Dean’s
Circle 2016 UNIVERSITY OF SANTO TOMAS Digested by: DC 2016 Members Editors: Tricia Lacuesta Lorenzo Luigi Gayya Cristopher Reyes Macky Siazon Janine Arenas Ninna Bonsol Lloyd Javier
Supreme Court decisions penned by Associate Justice Presbitero J. Velasco, Jr.
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Table of Contents General Principles of Taxation Definition and Concept of Taxation ........................................................................................................ 2 Doctrines in Taxation
Kinds of Tax Exemptions ...................................................................................................................... 2 Tax Amnesty ........................................................................................................................................ 4 Construction and Interpretation
Tax Rules and Regulations.................................................................................................................... 5 Scope and Limitations of Taxation Inherent Limitations
Public Purpose ..................................................................................................................................... 6 Exemptions of Government Entities Agencies and Instrumentalities ................................................ ....................... ......................... ... 7 Stages of Taxation
Payment .............................................................................................................................................. 8 Refund ................................................................................................................................................. 9 NIRC Income Taxation
Gross Income ..................................................................................................................................... 11 Non-resident Foreign Corporations .................................................................................................... 11 Donor’s Tax
Sale/Exchange/Transfer of property for insufficient consideration ........................... ......................... . 12 Value-Added Tax
Zero-rated sales of goods or properties and effectivel y zero-rated sales of goods or properties ......... 13 Refund or Tax Credit of Excess Input Tax ........................... .......................... ......................... .............. 14 Tax Remedies under NIRC
Suspension of the running of statute of limitations ............................................................................ 15 Refund ............................................................................................................................................... 16 Local Government Code of 1991, as amended
Local Government Taxation ................................................. ........................ ......................... .......................... ......................... .......... 18 Real Property Taxation ...................................................................................................................... 19 Judicial Remedies
Jurisdiction of the Court of Tax Appeals ............................................................................................. 20
1|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 GENERAL PRINCIPLES OF TAXATION Definition and Concept of Taxation EDUARDO M. COJUANGCO, JR. v. REPUBLIC OF THE PHILIPPINES G.R. No. 180705, November 27, 2012, 2012, Velasco, Jr., J. Coconut levy funds partake of the nature of taxes, which, in general, are enforced proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of government government and for all public needs. A tax has three elements: a) it is an enforced proportional contribution contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. Facts: R.A. 6260 was enacted creating the Coconut Investment Company (CIC) to administer the Coconut Investment Fund (CIF), which, under Section 8 thereof, a levy was to be sourced on the sale of copra. Charged with the duty of collecting and administering the Fund was Philippine Coconut Administration (PCA). Like COCOFED with which it had a legal linkage, the PCA, by statutory provisions scattered in different coco levy decrees, had its share of the coco levy. And per Cojuangco’s own admission, PCA paid, out of t he t he CCSF, the entire acquisition price for the 72.2% option shares. The list of FUB stockholders included Cojuangco with 14,440 shares and PCA with 129,955 shares. sha res. It would appear later that, tha t, pursuant to t o the stipulation stipulati on on maintaining Cojuangco’s equity position pos ition in the bank, PCA would cede to him 10% of its subscriptions to (a) the authorized but unissued shares of FUB and (b) the increase in FUB’s capital stock. Issue: Whether the cocolevy funds partake of the nature of taxes. Ruling: YES. YES. The coconut levy funds were exacted for a special public purpose. Consequently, any use or transfer of the funds that directly benefits private individuals should be invalidated. Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State. Even if the money is allocated for a special purpose and raised by special means, it is still public in character. It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It is, therefore, the State’s concern to make it a strong and secure source not only of the livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the imperatives of economic stability. The coconut levy funds were sourced from forced exactions decreed under P.D. Nos. 232, 276 and 582, among others, with the end-goal of developing the entire coconut industry. Doctrines in Taxation Kinds of Tax Exemption Express THE COMMISSIONER OF INTERNAL REVENUE v. ACESITE (PHILIPPINES) HOTEL CORPORATION G.R. No. 147295, 16 February February 2007, Velasco, Jr., J.
2|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Facts: Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases a part of the hotel’s premises to PAGCOR. For January 1996 to April April 1997, Acesite incurred VAT from its rental income and sale of food and beverages to PAGCOR. Acesite thereafter shifted the said tax to PAGCOR PAGCOR by incorporating it in the amount assessed to the latter but it refused to pay the taxes on account of its tax exempt status. Acesite thus paid the VAT to the CIR as it feared the legal consequences of non-payment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the same. In resisting Acesite’s claims for refund, the CIR contends that the tax exemption refers only to PAGCORs direct tax liability and not to indirect taxes, like the VAT. Issue: Whether PAGCOR’s tax exemption privilege includes the indirect tax of VAT. Ruling: YES. A close scrutiny of PD 1869 clearly gives PAGCOR a blanket exemption to taxes with no distinction distinct ion on whether the taxes are direct or indirect. We are one one with the CA ruling that PAGCOR is also exempt from indirect taxes.
COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS v .PHILIPPINE .PHILIPPINE AIRLINES, INC. G.R. Nos. 212536-37, August 27, 2014, Velasco, Jr., J. A later law, general in terms and not expressly repealing a prior special law, will not affect the special provisions provisions of the the earlier statute. statute. Facts: On June 11, 1978, PAL was granted under PD 1590 a franchise to operate air transport services domestically and internationally. During the lifetime of its franchise, PAL shall pay the government either basic corporate income tax or franchise tax based on revenues and/or the rate defined in the provision, whichever is lower and the taxes thus paid under either scheme shall be in lieu of lieu of all other taxes, duties and other fees. On January 1, 2005 however, R.A. No. 9334 took effect which assessed excise taxes against PAL for the latter’s February and March 2007 importation of cigarettes and alcoholic drinks. The CTA en banc granted banc granted the claim of PAL for refund. Issue: Whether PAL’s exemption from payment of excise tax has been revoked by RA 9334. Ruling: NO. It is a basic principle of statutory construction that a later law, law, general in terms and not expressly repealing or amending a prior special law, will not ordinarily affect the special provisions of such earlier statute. The fact that one is special and other general creates a presumption that the special is considered as remaining an exception to the general.
3|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Based on PAL’s franchise, PAL’s payment of either the basic corporate income tax or franchise tax, whichever is lower, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges, except only real property tax. The phrase "in lieu of all other taxes" includes but is not limited to taxes that are directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of said petroleum products butane billed or passed on the grantee either as part of the price or cost thereof or by mutual agreement or other arrangement." Tax Amnesty COMMISSIONER OF INTERNAL REVENUE v . PUREGOLD DUTY FREE, INC. G.R. No. 202789, June 22, 2015, Velasco, Jr., J. A tax amnesty is designed to be a general grant of clemency and the only exceptions are those specifically mentioned. Facts: As an enterprise located within Clark Special Economic Zone (CSEZ) and registered with the Clark Development" Corporation (CDC), Puregold had been issued Certificate of Tax Exemption pursuant to Sec. 5 of EO 80, extending to business enterprises operating operatin g within withi n the CSEZ all the th e incentives granted gra nted to enterprises within the Subic Special Economic Zone (SSEZ) under RA 7227. In Coconut Oil Refiners v. Torre, Torre, however, this Court C ourt annulled the adverted Sec. 5 of EO 80. Then Deputy Commissioner Commis sioner issued a Preliminary Assessment Notice regarding unpaid VAT and excise tax on wines, liquors and tobacco products imported by Puregold. The latter protested the assessment. Pending the resolution of Puregold's protest, Congress enacted RA 9399, which provides that availment of the tax amnesty relieves the qualified taxpayers of any civil, criminal and/or administrative liabilities arising from, or incident to, nonpayment of taxes, duties and other charges. Puregold availed itself of the tax amnesty. However, it received a formal letter of demand from the BIR for the payment of the deficiency VAT and excise taxes on its importations. In its response-letter, Puregold requested the cancellation of the assessment on the ground that it has already availed of the tax amnesty under RA 9399. This notwithstanding, the BIR issued a Final Decision stating that the availment of the tax amnesty under RA 9399 did not relieve Puregold of its liability for deficiency VAT, excise taxes, and inspection fees under Sec. 13l(A) of the 1997 NIRC. Issue: Whether RA 9399 grants amnesty from liability to pay VAT and excise tax under Section 131 of the 1997 NIRC. Ruling: YES. YES. It is worthy to note that Sec. 1 of RA 9399 explicitly and unequivocally mentions businesses within the CSEZ as among the beneficiaries of the tax amnesty provided by RA 9399. Furthermore, Puregold enjoyed duty free importations and exemptions from local and national taxes under EO 80, a privilege which extended to business enterprises operating within the CSEZ all the incentives granted to enterprises within SSEZ by RA 7227. Hence, Puregold was repeatedly issued tax exemption certificates and the BIR itself did not assess any deficiency taxes from the time the 1997 NIRC took effect in January 1998. The special income tax regime or tax incentives granted to enterprises registered within the secured area of Subic and Clark Special Economic Zones have not been repealed by R.A. 8424 . The court’s ruling in Coconut Oil cannot Oil cannot be retroactively applied to obliterate the effect of Section 5 of EO 80 and the various rulings of the former CIR prior to the promulgation of the Decision in 2005. There is nothing in Sec. 1 of RA 9399 that excludes Sec. 131(A) of the 1997 NIRC from the amnesty. In fact, there is no mention at all of any tax or duty imposed by the 1997 NIRC as being specifically excluded from the coverage of the tax amnesty. If Congress intended Sec.
4|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 131 of the 1997 NIRC to be an exception to the general grant of amnesty given under RA 9399, it could have easily so provided in either the law itself, or even the implementing rules. Construction and Interpretation Tax Rules and Regulations COMMISSIONER OF INTERNAL REVENUE v.BICOLANDIA DRUG CORPORATION (Formerly known as ELMAS DRUG CO.) G.R. No. 148083 July 21, 2006, Velasco, Jr., J. In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law. Facts: Bicolandia treated the 20% sales discount granted by Republic Act (RA) 7432 to qualified senior citizens purchasing their medicines as a deduction from its gross income in compliance with Revenue Regulation (RR) No. 2-94 issued by the Bureau of Internal Revenue (BIR). Bicolandia filed a claim for tax refund or credit with the Appellate Division of the BIR. Bicolandia appealed to the Court of Tax Appeals Appeals (CTA) in order to toll the running of the two-year prescriptive period to file a claim for refund pursuant to Sec. 230 of the Tax Code then. Bicolandia questioned questioned RR No. 2-94 which treated the 20% discount discount as deduction, not as Bicolandia’s claim for refund tax credit under RA 7432, from its gross income or gross sal es. The CTA granted Bicolandia’s and declared that the provisions of RA 7432 would prevail over RR No. 2-94. The CA modified the CTA decision and issued a tax credit certificate in favor of Bicolandia, in lieu of tax refund. Issue: Whether the 20% sales discount granted to qualified senior citizens by the respondent pursuant to RA 7432 may be claimed as a tax credit, instead of a deduction from gross income or gross sales. Ruling: YES. Revenue Regulations No. 2-94 is still subordinate to R.A. No. 7432, and in cases of conflict, the implementing implementing rule will not prevail over the law it seeks to implement. implement. It cannot be denied that R.A. No. 7432 has a laudable goal. Moreover, it cannot be argued that it was the intent of lawmakers for private establishments to be the primary beneficiaries of the law. However, while the purpose of the law to benefit senior citizens is praiseworthy, the concerns of the affected private establishments were also considered by the lawmakers. As in other cases wherein private property is taken by the State for public use, there must be just compensation. compensation. In this particular case, it took the form of the tax credit granted to private establishments, establishments, purposely purposely chosen by the lawmakers. The discussions of of the lawmakers clearly showed the intent intent that the cost of the 20 percent discount may be claimed by the private establishments as a tax credit. Revenue Regulations No. 2-94 is null and void for failing to conform to the law it sought to implement. In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law. Note: R.A. No. 7432 has been amended by Republic Act No. 9257, the "Expanded Senior Citizens Act of 2003." In this, the term "tax credit" is no longer used. This time around, there is no conflict between the law and the implementing Revenue Regulations. Under Revenue Regulations No. 4-2006, "(o)nly the actual amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be
5|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 deducted from the gross income, net of value added tax, if applicable, for income tax purposes, and from gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax purposes." Under the new law, there is no tax credit to speak of, only deductions.
M.E. HOLDING CORPORATION v. COURT OF APPEALS G.R. No. 160193, M arch 23, 2008, Second Division, Velasco, Jr., J. A law necessarily necessarily prevails prevails over over an administrative administrative issuance. Facts: M.E. Holding Corporation is claiming the 20% sales discount it granted to qualified senior citizens. M.E. treated the discount as deductions from its gross income purportedly in accordance with RR No. 2-94. However it filed the return under protest arguing that the discount should be treated as tax credit and not as mere deductions. Due to the inaction of the BIR, M.E. filed an appeal before the CTA reiterating its position. The CTA held that Sec. 2(i) of RR 2-94 contravenes the clear proviso of RA 7432 prescribing that the 20% sales discount should be claimed as a tax credit. It also ruled that RA 7432 is a law that necessarily prevails over an administrative issuance such as RR 2-94. Issue: Whether or not M.E. may claim the 20% sales discount as a tax credit contrary to what is provided for under RR 2-94 Ruling: YES. The 20% sales discount to senior citizens may be claimed by an establishment owner as tax credit. RA 7432, the applicable law, is unequivocal on this. The implementing RR 2-94 that considers such discount as mere deductions to the taxpayer’s gross income or o r gross sales clearly clashes with the clear language of RA 7432, the law sought to be implemented. It ought to be noted, however, that RA 9257, amending RA 7432, was signed into law, ushering in a new tax treatment for sales discount purchases of qualified senior citizens of medicines. The establishments may claim the discounts as tax deduction based on the net cost of the goods sold. Conformably, starting taxable year 2004, the 20% sales discount granted by establishments to qualified senior citizens is to be treated as a tax deduction, no longer a tax credit. Scope and Limitation of Taxation Inherent Limitations Public Purpose EDUARDO M. COJUANGCO, JR. v. REPUBLIC OF THE PHILIPPINES G.R. No. 180705, November 27, 2012, 2012, Velasco, Jr., J. Even by law, that the revenues received from the imposition of the coconut levies be used purely for private purposes to be owned by private individuals individuals in their private capacity and for their benefit, would contravene the rationale behind the imposition of taxes or levies. Facts:
6|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 R.A. 6260 was enacted creating the Coconut Investment Company (CIC) to administer the Coconut Investment Fund (CIF), which, under Section 8 thereof, a levy was to be sourced from the sale of copra. Charged with the duty of collecting and administering the Fund was Philippine Coconut Administration (PCA). Like COCOFED with which it had a legal linkage, the PCA, by statutory provisions scattered in different coco coco levy decrees, had its share of the coco levy. And per Cojuangco’s own admission, PCA paid, out of the CCSF, the entire acquisition price for the 72.2% option shares. The list of FUB stockholders included Cojuangco with 14,440 shares and PCA with 129,955 shares. It would appear later that, pursuant to the stipulation on maintaining Cojuangco’s equity position in the bank, PCA would cede to him 10% of its subscriptions to (a) the authorized but unissued shares of FUB and ( b) the increase in FUB’s capital stock. stock. Issue: Whether Cojuangco is entitled to the FUB (UCPB) shares. Ruling: NO. NO. The coconut levy funds were exacted for a special public purpose. Consequently, any use or transfer of the funds that directly benefits private individuals should be invalidated. Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State. Even if the money is allocated for a special purpose and raised by special means, it is still public in character. It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It is, therefore therefore,, the State’s concern to make it a strong and secure source not only of the livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the imperatives of economic stability. The coconut levy funds were sourced from forced exactions decreed under P.D. Nos. 232, 276 and 582, among others, with the end-goal of developing the entire coconut industry.
Exemption of Government Entities, Agencies and Instrumentalities GOVERNMENT SERVICE INSURANCE SYSTEM v. CITY TREASURER AND CITY ASSESSOR OF THE CITY OF MANILA G.R. No. 186242 December 23, 2009, Velasco, Jr., J. GSIS enjoys under its charter full tax exemption. As an instrumentality of the national government, it is itself not liable to pay real estate taxes assessed by the City of Manila against its properties. Facts: Respondent City Treasurer of Manila assessed petitioner GSIS of unpaid real property taxes due on its Katigbak property and Concepcion-Arroceros Concepcion- Arroceros property for years 1992 to 2002. Respondent thereafter issued Notices of Realty Tax Delinquency for the subject properties which prompted petitioner to file a petition for certiorari and prohibition before the RTC Manila. However, the court dismissed the petition and upheld the validity of the assessments. GSIS contended that both its old charter, PD No. 1146, and present charter, RA 8291 or the GSIS Act of 1997 , exempt the agency and its properties from all forms of taxes and assessments, inclusive of realty tax. Respondents countered that GSIS may not successfully resist the city’s notices and warrants of levy on the basis of its exemption under RA 8291, real property taxation being governed by RA 7160 or the Local Government Code of 1991.
7|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Issue: Whether GSIS, under its charter, is exempt from real property taxation. Ruling: YES.Pursuant YES.Pursuant to Sec. 33 of PD 1146, GSIS enjoyed tax exemption from real estate taxes, among other tax burdens, until January 1, 1992 when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges granted under PD 1146. RA 8291 restored in 1997 the tax exempt status of GSIS by reenacting under its Sec. 39 what was once Sec. 33 of P.D. P.D. 1146. If any real estate tax is due to the City of Manila, it is, following City of Davao, Davao, only for the interim period, or from 1992 to 1996, to be precise. GSIS enjoys under its charter full tax exemption. Moreover, as an instrumentality of the national government, it is itself not liable to pay real estate taxes assessed by the City of Manila against its Katigbak and Concepcion-Arroceros properties. The tax exemption the property of the Republic or its instrumentality carries ceases only if, as stated in Sec. 234(a) of the LGC of 1991, "beneficial use thereof has been granted, for a consideration or otherwise, to a taxable person." GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak property when it contracted its beneficial use to Manila Hotel Corporation, doubtless a taxable person. Following the "beneficial use" rule, accrued real property taxes are due from the Katigbak property, leased as it is to a taxable entity. The Katigbak property cannot in any event be subject of a public auction sale, notwithstanding its realty tax delinquency. This means that the City of Manila has to satisfy its tax claim by serving the accrued realty tax assessment on MHC, as the taxable beneficial user of the Katigbak property and, in case of nonpayment, through means other than the sale at public auction of the leased property. Stages of Taxation Payment PILIPINAS SHELL PETROLEUM CORPORATION (PSPC) v. COMMISSIONER OF INTERNAL REVENUE G.R. No. 172598, December 21, 2007, Velasco, Jr., J. TCCs are immediately valid and effective after their issuance. If the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. Also, the transferee in good faith and for value who has relied on the Center’s representation of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null. Facts: From 1988-1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates (TCC) which it acquired through the Department of Finance One Stop Shop Inter-Agency Tax Credit Center. When PSPC signified its intent to use the TCCs to pay part of its excise tax liabilities, said payments were approved and the BIR accepted such as payments. However, on 1998, BIR sent a collection letter to PSPC for alleged deficiencies excise tax liabilities, alleging that PSPC is not a qualified transferee of the TCCs it acquired from other BOI-registered companies. CTA en banc ordered PSPS to pay and ruled that the TCCs are subject to the results of the post-audit done by the Center since their issuance is subject to a suspensive condition. Issue: Issue: Whether or not the assessment against PSPC for deficiency excise taxes is valid
8|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Ruling: Ruling : NO. NO. A TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes or a direct benefit granted by law. Hence, TCCs are immediately valid and effective after their issuance. If the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit. Moreover, any fraud or breach of law relating to the issuance of the TCC by the Center to the transferor or original grantee is the latter’s liability. The transferee in good faith and for value who has relied on the Center’s representation of the genuineness genuinen ess and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null. PSPC is a transferee in good faith hence, it cannot be prejudiced by such. Refund ATLAS CONSOLIDATE CONSOLIDATED D MINING AND AND DEVELOPMENT DEVELOPMENT CORPORATION CORPORATION v. COMMISSIONER OF INTERNAL REVENUE G.R. No. 159490, February February 18, 2008, Velasco, Jr., J. Tax refunds are in the nature of tax exemptionsand are to be construed strictissimi juris against the taxpayer. Facts: Atlas Corporation is a VAT-registered entity. It filed an application for the issuance of a tax credit certificate or refund for refundable input VAT. It then filed a petition for review with the CTA which denied the same for insufficiency of evidence to warrant the grant of tax credit or refund. It pointed out that Atlas failed to submit photocopies of export documents, invoices, or receipts evidencing the sale of goods and others. On the other hand, Atlas asserted asserted that the documents it presented, presented, coupled with the testimony of its Accounting and Finance Manager sufficiently sufficiently proved its case. The CA struck down Atlas’ contention that it has sufficiently established the existence of its export sales through the testimony of its Accounting and Finance Manager, as her testimony is self-serving. Issue: Whether Atlas has sufficiently proven entitlement to a tax credit or refund only by submission of a summary of its invoices. Ruling: NO. NO. The summary of invoices or transactions presented by Atlas does not replace the pertinent invoices, receipts, and export sales documents as competent evidence to prove the fact of refundable or creditable input VAT. Indeed, the summary presented with the certification by an independent Certified Public Accountant (CPA) and the testimony of Atlas’ Accounting and Finance Manager are merely corroborative of the actual input VAT it paid and the actual export sales. It would not be proper to allow Atlas to simply prevail and compel a tax credit or refund in the amount it claims without proving the amount of its claim.
9|P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 M.E. HOLDING CORPORATION v. COURT OF APPEALS G.R. No. 160193, M arch 23, 2008, Second Division, Velasco, Jr., J. Claims for tax refund / credit are in the nature of claims for exemption. Accordingly, the law relied upon is not only strictissimi juris against the taxpayer, but also the proofs presented entitling a taxpayer to an exemption are strictissimi strictissimi scrutinized. Facts: M.E. Holding Corporation is claiming the 20% sales discount it granted to qualified senior citizens. M.E. treated the discount as deductions from its gross income purportedly in accordance with RR No. 2-84. However it filed the return under protest arguing that the discount should be treated as tax credit and not as mere deductions. Due to the inaction of the BIR, M.E. filed an appeal before the CTA reiterating its position. CTA granted M.E.’s petition, but the claimed refund was reduced due to M.E.’s failure to properly properly support the claimed discount with the corresponding cash slips. The CA dismissed the petition to it and upheld the decision of the CTA. Issue: Whether or not the CA erred and has deviated from applicable laws and jurisprudence in not appreciating other competent evidence proving the amount of discounts granted to senior citizens and merely relying relying solely on the cash slips. Ruling: NO. The CA was correct in disallowing and not considering the belatedly-submitted cash receipts to be part of the 20% s ales discount for M.E.’s taxable year 1995. This is as it should be in the light of Sec. 34 of Rule 132 prescribing that no evidence shall be considered unless formally offered with a statement of the purpose why it is being offered. In addition, the rule is that the best evidence under the circumstance must be adduced to prove the allegations in a complaint, petition, or protest. Only when the best evidence cannot be submitted may secondary evidence be considered. But, in the instant case, the disallowed cash slips, the best evidence at that time, were not part of M.E.’s offer of evidence. While it may be true that the authenticated special record books yield the same data found in the cash slips, they cannot plausibly be considered by the courts a quo and made to corroborate pieces of evidence that have, in the first place, been disallowed. Claims for tax refund / credit are in the nature of claims for exemption. Accordingly, the law relied upon is not only strictissimi juris strictissimi juris against the taxpayer, but also the proofs presented entitling a taxpayer to an exemption are strictissimi scrutinized. strictissimi scrutinized.
10 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 NIRC Income Taxation Gross Income CAGAYAN VALLEY DRUG CORPORATION v. COMMISSIONER OF INTERNAL REVENUE G.R. No. 151413, February February 13, 2008, Velasco, Jr., J. This fact that the corporation suffered loss does not preclude the corporation from availing of its statutory statutory right to a tax credit for the 20% sales discounts it granted to qualified senior citizens. Facts: Cagayan Valley Drug Corporation is a corporation under Philippine laws which operates two drugstores under the name of Mercury Drug. The corporation alleged that it granted 20% discount to senior citizens and treated the same as deductions from the gross sales instead of treating them as tax credit in order to arrive at the net sales. However, the corporation filed with BIR a claim for tax refund/credit of the full amount of the 20% as discount it granted to senior citizens for the year 1995. Issue: Whether or not the corporation is entitled to refund or tax credit. Ruling: Yes. Yes. This court held that private drug companies are entitled to a tax credit for the 20% sales discounts they granted to qualified senior citizens under RA 7432 and nullified Secs. S ecs. 2.i and 4 of RR 2-94. It is true that petitioner did not pay any tax in 1995 since it suffered a net loss for that taxable year. This fact, however, however, without more, does not preclude petitioner petitioner from availing of its statutory right to a tax credit for t he 20% sales discounts it granted to qualified senior citizens. The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner unavailable. This is the core issue resolved in Central Luzon, Luzon, where we ruled that the net loss for a taxable year does not bar the grant of the tax credit to a taxpayer pursuant to RA 7432 and that prior tax payments are not required for such grant.
Non-resident Foreign Corporations SOUTH AFRICAN AIRWAYS v . COMMISSIONER OF INTERNAL REVENUE G.R. No. 180356, February February 16, 2010, Velasco, Jr., J. The general rule is that resident foreign corporations shall be liable for a 32% corporate income tax (now 30%) on their income from within the Philippines, except for resident foreign corporations that are international carriers that derive income from carriage of persons, excess baggage, cargo and mail originating from the the Philippines Philippines which shall be taxed taxed at 2 1/2% 1/2% of their their Gross Philippine Philippine Billings Billings Facts: Petitioner South African Airways is an international air carrier having no landing rights in the country and not registered with the Securities and Exchange Commission as a corporation, branch office, or partnership. Thus, it is not licensed to do business in the Philippines. Petitioner filed a claim for refund with the CTA for erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000.
11 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 The CTA denied the claim of refund reasoning that petitioner was not liable to pay tax on its GPB under Section 28(A)(3)(a) of the National Internal Revenue Code (NIRC) of 1997. The CTA, however, stated that petitioner is liable to pay a tax of 32% (30%) on its income derived from the sales of passage documents in the Philippines. Issue: Whether petitioner, as an off-line international carrier selling passage documents through an independent sales agent in the Philippines, is engaged in trade or business in the Philippines subject to the 32% (30%) income tax imposed by Section 28 (A)(1) of the 1997 NIRC. Ruling: YES. YES. To reiterate, the correct interpretation of the above provisions is that, if 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 32% (30%) of such income. Petitioner, being an international carrier with no flights originating from the Philippines, does not fall under the exception. As such, petitioner must fall under the general rule. This principle is embodied in the Latin maxim, exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be regarded as coming within the purview of the general rule.
Donor’s tax
Sale/Exchange/Transfer of property for insufficient consideration THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE G.R. No. 210987. November 24, 2014. THIRD DIVISION. DIVISION. Velasco, Jr., J. The absence of donative intent, if that be the case, does not exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market value of the property exceeded the the value of the the consideration consideration shall shall be deemed a gift. gift. Facts: In a competitive bidding organized by The Philippine American Life and General Insurance Company (Philamlife), STI Investments, Inc., acquired the Class A shares of Philamlife in Philam Care Health Systems, Inc. (PhilamCare). Later, Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of Internal Revenue to facilitate the transfer of the shares but was informed that it needed to secure a BIR ruling in connection with its application due to potential donor’s tax liability. In compliance thereto, petitioner requested a ruling t hat t hat the sale was not subject to donor’s tax since there was no donative intent. Commissioner on Internal Revenue (Commissioner) denied Philamlife’s request holding that the selling price of the shares thus sold was lower than their book value based on the financial statements of PhilamCare thus donor’s tax became imposable on the price difference pursuant to Sec. 100 of the the National Internal Revenue Code. Issue:
12 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Whether or not the price difference in petitioner’s adverted sale of shares in PhilamCare PhilamCare attracts donor’s tax. Ruling: YES. The price difference is subject to donor's tax. The absence of donative intent, if that be the case, does not exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC categorically states that 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.
Value-Added Tax (VAT) Zero-rated sales of goods or properties and effectively zero-rated sales of goods or properties THE COMMISSIONER OF INTERNAL REVENUE v. ACESITE (PHILIPPINES) HOTEL CORPORATION G.R. No. 147295, 16 February 2007, Velasco, Jr., J. Facts: Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases a part of the hotel’s premises to PAGCOR. For January 1996 to April April 1997, Acesite incurred VAT from its rental income and sale of food and beverages to PAGCOR. Acesite thereafter shifted the said tax to PAGCOR PAGCOR by incorporating it in the amount assessed to the latter but it refused to pay the taxes on account of its tax exempt status. Acesite thus paid the VAT to the CIR as it feared the legal consequences of non-payment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Issue: Whether the VAT exempt status of PAGCOR extends to Acesite. Ruling: YES. Transactions with a VAT exempt taxpayer is subject to zero rated VAT. While it was proper for PAGCOR not to pay the 10% VAT (now 12%) charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code which exempts “services “ services rendered to persons or entities whose exemption under special laws.” laws. ” The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc. , where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractors tax may be shifted to the contractee WHO . Thus, the
13 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.
Refund or tax credit of excess input tax COMMISSIONER OF INTERNAL REVENUE v. MIRANT PAGBILAO CORPORATION (Formerly SOUTHERN ENERGY QUEZON INC.) G.R. No. 172129, September 12, 2008, Velasco, Jr., J. Under Sec. 112(A) of the NIRC, unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. Facts: MPC sells the power it generates to the National Power Corp. (NPC). It engaged the services of Mitsubishi Corp. to construct the electrical and mechanical portion of its plant in Pagbilao, Quezon from 1993-1996. Under its charter, NPC is exempt from all taxes – direct and indirect. Due to NPC’s tax exempt status, MPC believed that the sale of power generation services to NPC is zero-rated for VAT purposes. It then filed an application for zero-rating before the CIR. Believing itself to be zero-rated, it was only in 1998 that MPC paid Mitsubishi the VAT component for the construction. The corresponding progress billings was from the construction project was from April 1993 to September 1996. MPC filed an administrative claim for refund for the creditable input VAT paid to Mitubishi on December 10, 1999. Issue: Whether MPC is entitled to the refund. Ruling: NO. The claim for refund or tax credit for the creditable input VAT payment made was filed beyond the period provided by law for such claim. The prescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued. Thus, when a zero-rated zero-rated VAT taxpayer pays its input i nput VAT a year after the pertinent pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC’s claim f or or refund or tax credit filed on December 10, 1999 had already prescribed. Secs. 204(C) and 229 of the NIRC where the claim for refund must be filed within two years after the payment of the tax are also inapplicable. They only apply to instances of erroneous payment or illegal collection for internal revenue taxes, and not tax refund for creditable input VAT on zero-rated sales.
14 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Tax Remedies under the NIRC Suspension of the running of statute of limitations COMMISSIONER OF INTERNAL REVENUE v. NEXT MOBILE INC., G.R. No. 212825, December 7, 2015, Velasco, Jr., J. The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No. 20-90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess taxes. However, However, due to its peculiar circumstances, we shall treat this case as an exception to this rule and find the Waivers valid for the reasons discussed below. Facts: Ma. Lida Sarmiento (Sarmiento), respondent’s (NEXT MOBILE INC) Director of Finance, executed several waivers of the statute of limitations to extend the prescriptive period of assessment for taxes due in taxable year ending December 31, 2001 (Waivers). However, the waiver failed to comply with provisions of RMO No. 20-90 and RDAO 05-01. In the instant case, the CTA found the Waivers invalid because of the following flaws: (1) they were executed without a notarized board authority; (2) the dates of acceptance by the BIR were not indicated therein; and (3) the fact of receipt by respondent of its copy of the Second Waiver was not indicated on the face of the original Second Waiver. To be sure, both parties in this case are at fault. Issue: Whether CIR’s CIR’s right to assess respondent’s deficiency taxes had already prescribed. Ruling: NO. Section NO. Section 2033 of the 1997 NIRC mandates the BIR to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is not valid and effective. Exceptions to this rule are provided under Section 222 of the NIRC. Section 222(b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period provided it comply with the requisites for its validity specified under RMO No. 20-90 and RDAO 01-05. Here, it did not comply with the procedure for a valid agreement for the waiver of the statute of limitations. However, the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one hand, after voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On the other hand, the BIR miserably failed to exact from respondent compliance with its rules. The BIR’s negligence in the performance of its duties was so gross that it amounted to malice and bad faith. Moreover, the BIR was so lax such that it seemed that it consented to the mistakes in the Waivers. Such a situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their responsibility to pay taxes by mere expedient of hiding behind technicalities. It is true that petitioner was also at fault here because it was careless in complying with the requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the provisions imposing administrative liabilities upon the officers responsible for these errors. The BIR's right to assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers, especially in cases like this where the taxpayer is obviously in bad faith.
15 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 Refund PHILIPPINE NATIONAL BANK v v . COMMISSIONER OF INTERNAL REVENUE G.R. No. 206019, March 18, 2015, Velasco Jr., J. The probative value of BIR Form 2307, which is basically a statement showing the amount paid for the subject transaction and the amount of tax withheld therefrom, is to establish only the fact of withholding of the claimed creditable withholding tax. There is nothing in BIR Form No. 2307 which would establish either utilization or non-utilization, non-utilization, as the case may be, of the creditable withholding withholding tax. Facts: Gotesco Tyan Ming Development, Inc. entered into a syndicated loan agreement with PNB and three (3) other banks. To secure the loan, Gotesco mortgaged the Ever Ortigas Commercial Complex. For its failure to pay its obligation, the secured property was foreclosed. As it prepared for the consolidation of its ownership, PNB withheld and remitted to the BIR withholding taxes equivalent to 6% of the bid price. In its claim for refund, PNB explained that it inadvertently applied the six percent (6%) creditable withholding tax rate on the sale of real property classified as ordinary asset, when it should have applied the five percent (5%) creditable withholding tax rate on the sale of ordinary asset, as provided in Section 2.57.2 (J)(B) of Revenue Regulation No. 2-98 as amended by RR No. 6-01, considering that Gotesco is primarily engaged in the real estate business. Issue: Whether PNB presented sufficient evidence to be entitled to the refund erroneously paid to BIR. Ruling: YES. YES. Although PNB was not able to submit Gotesco’s BIR Form No. 2307, the Court is persuaded and so declares that PNB submitted evidence sufficiently showing Gotesco’s non -utilization of the taxes withheld subject of the refund. First, Gotesco’s Audited Financial Statements for year 2003, which 2003, which it subsequently filed with the BIR in 2004, still included the foreclosed Ever Ortigas Commercial Complex, in the Asset account “Property and Equipment.” As advised As advised by the First Division, Gotesco presented its 2003 ITR along with its 2003 Schedule of Prepaid Taxwhich itemized in detail the withholding taxes claimed by Gotesco for the year 2003 amounting to P6,014,433. The aforesaid schedule shows that the creditable withholding taxes Gotesco utilized to pay for its 2003 tax liabilities came from the rental payments of its tenants in the Ever Ortigas Commercial Complex, not from the foreclosure sale. Further, Gotesco’s former accountant stated in her Judicial A ffidavit that the tax credits claimed for year 2003 2003 did not include any portion of the amount subject to the claim for refund. First, she explained that Gotesco could not have possibly utilized the amount claimed for refund as it was not even aware that PNB paid the six percent (6%) creditable withholding tax since no documents came to its attention which showed such payment by PNB. As she also explained, had Gotesco claimed the entire or even any portion of P74,400,028.49, corresponding to the six percent (6%) tax withheld by PNB, the amount appearing in Gotesco’s 2003 ITR should have reflected the additional amount of P74,400,028.49. There is no need for PNB to present Gotesco’s BIR Form No. 2307, as insisted by the First Division, because the information contained in the said form may be very well gathered from other documents already presented by PNB. Thus, the presentation of BIR Form No. 2307 would be in the final analysis a superfluity, of little or no value. While perhaps it may be necessary to prove that the taxpayer did not use the claimed
16 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 creditable withholding tax to pay for his/its tax liabilities, there is no basis in law or jurisprudence to say that BIR Form No. 2307 is the only evidence that may be adduced to prove such non-use.
17 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 LOCAL GOVERNMENT CODE OF 1991, AS AMENDED Local Government Taxation FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES v. COLON HERITAGE REALTY CORPORATION G.R. No. 203754, June 16, 2015, Velasco, Jr., J. Local fiscal autonomy includes the power of LGUs to allocate their resources in accordance with their own priorities. By earmarking the income on amusement taxes imposed by the LGUs in favor of FDCP and the producers of graded graded films, the legislature legislature appropriated appropriated and distributed distributed the LGUs' funds-as funds-as though though it were legally legally within its control-under control-under the guise of setting a limitation on the LGUs' exercise of their delegated taxing power. Facts: City of Cebu passed a City Tax Ordinance. Central to the case at bar are Sections 42 and 43, Chapter XI thereof which require proprietors, lessees or operators of theatres, cinemas, concert halls, circuses, boxing stadia, and other places of amusement, to pay an amusement tax to the Office of the City Treasurer of Cebu City. Almost Alm ost a decade later, Congress passed pass ed RA 9167, creating the Film Fi lm Development Council of the Philippines (FDCP). Secs. 13 and 14 of RA 9167 provided for the tax treatment of certain graded films. Accordingly, FDCP sent demand letters for unpaid amusement tax reward due to the producers of the Grade "A" or "B" films to several cinema proprietors and operators in Cebu City including Colon Heritage Realty Corp. Because of the persistent refusal of the proprietors and cinema operators to remit the said amounts, the city filed before the RTC a petition which sought the declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional. Issue: Whether Sections 13 and 14 of RA 9167 are invalid for being unconstitutional. Ruling: YES. It is apparent that what Congress did in issuing RA 9167 was not to exclude the authority to levy amusement taxes from the taxing power of the covered LGUs, but to earmark, if not altogether confiscate, the income to be received by the LGU from the taxpayers in favor of and for transmittal to FDCP, instead of the taxing authority. This is in clear contravention of the constitutional command that taxes levied by LGUs shall accrue exclusively exclusively to said LGU L GU and is repugnant to the power of LGUs to apportion their resources in line with their priorities. In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the amusement taxes levied by the covered LGUs did not and will under no circumstance accrue to them, not even partially, despite being the taxing authority therefor. Congress, therefore, clearly overstepped its plenary legislative power, the amendment being violative of the fundamental law's guarantee on local autonomy. Moreover, it is undoubtedly a usurpation of the latter's exclusive prerogative to apportion their funds, an impermissible intrusion into the LGUs' constitutionally-protected domain which puts to naught the guarantee of fiscal autonomy to municipal corporations enshrined in our basic law. It was argued that subject Sec. 13 is a grant by Congress of an exemption from amusement taxes in favor of producers of graded films. Without question, this Court has previously upheld the power of Congress to grant exemptions over the power of LGUs to impose taxes. This amusement tax reward, however, is not a tax exemption. Exempting a person or entity from tax is to relieve or to excuse that person or entity from the burden of the imposition. Here, however, it cannot be said that an exemption from amusement taxes was granted by Congress to the producers of graded films. Take note that the burden of paying the amusement tax in question is on the proprietors, lessors, and operators of the theaters and cinemas that showed the graded films. Simply put, both the burden and incidence of the amusement tax are borne by the proprietors, lessors, and operators, not by the producers of the graded films. The transfer of the amount to the film producers is
18 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 actually a monetary reward given to them for having produced a graded film, the funding for which was taken by the national government from the coffers of the covered LGUs. Without a doubt, this is not an exemption from payment of tax.
Real Property Taxation CITY ASSESSOR OF CEBU CITY v. ASSOCIATION OF BENEVOLA DE CEBU, INC. G.R. No. 152904, June 8, 2007, Velasco, Jr., J. All lands, buildings, and other improvements improvements thereon actually, actually, directly and exclusively used for hospitals, cultural or scientific purposes, and those owned and used by local water districts, and governmentowned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission transmission of electric power shall be classified as special. Facts: Association of Benevola de Cebu, Inc. is a non-stock, non-profit organization which is the owner of Chong Hua Hospital (CHH). The association constructed the CHH Medical Arts Center (CHHMAC). A Certificate of Occupancy was issued to the center with a classification of "Commercial Clinic." The city assessor assessed the CHHMAC building as "commercial" at the assessment level for commercial buildings, and not for special assessment currently imposed for CHH and its other separate buildings –the CHH's Dietary and Records Departments. The association filed with the LBAA for reconsideration, asserting that CHHMAC is part of CHH and ought to be imposed the same special assessment level that of CHH. The LBAA ruled in favor of the association stating that it is of public knowledge that hospitals have plenty of spaces leased out to medical practitioners, which is both an accepted and desirable fact; thus, respondent's claim is not disputed that such is a must for a tertiary hospital like CHH which decision was affirmed by the CBAA. Likewise, Likewise, the CA affirmed the same that the CHHMAC is part and parcel of CHH since the facilities and utilities of CHHMAC are necessary for the CHH to achieve its purpose. purpose. Issue: Whether the medical arts center built by the hospital to house its doctors is a commercial establishment. Ruling: NO. We NO. We so hold that CHHMAC is an integral part of CHH. It is undisputed that the doctors and medical specialists holding clinics in CHHMAC are those duly accredited by CHH, that is, they are consultants of the hospital and the ones who can treat CHH's patients confined in it. This fact alone takes away CHHMAC from being categorized as "commercial" since a tertiary hospital like CHH is required by law to have a pool of physicians who comprises the required medical departments in various medical fields. The CHHMAC facility, while seemingly not indispensable to the operations of CHH, is definitely incidental to and reasonably necessary for the operations of the hospital. Given the foregoing arguments, we fail to see any reason why the CHHMAC building should be classified as "commercial" as it is not operated primarily for profit but as an integral part of CHH. The CHHMAC, with operations being devoted for the benefit of the CHH's patients, should be accorded the special assessment. In this regard, we point with approbat a pprobation ion the appellate court's application of Sec. 216 in relation with Sec. 215 of the Local Government Code on the proper classification of the subject CHHMAC building as "special" and not "commercial."
19 | P a g e
Taxation Law (Cases Penned by J. Velasco)
Dean’s Circle
2016 JUDICIAL REMEDIES (R.A. No. 1125, as amended, and the Revised Rules of the Court of Tax Appeals) Jurisdiction of the Court of Tax Appeals THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE G.R. No. 210987. November 24, 2014. THIRD DIVISION. Velasco, Jr., J. There is no provision in law that expressly provides where exactly the ruling of the Se cretary of Finance under the adverted NIRC provision is appealable to. However, Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction over the CA petition as "other matters" arising under the NIRC or other laws administered by the BIR. Facts: In a competitive bidding organized by The Philippine American Life and General Insurance Company (Philamlife), STI Investments, Inc., acquired the Class A shares of Philamlife in Philam Care Health Systems, Inc. (PhilamCare). To facilitate the transfer of the shares, Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of Internal Revenue but was informed that it needed to secure a BIR ruling in connection with its application due to potential donor’s tax liability. Philamlife complied however Commissioner on Internal Revenue (Commissioner) denied the request. Appeal to the Secretary of Finance was unsuccessful which prompted Philamlife to appeal to CA. CA however dismissed the petition for lack of jurisdiction holding that the it is the Court of Tax Appeals (CTA) which has jurisdiction over the issues raised. Issue: Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction Ruling: NO. There NO. 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, Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction over the CA petition as "other matters" arising under the NIRC or other laws administered by the BIR. Even though the provision suggests that it only covers rulings of the Commissioner, it is, nonetheless, sufficient sufficient enough to include appeals from the Secretary’s review under Sec. 4 of the NIRC. 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, the Court 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 other court of appellate jurisdiction that can decide the issues raised in the CA petition, which involves the tax treatment of the shares of stocks sold.
20 | P a g e
