Tax Updates 2010 to 2016 by Atty. Eric Recalde 1

JURISTS BAR REVIEW CENTER

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Tax Updates Atty. Atty. Eric R. Recalde

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Procedural Issues (A Treatise Treatise on o n Tax Tax Principles and Remedies) Jurisprudence (2010-2016)

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Income tax Business taxes Local and real property taxes Customs laws CTA practice Income Tax

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CIR vs. Sony Philippines, Inc. (2010) – Case: A LOA covered “the period 1997 and unverified prior years.” The BIR later on issued a deficiency VAT assessment based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998. – A tax assessment assessment which pertains pertains to a year not covered covered by the Letter of of Authority is void. The revenue officer must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. CIR vs. Kudos Metal Corporation (2010) – The taxpayer was not estopped from claiming prescription simply because it asked for the execution of the waiver and for additional time to submit the required documents. There was no showing that the taxpayer made any request to persuade the BIR to postpone the issuance of the assessments. – The doctrine of estoppel cannot be applied considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. The doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. RCBC vs. CIR (2011) – RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. – Had RCBC truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. – The liability of the withholding agent is independent from that of the taxpayer. The former cannot be made liable for the (final) tax due because it is the latter who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the (final) tax and remit the same to the government. The liability for the (final)tax, however, remains with the taxpayer because the gain was realized and received by him. Allied Banking vs. CIR (2010)

2010-2016 Tax Updates by Atty. Eric R. Recalde for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 1 of 24

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The taxpayer may not be faulted in not protesting the FAN and immediately filing an appeal with the CTA since the language used and the tenor of the FAN indicated that it was the final decision of the BIR on the matter.

Income Tax

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CIR v. Metro Star Superama, Inc. (2010) – The requirements of due process are not satisfied if only the FAN was sent to the taxpayer – The sending of a PAN to taxpayer to inform him of the assessment made is \ part of the “due “ due process requirement in the issuance of a deficiency tax assessment, ” the absence of which renders nugatory any assessment. Fishwealth Canning Corporation vs. CIR ( 2010) – A motion for reconsideration reconsideration of the denial of the administrative protest does not toll the toll the 30day period to appeal to the CTA. Lascona Land Co. Inc. vs. CIR (2012) CIR (2012) – In relation to Section 228 of the NIRC, the taxpayer has two (2) options in case of the BIR‟s inaction on its protest within the 180-day period: i.e., file a petition for review with the CTA within 30 days after the expiration of the 180-day period, or await the final decision of the BIR on the protest and appeal the same to the CTA within 30 days after receipt of a copy of such decision. H. Tambunting Pawnshop, Inc. vs CIR (2013) – A mere certification certification from a finance officer cannot substantiate substantiate the taxpayer‟s deductible expenses; The proper substantiation requirement for an expense to be allowed is the official receipt or invoice. CIR vs. Smart Communications, Inc. (2010) – A withholding withholding agent has the right to claim the refund of a tax erroneously erroneously withheld from a payment to a non-resident foreign corporation – The withholding agent and the non-resident foreign corporation need not be related parties Miguel J. Ossorio Pension Foundation, Inc. v CA, CIR (2010) – A corporation formed for the purpose of administering administering the Employees' Employees' Trust Fund has the personality to claim tax refunds due the Employees' Trust Fund – The trustor-beneficiary is not estopped from proving its ownership over the property held in trust by the trustee when the purpose is not to contest the disposition or encumbrance of the property in favor of an innocent third-party purchaser for value Income Tax

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Asiaworld Properties Philippine Corporation v CIR (2010); Belle Corporation v CIR (2011); CIR v. PL Management International Philippines, Inc. (2011); CIR vs Mirant Philippines (Operations) Corporation (2011); CIR vs. Philippine American Life And General Insurance Company (2010); CIR vs. Mcgeorge Food Industries, Inc. (2010) – The exercise of the option under Section 76 of the NIRC to carry-over the excess income tax credit, which shall be applied against the tax due in the succeeding taxable years, prohibits a claim for refund in the subsequent taxable years for the unused portion of the excess tax credits carried over. – The application of the option to carry-over the excess creditable tax is not limited only to the immediately following taxable year but extends to the next succeeding taxable years. The clear intent in the amendment under Section 76 is to make the option, once exercised, irr evocable evocable for the “succeeding taxable years.” – The taxpayer may apply the unutilized excess income tax payments as a tax credit to the succeeding taxable years until fully utilized. CIR v. Asian Transmission Corporation (2011) – There is no need for the taxpayer-refund claimant to prove actual remittance of tax claimed by the withholding agent to the BIR. Proof of remittance is the responsibility responsibilit y of the withholding agent and not of the taxpayer-refund claimant. CIR vs. FEBTC (BPI), (2010); ( 2010); CIR vs. Team [Philippines] Operations Corporation [formerly Mirant (Phils) Operations Corporation] (2014)


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It is incumbent upon the taxpayer to reflect in his return the income upon which any creditable tax required to be withheld at source. CIR vs. Team [Philippines] Operations Corporation [formerly Mirant (Phils) Operations Corporation] (2013) – It is sufficient that the taxpayer presented the original copies of the Certificates of Creditable Tax Withheld at Source to the court-commissioned ICPA who examined the original copies and certified that the copies submitted to the CTA as evidence were faithful reproductions of the original certificates. – It is not necessary for the person who executed and prepared the Certificates of Creditable Tax Withheld at Source to be presented and to testify personally as to the authenticity of the certificates. The copies of the Certificates of Creditable Tax Withheld at Source when found by the duly commissioned ICPA to be faithful reproductions of the original copies would suffice to establish the fact of withholding. It is not necessary for the person who executed and prepared the Certificates of Creditable Tax Withheld at Source to be presented and to testify personally as to the authenticity of the certificates. The copies of the Certificates of Creditable Tax Withheld at Source when found by the duly commissioned ICPA to be faithful reproductions of the original copies would suffice to establish the fact of withholding

Winebrenner &Inigo Insurance Brokers, Inc. v. Commissioner of Internal Revenue G.R. No. 206526, 28 January 2015 Philippine National Bank v. Commissioner of Internal Revenue G.R. No. 206019, 18 March 2015. I n a c l ai m f o r r e f u n d o f u n u t i l i z e d C W T, t ax p a y e r m u s t p r o v e p a y m e n t a n d n o n - u s a g e o f the tax credit.

The claim for refund of unutilized CWT must prove the entitlement to the excess credits, and that no carry-over has been made of the excess credits to the subsequent quarter or taxable year. Any document, other than the quarterly ITRs, may be used to establish the non-carryover, provided that such document is competent, relevant and part of the records. Commissioner of Internal Revenue v. Team (Phils.) Energy Corporation G.R. No. 188016, 14 January 2015 In proving that the excess credits were not carried over to the succeeding quarters, the taxpayer is not required to present its quarterly ITRs. Once the taxpayer establishes a prima facie right to refund by testimonial and object evidence, the BIR shall present rebuttal evidence to shift the burden back to the taxpayer. The BIR ought to have copies of the quarterly returns of the taxpayer. If the BIR intended to rebut the position of the taxpayer that it did not carry-over the excess credits on the basis of the quarterly returns, it should have presented its own copies of the said documents. SMI-ED Philippines Technology, Inc., v. CIR G.R. No. 175410, 12 November 2014 T h e C TA h a s n o p o w e r t o m a k e a n a s s e s s m e n t b u t m a y d e t er m i n e p r o p e r t a x l i a b i l i t y i n a claim for refund.

The CTA has no power to make an assessment at the first instance. The CTA is not expected to perform the BIR‟s duties of assessing and collecting taxes whenever the BIR, through neglect or oversight, fails to do so within the prescriptive period allowed by law. In a tax refund case, the CTA may determine whether there are taxes that should have been paid in lieu of the taxes paid. Determining the proper category of tax that should have been paid is not an assessment. It is incidental to determining whether a refund should be granted.


T h e B I R c a n s t i l l m a k e as s e s s m e n t s e v e n w h e n a c l a i m f o r r e f u n d c a s e i s a l r e ad y w i t h t h e CTA.

The elevation of the refund claim with the CTA is not a bar against the BIR‟s exercise of its assessment powers. However, once period to assess prescribes, the BIR can no longer assess deficiency taxes, even if the taxpayer is later found to have tax liabilities in excess of the amount claimed for refund. T a x d e f i c i en c y m a y n o t b e c o l l e c t e d i n a t a x r e f u n d c a s e .

“Any liability in excess of the refunda ble amount may not be collected in a case involving solely the issue of the taxpayer‟s entitlement to refund. The question of tax deficiency is distinct and unrelated to the question of petitioner‟s entitlement to refund. Tax deficiencies should be subje ct to assessment procedures and the rules of prescription.” Income Tax

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United Airlines, Inc. vs. CIR (2010) – The CTA can make a valid finding that a taxpayer made erroneous deductions on its gross cargo revenue; that because of the erroneous deductions, the taxpayer reported a lower cargo revenue and paid a lower income tax thereon; and that the taxpayer's underpayment of the income tax on cargo revenue is even higher than the income tax it paid on passenger revenue subject of the claim for refund, such that the refund cannot be granted.

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Deustche Bank AG Manila Branch vs CIR (2013) (see also CBK case) – Non-compliance with RMO 1-2000 does not impair the value of a tax treaty; The application for a tax treaty relief shall simply confirm the entitlement of the taxpayer to the relief Business Taxes

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AT&T Communications Services Philippines, Inc. v CIR (2010) – There is no distinction between sales invoices and official receipts in the substantiation requirements pertaining to a claim for refund of excess/unutilized input VAT arising from zero-rated or effectively zero-rated sales prior to November 1, 2005 ( the effectivity date of RA 9337) – (Note: under RA 9337, sales invoices must support the sale of goods or properties, while official receipts must substantiate the sale of services) Hitachi Global Storage Technologies Philippines Corp. (formerly Hitachi Computer Products (Asia) Corporation) vs. CIR (2010); Kepco Philippines Corporation v CIR (2010); Kepco Philippines Corporation v CIR (2011); Microsoft Philippines, Inc. v. CIR (2011); Western Mindanao Power Corporation v CIR (2012); CIR vs Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) (2014) – The sales invoices must state on their face that the sales are “zero -rated” in order for the seller to claim a VAT refund on account of such zero-rated sales CIR vs Toledo Power, Inc. (2014) – Although the phrase “zero -rated” appeared on the VAT invoices/official receipts was merely stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting of the word “zero -rated” was required merely to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other VAT provisions of the Tax Code Luzon Hydro Corporation vs CIR (2013) – The financial statements, the return and the BIR letter opinion could not be taken at face value for the purpose of approving the claim for refund or tax credit due to the need to produce the supporting documents proving the existence of the zero-rated sales Silicon Philippines, Inc., (formerly Intel Philippines Manufacturing, Inc.) vs. CIR (2011); CIR vs Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) (2014); JRA Philippines, Inc. vs CIR (2013)


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While there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or receipts. Failure to do so makes the person liable under Section 264 of the NIRC. A claimant for unutilized input VAT on zero-rated sales is required to present proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts.

Commissioner of Internal Revenue v. GJM Philippines Manufacturing, Inc., G.R. No. 202695, 29 February 2016. If the taxpayer denies having received BIR’s assessment, BIR should prove by competent e v i d e n c e t h a t s u c h n o t i c e w a s i n d e ed r e c e i v e d b y t h e a d d r e s s e e . B I R 's f a i l u r e t o p r o v e r e c e i p t o f t h e a s s e s s m e n t b y t h e t a x p a y er l e a d s t o n o o t h e r c o n c l u s i o n b u t t h a t n o a s s e s s m e n t w a s i s s u e d .

The taxpayer should actually receive the assessment notice from the BIR. If the taxpayer denies receipt, onus probandi has shifted to the BIR to show by contrary evidence that taxpayer indeed received the assessment. Without proving that an assessment has been received by the taxpayer within the prescriptive period, the government's right to issue an assessment has already prescribed. To prove the fact of mailing, it is essential for BIR to present the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer or its authorized representative. If such documents could not be located, the CIR should, at the very least, submit as proof a certification issued by the Bureau of Posts and any other pertinent document executed with the taxpayer‟s intervention. Self -serving documentations made by BIR personnel are not given credence. Business Taxes

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Bonifacio Water Corporation vs. CIR (2013) – The change of petitioner‟s name to “Bonifacio GDE Water Corporation,” being unauthorized and without approval of the SEC, and the issuance of official receipts under that name which were presented to support petitioner‟s claim for tax refund, cannot be used to allow the grant of tax refund or issuance of a tax credit certificate in petitioner‟s favor. – The absence of official receipts issued in its name is tantamount to non-compliance with the substantiation requirements provided by law Atlas Consolidated Mining And Development Corporation v. CIR (2011) – When claiming tax refund/credit, the VAT-registered taxpayer must be able to establish that it does have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities – information which are supposed to be reflected in the taxpayer‟s VAT returns; An application for tax refund/credit must be accompanied by copies of the taxpaye r‟s VAT return/s for the taxable quarter/s concerned. CIR v. Aichi Forging Company of Asia (2010); CIR vs San Roque Power Corporation(2013); Nippon Express (Philippines) Corporation vs. CIR (2013); Mindanao ll Geothermal Partnership vs. CIR (2013); CIR vs. Mindanao II Geothermal Partnership (2014); Taganito Mining Corporation vs CIR (2013); Philex Mining Corporation vs CIR (2013); CIR vs. Dash Engineering Philippines, Inc. (2013); CIR vs Toledo Power, Inc. (2014); Procter & Gamble Asia Pte Ltd vs CIR (2014); Team Sual Corporation (formerly, Mirant Sual Corporation) vs. CIR (2014); CIR vs. Visayas Geothermal Power Company, Inc (2013) – 2-year/120/30-day rule – In order to validly claim a refund or credit, the administrative claim must be filed within two (2) years from the close of the taxable quarter (2-year period) and not from the date of payment of tax (or filing of the relevant quarterly VAT return). If the BIR fails to act on the claim within one hundred twenty (120) days from the submission of all supporting documents (120-day period), the taxpayer may immediately appeal such inaction within 30 days following the end of the 120-day period. It is not required to wait until the end of the 2-year period. On the other hand, the taxpayer must wait until the end of the 120-day period before it may appeal the BIR‟s inaction to the CTA. The same is true even if the 2 -year period is about to expire.


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The 120+30-day period is mandatory and jurisdictional. The failure to observe the said period before filing a judicial claim with the CTA would not only make such petition premature, but would also result in the non-acquisition by the CTA of jurisdiction to hear the said case. The issue of whether petitioner complied with the said time frame may be broached at any stage, even on appeal.

Panay Power Corporation v. Commissioner of Internal Revenue G.R. No. 203351, 21 January 2015 T a x p a y er s w h o r e l i ed o n B I R R u l i n g N o . D A - 48 9- 03 a r e ex e m p t e d f r o m t h e a p p l i c a t i o n 1 2 0 - day and 30-day period.

BIR Ruling No. DA-489-03 provided that the taxpayer need not wait for the 120-day period to lapse before it could appeal to the CTA. Thus, appeals filed with the CTA pursuant to and during the effectivity of BIR Ruling No. DA-489-03 (i.e., 10 December 2003 to 6 October 2010) should be honored. The reliance of the taxpayers on the ruling constitutes an equitable estoppel in favor of the taxpayers.

CIR v. Burmeister and Wain Scandinavian Contractor Mindanao Inc. G.R. No. 190021, 22 October 2014 AT&T Communications Services Philippines, Inc., v. CIR G.R. No. 185969, 19 November 2014 Nippon Express v. CIR G.R. No. 185666, 4 February 2015 T h e 1 20 p l u s 3 0 -d a y P e r i o d i n a c l a i m f o r V A T R e f u n d i s M a n d a t o r y a n d J u r i s d i c t i o n a l .

A taxpayer needs to wait for the expiration of the 120-day period before the claim of refund may be considered as “inaction” on the part of the CIR. Thus, all judicial claims filed with the CTA within the 120-day period are considered prematurely filed. The taxpayer must appeal with the CTA within 30 days after the expiration of the 120-day period. Judicial claims filed beyond the period are considered filed out of time. Failure of the taxpayer to comply with the 120- and 30-day periods may be raised at any stage, even on appeal.

AT&T Communications Services Philippines, Inc., v. CIR G.R. No. 185969, 19 November 2014 Northern Mindanao Power Corporation v. CIR G.R. No. 185115, 18 February 2015 A V A T i n v o i c e c a n n o t b e u s e d t o s u b s t a n t i a t e t h e r e f u n d c l a i m o f a t a x p a y e r e n g a g ed i n the sale of servic es.

The legislature separately categorized VAT on the sale of goods from VAT on the sale of services, not only by its treatment with regard to tax, but also with respect to substantiation requirements. The VAT invoice is the seller‟s best proof of the sa le of the goods or services to the buyer, while the VAT receipt is the buyer‟s best evidence of the payment of goods or services received from the seller. VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Neither does the law intend the two to be used interchangeably.

–Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue, G.R. No. 207112, 8 December 2015.


A taxpayer, whose claim for r efund was d enied by the BIR due to its failure to s u b m i t d o c u m e n t s d e s p i t e n o t i c e / r eq u e s t , c a n n o t s u b s e q u e n t l y p r e s e n t s u c h d o c u m e n t s as evidenc e on appeal.

If the judicial action is filed to question the denial of the administrative claim (due to the taxpayer's failure to submit complete documents despite notice/request), the taxpayer cannot present material documents not presented at the administrative level. He cannot cure his failure to submit documents which are required for the successful prosecution of a claim at the administrative level by filing the said documents before the CTA. This is because he has to convince the CTA that the Commissioner has no reason to deny the administrative claim, i.e., he is entitled under substantive law to his claim, and has satisfied all the corresponding documentary and evidentiary requirements. A t a x p a y e r , w h o s e c l a i m f o r r e f u n d w a s n o t a c t e d u p o n b y t h e B I R , c an p r e s e n t docu ments as evidence for the first tim e on appeal.

If the judicial action is filed due to inaction, the CTA may give credence to all evidence presented by the taxpayer (including those that may not have been submitted to the Commissioner). In this case, the CTA decides the case in the first instance. Thus, the taxpayer must prove every minute aspect of the case by presenting and formally offering evidence to the CTA, which must necessarily include whatever is required for the successful prosecution of an administrative claim. It

is

the

taxpayer

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determines

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constitutes

complete

sup porting

documents.

The SC also ruled that RMO No. 53-98 is addressed to internal revenue officers and employees, to guide them as to what documents they may require taxpayers to present upon audit of their tax liabilities. It cannot determine the completeness of the documents submitted; that determination remains with the taxpayer.

Nippon Express (Philippines) Corporation vs. CIR (2015) -

A case before the CTA Division may be withdrawn as a matter of right before a case is submitted for decision, and at the discretion of the court thereafter, but in no case after the CTA has rendered its decision. In rendering the decision on withdrawal, there must be no suspicious circumstances prejudicial to the government.

Business Taxes

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Republic of the Philippines, as represented by the CIR vs GST Philippines, Inc. (2013) – The filing of the administrative claim was not necessarily the same time when the complete supporting documents were submitted to the Commissioner; However, if the CIR fails to show that the taxpayer further submitted supporting documents subsequent to the filing of its administrative claims, the reckoning date of the 120-day period shall commence simultaneously with the filing of the administrative claims when the taxpayer was presumed to have attached the relevant documents to support its applications for refund or tax credit – Note: per RMC 54-2014, all supporting documents must be submitted together with the administrative claim for refund CIR vs San Roque Power Corporation (2013); Taganito Mining Corporation vs CIR (G.R. No. 196113, October 8, 2013; Philex Mining Corporation vs CIR (2013) – For the operative fact doctrine to apply there must be a “legislative or executive measure,” meaning a law or executive issuance, that is invalidated by the court. From the passage of such law or promulgation of such executive issuance until its invalidation by the court, the effects of the law or executive issuance, when relied upon by the public in good faith, may have to be recognized as valid. In the present case, however, there is no such law or executive issuance that has been invalidated by the Court except BIR Ruling No. DA-489-03


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The power of the BIR commissioner under Section 4 may be delegated, per Section 7 of the NIRC (hence, BIR Ruling No. DA-489-03 may be relied on as a general interpretative regulation) CBK Power Company Ltd vs CIR (2014) – The principle of solution indebiti does not apply since the payment of input tax was not made through mistake. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the amount paid was correct and proper FBDC vs. CIR (2013) – Prior payment of taxes is not necessary before a taxpayer could avail of the 8% transitional input tax credit Business Taxes

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SilkAir vs. CIR (2010); (2012); CIR vs. PSPC (2012); Diageo Philippines, Inc. vs. CIR (2012)

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The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. – Unlike the law on Value Added Tax which allows the subsequent purchaser under the tax credit method to refund or credit input taxes passed on to it by a supplier, no provision for excise taxes exists granting non statutory taxpayer to claim a refund or credit. CIR v Pilipinas Shell Petroleum Corporation (2014) – The oil companies which sell petroleum products to international carriers may claim a refund of the excise tax on such products – The exemption from excise tax of aviation fuel purchased by international carriers for consumption outside the Philippines fulfills a treaty obligation, pursuant to which the Government supports the promotion and expansion of international travel through avoidance of multiple taxation and ensuring the viability and safety of international air travel PAL vs CIR (2013) – If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax (Maceda vs Macaraig, Jr. Case). On the other hand, if the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim (Silk Air Cases). – In this case, PAL‟s franchise grants it an exemption from both direct and indirect taxes on its purchase of petroleum products. Hence, it is endowed a legal standing to file a claim for refund.

Local and Real Property Taxes

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Angeles City v. Angeles City Electric Corporation (2010) – If the attachment of property would cripple the business operation of the taxpayer, the writ of injunction may be issued. – While the damage to a taxpayer‟s property rights generally takes a back seat to the paramount need of the State for funds to sustain governmental functions, this rule is not applicable where the disputed tax assessment is not yet due and demandable since “AEC was able to appeal the denial of its protest within the period prescribed under Section 195 of the LGC.” D. M. Wenceslao And Associates, Inc., vs City of Parañaque (2011) – The payment of docket and other fees within the prescribed period is mandatory for the perfection of the appeal. Otherwise, the right to appeal is lost. – The payment of appellate docket fees is not a mere technicality of law or procedure. It is an essential requirement, without which the decision or final order appealed from becomes final and executory as if no appeal was filed. National Power Corporation vs Provincial Government of Bataan, et.al. (2014)


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By virtue of the EPIRA, the NPC has ceased to operate a franchise in Bataan that has been subject to the tax in issue – A local franchise tax is imposed on the privilege of operating a franchise, not a tax on the ownership of transmissions facilities Valbueco Inc. vs Province of Bataan (2013) – While the notices and publication, as well as the legal requirements for a tax delinquency sale under Presidential Decree No. 464 (otherwise known as the Real Property Tax Code),20 are mandatory and that failure to comply therewith can invalidate the sale in view of the requirements of due process, the claim of lack of notice is a factual question – The petitioner failed to present preponderant evidence to support its allegations that the auction sale of the subject properties due to tax delinquency was attended by irregularities. M a n i l a E l ec t r i c C o m p a n y v . C i t y T r e a s u r e r o f L u c e n a C i t y (2015) Electric posts are now taxable machineries under the LGC. An item may be considered

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machinery under the LGC, but not real property under the Civil Code The LGC mandates that the taxpayer be given a notice of the assessment of real property and such notice should be sufficiently informative to apprise the taxpayer of the legal basis of the assessment. The notice of assessment should effectively inform the taxpayer of the value of a specific property subject to tax, including the discovery, listing, classification, appraisal of properties (citing Meralco v. Barlis, 1 February 2002)

Customs Cases

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COC vs. Hypermix Feeds Corporation (2012) – The issuance of a Customs Memorandum Order (CMO 27-2003), which was issued without following the mandate of the Administrative Code on public participation, prior notice, and publication or registration with the University of the Philippines Law Center, may be the subject of a Petition for Declaratory Relief filed with the RTC – CMO 27-3003 (which classifies wheat for tariff purposes according to the importer or consignee, country of origin, and port of discharge, and imposes a 3% tariff for food grade and 7% for feed grade tariff) is unconstitutional for being violative of the equal protection clause of the Constitution, specifically because the quality of wheat is not affected by who imports it, where it is discharged, or which country it came from – CMO 27-3003 likewise limited the customs officer‟s authority to examine, classify, and appraise imported articles under Section 1403 of the Tariff and Customs Law since it has already classified the article even before the customs officer had the chance to examine SBMA v. Rodrig uez, et.al . (2010) – Customs agents cannot be held liable for contempt in the exercise of their powers Philippine British Assurance Company, Inc. vs. Republic of the Philippines (2010) – An action to collect on a bond used to secure the payment of taxes is not a tax collection case, but rather a simple case for enforcement of a contractual liability. The BOC need not follow the procedure in the proper prosecution of a tax collection case. – Appellate jurisdiction over such action (earlier filed with the RTC) lies with the CA and not the CTA RTC/CTA Practice

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Swedish Match Philippines, Inc vs. City Treasurer of Manila (2013) – A verification signed without an authority from the board of directors is defective. However, the requirement of verification is simply a condition affecting the form of the pleading and non-compliance does not necessarily render the pleading fatally defective. The court may in fact order the correction of the pleading if verification is lacking or, it may act on the pleading although it may not have been verified, where it is made evident that strict compliance with the rules may be dispensed with so that the ends of justice may be served – The following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the


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President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case. – In this case, the Petition filed with the RTC was accompanied by a Verification and Certification of Non-Forum Shopping signed by a Finance Director, although without proof of authority from the board. The belated submission of the Secretary‟s Certificate constitutes substantial compliance with Sections 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. Faustino T. Chingkoe vs. Republic of the Philippines, as represented by the Bureau of Customs (2013) – The remedy of certiorari (Rule 65) does not lie to question the RTC Order of dismissal. The Rules preclude recourse to the special civil action of certiorari if appeal by way of a Petition for Review is available – An order of dismissal based on failure to appear at pre-trial is with prejudice, unless the order itself states otherwise. It should be considered as adjudication on the merits of the case, where the proper remedy is an appeal under Rule 41. Metro Manila Shopping Mecca Corp., et.al. vs Liberty Toledo, et.al. ( 2013) – The reglementary period provided under Section 3, Rule 8 of the RRCTA is extendible – Respondents‟ submission of only one copy of the petition for review and their failure to attach therewith a certified true copy of the RTC‟s decision constitute mere formal defects which may be relaxed in the interest of substantial justice. – Under Rule 26, once a party serves a request for admission regarding the truth of any material and relevant matter of fact, the party to whom such request is served is given a period of fifteen (15) days within which to file a sworn statement answering the same. Should the latter fail to file and serve such answer, each of the matters of which admission is requested shall be deemed admitted; The exception to this rule is when the party to whom such request for admission is served had already controverted the matters subject of such request in an earlier pleading. Republic vs Shell (2015) • Good faith is a question of fact to be determined in every case, even in cases involving same parties and the same legal issues • This case reiterates the principles in PSPC v Republic (2008), but rejected the claim that PSPC can invoke said precedent to establish its good faith. Good faith is a question of fact that must be proven in every case. Ferrer, Jr. vs. Bautis ta (2015)

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The period to question the ordinance filed with DOJ is part of exhaustion of administrative remedies that may be excused under certain circumstances.

C E C a s ec n a n W a t e r a n d E n e r g y C o m p a n y v . P r o v i n c e o f N u e v a E c i ja (2015)

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It is the CTA which has certiorari jurisdiction on questions over interlocutory orders issued by the RTC in local tax cases and not the CA (see Cuerdo, Devanadera cases) Province of Leyte v. Energy Development Corp (2015) The SC upheld CA‟s assumption of certiorari jurisdiction questioning RTC‟s wr it of injunction against collection of local franchise tax. RTC/CTA Practice

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CIR vs. Hambrecht & Quist Philippines, Inc. (2010) – Under the CTA Law, “other matters” includes the authority of the CTA to decide on a petition questioning the right of the BIR to collect an assessment that has become final and executory. – The issue of prescription of the BIR‟s right to collect taxes may be considered as covered by the term “other matters” over which the CTA has appellate jurisdiction Smart Communications, Inc. vs Municipality of Malvar, Batangas (2014)


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The CTA‟s jurisdiction is limited to questions over “decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appe llate jurisdiction.” – The court did not resolve a local tax case, since the amounts levied by Ordinance No. 18 are fees, which are regulatory in nature. City of Manila, et. al vs Hon. Caridad Cuerdo, et al (2014) (See also Devanadera case) – The CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory order issued by the RTC in a local tax case – With respect to the CTA, 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 – 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 – The Supreme Court is not abandoning the rule that, insofar as quasi-judicial tribunals are concerned, the authority to issue writs of certiorari must still be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of their appellate jurisdiction. This doctrine remains as it applies only to quasi-judicial bodies. RTC/CTA Practice

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Exxonmobil Petroleum And Chemical Holdings, Inc. – Philippine Branch v CIR (2011) – The CTA may immediately conduct a preliminary hearing and decide on the affirmative defense/s of the respondent (e.g., lack of jurisdiction, improper party) even prior to trial, pursuant to Rule 16, Section 6 of the Rules of Court. CIR vs. Ironcor Builders (2010) – The taxpayer‟s failure to offer in e vidence its quarterly returns for 2001 was not fatal when it filed a motion for reconsideration, attached its 2001 returns, and, at the hearing of the motion, had these returns marked as Exhibits. These Exhibits were admissible even if they were offered only after trial had ended. Toshiba Information Equipment (Phils), Inc. vs. CIR (2010) – The failure of the CIR to timely plead and prove before the CTA the defenses or objections that the taxpayer was VAT-exempt under Section 24 of Republic Act No. 7916, and that its export sales were VAT-exempt transactions under Section 103(q) of the NIRC, the CIR is deemed to have waived the same. Milwaukee Industries Corporation v CTA (2010) – It was not grave abuse of discretion when the CTA denied the taxpayer‟s requ est for extension of time to present rebuttal evidence, when two similar requests were earlier granted by the CTA and the taxpayer was not prepared to present evidence during the rescheduled hearing. Commissioner of Customs v. Marina Sales, Inc. (2010) – The petition for review of a decision or resolution of the CTA Division must be preceded by the filing of a timely motion for reconsideration or new trial with the CTA Division. CIR v. Eastern Telecoms (2010) – The CIR‟s motion for reconsideration filed with the CTA raising the argument claimed by the taxpayer to be a new matter has made such issue not to have been raised for the first time on appeal. – A taxpayer cannot validly claim to have been taken by surprise by the CIR‟s arguments when such arguments were based on the taxpayer‟s documents formally offered as evidence. – Even if the CIR‟s act were to be considered as a lapse in the observance of procedural rules, such lapse will not work to entitle the taxpayer to a tax refund when the established and uncontested facts have shown otherwise.


RTC/CTA Practice

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CIR vs. Bank of Commerce (2013) – The Supreme Court upheld the ruling of the CTA En Banc, which held that the rule that no issue may be raised for the first time on appeal is not a hard and fast rule as “ jurisprudence declares that the appellate court is clothed with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a just decision of the case.” Luzon Hydro Corporation vs CIR (2013) – While the concept of newly discovered evidence is applicable to litigations in which a litigant seeks a new trial or the re-opening of the case in the trial court, seldom is the concept appropriate when the litigation is already on appeal, especially before the SC; – A judicial claim for tax refund or tax credit brought to the CTA is by no means an original action but an appeal by way of a petition for review of the taxpayer‟s unsuccessful administrative claim; hence, the taxpayer has to convince the CTA that the quasi-judicial agency a quo should not have denied the claim, and to do so the taxpayer should prove every minute aspect of its case by presenting, formally offering and submitting its evidence to the CTA, including whatever was required for the successful prosecution of the administrative claim as the means of demonstrating to the CTA that its administrative claim should have been granted in the first place. – In order that newly discovered evidence may be a ground for allowing a new trial, it must be fairly shown that: (a) the evidence is discovered after the trial; (b) such evidence could not have been discovered and produced at the trial even with the exercise of reasonable diligence; (c) such evidence is material, not merely cumulative, corroborative, or impeaching; and (d)such evidence is of such weight that it would probably change the judgment if admitted CIR vs. Fort Bonifacio Development Corp (2010) – The failure of the CIR to timely plead and prove before the CTA the defenses or objections that the taxpayer was VAT-exempt under Section 24 of Republic Act No. 7916, and that its export sales were VAT-exempt transactions under Section 103(q) of the NIRC, the CIR is deemed to have waived the same. – Counsel‟s predicament of being burdened with a heavy case load is not a defense especially if he fails to sufficiently explain his failure to observe the Rules. RTC/CTA Practice

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Central Luzon Drug Corporation v CIR (2011) – When an appeal is withdrawn, the assailed CTA decision becomes final and executory. – The dismissal of the case is with prejudice. By withdrawing the appeal, the taxpayer is deemed to have accepted the decision of the CTA. And since the CTA had already denied the taxpayer‟s request for the issu ance of a tax credit certificate, it may no longer be included in its future claims. It cannot be allowed to circumvent the denial of its request for a tax credit by abandoning its appeal and filing a new claim. Hitachi Global Storage Technologies Philippines Corp. (formerly Hitachi Computer Products (Asia) Corporation) vs. CIR (2010) – In a petition filed pursuant to Rule 45, the assignment of errors must not impugn against the CTA en Banc‟s grave abuse of discretion amounting to lack or excess of jurisdi ction, which are grounds in a petition for certiorari under Rule 65 of the Rules of Court. Deustche Bank AG Manila Branch vs CIR (2013) – When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed sustained. With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata. However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent. Accenture, Inc. vs. CIR ( 2012)


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CIR

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Even though a Petition was filed before a Supreme Court pronouncement in a separate case (i.e., new doctrine in Burmeister) was promulgated, the pronouncement made in that case may be applied to the pending petition without violating the rule against retroactive When the Supreme Court decides a case, it does not pass a new law, but merely interprets a preexisting one Such interpretation became part of the law from the moment it became effective. The Supreme Court's construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect. vs Fortune Tobacco Corporation (2013) When there is a conflict between the dispositive portion of the decision and the body thereof, the dispositive portion controls irrespective of what appears in the body of the decision. The office of a judgment nunc pro tunc is to record some act of the court done at a former time which was not then carried into the record, and the power of a court to make such entries is restricted to placing upon the record evidence of judicial action which has actually been taken

RTC/CTA Practice

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CIR vs Fortune Tobacco Corporation (2013) – When there is a conflict between the dispositive portion of the decision and the body thereof, the dispositive portion controls irrespective of what appears in the body of the decision. – When the dispositive portion of a judgment, which has meanwhile become final and executory, contains a clerical error or an ambiguity arising from a inadvertent omission, such error or ambiguity may be clarified by reference to the body of the decision itself – The office of a judgment nunc pro tunc is to record some act of the court done at a former time which was not then carried into the record, and the power of a court to make such entries is restricted to placing upon the record evidence of judicial action which has actually been taken

Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (now Team Energy Corporation), G.R. No. 180434, 20 January 2016. Silicon Philippines, Inc. (Formerly Intel Philippines Manufacturing, Inc.) v. Commissioner of Internal Revenue, G.R. No. 182737, 2 March 2016. The 120+30-day period provided under Section 112 of the NIRC is mandatory and j u r i s d i c ti o n al .

The judicial claim shall be filed within 30 days after the receipt of BIR‟s decision or ruling on the claim for VAT refund or after the expiration of the 120-day period, whichever is sooner. Any claim filed in a period less than or beyond the 120+30-day period provided by the NIRC is outside the jurisdiction of the CTA. The only recognized exceptions to this rule are the petitions filed with the CTA within 10 December 2003 to 6 October 2010, which represents the time between the issuance of BIR Ruling No. DA-489-03 until the Aichi doctrine.

Philippine Amusement and Gaming Corporation v. Bureau of Internal Revenue, Commissioner of Internal Revenue, and Regional Director, Revenue Region No. 6, G.R. No. 208731, 27 January 2016. A p e t i t i o n b e f o r e t h e C TA m a y o n l y b e m a d e a f t er a w h o l e o r p a r t i a l d e n i al o f t h e p r o t e s t by th e CIR or the CIR's auth orized represent ative.

A taxpayer who filed a protest is given three (3) options under Section 3.1.5 of Revenue Regulations No. (RR) 12-99, implementing Section 228 of the NIRC:


1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest; 2. If the protest is wholly or partially denied by the CIR‟s authorized representative, then the taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest; and 3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period. To further clarify the three options: A whole or partial denial by the CIR's authorized representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized representative. In this case, PAGCOR made separate and successive filings/protests before the Regional Director and the CIR. Without waiting for the decision of the Regional Director and the CIR, but after the lapse of the 180-day period, PAGCOR filed its petition before the CTA. The Supreme Court held that the CTA did not acquire jurisdiction. Considering that the Regional Director did not render any decision on the protest, an appeal under the first and second option is not available. Also, PAGCOR failed to file an appeal on the inaction within the period prescribed under the third option (i.e., 180+30 day period). Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 180402, 10 February 2016. The petroleum prod ucts so ld to international carriers are exempt from excise tax. It is s t a t u t o r y t a x p a y e r (i . e. , m a n u f a c t u r e r ) w h o e n t i t l e d t o t h e t a x r e f u n d o f t h e e x c i s e t a x e s p a i d o n said petroleum products .

Since the international carriers are exempt from payment of excise tax under Section 135(a) of the NIRC, the petroleum products sold to international carriers are exempt from excise tax. Excise tax is a tax on property; hence, the exemption from the excise tax must be construed in favor of the petroleum products on which the excise tax was initially imposed. The construction of the tax exemption should give primary consideration to broad implications (i.e., growing economy and booming tourism industry as against prospect of declining sales of aviation jet fuel to international carriers on account of major domestic oil companies‟ unwillingness to should the burden of excise tax) on the Philippines‟ commitment under international agreements.

Spouses Emmanuel Pacquiao and Jinkee Pacquiao v. CTA- First Division and CIR G.R. No. 213394, 06 April 2016 The CTA has authority to issue injunctive writs to restrain the collection of tax and to dispense with the deposit of the amount claimed or the filing of the required bond, whenever the method employed by the CIR in the collection of tax jeopardizes the interests of a taxpayer for being patently in violation of the law. An appeal to the CTA from the decision of the CIR will not suspend the payment, levy, distraint, and/ or sale of any property of the taxpayer in satisfaction of his tax liability .


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An exception to this rule is when in the view of the CTA, the collection may jeopardize the interest of the Government and/or the taxpayer, it may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond. The determination of whether the methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for being patently in violation of the law is a question of fact that calls for the reception of evidence which would serve as basis. The CTA is in a better position to initiate this given its time and resources .

Commissioner of Internal Revenue v. Liquigaz Philippines Corporation , G.R. No. 215534 and G.R. No. 215557, 18 April 2016 A "decision" differs from an "assessment" and failure of the FDDA to state the facts and law on which it is based renders the decision void-but not necessarily the assessment. o

An FDDA that does not inform the taxpayer in writing of the facts and law on which it is based renders the decision void. Therefore, it is as if there was no decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR, which may still be appealed before the CTA and the assessment evaluated on the basis of the available evidence and documents. The merits of the EWT and FBT assessment should have been discussed and not merely brushed aside on account of the void FDDA.

CIR v. Kepco Ilijan Corporation, G.R. 199422, 21 June 2016 A petition for annulment of judgment filed in the CTA En Banc is not the proper remedy to annul a judgment rendered by its Division. The divisions are not considered separate and distinct courts but are divisions of one and the same court. The Supreme Court, Court of Appeals, Court of Tax Appeals sitting en banc is not an appellate court vis-à-vis its divisions, and it exercises no appellate jurisdiction over the latter. There will be extraordinary cases, when the interest of justice highly demands it, where final judgments of the Court of Appeals, the CTA or any other inferior court may still be vacated or subjected to the Supreme Court‟s modification, reversal, annu lment or declaration as void. But it will be accomplished not through the same species of original action or petition for annulment as that found in Rule 47 of the Rules of Court, but through any of the actions over which the Supreme Court has original jurisdiction as specified in the Constitution like 65 of the Rules of Court. What remained as a remedy for the petitioner was to file a petition for certiorari under Rule 65, which could have been filed as an original action before the Supreme Court, and not before the CTA En Banc. In any event, the CTA First Divisions‟ decision has become final and executory. By the time the petition for review was filed by petition with the Supreme Court, more than sixty (60) days have passed since petitioner‟s alleged dis covery of its loss in the case as brought about by the alleged negligence or fraud of its counsel. Equally apparent is the failure of petitioner‟s responsible subordinates to supervise the said counsel as well as the conduct and progress of the case. Duty Free Philippines v. Bureau Internal Revenue G.R. No. 197228, 8 October 2014 T h e S u p r e m e C o u r t h a s n o j u r i s d i c t i o n t o r e v i e w a d e c i s i o n r e n d e r ed b y a d i v i s i o n o f t h e CTA.

The exclusive appellate jurisdiction over decisions rendered by a CTA division is vested on the CTA en banc. A party adversely affected by the decision of the CTA division may, on motion for reconsideration, file a petition for review with the CTA en banc. Thereafter, the decision or ruling of the CTA en banc may


be elevated to the Supreme Court. No decision of the CTA division may be elevated to the Supreme Court under Rule 45 of the Rules of Civil Procedure without passing through the CTA En Banc.

The Philippine American Life and General Insurance Company v. The Secretary of Finance et al., G.R. No. 210987, 24 November 2014 Decision of the Secretary of Finance falls under “other matters, which is appealable to the CTA

The CIR‟s power to interpret tax laws is subject to review by the Secretary of Finance under Section 4 of the Tax Code. The decision of the Secretary of Finance is appealable to the CTA as this falls under the ambit of “other matters” arising under the Tax Code or other laws administered by the BIR under Sec. 7(a)(1) of RA 1125. T h e C TA h a s p o w e r s o f c e r t i o r a r i .

The CTA is granted with powers of certiorari. The CTA may rule on the validity of a particular administrative rule or regulation so long as it is within its appellate jurisdiction. The CTA may now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the assessment is based.

Banco de Oro et. al., v. Republic of the Philippines et. al. G.R. No. 198756, 13 January 2015 T a x p a y er s , a s a n e x c ep t i o n , h a v e d i r e c t r e c o u r s e t o t h e S u p r e m e C o u r t t o q u e s t i o n v a l i d i t y o f a n i n t e r p r e t a t i v e r u l i n g o f t h e C o m m i s s i o n e r o f I n t e r n a l R ev e n u e

“The jurisdiction to review the rulings of the CIR pertains to the CTA. However, a direct recours e to the SC is possible when “dictated by public welfare and the advancement of public policy, or demanded by the broader interest of justice, or the orders complained of were found to be patent nullities, or the appeal was considered as clearly an inappro priate remedy”. The nature and importance of the issues raised to the investment and banking industry with regard to a definitive declaration of whether government debt instruments are deposit substitutes under existing laws, and the novelty thereof, constitute exceptional and compelling circumstances to justify resort to SC in the first instance.

In City of Lapu-Lapu v. PEZA (G.R. No. 184203, 26 November 2014) , it was held a declaratory relief by an exempt taxpayer is improper to assail demands for payment of RPT by local treasurers. Once a demand letter for the payment of RPT is issued, there is already a breach of the taxpayer‟s right which renders declaratory relief improper. The correct remedy is either to pay under protest in case of erroneous assessments where the correctness of the amount assessed is in issue, or to file an action for injunction before the regular courts in case of illegal assessments where the assessment was issued without authority.

Bureau of Internal Revenue v. Court of Appeals et al. G.R. No. 197590 24 November 2014 T h e f ac t a t a x i s d u e m u s t f i r s t b e p r o v e n i n a c r i m i n a l p r o s e c u t i o n f o r t a x e v a s i o n . A t a x deficiency assessment is no t required.

Tax evasion is deemed complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax. An assessment of the tax deficiency is not required in a criminal prosecution for tax evasion. However, although a deficiency assessment is not necessary, the fact that a tax is due must first be proved before one can be prosecuted for tax evasion.


P r o b a b l e c a u s e es t a b l i s h e d f r o m a l l eg a t i o n s i n t h e c o m p l a i n t a n d f i n d i n g s o f t h e B I R

There is probable cause when the amount of tax due was specifically alleged in the Complaint Affidavit, the computation, as well as the method used in determining the tax liability, was also clearly explained, the underdeclaration exceeding 30% of the reported income was likewise showed and the revenue officers also identified the likely source of the unreported income.

CIR v. BASF Coating + Inks Phils., Inc., G.R. No. 198677, 26 November 2014 Period to assess not suspended when the CIR is aware of taxpayer’s new address even witho ut written notice.

Despite the absence of a formal writ ten notice of taxpayer‟s change of address, since the BIR became aware of taxpayer‟s new address as shown by documents replete in its records, the running of the three-year period to assess the taxpayer was not suspended and has already prescribed. T o a t t a i n f i n a l i t y , t h e F A N m u s t b e s e n t t o c o r r e c t a d d r e s s o f t h e t a x p a y er .

It is not enough the FAN is sent by registered mail. It should also be sent to the correct address. Otherwise, the FAN will be considered to have never attained finality because the taxpayer never received it, either actually or constructively.

La Suerte Cigar & Cigarette Factory v. Court of Appeals et al., G.R. No. 125346, 11 November 2014 (This case is still on Motion for Reconsideration with the Supreme Court) T h e g o v e r n m e n t i s n o t e s t o p p e d f r o m c o l l e c t i n g t a x e s b y t h e er r o r o f t h e B IR .

The prolonged practice of the BIR in not collecting the specific tax cannot validate what is otherwise an erroneous application and enforcement of the law. The government is never estopped from collecting legitimate taxes because of the error committed by its agents.

CIR v. The Stanley Works Sales (Phils.), Incorporated G.R. No. 187589 3 December 2014 Burden is on BIR to prove validity of waiver of period to assess and collect tax deficiencies.

The period to assess and collect deficiency taxes may be extended only upon a written agreement between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in accordance with Section 222 (b) of the NIRC. A waiver must strictly conform to RMO 20-90; the requirements of which are mandatory. The BIR has the burden of ensuring compliance with the requirements of RMO 20-90, as it has the burden of securing the right of the government to assess and collect tax deficiencies.

CIR v. Next Mobile (2015) -

The SC created an exception to the jurisprudence on strict construction against the validity of waivers and upheld the waivers in this case on equitable grounds (i.e., estoppels) due to its peculiar circumstances

Samar-I Electric Cooperative v. CIR G.R. No. 193100, 10 December 2014


S u b s t a n t i a l u n d e r d e c l a r a t i o n o f t a x e s c o n s t i t u t e s f a l s e r et u r n s , w h i c h g i v e s B I R t h e b e n e f i t o f t h e e x t r ao r d i n a r y p e r i o d o f p r e s c r i p t i o n t o a s s e s s .

Taxpayer‟s substantial underdeclaration o f withholding taxes (failure to withhold taxes from 13th month pay and other benefits in excess of Php 30,000 limit) constituted “falsity” in the subject returns – giving BIR the benefit of the period under Section 222 of the NIRC to assess the correct amount of tax at any time within ten (10) years after the discovery of falsity, fraud or omission. E x c h a n g e o f c o r r e s p o n d e n c e a n d d o c u m e n t s b e t w e e n t h e B IR a n d t h e t ax p a y e r m a y e s t a b l i s h l e g a l a n d f a c t u a l b a s es o f d e f i c i e n c y t a x e v e n i f n o t c o n t a i n e d i n F A N a n d F i n a l L e t t e r o f Demand.

Although the FAN and demand letter issued to the taxpayer were not accompanied by a written explanation of the legal and factual bases of the deficiency taxes assessed against it, the BIR was still found to have complied with Section 228 of the Tax Code. The exchange of correspondence and documents between the BIR and the taxpayer - the BIR‟s letter responding to taxpayer‟s letter -protest explaining the factual and legal bases of the deficiency tax assessments, the summary report, which contained an explanation of Findings of Investigation stating the legal and factual bases for the deficiency assessment, the PAN which contained detailed explanation of the particular provision of law and revenue regulation violated by the taxpayer, and the protest letters of the taxpayer establish the legal and factual bases of the assessment. China Banking Corp. v. BIR G.R. No. 172509, 4 February 2015 The period to collect the assessed tax is reckoned from the date when the BIR m a i l s / r e le a s es / s e n d s t h e f i n a l a s s e s s m e n t n o t i c e t o t h e t a x p a y e r .

The Supreme Court reiterated in its recent ruling another fairly recent case, Bank of the Philippine Islands v. Commissioner of Internal Revenue. The time limit for the government to collect the assessed tax is reckoned from the date when the BIR mails/releases/sends the FAN to the taxpayer. A request for reconsideration, even if granted does not toll the period for the BIR to collect on the FAN. A request for reinvestigation alone will not suspend the statute of limitations. Two (2) things must concur: there must be a request for reinvestigation and the CIR must have granted such request. Corporate Strategies Development Corporation et al. v. Agojo G.R. No. 208740, 19 November 2014. No presum ption o f regularity of administrative actions in a tax delinquency sale.

The burden of proving compliance with the mandatory and indispensable requirements of a valid tax delinquency sale is incumbent upon the buyer or the winning bidder. This is premised on the rule that a sale of land for tax delinquency is in derogation of property and due process rights of the registered owner. In order to be valid, the steps required by law must be strictly followed. The burden of showing that such steps were taken lies on the person claiming its validity. Mere presumption of regularity cannot take precedence over the right of a property owner to due process accorded no less than by the Constitution.

Republic of the Philippines v. Soriano G.R. No. 211666, 25 February 2015 W i t h r e s p e c t t o D S T , t h e l a w a l l o w s t h e p a r t y t o s t i p u l a t e as t o w h o m a y s h o u l d e r i t . O n c e t h e p a r t i e s a g r ee , t h e B I R m a y o n l y r u n a f t e r t h e a s s u m i n g p a r t y i n c a s e o f n o n - p a y m e n t o r deficiency.


As a general rule, any of the parties to a transaction shall be liable for the full amount of the DST, unless they agree among themselves on who shall be liable for the same. Upon agreement, the person assuming the DST effectively becomes the statutory taxpayer whom the government can run after in the event of non-payment or deficiency. CBK Power Company Limited v. Commissioner of Internal Revenue G.R. No. 193383-84, 14 January 2015 A T ax T r e a t y R e l i ef A p p l i c a t i o n i s n o t r e q u i r e d t o a v a i l o f t h e b e n e f i t s u n d e r a T a x T r e at y .

The SC reiterated the ruling in Deutsche Bank AG Manila v. CIR. The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. The objective of requiring a TTRA with the BIR ITAD is to avert the consequences of any erroneous interpretation and application of tax treaty provisions. The TTRA merely operates to confirm the entitlement of the taxpayer to the relief. Both cases, however, involved a tax refund after higher tax rates under the NIRC were paid. The SC held “(t)he underlying principl e of a prior TTRA becomes moot in refund cases, where the very basis of the claim is erroneous or there is an excessive payment arising from the non-availment of the tax treaty relief. A taxpayer could not have applied for a tax treaty relief 15 days prior to the filing of the payment of final withholding tax on the interest paid to its lenders precisely because it erroneously paid its taxes on the basis of the regular rate, and not on the preferential tax rate provided under the treaty.” Certiorari jurisdiction of CTA City o f Manila, et. al v. Cuerdo , et al. (G.R. No. 175723, Feb. 4, 2014)

The Supreme Court recognized certiorari jurisdiction of the CTA based on the Constitution.

C IR v . C TA a n d C B K P o w e r C o m p a n y L i m i t e d (G.R. Nos. 203054-55, Jul. 29, 2015)

The CTA en Banc has no certiorari jurisdiction questioning an interlocutory order of a CTA Division. In such a case, the remedy of a party questioning such order is to raise the same as an error in the appeal from the main case.

Mitsubishi v BOC (2015) CA has no (and CTA has) appellate jurisdiction over tax collection case.

II.

Substantive Issues) Jurisprudence (2010-2016)

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Income tax Business taxes Local and real property taxes Customs laws CTA practice


Income Tax

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CIR vs. Gonzalez (2010) – The lack of consent of the taxpayer under investigation: (a) does not imply that the BIR obtained the information from third parties illegally or the information received is false or malicious; or (b) does not preclude the BIR from assessing deficiency taxes on the taxpayer based on the documents. CIR vs. Aquafresh Seafoods, Inc. (2010) – The CIR cannot unilaterally change the zonal valuation classification of a property from “residential” to “commercial” without first conducting a re -evaluation of the zonal values as mandated under Section 6(E) of the Tax Code. – Even assuming that the properties are used for commercial purposes, the same remain to be residential for zonal value purposes. Actual use is not considered, but the predominant use of other classification of properties located in the zone is considered, for zonal valuation purposes. Dumaguete Cathedral Credit Cooperative vs. CIR (2010) – The savings and time deposits of members of cooperatives are not subject to the 20% final withholding tax. – Section 24(B)(1) of the NIRC (Tax on Interests, Royalties, Prizes, and Other Winnings) applies only to banks and not to cooperatives – Although the CDA provision on tax exemption only mentions cooperatives, this should be construed to include the members CIR vs. PAL (2013) – The taxation of PAL, during the lifetime of its franchise, shall be governed by two fundamental rules, particularly: (1) PAL shall pay the Government either basic corporate income tax or franchise tax, whichever is lower; and (2) the tax paid by PAL, under either of these alternatives, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges, except only real property tax – It is not the fact of tax payment that exempts PAL, but the exercise of its option South African Airways vs. CIR (2010) – An international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 30% of such income Air Canada v. Commissioner of Internal Revenue, G. R. No. 169507, 11 January 2016.

An offline international air carrier selling passage tickets in the Philippines through a local general sales agent is considered a resident foreign corporation. A resident foreign corporation refers to a foreign corporation engaged in trade or business in the Philippines. Applying the doctrine in Commissioner of Internal Revenue v. British Overseas Airways Corporation, an international air carrier with no landing rights in the Philippines is a resident foreign corporation if its local sales agent sells (“agent”) and issues tickets in it s behalf. In the IRR of Republic Act No. 7042, doing business includes appointing representatives or distributors, operating under full control of the foreign corporation. The following acts or arrangements show that the offline international air carrie r (“carrier”) is doing business in the Philippines: a) b) c) d)

The agent exercises functions incidental and beneficial to the purpose of the carrier. The agent‟s activities bring direct receipts to the carrier. The agent does not solicit orders for itself. It cannot enter into contracts without the express written consent of the carrier. The agent performs its functions according to the standards required by the carrier.

A f o r e i g n c o r p o r a t i o n i s d e e m e d t o h a v e a p e r m a n e n t es t a b l i s h m e n t i n t h e Ph i l i p p i n e s t h r o u g h “dependent personal services” performed by its local agent in the Philippines, despite absence of a fixed place of busin ess.


An agent may be considered as dependent on the principal if the principal exercises comprehensive control and detailed instructions over the means and results of its activities. In this case, the agent extends to the Philippines the transportation business of the carrier. It is a conduit or outlet through which the carrier‟s airline tickets are sold. Through the appointment of the d ependent local sales agent, the foreign corporation is deemed to have created a permanent establishment in the Philippines. A tax t reaty prevails o ver the NIRC, even if the NIRC became effective after the tax treaty.

Tax treaties form part of the law of the land. Tax treaties are considered specific laws which prevail over general laws (such as the NIRC), even if the NIRC became effective after the tax treaty. I n a c l a i m f o r r e f u n d , t h e C o u r t o f T a x A p p e a l s m a y d e t e r m i n e w h e t h e r t h e r e ar e t a x es t h a t shou ld have been paid in lieu of t he taxes paid.

Although the taxpayer is not liable for the gross Philippine billings tax because it is considered a resident foreign corporation, it is still liable to the applicable tax under the tax treaty. Income Tax

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CIR vs. Filinvest Development Corporation ( 2011) – Section 40(c)(2) contemplates a transfer of a property by a controlling shareholder to a controlled corporation, wherein by virtue of such transfer the controlling shareholder gains further control of the corporation. The additional control may be gained with the transfer of property by the controlling shareholder: (a) directly; or (b) indirectly through another corporation (which is also controlled by the aforementioned controlling shareholder). – There can be no theoretical interests that may be imputed on inter-company advances, especially if the parties did not stipulate in writing their agreement to pay interest on such advances. There must be proof of the actual or, at the very least, probable receipt or realization by the controlled taxpayer of the item of gross income sought to be distributed, apportioned or allocated by the CIR. In this sense, the CIR's power of distribution, apportionment or allocation of gross income and deductions does not include the power to impute "theoretical interests" to the controlled taxpayer's transactions. Chamber Of Real Estate And Builders' Associations, Inc. vs. Romulo ( 2010) – The imposition of CWT on the sale of real property classified as ordinary asset does not deprive the seller of its property without due process of law; the CWT system does not impose new taxes nor does it increase taxes. It relates entirely to the method of collecting the tax. Petron Corporation v CIR (2010) – A person, who already used the TCC in paying its tax liabilities and not privy to the issuance of same, cannot be prejudiced by the fraud which supposedly attended the issuance of the TCC – TCCs are valid upon their issuance in favor of the original grantees which had the right to use them in payment of their tax liabilities and/or transfer them in favor of assignees, which could, in turn, utilize them as payment of their own tax liabilities CIR vs. Petron (2012) – The assignee of the TCCs has the right to rely on their validity and effectivity and should not depend on the results of the DOF‟s post -audit findings.The assignee of the TCCs may not only use the same if there is proof that it is not an innocent transferee for value or it has been a party to the fraud or to have had knowledge of the fraudulent issuance of the TCCs – The no-estoppel against the government principle does not apply if it would work injustice against an innocent party Business Taxes

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Accenture, Inc. vs. CIR ( 2012) – Section 108(B)(2) requires the recipient of services must be performing business outside of Philippines


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Although the place of the consumption of the service does not affect the entitlement of a transaction to zero-rating, the place where the recipient conducts its business does Mindanao ll Geothermal Partnership vs. CIR (2013) – The sale of a fully depreciated car is an incidental transaction in the course of a taxpayer‟s business, and may not be considered an isolated transaction that is ordinarily not subject to VAT. CIR vs. SM Prime Holdings, Inc. and First Asia Realty Development Corporation ( 2010) – Congress never intended operators or proprietors of cinema/theater houses to be covered by VAT; The enumeration of the “sale or exchange of services” subject to VAT under Section 108 is not exhaustive. PAGCOR v CIR (2011) – RA 9337 did not revoke PAGCOR‟s VAT exemption under its charter Diaz, et.al., v. Secretary of Finance, et.al. (2011) – Toll fees collected by tollway operators are subject to VAT. They render services for a fee. When they take a toll fee fr om a motorist, the fee is in effect for the latter‟s use of the tollway facilities. Tollway operators are franchise grantees CIR vs. Fort Bonifacio Development Corp (2010) – The transitional input tax credit is intended to ease the shift by the taxpayer to the VAT system. It may be claimed by a newly-VAT registered person, even if such person did not previously pay taxes in the acquisition of its beginning inventory of goods, materials and supplies. Republic of The Philippines vs. PAL (2010) – There is no need for the actual payment of tax, either the basic corporate income tax or the 2% franchise tax, before PAL could avail itself of the “in lieu of all other taxes” provision under its Charter. The two options provided in its franchise exclude the payment of other taxes and dues imposed or collected by the national or the local government. – PAL is no longer liable for all other taxes of any kind, nature, or description, including the 10% OCT, and the erroneous payments thereof entitles it to a refund pursuant to its franchise.

The Philippine American Life and General Insurance Company v. The Secretary of Finance et al., G.R. No. 210987, 24 November 2014 Donor’s tax arises in a transfer of shares transaction when the fair market value of shares exceeds the selling pric e.

The absence of donative intent does not exempt the sales of stock transaction from donor‟s tax since Sec. 100 of the NIRC categorically states the amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in price is considered a donation by fiction of law. 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 CIR‟s power to interpret tax laws and to promulgate rules and regulations for their implementation. D e t er m i n a t i o n o f F ai r M a r k e t V a l u e f o r t r a n s f e r o f s h a r e s

Under the more recent RR 6-2013, if the corporation issuing the shares has real properties, the FMV of such shares shall be determined based on the “Adjusted Net Asset Method”. Using this method, the net assets are adjusted to reflect the FMV of the real properties, i.e., the highest of the following: zonal value of the real properties; fair market value per tax declaration; or fair market value as determined by an Independent Appraiser. This definition of the FMV of shares of stock is not found in the Tax Code. The Tax Code does not explicitly provide a definition of the FMV of shares of stocks. The term “fair market value” has been defined by the Supreme Court as the price at which a property may be sold by a seller who is willing but not compelled to sell and bought by a buyer who is willing but not compelled to buy.


Moreover, a mere comparison of the selling price and the supposed FMV under RR 6-2013 does not factor in business considerations other than the cash outlay considered in the transfer of shares. Rationale of the Donor’s Tax Imposition If the selling price of the shares transferred is below the FMV, income tax is escaped to the extent of the difference. To compensate for the avoided income tax, donor‟s tax is imposed. Procedure

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First Lepanto Taisho Insurance Corporation vs. CIR ( 2013) – The imposition of delinquency interest under Section 249 (c) (3) of the 1997 NIRC is proper, because failure to pay the deficiency tax assessed within the time prescribed for its payment justifies the imposition of interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. (Note: In this case, petitioner failed to pay the deficiency taxes within thirty (30) days from receipt of the demand letter, thus, delinquency interest accrued from such non-payment) CS Garment, Inc. vs CIR (2014) – Amnesty taxpayers may immediately enjoy the privileges and immunities under the 2007 Tax Amnesty Law, as soon as they fulfill the suspensive conditions imposed therein. The law does not impose a waiting period of 1 year before the applicant can enjoy the benefits of the tax amnesty – Taxpayers with pending tax cases are still qualified to avail themselves of the tax amnesty program. Local Taxes

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Swedish Match Philippines, Inc vs. City Treasurer of Manila (2013) – There is double taxation if the taxpayer is subjected to the taxes pursuant to different provisions of an ordinance, i.e., where one provision is levied pursuant to Section 143 (a) and another provision is levied pursuant to Section 143(h) of the Local Government Code. Angeles University Foundation vs. City of Angeles (2012) – The tax exemption under Sec. 8 of R.A. No. 6055 (an act that grants tax exemptions to educational foundations) does not cover the exemption from regulatory fees, such as building permit and related fees imposed pursuant to the National Building Code CIR vs. SM Prime Holdings, Inc. and First Asia Realty Development Corporation ( 2010) Lepanto Consolidated Mining Co. v. Ambanloc (2010) – Section 138 of the Local Government Code (which imposes a tax on extraction of quarry resources), by itself, cannot be used to resolve the issue on whether a tax is due when the extraction of quarry resources is non-c ommercial in character; the question of Lepanto‟s liability for tax should be determined based on the LGU‟s implementing revenue code Smart Communications, Inc. vs Municipality of Malvar, Batangas (2014) – The fees imposed under Ordinance No. 18 are not taxes since its purpose is to regulate the enumerated activities particularly related to the construction and maintenance of various structures – The fees imposed are primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute to the revenues of the LGU, this effect is merely incidental Republic of The Philippines vs. PAL (2010) Pelizloy Realty Corporation vs. The Province of Benguet (2013) – Section 131 (c) of the LGC is a clear basis for determining what constitutes the 'other places of amusement‟;Section 140 specifically mentions 'boxing stadia' in addition to “theaters, cinematographs, concert halls [and] circuses” which were already mentioned in PD No. 231. 'Artistic expression' as a characteristic does not pertain to 'boxing stadia'. – „Other places of amusement‟ must be venues “where one seeks admission to entertain oneself by seeing or viewing the show or performances” or venues primarily used to stage spectacles or hold public shows, exhibitions, performances, and other events meant to be viewed by an audience


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Resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or class as theaters, cinemas, concert halls, circuses, and boxing stadia

Alt a Vista Golf and Coun try Club v . The City of Cebu et al., G.R. No. 180235, 20 January 2016.

A golf course does not qualify as a “place of amusement”, which may be subjected to amusement tax by a local government unit. Section 140 of the LGC provides amusement tax on theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement. “Other places of amusement” pertains to venues where one seeks admission to entertain oneself by seeing or viewing the show or performances or being venues primarily used to stage spectacles or hold public show and other events meant to be viewed by an audience. A golf course cannot be considered a place of amusement. People go to a golf course to enjoy themselves in a physical sports activity, the same reason why people go to a gym or court to play badminton or tennis or to a shooting range for target practice. They do not enter a golf course to see or view a show or performance. RPT/Customs Cases

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City of Pasig v. Republic of the Philippines ( 2011) – The law imposes the liability to pay real estate tax on the Republic of the Philippines for the portions of the properties leased to taxable entities. It is assumed that the Republic of the Philippines passes on the real estate tax as part of the rent to the lessees. – In this case, the portions of the properties leased to taxable entities are not only subject to real estate tax, they can also be sold at public auction to satisfy the tax delinquency. Commissioner of Customs v. Marina Sales, Inc. (2010) To fit into the category listed under the Tariff Harmonized System Headings calling for a higher import duty rate of 7%, the imported articles must not lose its original character.

Capitol Wireless, Inc. v. The Provincial Treasurer of Batangas, G.R. No. 180110, 30 May 2016 Submarine communication cables are classified as taxable real property. Such cables fall squarely under the Article 415 (5) of the Civil Code concerning Real Property. The general rule of a prerequisite recourse to administrative remedies applies when questions of fact are raised, but the exception of direct court action is allowed when purely questions of law are involved. In this case, there are still questions of fact which need to be decided upon by the administrative agency such as the claim of co-ownership by Capwire and territory where the cables are laid down. -oOo-


Tax Updates 2010 to 2016 by Atty. Eric Recalde 1

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