which produced the income. In this case, as JAL constitutes PAL as its agent, the sales of JAL tickets made by PAL is taxable.

COLLECTOR V. LARA (multiplicity of situs) FACTS:Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later as a division superintendent of schools. After his retirement, Miller accepted an executive position in the local branch of Ginn & Co., book publishers with principal offices in New York and Boston, U.S.A., up to the outbreak of the Pacific War. Miller lived at the Manila Hotel. He never lived in any residential house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11, 1944. Testate proceedings were instituted before the Court of California in Santa Cruz County, which subsequently issued an order and decree of settlement of final account and final distribution. The Bank of America, National Trust and Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax return with the Collector, covering only the shares of stock issued by Philippine corporations. After due investigation, the Collector assessed estate and inheritance taxes, which was received by the said executor. The estate of Miller protested said assessment. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals. In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his death. The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a "residence" in this country, and was a resident thereof at the time of his death, and consequently, his intangible personal properties situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator, however, equally maintains that for estate and inheritance tax purposes, the term "residence" is synonymous with the term domicile.

ISSUE: W/N the estate is liable to file an estate and inheritance tax return besides those covering shares of stocks issued by Philippine corporations. HELD: No. The Court agrees with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that the two were used intercnangeabiy. Moreover, there is reason to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal Revenue Code

Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is interpreted as synonymous with domicile, and that—

The incidence of estate and succession has historically been determined by domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers)

At the time of his death, Miller had his residence or domicile in Santa Cruz, California. During his stay in the country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". *** As to the shares of stocks issued by Philippine corporations, an exemption was granted to the estate by virtue of Section 122 of the Tax Code, which provides as follows:

. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country.

Affirmed, with modification.

CIR v. Juliane Baier-Nickel (Multiplicity of Situs) Facts:

Respondent Juliane Baier-Nickel, a non-resident

German citizen, is the President of JUBANITEX, Inc., a

domestic corporation engaged in “[m]anufacturing, marketing

on wholesale only, buying or otherwise acquiring, holding,

importing and exporting, selling and disposing embroidered

textile products.” Through JUBANITEX’s General Manager,

Marina Q. Guzman, the corporation appointed and engaged

the services of respondent as commission agent. It was

agreed that respondent will receive 10% sales commission on

all sales actually concluded and collected through her efforts.

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 amounting to P170,777.26, and remitted the

same to the Bureau of Internal Revenue (BIR). On October

17, 1997, respondent filed her 1995 income tax return

reporting a taxable income of P1,707,772.64 and a tax due of

P170,777.26.

Respondent filed a claim to refund the amount of

P170,777.26 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 the same was a compensation for her

services rendered in Germany and therefore considered as

income from sources outside the Philippines.

The CTA rendered a decision denying her claim. It

held that the commissions received by respondent were

actually her remuneration in the performance of her duties as

President of JUBANITEX and not as a mere sales agent

thereof. The income derived by respondent is therefore an

income taxable in the Philippines because JUBANITEX is a

domestic corporation.

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. And since the “source” of income

means the activity or service that produce the income, the

sales commission received by respondent is not taxable in the

Philippines because it arose from the marketing activities

performed by respondent in Germany.

Petitioner maintains that the income earned by

respondent is taxable in the Philippines because the source

thereof is JUBANITEX, a domestic corporation located in the

City of Makati. It further argued that since respondent is the

President of JUBANITEX, any remuneration she received from

said corporation should be construed as payment of her overall

managerial services to the company and should not be

interpreted as a compensation for a distinct and separate

service as a sales commission agent.

Respondent, on the other hand, claims that the

income she received was payment for her marketing services.

She contended that income of nonresident aliens like her is

subject to tax only if the source of the income is within the

Philippines. Source, according to respondent is the situs of the

activity which produced the income. And since the source of

her income were her marketing activities in Germany, the

income she derived from said activities is not subject to

Philippine income taxation.

Issue/s: W/N respondent’s sales commission income is

taxable in the Philippines.

Held/Ratio: Yes.

Section 25 of the NIRC provides that non-resident

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 non-resident aliens is the income’s

“source.”

“Source of income” relates to the property,

activity or service that produced the income. With respect

to rendition of labor or personal service, as in the instant case,

it is the place where the labor or service was performed that

determines the source of the income. There is therefore no

merit in petitioner’s interpretation which equates source of

income in labor or personal service with the residence of the

payor or the place of payment of the income.

The decisive factual consideration here is not the

capacity in which respondent received the income, but the

sufficiency of evidence to prove that the services she rendered

were performed in Germany.

The settled rule is that tax refunds are in the nature of

tax exemptions and are to be construed strictissimi juris

against the taxpayer. 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.

Petition GRANTED. The June 28, 2000 Decision of the Court

of Tax Appeals in C.T.A. Case No. 5633, which denied

respondent’s claim for refund of income tax paid for the year

1995 is REINSTATED.

Alcan v. Treasurer of Manila (Double Taxation: Strict Sense)

CIR v. Solidbank (Double Taxation: Strict Sense) Facts: For the calendar year 1995, [respondent] seasonably

filed its Quarterly Percentage Tax Returns reflecting gross

receipts (pertaining to 5% [Gross Receipts Tax] rate) in the

total amount of P1,474,691,693.44 with corresponding gross

receipts tax payments in the sum of P73,734,584.60.

On January 30, 1996, [the Court of Tax Appeals]

rendered a decision in CTA Case No. 4720 entitled Asian Bank

Corporation vs. Commissioner of Internal Revenue[,] wherein it

was held that the 20% final withholding tax on [a] bank’s

interest income should not form part of its taxable gross

receipts for purposes of computing the gross receipts tax.

On June 19, 1997, on the strength of the

aforementioned decision, [respondent] filed with the Bureau of

Internal Revenue [BIR] a letter-request for the refund or

issuance of [a] tax credit certificate in the aggregate amount of

P3,508,078.75, representing allegedly overpaid gross receipts

tax for the year 1995.

The CTA rendered its decision ordering petitioner to

refund in favor of respondent the reduced amount of

P1,555,749.65 as overpaid [gross receipts tax] for the year

1995.

The CA held that the 20% FWT on a bank’s interest

income did not form part of the taxable gross receipts in

computing the 5% GRT, because the FWT was not actually

received by the bank but was directly remitted to the

government. The appellate court curtly said that while the Tax

Code “does not specifically state any exemption, x x x the

statute must receive a sensible construction such as will give

effect to the legislative intention, and so as to avoid an unjust

or absurd conclusion.

Issue/s:W/N the 20% final withholding tax on [a] bank’s

interest income forms part of the taxable gross receipts in

computing the 5% gross receipts tax.

Held/Ratio: Yes, the amount of interest income withheld in

payment of the 20% FWT forms part of gross receipts in

computing for the GRT on banks.

Two types of taxes are involved in the present

controversy: (1) the GRT, which is a percentage tax; and (2)

the FWT, which is an income tax. As a bank, petitioner is

covered by both taxes.

“Gross receipts” refer to the total, as opposed to the

net, income. These are therefore the total receipts before any

deduction for the expenses of management. Webster’s New

International Dictionary, in fact, defines gross as “whole or

entire.”

No Double Taxation

The two taxes, subject of this litigation, are different

from each other. The basis of their imposition may be the

same, but their natures are different, thus leading us to a final

point.

Double taxation means taxing the same property

twice when it should be taxed only once; that is, “x x x 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

they must be of the same kind or character.

First, the taxes herein are imposed on two

different subject matters. The subject matter of the FWT is

the passive income generated in the form of interest on

deposits and yield on deposit substitutes, while the subject

matter of the GRT is the privilege of engaging in the business

of banking.

A tax based on receipts is a tax on business rather

than on the property; hence, it is an excise rather than a

property tax. It is not an income tax, unlike the FWT. These

two taxes are entirely distinct and are assessed under different

provisions.

Second, although both taxes are national in scope

because they are imposed by the same taxing authority --

the national government under the Tax Code -- and

operate within the same Philippine jurisdiction for the

same purpose of raising revenues, the taxing periods they

affect are different. The FWT is deducted and withheld as

soon as the income is earned, and is paid after every calendar

quarter in which it is earned. On the other hand, the GRT is

neither deducted nor withheld, but is paid only after every

taxable quarter in which it is earned.

Third, these two taxes are of different kinds or

characters. The FWT is an income tax subject to withholding,

while the GRT is a percentage tax not subject to withholding.

In short, there is no double taxation, because

there is no taxing twice, by the same taxing authority,

within the same jurisdiction, for the same purpose, in

different taxing periods, some of the property in the

territory. Subjecting interest income to a 20% FWT and

including it in the computation of the 5% GRT is clearly

not double taxation.

Petition granted.

China Bank v. CA (Constitutionality of Double Taxation) Facts: The Court of Appeals affirmed the Decision of the Court

of Tax Appeals, which granted China Banking Corporation

(“CBC”) a tax refund or credit of P123,278.73 but denied due to

insufficiency of evidence the remainder of CBC’s claim for

P1,140,623.82.

On 20 July 1994, CBC paid P12,354,933.00 as gross

receipts tax on its income from interests on loan investments,

commissions, services, collection charges, foreign exchange

profits and other operating earnings during the second quarter

of 1994.

On 30 January 1996, the Court of Tax Appeals in

Asian Bank Corporation v. Commissioner of Internal Revenue

ruled that the 20% final withholding tax on a bank’s passive

interest income does not form part of its taxable gross receipts.

On 19 July 1996, CBC filed with the Commissioner of

Internal Revenue (“Commissioner”) a formal claim for tax

refund or credit of P1,140,623.82 from the P12,354,933.00

gross receipts tax that CBC paid for the second quarter of

1994. Citing Asian Bank, CBC argued that it was not liable for

the gross receipts tax - amounting to P1,140,623.82 - on the

sums withheld by the Bangko Sentral ng Pilipinas as final

withholding tax on CBC’s passive interest income in 1994.

Disputing CBC’s claim, the Commissioner asserted

that CBC paid the gross receipts tax pursuant to Section 119

(now Section 121) of the National Internal Revenue Code (“Tax

Code”) and pertinent Bureau of Internal Revenue (“BIR”)

regulations. The Commissioner argued that the final

withholding tax on a bank’s interest income forms part of its

gross receipts in computing the gross receipts tax. The

Commissioner contended that the term “gross receipts” means

the entire income or receipt, without any deduction.

Issue/s:W/N the 20% final withholding tax on interest income

should form part of CBC’s gross receipts in computing the

gross receipts tax on banks;

Held/Ratio: Yes. As commonly understood, the term “gross

receipts” means the entire receipts without any deduction.

Deducting any amount from the gross receipts changes the

result, and the meaning, to net receipts. Any deduction from

gross receipts is inconsistent with a law that mandates a tax on

gross receipts, unless the law itself makes an exception.

The Court of Tax Appeals reversed its ruling in Asian Bank. In

Far East Bank & Trust Co. v. Commissioner and Standard

Chartered Bank v. Commissioner, both promulgated on 16

November 2001, the tax court ruled that the final withholding

tax forms part of the bank’s gross receipts in computing the

gross receipts tax. The tax court also held in Far East Bank

and Standard Chartered Bank that the exclusion of the final

withholding tax from gross receipts operates as a tax

exemption which the law must expressly grant. No law

provides for such exemption.

On Double Taxation: There is no double taxation when

Section 121 of the Tax Code imposes a gross receipts tax on

interest income that is already subjected to the 20% final

withholding tax under Section 27 of the Tax Code. The gross

receipts tax is a business tax under Title V of the Tax Code,

while the final withholding tax is an income tax under Title II of

the Code. There is no double taxation if the law imposes two

different taxes on the same income, business or property.

Constitutionality: City of Baguio v. De Leon:

As to why double taxation is not violative of due process,

Justice Holmes made clear in this language: “The

objection to the taxation as double may be laid down on

one side . . . . The 14th Amendment [the due process

clause] no more forbids double taxation than it does

doubling the amount of a tax, short of confiscation or

proceedings unconstitutional on other grounds.” With

that decision rendered at a time when American

sovereignty in the Philippines was recognized, it

possesses more than just a persuasive effect. To some, it

delivered the coup de grace to the bogey of double

taxation as a constitutional bar to the exercise of the

taxing power. It would seem though that in the United

States, as with us, its ghost, as noted by an eminent critic,

still stalks the juridical stage. In a 1947 decision, however,

we quoted with approval this excerpt from a leading

American decision: ‘Where, as here, Congress has clearly

expressed its intention, the statute must be sustained

even though double taxation results.’

Reversed.

City of Baguio v. De Leon (Constitutionality of Double Taxation) Facts:An ordinance of the City of Baguio imposed a license

fee on any person, firm, entity or corporation doing business in

the City of Baguio. Fortunato de Leon was held liable as a real

estate dealer with a property therein worth more than P10,000,

but not in excess of P50,000, and therefore obligated to pay

under such ordinance the P50 annual fee.

In its decision of December 19, 1964, the lower court declared

the above ordinance as amended, valid and subsisting, and

held defendant-appellant liable for the fees therein prescribed

as a real estate dealer.

Its validity on constitutional grounds is challenged because of

the allegation that it imposed double taxation, which is

repugnant to the due process clause, and that it violated the

requirement of uniformity.

Issue/s: W/N the ordinance is valid.

Held/Ratio: Yes. The source of authority for the challenged

ordinance is supplied by Republic Act No. 329, amending the

city charter of Baguio2 empowering it to fix the license fee and

regulate "businesses, trades and occupations as may be

established or practiced in the City."

On double taxation: As to why double taxation is not violative

of due process, Justice Holmes made clear in this language:

"The objection to the taxation as double may be laid down on

one side. ... The 14th Amendment [the due process clause]

no more forbids double taxation than it does doubling the

amount of a tax, short of confiscation or proceedings

unconstitutional on other grounds." With that decision

rendered at a time when American sovereignty in the

Philippines was recognized, it possesses more than just a

persuasive effect. To some, it delivered the coup de grace to

the bogey of double taxation as a constitutional bar to the

exercise of the taxing power. It would seem though that in the

United States, as with us, its ghost as noted by an eminent

critic, still stalks the juridical state. In a 1947 decision, however,

we quoted with approval this excerpt from a leading

American decision: "Where, as here, Congress has clearly

expressed its intention, the statute must be sustained

even though double taxation results."

At any rate, it has been expressly affirmed by us that such an

"argument against double taxation may not be invoked

where one tax is imposed by the state and the other is

imposed by the city ..., it being widely recognized that

there is nothing inherently obnoxious in the requirement

that license fees or taxes be exacted with respect to the

same occupation, calling or activity by both the state and

the political subdivisions thereof."

On uniformity: Equality and uniformity in taxation

means that all taxable articles or kinds of property of the same

class shall be taxed at the same rate. The taxing power has

the authority to make reasonable and natural classifications for

purposes of taxation;

Affirmed.

CIR v. SC Johnson & Son (Tax Treaties) Facts:

• S. C. Johnson and Son, Inc. entered into a license agreement with SC Johnson and Son, United States of America (USA)

• For the use of the trademark or technology, S. C. Johnson and Son, Inc. was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments

• S. C. Johnson and Son, Inc. filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that the preferential tax rate of 10% should apply to them

Issue Whether or not SC Johnson and Son, USA is entitled to the "most favored nation" tax rate of 10% on royalties as provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty. Held/Ratio

NO. Under Article 13 of the RP-US Tax Treaty, the Philippines may impose one of three rates — 25 percent of the gross amount of the royalties; 15 percent when the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities; or the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third state. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Since the RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent cannot be deemed entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances.

Delpher v. IAC (Tax avoidance) Facts

The Pacheco siblings leased a piece of real estate to

Construction Components International Inc., providing that

during the existence or after the term of the lease that should

the lessor decide to sell the property leased, it shall first be

offered to the lessee and the lessee has the priority to buy

under similar conditions.

Construction Components International, Inc. assigned

its rights and obligations under the contract of lease in favor of

Hydro Pipes Philippines, Inc. with the signed conformity of the

Pacheco siblings.

A deed of exchange was executed between the

Pachecos and Delpher Trades Corporation whereby the former

conveyed to the latter the leased property together with

another parcel of land for 2,500 shares of stock of defendant

corporation with a total value of P1,500,000.00.

Issue

Whether or not the "Deed of Exchange" of the properties

executed by the Pachecos and Delpher Trades Corporation

was meant to be a contract of sale which, in effect, prejudiced

the private respondent's right of first refusal over the leased

property included in the "deed of exchange."

Held/Ratio

NO. In effect, the Delpher Trades Corporation is a

business conduit of the Pachecos. What they really did was to

invest their properties and change the nature of their

ownership from unincorporated to incorporated form by

organizing Delpher Trades Corporation to take control of their

properties and at the same time save on inheritance taxes.

The "Deed of Exchange" of property between the

Pachecos and Delpher Trades Corporation cannot be

considered a contract of sale. There was no transfer of actual

ownership interests by the Pachecos to a third party. The

Pacheco family merely changed their ownership from one form

to another. The ownership remained in the same hands.

Hence, the private respondent has no basis for its claim of a

light of first refusal under the lease contract.

Yutivo v. CTA (Tax avoidance) Facts

Yutivo Sons Hardware Co. bought a number of cars

and trucks from General Motors Overseas Corporation. As

importer, GM paid sales tax prescribed by sections 184, 185

and 186 of the Tax Code on the basis of its selling price to

Yutivo. Said tax being collected only once on original sales,

Yutivo paid no further sales tax on its sales to the public.

Southern Motors, Inc. was organized to engage in the

business of selling cars, trucks and spare parts.

After the incorporation of SM and until the withdrawal

of GM from the Philippines in the middle of 1947, the cars and

trucks purchased by Yutivo from GM were sold by Yutivo to

SM which, in turn, sold them to the public in the Visayas and

Mindanao.

Issue

Whether or not Southern Motors, Inc. was organized as a tax

evasion device.

Held/Ratio

NO. SM was organized in June, 1946 when it could

not have caused Yutivo any tax savings. From that date up to

June 30, 1947, or a period of more than one year, GM was the

importer of the cars and trucks sold to Yutivo, which, in turn

resold them to SM. During that period, it is not disputed that

GM as importer, was the one solely liable for sales taxes.

Neither Yutivo or SM was subject to the sales taxes on their

sales of cars and trucks. The sales tax liability of Yutivo did not

arise until July 1, 1947 when it became the importer and simply

continued its practice of selling to SM. The decision, therefore,

of the Tax Court that SM was organized purposely as a tax

evasion device runs counter to the fact that there was no tax to

evade.

Republic v. Gonzales (Tax evasion) Facts

Since 1946, Blas Gonzales, has been a private concessionaire

in the U.S. Military Base at Clark Field, Angeles City: He was

engaged in the manufacture of furniture and, per agreement

with base authorities, supplied them with his manufactured

articles.

The appellant filed his income tax returns for the years 1946

and 1947, respectively, with the then Municipal Treasurer of

Angeles, Pampanga.

Upon investigation, however, the BIR discovered that for the

years 1946 and 1947, the appellant had been paid a total of

P2,199,920.50 for furniture delivered by him to the base

authorities. Compared against the sales figure provided by the

base authorities, therefore, the amount of P1,787,848.32

declared by the appellant as his total sales for the two tax

years in question was short or underdeclared by some

P412,072.18. Accordingly, the appellee considered this last

mentioned amount as unreported item of income of the

appellant for 1946.

Further investigation into the appellant's 1946 profit and loss

statement disclosed "local sales," that is, sales to persons

other than the United States Army, in the amount of

P124,510.43. As a result, the appellee likewise considered the

said amount as unreported income for the said year. The full

amount of P124,510.43 was considered as taxable income

because the appellant could not produce the books of account

on the same upon which any deduction could be based.

Issues

1. Whether or not Gonzales is subject to Philippine tax laws pursuant to the United States-Philippine Military Bases Agreement

2. Whether or not Gonzales is guilty of fraud.

Held/Ratio

1. YES. None of the mentioned covenants shields a

concessionaire, like the appellant, from the payment of the

income tax. For one thing, even the exemption in favor of

members of the United States Armed Forces and nationals of

the United States does not include income derived from

Philippine sources.

The appellant cannot seek refuge in the use of "excise" or

"other taxes or imposts" in paragraph 1 of Article XVIII of the

Military Bases Agreement, because, as already stated, said

terms are employed with specific application to the right to

establish agencies and concessions within the bases and to

the merchandise or services sold or dispensed by such

agencies or concessions.

2. YES. As rightly argued by the Solicitor General's office, since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation purposes his true and actual income derived from his furniture business at the Clark Field Air Base for two consecutive years is an indication of his fraudulent intent to cheat the Government of its due taxes.

CIR v. Estate of Benigno Toda (Tax evasion) Facts:CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million. 30 August 1989, Toda purportedly sold the property for P100 million to Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million. On 16 April 1990, CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, 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 P26,341,207 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. Issue: WON this is a case of tax evasion or tax avoidance.

Held/Ratio: Tax avoidance and tax evasion are the two most

common ways used by taxpayers in escaping from taxation.

Tax avoidance is the tax saving device within the means

sanctioned by law. It should be used by the taxpayer in good

faith and at arms length. Tax evasion is a scheme used

outside of those lawful means and when availed of, it usually

subjects the taxpayer to further or additional civil or criminal

liabilities.

Tax evasion connotes the integration of three factors:

(1) the end to be achieved, i.e., the payment of less than that

known by the taxpayer to be legally due, or the non-payment of

tax when it is shown that a tax is due;

(2) an accompanying state of mind which is described as being

"evil," in "bad faith," "willfull," or "deliberate and not accidental";

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

All these factors are present in the instant case.

That Altonaga was a mere conduit finds support in the

admission of respondent .Estate that the sale to him was part

of the tax planning scheme of CIC.

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. It is tainted with fraud.

Here, it is obvious that the objective of the sale to

Altonaga was to reduce the amount of tax to be paid. The

transfer from him to RMI would result to 5% individual capital

gains tax, instead of 35% corporate income tax. Altonaga’s

sole purpose of acquiring and transferring title of the 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 tax evasion.

Greenfield v. Meer (Exemption from Taxation) Facts

Since the year 1933, the plaintiff has been

continuously engaged in the embroidery business. In 1935, the

plaintiff began engaging in buying and selling mining stocks

and securities for his own exclusive account and not for the

account of others.

The plaintiff has not been a dealer in securities as

defined in section 84 (t) of Commonwealth Act No. 466; he has

no established place of business for the purchase and sale of

mining stocks and securities; and he was never a member of

any stock exchange.

The plaintiff filed an income tax return where he

claims a deduction of P67,307.80 representing the net loss

sustained by him in mining stocks securities during the year

1939. The defendant disallowed said item of deduction on the

ground that said losses were sustained by the plaintiff from the

sale of mining stocks and securities which are capital assets,

and that the loss arising from the sale of the same should be

allowed only to the extent of the gains from such sales, which

gains were already taken into consideration in the computation

of the alleged net loss of P67,307.80.

Issue

Whether the personal and additional exemptions granted by

section 23 of Commonwealth Act No. 466 should be

considered as a credit against or be deducted from the net

income, or whether it is the tax on such exemptions that should

be deducted from the tax on the total net income.

Held/Ratio

Personal and additional exemptions claimed by appellant

should be credited against or deducted from the net income.

"Exception is an immunity or privilege; it is freedom from a charge or burden to which others are subjected." (If the amounts of personal and additional exemptions fixed in section 23 are exempt from taxation, they should not be included as part of the net income, which is taxable. There is nothing in said section 23 to justify the contention that the tax on personal exemptions (which are exempt from taxation) should first be fixed, and then deducted from the tax on the net income.

CIR v. PLDT (Nature of Taxation Exemption) FACTS:

* PLDT paid to the BIR taxes for the for equipment,

machineries and spare parts it imported for its business.

* After such payment, it wrote to the BIR to seek a confirmatory

ruling on its exemption privileges. The BIR issued a ruling

stating that PLDT is exempt from all taxes including the 10%

value-added tax (VAT) on its importations of equipment,

machineries and spare parts necessary in the conduct of its

business covered by the franchise.

* Based on the BIR ruling, PLDT filed a claim for tax

credit/refund of the VAT, compensating taxes, advance sales

taxes and other taxes it had been paying in its importation of

various equipment, machineries and spare parts needed for its

operations.

* PLDT filed with the CTA a petition for review. CTA granted

the credit/refund. BIR’s MfR denied.

* BIR appealed to CA which affirmed CTA judgment. Hence

this appeal.

ISSUE: WONPLDT is exempt from paying VAT, compensating

taxes, advance sales taxes and internal revenue taxes on its

importations?

HELD: YES, PLDT exempt from paying direct taxes but not

indirect taxes (ie VAT).

Taxation is the rule, exemption is the exception. Statutes

granting tax exemptions must be construed in strictissimi

juris against the taxpayer and liberally in favor of the

taxing authority. To him who claims a refund or exemption

from tax payments rests the burden of justifying the

exemption by words too plain to be mistaken and too

categorical to be misinterpreted.

Tax exemption represents a loss of revenue to the government

and must, therefore, not rest on vague inference. When

claimed, it must be strictly construed against the taxpayer who

must prove that he falls under the exception. If an exemption is

found to exist, it must not be enlarged by construction, since

the reasonable presumption is that the state has granted in

express terms all it intended to grant at all, and that, unless the

privilege is limited to the very terms of the statute the favor

would be extended beyond dispute in ordinary cases.

DISPOSITIVE: CA modified. PLDT to get refund on advance

sales tax and compensating tax it paid less the VAT due on the

importations.

Basco v. Pagcor (Nature of Power to grant tax exemption) FACTS:

* PAGCOR was created and given a franchise under PD 1067.

* Petitioner filed a petition on the grounds that the PAGCOR

Charter is contrary to morals, public policy and order, and

because it constitutes a waiver of the right of Manila City

government's right to impose taxes and license fees, which is

recognized by law. They assail Section 13 par. (2) of P.D. 1869

which exempts PAGCOR, as the franchise holder from paying

any "tax of any kind or form, income or otherwise, as well as

fees, charges or levies of whatever nature, whether National or

Local."

ISSUE: WON PAGCOR Charter is violative of the autonomy of

the local government?

HELD: NO, it is not violative of the law.

Manila's power to impose license fees on gambling, has long

been revoked. As early as 1975, the power of local

governments to regulate gambling thru the grant of "franchise,

licenses or permits" was withdrawn by P.D. No. 771 and was

vested exclusively on the National Government

(Note: Since the case doesn't directly say anything about the

"nature of the power to grant tax exemption", use the doctrine

mentioned in the case [which speaks of the "nature of the

power to tax"] and extend them to tax exemption.)

Manila has no inherent right to impose taxes. Thus, "the

Charter or statute must plainly show an intent to confer that

power or the municipality cannot assume it". Its "power to tax"

therefore must always yield to a legislative act which is

superior having been passed upon by the state itself which has

the "inherent power to tax".

Local governments have no power to tax instrumentalities of

the National Government. "The states have no power by

taxation or otherwise, to retard, impede, burden or in any

manner control the operation of constitutional laws enacted by

Congress to carry into execution the powers vested in the

federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L

Ed. 579)"

The power of local government to "impose taxes and fees" is

always subject to "limitations" which Congress may provide by

law.

DISPOSITIVE: PAGCOR Charter valid since exemption was

granted by Congress.

MACEDA v. MACARAIG(Rationale/Ground for tax exemption & Construction of Statutes Granting Tax Exemption – Exemption) FACTS: (same as 1991 case)

* CA 120 created NAPOCOR as a public corporation to

undertake the development of hydraulic power and the

production of power from other sources.

* RA 358 (1949) granted NAPOCOR tax and duty exemption

privileges. RA 6395 (1971) revised the charter of the

NAPOCOR, tasking it to carry out the policy of the national

electrification, and provided in detail NAPOCOR’s tax

exceptions. PD 380 (1974) specified that NAPOCOR’s

exemption includes all taxes, etc. imposed “directly or

indirectly.”

* PD 938 integrated the exemptions in favor of GOCCs

including their subsidiaries; however, empowering the

President or the Minister of Finance, upon recommendation of

the Fiscal Incentives Review Board (FIRB) to restore, partially

or completely, the exemptions withdrawn or revised.

* The FIRB issued Resolution 10-85 (7 February 1985)

restoring the duty and tax exemptions privileges of NAPOCOR

for period 11 June 1984- 30 June 1985. Resolution 1-86

(1January 1986) restored such exemption indefinitely effective

1 July 1985. EO 93 (1987) again withdrew the exemption.

FIRB issued Resolution 17-87 (24 June 1987) restoring

NAPOCOR’s exemption, which was approved by the President

on 5 October 1987.

* Since 1976, oil firms never paid excise or specific and ad

valorem taxes for petroleum products sold and delivered to

NAPOCOR. Oil companies started to pay specific and ad

valorem taxes on their sales of oil products to NAPOCOR only

in 1984.

* NAPOCOR claimed for a refund (P468.58 million). Only

portion thereof, corresponding to Caltex, was approved and

released by way of a tax credit memo. The claim for refund of

taxes paid by PetroPhil, Shell and Caltex amounting to

P410.58 million was denied.

* NAPOCOR moved for reconsideration, starting that all

deliveries of petroleum products to NAPOCOR are tax exempt,

regardless of the period of delivery.

ISSUE: WON NAPOCOR cease to enjoy exemption from

indirect tax when exemption in PD 938 is in general terms.

HELD: NO, NAPOCOR still exempt. Tax exemptions are

undoubtedly to be construed strictly but not so grudgingly as

knowledge that many impositions taxpayers have to pay are in

the nature of indirect taxes. To limit the exemption granted the

National Power Corporation to direct taxes notwithstanding the

general and broad language of the statute will be to thwart the

legislative intention in giving exemption from all forms of taxes

and impositions without distinguishing between those that are

direct and those that are not.

1991 case held: NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by the government of the Republic of the Philippines. From the very beginning of the corporation’s existence, NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the indebtness and obligation” and effective implementation of the policy enunciated in Section 1 of RA

6395. From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt status of NAPOCOR. It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or instrumentality. The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies. In the case of property owned by the state or a city or

other public corporations, the express exemption should

not be construed with the same degree of strictness that

applies to exemptions contrary to the policy of the state,

since as to such property “exemption is the rule and

taxation the exception.”

DISPOSITIVE: NAPOCOR exempt from tax.

CIR v. CA (Construction of Statutes granting tax exemption:general rule) Facts:

* YMCA is a non-stock, non-profit institution, which conducts

various programs and activities that are beneficial to the public,

especially the young people, pursuant to its religious,

educational and charitable objectives.

* CIR issued an assessment including surcharge and interest,

for deficiency tax.

* YMCA protested but denied by the CIR, so it filed in the CTA.

* CTA ruled in favor of YMCA, so CIR appealed to CA

* CA in favor of CIR but upon MfR by YMCA, it ruled in favor of

the latter. Hence, this petition.

* CIR argues the income received by YMCA enumerated in

Section 273 (now Section 26) of the NIRC is, as a rule,

exempted from the payment of tax “in respect to income

received by them as such,” the exemption does not apply to

income derived “xxx from any if their properties, real or

personal, or from any of their activities conducted for profit,

regardless, of the disposition made of such income xxx.”

* YMCA argues that it is an exempt organization due to its

nature and because the income it derives from renting its

space and the fees it derives from parking is minimal (therefore

not for profit).

ISSUE: WON the income derived from rentals of real

property owned by YMCA exempt from tax?

HELD: NO, YMCA not exempt organization since it doesn't

come within the purview of the provision.

Because taxes are the lifeblood of the nation, the Court has

always applied the doctrine of strict interpretation in

construing tax exemptions. A claim of statutory exemption

from taxation should be manifest and unmistakable from the

language of the law on which it is based. Thus, the claimed

exemption “must expressly be granted in a statute stated in a

language too clear to be mistaken." Where the language of the

law is clear and unambiguous, its express terms must be

applied.

Laws allowing tax exemption are construed strictissimi juris.

DISPOSITIVE: YMCA to pay tax liability.

3 “SEC. 27. Exemptions from tax on corporations. -- The

following organizations shall not be taxed under this Title in respect to income received by them as such --

x x x x x x x x x

(g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member;

x x x x x x x x x

Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)”

Luzon Stevedoring v. CTA (Construction of Statutes

granting tax exemption:general rule)

FACTS:

* Luzon Stevedoring for the and maintenance of its tugboats,

imported various engine parts and other equipment for which it

paid, under protest, the assessed compensating tax.

* Unable to secure a tax refund from the CIR, it filed a petition

in the CTA.

* CTA denied its petition hence this appeal.

* Luzon Stevedoring argues contends that tugboats are

embraced and included in the term cargo vessel under the tax

exemption provisions of Sec. 1904 of the NIRC, as amended by

RA 3176.

* CTA argues that "tugboats" are not "Cargo vessel" because

they are neither designed nor used for carrying and/or

transporting persons or goods by themselves but are mainly

employed for towing and pulling purposes. Hence, Luzon

Stevedoring should be taxed.

ISSUE: WON Luzon Stevedoring should be exempt from tax?

HELD: NO, tugboats not embraced in the provision hence

Luzon Stevedoring doesn't come under the exemption.

"As the power of taxation is a high prerogative of sovereignty,

the relinquishment is never presumed and any reduction or

dimunition thereof with respect to its mode or its rate, must be

strictly construed, and the same must be coached in clear and

unmistakable terms in order that it may be applied." (84 C.J.S.

pp. 659-800), More specifically stated, the general rule is that

any claim for exemption from the tax statute should be

strictly construed against the taxpayer.

DISPOSITIVE: Luzon Stevedoring doesn't come under the

purview of the exception. Pay tax liability.

4Sec. 190. Compensating tax. — ... And Provided further, That

the tax imposed in this section shall not apply to articles to be

used by the importer himself in the manufacture or preparation

of articles subject to specific tax or those for consignment

abroad and are to form part thereof or to articles to be used by

the importer himself as passenger and/or cargo vessel,

whether coastwise or oceangoing, including engines and spare

parts of said vessel. ....

MACEDA v. MACARAIG (Construction of Statutes

Granting Tax Exemption – Exemption)

FACTS:

* CA 120 created NAPOCOR as a public corporation to

undertake the development of hydraulic power and the

production of power from other sources.

* RA 358 (1949) granted NAPOCOR tax and duty exemption

privileges. RA 6395 (1971) revised the charter of the

NAPOCOR, tasking it to carry out the policy of the national

electrification, and provided in detail NAPOCOR’s tax

exceptions. PD 380 (1974) specified that NAPOCOR’s

exemption includes all taxes, etc. imposed “directly or

indirectly.”

* PD 938 integrated the exemptions in favor of GOCCs

including their subsidiaries; however, empowering the

President or the Minister of Finance, upon recommendation of

the Fiscal Incentives Review Board (FIRB) to restore, partially

or completely, the exemptions withdrawn or revised.

* The FIRB issued Resolution 10-85 (7 February 1985)

restoring the duty and tax exemptions privileges of NAPOCOR

for period 11 June 1984- 30 June 1985. Resolution 1-86

(1January 1986) restored such exemption indefinitely effective

1 July 1985. EO 93 (1987) again withdrew the exemption.

FIRB issued Resolution 17-87 (24 June 1987) restoring

NAPOCOR’s exemption, which was approved by the President

on 5 October 1987.

* Since 1976, oil firms never paid excise or specific and ad

valorem taxes for petroleum products sold and delivered to

NAPOCOR. Oil companies started to pay specific and ad

valorem taxes on their sales of oil products to NAPOCOR only

in 1984.

* NAPOCOR claimed for a refund (P468.58 million). Only

portion thereof, corresponding to Caltex, was approved and

released by way of a tax credit memo. The claim for refund of

taxes paid by PetroPhil, Shell and Caltex amounting to

P410.58 million was denied.

* NAPOCOR moved for reconsideration, starting that all

deliveries of petroleum products to NAPOCOR are tax exempt,

regardless of the period of delivery.

ISSUE: WON NAPOCOR cease to enjoy exemption from

indirect tax when PD 938 stated the exemption in general

terms.

HELD: NO, NAPOCOR still exempt.

NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by the government of the Republic of the Philippines. From the very beginning of the corporation’s existence, NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the indebtness and obligation” and effective implementation of the policy enunciated in Section 1 of RA 6395. From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt status of NAPOCOR. It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or instrumentality.

The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies. In the case of property owned by the state or a city or

other public corporations, the express exemption should

not be construed with the same degree of strictness that

applies to exemptions contrary to the policy of the state,

since as to such property “exemption is the rule and

taxation the exception.”

DISPOSITIVE: NAPOCOR exempt from tax.

DISSENTING, Cruz: It is important to note that when P.D. Nos.

1931 and 1955 were issued by President Marcos, the rule

under the 1973 Constitution was that "no law granting a tax

exemption shall be passed without the concurrence of a

majority of all the members of the Batasang Pambansa." (Art.

VIII, Sec. 17[4]). Laws are usually passed by only a majority of

those present in the chamber, there being a quorum, but not

where it grants a tax exemption. This requires an absolute

majority. Yet, despite this stringent limitation on the national

legislature itself, such stricture does not inhibit the President

and the FIRB in the exercise of their delegated power. It would

seem that the delegate has more power than the principal.

Significantly, this limitation is maintained in the present

Constitution under Article VI, Section 28(4).

The ponencia holds that the rule of strict construction is not applicable where the grantee is an agency of the government itself, like the MPC in the case before us. I notice, however, that the ultimate beneficiaries of the expected tax credit will be the oil companies, which certainly are not part of the Republic of the Philippines. As the tax refunds will not be enjoyed by the MPC itself, I see no reason why we should be exceptionally lenient in applying the exception. Sarmiento: Acetylene's pronouncement is founded on the very science of taxation—that indirect taxes are no taxes for purposes of exemption, and that consequently, one who did not pay taxes can not claim an exemption although the price he paid for the goods included taxes. To enable him to claim an exemption, as the majority would now enable him (Acetylene having been "abrogated"), is, I submit, to defeat the very laws of science. The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-settled concepts of taxation, as the law of supply and demand is to the law of economics. A President is said (unfairly) to have attempted it, but one can not repeal the law on supply and demand.

PHILEX. v. CIR, CA, CTA (Set- Off) FACTS:

* BIR sent a letter to Philex asking it to settle its tax liabilities.

* Philex protested the demand stating that it has pending

claims for VAT input credit/refund. Therefore these claims for

tax credit/refund should be applied against the tax liabilities.

* BIRfound no merit in Philex's position since these pending

claims have not yet been established or determined with

certainty.

* Philex raised the issue to the CTA and CA which both

favored CIR.

* A few days after the denial of its MfR on the CA decision,

Philex was able to obtain its VAT input credit/refund. Hence,

this petition.

* Philex argues that that the refund/credit should off-set its tax

liabilities since both had already become "due and

demandable, as well as fully liquidated;" hence, legal

compensation can properly take place.

* Respondents argues that taxes cannot be subject to set-off

on compensation since claim for taxes is not a debt or contract.

ISSUE: Whether tax liabilities could be subject to set-off?

HELD: NO, tax liabilities could not be set-off.

Taxes cannot be subject to compensation for the simple

reason that the government and the taxpayer are not creditors

and debtors of each other.

Taxes cannot be subject to set-off or compensation, thus:

...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. (Francia v. Intermediate

Appellate Court).

Aforementioned ruling has been applied in 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.

A taxpayer cannot refuse to pay his taxes when they fall due

simply because he has a claim against the government or that

the collection of the tax is contingent on the result of the

lawsuit it filed against the government.

CIR v. ESSO(Set-off) Facts: ESSO overpaid its 1959 income tax by P221,033.00. It was accordingly granted a tax credit. However, ESSOs payment of its income tax for 1960 was found to be short by P367,994. So the Commissioner demanded payment of the deficiency, with interest. ESSO paid under protest, including the interest as reckoned by the Commissioner. ESSO’s contention: The interest was more than that properly due. It should not have been required to pay interest on the total amount of the deficiency tax, P367,994.00, but only on the amount of P146,961.00—representing the difference between said deficiency and ESSOs earlier overpayment. ESSO thus asked for a refund. CIR’s contention: It denied the claim for refund. Income taxes are determined and paid on an annual basis, such determination and payment are separate and independent transactions; and a tax credit could not be considered until it has been finally approved and the taxpayer notified. Since in this case, the tax credit was approved only on August 5, 1964, it could not be availed of in reduction of ESSOs earlier tax deficiency for 1960; as of that year there was no tax credit to speak of. In support of this, the Commissioner invokes the Section 51 of the Tax Code:

(d) Interest on deficiency. — Interest upon the amount determined as deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as a part of the tax...

ESSO appealed to the Court of Tax Appeals, which in turn ordered payment to ESSO of its "refund-claim. Hence, this appeal by the Commissioner.

ISSUE:

Was it proper to apply ESSO’s tax credit in reducing the total deficiency subject to interest? YES. Ratio Decidendi: 1. Regardless of CIR’s assertions, the fact is that as early as

July 15, 1960, the Government already had in its hands the sum representing excess payment. Having been paid and received by mistake, that sum unquestionably belonged to ESSO, and the Government had the obligation to return it to ESSO.

2. The obligation to return money mistakenly paid arises from the moment that payment is made, and not from the time that the payee admits the obligation to reimburse. The obligation of the payee to reimburse results from the mistake, not from the payee's confession of the mistake or recognition of the obligation to reimburse. In other words, since the amount of P221,033.00 belonging to ESSO was already in the hands of the Government as of July, 1960, it was neither legally nor logically possible for ESSO thereafter to be considered a debtor of the Government; and whatever other obligation ESSO might subsequently incur in favor of the Government would have to be reduced by that sum, in respect of which no interest could be charged.

3. "Nothing is better settled than that courts are not to give words a meaning which would lead to absurd or unreasonable consequences.” "Statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or absurd conclusion."

Holding: Petition denied, CTA affirmed.

Dumlao v. Comelec (Taxpayer’s Suit)

Facts: This is a Petition for Prohibition seeking to enjoin COMELEC from implementing certain provisions of BP 51, 52, and 53 for being unconstitutional. The petitioners: Patricio Dumlao, is a former Governor of Nueva Vizcaya, who has filed his certificate of candidacy for said position. Romeo B. Igot, is a taxpayer, a qualified voter and a member of the Bar. Alfredo Salapantan, Jr., is also a taxpayer, a qualified voter, and a resident of San Miguel, Iloilo. (Dumlao’s contention will be skipped as his situation was not dicussed in the discussion on taxpayer’s suits)

Igot’s and Salapantanan’s contentions: Assail the ff:

Sec. 4. ... Any person who has committed any act of disloyalty to the State, including acts amounting to subversion, insurrection, rebellion or other similar crimes, shall not be qualified to be a candidate for any of the offices covered by this Act, or to participate in any partisan political activity thereinS

ISSUE: Do the petitioners have standing to sue? NO. Ratio Decidendi: 1. "the person who impugns the validity of a statute must have

a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury “.

In the case of petitioners Igot and Salapantan, it was only during the hearing, that Igot is said to be a candidate for Councilor. Even then, it cannot be denied that neither one has been convicted nor charged with acts of disloyalty, nor disqualified from being candidates. Theirs is a generated grievance. They have no personal nor substantial interest at stake. They can claim no locus standi.

2. It is true that petitioners Igot and Salapantan have instituted this case as a taxpayer's suit, and that the rule has been relaxed, thus:

... there are many decisions nullifying at the instance of taxpayers, laws providing for the disbursement of public funds, upon the theory that "the expenditure of public funds, by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer.

3. However, the statutory provisions questioned in this case, do not directly involve the disbursement of public funds. While, concededly, the elections to be held involve the expenditure of public moneys, nowhere in their Petition do said petitioners allege that their tax money is "being extracted and spent in violation of specific constitutional protections against abuses of legislative power", or that there is a misapplication of such funds by respondent COMELEC, or that public money is being deflected to any improper purpose. Neither do petitioners seek to restrain respondent from wasting public funds through the enforcement of an invalid or unconstitutional law.

4. Besides, the institution of a taxpayer's suit, per se is no assurance of judicial review. As held by this Court in Tan vs. Macapagal, this Court is vested with discretion as to whether or not a taxpayer's suit should be entertained.

Holding: Petition denied.

Lozada & Igot v. Comelec (Taxpayer’s Suit)

Facts: This is a petition for mandamus filed as a representative suit for and in behalf of those who wish to participate in the election irrespective, to compel the respondent COMELEC to call a special election to fill up existing vacancies) in the Interim Batasan Pambansa. The petition is based on Section 5(2), Article VIII of the 1973 Constitution which reads:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term.

The petitioners: Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution. COMELEC opposed the petition alleging, that 1) petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa. ISSUE: Do the petitioners have standing to sue? NO. Ratio Decidendi: I. No standing as taxpayers 1. As taxpayers, petitioners may not file the instant petition, for

nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC and therefore, involves no expenditure of public funds.

2. It is only when an act complained of involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed.

3. What the case at bar seeks is one that entails expenditure of public funds. (In other words, they are effectively asking for the government to spend, not questioning the validity of such spending). Moreover, such spending could actually be illegal because it would be spent for a purpose that, as will be shown, COMELEC has no authority to call for.

II. No standing as voters 1. As voters, neither have petitioners the requisite interest or

personality to qualify them to maintain and prosecute the present petition.

2. The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement.

3. In the case before Us, the alleged inaction of the COMELEC to call a special election would adversely affect only the generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged, which is held in common by all members of the public because of the necessarily abstract nature of the injury supposedly shared by all citizens. Concrete injury, actual or threatened, is that indispensable element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution.

Holding: Petition denied.

Gonzales v. Marcos (Taxpayer’s Suit) Facts:

The action is centered on the validity of the creation in EO 30 of a trust for the benefit of the Filipino people under the name and style of the Cultural Center of the Philippines.

It was likewise alleged that the Board of Trustees did accept donations from the private sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National Investment & Development Corporation as well as $3.5 million received from President Johnson of the United States in the concept of war damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. Respondents contention: petitioner did not have the requisite personality to contest as a taxpayer the validity of the executive order in question, as the funds held by the Cultural Center came from donations and contributions, not one centavo being raised by taxation. ISSUE: Does the petitioner have standing to sue? NO. Ratio Decidendi: 1. It was pointed out as "one more valid reason" why such an

outcome was unavoidable was that "the funds administered by the President of the Philippines came from donations [and] contributions [not] by taxation."

2. Accordingly, there was that absence of the "requisite pecuniary or monetary interest."

3. This is not to retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by People v. Vera, where the doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's suit.

4. Moreover, even on the assumption that public funds raised by taxation were involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should be entertained."

Holding: Petition denied.

CIR v. CA, ROH Auto (BIR Rules and Regulations) Facts:

EO41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donor's taxes and taxes on business, for the taxable years 1981 to 1985.

Availing itself of the amnesty, R.O.H. Auto Products filed, tax amnesty returnms and paid the amnesty taxes due.

Prior to this availment, CIR assessed the ROH deficiency income and business taxes in an aggregate amount of P1,410,157.71.

ROH wrote back to state that since it had been able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn.

The request was denied by the Commissioner on the ground that Revenue Memorandum Order No. 4-87, dated 09 February 1987, implementing Executive Order No. 41, had construed the amnesty coverage to include only assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments theretofore made. ISSUE: Is ROH covered by the tax amnesty? YES. Was the CIR’s position correct? NO. Ratio Decidendi:

1. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to the mandate of the law which the regulation ought to implement.

2. The authority of the Secretary of Finance, in conjunction with the CIR, to promulgate rules and regulations for the enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law.

3. If, as the Commissioner argues, EO 41 had not been intended to include 1981-1985 tax liabilities already assessed prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it

Holding: CA affirmed.

CIR V. CA, CTA, & Fortune Tobacco (BIR Rules and Regulations) Facts:

CIR, through RMC 37-93, aims to collect deficiencies on ad valorem taxes against Fortune Tobacco following a reclassification of foreign branded cigarettes, as per RA 7654.

Fortune Tobacco raised the issue of the propriety of the assessment to the CTA, which decided against the CIR. CTA was affirmed by CA. ISSUE:

Is RMC 37-93 a mere interpretative ruling, therefore not requiring, for its effectivity, hearing and filing with the UP Law Center? NO. Ratio Decidendi: 1. When an administrative rule is merely interpretative, its

applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed.

2. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.

3. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654.

4. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. (Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax.)

5. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products.

6. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued.

7. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored.

Holding: CTA, CA affirmed.

CIR v. Telefunken (BIR Rules and Regulations) FACTS: Telefunken is a domestic corporation registered with

the Board of Investments (BOI) as an export producer on a

preferred pioneer status under RA 6135.

From October 1979 to September 1981, Telefunken produced

semi-conductor devices amounting to P92,843,774.00 which

were entirely sold to foreign markets. BIR denied Telefunken’s

request for a tax refund/tax credit from the contractor’s tax

which it paid for said amount.

Telefunken contended that under the provisions of Section 7 of

RA 6135 in relation to Section 8 (a) of RA 5186 (The

Investment Act), it was exempted from the payment of all

national internal revenue taxes for the period in question,

except for income tax.

Section 75 of RA. 6135 (the law under which Telefunken is

registered) provides that registered export producers in a

pioneer status are entitled to the incentives provided in

section 8 (a) of RA 5186.

On the other hand CIR argues that the law speaks of firms

registered under RA 5186 only and thus, the privilege of tax

exemption does not apply to firms registered under RA 6135.

ISSUE: WON Telefunken, registered under RA 6135 as a

pioneer export producer, is exempted from payment of the 3%

contractor's tax from October 1979 to September 1981.

HELD: YES.

1. The controlling statute is Section 205 (16) of the 1977

National Internal Revenue Code which states:

Sec. 205. Contractors, proprietors or operators of dockyards

and others. A contractor's tax of three percentum of gross

receipts is hereby imposed on the following:

xxx xxx xxx

(16) Business agents and other independent contractors

including private detective or watchman agencies, except

gross receipts of a pioneer enterprise registered with the Board

of Investments under Republic Act 5186. (As amended by P.D.

No. 1457 , June 11, 1978)

There is no difference between the gross receipts of

pioneer enterprises registered with the Board of

Investments under RA 6135 and the gross receipts of

registered pioneer enterprises under RA 5186. In fact

the CIR himself had ruled in this vein on February 4,

1974 in the case of Asian Transmission Corporation. 6

5 Sec. 7. Incentives to registered export producers — Registered

export producers. — Registered export producers unless they already

enjoy the same privileges under other laws shall be entitled to the

incentives set forth in parahraphs (h), (i) and (j) of Section 7 of

Republic Act Numbered Fifty-one hundred eigthy-six, known as the

Investment Incentives Act; and registered export producers that are

pioneer enterprises shall be entitled also to the incentives set

forth in paragraphs (a), (b) and (c) of Section 8 of the said Act. In

addition to the said incentives, and in lieu of other incentives provided

in Section 7 and in Section 9 of that Act, registered export producer

shall be entitled to benefits and incentives as enumerated hereunder:

6“ Pursuant to Section 7 of Republic Act No. 6135, that corporation as a registered export producer on a pioneer status is entitled to the same tax incentives granted to a pioneer industry set forth in section 8(a) of

This 1974 ruling was based the same on Section

191(16) of the Tax Code which states:

Sec. 191. Contractors, proprietors or operators of dockyards,

and others. — A contractor's tax of three per centum of the

gross receipts is hereby imposed on the following:

xxx xxx xxx

(16) Business agents and other independent contractors

except persons, associations and corporations under contract

for embroidery and apparel for export, as well as their agents

and contractors and except gross receipts of or from a pioneer

industry registered with the Board of Investments under the

provisions of Republic Act Numbered Five Thousand one

hundred and eighty-six. (Emphasis supplied)

A comparison of the above with the previously quoted Section

205(16) of the 1977 Tax Code reveals that both provisions

specifically mention pioneer industries registered with the

Board of Investments under Republic Act No. 5186 as exempt

from payment of the contractor's tax.

2. Also, this 1974 ruling has not been abrogated with the

passage of the 1977 Tax Code, Section 205(16) which

expressly mentions only pioneer enterprises registered with the

Board of Investments under RA 5186 as exempt from the

contractor's tax (though with no reference being made

regarding pioneer enterprises registered under RA 6135).

Lastly, under Sec. 246 of the National Internal Revenue

Code, rulings of the BIR may not be given retroactive

effect, if the same is prejudicial to the taxpayer.

republic Act No. 5186. Under this latter provision, a pioneer industry is exempt from all taxes under the National Internal Revenue Code, except income tax. In other words, both a registered export producer on a pioneer status under Republic Act No. 6135 and a pioneer industry under Republic Act No. 5186 are entitled to the same tax exemption benefits under the Tax Code.”

CIR v. Mega Gen. Merch (BIR Rules and Regulations) FACTS:

(BACKGROUND)Prior to the promulgation of P.D. No. 392 on

February 18, 1974, importations of all kinds of paraffin wax

were subject to 7% advance sales tax on landed costs plus

25% mark up pursuant to Section 183(b) now Section 197(II) in

relation to Section 186 (now Section 200) of the Tax Code.

With the promulgation of P.D. No. 392, a new provision for the

imposition of specific tax was added to Section 142 of the Tax

Code7 (effective Feb 18 1974)

On April 1975 Mega wrote the CIR for clarification as to

whether imported crude paraffin wax is subject to specific tax

or advance sales tax. On May 14, 1975 Former Commissioner

Misael P. Vera in his reply ruled that only wax used as high

pressure lubricant and micro crystallin is subject to specific tax;

that paraffin which was used as raw material in the

manufacture of candles, wax paper, matches, crayons, drugs,

appointments etc., is subject to the 7% advance sales tax, the

tax to be based on the landed cost thereof, plus 25% mark-up.

Due to Commissioner Vera's ruling Mega filed several

claims for tax refund/tax credit of the specific tax paid by

them.

However, on January 28, 1977, then Acting CIR Efren Plana

denied Mega’s claim. According to him the law does not make

any distinction as to the kind of wax subject to specific tax.

During the pendency of Mega’s request for reconsideration, an

investigation was conducted by the BIR in connection with the

importations of wax and petroleum that arrived in the

country on or subsequent to the date of the ruling of

January 28, 1977 and it was ascertained that Mega owes

the government specific tax for importation of paraffin wax

on June 21, 1977 and August 17, 1977 which gave rise to the

letter of assessment dated May 8, 1978.

Prior, however, to the issuance of said letter of assessment of

May 8, 1978, CIR in a letter dated January 11, 1978, granted

Mega’s claim for refund or tax credit since the importation

which had arrived in Manila on April 18, 1975 was covered by

the ruling of May 14, 1975 (before its revocation by the ruling

of January 28, 1977).

Issue: WON Mega’s importation of crude paraffin wax on June

21 and August 17, 1977 are subject to specific tax under

Section 142(i) of the Tax Code promulgated on February 18,

1974.

HELD: Yes.

RATIO:

Contrary to the CTA’s ruling8, the Court believes that the letter

of Commissioner Plana dated January 11, 1978 did not in any

7 Section 142. Specific tax on manufactured oils and other

fuels.—On refined and manufactured mineral oils and other

motor fuels, there shall be collected the following taxes:

xxx xxx xxx

(i) Greases, waxes and petroleum, per kilogram,

thirty-five centavos; ...

8 Excerpt from CTA ruling:

way revoke his ruling dated January 28,1977 which ruling

applied the specific tax to wax (without distinction). The

reason he removed in 1978 private respondent's liability

for the specific tax was NOT because he wanted to revoke,

expressly or implicitly, his ruling of January 28, 1977 but

because the P321,436.79 tax referred to importation

BEFORE January 28, 1977 and hence still covered by the

ruling of Commissioner Vera,

Mega’s request for refund of the amount of P321,436.79 was

granted in CIR’s letter dated January 11, 1978 because the

importation of private respondent was made on April

18,1975 wherein petitioner made clear that all importation of

crude paraffin wax only after the ruling of January 28, 1977, is

subject to specific tax

The importation which gave rise to the assessment in the

amount of P275,652.00 subject of this case, was made on

June 27, 1977 and August 17, 1977 and that the petitioner's

ruling of January 28,1977 was not revoked or overruled by his

letter of January 11, 1978 granting respondent corporation's

request for refund of the amount of P321,436.79.

“ To make petitioner liable for specific tax after it has made the importations, would surely prejudice petitioner as it would be subject to a tax liability of which the Bureau of Internal Revenue has not made it fully aware. As a result, the rulings of May 8, 1978 and February 15, 1980 having been issued long after the importations on June 21 and August 1 7, 1977 in question cannot be applied with legal effect in this case because to do so will violate the prohibition against retroactive application of the rulings of executive bodies. Rulings or circulars promulgated by the Commissioner of Internal Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any retroactive application, where to do so, as it did in the case at bar, would prejudice the taxpayer.”

CIR v. Burroughs (BIR Rules and Regulations) FACTS:In March 1979, the branch office of Burroughs Ltd. in

the country applied with the Central Bank for authority to remit

to its parent company abroad branch profit amounting to

P7,647,058.00.

On March 14, 1979, it paid the 15% branch profit remittance

tax pursuant to Sec. 24 (b) (2) (ii)9. Based on this law

Burroughs Ltd remitted to its head office the amount of

P6,499,999.30

However on December 24, 1980 Burroughs Ltd. filed a written

claim for the refund or tax credit of the amount of P172,058.90

representing alleged overpaid branch profit remittance tax.

BIR ruled in favor of the refund on January 21, 1980.

CIR contends that there should be no refund because

Memorandum Circular No. 8-82 dated March 17, 1982 had

revoked and/or repealed the BIR ruling of January 21, 1980.

Said memorandum circular states-

“Considering that the 15% branch profit remittance tax is

imposed and collected at source, necessarily the tax base

should be the amount actually applied for by the branch with

the Central Bank of the Philippines as profit to be remitted

abroad.”

Issue: WON Burroughs Limited is entitled to a refund (in the

amount of P172,058.90).

Held: Yes. In a BIR ruling dated January 21, 1980 by then

Acting Commissioner of Internal Revenue Hon. Efren I. Plana

the aforequoted provision had been interpreted to mean that

"the tax base upon which the 15% branch profit remittance tax

... shall be imposed...(is) the profit actually remitted abroad

and not on the total branch profits out of which the remittance

is to be made."

What is applicable in the case at bar is still the BIR Ruling of

January 21, 1980 because Burroughs Ltd. paid the branch

profit remittance tax in question on March 14, 1979.

Memorandum Circular No. 8-82 dated March 17, 1982

cannot be given retroactive effect in the light of Section

32710 of the National Internal Revenue Code.

The prejudice that would result to private Burroughs Ltd. by a

retroactive application of Memorandum Circular No. 8-82 is

beyond question for it would be deprived of the substantial

amount of P172,058.90.

9 Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head

office shall be subject to a tax of fifteen per cent (15 %) ... 10

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of

the rules and regulations promulgated in accordance with the preceding section or any of the

rulings or circulars promulgated by the Commissioner shag not be given retroactive application

if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the

following cases (a) where the taxpayer deliberately misstates or omits material facts from his

return or in any document required of him by the Bureau of Internal Revenue; (b) where the

facts subsequently gathered by the Bureau of Internal Revenue are materially different from

the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN

Broadcasting Corp. v. CTA, 108 SCRA 151-152)

ABS-CBN v. CTA (BIR Rules and Regulations) FACTS: ABS-CBN is engaged in the business of telecasting

local as well as foreign films acquired from foreign corporations

not engaged in trade or business within the Philippines. The

applicable law wrt the income tax of non-resident corporations

is section 24 (b) of the National Internal Revenue Code, as

amended by Republic Act No. 2343 dated June 20, 195911

.

On April 12, 1961, in implementation of said provision, the CIR

issued General Circular No. V-33412. Pursuant to the

foregoing, ABS-CBN dutifully withheld and turned over to the

BIR the amount of 30% of one-half of the film rentals paid by

it to foreign corporations not engaged in trade or business

within the Philippines. The last year that ABS-CBN withheld

taxes pursuant to the foregoing Circular was in 1968.

On June 27, 1968, RA 5431 amended Section 24 (b)13

of the

Tax Code increasing the tax rate from 30 % to 35 % and

revising the tax basis from "such amount" referring to rents,

etc. to "gross income."

On February 8, 1971, the CIR issued Revenue

Memorandum Circular No. 4-71, revoking General Circular

No. V-334, and holding that the latter was "erroneous for lack

of legal basis," because "the tax therein prescribed should be

based on gross income without deduction whatever.

On the basis of this new Circular, CIR issued against ABS-

CBN a letter of assessment and demand requiring them to pay

deficiency withholding income tax on the remitted film rentals

for the years 1965 through 1968 and film royalty as of the

end of 1968 in the total amount of P525,897.06.

ISSUE: WON respondent can apply General Circular No. 4-71

retroactively and issue a deficiency assessment against

petitioner in the amount of P 525,897.06 as deficiency

withholding income tax for the years 1965, 1966, 1967 and

1968.

11 (b) Tax on foreign corporations.-(1) Non-resident corporations.- There shall be levied,

collected, and paid for each taxable year, in lieu of the tax imposed by the preceding

paragraph, upon the amount received by every foreign corporation not engaged in trade or

business within the Philippines, from an sources within the Philippines, as interest, dividends,

rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or

other fixed or determinable annual or periodical gains, profits, and income, a tax equal to

thirty per centum of such amount. (Emphasis supplied)

12 “ In connection with Section 24 (b) of Tax Code, the amendment introduced by Republic Act

No. 2343, under which an income tax equal to 30% is levied upon the amount received by

every foreign corporation not engaged in trade or business within the Philippines from all

sources within this country as interest, dividends, rents, salaries, wages, premiums, annuities,

compensations, remunerations, emoluments, or other fixed or determinable annual or

periodical gains, profits, and income, it has been determined that the tax is still imposed on

income derived from capital, or labor, or both combined, in accordance with the basic principle

of income taxation (Sec. 39, Income Tax Regulations), and that a mere return of capital or

investment is not income (Par. 5,06, 1 Mertens Law of Federal 'Taxation). Since according to

the findings of the Special Team who inquired into business of the non-resident foreign film

distributors, the distribution or exhibition right on a film is invariably acquired for a

consideration, either for a lump sum or a percentage of the film rentals, whether from a parent

company or an independent outside producer, a part of the receipts of a non-resident foreign

film distributor derived from said film represents, therefore, a return of investment.

xxx xxx xxx “ 13 Amended version:

(b) Tax on foreign corporations.-(1) Non-resident corporations.-A foreign corporation not

engaged in trade or business in the Philippines including a foreign life insurance company not

engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five

per cent of the gross income received during each taxable year from all sources within the

Philippines, as interests, dividends, rents, royalties, salaries, wages, premiums, annuities,

compensations, remunerations for technical services or otherwise, emoluments or other fixed

or determinable annual, periodical or casual gains, profits, and income, and capital gains,

Provided however, That premiums shah not include reinsurance premiums. (Emphasis

supplied)

HELD: No. Sec. 338-A14

(now Sec. 327) of the Tax Code

applies in this case. Rulings or circulars promulgated by the

CIR have no retroactive application where to so apply

them would be prejudicial to taxpayers. The retroactive

application of Memorandum Circular No. 4-71 prejudices ABS-

CBN since:

a) it was issued only in 1971, or 3 years after 1968, the last

year that petitioner had withheld taxes under General Circular

No. V-334.

b) the assessment and demand on petitioner to pay deficiency

withholding income tax was also made three years after 1968

for a period of time commencing in 1965.

c) ABS-CBN was no longer in a position to withhold taxes due

from foreign corporations because it had already remitted all

film rentals and no longer had any control over them when the

new Circular was issued.

And in so far as the enumerated exceptions (to non-

retroactivity) are concerned, ABS-CBN does not fall under any

of them.

14 As inserted by Republic Act No. 6110 on August 9, 1969, it provides:

Sec. 338-A. Non-retroactivity of rulings. - Any revocation, modification, or reversal of and of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the relocation, modification, or reversal will be prejudicial to the taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or omits material facts from his return or any document required of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. (italics for emphasis)

CIR v. Benguet Corp (BIR Rules and Regulations) FACTS:(Benguet Corporation is a domestic corporation

engaged in the exploration, development and operation of

mineral resources, and the sale or marketing thereof to various

entities. It is a value added tax (VAT) registered enterprise.)

The transactions in question occurred during the period

between 1988 and 1991. Under Sec. 99 of NIRC as amended

by E.O. 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.

In January of 1988, Benguet applied for and was granted

by the BIR zero-rated status on its sale of gold to Central

Bank. On 28 August 1988 VAT Ruling No. 3788-88 was

issued which declared that the 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 EO 273.

Relying on its zero-rated status and the above issuances,

Benguet sold gold to the Central Bank during the period of 1

August 1989 to 31 July 1991 and entered into transactions that

resulted in input VAT incurred in relation to the subject sales of

gold. It then filed applications for tax refunds/credits

corresponding to input VAT.

However, such request was not granted due to BIR VAT

Ruling No. 008-92 dated 23 January 1992 that was issued

subsequent to the consummation of the subject sales of

gold to the Central Ban`k which provides that sales of gold to

the Central Bank shall not be considered as export sales and

thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008-

92 withdrew, modified, and superseded all inconsistent BIR

issuances.

Both petitioner and Benguet agree that the retroactive

application of VAT Ruling No. 008-92 is valid only if such

application would not be prejudicial to the Benguet pursuant

Sec. 246 of the NIRC.

MAIN ISSUE:

WON Benguet’s sale of gold to the Central Bank during the period when such was classified by BIR issuances as zero-rated could be taxed validly at a 10% rate after the consummation of the transactions involved. NO. SUB ISSUE: (WON there was prejudice to Benguet Corp due to the new BIR VAT Ruling. YES.

RATIO:

(main issue):

1. At the time when the subject transactions were

consummated, the prevailing BIR regulations relied upon by

Benguet ordained that gold sales to the Central Bank were

zero-rated. Benguet should not be faulted for relying on the

BIRs interpretation of the said laws and regulations.

While it is true, as CIR alleges, that government is not

estopped from collecting taxes which remain unpaid on

account of the errors or mistakes of its agents and/or officials

and there could be no vested right arising from an erroneous

interpretation of law, these principles must give way to

exceptions based on and in keeping with the interest of justice

and fairplay. (then the Court cited the ABS-CBN case).

(sub-issue) 2. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the amount equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic prejudice when its consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change in the VAT rating of Benguet’s transactions with the Central Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.

3. Even assuming that the right to recover Benguets excess

payment of income tax has not yet prescribed, this relief would

only address Benguet’s overpayment of income tax but not the

other burdens discussed above. Verily, this remedy is not a

feasible option for Benguet because the very reason why it

was issued a deficiency tax assessment is that its input VAT

was not enough to offset its retroactive output VAT. Indeed,

the burden of having to go through an unnecessary and

cumbersome refund process is prejudice enough.

BPI Leasing v.CA,CTA,CIR (BIR Rules & Regulations) FACTS:For the calendar year 1986, BLC paid the CIR a total of P1,139,041.49 representing 4% "contractor’s percentage tax" imposed by Section 205 of the NIRC based on its gross rentals from equipment leasing for said year. On November 10, 1986, CIR issued Revenue Regulation 19-86. Section 6.2 thereof provided that finance and leasing companies registered under RA 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for "contractor’s percentage tax" under Section 205 but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the "contractor’s percentage tax for its 1986 lease rentals BLC filed a claim for a refund with the CIR on April 1988 for the amount representing the difference between what it had paid as "contractor’s percentage tax" and what it should have paid for "gross receipts tax." ISSUES: 1. WON Revenue Regulation 19-86 is legislative

15 rather than

interpretative in character. 2. WON it should retroact to the date of effectivity of the law it seeks to interpret. RATIO: 1. NO. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. 2.NO. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication.

In the present

case, there is no indication that the revenue regulation may operate retroactively.

Furthermore, there is an express provision stating that it "shall take effect on January 1, 1987," and that it "shall be applicable to all leases written ON OR AFTER the said date." Being clear on its prospective application, it must be given its literal meaning and applied without further interpretation. Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987.

15 Administrative issuances may be distinguished according to their nature and substance:

legislative and interpretative. A legislative rule is in the matter of subordinate legislation,

designed to implement a primary legislation by providing the details thereof. An interpretative

rule, on the other hand, is designed to provide guidelines to the law which the administrative

agency is in charge of enforcing.