Summary of significant CTA
Makati City, and its alleged payments of
cases promulgated in
November 2008
By Atty. Maria Noeli V. Francisco
1. LINDBERG PHILIPPINES, INC., vs.
CITY OF MAKATI and NELIA A.
BARLIS, in her capacity as the
TREASURER OF THE CITY OF
MAKATI (CTA E.B. No. 349, November
11, 2008)
Under Build-Operate-Transfer (BOT)
arrangements, does the act of
advancing the necessary capital by
employing and paying for the services of
a contractor who builds the power plant,
be considered as an activity of doing
business, necessarily taxable in the
principal office of a company? Can a
company involved in BOT
arrangements, be appropriately
classified as a contractor selling its
services for a fee? In this case, the
CTA resolved the issue on the
jurisdiction of the City of Makati in taxing
the principal office of the petitioner and
its classification as a contractor for local
business tax purposes.
Noting the pronouncement of the Court
in Division, the CTA stressed that the
City of Makati, where petitioner’s
principal office is found, has the power
to tax its business, but as much as only
thirty percent (30%) of petitioner’s gross
sales/receipts. Apart from petitioner’s
admission that its principal office is in
Makati City, it was also found that the
principal office is in charge of reviewing
and approving the correctness of the
invoices issued by the branch offices.
Such activities done in the principal
office are evident of business
transactions which should necessarily
be recorded. Petitioner failed to refute
that there are no recorded sales or
business transactions in its office in
its business taxes to the municipalities
where it has branch offices were also
not proven. CTA En Banc emphasized
that petitioner cannot merely deny the
fact that it is covered by the taxing
jurisdiction of Makati City without
adducing evidence to prove otherwise.
Under the BOT arrangement, petitioner
advances the necessary capital by
employing and paying for the services of
a contractor which will build the power
plant. These transactions, prior to the
completion of the power plants and
branch offices of the petitioner, are
considered activities of doing business,
which are necessarily taxable in its
principal office, considering that all the
documents and deals are arranged in its
principal office.
In rebutting petitioner’s argument on the
basis of Section 50 of the Local
Government Code, the CTA En Banc
reiterated that in the ordinary course of
business, particularly in the nature of a
BOT business, prior to the building and
construction of any power plant at any
locality, the usual negotiations thereon,
until the full completion of the contract of
BOT, is usually done in the principal
office. Naturally, the transaction is
taxable as an exercise of a business.
Although the power plants, subject of
petitioner’s contract of BOT, are situated
at different localities, still the act of
financing the construction and operation
thereof, are considered “doing business”
which appears to be have been
performed at petitioner’s principal office
in Makati City. It is therefore clear that
the City of Makati has jurisdiction to tax
the petitioner.
In ruling that the petitioner is a
contractor and not merely a financing or
holding company, the CTA En Banc
cited Section 139 of the Local
Government Code and Section 3A.01(t)
of the Revised Makati Revenue Code1
defining the term contractor which in
essence includes any person whether
natural or juridical as long as the activity
of such person consists essentially of
the sale of services for a fee. On the
basis of petitioner’s Articles of
Incorporation and nature of its
operations as described in its financial
statements, it can be appropriately
classified as a contractor. As cited by
petitioner in Tatad vs. Garcia2, it was
expressly mentioned therein that under
the BOT arrangement, there is not only
the financing of the project that is
involved, but also the construction,
maintenance and operation thereof.
Thus, petitioner is undeniably not only
engaged in financing or investment
activities, but also the sale of services
which readily classifies it as a
contractor.
2. ACCENTURE, INC., vs.
COMMISIONER OF INTERNAL
REVENUE (CTA Case No. 7046,
November 13, 2008)
In claiming for refund or issuance of tax
credit certificate in relation to unitilized
input VAT on domestic purchases of
goods and services, does the allegation
that the taxpayer’s clients are “foreign
clients”sufficiently meet the requirement
of the law that the recipient of its service
is doing business outside the
Philippines?
No. The phrase “foreign clients” is
couched in general terms that the Court
cannot just simply assume that they are
doing business outside the Philippines.
A “foreign client” may also be engaged
in doing business in the Philippines and
1
City Ordinance No. 2004-A-025, otherwise
known as “An Ordinance Adopting the Revises
Makati Revenue Code” [formerly under Section
3A.01(q) of Municipal Ordinance No. 072-92,
otherwise known as the Makati Revenue Code].
2
243 SCRA 436.
in that case, when the petitioner and the
recipient of its services are both doing
business in the Philippines, their
transaction falls squarely under Section
108(A) of NIRC of 1997, as amended;
governing domestic sale or exchange of
services subject to 12% VAT. Even if
there is an allegation that these foreign
clients are doing business outside the
Philippines, still the Court cannot give
weight to such allegation. Mere
allegations are not sufficient but must be
accompanied by supporting evidence.3
Thus, petitioner failed to prove that its
sale of services to “foreign clients”
qualifies for zero percent VAT.
3. COMMISSIONER OF INTERNAL
REVENUE vs. INTEL TECHNOLOGY
PHILIPPINES, INC. (CTA E.B. No. 379,
November 18, 2008)
Is the failure to indicate the date of
acceptance of the waiver by the BIR
sufficient to render such waiver void?
Yes. As aptly quoted by the Second
Division, the Supreme Court has
enumerated the requirements for a valid
waiver to be:
“A valid waiver of the statute of
limitations, under paragraphs (b) and (d)
of Section 223 of the Tax Code of 1977,
as amended, must be (1) in writing; (2)
agreed to by both the Commissioner
and the taxpayer; (3) before the
expiration of the ordinary prescriptive
periods for assessment and collection;
and (4) for a definite period beyond the
ordinary prescriptive periods for
assessment and collection. The period
agreed upon can still be extended by
subsequent written agreement, provided
that it is executed prior to the expiration
of the first period agreed upon. The BIR
had issued Revenue Memorandum
3
Accenture In.c vs. Commissioner of Internal
Revenue, CTA Case Nos. 7158, 7285 & 7313,
August 7, 2008.
Order (RMO) No. 20-90 on 4 April 1990
to lay down an even more detailed
procedure for the proper execution of
such waiver. RMO No. 20-90 mandates
that the procedure for execution of the
waiver shall be strictly followed, and any
revenue official who fails to comply
therewith resulting in the prescription of
the right to assess and collect shall be
administratively dealt with.”
Following the above, the Second
Division correctly found the waivers in
question defective on the following
grounds:
1) the waivers were not signed by the
Commissioner of Internal Revenue
considering that the assessed amount
exceeds P1,000,000.00;
2) as regards the waivers executed on
June 9, 2003 and November 28, 2003,
respondent failed to indicate the date of
its acceptance of the waiver; and
3) petitioner was not furnished copies of
the waivers executed on January 13,
2003, June 9, 2003, November 28, 2003
and March 8, 2004 by the respondent.
Petitioner cannot correctly argue that as
all the essential elements of a contract
exists, the waiver should be declared
valid. A waiver of the statute of
limitations under the NIRC, is not an
ordinary agreement, according to the
Supreme Court, it is to a certain extent,
is a derogation f the taxpayers’ right to
security against prolonged and
unscrupulous investigations and must
therefore be carefully and strictly
construed. 4 It is governed not by the
general provisions of the New Civil
Code but by the National Internal
Revenue Code following the basic
4
Ounano vs. Court of Appeals, G.R. No.
129279, 4 March 2003, 398 SCRA 525, citing
People vs. Donato, G.R. No. 72969, 5 June 1991,
198 SCRA 130, cited in Philippine Journalists,
Inc. vs. Commissioner of Internal Revenue (G.R.
No. 167765, June 30, 2008.
principle in statutory construction that a
special law prevails over a general law.
The Supreme Court in the landmark
case Philippine Journalists, Inc. vs.
Commissioner of Internal Revenue5, laid
to rest the issue on the necessity of full
compliance with the requisites provided
by law on waivers. Affirming this Court,
the Supreme Court categorically
declared that waiver is not valid and
binding when it does not conform to the
provisions of RMO No. 20-90. As to the
requirement of the correct revenue
official who signs on behalf of the
government, it was said that: “The
waiver is also defective from the
government side because it was signed
only by a revenue district officer, not the
Commissioner, as mandated by the
NIRC and RMO No. 20-90. The waiver
is not a lateral act by the taxpayer or the
BIR, but is a bilateral agreement
between two parties to extend the
period to a date certain. The conformity
of the BIR must be made by either the
Commissioner or the Revenue District
Officer. This case involves taxes
amounting to more than One Million
Pesos (P1,000,000.00) and executed
almost seven months before the
expiration of the three-year prescriptive
period. For this, RMO No. 20-90
requires the Commissioner of Internal
Revenue to sign for the BIR.”
Considering that the taxes involved
amount to more than P1,000,000.00, the
waivers should have been signed by the
Commissioner of Internal Revenue and
not by any other officer of the BIR.
In the same case of Philippine
Journalists6, the Supreme Court,
applying the same RMO No. 20-90,
ruled: “Finally, the records show that
5
Philippine Journalists, Inc. vs. Commissioner
of Internal Revenue (G.R. No. 167765, June 30,
2008).
6
Ibid.
petitioner was not furnished a copy of
the waiver. Under RMO No. 20-90, the
waiver must be executed in three copies
with the second copy for the taxpayer.
The Court of Appeals did not think this
was important because the petitioner
need not have a copy of the document it
knowingly executed. It stated that the
reason copies are furnished is for a
party to be notified of the existence of a
document, event or proceeding.
The flaw in the appellate court’s
reasoning stems from its assumption
that the waiver is a unilateral act of the
taxpayer when it is in fact and in law an
agreement between the taxpayer and
the BIR. When the petitioner’s
comptroller signed the waiver on
September 22, 1997, it was not yet
complete and final because the BIR had
not assented. There is compliance with
the provision of RMO No. 20-90 only
after the taxpayer received a copy of the
waiver accepted by the BIR. The
requirement to furnish the taxpayer with
a copy of the waiver is not only to give
notice of the existence of the document
but of the acceptance by the BIR and
the perfection of the agreement.
The waiver document is
incomplete and defective and thus the
three-year prescriptive period was not
tolled or extended and continued to run
until April 17, 1998. Consequently, the
Assessment/Demand No. 33-1-000757-
94 issued on December 9, 1998 was
invalid because it was issued beyond
the three (3) year period. In the same
manner, Warrant of Distraint and/or
Levy No. 33-06-046 which petitioner
received on March 28, 2000 is also null
and void for having been issued
pursuant to an invalid assessment.”
4. CE LUZON GEOTHERMAL POWER
COMPANY, INC. vs. COMMISSIONER
OF INTERNAL REVENUE (CTA Case
No. 6792, November 25, 2008)
To be entitled to a tax refund or
issuance of a tax credit certificate on
account of unutilized excess input VAT
paid on its domestic purchases of goods
and services which attributable to zero-
rated sales under the EPIRA LAW and
NIRC, what are the requisites?
Pursuant to the provisions of Sections
110(B) and 112(A) of the NIRC of 1997,
as amended, the requisites are as
follows:
1) there must be zero-rated or
effectively zero-rated sales;
2) that input taxes were incurred or paid;
3) that such input taxes are attributable
to zero-rated sales or effectively zero-
rated sales;
4) that the input were not applied
against any output VAT liability; and
5) that the claim for refund was filed
within the two-year prescriptive period.
1st requisite:
Petitioner’s claim for zero-rating of its
sales of electricity as a power
generation company stems from the
provisions of Par. 5, Section 6 of RA
9136. Based on said law, to qualify for
VAT zero-rating it must be established
that the claimant: 1) is a generation
company; and 2) it derived its sales from
power generation. In the case at bar,
petitioner proved that it is engaged in
the business of power generation and
the subsequent sale of generated power
to the Philippine National Oil Company-
Energy Development Corporation.
However, report of the independent
CPA showed a discrepancy between the
gross receipts from sales of generated
power, as reflected in the VAT returns
and as shown in the official receipts.
2nd and 3rd requisites:
Only a portion of the amount claims was
found to have met the substantiation
requirements prescribed under Section
110(A) and 113(A) of the NIRC of 1997,
as implemented by Section 4.104-1,
4.104-5 & 4.108-1 of Revenue
Regulations No. 7-95, hence only a
certain portion of the claim was
considered valid.
4th requisite:
After applying the creditable VAT
withheld of P21,920,865.53 and monthly
VAT payment of P13,015,106.29
totalling to P34,935,971.82 against
petitioner’s output tax liability of
P36,534,775.90, there still remains an
output tax due of P1,598,804.08, which
shall be offset against the substantiated
input VAT of P15,550,088.76. Thus,
only the net input VAT amount of
P13,951,284.68 is unutilized or
unapplied, as of the fourth quarter of
2002.
Although the petitioner carried-over the
subject claim to the succeeding taxable
quarters until the fourth quarter of 2003,
the same remained unapplied as
petitioner had no output VAT liability
during those quarters. Moreover, in its
VAT return for the third and fourth
quarters of 2003, petitioner deducted
the said input VAT as “Any VAT
Refund/TCC Claimed” from the “Total
Available Input Tax”. This means that
the substantiated claim of P13,
951,284.68 can no longer be used as
credit against petitioner’s future output
VAT liability.
5th requisite:
The petitioner’s claim was timely filed.
The reckoning of the two-year
prescriptive period for the filing of a
claim for input VAT refund commences
from the date of filing the corresponding
Quarterly VAT Return (Atlas
Consolidated Mining and Development
Corporation vs. Commissioner of
Internal Revenue, 524 SCRA 733).
Counting from the date when petitioner
filed its Quarterly VAT Return for the
third quarter of 2001 on October 25,
2001, both the administrative claim filed
on September 26, 2003 and the Petition
for Review filed on September 30, 2003,
fell within the two-year prescriptive
period. Likewise, counting from the
dates when petitioner filed its Quarterly
VAT returns for the 4th quarter of 2001
and the four quarters of 2002 on
January 10, 2002, April 10, 2002, July
24, 2002, October 25, 2002 and January
27, 2003, respectively, both the
administrative claim filed on December
18, 2003 and the Petition for Review
filed on December 19, 2003 fell within
the two-year prescriptive period.
The CTA partially granted petitioner’s
Petition for Review entitling it to a refund
or issuance of a tax credit certificate,
representing unutilized input VAT
attributable to zero-rated sales for the
third and fourth quarters of 2001 and all
four quarters of 2002 in the reduced
amount as found by the Court.
5. STENIEL MINDANAO PACKAGING
CORPORATION vs. CITY
TREASURER OF DAVAO CITY (CTA
AC No. 39, November 27, 2008)
Is the petitioner’s sale of its packaging
materials to both export-oriented and
non-export oriented clientele
considered as “export sales” in
accordance with Article 143(c) of R.A.
7160 (Local Government Code of
1991)?
In relation to Subsection (c) of
aforequoted Section 143, an “exporter”
for purposes of imposing local business
tax, shall refer to “those principally
engaged in the business of exporting
goods and merchandise, as well as
manufacturers and producers whose
goods or products are both sold
domestically and abroad” as provided
under Article 232, of the Implementing
Rules and Regulations of RA 7160, or
the Local Government Code. Thus, to
be considered an “exporter” under the
said Code, it is necessary that the
business entity is engaged, either in the
exportation of its goods and
merchandise; or in the manufacture or
production of goods or products that are
both sold domestically and abroad.
Indubitably, petitioner is a manufacturer
and a seller of packaging materials such
as corrugated fiber board containers,
cartons and boxes, which are sold to
different clients both for local
consumption and export. In other
words, petitioner does not “export” its
packaging materials but sells them
instead to export-oriented enterprises,
which in turn utilize the same to
package their products for export.
Notably, the Implementing Rules and
Regulations of Executive Order No. 226
(Omnibus Investments Code) considers
packaging materials constituting
supplies as forming part of the export
product. Based on Article 39(k),
packaging materials “form part” of the
export products. In spite of this
provision however, it does not
necessarily make petitioner an exporter
as contemplated under the Local
Government Code. The provision
merely confirms that the packaging
materials used by export oriented
enterprises form part of the export
product for purposes of granting
incentives to Board of Investment (BOI)-
registered enterprises. Furthermore, the
tax credit mentioned therein pertains to
National Internal Revenue taxes and
Customs duties. There is no mention of
local taxes thereby making said
provision not applicable in the case.
The business tax is imposed upon
petitioner for its privilege of engaging in
business in the City of Davao,
specifically, its business of
manufacturing corrugated fiber
containers, cartons and boxes. This
imposition of business tax is provided
for under Section 143 of the Local
Government Code of 1991. The said
Code does not make the manufacturer
who sells its manufactured product to an
exporter who utilizes the same to
produce its export product, an exporter,
petitioner cannot be considered as an
“exporter”, but rather, by its own
admission, as a “manufacturer of any
article of commerce of whatever kind
and nature”.
A company that does not export it
products, but sells it to local companies,
which in turn utilize said products, as
inputs in the manufacture of other
products that are exported abroad, is
locally taxable as manufacturer under
Section 143(a), and not under Section
143(c) of RA No. 7160.7
Additionally, petitioner’s sales of
manufactured corrugated containers,
cartons, and boxes cannot fall under the
term “export sales” because Section
143(c) of RA No. 7160 only applies to
sales of “essential commodities”, limited
to those enumerated in said Subsection.
As the manufactured corrugated boxes
of petitioner are neither considered
“exports” nor one of the “essential
commodities” enumerated in Section
143(c) of RA No. 7160, petitioner’s sales
during taxable year 2004 are all
considered local sales subject to the tax
rate provided under Section 143(a) of
the sam Code. Hence, petitioner is
taxable as a manufacturer under
Section 143(a), and not under Section
143(c), of RA No. 7160. Petitioner was
denied its claim for refund or issuance of
tax credit certificate.
7
Letter of the Minister of Finance to Revenue
Officer Marzan of Makati dated February 22,
1986 as quoted in the Decision of the lower
court, Annex “A”, Appeal, Docket, pp. 16-20.