Case Title: PhilAm Life vs Sec of Finance Facts: Secretary of Finance Ruling: Petitioner The Philippine American Life and General Insurance Company Affirmed CIR’s ruling (Philamlife) used to own 498,590 Class A shares in Philam Care Health CA ruling: Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the Petition was dismissed for lack of jurisdiction. health maintenance organization industry, offered to sell its shareholdings in PhilamCare through competitive bidding. Thus, petitioner’s Class A shares were sold to STI Investments Inc., as the highest bidder.
After the sale was completed and the necessary documentary stamp and capital gains taxes were paid, Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the shares. Months later, petitioner was informed that it needed to secure a BIR ruling in connection with its application due to potential donor’s t ax liability to which, the petitioner complied. Petitioner’s (Philamlife) Contentions: Philamlife pointed out, in its request, the following: that the transaction cannot attract donor’s tax liability since there was no donative intent and,ergo, no taxable donation, citing BIR R uling [DA-(DT-065) 715-09] dated November 27, 2009; that the shares were sold at their actual fair market value and at arm’s length; that as long as the transaction conducted is at arm’s length––such that a bona fide business arrangement of the dealings is done inthe ordinary course of business––a sale for less than an adequate consideration is not subject to donor’s tax; and that donor’s tax does not apply to saleof shares sold in an open bidding process.
Issue #1: Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction. Ruling: No, the CA did not err in dismissing the CA Petition.
Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law asit vests the CTA, albeit impliedly, impliedly, with jurisdiction over the CA petition as "other matters" matters" arising under the NIRC or other laws administered by the BIR.
-------------------------------------------------------------------------Insisting on the propriety of the interposed CA petition, Philamlife, Philamlife, while conceding that respondent Commissioner issued BIR Ruling No. 015-12 in Sec. 7. Jurisdiction - The CTA shall exercise: accordance with her authority to interpret tax laws, argued nonetheless that such ruling is subject to review by the Secretary of Finance under Sec. 4 of the a. Exclusive appellate jurisdiction to review by appeal, as herein NIRC. provided: Petitioner postulates that there is a need to differentiate the rulings promulgated by the respondent Commissioner relating to those rendered under the first paragraph of Sec. 4 of the NIRC, which are appealable to the
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
Secretary of Finance, from those rendered under the second paragraph of Sec. 4 of the NIRC, which are subject to review on appeal with the CTA.
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find application in the case at bar since it only governs appeals from the Commissioner’s rulings under the second paragraph and does not encompass rulings from the Secretary of Finance in the exercise of his power of review under the first, as what was elevated to the CA. It added that under RA 1125, as amended, the only decisions of the Secretary appealable to the CTA are those rendered in customs cases elevated to him automatically under Section 2315 of the Tariff and Customs Code.
Even though the provision suggests that it onl y covers rulings of the Commissioner, We hold that it is, nonetheless, sufficient enough to include appeals from the Secretary’s review under Sec. 4 of the NIRC.
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as amended, failed to supply where the rulings of the Secretary in its exercise of its power of review under Sec. 4 of the NIRC are appealable to. This gap, petitioner submits, was remedied by British American Tobacco v. Camacho wherein the Court ruled that where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency, the regular courts have jurisdiction to pass upon the same. Decisions of the Secretary of Finance in the exercise of its power of review under Sec. 4 of t he NIRC are not within the CTA’s limited special jurisdiction and, according to petitioner, are appealable to the CA via Rule 43 petition for review.
It is axiomatic that laws should be given a reasonable interpretation which does not defeat the very purpose for which they were passed. Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an injustice to taxpayers prejudiced by his adverse rulings. To remedy this situation, We imply from the purpose of RA 1125 and its amendatory laws that the CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of President but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi judicial body with specialization over the controversy. As the specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment cases, there can be no o ther court of appellate jurisdiction that can decide the issues raised inthe CA petition, which involves the tax treatment of t he shares of stocks sold. Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the Court of Tax Appeals may consider; such enumeration excludes all others by implication.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled that the CTA now has the power of certiorari in cases within its appellate jurisdiction. To elucidate: The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of appellate jurisdiction. The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in
one Supreme Court and in such lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.
Respondent’s (CIR) Contentions: Respondent Commissioner on Internal Revenue (Commissioner) denied Philamlife’s request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares thus sold was lower than their book value based on the financial statements of PhilamCare as of the end of 2008. As such, the Commisioner held, donor’s tax became imposable on the price difference pursuant to Sec. 100 of the National Internal Revenue Code
Issue #2: Whether or not the price difference in petitioner’s adverted sale of shares in PhilamCare attracts donor’s tax. Ruling: Yes, the price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be the case, does not exempt the sales of stock SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where transaction from donor's tax since Sec. 100 of the NIRC categorically property, other than real property referred to in Section 24(D), is transferred states that the amount by which the fair market value of the property for less than an adequate and full consideration in money or money’s worth, exceeded the value of the consideration shall be deemed a gift.1âwphi1 then the amount by which the fair market value of the pro perty exceeded the Thus, even if there is no actual donation, the difference in price is value of the consideration shall, for the purpose of the tax imposed by this considered a donation by fiction of law. Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for determining the "fair market value" of a sale of stocks. Such issuance was made pursuant to the (c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes Commissioner's power to interpret tax laws and t o promulgate rules and of this Section, ‘fair market value’ of the share of stock sold shall be: regulations for their implementation.
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book value of the shares of stock as shown in the financial statements duly certified by an independent certified public accountant nearest to the date of sale sh all be the fair market value. In view of the foregoing, the Commissioner ruled that the difference between the book value and the selling price in the sales transaction is taxable donation subject to a 30% donor’s tax under Section 99(B) of the NIRC.7 Respondent Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-09], on which petitioner anchored its claim, has already been revoked by Revenue Memorandum Circular (RMC) No. 25-2011. ---------------------------------------------------Respondents countered petitioner’s procedural arguments by claiming that even assuming arguendo that the CTA does not have jurisdiction over the case, Philamlife, nevertheless,committed a fatal error when it failed to appeal the Secretary of Finance’s ruling to the Office of the President (OP). As made apparent by the rules, the Department of Finance is not among the agencies and quasi-judicial bodies enumerated under Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings are appealable through a petition for review.15 This is in stark contrast to the OP’s specific mention under the same provision. Section 17.The President shall have control of all the executive departments, bureaus, and offices. He shall ensure that the laws be faithfully executed. respondents asseverate that the CA did not err in its holding respecting the CTA’s jurisdiction over the controversy Doctrine: CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of President but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi-judicial body with specialization over the controversy.
