tax digests iii-v
TRANSCRIPT
-
8/11/2019 Tax Digests III-V
1/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 1
III. ESCAPE FROM TAXATION
a.) Shifting
Diago Philippines vs Commissioner
FACTS: Petitioner Diageo Philippines, Inc. (Diageo) is a
domestic corporation organized and existing under the lawsof the Republic of Philippines and is primarily engaged in the
business of importing, exporting, manufacturing, marketing,
distributing, buying and selling, by wholesale, all kinds ofbeverages and liquors and in dealing in any material, article,
or thing required in connection with or incidental to its
principal business.3rll It is registered with the Bureau ofInternal Revenue (BIR) as an excise tax taxpayer
November 1, 2003 to December 31, 2004, Diageo purchasedraw alcohol from its supplier for use in the manufacture of its
beverage and liquor products. The supplier imported the rawalcohol and paid the related excise taxes thereon before the
same were sold to the petitioner.5rll The purchase pricefor the raw alcohol included, among others, the excise taxes
paid by the supplierin the total amount of P12,007,528.83
Diageo exported its locally manufactured liquor products toJapan, Taiwan, Turkey and Thailand and received the
corresponding foreign currency proceeds
Diageo filed with the BIR Large Taxpayers Audit andInvestigation Division II applications for tax refund/issuance
of tax credit certificates corresponding to the excise taxes
which its supplier paid but passed on to it as part of the
purchase price of the subject raw alcohol invoking Section130(D) of the Tax Code
ISSUE: WON Diageo is entitled to the claim.
Held:No.
Tax Code Sec. 130 (1) Persons Liable to File a Return. Everyperson liable to pay excise tax imposed under this Title shall
file a separate return for each place of production settingforth, among others, the description and quantity or volume
of products to be removed, the applicable tax base and the
amount of tax due thereon
(D) Credit for Excise tax on Goods Actually Exported.- Whengoods locally produced or manufactured are removed and
actually exported without returning to the Philippines,
whether so exported in their original state or as ingredients
or parts of any manufactured goods or products, any excisetax paid thereon shall be credited or refunded upon
submission of the proof of actual exportation and upon
receipt of the corresponding foreign exchange payment
A reading of the foregoing provision, however, reveals thatcontrary to the position of Diageo, the right to claim a refund
or be credited with the excise taxes belongs to its supplier
The phrase "any excise tax paid thereon shall be credited orefunded" requires that the claimant be the same person
who paid the excise tax.
In Silkair (Singapore) Pte, Ltd. v. Commissioner of InternaRevenue, the Court has categorically declared that "[t]heproper 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."
Excise taxes imposed under Title VI of the Tax Code are taxeson property24rll which are imposed on "goodsmanufactured or produced in the Philippines for domestic
sales or consumption or for any other disposition and to
things imported."25rll Though excise taxes are paid by themanufacturer or producer before removal of domestic
products from the place of production26rll or by the
owner or importer before the release of imported articlesfrom the customshouse,27rll the same partake of thenature of indirect taxes when it is passed on to the
subsequent purchaser.
Indirect taxesare defined asthose wherein the liability for thepayment of the tax falls on one person but the burden
thereof can be shifted to another person. When the seller
passes on the tax to his buyer, he, in effect, shifts the tax
burden, not the liability to pay it, to the purchaser as part o
the price of goods sold or services rendered.
Accordingly, when the excise taxes paid by the supplier werepassed on to Diageo, what was shifted is not the tax per se
but anadditional cost of the goods sold. Thus, the supplier
remains the statutory taxpayer even if Diageo, the purchaser
actually shoulders the burden of tax.
the person entitled to claim a tax refund is the statutorytaxpayer or the person liable for or subject to tax.29rll Inthe present case, it is not disputed that the supplier of Diageoimported the subject raw alcohol, hence, it was the one
directly liable and obligated to file a return and pay the excise
taxes under the Tax Code before the goods or products are
removed from the customs house. It is, therefore, the
statutory taxpayer as contemplated by law and remains to beso, even if it shifts the burden of tax to Diageo. Consequently
the right to claim a refund, if legally allowed, belongs to it andcannot be transferred to another, in this case Diageo, withou
any clear provision of law allowing the same.
Silkair vs Commissioner
-
8/11/2019 Tax Digests III-V
2/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 2
Facts:
Silkair, a corporation organized under the laws of Singapore
which has a Philippine representative office, is an onlineinternational air carrier operating the Singapore-Cebu-Davao-
Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-
Cebu-Singapore routes.
On December 19, 2001, Silkair filed with the BIR a written
application for the refund of P4,567,450.79 excise taxes itclaimed to have paid on its purchases of jet fuel from Petron
Corporation from January to June 2000.
CTA denied Silkairs petition on the ground that as the excisetax was imposed on Petron Corporation as the manufacturer
of petroleum products, any claim for refund should be filed
by the latter; and where the burden of tax is shifted to the
purchaser, the amount passed on to it is no longer a tax but
becomes an added cost of the goods purchased.
The liability for excise tax on petroleum products that arebeing removed from its refinery is imposed on the
manufacturer/producer (Section 130 of the NIRC of 1997).
The right to claim for the refund of excise taxes paid onpetroleum products lies with Petron Corporation who paidand remitted the excise tax to the BIR. Respondent, on the
other hand, may only claim from Petron Corporation the
reimbursement of the tax burden shifted to the former by the
latter. The excise tax partaking the nature of an indirect tax, isclearly the liability of the manufacturer or seller who has the
option whether or not to shift the burden of the tax to the
purchaser. Where the burden of the tax is shifted to the[purchaser], the amount passed on to it is no longer a tax but
becomes an added cost on the goods purchased whichconstitutes a part of the purchase price
Issue: WON the petitioner is the proper party to claim for
refund or tax credit NO
Held:Silkair bases its claim for refund or tax credit on Section 135
(b) of the NIRC of 1997 which reads
Sec. 135. Petroleum Products sold to International Carriers
and Exempt Entities of Agencies. Petroleum products soldto the following are exempt from excise tax:
x x x x
(b) Exempt entities or agencies covered by tax treaties,
conventions, and other international agreements for their use
and consumption: Provided, however, That the country ofsaid foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold
to Philippine carriers, entities or agencies; x x x
x x x x,
and Article 4(2) of the Air Transport Agreement between theGovernment of the Republic of the Philippines and the
Government of the Republic of Singapore (Air Transport
Agreement between RP and Singapore)
The proper party to question, or seek a refund of, an indirecttax is the statutory taxpayer, the person on whom the tax is
imposed by law and who paid the same even if he shifts theburden thereof to another.
Section 130 (A) (2) of the NIRC provides that "unless
otherwise specifically allowed, the return shall be filed and
the excise tax paid by the manufacturer or producer beforeremoval of domestic products from place of production."
Thus, Petron Corporation, not Silkair, is the statutory
taxpayer which is entitled to claim a refund based on Section135 of the NIRC of 1997 and Article4(2) of the Air Transport
Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden ofthe tax, the additional amount billed to Silkair for jet fuel is
not a tax but part of the price which Silkair had to pay as a
purchaser.
The exemption granted under Section 135 (b) of the NIRC of
1997 and Article 4(2) of the Air Transport Agreementbetween RP and Singapore cannot, without a clear showing
of legislative intent, be construed as including indirect taxes
Statutes granting tax exemptions must be construed in
strictissimi juris against the taxpayer and liberally in favor of
the taxing authority, and if an exemption is found to exist, it
must not be enlarged by construction.
b.) Tax avoidance
c.) Tax evasion
Commissioner vs Estate of Toda Jr.
FACTS:
Cibeles Insurance Corporation (CIC) authorized Benigno Toda
Jr, president and owner of 99.991% of its issued andoutstanding capital stock, to sell the Cibeles Building and two
parcels of land on which the building stands for an amount of
not less than P90M.
On August 30, 1989, Toda purportedly sold the property fo
P100M to Rafael Altonaga, who in turn sold the same
property on the same day to Royal Match Inc. (RMI) fo
P200M.
-
8/11/2019 Tax Digests III-V
3/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 3
For the sale of property to RMI, Altonaga paid capital gains
tax of P10M. Then in April 1990, CIC filed its corporate annual
ITR for the year 1989, declaring, among other things, its gain
from the sale of the real property (which was only P75+M).
In 1994, BIR demanded to the CIC a deficiency income tax for
the year 1989. (Toda already died at this time.)
The Commissioner said that a fraudulent scheme was
deliberately perpetuated by the CIC wholly owned andcontrolled by Toda by covering up the additional gain
of P100M, which resulted in the change in the income
structure of the proceeds of the sale of the two parcels of
land and the building thereon to an individual capital gains(subject only to 5% tax), thus evading the higher corporate
income tax rate of 35%.
SC is now called upon to determine whether the tax planning
scheme adopted by CIC constitutes tax evasion that would
justify and assessment of deficiency income tax.
{Tax Planning Scheme/Flow of Transaction based on my
understanding
CIC (Corpo) sold to-> Altonaga (individual) for P90+M -> sold
to RMI (Corpo) for P200M (but allegedly, this P200M was
paid to CIC and not Altonaga. Pinadaan lang kunwari kay
Altonaga (simulated sale) so that sa individual capital gains
tax ma account ang 200M kay mas malaki man ang % ng
corpo tax.}
ISSUE: Is this case a tax evasion or tax avoidance? TAX
EVASION
Tax Evasion vs. Tax Avoidance
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on theother hand, is a scheme used outside of those lawful means
and when availed of, it usually subjects the taxpayer to
further or additional civil or criminal liabilities.
This is a Tax Evasion Case
Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-paymentof tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as
being "evil," in "bad faith," "willfull," or "deliberate and notaccidental"; and
(3) a course of action or failure of action which is unlawful.
All these factors are present in the instant case.
1. Even prior to the purported sale of the Cibeles property
by CIC to Altonaga on August 30, 1989, CIC
received P40M from RMI, and not from AltonagaThat P40M was debited by RMI and reflected in its tria
balances as "other inv.Cibeles Bldg."2. Also, as of July 31, 1989, another P40M was debited and
reflected in RMIs trial balance. This would show that thereal buyer of the properties was RMI, and not the
intermediary Altonaga.3. That Altonaga was a mere conduit finds support in the
admission of the Toda Estate that the sale to him was
part of the tax planning scheme of CIC. That admission is
borne by the records. In its Memorandum, respondent
Estate declared:
Petitioner, however, claims there was a
"change of structure" of the proceeds of
sale. Admitted 100%. But isnt this preciselythe definition of tax planning? Change the
structure of the funds and pay a lower tax
Precisely, Sec. 40 (2) of the Tax Code exists
allowing tax free transfers of property forstock, changing the structure of the
property and the tax to be paid. As long as
it is done legally, changing the structure o
a transaction to achieve a lower tax is notagainst the law. It is absolutely allowed.
Tax planning is by definition to reduce, if
not eliminate altogether, a tax. Surely
petitioner cannot be faulted for wanting to
reduce the tax from 35% to 5%.
The scheme resorted to by CIC in making it appear that therewere two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be
considered a legitimate tax planning. Such scheme is tainted
with fraud. Fraudin its general sense, "is deemed tocomprise anything calculated to deceive, including all acts
omissions, and concealment involving a breach of legal o
equitable duty, trust or confidence justly reposed, resulting in
the damage to another, or by which an undue and
unconscionable advantage is taken of another.
Here, it is obvious that the objective of the sale to Altonaga
was to reduce the amount of tax to be paid especially that
the transfer from him to RMI would then subject the incometo only 5% individual capital gains tax, and not the 35%
corporate income tax. Altonagas sole purpose of acquiringand transferring title of the subject properties on the same
day was to create a tax shelter. Altonaga never controlled
-
8/11/2019 Tax Digests III-V
4/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 4
the property and did not enjoy the normal benefits and
burdens of ownership. The sale to him was merely a tax ploy,
a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was
calculated to mislead the BIR with the end in view of reducing
the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale ofAltonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutesone of TAX EVASION.
d.) Tax Exemption
e.) Compensation
South African Airways vs CIR
FACTS:
South African Airways is a foreign corporation organizedunder South African laws. It is an internal air carrier with a
sales agent in the Philippines ( Aerotel Limited Corporation).
It is not registered with SEC as a corporation or partnership
and has no license to do business is the Philippines.
For the taxable year 2000, South African Airways filed
separate quarterly and annual income tax returns for its off-
line flights. On February 5, 2003, it filed with the BIR a claim
for the refund of the amount of PhP 1,727,766.38 as
erroneously paid tax on Gross Philippine Billings (GPB) for the
taxable year 2000. This payment was made on the basis ofSec. 28 (A) (3) (a) . The claim went unheeded. The petition for
review filed with the CTA was likewise denied.
The CTA denied the tax refund and held that that petitioner isan international air carrier that do not have flights to andfrom the Philippines but nonetheless earn income from other
activities in the country and thus taxable at the rate of 32% ofsuch income under Sec 28 (A) (1) of the NIRC 1997. Althoughpetitioner is right that it cannot be made to pay under Sec 28
(A) (3)(a), it is likewise liable under Sec 28 (A) (1). 1
In other words, the Court held that petitioner cannot claimrefund for what it paid under Sec 28 (A) (3) (a) because the
same was offset with its liability under Sec 28 (A)(1).
Petitioner argues that such offsetting is in the nature of legal
compensation2, which cannot be applied under the
circumstances present in this case.
ISSUE:WON the offsetting was proper in this case such that
petitioner cannot anymore claim a refund . Offsetting/
Compensation was not proper because there is a need to
assess the liability of the petitioner .
HELD:
As a general rule , taxes cannot be subject to compensation
for the simple reason that the government and the taxpayer
are not creditors and debtors of each other. There is a
material distinction between a tax and debt. Debts are due tothe Government in its corporate capacity, while taxes are due
to the Government in its sovereign capacity.
Taxes cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of
taxes against the claims that the taxpayer may have againstthe government. A person cannot refuse to pay a tax on the
ground that the
government owes him an amount equal to or greater than
the tax being collected. The collection of a tax cannot awaitthe results of a lawsuit against the government.
Verily, petitioners argument is correct that the offsetting oits tax refund with its alleged tax deficiency is unavailing
under Art. 1279 of the Civil Code.
Commissioner of Internal Revenue v. Court of Tax Appeals
however, granted the offsetting of a tax refund with a tax
deficiency in this wise:
Further, it is also worth noting that the Court of Tax Appeals
erred in denying petitioners supplemental motion foreconsideration alleging bringing to said courts attention theexistence of the deficiency income and business tax
assessment against Citytrust. The fact of such deficiency
assessment is intimately related to and inextricablyintertwined with the right of respondent bank to claim for a
tax refund for the same year. To award such refund despite
the existence of that deficiency assessment is an absurdityand a polarity in conceptual effects. Herein private
respondent cannot be entitled to refund and at the same
time be liable for a tax deficiency assessment for the same
year.
The grant of a refund is founded on the assumption that the
tax return is valid, that is, the facts stated therein are trueand correct. The deficiency assessment, although not yet
final, created a doubt as to and constitutes a challenge
against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidencecannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code
-
8/11/2019 Tax Digests III-V
5/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 5
of 1977, which was the applicable law when the claim of
Citytrust was filed, provides that (w)hen an assessment ismade in case of any list, statement, or return, which in the
opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or
undervaluation, no tax collected under such assessment shall
be recovered by any suits unless it is proved that the said list,
statement, or return was not false nor fraudulent and did not
contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or tobe made in good faith regarding annual depreciation of oil or
gas wells and mines.
Moreover, to grant the refund without determination of the
proper assessment and the tax due would inevitably result in
multiplicity of proceedings or suits. If the deficiency
assessment should subsequently be upheld, the Government
will be forced to institute anew a proceeding for the recovery
of erroneously refunded taxes which recourse must be filed
within the prescriptive period of ten years after discovery of
the falsity, fraud or omission in the false or fraudulent return
involved. This would necessarily require and entail additionalefforts and expenses on the part of the Government, impose
a burden on and a drain of government funds, and impede or
delay the collection of much-needed revenue forgovernmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficultiesor expenses, it is both logically necessary and legally
appropriate that the issue of the deficiency tax assessment
against Citytrust be resolved jointly with its claim for tax
refund, to determine once and for all in a single proceedingthe true and correct amount of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretoforeconceded, it would be only just and fair that the taxpayer and
the Government alike be given equal opportunities to avail of
remedies under the law to defeat each others claim and todetermine all matters of dispute between them in one singlecase. It is important to note that in determining whether or
not petitioner is entitled to the refund of the amount paid, it
would [be] necessary to determine how much theGovernment is entitled to collect as taxes. This would
necessarily include the determination of the correct liability
of the taxpayer and, certainly, a determination of this case
would constitute res judicata on both parties as to all the
matters subject thereof or necessarily involved therein.
Here, petitioners similar tax refund claim assumes that thetax return that it filed was correct. Given, however, the
finding of the CTA that petitioner, although not liable under
Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1),
the correctness of the return filed by petitioner is now put indoubt. As such, we cannot grant the prayer for a refund.
Be that as it may, this Court is unable to affirm the assailed
decision and resolution of the CTA En Banc on the outright
denial of petitioners claim for a refund. Even thoughpetitioner is not entitled to a refund due to the question on
the propriety of petitioners tax return subject of the instantcontroversy, it would not be proper to deny such claim
without making a determination of petitioners liability underSec. 28(A)(1).
It must be remembered that the tax under Sec. 28(A)(3)(a) isbased on GPB, while Sec. 28(A)(1) is based on taxable income
that is, gross income less deductions and exemptions, if any
It cannot be assumed that petitioners liabilities under thetwo provisions would be the same. There is a need to make adetermination of petitioners liability under Sec. 28(A)(1) toestablish whether a tax refund is forthcoming or that a tax
deficiency exists. The assailed decision fails to mention having
computed for the tax due under Sec. 28(A)(1) and the recordsare bereft of any evidence sufficient to establish petitioner staxable income. There is a necessity to receive evidence to
establish such amount vis--vis the claim for refund. It is only
after such amount is established that a tax refund ordeficiency may be correctly pronounced.
1. Note: Sec 28 (A)(1) - resident foreign corporations shall be
liable for a 32% income tax on their income from within the
Philippines (applicable to petitioner)
Sec 28 (A)(3)(a)- resident foreign corporations that are
international carriers that derive income from carriage ofpersons, excess baggage, cargo and mail originating from thePhilippines which shall be taxed at 2 1/2% of their GrossPhilippine Billings. (not applicable to petitioner)
2. Article 1279 of the Civil Code contains the elements of lega
compensation, to wit:
Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also ofthe same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention orcontroversy, commenced by third persons and
communicated in due time to the debtor.
-
8/11/2019 Tax Digests III-V
6/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 6
Commissioner vs Esso Standard
FACTS:ESSO overpaid its 1959 income tax by P221,033.00. It
was accordingly granted a tax credit in this amount by the
Commissioner on August 5, 1964. However, ESSOs payment
of its income tax for 1960 was found to be short byP367,994.00. So, on July 10, 1964, the Commissioner wrote to
ESSO demanding payment of the deficiency tax, together
with interest thereon for the period from April 18, 1961 to
April 18, 1964. On August 10, 1964, ESSO paid under protest
the amount alleged to be due, including the interest as
reckoned by the Commissioner. It protested the computation
of interest, contending it was more than. that properly due. It
claimed that it should not have been required to pay interest
on the total amount of the deficiency tax, P367,994.00, but
only on the amount of P146,961.00 representing the
difference between said deficiency, P367,994.00, and ESSOsearlier overpayment of P221,033.00 (for which it had been
granted a tax credit). ESSO thus asked for a refund.
The Internal Revenue Commissioner denied the claim for
refund. ESSO appealed to the Court of Tax Appeals. As
aforestated, that Court ordered payment to ESSO of its
"refund-claim x x in the amount of P39,787.94 as overpaid
interest. Hence, this appeal by the Commissioner.
RULING:
The CTA justified its award of the refund as
follows:jgc:chanrobles.com.ph
". . . In the letter of August 5, 1964, . . . (the Commissioner)
admitted that . . (ESSO) had overpaid its 1959 income tax by
P221,033.00. Accordingly . . (the Commissioner) granted to . .
(ESSO) a tax credit of P221,033.00. In short, the said sum of
P221,033.00 of (ESSOs) money was in the Governments
hands at the latest on July 15, 1960 when it (ESSO) paid in full
its second installment of income tax for 1959. On July 10,
1964 x x (the Commissioner) claimed that for 1960, . . . (ESSO)
underpaid its income tax by P367,994.00. However, instead
of deducting from P367,994.00 the tax credit of P221,033.00
which . . . (the Commissioner) had already admitted was due .
. . (ESSO), . . . (the Commissioner) still insists in collecting the
interest on the full amount of P367,994.00 for the period
April 18, 1961 to April 18, 1964 when the Government had
already in its hands the sum of P221,033.00 of . . . (ESSOs
money even before the latters income tax for 1960 was due
and payable. If the imposition of interest does not amount to
a penalty but merely a just compensation to the State for the
delay in paying the tax, and for the concomitant use by the
taxpayer of funds that rightfully should be in the
Governments hand (Castro v. Collector, G.R. No. L-1274, Dec
28, 1962), the collection of the interest on the full amount of
P367,994.00 without deducting first the tax credit of
P221,033.00, which has long been in the hands of the
Government, becomes erroneous, illegal and
arbitrary.chanrobles lawlibrary : rednad
". . . (ESSO) could hardly be charged of delinquency in paying
P221,033.00 out of the deficiency income tax of P367,994.00
for which the State should be compensated by the payment
of interest because the said amount of P221,033.00 was
already in the coffers of the Government. Neither could . . .
(ESSO) be charged for the concomitant use of funds thatrightfully belong to the Government because as early as July
15, 1960, it was the Government that was using . . . (ESSOs
funds of P221,033.00. In the circumstances, we find it unfai
and unjust for . . . (the Commissioner) to exact the interest on
the said sum of P221,033.00 which, after all, was paid to and
received by the Government even before the incidence of the
deficiency income tax of P367,994.00. (Itogon-Suyoc Mines
Inc. v. Commissioner, C.T.A. Case No. 1327, Sept. 30, 1965)
On the contrary, the Government should be the first to blaze
the trail and set the example of fairness and honest dealing in
the administration of tax laws.
"Accordingly, we hold that the tax credit of P221,033.00 fo
1959 should first be deducted from the basic deficiency tax of
P367,994.00 for 1960 and the resulting difference o
P146,961.00 would be subject to the 18% interest prescribed
by Section 51 (d) of the Revenue Code. According to the
prayer of . . . (ESSO) . . . (the Commissioner) is hereby ordered
to refund to . . . (ESSO) the amount of P39,787.94 as overpaid
interest in the settlement of its 1960 income tax liability
However, as the collection of the tax was not attended witharbitrariness because . . . (ESSO) itself followed . . . (the
Commissioners) manner of computing the tax in paying the
sum of P213,189.93 on August 10, 1964, the prayer of . .
(ESSO) that it be granted the legal rate of interest on its
overpayment of P39,787.94 from August 10, 1964 to the time
it is actually refunded is denied. (See Collector of Interna
Revenue v. Binalbagan Estate, Inc., G.R. No. L-12752, Jan. 30
-
8/11/2019 Tax Digests III-V
7/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 7
1965)."cralaw virtua1aw library
The Commissioners position is that income taxes are
determined and paid on an annual basis, and that such
determination and payment of annual taxes are separate and
independent transactions; and that a tax credit could not be
so considered until it has been finally approved and the
taxpayer duly notified thereof. Since in this case, he argues,the tax credit of P221,033.00 was approved only on August 5,
1964, it could not be availed of in reduction of ESSOs earlier
tax deficiency for the year 1960; as of that year, 1960, there
was as yet no tax credit to speak of, which would reduce the
deficiency tax liability for 1960. In support of his position, the
Commissioner invokes the provisions of Section 51 of the Tax
Code pertinently reading as follows:jgc:chanrobles.com.ph
"(c) Definition of deficiency. As used in this Chapter in respect
of tax imposed by this Title, the term `deficiency
means:chanrob1es virtual 1aw library
(1) The amount by which the tax Imposed by this Title
exceeds the amount shown as the tax by the taxpayer upon
his return; but the amount so shown on the return shall first
be increased by the amounts previously assessed (or
collected without assessment) as a deficiency, and decreased
by the amount previously abated, credited, returned, or
otherwise in respect of such tax; . . .
x x x
(d) Interest on deficiency. Interest upon the amount
determined as deficiency shall be assessed at the same time
as the deficiency and shall be paid upon notice and demand
from the Commissioner of Internal Revenue; and shall be
collected as a part of the tax, at the rate of six per centum per
annum from the date prescribed for the payment of the tax
(or, if the tax is paid in installments, from the date prescribed
for the payment of the first installment) to the date the
deficiency is assessed; Provided, That the amount that may
be collected as interest on deficiency shall in no case exceed
the amount corresponding to a period of three years, the
present provision regarding prescription to the contrary
notwithstanding."cralaw virtua1aw library
The fact is that, as respondent Court of Tax Appeals has
stressed, as early as July 15, 1960, the Government already
had in its hands the sum of P221,033.00 representing excess
payment. Having been paid and received by mistake, as
petitioner Commissioner subsequently acknowledged, that
sum unquestionably belonged to ESSO, and the Government
had the obligation to return it to ESSO. That acknowledgmen
of the erroneous payment came some four (4) years
afterward in nowise negates or detracts from its actuality
The obligation to return money mistakenly paid arises from
the moment that payment is made, and not from the time
that the payee admits the obligation to reimburse. The
obligation of the payee to reimburse an amount paid to him
results from the mistake, not from the payees confession o
the mistake or recognition of the obligation to reimburse. In
other words, since the amount of P221,033.00 belonging to
ESSO was already in the hands of the Government as of July,
1960, although the latter hand not right whatever to the
amount and indeed was bound to return it to ESSO, it was
neither legally nor logically possible for ESSO thereafter to be
considered a debtor of the Government in that amount of
P221,033.00; and whatever other obligation ESSO mightsubsequently incur in favor of the Government would have to
be reduced by that sum, in respect of which no interest could
be charged. To interpret the words of the statute in such a
manner as to subvert these truisms simply can not and
should not be countenanced. "Nothing is better settled than
that courts are not to give words a meaning which would lead
to absurd or unreasonable consequences. That is a principle
that goes back to In re Allen (2 Phil. 630) decided on October
29, 1903, where it was held that a literal interpretation is to
be rejected if it would be unjust or lead to absurd results." 6
"Statutes should receive a sensible construction, suck as wilgive effect to the legislative intention and so as to avoid an
unjust or absurd conclusion.
f.) Equitable Recoupment
g.) Tax Amnesty
Asia International vs CIR
Facts:
AIA is a duly organized corporation operating within the Subic
Special Economic Zone. It is engaged in the importation of
used motor vehicles and heavy equipment which it sells tothe public through auction.
On August 25, 2004, AIA received from the CIR a Forma
-
8/11/2019 Tax Digests III-V
8/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 8
Letter of Demand, dated July 9, 2004, containing an
assessment for deficiency value added tax (VAT) and excise
tax in the amounts of P 102,535,520.00 and P 4,334,715.00,
respectively, or a total amount of P 106,870,235.00, inclusive
of penalties and interest, for auction sales conducted on
February 5, 6, 7, and 8, 2004.
AIA claimed that it filed a protest letter dated August 29,
2004 but the
CIR failed to act on the protest, prompting AIA to file a
petition for review before the CTA on June 20, 2005
AIA filed a Manifestation and Motion with Leave of theHonorable Court to Defer or Suspend Further
Proceedings20rll on the ground that it availed of the TaxAmnesty Program under Republic Act 948021rll(RA 9480),otherwise known as the Tax Amnesty Act of 2007. On
February 13, 2008, it submitted to the Court a Certification of
Qualification22rll issued by the BIR on February 5, 2008stating that AIA "has availed and is qualified for Tax Amnesty
for the Taxable Year 2005 and Prior Years" pursuant to RA
9480.
Issue:( in relation to the subject of exemption and exclusion)
Whether or not AIA can avail the tax amnestry program
under RA 9480.
RULING:
A tax amnesty is a general pardon or the intentionaloverlooking by the State of its authority to impose penalties
on persons otherwise guilty of violating a tax law. It partakes
of an absolute waiver by the government of its right to collectwhat is due it and to give tax evaders who wish to relent a
chance to start with a clean slate.23rll
A tax amnesty, much like a tax exemption, is never favored orpresumed in law. The grant of a tax amnesty, similar to a tax
exemption, must be construed strictly against the taxpayer
and liberally in favor of the taxing authority.
In 2007, RA 9480 took effect granting a tax amnesty to
qualified taxpayers for all national internal revenue taxes forthe taxable year 2005 and prior years, with or without
assessments duly issued therefor, that have remained unpaid
as of December 31, 2005.25rllThe Tax Amnesty Program under RA 9480 may be availed of
by any person except those who are disqualified underSection 8 thereof, to wit:
Section 8. Exceptions. The tax amnesty provided in Section 5
hereof shall not extend to the following persons or cases
existing as of the effectivity of this Act:
(a) Withholding agents with respect to their withholding tax
liabilities;
(b) Those with pending cases falling under the jurisdiction of
the Presidential Commission on Good Government;
(c) Those with pending cases involving unexplained or
unlawfully acquired wealth or under the Anti-Graft and
Corrupt Practices Act
(d) Those with pending cases filed in court involving violation
of the Anti-Money Laundering Law
(e) Those with pending criminal cases for tax evasion and
other criminal offenses under Chapter II of Title X of the
National Internal Revenue Code of 1997, as amended, and
the felonies of frauds, illegal exactions and transactions, and
malversation of public funds and property under Chapters IIand IV of Title VII of the Revised Penal Code; and
(f) Tax cases subject of final and executory judgment by the
courts.(Emphasis supplied
The CIR contends that AIA is disqualified under Section 8(a) ofRA 9480 from availing itself of the Tax Amnesty Program
because it is "deemed" a withholding agent for the deficiency
taxes. This argument is untenableThe CIR did not assess AIA as a withholding agent that failed
to withhold or remit the deficiency VAT and excise tax to the
BIR under relevant provisions of the Tax Code. Hence, the
argument that AIA is "deemed" a withholding agent for thesedeficiency taxes is fallacious
Indirect taxes, like VAT and excise tax, are different from
withholding taxes.
To distinguish, in indirect taxes, the incidence of taxation falls
on one person but the burden thereof can be shifted or
passed on to another person, such as when the tax is
imposed upon goods before reaching the consumer who
ultimately pays for it.26rll On the other hand, in case ofwithholding taxes, the incidence and burden of taxation fal
on the same entity, the statutory taxpayer. The burden of
taxation is not shifted to the withholding agent who merelycollects, by withholding, the tax due from income payments
to entities arising from certain transactions27and remits the
same to the government. Due to this difference, the
deficiency VAT and excise tax cannot be "deemed" as
withholding taxes merely because they constitute indirect
taxes. Moreover, records support the conclusion that AIA wasassessed not as a withholding agent but, as the one directly
liable for the said deficiency taxes.28
The CIR also argues that AIA, being an accreditedinvestor/taxpayer situated at the Subic Special Economic
Zone, should have availed of the tax amnesty granted under
RA 9399 and not under RA 9480. This is also untenable
RA 9399 was passed prior to the passage of RA 9480. RA 9399does not preclude taxpayers within its coverage from availing
of other tax amnesty programs available or enacted in futuro
like RA 9480. More so, RA 9480 does not exclude from its
coverage taxpayers operating within special economic zones
As long as it is within the bounds of the law, a taxpayer has
the liberty to choose which tax amnesty program it wants to
-
8/11/2019 Tax Digests III-V
9/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 9
avail.
Lastly, the Court takes judicial notice of the "Certification of
Qualification" issued by Eduardo A. Baluyut, BIR Revenue
District Officer, stating that AlA "has availed and is qualified
for Tax Amnesty for the Taxable Year 2005 and Prior Years"
pursuant to RA 9480. In the absence of sufficient evidence
proving that the certification was issued in excess of
authority, the presumption that it was issued in the regular
performance of the revenue district officer's official duty
stands'
Philippine Banking Corporation vs CIR
FACTS: Petitioner Philippine Banking Corp (now Global
Business Bank) is a domestic corporation duly licensed as abanking institution. For the taxable years 1996 and 1997,
petitioner offered its Special/Super Savings Deposit Account
(SSDA) to its depositors. The SSDA is a form of a savings
deposit evidenced by a passbook and earning a higherinterest rate than a regular savings account. Petitioner
believes that the SSDA is not subject to Documentary Stamp
Tax (DST) under Section 180 of the 1977 National Internal
Revenue Code (NIRC), as amended.
On 10 January 2000, the Commissioner of Internal Revenue(respondent) sent petitioner a Final Assessment Notice
assessing deficiency DST based on the outstanding balancesof its SSDA, including increments, in the total sum of
P17,595,488.75 for 1996 and P47,767,756.24 for 1997. These
assessments were based on the outstanding balances of the
SSDA appearing in the schedule attached to petitionersaudited financial statements for the taxable years 1996 and
1997.
Petitioner maintains that the tax assessments are erroneous
because Section 180 of the 1977 NIRC does not includedeposits evidenced by a passbook among the enumeration of
instruments subject to DST. Petitioner asserts that the
language of the law is clear and requires no interpretation.[8]
Section 180 of the 1977 NIRC, as amended,[9]provides:
Sec. 180. Stamp tax on all loan agreements, promissory notes,bills of exchange, drafts, instruments and securities issued by
the government or any of its instrumentalities, certificates ofdeposit bearing interest and others not payable on sight or
demand. On all loan agreements signed abroad whereinthe object of the contract is located or used in the
Philippines; bills of exchange (between points within thePhilippines), drafts, instruments and securities issued by the
Government or any of its instrumentalities or certificates of
deposits drawing interest, or orders for the payment of any
sum of money otherwise than at the sight or on demand, or
on all promissory notes, whether negotiable or non-
negotiable, except bank notes issued for circulation, and on
each renewal of any such note, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each
Two hundred pesos, or fractional part thereof, of the face
value of any such agreement, bill of exchange, draft
certificate of deposit, or note: provided, that only one
documentary stamp tax shall be imposed on either loan
agreement, or promissory note issued to secure such loan
whichever will yield a higher tax: provided, however, that
loan agreements or promissory notes the aggregate of which
does not exceed Two hundred fifty thousand pesos(P250,000) executed by an individual for his purchase on
installment for his personal use or that of his family and not
for business, resale, barter or hire of a house, lot, moto
vehicle, appliance or furniture shall be exempt from thepayment of the documentary stamp tax provided under this
section. (Boldfacing supplied)
Petitioner insists that the SSDA, being issued in the form of a
passbook, cannot be construed as a certificate of deposit
subject to DST under Section 180 of the 1977 NIRC. Petitioner
explains that the SSDA is a necessary offshoot of the
deregulated interest rate regime in bank deposits.
Petitioner alleges that prior to the passage of Republic ActNo. 9243[15] (RA 9243), there was no law subjecting SSDA to
DST during the taxable years 1996 and 1997. The amendatoryprovision in RA 9243 now specifically includes certificates orother evidences of deposits that are either drawing interest
significantly higher than the regular savings deposit taking
into consideration the size of the deposit and the risks
involved or drawing interest and having a specific maturity
date.*16+ Petitioner admits that with this new taxing clauseits SSDA is now subject to DST. However, the fact remains
that this provision was non-existent during the taxable years
1996 and 1997 subject of the assessments in the presentcase.[17]
Respondent, through the Office of the Solicitor General
contends that the SSDA is substantially the same andidentical to that of a time deposit account because in order to
avail of the SSDA, one has to deposit a minimum of P50,000
and this amount must be maintained for a required period oftime to earn higher interest rates.[18] In a time deposit
account, the minimum deposit requirement is P20,000 and
this amount must be maintained for the agreed period to
earn the agreed interest rate. If a time deposit is pre-terminated, a penalty will be imposed resulting in a lower
interest income. In a regular savings account, the interest
rate is fixed and there is no penalty imposed for as long as the
required minimum balance is maintained. Thus, respondentasserts that the SSDA is a time deposit account, albeit in the
guise of a regular savings account evidenced by a
passbook.[19]
Respondent explains that under Section 180 of the 1977NIRC, certificates of deposits deriving interest are subject to
-
8/11/2019 Tax Digests III-V
10/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 10
the payment of DST. Petitioners passbook evidencing itsSSDA is considered a certificate of deposit, and being very
similar to a time deposit account, it should be subject to the
payment of DST.[20]
On 24 May 2007, during the pendency of this case before thisCourt, Republic Act No. 9480 or An Act Enhancing RevenueAdministration and Collection by Granting an Amnesty on AllUnpaid Internal Revenue Taxes Imposed by the National
Government for Taxable Year 2005 and Prior Years (RA9480), lapsed into law.
The pertinent provisions of RA 9480 are:
Section 1. Coverage. There is hereby authorized and granteda tax amnesty which shall cover all national internal revenue
taxes for the taxable year 2005 and prior years, with or
without assessments duly issued therefor, that have
remained unpaid as of December 31, 2005: Provided,
however, That the amnesty hereby authorized and granted
shall not cover persons or cases enumerated under Section 8
hereof.
x x x
Sec. 6. Immunities and Privileges. Those who availedthemselves of the tax amnesty under Section 5 hereof, and
have fully complied with all its conditions shall be entitled to
the following immunities and privileges:
1. The taxpayer shall be immune from the payment of taxes,as well as addition thereto, and the appurtenant civil,
criminal or administrative penalties under the National
Internal Revenue Code of 1997, as amended, arising from thefailure to pay any and all internal revenue taxes for taxable
year 2005 and prior years.
x x x
Sec. 8. Exceptions. The tax amnesty provided in Section 5hereof shall not extend to the following persons or cases
existing as of the effectivity of this Act:
1. Withholding agents with respect to their withholding tax
liabilities;2. Those with pending cases falling under the jurisdiction of
the Presidential Commission on Good Government;
3. Those with pending cases involving unexplained orunlawfully acquired wealth or under the Anti-Graft and
Corrupt Practices Act;4. Those with pending cases filed in court involving violation
of the Anti-Money Laundering Law;
5. Those with pending criminal cases for tax evasion and
other criminal offenses under Chapter II of Title X of the
National Internal Revenue Code of 1997, as amended, and
the felonies of frauds, illegal exactions and transactions, and
malversation of public funds and property under Chapters III
and IV of Title VII of the Revised Penal Code; and
6. Tax cases subject of final and executory judgment by the
courts. (Emphasis supplied)
The BIR also issued Revenue Memorandum Circular No. 692007 (RMC 69-2007).[59] The pertinent portion provides:
Q-32 May surviving or new corporations avail of the taxamnesty in behalf of the corporations absorbed or dissolved
pursuant to a merger or consolidation that took effect prior
to Taxable Year 2005? Can they avail of the Tax Amnesty?A-32 Yes, these companies can avail of the tax amnesty fo
purposes of obtaining tax clearances for the dissolved orabsorbed corporations. (Emphasis supplied)
On 21 September 2007, Metropolitan Bank and TrustCompany (Metrobank), the surviving entity that absorbed
petitioners banking business, filed a Tax Amnesty Return,*60paid the amnesty tax and fully complied with all the
requirements[61] of the Tax Amnesty Program under RA
9480. Petitioner alleges that by virtue of this availmentpetitioner is now deemed immune from the payment otaxes as well as additions thereto, and is statutorilydischarged from paying all internal revenue tax liabilities fo
the taxable year 2005 and prior years. Petitioner contends
that the availment includes all deficiency tax assessments of
the BIR subject of this petition.
ISSUE 1: WON petitioner is deemed immune from the
payment of taxes?
HELD 1: YES. A tax amnesty is a general pardon or the
intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of violation of a tax lawIt partakes of an absolute waiver by the government of its
right to collect what is due it and to give tax evaders whowish to relent a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never favored nopresumed in law. The grant of a tax amnesty, similar to a tax
exemption, must be construed strictly against the taxpayer
and liberally in favor of the taxing authority.[62]
The DST is one of the taxes covered by the Tax AmnestyProgram under RA 9480.[63] As discussed above, petitioner is
clearly liable to pay the DST on its SSDA for the years 1996
and 1997. However, petitioner, as the absorbed corporationcan avail of the tax amnesty benefits granted to Metrobank.
Records show that Metrobank, a qualified tax amnestyapplicant,[64] has duly complied with the requirements
enumerated in RA 9480, as implemented by DO 29-07 and
RMC 19-2008.[65] Considering that the completion of these
requirements shall be deemed full compliance with the tax
amnesty program,[66] the law mandates that the taxpaye
shall thereafter be immune from the payment of taxes, and
additions thereto, as well as the appurtenant civil, criminal o
administrative penalties under the NIRC of 1997, as
-
8/11/2019 Tax Digests III-V
11/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 11
amended, arising from the failure to pay any and all internal
revenue taxes for taxable year 2005 and prior years.[67]
The BIRs inclusion of issues and cases which were ruled byany court (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer as one of the exceptionsin RMC 19-2008 is misplaced. RA 9480 is specifically clear that
the exceptions to the tax amnesty program include tax casessubject of final and executory judgment by the courts. The
present case has not become final and executory whenMetrobank availed of the tax amnesty program.
Banas vs CA
FACTS:
On February 20, 1976, petitioner, Bibiano V. Baas Jr. sold toAyala Investment Corporation (AYALA), 128,265 square
meters of land located at Bayanan, Muntinlupa,
P2,308,770.00. The Deed of Sale provided that upon the
signing of the contract AYALA shall pay four P461,754.00.
The same day, petitioner discounted the promissory note
with AYALA, for its face value of P1,847,016.00, evidenced by
a Deed of Assignment signed by the petitioner and AYALA.
AYALA issued nine (9) checks to petitioner, all dated February
20, 1976, drawn against Bank of the Philippine Islands with
the uniform amount of P205,224.00.
In the succeeding years, until 1979, petitioner reported auniform income of P230,877.00 as gain from sale of capital
asset. In his 1980 income tax amnesty return, petitioner also
reported the same amount of P230,877.00 as the realized
gain on disposition of capital asset for the year.On April 11, 1978, then Revenue Director Calaguio authorized
examiners to examine the books and records of petitioner forthe year 1976. They discovered that petitioner had no
outstanding receivable from the 1976 land sale to AYALA andconcluded that the sale was cash and the entire profit should
have been taxable in 1976 since the income was wholly
derived in 1976.Examiners filed their audit report and declared a discrepancy
of P2,095,915.00 in petitioner's 1976 net income. They
recommended deficiency tax assessment P2,473,673.00.
Meantime, Aquilino Larin succeeded Calaguio as RegionalDirector. After reviewing the examiners' report, Larin reduced
deficiency tax assessment to P936,598.50, inclusive of
surcharges and penalties for the year 1976.
On June 27, 1980, respondent Larin sent a letter to petitionerinforming of the income tax deficiency that must be settled
him immediately.
On September 26, 1980, petitioner acknowledged receipt ofthe letter but insisted that the sale of his land to AYALA was
on installment.
On June 17, 1981, Larin filed a criminal complaint for tax
evasion against the petitioner.
On July 2, 1981, petitioner filed an Amnesty Tax Return under
P.D. 1740 and paid the amount of P41,729.81. On November
2, 1981, petitioner again filed an Amnesty Tax Return unde
P.D. 1840 and paid an additional amount of P1,525.62. In
both, petitioner did not recognize that his sale of land to
AYALA was on cash basis
Reacting to the complaint for tax evasion petitioner filed with
the RTC of Manila an action against respondents. He claimed
that the filing of criminal complaints against him for violation
of tax laws were improper because he had already availed of
two tax amnesty decrees, Presidential Decree Nos. 1740 and1840.
ISSUE:Whether P.D. 1740 and 1840 granting tax amnesties
granted petitioner immunity from tax suits. NO
RULING:P.D. No. 1740. CONDONING PENALTIES FOR CERTAIN
VIOLATIONS OF THE INCOME TAX LAW UPON VOLUNTARY
DISCLOSURE OF UNDECLARED INCOME FOR INCOME TAXPURPOSES AND REQUIRING PERIODIC SUBMISSION OF NET
WORTH STATEMENT
Sec. 1. Voluntary Disclosure of Correct Taxable Income. Any individual who, for any or all of the taxable years 1974 to1979, had failed to file a return is hereby, allowed to file a
return for each of the aforesaid taxable years and accurately
declare therein the true and correct income, deductions and
exemptions and pay the income tax due per return. Likewise,any individual who filed a false or fraudulent return for any
taxable year in the period mentioned above may amend his
return and pay the correct amount of tax due after deductingthe taxes already paid, if any, in the original declaration
(emphasis ours
Sec. 5. Immunity from Penalties. Any individual whovoluntarily files a return under this Decree and pays theincome tax due thereon shall be immune from the penalties,
civil or criminal, under the National Internal Revenue Code
arising from failure to pay the correct income tax with respectto the taxable years from which an amended return was filedor for which an original return was filed in cases where no
return has been filed for any of the taxable years 1974 to
1979: Provided, however, That these immunities shall not
apply in cases where the amount of net taxable income
declared under this Decree is understated to the extent of
25% or more of the correct net taxable income. (emphasis
ours)
P.D. NO. 1840 GRANTING A TAX AMNESTY ON UNTAXEDINCOME AND/OR WEALTH EARNED OR ACQUIRED DURING
THE TAXABLE YEARS 1974 TO 1980 AND REQUIRING THEFILING OF THE STATEMENT OF ASSETS, LIABILITIES, AND NET
WORTH.
Sec. 1. Coverage. In case of voluntary disclosure opreviously untaxed income and/or wealth such as earnings
receipts, gifts, bequests or any other acquisition from any
source whatsoever, realized here or abroad, by any individua
taxpayer, which are taxable under the National Interna
Revenue Code, as amended, the assessment and collection of
-
8/11/2019 Tax Digests III-V
12/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 12
all internal revenue taxes, including the increments or
penalties on account of non-payment, as well as all civil,
criminal or administrative liabilities arising from or incident
thereto under the National Internal Revenue Code, are
hereby condoned provided that the individual taxpayer shall
pay. (emphasis ours) . . .
Sec. 2. Conditions for Immunity. The immunity grantedunder Section one of this Decree shall apply only under the
following conditions:
a) Such previously untaxed income and/or wealth must havebeen earned or realized in any of the years 1974 to 1980; b)
The taxpayer must file an amnesty return on or before
November 30, 1981, and fully pay the tax due thereon; c) The
amnesty tax paid by the taxpayer under this Decree shall notbe less than P1,000.00 per taxable year; and d) The taxpayer
must file a statement of assets, liabilities and net worth as of
December 31, 1980, as required under Section 6 hereof.(emphasis ours)
It will be recalled that petitioner entered into a deed of sale
purportedly on installment. On the same day, he discounted
the promissory note covering the future installments. The
discounting seems questionable because ordinarily, when a
bill is discounted, the lender (e.g. banks, financial institution)
charges or deducts a certain percentage from the principal
value as its compensation. Here, the discounting was done by
the buyer.
On July 2, 1981, two weeks after the filing of the tax evasion
complaint against him by respondent Larin on June 17, 1981,
petitioner availed of the tax amnesty under P.D. No. 1740. His
amended tax return for the years 1974 - 1979 was filed with
the BIR office of Valenzuela, Bulacan, instead of Manila wherethe petitioner's principal office was located. He again availed
of the tax amnesty under P.D. No. 1840.
His disclosure, however, did not include the income from hissale of land to AYALA on cash basis. Instead he insisted that
such sale was on installment. He did not amend his income
tax return. He did not pay the tax which was considerablyincreased by the income derived from the discounting. He did
not meet the twin requirements of P.D. 1740 and 1840,
declaration of his untaxed income and full payment of tax
due thereon.
Clearly, the petitioner is not entitled to the benefits of P.D.
Nos. 1740 and 1840. The mere filing of tax amnesty return
under P.D. 1740 and 1840 does not ipso facto shield him fromimmunity against prosecution.
Tax amnesty is a general pardon to taxpayers who want to
start a clean tax slate. It also gives the government a chanceto collect uncollected tax from tax evaders without having to
go through the tedious process of a tax case.
To avail of a tax amnesty granted by the government, and to
be immune from suit on its delinquencies, the tax payer musthave voluntarily disclosed his previously untaxed income and
must have paid the corresponding tax on such previously
untaxed income.
It also bears noting that a tax amnesty, much like a taxexemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a taxexemption must be construed strictly against the taxpayer
and liberally in favor of the taxing authority.11 Hence, on this
matter, it is our view that petitioner's claim of immunity from
prosecution under the shield of availing tax amnesty isuntenable.
IV. CONSTRUCTION AND INTERPRETATION OF TAX LAWS
a.)
Tax laws
CIR vs Fortune Tobacco
NATURE: After much wrangling in the CTA and the CA,Fortune Tobacco was granted a tax refund or tax credit
representing specific taxes erroneously collected from its
tobacco products. The tax refund is being re-claimed by the
Commissioner of Internal Revenue (Commissioner) in thispetition.
FACTS:
CAG.R. SP No. 80675
Petitioner is a domestic corporation duly organized and
existing under and by virtue of the laws of the Republic of the
Philippines, with principal address at Fortune Avenue, Parang
Marikina City. Petitioner is the manufacturer/producer ovarious cigarette brands.
Immediately prior to January 1, 1997, the cigarette brands of
Fortune Tobacco were subject to ad valorem tax pursuant to
then Section 142 of the Tax Code of 1977, as
amended. However, on January 1, 1997, R.A. No. 8240 tookeffect whereby a shift from the ad valoremtax (AVT) system
to the specific tax system was made and subjecting the
cigarette brands to specific tax under [S]ection 142 thereof,
now renumbered as Sec. 145 of the Tax Code of 1997
pertinent provisions of which are quoted thus:
Section 145. Cigars and Cigarettes-
(A) Cigars.There shall be levied, assessed and collected on
-
8/11/2019 Tax Digests III-V
13/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 13
cigars a tax of One peso (P1.00) per cigar.
(B) Cigarettes packed by hand. There shall be levied,assessesed and collected on cigarettes packed by hand a taxof Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine. There shall be levied,assessed and collected on cigarettes packed by machine a tax
at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the
value-added tax) is above Ten pesos (P10.00) per pack, the
tax shall be Twelve (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the
value added tax) exceeds Six pesos and Fifty centavos
(P6.50) but does not exceed Ten pesos (P10.00) per pack, the
tax shall beEight Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax and the
value-added tax) is Five pesos (P5.00) but does not exceed Six
Pesos and fifty centavos (P6.50) per pack, the tax shall be Five
pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the
value-added tax) is below Five pesos (P5.00) per pack, the tax
shall be One peso (P1.00) per pack;
Variants of existing brands of cigarettes which areintroduced in the domestic market after the effectivity of
R.A. No. 8240 shall be taxed under the highest classification
of any variant of that brand.
The excise tax from any brand of cigarettes within the next
three (3) years from the effectivity of R.A. No. 8240 shall notbe lower than the tax, which is due from each brandon October 1, 1996. Provided, however, that in cases were
(sic) the excise tax rate imposed in paragraphs (1), (2), (3) and
(4) hereinabove will result in an increase in excise tax of more
than seventy percent (70%), for a brand of cigarette, theincrease shall take effect in two tranches: fifty percent (50%)
of the increase shall be effective in 1997 and one hundred
percent (100%) of the increase shall be effective in 1998.
The rates of excise tax on cigars and cigarettes under
paragraphs (1), (2) (3) and (4) hereof, shall be increased by
twelve percent (12%) on January 1, 2000.
New brands shall be classified according to their current netretail price.
For the above purpose, net retail price shall mean the priceat which the cigarette is sold on retail in twenty (20) major
supermarkets in Metro Manila (for brands of cigarettesmarketed nationally), excluding the amount intended to
cover the applicable excise tax and value-added tax. For
brands which are marketed only outside Metro [M]anila, the
net retail price shall mean the price at which the cigarette issold in five (5) major supermarkets in the region excluding
the amount intended to cover the applicable excise tax and
the value-added tax.
The classification of each brand of cigarettes based on its
average retail price as of October 1, 1996, as set forth inAnnex D, shall remain in force until revised by Congress.
Variant of a brandshall refer to a brand on which a modifie
is prefixed and/or suffixed to the root name of the brandand/or a different brand which carries the same logo or
design of the existing brand.
To implement the provisions for a twelve percent (12%)
increase of excise tax on, among others, cigars and cigarettes
packed by machines by January 1, 2000, the Secretary o
Finance, upon recommendation of the respondent
Commissioner of Internal Revenue, issued Revenue
Regulations No. 17-99, dated December 16, 1999, which
provides the increase on the applicable tax rates on cigar and
cigarettes
Revenue Regulations No. 17-99 likewise provides in the lastparagraph of Section 1 thereof, (t)hat the new specific taxrate for any existing brand of cigars, cigarettes packed by
machine, distilled spirits, wines and fermented liquor shal
not be lower than the excise tax that is actually being paid
prior to January 1, 2000.
For the period covering January 1-31, 2000, petitione
allegedly paid specific taxes on all brands manufactured andremoved in the total amounts of P585,705,250.00.
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that the
said case questions the CTAs December 4, 2003 decision inCTA Case No. 6612 granting respondents claim for refund ofthe amount of P355,385,920.00 representing erroneously or
illegally collected specific taxes covering the period January 1
2002 to December 31, 2002, as well as its March 17, 2004Resolution denying a reconsideration thereof.
This entire controversy revolves around the interplay
between Section 145 of the Tax Code and Revenue
Regulation 17-99.
ON TAX LAWS ISSUE (1): Whether or not the last paragraph
of Section 1 of Revenue Regulation[s] [No.] 17-99 is in
accordance with the pertinent provisions of Republic Act
[No.] 8240, now incorporated in Section 145 of the Tax Code
of 1997.
HELD:
-
8/11/2019 Tax Digests III-V
14/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 14
Section 145 states that during the transition period, i.e.,
within the next three (3) years from the effectivity of the Tax
Code, the excise tax from any brand of cigarettes shall not belower than the tax due from each brand on 1 October 1996.
This qualification, however, is conspicuously absent as
regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1January 2000. Clearly and unmistakably, Section 145
mandates a new rate of excise tax for cigarettes packed bymachine due to the 12% increase effective on 1 January 2000without regard to whether the revenue collection starting
from this period may turn out to be lower than that collected
prior to this date.
By adding the qualification that the tax due after the 12%increase becomes effective shall not be lower than the tax
actually paid prior to 1 January 2000, Revenue Regulation No.
17-99 effectively imposes a tax which is the higher amountbetween the ad valorem tax being paid at the end of the
three (3)-year transition period and the specific tax under
paragraph C, sub-paragraph (1)-(4), as increased by 12%asituation not supported by the plain wording of Section 145of the Tax Code.
As we have previously declared, rule-making power must be
confined to details for regulating the mode or proceedings in
order to carry into effect the law as it has been enacted, andit cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the
statute. Administrative regulations must always be inharmony with the provisions of the law because any resulting
discrepancy between the two will always be resolved in favor
of the basic law.
The OSGs argument that by 1 January 2000, the excise tax oncigarettes should be the higher tax imposed under the
specific tax system and the tax imposed under the ad
valorem tax system plus the 12% increase imposed by
paragraph 5, Section 145 of the Tax Code, is an unsuccessful
attempt to justify what is clearly an impermissible incursion
into the limits of administrative legislation. Such an
interpretation is not supported by the clear language of thelaw and is obviously only meant to validate the OSGs thesisthat Section 145 of the Tax Code is ambiguous and admits of
several interpretations.
The foregoing leads us to conclude that Revenue RegulationNo. 17-99 is indeed indefensibly flawed. The Commissioner
cannot seek refuge in his claim that the purpose behind the
passage of the Tax Code is to generate additional revenues
for the government. Revenue generation has undoubtedly
been a major consideration in the passage of the Tax Code.
However, as borne by the legislative record, the shift from
the ad valorem system to the specific tax system is likewisemeant to promote fair competition among the players in
the industries concerned, to ensure an equitable distribution
of the tax burden and to simplify tax administration by
classifying cigarettes, among others, into high, medium and
low-priced based on their net retail price and accordingly
graduating tax rates.
b.) Exemption and Exclusion
Panasonic vs CIR
FACTS: Petitioner Panasonic Communications Imaging
Corporation of the Philippines (Panasonic) is registered with
the Board of Investments as a preferred pioneer enterpriseunder the Omnibus Investments Code of 1987. It is also a
registered value-added tax (VAT) enterprise.
Believing that the export sales from April 1 to
September 30 1998 and from Oct 1 1998 to march 31, 1999
were zero-rated for VAT under Section 106(A)(2)(a)(1) of the
1997 National Internal Revenue Code as amended
by Republic Act (R.A.) 8424 (1997 NIRC), Panasonic paid inputVAT of P4,980,254.26 and P4,388,228.14 for the two periods
or a total ofP9,368,482.40 attributable to its zero-rated sales.
Claiming that the input VAT it paid remained
unutilized or unapplied, Panasonic filed two separateapplications for refund or tax credit of what it
paid. Panasonic filed on December 16, 1999 a petition foreview with the CTA, averring
the inaction of the respondent Commissioner of Internal
Revenue (CIR) on its applications.
CTA denied the petition for lack of merit. While petitione
Panasonics export sales were subject to 0% VAT underSection 106(A)(2)(a)(1) of the 1997 NIRC, the same did not
qualify for zero-rating because the word zero-rated was not
printed on Panasonics export invoices. This omission, saidthe First Division, violates the invoicing requirements o
Section 4.108-1 of Revenue Regulations (RR) 7-95.
Panasonic appealed to the CTA en banc. CTA en
bancupheld the First Divisions decision and resolution anddismissed the petition. Panasonic filed a MFR but this wasdenied.
-
8/11/2019 Tax Digests III-V
15/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 15
ISSUE: Whether or not the CTA en banccorrectly denied
petitioner Panasonics claim for refund of the VAT it paid as azero-rated taxpayer on the ground that its sales invoices did
not state on their faces that its sales were zero-rated. YESTHE CTA CORRECTLY DENIED.
HELD:
The VAT is a tax on consumption, an indirect tax that
the provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which
is invoice-based, an entity can subtract from the VAT charged
on its sales or outputs the VAT it paid on its purchases, inputs
and imports.
Related to topic of Exemption:
For the effective zero rating of such transactions,
however, the taxpayer has to be VAT-registered and must
comply with invoicing requirements. Interpreting these
requirements, respondent CIR ruled that under Revenue
Memorandum Circular (RMC) 42-2003, the taxpayers failure
to comply with invoicing requirements will result in the
disallowance of his claim for refund. RMC 42-2003 provides:
A-13. Failure by the supplier to comply with the invoicingrequirements on the documents supporting the sale of
goods and services will result to the disallowance of the
claim for input tax by the purchaser-claimant.
If the claim for refund/TCC is based on the existence of zero-
rated sales by the taxpayer but it fails to comply with the
invoicing requirements in the issuance of sales invoices (e.g.,
failure to indicate the TIN), its claim for tax credit/refund of
VAT on its purchases shall be denied considering that the
invoice it is issuing to its customers does not depict its being
a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment is without
prejudice to the right of the taxpayer to charge the input
taxes to the appropriate expense account or asset account
subject to depreciation, whichever is applicable. Moreover,
the case shall be referred by the processing office to the
concerned BIR office for verification of other tax liabilities of
the taxpayer.
Petitioner points out that in requiring the printing on its
sales invoices of the word zero-rated, the Secretary oFinance unduly expanded, amended, and modified by a mere
regulation (Section 4.108-1 of RR 7-95) the letter and spirit of
Sections 113 and 237 of the 1997 NIRC, prior to thei
amendment by R.A. 9337.
Petitioner Panasonic points out that Sections 113
and 237 did not require the inclusion of the word zerorated for zero-rated sales covered by its receipts oinvoices. The BIR incorporated this requirement only afte
the enactment of R.A. 9337 on November 1, 2005, a law that
did not yet exist at the time it issued its invoices.
But when petitioner Panasonic made the export
sales subject of this case, i.e., from April 1998 to March 1999
the rule that applied was Section 4.108-1 of RR 7-95
otherwise known as the Consolidated Value-Added Tax
Regulations, which the Secretary of Finance issued on
December 9, 1995 and took effect on January 1, 1996. It
already required the printing of the word zero-rated on
the invoices covering zero-rated sales. When R.A. 9337
amended the 1997 NIRC on November 1, 2005, it made this
particular revenue regulation a part of the tax code. This
conversion from regulation to law did not diminish thebinding force of such regulation with respect to acts
committed prior to the enactment of that law.
The requirement is reasonable and is in accord with the
efficient collection of VAT from the covered sales of goods
and services. As aptly explained by the CTAs First Divisionthe appearance of the word zero-rated on the face oinvoices covering zero-rated sales prevents buyers from
falsely claiming input VAT from their purchases when no VAT
was actually paid. If, absent such word, a successful claim fo
input VAT is made, the government would be refundingmoney it did not collect.
Further, the printing of the word zero -rated on theinvoice helps segregate sales that are subject to 10% (now
12%) VAT from those sales that are zero-rated. Unable to
submit the proper invoices, petitioner Panasonic has been
unable to substantiate its claim for refund.
.
-
8/11/2019 Tax Digests III-V
16/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 16
This Court held that, since the BIR authority to printis notone of the items required to be indicated on the
invoices or receipts, the BIR erred in denying the claim for
refund. Here, however, the ground for denial of petitioner
Panasonics claim for tax refundthe absence of the wordzero-rated on its invoicesis one which is specifically and
precisely included in the above enumeration. Consequently,the BIR correctly denied Panasonics claim for tax refund.
This Court will not set aside lightly the conclusions
reached by the CTA which, by the very nature of its functions,
is dedicated exclusively to the resolution of tax problems and
has accordingly developed an expertise on the subject, unlessthere has been an abuse or improvident exercise of
authority. Besides, statutes that grant tax exemptions are
construed strictissimi jurisagainst the taxpayer and liberally infavor of the taxing authority. Tax refunds in relation to the
VAT are in the nature of such exemptions. The general rule is
that claimants of tax refunds bear the burden of proving the
factual basis of their claims. Taxes are the lifeblood of thenation. Therefore, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of
the government.
CIR vs Fortune Tobacco
ON EXEMPTON AND EXCLUSION ISSUE (2):Whether or not
petitioner is entitled to a refund of P35,651,410.00 as allegedoverpaid excise tax for the month of January 2000.
The Commissioners contention that a tax refund partakesthe nature of a tax exemption does not apply to the tax
refund to which Fortune Tobacco is entitled. There is parity
between tax refund and tax exemption only when the formeris based either on a tax exemption statute or a tax refund
statute. Obviously, that is not the situation here. Quite the
contrary, Fortune Tobaccos claim for refund is premised onits erroneous payment of the tax, or better still the
governments exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he whoclaims an exemption from the burden of taxation must justifyhis claim by showing that the legislature intended to exempt
him by words too plain to be mistaken. The rule is that tax
exemptions must be strictly construed such that the
exemption will not be held to be conferred unless the termsunder which it is granted clearly and distinctly show that such
was the intention.
The rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an
exemption, a legislative grace, which cannot be allowedunless granted in the most explicit and categorical language
The taxpayer must show that the legislature intended to
exempt him from the tax by words too plain to be mistaken.
Under the Tax Code itself, apparently in recognition of the
pervasive quasi-contract principle, a claim for tax refund maybe based on the following: (a) erroneously or illegally
assessed or collected internal revenue taxes; (b) penaltiesimposed without authority; and (c) any sum alleged to have
been excessive or in any manner wrongfully collected.
What is controlling in this case is the well-settled doctrine of
strict interpretation in the imposition of taxes, not the simila
doctrine as applied to tax exemptions. The rule in the
interpretation of tax laws is that a statute will not be
construed as imposing a tax unless it does so clearly
expressly, and unambiguously. A tax cannot be imposed
without clear and express words for that purpose
Accordingly, the general rule of requiring adherence to the
letter in construing statutes applies with peculiar strictness to
tax laws and the provisions of a taxing act are not to be
extended by implication. In answering the question of who is
subject to tax statutes, it is basic that in case of doubt, such
statutes are to be construed most strongly against thegovernment and in favor of the subjects or citizens because
burdens are not to be imposed nor presumed to be imposed
beyond what statutes expressly and clearly import. Asburdens, taxes should not be unduly exacted nor assumed
beyond the plain meaning of the tax laws.
Commissioner vs Central Luzon
Facts:
"Respondent is a domestic corporation primarily engaged inretailing of medicines and other pharmaceutical products. In
1996, it operated six (6) drugstores under the business name
and style Mercury Drug."From January to December 1996, respondent granted
twenty (20%) percent sales discount to qualified senior
citizens on their purchases of medicines pursuant to R.A.7432
and its Implementing Rules and Regulations. For the said
period, the amount allegedly representing the 20% sales
discount granted by respondent to qualified senior citizens
totaled P904,769.00
"On April 15, 1997, respondent filed its Annual Income Tax
Return for taxable year 1996 declaring therein that it incurred
net losses from its operations
"On January 16, 1998, respondent filed with petitioner aclaim for tax refund/credit in the amount of P904,769.00
allegedly arising from the 20% sales discount granted by
respondent to qualified senior citizens in compliance with
R.A. 7432. Unable to obtain affirmative response from
-
8/11/2019 Tax Digests III-V
17/28
PERCY TAXIN CASE DIGESTS| ESCAPE FROM TAXATION| CONSTRUCTION|DEFN ETC| 17
petitioner, respondent elevated its claim to the CTA via a
Petition for Review.
The Tax Court rendered a decision dismissing respondentspetition for lack of merit. Respondent lodged a Motion for
Reconsideration. The CTA, in its assailed resolution, granted
respondents motion for reconsideration and ordered herein
petitioner to issue Tax Credit Certificate in favor of
respondent.
The CA affirmed in toto the resolution of the CTA ordering
petitioner to issue a tax credit certificate in favor ofrespondent in the reduced amount of P903,038.39. It
reasoned that RA 7432 required neither a tax liability nor a
payment of taxes by private establishments prior to the
availment of a tax credit. Moreover, such credit is nottantamount to an unintended benefit from the law, but
rather a just compensation for the taking of private property
for public use.
Issue:WON respondent, despite incurring a net loss, may stillclaim the 20 percent sales discount as tax credit?
Held:
Section 4a) of RA 743210 grants to senior citizens theprivilege of obtaining a 20 percent discount on their purchase
of medicine from any private establishment in the country.
The latter may then claim the cost of the discount as a tax
credit.12 But can such credit be claimed, even though anestablishment operates at a loss?
We answer in the affirmative.
Although the term is not specifically defined in our Tax
Code,13 tax credit generally refers to an amount that is
"subtracted directly from ones total tax liability.It is an"allowance against the tax itself" or "a deduction from what is
owed by a taxpayer to the government. Examples of tax
credits are withheld taxes, payments of estimated tax, andinvestment tax credits.
Tax credit should be understood in relation to other tax
concepts. One of these is tax deduction -- defined as a
subtraction "from income for tax purposes, or an amount
that is "allowed by law to reduce income prior to [the]
application of the tax rate to compute the amount of taxwhich is due. An example of a tax deduction is any of the
allowable deductions enumerated in Section 3420 of the Tax
Code.
A tax credit differs from a tax deduction. On the one hand, a
tax credit reduces the tax due, including -- whenever
applicable -- the income tax that is determined after applying
the corresponding tax rates to taxable income.21 Atax
deduction, on the other, reduces the income that is subject totax22 in order to arrive at taxable income.23 To think of the
former as the latter is to avoid, if not entirely confuse, the
issue. A tax credit is used only after the tax has beencomputed; a tax deduction, before.
Sections 2.i and 4 of RR 2-94 are erroneous as it deny the
exercise by the State of its power of eminent domain. Be it
stressed that the privilege enjoyed by senior citizens does not
come directly from the Sta