SUMMARY OF SIGNIFICANT SC TAX DECISIONS (SEPTEMBER TO DECEMBER 2013)

1. Philippine Airlines, Inc. cannot be subject to the minimum corporate income tax.

Taxpayer received from the BIR deficiency tax assessment for minimum corporate income tax(MCIT). The taxpayer filed a protest arguing, among others, that it is exempt from, or is notsubject to, the 2% MCIT by virtue of its Charter, Presidential Decree No. 1590. As no action wastaken by the BIR on its protest, taxpayer filed a petition for review before the CTA. Both the CTADivision and CTA En Banc agreed with taxpayer that it is not subject to the MCIT.

The Supreme Court affirmed the decision of the CTA. According to the Supreme Court, duringthe lifetime of the franchise of PAL, its taxation shall be governed by two fundamental rules, towit: (1) it shall pay the government either the basic corporate income tax or franchise tax,whichever is lower; and (2) the tax paid, under either of these alternatives, shall be in lieu of allother taxes, duties, royalties, registration, license and other fees and charges, except only realproperty tax. Citing earlier decisions on the same issue, the Supreme Court ruled that PALcannot be subject to the MCIT because the basic corporate income tax referred to underSection 13(a) of PD 1590 relates to the rate of 35% (now 30%) as provided in Section 27(A) ofthe NIRC of 1997. Because of the fundamental difference between the basic corporate incometax and the MCIT, PAL is subject to first tax yet exempted from the second. (Commissioner ofInternal Revenue vs. Philippine Airlines, Inc., G.R. No. 179259, September 25, 2013)

2. The 120+30 day periods provide in Section 112 of the NIRC are mandatory andjurisdictional.

Taxpayer filed its VAT returns showing unutilized VAT attributable to its zero-rated sales.Taxpayer then subsequently filed an administrative claim for refund for the said unutilized inputtaxes. The relevant filing periods are as follows:

Period Covered Filing of VAT Return Filing of the AdministrativeClaim

1st quarter 2004 April 16, 2004 June 9, 20042nd quarter 2004 July 15, 2004 August 12, 20043rd quarter 2004 October 15, 2004 February 18, 20054th quarter 2004 January 11, 2005 February 18, 20051st quarter 2005 April 25, 2005 May 11, 20052nd quarter 2005 July 19, 2005 November 18, 20053rd quarter 2005 October 26, 2005 November 18, 2005

For failure of the BIR to act on the administrative claims, the taxpayer filed a petition for reviewbefore the CTA on March 17, 2006. The BIR contends that the taxpayers action for refund hasnot compliant with the prescriptive periods under the Tax Code.

Citing the earlier cases of CIR vs. Aichi Forging Company of Asia, Inc.1 (Aichi Case) and CIRvs. San Roque Power Corporation2, the Supreme Court ruled that the two-year prescriptiveperiod applies only to the administrative claims and not to the judicial claims. Moreover, the 120-day and 30-day periods are not merely directory but mandatory. The taxpayer will always have30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or doesnot act at all during the 120-day period. With the 30-day period always available to the taxpayer,the taxpayer can no longer file judicial claim for refund or tax credit of unutilized excess inputVAT without waiting for the Commissioner to decide until the expiration of the 120-day period.Failure to comply with the 120-day waiting period violates the doctrine of exhaustion ofadministrative remedies and renders the petition premature and thus without a cause of action,with the effect that the CTA does not acquire jurisdiction over the taxpayers petition. The onlyexception is the period from December 10, 2003 when BIR Ruling No. DA-489-03 was issuedup to its reversal in the Aichi Case on October 6, 2010. BIR Ruling DA-489-03 provides a validclaim for equitable estoppel when the BIR ruled that the taxpayer-claimant need not wait for thelapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition forReview.

Thus, the taxpayer can benefit from BIR Ruling No. DA-489-03 with respect to its claims forrefund for unutilized excess input VAT for the 2nd and 3rd quarters of 2005 which were filedbefore the BIR on November 18, 2005 but elevated to the CTA on March 17, 2006 before theexpiration of the 120-day period. However, the claims for the 4 quarters of the 2004 and the 1stquarter of 2005 are denied for late filing of the petition for review before the CTA. (Republic ofthe Philippines vs. GST Philippines, Inc., G.R. No. 190872, October 17, 20133)

3. A taxpayer is not liable for the tax liability of another taxpayer in the absence of amerger.

On November 9, 2001, the Bank of Commerce (BOC) and Traders Royal Bank (TRB) executeda Purchase and Sale Agreement whereby it stipulated TRBs desire to sell and BOCs desire topurchase identified assets of TRB in consideration for BOC assuming identified liabilities. Underthe Agreement, BOC and TRB shall continue to exist as separate corporations with distinctcorporate personalities. On September 27, 2002, BOC received assessment demandingpayment of deficiency DST of TRB for the year 1999. After its unsuccessful protest, BOC filed apetition for review before the CTA raising, among others, the issue as to whether BOC can beheld liable for TRBs alleged deficiency DST liability.

The CTA En Banc was affirmed by the Supreme Court in ruling that the BOC cannot be heldliable for the alleged DST liability of TRB, in the absence of a merger, and the DST liability wasnot among the liabilities assumed by BOC under the Purchase and Sale Agreement.(Commissioner of Internal Revenue vs. Bank of Commerce, G.R. No. 180529, November13, 2013)

1 G.R. No. 184823, October 6, 20102 G.R. Nos. 187485, 196113 and 197156, February 12, 20133 The same decision was made in The Commissioner of Internal Revenue vs. Visayas Geothermal Power Company,Inc., G.R. No. 181276, November 11, 2013

4. To be able to claim refund on the basis of zero-rated sales, taxpayer must prove theexistence of zero-rated sales though its VAT returns and receipts issued for suchzero-rated sales.

Taxpayer is a producer of electricity. Pursuant to its Power Purchase Agreement with NationalPower Corporation (NPC), the electricity produced was to be sold to NPC. And relative to itssales to NPC, taxpayer was granted by the BIR certificates for zero-rate for VAT purposes inthe periods from January 1, 2000 to December 31, 2001. Taxpayer incurred input taxes on itsdomestic purchases of goods and services used in generation and sale of electricity to NPC forthe 4 quarters of 2001, which it had declared in its VAT returns. Subsequently, it filed a claim forrefund for the unutilized input taxes. The Commissioner did not act on taxpayers claim despitethe favorable recommendation of the revenue officer. Hence, taxpayer filed a petition before theCTA praying for the refund of input taxes for the 4 quarters of 2001.

The claim was denied by the CTA on the ground that in the VAT returns for the 4 quarters of2001, no amount of zero-rated sales was declared. Likewise, taxpayer did not submit any VATofficial receipts for services rendered to NPC. Thus, it had not established that it had zero-ratedsales for the 4 quarters of 2001. In its petition for review before the Supreme Court, thetaxpayer argued, among others, that the sale of electricity to NPC is automatically zero-ratedpursuant to RA 9136 (EPIRA Law). Hence, it need not prove that it had zero-rated sales. Indenying the claim of the taxpayer, the Supreme Court agreed with the CTAs decision that thetaxpayer did no produce evidence showing that it had zero-rated sales for the 4 quarters of2001. Its assertion that it need not prove its having actually made zero-rated sales of electricityby presenting the VAT official receipts and VAT returns cannot be upheld. (Luzon HydroCorporation vs. Commissioner of Internal Revenue, G.R. No. 188260, November 13, 2013)

5. The CTA does not acquire jurisdiction over a petition for review seeking the refund ofunutilized input taxes that is belatedly filed.

On August 9, 2004, taxpayer filed a claim for tax credit or refund of input taxes related to zero-rated sales covering the period January 1, 2003 to June 30, 2003. Because the BIR failed to actupon the claim, the taxpayer filed a petition for review with the CTA on May 5, 2005.

In denying the claim of the taxpayer, the Supreme Court ruled that the judicial claim was filedout of time. In accordance with the San Roque Case4, taxpayers judicial claim for refund mustbe denied for having been filed late. Although the taxpayer filed its administrative claim with theBIR on August 9, 2004 before the expiration of the 2-year period in Section 112(A), it failed tocomply with the 120+30-day period in Section 112(D) (now subparagraph C) of the NIRC whichrequires that upon the inaction of the Commissioner for 120 days after the submission of thedocuments in support of the claim, the taxpayer has to file its judicial claim within 30 days afterthe lapse of the said period. The 120 days granted to the Commissioner to decide the caseended on December 7, 2004. Thus, the taxpayer had 30 days therefrom or until January 6, 2005to file a petition for review with the CTA. But it belatedly filed the petition for review on May 5,2005. As a consequence, the CTA did not acquire jurisdiction. (Commissioner of InternalRevenue vs. Das Engineering Philippines, Inc., G.R. No. 184145, December 11, 2013)

4 G.R. No. 187485, February 12, 2013