Professional Documents
Culture Documents
Tax 2
Tax 2
Lorenzo v. Posadas
CIR filed a motion before the CFI praying that the Lorenzo be
ordered to pay the said amount. The motion was granted. Lorenzo
paid under protest and asked for a refund. CIR refused to refund.
I: (a) When does the inheritance tax accrue and when must
it be satisfied? UPON DEATH
Lorenzo asserts that article 657 of the Civil Code (the rights to
the succession of a person are transmitted from the moment of his
death) operates only in so far as forced heirs are concerned.
Since Thomas Hanley died on May 27, 1922, the inheritance tax
accrued as of the date.
However, it does not follow that the obligation to pay the tax arose
as of the date. The time for the payment on inheritance tax is
fixed by the Revised Administrative Code w/c provides that the
payment must be made before entrance into possession of the
property of the fideicommissary or cestui que trust. Thus, the tax
She resided in Tangier, Morocco until she died. She left some intangible
properties in the Philippines.
Campos Rueda countered this by saying that Section 122 (now sec
104) of the NIRC provided for reciprocity and that in the laws of
Tangier, Morocco, "the transfers by reason of death of movable
properties, corporeal or incorporeal, including furniture and personal
effects as well as of securities, bonds, shares, ..., were not subject, on
that date and in said zone, to the payment of any death tax, whatever
might have been the nationality of the deceased or his heirs and
legatees."
Thus, Campos Rueda claimed an exemption in the amount that the CIR
was claiming as a deficiency.
The CIR on the other hand claimed that the reciprocity clause could not
apply since Tangier Morocco is not a foreign country as required in
sec 122.
I: W/N Tangier, Morocco is a Foreign country within the meaning of
section 122 (now sec 104) of the NIRC
R: YES, Tangier is a foreign country
The expression "foreign country", used in the last proviso of Section
122 of the National Internal Revenue Code, refers to a government of
that foreign power which, although not an international person in the
sense of international law, does not impose transfer or death taxes
upon intangible personal properties.
It is, therefore, not necessary that Tangier should have been
recognized by our Government order to entitle the petitioner to the
exemption benefits of the proviso of Section 122 of our Tax. Code.
Court also cited previous cases:
o
CIR v. De Lara: State of California was considered a
Foreign country within the meaning of sec 122.
o
Kiene v. CIR: Liechtenstein was considered a foreign
country within the meaning of sec 122.
In this case, it was stated that while US decisions held that
intangible personal property in the Philippines belonging to a nonresident foreigner, who died outside of this country is subject to
the estate tax, the congress, in including sec 122 in the NIRC
clearly provided for an exemption (reciprocity) and this
exemption must be honored.
Zapanta v Posadas
During his lifetime Father Braulio donated some of his property to the
six plaintifffs, his relatives, severally, with the condition that some of
them would pay him a certain amount of rice, and others of money
every year, and with the express provision that failure to fulfill this
condition would revoke the donations ipso facto.
The donations contained another clause that they would take effect
upon acceptance. They were accepted during Father Braulio's lifetime
by every one of the donees.
real property located in the Philippine Islands and real rights in such
property
The 6 plaintiffs paid the inheritance tax under protest and
subsequently filed a separate civil action against the CIR. The trial
court in deciding these six cases, held that the donations to the six
plaintiffs made by the deceased Father Braulio Pineda are donations
inter vivos, and therefore, not subject to the inheritance tax, and
ordered the CIR to return to each of the plaintiffs the sums paid by the
latter.
I: W/n the donation made by Father Braulio was in fact a donation
mortis causa, and thus taxable.
R: NO, the donation was inter vivos. It was thus not taxable.
Donations were inter vivos considering that not only was it stated as
such in the instruments in which they appeared, but they were also
made in the nature of a donation inter vivos.
In donations mortis causa, it is the donors death that determines the
acquisition of, or the right to, the property, and that it is revocable at
the will of the donor.
In donations inter vivos, as in the present case, the donees acquired
the right to the property while the donor was still alive, subject only to
their acceptance and the condition that they pay the donor rice and/or
money. The nature of these donations is not affected by the fact that
they were subject to the condition of payment since it was imposed as
a resolutory condition, and in this sense, it is necessarily implies that
the right came into existence first, otherwise there would be nothing to
resolve upon the nonfulfillment of the condition imposed.
If the donor's life is mentioned in connection with this condition, it is
only fix the donor's death as the end of the term within which the
condition must be fulfilled, and NOT because such death of the donor is
the cause which determines the birth of the right to the donation. The
property donated passed to the ownership of the donees from the
acceptance of the donations, and these could not be revoked except
upon the nonfulfillment of the condition imposed, or for other causes
prescribed by the law, but not by mere will of the donor.
(However, considering that these donations had onerous conditions,
they are not donations to the full extent. Rather, they are partly
contractual and partly donations. They are donations inter vivos only
insofar as they exceed to the incumbrance imposed.)
Neither can these donations be considered as an advance on
inheritance or legacy, since they were not heirs or legatees of their
predecessor in interest upon his death (Sec. 1540 of the Administrative
Code). Neither can it be said that they obtained this inheritance or
legacy by virtue of a document which does not contain the requisites
of a will (Sec. 618 of the Code of Civil Pocedure). Besides, if the
donations made by the plaintiffs are, as the appellants contended,
Tuason v Posadas
They filed their protest and the judgment was that the defendant
must return the amount claimed by the plaintiff. Posadas appealed
and argued that the collection of these amounts as inheritance tax
is authorized by the law.
R: YES.
Section 1540 then provides that after deductions have been made,
there shall be added to the resulting amount the value of all gifts
or advances made by the predecessor to any of those who,
after his death, shall prove to be his heirs, devisees,
legatees, or donees mortis causa.
When the law say all gifts, it doubtless refers to gifts inter vivos,
and not mortis causa. Both the letter and the spirit of the law
leave no room for any other interpretation.
The language refers to donation that took effect before the donor's
death, and not to mortis causa donations, which can only be made
with the formalities of a will, and can only take effect after the
donor's death.
In this case, it appears that the Tuazons, after the death of
Espereanza, were found to be legatees under her will. Thus, the
donation inter vivos she had made to them in 1922 and 1923,
must be added to the net amount that is to be taxed.
If the donee inter vivos was found to be legatees, heirs,
devisees OR donees mortis causa of the decedent, then
they would have to pay the inheritance tax.
The reason for this is because the donation inter vivos is
deemed
to
be
a
transfer
in
anticipation
of
inheritance/death, meaning that it is a scheme to evade
payment of taxes.
Dizon v Posadas
R: YES.
In this case facts conveyance was made by the donor five days
before his death and accepted by the donee one day before the
donor's death. Obviously, this was fraudulently made for the
purpose of evading the inheritance tax.
As to Dizons contention that the he is not an heir because there is
no property to inherit anymore because he already received the
properties of the father through a donation inter vivos, SC said
that even if they dont know w/n the father left a will, Dizon should
NOT be deprived of his share of the inheritance because the Civil
Code confers upon him the status of a forced heir.
Thus, an advance made by the decedent to Dizon is subject to tax.
As to Dizons contention that Section 1540 is unconstitutional in
taxing gifts or donations because the act would then embrace two
subjects, the Court states that: When the law says all gifts, it
doubtless refers to gifts inter vivos, and not mortis causa. Both the
letter and the spirit of the law leave no room for any other
interpretation. Such, clearly, is the tenor of the language which
refers to donations that took effect before the donor's death, and
not to mortis causa donations, which can only be made with the
formalities of a will, and can only take effect after the donor's
death.
The law presumes that such gifts have been made in
ancitipation of inheritance in order to EVADE tax. Thus, to
prevent this, they are added to the resulting amount."
The plaintiffs took possession of the said lands, received the fruits and
obtained TCTs.
The donor then died w/o any forced heir and in her will, she
bequeathed to each of the donees the sum of P5,000.
After the estate had been distributed among the instituted legatees
and before delivery of their respective shares, the CIR ruled that the
donees should pay inheritance tax.
They thus paid under protest, contending that Art 1540 of the Revised
Administrative Code (after deductions have been made, there shall be
added to the resulting amount the value of all gifts / advances made by
the predecessor to any of those who after his death prove to be heirs,
devisees, legatees or donees mortis causa) does NOT include
donations inter vivos. If it does, it is null and void as it violates
uniformity of taxation.
His sister Josefina became the guardian over his person, while his
property was placed under the guardianship of the PNB by the RTC
of Dumaguete.
However, PNB did NOT file and estate tax return, instead it advised
his heirs to execute an extrajudicial settlement and to pay taxes
on the estate.
The BIR then made a 2nd amendment for deficiency estate tax, w/c
Josefina paid under protest.
Justice Dizon authorized Atty. Gonzales to sign and file the required
estate tax return.
Atty. Gonzales filed the estate tax return with the BIR Regional
Office of San Pablo City, showing a NIL estate tax liability (no tax
liability- in this case, because the deductions exceed the gross
estate).
R: No.
On the other hand, the Internal Revenue Service (IRS) opines that
post-death settlement should be taken into consideration and the
claim should be allowed as a deduction only to the extent of the
amount actually paid.
First, there is no law, nor any legislative intent in our tax laws,
which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be
considered in determining the net value of the estate . It
bears emphasis that tax burdens are not to be imposed, nor
presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris
against the government. Any doubt on whether a person, article or
activity is taxable is generally resolved against taxation.
Second. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term "claims" required
to be presented against a decedent's estate is generally construed
to mean debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and
should be made the basis of, the determination of allowable
deductions.
Florentino Pamintuan filed an income tax return for the year 1919
and paid an amount on the basis of said return.
The court then ordered the delivery to the heirs of their respective
shares of the inheritance after paying the corresponding
inheritance taxes which were duly paid.
I: W/n the gov can still collect the income tax despite its failure to
file its claim with the committee on claims and appraisals
CIR v Pineda
Atanasio Pineda died and was survived by his wife Felicisima (the
appointed administratrix) and 15 children.
After the estate proceedings, the BIR investigated the income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and
it found that the corresponding income tax returns were not filed.
The CIR found the estate liable for Deficiency Income Tax (DIT),
Additional residence tax for 1945 (ART 45), and Real Estate
dealer's tax for the 4th qtr of 1946 and the whole year of 1947
(REDT 46-47) .
CTA held that Manuel was liable for payment corresponding to his
share of such taxes.
On the other hand, CIR insisted that Manuel should be liable for
the payment of ALL the taxes found by the Tax Court to be due
from the estate instead of only for the amount of taxes
corresponding to his share in the estate.
The SC held that "after the partition of an estate, heirs and distributees are liable individually for
the payment of all lawful outstanding claims against the estate in proportion to the amount or value
of the property they have respectively received from the estate."
I: W/n Manuel can be required to pay the FULL amount of the tax
assessed by the BIR.
R: YES, he can be required to pay the full amount.
Pineda is liable for the assessment as (1) AN HEIR and as (2) A
HOLDER-TRANSFEREE
of
property
belonging
to
the
estate/taxpayer.
o
As an HEIR: As an heir he is individually answerable for
the part of the tax proportionate to the share he received
from the inheritance. His liability, however,
cannot exceed the amount of his share.
o
As a HOLDER OF PROPERTY belonging to the estate:
Pineda is liable for the tax up to the amount of the
property
in his possession. The reason is that
the Government has a lien on the P2,500.00 received
by him from the estate as his share in the inheritance, for
unpaid income taxes for which said estate is liable,
pursuant to the last paragraph
of Section 315 of the
Tax Code.2
Therefore, the Government has TWO WAYS of collecting the tax in
question:
o
One, by going after ALL the heirs and collecting from
each one of them the amount of the tax proportionate to
the inheritance received. This remedy was adopted
in Government of the Philippine Islands v. Pamintuan. In
said case, the Government filed an action against all
the heirs for the collection of the tax. This action rests
on the concept that hereditary property consists only of
that part which remains after the settlement of all lawful
claims against the estate, for the settlement of which the
entire estate is first liable. The reason for filing a suit
is to achieve thereby two results: first, payment of
the tax; and second, adjustment of the shares of
each heir in the distributed estate as lessened by
the tax.
o
Another remedy is by subjecting said property of the
estate which is in the hands of an heir or
transferee to the payment of the tax due, the
estate. This second remedy is the very avenue the
Government took in this case to collect the tax.
insurance company liable to pay the income tax, neglects or refuses to pay the same after demand,
the amount shall be a lien in favor of the Government of the Philippines from the time when the
assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties,
and costs that may accrue in addition thereto upon all property and rights to property belonging to
the taxpayer: . . .
CIR v Gonzales
Matias Yusay died leaving his two children as his heirs, Jose & Lilia.
Jose was appointed administrator who filed with BIR an estate and
inheritance tax return declaring personal & real properties of their
father but the return did not mention any heir.
CIR appealed to the SC alleging that the right to assess the taxes
in question has not been lost by prescription since the return
which did not name the heirs cannot be considered true and
complete return to start the running of the period of limitations of
5 years under Sec 331 of Tax Code and pursuant to Sec 332 he has
10 years within which to make the assessment counted from the
discovery on September 24, 1953 of the identity of the heirs.
I: W/n the right of the CIR to assess the estate and inheritance
taxes in question has prescribed - NO
(1) when the return is made in good faith & is not false or
fraudulent;
On MR filed by Lilia: Lilia insists that since she administers only 1/3 of the
estate of her father, she should not be liable for the whole tax. And she
suggests that the intestate estate of Matias Yusay should be liable for the
said taxes, 1/3 to be paid by Lilia and 2/3 to be paid by Florencia (wife of
deceased Jose).
Ruling of the Court: Estate and inheritance taxes are satisfied from the
estate and are to be paid by the executor or administrator. Where there are
2 or more executors, all of them are severally liable for the payment of the
estate tax. The inheritance tax, although charged against the account of
each beneficiary, should be paid by the executor or administrator.
Failure to pay the estate and the inheritance taxes before distribution of
the estate would subject the executor or administrator to criminal liability.
It is immaterial that Lilia administers only 1/3 of the estate & will receive as
her share only said portion, for her right to the estate comes after taxes. As
an administratrix, she is liable for the entire estate tax. As an heir, she is
liable for the entire inheritance tax although her liability would not exceed
the amount of her share in the estate.
DONORS TAX
Tang Ho v. CIR
Li Seng Giap, his wife Tang Ho and their 13 children were stockholders
of two close family corporations.
They thus paid the sum of P53k+ representing the amount of the basic
taxes, and put up a surety bond to guarantee payment of the balance
demanded.
Sometime later, they requested the CIR for a revision of their tax
assessments, and submitted donor's and donee's gift tax returns
showing that the children received gifts inter vivos and proper nuptias.
o
each child received by way of gift inter vivos, every year
from 1939 to 1950 (except in 1947 and 1948) P4,000 in
cash;
o
each of the eight children who married during the period
aforesaid, were given an additional P20,000 as dowry or
gift propter nuptias;
o
unmarried children received roughly an equivalent
amount in 1949, also by way of gifts inter vivos, so that
the total donations made to each and every child, as of
1950, stood at P63,190.
They contended that since the cash donated came from the
conjugal funds, they are be considered as donations by BOTH
spouses, for which two separate TAX exemptions may be
claimed in each instance, one for each spouse.
I: W/n the donations made by Li Seng Giap to his children from the
conjugal property should be taxed against husband and wife
Gibbs v. CIR
Spouses Gibb sent a letter to the CIR asking for a ruling on whether or
not gift taxes should be paid.
CIR initially assessed the spouses a donee gift tax of P75 on each of
the beneficiaries or a total of about P750. These assessments were
based upon the DIFFERENCE between said market value of the shares
of stock and the stipulated consideration for transfer thereof.
The spouses paid within the period fixed by law but SOUGHT a refund.
These additional deeds of trust impelled CIR to assess donor gift taxes.
CIR held that the gift taxes are available on the FULL MARKET VALUE of
all the shares of stock thus placed in trust instead of upon the
difference between said market value and the stipulated
considerations. CTA agreed.
I: W/n CTA was correct in ruling that the gift taxes on the transfer of the
shares of stock should be based on the full market value of shares of
stock (NOT diff between market value and stipulated consideration)
CTA was correct in finding that the agreements made by the parties
were mere devises to avoid and evade the payment of the
corresponding gift taxes:
o
If the trustors were earnestly concerned in providing
ample funds to assure the support, maintenance, care,
health, higher education and travel of their children and
the launching of their career after they had become of
age, the trustors would not have really meant to require
them to pay the consideration stipulated in the trust
agreements.
o
If the intent was really that the stipulated interest be
paid, the trustee could have authorized the trustors to
sell, mortgage, hypothecate or otherwise dispose of the
stocks to raise the necessary funds.
o
The compromise agreements were made with knowledge
of the fact that the CIR was already investigating whether
the stipulated consideration was real or fictitious.
There being no real consideration for the transfer, gift taxes should
be based on the full market value of the shares of stock at the
time of the respective transfer, and not merely on the difference
between the said market value and the consideration stipulated in
the trust agreements.
De la Rama Steamship Co. insured the life of said Enrico Pirovano (then
its President and General Manager) with various Philippine and
American insurance companies for 1M, designating itself as the
beneficiary.
The Company received the total sum of P643K as proceeds of the said
life insurance policies obtained from American insurers.
The BOD modified their resolution by renouncing all its rights title, and
interest to the said amount of P643k in favor of the minor children of
the deceased, subject to the express condition that said amount should
be retained by the Company in the nature of a loan to it, drawing
interest at the rate of 5% per annum, and payable to the Pirovano
children after the Company shall have first settled its bonded
indebtedness of 5M.
Mecedes filed with RTC against the Gestopas and the Danlags for
quieting of title over the parcels of land.
She alleged that she was an illegitimate daughter of Diego Danlag that
she lived and rendered incalculable beneficial services to Diego and his
mother Maura, when she was still alive.
In recognition of her services, Diego executed Deed of Donation
conveying to her 6 parcels of land.
She accepted the donation in the same instrument, openly and publicly
exercised rights of ownership over the donated properties, and caused
the transfer of the tax declarations in her name.
Through the machination, intimidation and undue influence, Diego
persuaded the husband of Mercedes, Eulalio Pilapil to buy 2 of the 6
parcels covered by the deed of donation. The inter vivos donation was
coupled with conditions she complied with. She alleges she had not
been guilty of any act of ingratitude and that the revocation had no
legal basis.
Gestopas and Danlags opposed by saying that the deed of donation
was null and void because it was obtained by Mercedes through
machination and undue influence. Even assuming it was validly
executed, the intention was for the donation to take effect upon death
of donor. Further, the donation was void for it left the donor Diego w/o
any property at all.
I: W/n the donation was inter vivos or mortis causa inter vivos
W/n the revocation was valid NO, it was not.
R: The donation is INTER VIVOS. Revocation was not proper. (ruling in
favor of Mercedes)
Crucial in resolving whether the donation was inter vivos or mortis
causa is the determination of whether the donor intended to transfer
ownership over the properties upon the execution of the deed.
In ascertaining the intention of the donor, all the deeds provisions
must be read together:
o
IRST, the granting clause shows that Diego donated the
properties out of love and affection for Mercedes. This is a
mark of a donation inter vivos.
o
SECOND, the reservation of lifetime usufruct indicates
that the donor intended to transfer the naked ownership
of the properties. As correctly posed by the CA, what was
the need for such reservation if the donor and his spouse
remained the owners of the properties?
o
THIRD, the donor reserved sufficient properties for his
maintenance w/ his standing in society, indicating that
the donor intended to part w/ 6 parcels.
o
Lastly the donee accepted the donation.
ACCRA v. CIR
VAT
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation
Mitsubishi MPC NPC
made. MPC filed a refund in Dec 1999 when it should have filed in Sept
1998 (since the close of the quarter was Sept 1996).
Creditable input VAT is an indirect tax which can be shifted or
passed on to the buyer, transferee, or lessee of the goods, properties,
or services of the taxpayer.
The fact that the subsequent sale or transaction involves a wholly-tax
exempt client, resulting in a zero-rated or effectively zero-rated
transaction, does NOT, standing alone, deprive the taxpayer of its right
to a refund for any unutilized creditable input VAT, albeit the erroneous,
illegal, or wrongful payment angle does not enter the equation.
History of VAT. The law that originally imposed the VAT in the
country, as well as the subsequent amendments of that law, has been
drawn from the tax credit method (practiced in Europe).
If at the end of a taxable quarter the output taxes charged by a seller
are EQUAL to the input taxes passed on by the suppliers, no payment
is required. HOWEVER, when output taxes EXCEED input taxes, the
excess has to be paid. On the other hand, if the input taxes EXCEED
the output taxes, the excess shall be CARRIED OVER TO THE
succeeding quarter/s.
Should the input taxes result from zero-rated or effectively zero-rated
transactions or from the acquisition of capital goods, any EXCESS over
the output taxes shall be refunded to the taxpayer / credited against
other internal revenue taxes.
Zero-rated transactions generally refer to the export sale of goods
and supply of services. The tax rate is set at zero. When applied to the
tax base, such rate obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no output tax, but
can claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers.
OTHERS:
BIR and other tax agencies have a duty to treat claims for refunds and
tax credits with proper attention and urgency. Had RDO No. 60 and,
later, the BIR proper acted, instead of sitting, on MPC's underlying
application for effective zero rating, the matter of addressing MPC's
right, or lack of it, to tax credit or refund could have plausibly been
addressed at their level and perchance freed the taxpayer and the
government from the rigors of a tedious litigation.
The official receipt proves payment by MPC of its creditable input VAT
relative to its purchases from Mitsubishi. BIR is precluded from
requiring additional evidence to prove that input tax had indeed paid
or, in fine, that the taxpayer is indeed entitled to a tax refund or credit
for input VAT, we agree with the CA's above disposition. As the Court
distinctly notes, the law considers a duly-executed VAT invoice or OR
referred to in the above provision as sufficient evidence to support a
claim for input tax credit.
CIR v. Phil Health Care Providers, Inc.
Acesite is the owner and operator of the Holiday Inn Manila Pavilion
Hotel. It leases a portion of the hotels premises to the PAGCOR for
casino operations. It also caters food and beverages to PAGCORs
casino patrons through the hotels restaurant outlets.
From 1996 to 1997, Acesite incurred VAT amounting to P30M+ from its
rental income and sale of food and beverages to PAGCOR during said
period.
Thus, PAGCOR paid the amount due to Acesite minus the P30M+ VAT
while Acesite paid the VAT to the CIR.
refund with the CIR but CIR failed to resolve the same, so the case was
elevated to the CTA.
I: W/n the 0% VAT rate (under then Sec 108 (B)(3) of the NIRC) applies
to Acesite
R: Yes.
PD 1869 w/c created PAGCOR granted it an exemption from paying
taxes.
A close scrutiny of the provisions of the said law gives PAGCOR a
blanket exemption to taxes with no distinction on whether the taxes
are direct or indirect.
The law even grants tax exempt status to persons dealing with
PAGCOR in casino operations. The unmistakable conclusion is that
PAGCOR is not liable for the P30M+ VAT and neither is Acesite as
Acesite is effectively subject to zero percent rate under the NIRC.
By extending the exemption to entities or individuals dealing with
PAGCOR, the legislature clearly granted exemption also from indirect
taxes. It must be noted that the indirect tax of VAT, as in the instant
case, can be shifted or passed to the buyer, transferee, or lessee of the
goods, properties, or services subject to VAT. Thus, by extending the
tax exemption to entities or individuals dealing with PAGCOR in casino
operations, it is exempting PAGCOR from being liable to indirect taxes.
The NIRC provides that transactions subject to 0% VAT include services
rendered to persons whose exemption under special laws or
international agreements subjects the supply of such services to 0%
rate.
OTHERS:
It is true that VAT can either be incorporated in the value of the goods,
properties, or services sold or leased, in which case it is computed as
1/11 of such value, or charged as an additional 10% to the value.
Verily, the seller or lessor has the option to follow either way in
charging its clients and customer.
In the instant case, Acesite followed the latter method, that is,
charging an additional 10% of the gross sales and rentals. Be that as it
may, the use of either method, and in particular, the first method, does
not denigrate the fact that PAGCOR is exempt from an indirect tax, like
VAT.
BWSC-Denmark, the coordination manager, established BWSCMindanao (domestic corp doing business in Davao) which
subcontracted the actual operation and maintenance of NAPOCORs
two power barges.
NAPOCOR paid capacity and energy fees to the Consortium in a
mixture of currencies (Mark, Yen, and Peso). The freely convertible nonPeso component is deposited directly to the Consortiums bank
accounts in Denmark and Japan, while the Peso-denominated
component is deposited in a separate and special designated bank
account in the Philippines.
On the other hand, the Consortium paid BWSC-Mindanao in foreign
currency inwardly remitted to the Philippines through the banking
system.
In order to ascertain the tax implications of the above transactions,
BWSC-Mindanao sought a ruling from the BIR, w/c responded with a
Ruling declaring that if BWSC-Min chose to register as a VAT person
and the consideration for its services is paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the BSP, the aforesaid services shall be subject to VAT at
zero-rate.
BSWC-Mindanao chose to register as a VAT taxpayer.
In conformity with RR 5-96 allowing zero-rated VAT for services other
than processing, manufacturing and repacking of goods, it subjected
its sale of services to the Consortium to the 10% VAT and paid the
amount of P6M+ as its output tax liability for the year 1996.
It then filed a claim for the issuance of a tax credit certificate with the
BIR, believing that it erroneously paid the output VAT for 1996 due to
its availment of the Voluntary Assessment Program (VAP) of the BIR.
CTA ordered BIR to issue a tax credit certificate for the P6M+ in favor
of BSCW-Mindanao. This was affirmed by the CA.
I: W/n BWSC-Mindanao is entitled to the refund of P6,994,659.67 as
erroneously paid output VAT for the year 1996
R: Yes, they are entitled to refund. Their services ARE actually still
subject to 10% VAT BUT they are not liable for such given their reliance
on BIR Rulings.
An essential condition for qualification to zero-rating under Section
102(b)(2) of RR 5-96 is that services other than processing,
manufacturing, or repacking of goods must be performed for persons
doing business OUTSIDE the Philippines.
In this case, the payer-recipient of BWSC-Mindanaos services is the
Consortium which is a joint-venture doing business in the Philippines.
While the Consortiums principal members are non-resident foreign
corporations, the Consortium itself is doing business in the Philippines.
This is shown clearly in BIR Ruling No. 023-95 which states that the
NDC decided to sell its National Marine Corporation (NMC) shares and 5
of its ships, w/c were offered for public bidding.
Among the stipulated terms and conditions for the public auction was
that the winning bidder was to pay "a VAT of 10% on the value of the
vessels.
Magsaysay Lines offered to buy the shares and the vessels for P168M.
The bid was made by Magsaysay Lines, purportedly for a new company
still to be formed composed of itself, Baliwag Navigation, Inc., and FIM
Limited of the Marden Group based in Hongkong (collectively, private
respondents)
CIR v. SEKISUI
Having registered with the BIR as a VAT taxpayer, Sekisui filed its
quarterly returns with the BIR, in the amount of P4M paid by it in
it violates Art 6, Section 28, w/c provides that The rule of taxation
shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
In particular, SHELL, etc. assailed Section 8, amending Section 110 (B)
of the NIRC, imposing a 70% limit on the amount of input tax to
be credited against the output tax , making it REGRESSIVE and
unconstitutional.
Specific provision: If at the end of any taxable quarter
the output tax exceeds the input tax, the excess shall be
paid by the VAT-registered person. If the input tax exceeds
the output tax, the excess shall be carried over to the
succeeding quarter or quarters: PROVIDED that the input
tax inclusive of input VAT carried over from the
previous quarter that may be credited in every
quarter shall not exceed 70% of the output VAT:
PROVIDED, HOWEVER, THAT any input tax attributable to
zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal
revenue taxes. . .
I: W/n RA 9337 is unconstitutional for violating uniformity,
equitability and progressiveness of taxation No, it is VALID.
TAX IS UNIFORM.
Uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate.
The rule of uniform taxation does not deprive Congress of the
power to classify subjects of taxation, and only demands
uniformity within the particular class.
In this case, the tax law is uniform because:
o
1) it provides a standard rate of 0% or 10% (or
12%) on all goods and services;
o
) it does not make any distinction as to the type
of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year
amortization of input tax paid on purchase of
capital goods or the 5% final withholding tax by
the government.
TAX IS EQUITABLE. (Taxes should equally burden all
individuals
or
entities in similar economic
circumstances.)
The law is equipped with a threshold margin. The VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services with gross
annual sales or receipts not exceeding P1.5M.
Also, basic marine and agricultural food products in their original state
are still NOT subject to the tax, thus ensuring that prices at the
grassroots level will remain accessible.
Although the law outs a premium on businesses with low profit
margins, and unduly favors those with high profit margins, Congress
equalized the burden the law by likewise imposing a 3% percentage
tax on VAT-exempt persons under Section 109(v), i.e., transactions with
gross annual sales and/or receipts not exceeding P1.5 Million.
This acts as an equalizer because in effect, bigger businesses that
qualify for VAT coverage and VAT-exempt taxpayers stand on equalfooting.
Moreover, Congress provided under mitigating measures to ease, as
well as spread out, the burden of taxation, which would otherwise rest
largely on the consumers:
o
Excise taxes on petroleum products and natural gas were
reduced. Percentage tax on domestic carriers was removed.
Power producers are now exempt from paying franchise tax.
o
Income tax rates of corporations, in order to distribute the burden
of taxation, were increased
o
Domestic, foreign, and non-resident corporations are now subject
to a 35% income tax rate, from a previous 32%.
o
Intercorporate dividends of non-resident foreign corporations are
still subject to 15% final withholding tax but the tax credit allowed
on the corporations domicile was increased to 20%.
o
PAGCOR is not exempt from income taxes anymore.
o
Even the sale by an artist of his works or services performed for
the production of such works was not spared.
On the INPUT TAX LIMIT* (ITO ata yung impt)
Petitioner (Shell) assumes that the input tax exceeds 70% of the output
tax, and therefore, the input tax in excess of 70% remains uncredited.
However, to the extent that the input tax is less than 70% of the
output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a
businesss books of accounts and remains creditable in the succeeding
quarter/s. This is explicitly allowed by Section 110(B), which provides
that if the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters.
In addition, Section 112(B) allows a VAT-registered person to apply for
the issuance of a tax credit certificate or refund for any unused input
taxes, to the extent that such input taxes have not been applied
against the output taxes. Such unused input tax may be used in
payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not
ad infinitum, as petitioners exaggeratedly contend.
Direct tax is a tax for which a taxpayer is directly liable on the transaction
or business it engages in, without transferring the burden to someone else.
Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.
ABAKADA v. Ermita (Oct 18, 2005)
This case is about the Resolution of the Motion for Reconsideration filed
by herein petitioners based on the decision rendered by the court on
Sept. 1, 2005, upholding the constitutionality of RA 9337 or the VAT
Reform Act.
Escudero, et al. argues that the bicameral committee should not have
touched on the No Pass-On Provisions since both the Senate and the
House of Representatives were in agreement that such provision
should be passed where no VAT Burden shall be passed to the endconsumer and instead will be shouldered by the sellers.
As to the contention that the right to credit input tax has already
evolved into a vested right, the Court finds that the right to credit
the same is a mere creation of law. Prior to the enactment of multi-
stage sales taxation, the sales taxes paid at every level of distribution
are not recoverable from the taxes payable. With the advent of EO 273
imposing a 10% multi-stage tax on all sales, it was only then that the
crediting of the input tax paid on purchase or importation of goods and
services by VAT-registered persons against the output tax was
established. This continued with the Expanded VAT Law (R.A. No.
7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to
credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can limit. It should
be stressed that a person has no vested right in statutory
privileges.
The impact of the 70% limitation on the creditable input tax will
ultimately depend on how one manages and operates its business.
Market forces, strategy and acumen will dictate their moves. With or
without these VAT provisions, an entrepreneur who does not have the
ken to adapt to economic variables will surely perish in the
competition. The arguments posed are within the realm of business,
and the solution lies also in business.
Toshiba filed its VAT returns for the year 1996 reporting its input VAT
and alleging that its input VAT was from its purchases of capital goods
and services which remained unutilized since it had not yet engaged in
any business activity for which it may be liable for output VAT.
Toshiba also filed a petition for review with the CTA to toll the running
of the two-year prescriptive period for judicially claiming a tax
credit/refund.
CIR opposed on the ground that since Toshiba is registered with PEZA
as an Ecozone Export Enterprise, its business is not subject to VAT
pursuant to Section 109 of the Tax Code. Since Toshibas business is
not subject to VAT, the capital goods and services it purchased are
considered not used in VAT taxable business and therefore, it is not
entitled to refund of input taxes on such capital goods.
I: W/n Toshiba is entitled to the tax credit/refund of its input VAT on its
purchases of capital goods and services
R: Yes, Toshiba is entitled to tax credit/refund of its input VAT on its
purchases of capital goods and services.
An Ecozone enterprise is a VAT-exempt entity. Sales of goods,
properties, and services by persons from the Customs Territory to
Ecozone enterprise shall be subject to VAT at zero percent (0%).
PEZA-registered enterprises, which would necessarily be located within
Ecozones, are VAT-exempt entities because of Section 8 of RA 7916
which establishes the fiction that Ecozones are foreign territory. The
national territory of the Philippines outside of the proclaimed borders of
the Ecozone are referred to as Customs Territory. The provision
provides that PEZA shall manage and operate the Ecozones as a
separate customs territory, thus creating the fiction that the Ecozone is
a foreign territory.
The Philippine VAT system adheres to the Cross Border Doctrine,
according to which, no VAT shall be imposed to form part of the cost of
goods destined for consumption outside of the territorial board of the
taxing authority.
Sales of goods, properties, and services by a VAT-registered supplier
from the Customs Territory to an Ecozone enterprise shall be treated as
export sales.
If such sales are made by a VAT-registered supplier, they shall be
subject to VAT at 0%. In zero-rated transactions, the VAT-registered
supplier shall not pass on any output VAT to the Ecozone enterprise,
and at the same time, shall be entitled to claim tax credit/refund of its
input VAT attributable to such sales.
Zero-rating of export sales primarily intends to benefit the export (i.e.,
the supplier from Customs territory), who is directly and legally liable
for VAT. Meanwhile, sales to an Ecozone enterprise made a by a nonVAT or unregistered supplier would only be exempt from VAT and the
supplier shall not be able to claim credit/refund of its input VAT.
Even conceding, however, that Toshiba as a PEZA-registered
enterprise, is a VAT-exempt entity that could not have engaged in a
VAT-taxable business, given the particular circumstances, Toshiba is
entitled to a credit/refund of its input vat.
The sales made to Toshiba, for which it is claiming a refund or credit of
its unutilized input vat, were made in 1996 under the old rule that the
tax-status of Ecozone enterprises would depend upon the tax
incentives it chooses to avail of, either the 5% preferential tax or the
income tax holiday under the Omnibus Investments Code where the
entity will only be exempt from income tax but not from VAT.
Since Toshiba chose to avail of the income tax holiday, it was therefore
subject to the 10% VAT. Therefore Toshibas transactions in 1996 being
CIR v Seagate
1, 1998 to June 30, 1999. This was because Seagate had availed itself
only of the fiscal incentives under EO 226 and NOT of those under both
PD 66 and Section 24 of RA 7916.
Respondent was, therefore, considered exempt only from the payment
of income tax when it opted for the income tax holiday in lieu of the
5% preferential tax on gross income earned. As a VAT-registered entity,
though, it was still subject to the payment of other national internal
revenue taxes, like the VAT.
I: W/n Seagate is entitled to the refund or issuance of Tax Credit
Certificate in the amount of P12,122,922.66 representing alleged
unutilized input VAT paid on capital goods purchased for the period
April 1, 1998 to June 30, 1999
R: YES, Seagate is entitled to refund.
Exempt
It is effective zero rating.
Refers to the sale of goods or
supply of services to persons or
entities whose exemption under
special laws or Intl agreements
to which the Philippines is a
signatory effectively subjects
such transactions to a zero rate.
Intended
to
benefit
the
purchaser who, not being
directly and legally liable for the
payment of the VAT, will
ultimately bear the burden of the
tax shifted by the suppliers.
There is partial relief because
the purchaser is not allowed any
tax refund of or credit for input
taxes paid.
Exempt Party
- a person or entity granted VAT
exemption under the Tax Code, a
special law or an international
agreement to which the Philippines
is a signatory, and by virtue of
which its taxable transactions
become exempt from the VAT.
- Such party is also not subject to
the VAT, but may be allowed a tax
refund of or credit for input taxes
paid, depending on its registration
as a VAT or non-VAT taxpayer.
While the liability is imposed on one person, the burden may be passed on
to another. Therefore, if a special law merely exempts a party as a seller
from its direct liability for payment of the VAT, but does not relieve the
same party as a purchaser from its indirect burden of the VAT shifted to it
by its VAT-registered suppliers, the purchase transaction is not exempt.
Applying this principle to the case at bar, the purchase transactions entered
into by respondent are not VAT-exempt.
OTHERS:
Special laws may certainly exempt transactions from the VAT.
However, the Tax Code provides that those falling under PD 66 are not. The
purchase transactions it entered into are, therefore, not VAT-exempt. These
are subject to the VAT; respondent is required to register. Its sales
transactions, however, will either be zero-rated or taxed at the standard
rate of 10 percent, depending again on the application of the destination
principle (Under this principle, goods and services are taxed only in the
country where these are consumed. Thus, exports are zero-rated, but
imports are taxed).
When VAT Rate is at 0% or at 10%
0%- if Seagate enters into such sales transactions with a purchaser (usually
in a abroad) for use or consumption OUTSIDE the Philippines
VAT. VAT is a tax on the value added by the performance of the service.
It is immaterial whether profit is derived from rendering the service.
Sec 99 of the NIRC provides that any person who, in the course of trade
or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who imports goods
shall be subject to the VAT imposed in Sections 100 to 102 of this
Code."
COMASERCO contends that the term "in the course of trade or
business" requires that the "business" is carried on with a view to profit
or livelihood. It avers that the activities of the entity must be profitoriented.
COMASERCO submits that it is not motivated by profit, as defined by its
primary purpose in the articles of incorporation, stating that it is
operating "only on reimbursement-of-cost basis, without any profit."
HOWEVER, the EVAT Law clarifies that even a non-stock, non-profit,
organization or government entity, is liable to pay VAT on the sale of
goods or services.
VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable
thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity,
regardless of whether or not the entity is profit-oriented.
The definition of the term "in the course of trade or business"
incorporated in the present law applies to all transactions even to
those made prior to its enactment. Executive Order No. 273 stated that
any person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of
goods and services.
Section 108 of the NIRC defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration
or consideration." It includes "the supply of technical advice,
assistance or services rendered in connection with technical
management or administration of any scientific, industrial or
commercial undertaking or project."
It is immaterial whether the primary purpose of a corporation indicates
that it receives payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing profit, for purposes
of determining liability for VAT on services rendered. As long as the
entity provides service for a fee, remuneration or consideration, then
the service rendered is subject to VAT.
SM Prime and First Asia are both engaged in the business of operating
cinema houses, among others.
BIR sent them both preliminary assessment notices for VAT deficiency
on cinema ticket sales.
Both protested, but BIR denied their protests, arguing that the list of
enumerated services under Sec. 108 of the NIRC is not
exhaustive because it covers all sales of services. Also, the
deficiency assessments were based on Revenue Memorandum Circular
No. 28-2001.
CTA ruled that the activity of showing cinematographic films was NOT
subject to VAT, and should instead be subject to an amusement tax.
CTA en banc affirmed this, saying that section 108 of the NIRC actually
sets forth an exhaustive enumeration of what services are intended to
be subject to VAT, w/c does NOT include the showing films and motion
pictures.
The Court finds that pawnshops should have been treated as nonbank financial intermediaries from the very beginning, subject to
the appropriate taxes provided by law, thus
o
Under the NIRC of 1977, pawnshops should have been levied the
5% percentage tax on gross receipts imposed on bank and
non-bank financial intermediaries under (now) Section 121 of
the Tax Code of 1997
o
With the imposition of the VAT under the EVAT Law, pawnshops
should have been subjected to the 10% VAT imposed on banks
and non-bank financial intermediaries and financial institutions
under (now) Section 108 of the Tax Code of 1997
o
However, through the years, various laws effectively deferred
the levy, collection, and assessment of 10% VAT on services
rendered by banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing
quasi-banking functions from 1994 to December 31, 2002;
o
With no further deferments given by law, the levy, collection and
assessment of the 10% VAT on banks, non-bank financial
intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions were
finally made effective beginning January 1, 2003;
o
2004: Finally, with the enactment of R.A. No. 9238 in 2004, the
services of banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing
quasi-banking functions were specifically exempted from VAT,
and the 0% to 5% percentage tax on gross receipts on other nonbank financial intermediaries was reimposed under Section 122
of the Tax Code of 1997.
Coming now to the issue at hand - Since petitioner is a non-bank financial
intermediary:
o
For the tax years 1996-2002 it is actually subject to 10%
VAT.
The purpose behind the transitional input tax credit is not confined
to the transition from sales to VAT. As proof, Congress has
reenacted the transitional input tax both in the OLD NIRC and the
NEW NIRC. The transitional aspect of the transitional input tax
pertains to the event that the taxpayer starts to become VATregistered. As being covered by the VAT does not merely take
place by operation of law, it requires the act of a person to be
covered by VAT.
Although the CIR has the power to redefine the concept of goods,
it pertains to more technical matters. It cannot go as far as to
amend the provision, as it include goods and real property in the
course of business. Thus, in case of conflict between a statue and
an administrative order, the statue shall prevail
Justice Antonio Carpio dissent: The transitional input tax credit
applies only when taxes where paid on the properties in the beginning
inventory, but this would constitute a new requisite to the application
of transitional input tax credit and would require the taxpayer
additional proof of payment of taxes. He also argues that the word
The provisions of Section 105 of the NIRC remain intact despite the
enactment of RA 7716. Section 105 however was amended with the
passage of the New NIRC
1) Sec 100 of the Old NIRC as amended by RA7716, could not have
supplied the distinction between the treatment of real properties or
real estate dealers, and the treatment of transactions involving other
commercial goods, as said distinction is found in section 105 and,
subsequently, revenue regulations no. 7-95 which defines the input tax
creditable to a real estate dealer who becomes subject to vat for the
first time.
A law must not be read in truncated parts; its provisions must be read
in relation to the whole law.
Having been defined in Section 100 of the NIRC, the term "goods" as
used in Section 105 of the same code could not have a different
meaning.
From Jan to Dec 2001, PLDT collected from PAL the said 10% Overseas
Communication Tax4 on the amount paid by PAL for overseas telephone
calls it made through PLDT.
PAL filed w/ the BIR a claim for refund of the OCT it alleged to have
erroneously paid in 2001. This was based on its franchise, Sec 13 of PD
1590, w/c granted it:
o
1) the option to pay either the basic corporate income tax
on its annual net taxable income or the 2% percent
franchise tax on its gross revenues, whichever was lower;
and
o
2) the exemption from all other taxes, duties, royalties,
registration, license and other fees and charges imposed
by any municipal, city, provincial or national authority or
government agency, now or in the future, except only
real property tax.
Also invoking a BIR Ruling in 1994, PAL maintained that, other than
being liable for basic corporate income tax or the franchise tax,
whichever was lower, PAL was exempted from ALL OTHER TAXES,
including the OCT by virtue of the in lieu of all taxes clause in Section
13 of PD1590.
BIR failed to act on the request for refund of PAL, so PAL filed a petition
for review before the CTA.
4
OCT - imposed by Section 120 of the NIRC, w/c shall be collected upon every overseas dispatch or
message transmitted from the Phils by telephone or other communication equipment.
CTA ordered BIR to refund PAL the 10% OCT erroneusly collected.
(However CTA held that out of the total amount of P127k respondent
sought to refund, only P126k was supported / documents)
I: W/n CTA was correct in holding that BIR should refund PAL for 10%
OCT
R: Yes, CTA was correct.
The language used in Section 13 of PD 1590, granting PAL tax
exemption, is clearly all-inclusive.
The basic corporate income tax or franchise tax paid by respondent
shall be in lieu of all other taxes, duties, royalties, registration,
license, and other fees and charges of any kind, nature, or description
imposed, levied, established, assessed or collected by any municipal,
city, provincial, or national authority or government agency, now or in
the future x x x, except only real property tax.
The discussion in the previous PAL case5 on gross income is
immaterial to the case at bar. OCT is not even an income tax. It is a
business tax, which the government imposes on the gross annual sales
of operators of communication equipment sending overseas
dispatches, messages or conversations from the Philippines.
According to Section 120 of the NIRC, the person paying for the
services rendered shall pay the OCT to the person rendering the
service (PLDT); the latter, in turn, shall remit the amount to the BIR.
If this Court deems that final tax on interest income which is also an
income tax, but distinct from basic corporate income tax is included
among all other taxes from which respondent is exempt, then with all
the more reason should the Court consider OCT, which is altogether a
different type of tax, as also covered by the said exemption.
BIR also argues that PAL cannot avail itself of the benefit of
the in lieu of all other taxes proviso in PD1590 when it made
BIR likewise opposed the claim for refund of PAL based on the argument that the latter was not
exempted from final withholding tax on interest income, because said tax should be deemed part of
the basic corporate income tax, which respondent had opted to pay. This Court was unconvinced by
BIRs argument, ratiocinating that basic corporate income tax, under Section 13(a) of Presidential
Decree No. 1590, relates to the general rate of 35% (reduced to 32% by the year 2000) imposed on
taxable income by Section 27(A) of the NIRC. Although the definition of gross income is broad
enough to include all passive incomes, the passive incomes already subjected to different rates of
final tax to be withheld at source shall no longer be included in the computation of gross income,
which shall be used in the determination of taxable income. The interest income of respondent is
already subject to final withholding tax of 20%, and no longer to the basic corporate income tax of
35%. Having established that final tax on interest income is not part of the basic corporate income
tax, then the former is considered as among all other taxes from which respondent is exempted
under Section 13 of Presidential Decree No. 1590.
illegally took custody of FDIs accounting records, invoices, and receipts and
turned them over to the BIR. CTA denied FDIs Motion for Issuance of
Subpoenas and disallowed the submission by FDI of written interrogatories
to Sablan since he was not a party to the case and that the testimony,
documents, and admissions sought were not relevant. FDIs MR was denied.
Hence, a petition for certiorari was filed against CTA.
Issue: W/N the BIR can obtain documents without the taxpayers consent. YES
Held: WHEREFORE, in light of the foregoing disquisition, the petition is
DISMISSED.
Rationale: FDI impugns the manner in which the documents in question
reached the BIR, Sablan having allegedly submitted them to the BIR
without FDIs consent. FDIs lack of consent does not, however, imply that
the BIR obtained them illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the BIR from assessing
deficiency taxes on FDI based on the documents. Thus Section 5 of the
NIRC provides:
In ascertaining the correctness of any return, or in making a return
when none has been made, or in determining the liability of any
person for any internal revenue tax, or in collecting any such
liability, or in evaluating tax compliance, the Commissioner is
authorized:
(A) To examine any book, paper, record or other data which may
be relevant or material to such query;
(B) To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigationany information such as, but not limited to,
costs and volume of production, receipts or sales and gross
incomes of taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies, insurance
companies, regional operating headquarters of multinational
companies, joint accounts, associations, joint ventures or
consortia and registered partnerships and their members;
(C) To summon the person liable for tax or required to file a return,
or any officer or employee of such person, or any person
having possession, custody, or care of the books of accounts
and other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to
appear before the Commissioner or his duly authorized
representatives at a time and place specified in the summons
personnel manager testified that false entries were entered in the official
register book. The assistant factory superintendent also testified that when
the storekeeper is not around, illegal operations happen. Untaxed alcohol is
brought from Cebu Alcohol plant into the compound of Silver Cup. When the
storekeeper returns, he sees nothing because the untaxed alcohol is
brought directly to a secret tunnel within the bodega itself.
Bonifacia protested the deficiency assessments. A reinvestigation
was done but yielded the same results in view of the taxpayers insistent
failure to present the books of accounts. Warrants of distraint and levy were
issued by CIR but Bonifacia deemed it only as a denial of her protest.
Issue:
Whether or not the assessments have valid and legal bases? Yes.
Held:
(Hence, CTA and CIR have not committed errors, CTA decision is affirmed.)
Ratio:
*Other issue pointed out by the Court: Sablan was not a party to the case
and the testimonies, documents, and admissions sought by FDI were not
relevant to the issue before the CTA. The only issues which surfaced during
the preliminary hearing before were whether CIRs issuance of assessment
against FDI had prescribed and whether FDIs tax return was fraudulent.
Besides, the subpoenas and answers to the written interrogatories would
violate RA 2338 as implemented by Finance Department Order 46-66.
Bonifacio Sy Po v CTA
Bonifacia is the widow of the late Mr. Po Bien Sing who died in 1980. In
taxable year 1964-1972, he was the sole proprietor of Silver Cup Wine
factory in Cebu. He was engaged in the business of manufacture and sale
of compound liquors, using alcohol and other ingredients as raw materials.
Silver Cup was alleged to have committed tax evasion amounting
to millions of pesos so Secretary of Finance ordered Finance-BIR-NBI Team
to conduct an investigation. A letter and a subpoena duces tecum were
issued against Silver Cup requesting production of books and accounting
documents. Po Bien Sing, however, did not comply with this. This prompted
the team to enter the factory bodega. They seized different brands of
alcohol products, a total of 1,555 cases. On basis of the teams
investigation, CIR assessed Po Bien Sing deficiency income tax amounting
to P12.7M.
Fact obtained from the decision: The former employees of the
factory testified on the fraudulent practices of Po Bien Sing. The factory
1.
2.
3.
CIR v Benipayo
(see block digests for the rest)
The heirs separately filed estate and inheritance tax returns for the
estates of the spouses with the BIR.
The BIR then issued deficiency estate and inheritance tax assessments
for both estates. (roughly P1M each)
Petitioners now contend that the TC acted w/ GAD in directing the order
of payment, given due to the pendency of their motion for
reconsideration of the deficiency assessments issued by the
Commissioner, and that the tax assessments were not yet final and
executory.
R: Yes
From the date of receipt of the copy of the Commissioner's letter for
collection of estate and inheritance taxes against the estates of the
late Teodoro spouses, petitioners must contest or dispute the same
and, upon a denial thereof, the petitioners have a period of 30 days
within which to appeal the case to the CTA, which they failed to avail of
.
OTHERS:
Criminal Charges were filed against Mrs. Marcos for violation of Secs.
82, 83 and 84, NIRC.
The CIR thereby caused the preparation of estate tax return for the
estate of the late president, the income returns of the Marcos spouses
for 1985 and 1986, and the income tax returns of petitioner Marcos II
for 1982 to 1985.
BIR issued deficiency estate tax assessment and the corresponding
deficiency income tax assessments. Copies of said assessments were
served personally and constructively upon Mrs. Marcos at her last
known address through her caretaker. Likewise, copies of the
deficiency assessments against Marcos II were personally and
constructively served at his last known address. Formal assessment
notices were served upon Mrs. Marcos c/o petitioner at his office in the
House of Representatives, as well as a notice to taxpayer to attend a
conference furnished through her counsel.
The deficiency tax assessments were NOT administratively protested
by the Marcoses w/in 30 days from service thereof.
Subsequently, the Commissioner issued a total of 30 notices to levy on
real property against certain parcels of land and other real property
owned by the Marcoses. Copies of the aforesaid notices were served
upon the Marcoses and their counsel of record.
Notices of sale at public auction were duly posted at the Tacloban City
Hall and the public auction for the sale of 11 parcels of land took place
thereafter. There being no bidder, the lots were declared forfeited in
favor of the Government.
Petitioner filed a petition to annul the notices of levy and enjoin BIR
from proceeding w/ the auction.
I: W/n the proper assessment and collection was made by BIR
R: Yes, BIRs actions were proper.
The enforcement and collection of estate tax is executive in character
and the task is specifically ascribed to the BIR.
The approval of the court, sitting in probate, or as a settlement tribunal
over the deceased is NOT a mandatory requirement in the collection of
estate taxes. It cannot, therefore, be argued that the Tax Bureau erred
in the proceeding w/ the levying and sale of the properties allegedly
owned by the late President on the ground that it was required to seek
first the probate courts sanction.
There is nothing in the Tax Code and in the pertinent remedial laws
that implies the necessity of the probate or estate settlement courts
approval of the States claim for estate taxes, before the same can be
enforced and collected.
On the contrary, under Sec. 87 (now, Sec. 94 of NIRC), it is the
probate court w/c is PROHIBITED from authorizing the delivery
of any of the distributive share to interested parties UNLESS
there is a certification by the CIR that estate taxes have been
Mambulao Lumber v RP
Mambulao assails decision of the CA, contending that the period to file
a collection suit has already lapsed thus CIR is barred by prescription. It
contends that period should be reckoned from the January 1949 when
it was assessed by the BOF.
NIRC Sec 332 provides that tax may be collected by distraint / levy OR
by a proceeding in court ONLY if begun (1) within 5 years after the
Lim Tian Teng Sons & Co., Inc., a domestic corporation with principal
office in Cebu City, engaged in 1951 and 1952, among others, in the
exportation of copra.
Lim Tian then filed its income tax return for 1952 based on accrued
income and expenses. Its return showed a loss of P56,109.98.
CIR assessed Lim Tian of deficiency income tax and 50% surcharge
thereon amounting to P5,037.00 and demanded payment thereof not
later than February 15, 1957.
CIR did NOT reply but instead referred the case to the SolGen for
collection by judicial action.
SolGen demanded from Lim Tian payment w/in 5 days, stating that
otherwise judicial action would be instituted without further notice.
Lim Tian thus wrote CIR and SolGen, reiterating its request for
reinvestigation. It requested that it be allowed to present its
explanation together w/ supporting papers relative to its income tax
liability.
Deputy Collector of CIR informed the taxpayer that its request for
reinvestigation would be granted provided it executed within 10 days a
WAIVER of the statute of limitations as required in General Circular V258 dated August 20, 1957. The Deputy Collector extended the period
within which to execute and file with him the waiver of the statute of
limitations to December 31, 1957, but advised that if no waiver is
forthcoming on or before said date, judicial action for collection would
be instituted without further notice.
HOWEVER, Lim Tian failed to file a waiver.
CIR thus instituted 8 months after an action in the CFI of Cebu for the
collection of deficiency income tax.
CFI declared the CIR's assessment as valid, final and executory,
condemning Lim Tian to pay CIR w/ interest at 1% monthly until fully
paid.
I/R: W/n lower court has jurisdiction to entertain the case given
that CIR has NOT yet issued its final decision on request for
reinvestigation- Yes.
Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's
request for reinvestigation before he can go to court for the purpose of
collecting the tax assessed. On the contrary, Section 305 of the same
Code withholds from all courts, except the CTA under Section 11 of
Republic Act 1125, the authority to restrain the collection of any
national internal-revenue tax, fee or charge, thereby indicating the
legislative policy to allow the CIR much latitude in the speedy and
prompt collection of taxes. The reason is obvious. It is upon taxation
that the government chiefly relies to obtain the means the carry on its
operations,
Section 11 of Republic Act 1125 states in part: No appeal taken to
the Court of Tax Appeals from the decision of the Collector of Internal
Revenue ... shall suspend the payment, levy, distraint, and/or sale of
any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law EXCEPT if it may jeopardize interest of the gov
and/or taxpayer.
2) W/n court erred in considering as final and executory the
assessment contained in the letter of the CIR dated January 16,
Basa v Republic
In a demand letter dated August 31, 1967, the CIR assessed against
Augusto Basa deficiency income taxes for 1957-1960 totaling P16k.
I: W/n the decision CFI Manila (not the Tax Court) in an income tax case
is reviewable by Appellate Court or by SC.
On May 11, 1962, Yabes, through his counsel, filed with the CIR a letter
protesting the assessment of the said taxes and penalties on the
ground that his agreements w/ International Harvester were of
purchase and sale, and NOT of agency, hence he claimed he was not
able to pay such kind of taxes.
CRIMINAL ACTION
Republic v Patanao
Patanao was engaged in the production and sale of logs and lumber.
RTC held that the action for collection was barred by prior judgment,
since the accused was acquitted in the criminal case.
I: W/n the acquittal in the criminal cases involving the failure to file
return and pay tax bars the institution of the civil case for collection.
R: NO, acquittal in the criminal case is not a bar to the institution of the
civil case.
Under the Penal Code the civil liability is incurred by reason of the
offender's criminal act. The criminal liability gives birth to the civil
obligation such that generally, if one is not criminally liable under the
Penal Code, he cannot become civilly liable thereunder.
The situation under the income tax law is the exact opposite.
Civil liability to pay taxes arises from the fact, for instance, that one
has engaged himself in business, and NOT because of any criminal act
committed by him.
The criminal liability arises upon failure of the debtor to satisfy his civil
obligation.
Also, while section 73 NIRC has provided the imposition of the penalty
of imprisonment or fine, or both, for refusal or neglect to pay income
Ungab v Cusi
In July, 1974, BIR examined the income tax returns filed by Ungab,
for the calendar year ending December 31, 1973. BIR discovered
that Ungab failed to report his income derived from sales of
banana saplings.
BIR Examiner, however, was fully convinced that Ungab had filed a
fraudulent income tax return so that he submitted a "Fraud
Referral Report," to the Tax Fraud Unit of the BIR.
CTA denied the motion to dismiss and ordered the CIR to file an
answer within 30 days from receipt of the notice but the CIR did
not comply, nor did they file an MR.
Instead, CIR filed a petition in the CA alleging that the CTA acted
with GADALEJ.
Pascor argues that the joint-affidavit filed by the CIR for criminal
action already constitutes an assessment. It argues that an
assessment is NOT an action or proceeding for the collection of
taxes but a mere notice of and demand for payment of taxes due.
R:
Adamson v CA
in Basilan (as allowed by the Public Land Act and Parity Amendment to
the 1935 Constitution).
HOWEVER, upon the expiration of the Parity Amendment more than a
decade later, the ownership rights of Americans over public
agricultural lands, including the right to dispose or sell their real estate,
would be lost.
THUS, BF Goodrich sold its Basilan Landholdings to Siltown Realty.
Siltown then leased the parcels of land to BF Goodrich for 25 years.
BIR then assessed BF Goodrich for deficiency income tax, which the
latter paid.
Later on, BIR assessed BF Goodrich for deficiency donors tax, in
relation to the previously mentioned sale of its Basilan landholdings to
Siltown.
BIR claimed that the consideration for the sale was insufficient, so it
considered the difference between the fair market value and the actual
purchase price as a taxable donation.
Goodrich contested this assessment.
Instead, it received another assessment w/c increased the amount
demanded for the alleged deficiency donors tax, surcharge, interest
and compromise penalty.
Goodrich appealed the correctness and the legality of these last two
assessments to the CTA, questioning the legality of the assessments.
I:
1) W/n the CIRs right to assess deficiency donors tax had
prescribed
YES, CIRs right to assess the deficiency had already prescribed.
Sec 331 of the NIR provides that (except as provided in the succeeding
section) internal-revenue taxes shall be assessed within five years
after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after
expiration of such perioda return filed before the last day prescribed
by law for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.
Involved in this petition is the income of the petitioner for the year
1974, the returns for w/c were reqd to be filed on or before
April 15, 1975.
The returns for the year 1974 were duly filed and paid on June 21,
1974, and acknowledged by a Letter of Confirmation.
Thus, the subsequent assessment of Oct 10, 1980 modified, by that of
March 16, 1981, was made BEYOND THE PERIOD expressly set by Art
331.
Tupaz v Ulep
State Prosecutor Molon filed w/ the MTC an information against Petronilla
Tupaz and her late husband Jose Tupaz as corporate officers of El Oro
Engravers Corp, for non-payment of deficiency corporate income taxes
for year 1979. MTC dismissed the case for lack of jurisdiction.
7 months later, Monlon filed w/ the RTC 2 informations against the
accused and her late husband for the same alleged nonpayment of
deficiency corp income. Case 1 was raffled to Judge Ulep (Branch 105)
while Case 2 was raffled to Judge Solano (Branch 86).
Accused filed w/ RTC Branch 86 (Case 2) a motion to dismiss /quash the
information since it was exactly the same as the information against the
accused pending before RTC Branch 105. This was denied.
In the meantime, Jose Tupaz died to Petronilla Tupaz filed w/ the RTC
Branch 105 a PETITION FOR REINVESTIGATION, w/c Judge Ulep granted.
RTC subsequently arraigned Petronilla.
2 years later, Judge Ulep issued an order directing the prosecution to
withdraw the information in Case 2, after discovering that said
information was identical to the one filed with his branch.
Thus, State Prosecutor Agcaoili filed a motion to withdraw information in
Case 1. Judge Ulep granted the motion for withdrawal of the
information and dismissed the case.
Prosecutor Agcaoili filed with Branch 105 a motion to reinstate
information, stating that the motion to withdraw information was made
through palpable mistake, and was the result of excusable neglect.
Reinstatement was granted.
Tupaz filed a motion for reconsideration, w/c was denied. Tupaz
contends that:
o
a) the period of assessment has prescribed, applying the
3 year prescriptive period
o
b) offense has prescribed since the complaint for
preliminary investigation was filed w/ the DOJ only on
June 1989 and the offense was committed in April 1980
when she filed the income tax return for the year 1989
I: W/n the period of assessment had prescribed and w/n the offense had
prescribed
R: NO.
The period of assessment has NOT prescribed.
The shortened period of 3 years to prescribe under B.P. Blg. 700 is not
applicable to petitioner. The said law specifically states that the
shortened period of three years shall apply to assessments and
collections of internal revenue taxes beginning taxable year 1984.
Assessments made after April 5, 1984 are governed by the 5-year
period if the taxes assessed cover taxable years prior to Jan. 1, 1984.
The deficiency income tax under consideration is for taxable year 1979
so the period of assessment is still 5 years, under the old law.
Art 22 of the RPC does NOT apply because provisions on the period of
assessment are NOT penal in nature.
Also, the offense has not prescribed.
Petitioner was charged with failure to pay deficiency income tax after
Nava v CIR
On 15 May 1951, Gonzalo P. Nava filed his income tax return for the
year 1950, and, on the same date, he was assessed by the CIR in the
sum of P4k+ based solely on said return.
RP v CA
BIR sent a demand letter to Nielson & Co on July 16, 1955 (1 st LETTER)
for deficiency taxes (ad valorem, annual occupation fees, residence tax
and surcharges). The letter was sent through ordinary mail. The
original letter was NOT returned to the BIR.
BIR reiterated its demand through THREE letters, one of w/c was dated
Sept 19, 1956 (2nd letter).
Nielson did NOT heed the demand so BIR filed a complaint for
collection w/ the CFI.
Case was dismissed for failure to serve summons. The case was
subsequently refiled.
Nielson claims that the assessment did NOT become final since it did
not receive the same.
BIR claims that since the assessment was sent through ordinary mail
and it was never returned to BIR, it must be considered to have been
received by Nielson upon the expiration of 5 days after mailing.
I: W/n the assessment was properly served upon Nielson and became
final
Since the BIR had not adduced proof that Nielson had in fact received
the 1st demand letter, it cannot be assumed that Neilson received the
said letter.
HOWEVER, records show that BIR sent a follow-up letter dated Sept 19,
THREE days later, CIR wrote Western a letter of demand for the
payment of the amount, including therein a breakdown of said
assessment.
CIR denied the request on July 30, 1959 and reiterated its demand for
payment of the amount w/in 30 DAYS from receipt.
Western, on Dec 18, 1959, filed w/ the CTA a petition for review of the
assessment. It argued that the period for making the assessment had
already prescribed.
I: W/n the period for making and issuing the assessment has prescribed
RP v Marsman Dev
Writing under oath specifying grounds relied on and other necessary docs
Phoenix filed its income tax returns from 1952 to 54, making
amendments (1955) to the originals (1953, 54, 55).
The deficiency income tax resulted from the disallowance by the CIR to
fix head office expenses allocable to its business in the Phils at 5% of
gross Phil income.
CTA said that the right of the CIR to assess deficiency taxes had
already prescribed.
R: NO.
Period given by the Tax Code for the CIR to assess income tax is 5
YEARS from the filing of the income tax return.
CTA ruled that the original return was a complete one containing info
on various items of income and deduction from w/c the CIR determines
the tax liability of Phoenix. THIS IS WRONG.
The CIR could not have made a correct assessment of Phoenixs tax
liability based on the original return.
THUS, the right to issue the assessment must be counted from the
filing of the AMENDED income tax return.
Counting from the date of amendment of the return (1955) to the date
of assessment (1958), it can be seen that CIRs power to assess the tax
liability is WITHIN 5 YEARS.
To hold otherwise would pave the way for taxpayer to evade the
payment of taxes simply reporting in their original return heavy losses
and amending the same more than 5 years later when the
Commissioner has lost his authority to assess the proper tax there
under.
The object of the tax code is to impose taxes for the needs of the
government, not to enhance tax avoidance to its prejudice.
Butuan was assessed for P40k+ for sales tax, penalty and compromise
penalty on its sales of logs, later on reduced to P38k+ after
reinvestigation.
The taxpayer must file a return for the particular tax required by law in
order to avail himself of the benefits of Section 331.
If he does not file a return, an assessment may be made within 10
years from and after the omission to file a return under Sec 332a.
In this case, the omission to file sales return for the years 1951 to 1953
were discovered in Sept 17, 1957, still w/in the 10-year period. Thus,
the assessment and collection of tax has NOT YET prescribed.
I: W/n the right of the BIR to collect deficiency taxes for 1948 and 1949
is already barred by prescription
R:
had failed to declare its correct taxable receipts during the years in
question.
HOWEVER, the phrase next following is: Hence, the assessment and
collection of said taxes are authorized under the provisions of section
332 of the National Internal Revenue Code."
In short, the Government relied upon the "failure to file a return",
referred to in said section 332, not to mere inaccuracies in the return
filed, which fall under section 331.
Tan Guan and one Gonzalo Padua were the cashier and the president of
one Imperial, involved in the manufacturing of cigarettes.
CIR however found that the subsequent sale to Marikina was fictitious
hence, they demanded specific taxes on the quantity of cigarettes that
MIGHT be produced from the 300 bobbins of paper acquired by
Imperial on January 21, 1953.
On Feb 1953, Padua then gave his intention to appeal the assessment.
However when it reached the conference, nobody appeared on behalf
of Imperial leading for the CIR to issue a warrant of distraint which was
left unserved for Padua had no property to be distrained.
On October 1957, a criminal action for violation of the Tax Code was
filed but was subsequently dismissed for prescription.
Ayala Securities Corp filed its ITR w/ the CIR for the fiscal year w/c
ended on Sept 30, 1955.
Income tax due on the return was duly paid w/in the period prescribed
by law.
CIR then advised Ayala for the assessment of P758k unpaid tax on its
accumulated surplus.
CTA and SC both held that the assessment was made beyond the 5year period and thus had no binding force and effect.
I: W/n the assessment was done beyond the prescriptive period
R: YES.
In this case, the applicable provision is NOT Sec 332a but Sec 331.
Sec 332 should apply when there is fraud / falsity on the return with
intent to evade payment of tax.
There is no evidence presented by the CIR in this case as to any
fraud/falsity on the return w/ intent to avoid payment.
Fraud is a question of fact, circumstances must be proven and alleged.
In this case, the assessment issued on Feb 21, 1961, received by Ayala
on March 22, 1961, was made BEYOND the 5 year period prescribed
under Sec331 (Ayala could file its income tax on or before Jan 1956
thus, assessment must be made NOT later than Jan 1961). Thus, it was
no longer binding on Ayala Securities.
PJI filed its Annual Income Tax Return for the calendar year which
ended on December 31, 1994
Oct 5, 1998- Assessment Division of the BIR issued PreAssessment Notices which informed PJI of the results of the
investigation finding that petitioner had deficiency taxes
(P136,952,408.97)
Nov 26, 1999- PJI asked BIR for a clarification how it became
liable for tax deficiency and sent a follow up letter asserting that
its record did not show receipt of Assessment/Demand No. 331-000757-94
May 12, 2000- PJI filed a Petition for Review with the CTA. One of
its grounds was that the assessment, having been made beyond
the 3-year prescriptive period was null and void
The period agreed upon shall constitute the time within which
to effect the assessment/collection of the tax in addition to the
ordinary prescriptive period.
Waiver must be signed by the National Office Commissioner for taxes
more than P1M, or the Regional District Officer for taxes still pending
and period to assess is about to prescribe, regardless of amount.
THE WAIVER WAS INVALID FOR THE FOLLOWING REASONS:
o
It does not conform with the provisions of RMO No. 20-90. It did
not specify a definite agreed date between the BIR and petitioner,
within which the former may assess and collect revenue taxes.
Thus, petitioners waiver became unlimited in time, violating
Section 222(b) of the NIRC.
o
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
o
PJI was not furnished a copy of the waiver.
RP v Lim de Yu
Rita Lim de Yu filed her yearly income tax returns from 1948 through
1953.
BIR assessed the taxes due on each return, and Rita paid them
accordingly. On July 17, 1956 the Bureau issued to Rita deficiency
income tax assessments for the years 1945 to 1953 in the total
amount of P22,450.50.
Upon Rita's failure to pay, an action for collection was filed against her
in the CFI of Cotabato on May 11, 1959.
Lower court dismissed the case on the ground that right to collect had
already prescribed pursuant to the waiver.
I/R: 1) W/n lower court was correct in ruling that the deficiency
income taxes for 1948, 1949 and 1956 were NOT collected on
time
YES, lower court was correct. Deficiency taxes were NOT collected on
time.
Although Republic alleged that the returns were false and fraudulent
(prescribing 10 yrs instead of 5), it FAILED to establish such allegation.
In fact, every time Rita filed her returns, and every time there was a
recomputation by the Bureau, she PAID the amounts due.
Even the Bureau itself appears none too sure as to the real amts of net
income for those years.
It is NOT enough that fraud is alleged as it must be duly established.
Hence, the 10yr period for fraud cases cannot be availed of.
Also, the tax years 1948 to 1950 cannot be deemed included in the
"waiver of the statute of limitations.
Although Sec332 waiver provides fro an exemption to the code, such
AGEREMENT must be made BEFORE, and NOT AFTER the expiration of
the original period. It prevents prescription from attaching and does
NOT operate to authorize extension once prescription has attached.
Thus, the amounts were not collected on time.
2) W/n LC was correct in dismissing the case because the right
to collect had prescribed already pursuant to waiver
NO, LC was incorrect on this point.
Assessment and collection are 2 dif processes. Sec331 gives gov 5
years from filing of return within w/c to assess taxes due. Sec332b
allows extension of this agreement by WRITTEN AGREEMENT between
taxpayer and CIR.
On the other hand, par.c. is concerned w/ collection of taxes after
assessment, regardless of whether made during 5yrs or UPON
extension.
Hence, collection can be affected w/in 5 yrs OR the agreed upon
extension between taxpayer and commissioner.
Thus, assessment and collection if made not later than Dec 1958
should be deemed to refer merely to the right to assess and NOT to
collect, for it that were so, agreement would LIMIT instead of extend
the right to collect.
Of the 7 lots, 3 were actually included in the return. The 3 lots were the
most valuable with total value of 86k. Total value of 7 lots was 90k.
There was reason therefore to believe that the omission was due
merely to inadvertence.
The deficiency assessment, moreover, was made by the CIR more than
five years from the filing of the return, and experience shows that such
an intervening period is sufficiently long to warrant an increase in
value of real estate which is precisely what was found by the CIR with
regard to the lands in question. It is certainly an error to impute fraud
based on an honest difference of opinion.
As to the shares: The fact that the value given in the returns did not
tally with the book value appearing in the corporate books is not in
itself indicative of fraud especially when we take into consideration the
circumstance that said book value only became known several months
after the death of the deceased.
Moreover, it is a known fact that stock securities frequently fluctuate in
value and a mere difference of opinion in relation thereto cannot serve
as proper basis for assessing an intention to defraud the government.
Aznar v CTA
The late Matias Aznar filed his income tax returns of 19451949.
The CIR, having his doubts on the veracity of the reported
income of one who is obviously wealthy, caused BIR
Examiner Honorio Guerrero to ascertain the taxpayer's
(Matias Aznar) true income for said years by using the net
worth and expenditures method of tax investigation.
It was discovered that from 1946 to 1951, his net worth had
increased every year, much more than the income reported.
The findings clearly indicated that the taxpayer did not
declare correctly the income reported in his income tax
returns for those years.
CIR notified the taxpayer of the assessed tax delinquency.
Taxpayer requested a reinvestigation which was granted.
After the reinvestigation, another deficiency assessment to
the reduced amount superseded the previous assessment
and notice thereof was received by Aznar in 1955.
In Feb 1953, CIR through the City Treasurer of Cebu,
placed the properties of Aznar under distraint and levy to
secure payment of the deficiency income tax in question.
Aznar argues that NIRC Sec. 331 applies in this case.
Section 331 provides for five years limitation upon
assessment and collection from the filing of the returns.
He argues that since the 1946 income tax return could be
presumed filed before March 1, 1947 and the notice of final
and last assessment was received by the taxpayer on March
2, 1955, a period of about 8 years had elapsed, and the five
year period provided by law had already expired.
CIR asserted that the 10-year period should apply since this
involved a false and fraudulent return. CIR and CTA found
that the very "substantial under declarations of income for
six consecutive years eloquently demonstrate the falsity or
fraudulence of the income tax returns with an intent to
evade the payment of tax."
I: 1) W/n the right of the CIR to assess deficiency income taxes for the
years 1946-1948 had already prescribed at the time the assessment
was made on November 28, 1952
CTA reversed the assessment of the 25% surtax and interest in the
amount of P758,687.04, and thereby cancelled and declared of no
force and effect the assessment of the CIR.
Thus, filing of income tax return does NOT start the running of
prescriptive period for assessment of SALES TAX (Butuan Sawmill, Inc.
v. Court of Tax Appeals)
No return could have been filed, and the law could not possibly require,
for obvious reasons, the filing of a return covering unreasonable
accumulation of corporate surplus profits.
It is well settled limitations upon the right of the government to assess
and collect taxes will not be presumed in the absence of clear
legislation to the contrary. In the absence of express statutory
provision, the right of the government to assess unpaid taxes is
imprescriptible. Since there is no express statutory provision limiting
the right of the Commissioner of Internal Revenue to assess the tax on
unreasonable accumulation of surplus provided in Section 25 of the
Revenue Code, said tax may be assessed at any time.
The underlying purpose of the additional tax in question on a
corporations improperly accumulated profits or surplus is to avoid the
situation where a corporation unduly retains its surplus earnings
instead of declaring and paying dividends to its shareholders or
members who would then have to pay the income tax due on such
dividends received by them.
Ayala Securities Corporation is a mere holding company of its
shareholders through its mother company, a registered co-partnership
then set up by the individual shareholders belonging to the same
family. Said prima facie evidence and presumption set up by the Tax
Code is applied without having been adequately rebutted by the
corporation.
The Corporation falls under Revenue Regulation 2, implementing the
provisions of the income tax law which provides on holding and
investment companies that A corporation having practically no
activities except holding property, and collecting the income therefrom
or investing therein shall be considered a holding company within the
meaning of section 25. (Section 20)
Guagua realized and reported a gross income in the sum of P1M+ and
paid thereon a franchise tax computed at 5% in accordance w/ the
NIRC.
Believing that it should pay franchise tax at the lower rates provided
for in its franchises instead of 5% fixed by Section 259 of the Tax Code,
it filed a claim for refund for allegedly overpaid franchise tax.
CIR denied refund of franchise tax corresponding to the period prior to
the fourth quarter of 1951 on the ground that the right to its refund
had prescribed. He however granted refund of P16k+.
Not satisfied, Guagua appealed to CTA.
CTA dismissed appeal upon motion of CIR on the ground that the same
was instituted beyond the 30-days, period provided for in Section 11 of
Republic Act 1125.
CIR assessed against Guagua Electric deficiency franchise tax and later
issued a revised assessment eliminating deficiency tax for the period
prior to January 1, 1956, as recommended.
I: W/n the government is precluded from recovering the amount
refunded to it on grounds of prescription and failure to set up as
counterclaim in the CTA case
R: YES, gov can no longer recover the amount refunded to it.
CIR seeks recover of the amount of P16k+ alledly erroneously refunded
to Guagua Electric. It represents the diff between the tax computed at
5% pursuant to Tax Code and 1% or 2% under its franchises from Sept
1951 to Nov 1956.
If Guagua were required to pay the P16k+ IN ADDITION to the P19k+,
it would be paying TWICE the same deficiency tax for the period from
Jan to Nov 1956.
Moreoever, CIR revised his first deficiency tax assessment by
eliminating the deficiency tax for the period from Jan 1956 because the
right to assess the same had prescribed. By insisting on the payment
of the P16k+, he is in fact trying to collect the same deficiency
tax, the right to assess the same he found to have been lost by
prescription.
Also, it is wrong for CIR to say that right to assess and collect is
governed by Civil Code (6 years). What governs is the Tax Code
(special law should prevail over general law).
The constitutionality of collecting franchise tax at the rate of 5% of the
gross receipts as provided for in the Tax Code instead of at the lower
rates fixed by the franchise granted under Act 667, has already been
settled in several cases. Guagua Electric, whose franchises were
similarly granted under Act 667, being similarly situated as the
taxpayers-franchise holders in those cases already decided by Us, shall
likewise be subject to the 5% rate imposed in Section 259 of the Tax
Code.
Vera v Fernandez
(money
In this case, gov filed its claim AFTER the expiration of the time allowed
but BEFORE the distribution of the estate. The claim SHOULD be
allowed, considering the claim is made for the people at large.
RP v Limcaco
RP v Ret
On February 23, 1949, Damian Ret filed with the BIR his Income Tax
Return for the year 1948, where he made it appear that his net income
was only P2k+ with no income tax liability at all.
The BIR found out later that the return was fraudulent since Ret's
income, derived from his sales of office supplies to different provincial
government offices, totaled P94k+.
The BIR assessed him deficiency income tax for 1948, inclusive of the
50% surcharge for rendering a false and/or fraudulent return.
Ret failed to file his Income Tax return for 1949, notwithstanding the
fact that he earned a net income of P150k+, also from sale of office
supplies. His income, as assessed for tax purposes, showed a
deficiency tax for 1949.
CIR demanded from Ret the payment of the above sums, but he failed
and/or refused to pay said amounts.
On January 20, 1951, the Collector issued income tax assessment
notices to Ret, urging him to pay the sums mentioned, but with the
same result.
Upon recommendation of the Collector, Ret was prosecuted for a
violation of Sections 45[a], 51[d] and 72, of the N.I.R.C. penalized
under Sec. 73, thereof (Crim. Cases Nos. 19037, and 19038. He
pleaded guilty to the two (2) cases and was sentenced to pay a fine of
P300.00 in each.
After his conviction, the Republic filed the present complaint for the
recovery of Ret's deficiency taxes in the total sum of P103k+ plus 5%
surcharge and 1% monthly interest.
Instead of answering, he presented a Motion to Dismiss on February 8,
1958, claiming that the "cause of action had already prescribed".
CFI held that the five-year period fixed by law for the filing of suit for
the collection of income tax having already expired, the plaintiff has no
cause of action against the defendant and the motion to dismiss should
be and is hereby granted, and the case is dismissed without
pronouncement as to costs.
I: W/n right of BIR to collect income taxes had already prescribed
R: YES, cause of action has already prescribed.
Section 332 of the Revenue Code does NOT apply to income taxes if
the collection of said taxes will be made by summary proceedings,
because this is provided for by Section 51 (d); but if the collection of
income taxes is to be effected by court action, then section 332 will be
the controlling provision.
The gov contends that granting the applicability of Sec 332, it has 10
yrs from discovery of fraud, falsity or omission within w/c to file the
action.
Under this section, the CIR is given 2 alternatives:
o
Assess tax WITHIN 10 YRS from discovery of falsity, fraud,
omission
o
File an action in court for the collection of tax WITHOUT
ASSESSMENT also WITHIN 10 YRS from discovery of
falsity, fraud, omission
In this case, the assessment has been made and this fact has taken it
out of the realm of Sec 332 (a) and placed it under Sec 332 (c) w/c
provides that payment must be made w/in 5 YEAR prescriptive period.
The CIR made the assessment on January 20, 1951 and had up to
January 20, 1956 to file the necessary action. It was only on
September 5, 1957, that an action was filed in Court for the
collection of alleged deficiency income tax far beyond the 5-year
period.
Gov was NOT prohibited from collecting deficiency income tax
during pendency of criminal cases. The present complaint against
Ret is NOT for the recovery of civil liability arising from the offense of
falsification; it is for the collection of deficiency income tax. The
criminal actions are entirely separate and distinct from the present civil
suit. There is nothing in the law which would have stopped CIR from
filing this civil suit simultaneously with or during the pendency of the
criminal cases.
It is also averred that the period of prescription for the
collection of tax was suspended because of the written
extrajudicial demand made by the CIR.
HOWEVER, the only agreement that could have suspended the
running of the prescriptive period was a written agreement between
Solano and the Collector, entered before the expiration of the five (5)
RP v Razon
RP v Acebedo
CIR v CA
January 15, 1982 and November 20, 1981: Carnation filed its
Corporation Annual Income Tax Return and its Manufacturers/Producers
Percentage Tax Return respectively for the quarter ending September
30, 1981.
In 1987, Carnation, through its Senior Vice President, signed three
separate "WAIVERS of the Statute of Limitations Under the National
Internal Revenue Code" wherein it waived the running of the
prescriptive period provided for in provisions of the NIRC and consents
to the assessment and collection of the taxes which may be found due
RP v Lopez
The 5-year prescriptive period within which the Govt may sue to
collect tax is to be counted from the last revised assessment due to
taxpayers request for reinvestigation and the time employed in the
reinvestigation should be deducted from the total period of limitation.
In this case, the 5-year limitation has not yet elapsed. If the period
from the time of first reinvestigation up to the time of filing of the
collection complaint (4 years 3 months 6 days) is deducted from the
total period of limitation period (6 years 2 months and 15 days), the
total prescriptive would still be less than 5 years (1 year 3 months and
6 days).
The deadline set by the taxpayer, which technically reduces the
prescriptive period against the Govt, cannot be binding as it works to
the detriment of the state, which diminishes the opportunities of
collecting taxes due to the Govt. But even if the date was binding, the
period would still be less than 5 years due to deductions caused by
reinvestigation.
The proper remedy of the taxpayer was to appeal the ruling to the CTA,
not request for another reinvestigation. The failure to appeal to the CTA
constitutes a waiver of the defenses and estops the taxpayer from
raising objections thereafter.
The Court took note of the extraordinary reduction of the deficiency
tax from 245k to 20k, which evidences carelessness of the BIR in
making grossly excessive assessments. It also observed the BIRs
toleration repeated request for reinvestigation. Irregularities of this
kind provoke suspicion over the competency and honesty of Revenue
Officials. It is expected that immediate and drastic steps to stop such
practices shall be exercised promptly.
period to collect the tax shall be suspended for the period during which
the Commissioner of Internal Revenue is prohibited from beginning a
distraint and levy or instituting a proceeding in court, and for sixty
days thereafter.
From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in
the CTA, the CIR was prevented, from filing an ordinary action in the
Court of First Instance to collect the tax. Besides, to do so would be to
violate the judicial policy of avoiding multiplicity of suits and the rule
on lis pendens.
ALSO, note: surcharge and interest shall accrue from the time the tax
became due = thus, DATE OF ASSESSMENT as shown in assessment
notice (not date of complaint)
RP v Arache
In 1958, Republic filed an action against Joseph Arache
(principal) and Globe Assurance Co (surety) for the
forfeiture of the surety bond executed to them to secure
payment for the sum of P22k+ representing Araches
income tax for 1946 and surcharge plus interest.
Arache interposed the defense of prescription and alleged
that he was compelled against his will to execute the surety
bond sought to be forfeited, because BIR refused to issue
him a tax clearance w/c he needed to make a business trip
abroad.
Globe likewise adopted the same defenses as that of its codefendant, Arache.
Court ruled in favor of Republic, ordering Arache and
Globe to pay CIR solidarily w/ interest.
I: W/n Arache may validly invoke prescription
R: NO, the defense of prescription cannot be invoked.
In this case, the delay in the collection of his 1946 tax liability was
Savellano was paid by the BIR a tax equal to15% of the amount in the
compromise agreement.
I: W/n the right of BIR to assess and collect the income tax had already
prescribed
R: No, BIR's right had NOT yet prescribed.
Sections 268 and 269(c) of the NIRC of 1977, as amended, should be
read in conjunction with one another:
o
Section 268 requires that assessment be made within
three years from the last day prescribed by law for the
filing of the return.
o
Section 269(c), on the other hand, provides that when an
assessment is issued within the prescribed period
provided in Section 268, the BIR has three years, counted
from the date of the assessment, to collect the tax
assessed either by distraint, levy or court action.
Therefore, when an assessment is timely issued in accordance
with Section 268, the BIR is given another three-year period,
under Section 269(c), within which to collect the tax assessed,
reckoned from the date of the assessment.
In the case of PNB, an assessment was issued against it by the BIR on
October 8, 1986, so that the BIR had until October 7, 1989 to
enforce it and to collect the tax assessed. The filing, however, by
Savellano of his Amended Petition for Review before the CTA
on July 2, 1988 already constituted a judicial action for
collection of the tax assessed which stops the running of the
three-year prescriptive period for collection thereof. A judicial
action for the collection of a tax may be initiated by the filing of a
complaint with the proper regular trial court; or where the assessment
is appealed to the CTA, by filing an answer to the taxpayer's petition
for review wherein payment of the tax is prayed for.
The present case is unique, however, because the Petition for Review
was filed by Savellano, the informer, against the BIR, PNOC, and PNB.
The BIR, the collecting government agency; PNOC, the taxpayer; and
PNB, the withholding agent, initially found themselves on the same
side. Savellano, in his Amended Petition for Review w/ the CTA prayed
for (1) the CTA to direct the BIR Commissioner to enforce and collect
the tax, and (2) PNB and/or PNOC to pay the tax making the said
CTA Case7 a collection case.
It is immaterial that the Amended Petition for Review was filed by the
informer Savellano and NOT the taxpayer; and that the prayer for the
enforcement of the tax assessment and payment of the tax was also
made by the informer, not the BIR. This should not affect the nature of
again denied for lack of merit. March 9, 2005: BPI filed with the Court En
Banc a Motion for Extension of Time to File Petition for Review praying for
an extension of fifteen (15) days from March 10, 2005 or until March 25,
2005. Petitioners motion was granted. March 28, 2005, (March 25 was
Good Friday), petitioner filed the instant Petition for Review, arguing that
the court overlooked the significance of the waiver made by parties valid
until Dec. 31, 2004 and that the court erred in holding that the collection
for tax deficiency has not yet prescribed. CTA ruled that BPIs protest and
supplemental protest should be considered requests for reinvestigation
which tolled the prescriptive period provided by law to collect a tax
deficiency by distraint, levy, or court proceeding. It further held that BPIs
cabled instructions to its foreign correspondent bank to remit a specific sum
in dollars to the Federal Reserve Bank, the same to be credited to the
account of the Central Bank, are in the nature of a telegraphic transfer
subject to DST under Section 195 of the Tax Code. In its Petition for Review
dated 24 November 2006, BPI argues that the governments right to collect
the DST had already prescribed because the Commissioner of Internal
Revenue (CIR) failed to issue any reply granting BPIs request for
reinvestigation manifested in the protest letters dated 20 April and 8 May
1989. It was only through the 9 August 2002 Decision ordering BPI to pay
deficiency DST, or after the lapse of more than thirteen (13) years, that the
CIR acted on the request for reinvestigation, warranting the conclusion that
prescription had already set in. The Office of the Solicitor General (OSG)
filed a Comment dated 1 June 2007, on behalf of the CIR, asserting that the
prescriptive period was tolled by the protest letters filed by BPI which were
granted and acted upon by the CIR. Such action was allegedly
communicated to BPI as, in fact, the latter submitted additional documents
pertaining to its SWAP transactions in support of its request for
reinvestigation. Thus, it was only upon BPIs receipt on 13 January 2003 of
the 9 August 2002 Decision that the period to collect commenced to run
again. The OSG cites the case of Collector of Internal Revenue v. Suyoc
Consolidated Mining Company, et al.(Suyoc case) in support of its argument
that BPI is already estopped from raising the defense of prescription in view
of its repeated requests for reinvestigation which allegedly induced the CIR
to delay the collection of the assessed tax. In its Reply dated 30 August
2007, BPI argues against the application of the Suyoc case on two points:
first, it never induced the CIR to postpone tax collection; second, its request
for reinvestigation was not categorically acted upon by the CIR within the
three-year collection period after assessment. BPI maintains that it did not
receive any communication from the CIR in reply to its protest letters.
Issue: Whether the collection of the deficiency DST is barred by
prescription and whether BPI is liable for DST on its SWAP loan transactions.
address given by him in the return filed upon which a tax is being assessed
or collected: Provided, That if the taxpayer informs the Commissioner of
any change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines. There is nothing in the records of this
case which indicates, expressly or impliedly, that the CIR had granted the
request for reinvestigation filed by BPI. What is reflected in the records is
the piercing silence and inaction of the CIR on the request for
reinvestigation, as he considered BPIs letters of protest to be.
In fact, it was only in his comment to the present petition that the CIR,
through the OSG, argued for the first time that he had granted the request
for reinvestigation. His consistent stance invoking the Wyeth Suaco case,
as reflected in the records, is that the prescriptive period was tolled by
BPIs request for reinvestigation, without any assertion that the same had
been granted or at least acted upon.
In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories,
Inc. sent letters seeking the reinvestigation or reconsideration of the
deficiency tax assessments issued by the BIR. The records of the case
showed that as a result of these protest letters, the BIR Manufacturing
Audit Division conducted a review and reinvestigation of the assessments.
The records further showed that the company, thru its finance manager,
communicated its inability to settle the tax deficiency assessment and
admitted that it knew of the ongoing review and consideration of its
protest.
As differentiated from the Wyeth Suaco case, however, there is no evidence
in this case that the CIR actually conducted a reinvestigation upon the
request of BPI or that the latter was made aware of the action taken on its
request. Hence, there is no basis for the tax courts ruling that the filing of
the request for reinvestigation tolled the running of the prescriptive period
for collecting the tax deficiency.
Neither did the waiver of the statute of limitations signed by BPI supposedly
effective until 31 December 1994 suspend the prescriptive period. The CIR
himself contends that the waiver is void as it shows no date of acceptance
in violation of RMO No. 20-90. At any rate, the records of this case do not
disclose any effort on the part of the Bureau of Internal Revenue to collect
the deficiency tax after the expiration of the waiver until eight (8) years
thereafter when it finally issued a decision on the protest.
We also find the Suyoc case inapplicable. In that case, several requests for
reinvestigation and reconsideration were filed by Suyoc Consolidated
The SC held in this case that the right to collect had not yet been
lost. Although there is no question that the period began on April 8, 1953
when the assessment was made it was interrupted several times by the
respondent. First when it asked for an itemized information. Although it did
not specifically use the words review or reinvestigation one can see from
the request itself had the effect of questioning/assailing the correctness of
the assessment. Then again the period was interrupted when it requested
for reinvestigation thus the period was tolled gain and it was only Sept. 2,
1959 when the reinvestigation was denied the period began again and
when the taxpayers case was filed with the CTA on December 28, 1959
and the CIR answered (tantamount to a judicial action) it was well within
the prescription period.
April 8, 1953 December 28,1959 = 6 years, 8 months, 21 days
Less (all the interruptions): May 30, 1953 (clarification) June 21, 1955
( denied the petition) = 2 years 21 days
= There was left a period of 4 years and 8 months well within the
prescription period.
Lim, Sr v CA
Petitioner spouses Emilio E. Lim, Sr. and Antonia Sun Lim,
TAXPAYERS REMEDIES
Refunds
Gibbs however paid the deficiency and at the same time demanding
the immediate refund of the amount paid.
CIR denied the request for refund, and required Gibbs to pay the
amounts of P1.5k and P2k as surcharge, interest, and compromise
penalty.
Notice of said denial was received by Gibbs on November 14, 1956.
On September 27, 1957 - Gibbs filed with CTA a petition for review
and refund, with a motion for suspension of collection of penalties.
CIR filed a motion to dismiss, on the ground that the petition was filed
beyond the 30-day period provided under Section 11, in relation to
Section 7, of RA No. 1125, which motion, was opposed by Gibbs.
CTA dismissed the petition saying they no longer had jurisdiction
because Gibbs filed the appeal 10 months after the receipt, clearly
beyond the 30-day period set by law.
Gibbs argued that Section 306 of the Revenue Code provides that
judicial proceedings may be instituted for recovery of an internal
revenue tax within two years from the date of payment. CTA said this
was before RA1125 was enacted.
I: W/n the appeal of Gibbs was made within the statutory period
R: NO, the appeal was NOT made w/in the statutory period.
RA No. 1125 provides that CTA has appellate jurisdiction to review
decisions of the CIR in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto but filing must be within 30 days after receipt of such
ruling.
SEC. 306 of the Tax Code provides that for Recovery of tax
erroneously or illegally collected, the suit shall be begun within 2 years
from the date of payment of the tax or penalty.
RA No. 1125 was intended to cope with a situation where the
taxpayer, upon receipt of a decision or ruling of the CIR, elects to
appeal to the CTA instead of paying the tax. For this reason, the latter
part of said Section 11 RA 1125, provides that no such appeal would
suspend the payment of the tax demanded by the Government, unless
for special reasons, the CTA would deem it fit to restrain said collection.
Section 306 of the Tax Code, on the other hand, contemplates of a
case wherein the taxpayer paid the tax, whether under protest or not,
and later on decides to go to court for its recovery.
THUS, where payment has already been made and the taxpayer
is merely asking for its refund, he must first file with the CIR a
claim for refund WITHIN 2 YEARS from time of payment before
taking the matter to the CTA, as required by Section 306 of the
NIRC.
Appeals from decisions of CIR to CTA must ALWAYS be
perfected within 30 days after the receipt of the decision that
is being appealed, as required by Section 11 of RA No. 1125.
If the CIR takes time in deciding the claim, and the period of
two years is about to end, the suit or proceeding must be
started in the CTA before the end of the 2-year period without
awaiting the decision of the Collector.
This is so because of the positive requirement of Section 306 and the
doctrine that delay of the Collector in rendering decision does not
extend the peremptory period fixed by the statute.
THERE is no conflict and the 2 laws must be reconciled.
In this case, Gibbs filed the appeal MORE THAN 10 MONTHS after
receipt of the CIRs notice of denial. Thus, it was beyond the 30-day
period.
Cir v Palanca
On July 1950, Palanca donated several stocks in La Tondena to his son.
HOWEVER, he failed to file a return on the donations on time.
Thus CIR assessed him deficiency taxes (tax + surcharge + Interest),
which he in turn paid on June 1955 (1st assessment).
On March 1956, Palanca filed an Income Tax Return.
On November 1956 he filed an amended tax return and a claim for
the refund of overpaid taxes (1st). The claimed overpayment was
due to a failure to deduct from his ITR a deduction on the interest paid
on the gift tax stated earlier.
He claimed that the interest fell under then section 30 of NIRC which
authorizes the deduction from gross income of interest paid within the
taxable year on indebtedness.
BIR denied refund. After several appeals, all were denied.
Meanwhile, CIR considered the donation of stocks to his son to be a
transfer in contemplation of death. He was then assessed the sum of
P191k+ as estate and inheritance taxes (2 nd assessment).
BASED on this 2nd assessment, Palanca again AMENDED his original
return, asking for another deduction of P60k+ representing estate +
inheritance taxes. THUS, Palanca was asking for a refund of P20k+ (diff
between 1st and 2nd assessment).
WITHOUT WAITING FOR BIRs decision, Palanca filed a petition for
review / CTA.
CTA granted the claim for refund and ruled in favor of Palanca.
CIR appealed to SC.
I/R: 1) W/n the interest paid on delinquent estate and
inheritance taxes is DEDUCTIBLE from gross income
YES, interest paid is deductible from gross income.
Citing CIR v. Prieto: Under the law, for interest to be deductible, it must
be shown that there be an indebtedness, that there should be interest
upon it, and that what is claimed as an interest deduction should have
been paid or accrued within the year.
In Sept 1958, Allison, signing as counsel for Finley, wrote another letter
addressed to CIR to reiterate the demand for refund. Letter also said
that the denial letter in Oct 1956 was NOT a ruling on Finleys claim for
refund.
On Oct 1958, petitioners filed with the CTA a Petitioner for Review and
Refund of Income Tax with Motion for Suspension of Collection of
Additional Taxes, alleging mainly the claims for refunds and tax credits
in the letter.
CTA dismissed the case on the ground of lack of jurisdiction given that
the petition for review was filed BEYOND 30 days from date of receipt
of CIRs decision.
I/R: 1) W/n Gibbs claims have already prescribed
YES, Gibbs claims HAVE already prescribed
Petitioners contend that the claims had NOT yet prescribed because
there was no evidence that they received a copy of the letter in Oct
1956 DENYING their claim for refund, and the letter itself is NOT a
denial of their claim for refund.
HOWEVER, it is has been proven that Allison is not a mere atty-in-fact
but counsel of Gibbs, and thus, receipt she should have immediately
filed an appeal upon denial.
Also, the claim that the letter of Oct 26 1956 was NOT a denial of the
claim for refund was unmeritorious. The letter clearly states that for
reasons stated in our letter dated Aug 28 1956, THIS OFFICE has NO
JUSTIFIABLE BASIS to grant your request.
2) W/n withholding tax credits amount to payment for the
purpose of determining the 2-year period provided in Sec 306
of the NIRC
YES, w/holding tax credits = payment!
2 year period shall be counted from the DATE THE WITHOLDING TAX IS
DUE.
A taxpayer, resident or non-resident, who contributes to the
withholding tax system, does so not really to deposit an amount to the
CIR but to perform and extinguish his tax obligation for the year
concerned.
In other words, he is paying his tax liabilities for that year.
Consequently, a taxpayer whose income is withheld at the source will
be deemed to have paid his tax liability when the same falls due at the
end of the tax year.
THUS, it is when the tax liability falls due, that the 2-year prescriptive
period under Section 306 of the Revenue Code starts to run with
respect to payments effected through the withholding tax system.
It is of no consequence whatever that a claim for refund or credit
against the amount withheld at the source may have been presented
and may have remained unresolved since.
Taxpayer who has paid the tax, whether under protest or not, and who
is claiming a refund of the same, must file a claim for refund with the
CIR within 2 years from the date of his payment of the tax (Sec 306,
NIRC)
He must then appeal to the CTA w/in 30 DAYS from receipt of the CIRs
decision denying claim for refund (Sec 11, RA 1125)
If, however, the Collector takes time in deciding the claim, and the
period of two years is about to end, the suit or proceeding must be
started in the CTA BEFORE the end of the 2-year period WITHOUT
awaiting the decision of the Collector. This is so because of the positive
requirement of Section 306 and the doctrine that delay of the Collector
in rendering decision does not extend the peremptory period fixed by
the statute.
CIR v Sweeney
International Club of Iloilo, Inc. (the Club) is a non-profit, non-stock
corporation organized to promote athletic and social relations among
its members.
In consonance with its purpose, the club, during its lifespan from 1949
to 1951, maintained and operated a clubhouse with a bar, wherein
liquor and light refreshments were sold exclusively to its members and
their guest with a light overprice to cover operational expenses.
The Club never paid fixed or percentage taxes as operator of a bar
during its brief lifespan.
In 1950, CIR addressed and demanded from the Club payment of the
sum of P1,987.01 as fixed and percentage tax and surcharge as
operator of a bar for the period covering August 1949 to September
1950.
In 1951, J. N. Sweeney, then president of the Club, wrote the City
Treasurer of Iloilo, protesting the aforementioned assessment against
the Club and asking that it be withdrawn for the reason that the Club
was a private one and not organized for profit so it should not be held
liable for the taxes sought to be collected.
This protest remained unanswered for about 10 months.
In the meantime, the Club was dissolved sometime in Sept 1951.
In Jan 1952, CIR denied Sweeneys request for withdrawal.
BIR demanded from Sweeney payment of P3k+ representing fixed and
percentage taxes and surcharge, as operator of a bar for Aug 1959 to
Aug 1951.
Although no payment was made, BIR did NOT take positive steps to
enforce collection.
HOWEVER, on August 15, 1953 and October 15, 1953, the CIR urged
the City Fiscal of Iloilo to prosecute criminally the past presidents of the
Club for violation of sections 182, 183 and 191 of the tax Code.
On the same date, the Club sought a refund for the amounts paid
under protest.
Not having received any reply from the CIR regarding said claim for
refund, the Club filed a PETITON FOR REVIEW w/ the CTA.
I: W/n CTA has jurisdiction YES
W/n the Club is liable for the tax. NO, the club is not liable.
R:
The CIR contends that the CTA has no jurisdiction to order the refund of
the taxes involved because, first, said amounts had been paid by
respondents in the extra-judicial settlement of the case against them
(The extrajudicial settlement refers to the act of the respondents in
paying the assessed tax liabilities. The CIR also contends that this act
of paying is in the form of a compromise wherein the CIR will withdraw
the information if they pay their liabilities.), and second, respondents
had no cause of action in as much as the petitioner has not yet ruled
upon the respondents requests for refund.
As to CIRs first contention, the CIR had not entered into a compromise
as to the payment of the taxes whose refund is now being sought. The
Compromise entered into by respondents was only in regard to the
payment of P50.00 by each of them in order to avoid criminal
prosecution which might affect their standing as businessmen in their
community.
In fact upon payment of said P50.00 by each of them, the City Fiscal
desisted from continuing the prosecution. But that was entirely apart
from and independent of the payment of the taxes which, as already,
was made under protests and on the same day, a petition demanding
refund was filed with the same court.
As to CIRs second contention, taxpayers need not wait for the action
of the CIR on the request for refund before taking the matter to court.
The law does not require the taxpayer to wait for the CIRs action on its
request for refund because the taxpayer only has two years after the
payment of the taxes from which to claim the refund.
If he files beyond two years, then he can no longer claim.
ALSO, the club cannot be liable for payment of fixed and percentage
taxes because it was not engaged in the business of selling liquor.
Its bar dispensed liquor only to members, their families and their
guest. It is true that for a time it made a little profit in such sale, that is
to say, the little overprice put on the liquor dispensed, presumably
intended to cover expenses in the maintenance of the bar, exceeded
said expenses but said profits never went to the members of the Club
but were used in the operation of the Club, which as a matter of fact
incurred a loss, so that it may not be said that the operation of the bar
and in dispensing liquor to its members or families and their guest the
International Club of Iloilo, Inc. was engaged in business and that it was
organized for profit.
A corporation organized, authorized, or existing under the laws of any foreign country, engaged
in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income derived in the preceding taxable year from all sources within the
Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per
cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing business in the
Philippines of passage documents sold therein, whether for passenger, excess baggage or mail,
provided the cargo or mail originates from the Philippines. The gross revenue realized from the
said cargo or mail include the gross freight charge up to final destination. Gross revenue from
chartered flights originating from the Philippines shall likewise form part of "Gross Philippine
Billings" regardless of the place or payment of the passage documents . . . . .
The CTA held that sufficient evidence has been adduced by Tokyo
Shipping to prove that it derived no receipt from its charter agreement
with NASUTRA.
This finding of fact show that M/V "Gardenia" arrived in Iloilo on January
10, 1981 but found no raw sugar to load and returned to Japan without
any cargo laden on board. This claim is supported by the Clearance
Vessel to a Foreign Port issued by the District Collector of Customs and
the Certification by the Officer-in-Charge, Export Division of the Bureau
of Customs Iloilo. Documents issued by the Customs officer enjoy the
presumption of regularity. CIR did not present evidence to counter this
presumption. Records also show the inconsistent stand of the CIR. It
did not withdraw its opposition to the petition for review even when its
counsel manifested that the BIR examiner and the appellate division of
the BIR have both recommended the approval of Tokyo Shippings
claim for refund.
Evidence supports the CTAs decision regarding the propriety of tax
refund due to Tokyo Shipping. Fair deal is expected by our taxpayers
from the BIR and the duty demands that BIR should refund without any
unreasonable delay what it has erroneously collected.
On the issue that Tokyo did NOT present its charter agreement w/
NASUTRA, it presupposes without any basis that the charter agreement
is prejudicial evidence against Tokyo. It will show that Tokyo earned a
charter fee with or without transporting its supposed cargo from Iloilo
to Japan.
CIR did not present evidence to support this allegation. Moreover, the
charter agreement could have been presented by CIR itself thru the
proper use of a subpoena duces tecum.
On 7 August 1987, PBCom requested the CIR, among others, for a tax
credit of P5M representing the overpayment of taxes in the 1st and 2nd
quarters of 1985.
Thereafter, on 25 July 1988, PBCom filed a claim for refund of
creditable taxes withheld by their lessees from property rentals.
Pending the investigation of the CIR, PBCom instituted a Petition for
Review before the CTA.
CTA dismissed this for lack of merit; and thus denied PBComs claim for
refund/tax credit of overpaid income tax on the ground that it was filed
BEYOND the 2-year reglementary period provided for by law.
PBComs claim for 2nd refund was likewise denied on the assumption
that it was automatically credited by PBCom against its tax payment in
the succeeding year.
I/R:
1) W/n PBCom is correct in saying that the FIRST REFUND was
filed on time
NO, PBCom was incorrect. PBCom relied on RMC 7-85 w/c says that the
prescriptive period is 10 and NOT 2 yrs.
The issuance is administrative and it CANNOT contravene the NIRC w/c
is a statute.
Although administrative issuances are accorded great respect, such
interpretation is NOT conclusive and will be ignored if found to be
erroneous.
Also, State cannot be put in estoppel by mistakes of its agents. There
are no vested rights to speak of respecting a wrong interpretation.
Also, non-retroactivity of rulings of CIR is NOT applicable in this case
because the nullity of the RMC was declared by the COURTS and NOT
the CIR.
The 2-year prescriptive period should be computed from the time of
filing the Adjustment Return (when the refund is ascertained) and final
payment of the tax for the year.
2) W/n the CA was correct in denying the plea for tax refund or
tax credits on the ground of prescription, despite petitioner's
good faith reliance on RMC No. 7-85, changing the prescriptive
period of 2 years to 10 yrs
YES, CA was correct. Tax refund should be denied on ground of
prescription.
With respect to corporate taxpayers, in case of overpayment of
quarterly income taxes, there is a need to specify whether the
taxpayer intends to avail of a tax refund or a tax credit, thus Sec. 69
of the 1977 NIRC (now, Sec. 76 of the 1997 NIRC) provides that any
excess of the total quarterly payments over the actual income tax
computed in the adjustment or final corporate income tax return, shall
either (a) be refunded to the corporation, or (b) may be credited
against the estimated quarterly income tax liabilities for the quarters
of the succeeding taxable year.
CIR v CA
Paramount filed its Corporate Income Tax Return (CITR) for calendar
year of 1985. Paramount paid a total of P1.2+M.
The appropriate box in the return was marked with a cross (x)
indicating To be refunded the amount of P65k.
The following day or April 15, BPI filed and instant petition with CTA to
toll the running of the prescriptive period for filing a claim for refund of
overpaid income taxes.
The question was whether the 2-year prescriptive period for filing a
refund should be counted from April 2, when the CITR was actually filed
(under Sec. 230 of NIRC, where its provided that the period must be
counted from the day of payment of tax) or from April 15 (under Sec.
70b) where the final adjustment return could still be filed without
incurring any penalties.
CTA rendered a decision stating that period commenced from April 15,
1986, the last day for filing the corporate income tax return, and, since
the claim for refund was filed on April 14, 1988 and the action was
brought on April 15, 1988, it held that prescription had not set in.
Income Tax Return is actually filed (Sec. 230), or from April 15 where
final adjustment could be filed w/o incurring penalties.
R: Prescriptive period should commence from the filing the Adjustment
Return or Annual Income Tax Return and Final Payment of Income Tax.
PERIOD in this case had already prescribed and no refund can be
made.
In CIR v. TMX Sales, SC held that the filing of a quarterly income tax
return and payment of quarterly income tax should only be considered
mere installments of the annual tax due.
These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive at
a net taxable income, should be treated as advances or portions of the
annual income tax due, to be adjusted at the end of the calendar or
fiscal year.
This is reinforced by Sec. 87 [now Sec. 69] which provides for the filing
of adjustment returns and final payment of income tax. Consequently,
the 2-year prescriptive period provided in Section 230 should be
computed from the time of filing the Adjustment Return or Annual
Income Tax Return and Final Payment of Income Tax.
This is so because at that point, it can already be determined whether
there has been an overpayment by the taxpayer. Moreover under Sec
49a, payment is made at the time return is filed.
In the case at bar, Paramount filed its corporate annual income tax
return on April 2, 1986. However, BPI, as liquidator of Paramount, filed
a written claim for refund only on April 14, 1988 and a petition for
refund only on April 15, 1988.
Both claim and action for refund were barred by prescription.
CIR v Philamlife
Philamlife paid to the BIR its first quarterly corporate income tax for
1983 amounting to P3.2M+.
On August 29, 1983, it paid P300k+ for the Second Quarter of 1983.
For the Third Quarter of 1983, it declared a net taxable income of
P2M+ and tax due of P708k+.
After crediting the amount of P3M+ it declared a refundable amount of
P3.1M+.
For its Fourth and final quarter ending December 31, Philamlife
suffered a loss and thereby had no income tax liability.
In the return for that quarter, it declared a refund of P3.9M
representing the first and second quarterly payments.
In 1984, private respondent again suffered a loss and declared no
income tax liability. However, it applied as tax credit for 1984, the
amount of P3.9M representing its 1982 and 1983 overpaid income
taxes and the amount of P250,867.00 as withholding tax on rental
income for 1984.
On September 26, 1984, Philamlife filed a claim for its 1982 income tax
refund of P133,084.00.
On November 22, 1984, it filed a petition for review with the CTA with
respect to its 1982 claim for refund of P133,084.00.
On December 16, 1985, it filed another claim for refund with the CIR
appellate division.
On January 2, 1986, Philamlife filed a petition for review w/ the CTA
regarding its 1983 and 1984 claims for refund.
CTA ordered the refund to the Philamlife for the first and second
quarters of 1983. CA affirmed the decision, hence this appeal.
I: Where corporate taxpayer remits/pays to the BIR tax withheld on
income for the first quarter but whose business operations actually
resulted in a loss for that year, should not the running of the
prescriptive period commence from the remittance/payment at the end
of the first quarter of the tax withheld instead of from the filing of the
Final Adjustment Return?
R: NO, prescriptive period should commence from the time of filing of
final adjustment return.
Section 292 (now Section 230) stipulates that the two-year prescriptive
period to claim refunds should be counted from date of payment of the
tax sought to be refunded.
Although quarterly taxes due are required to be paid within 60 days
from the close of each quarter, the fact that the amount shall be
deducted from the tax due for the succeeding quarter shows that until
a final adjustment return shall have been filed, the taxes paid
in the preceding quarters are merely partial taxes due from a
corporation.
Neither amount can serve as the final figure to quantity what is due
the government nor what should be refunded to the corporation.
This interpretation may be gleaned from the last paragraph of Section
69 of the Tax Code which provides that the refundable amount, in case
a refund is due a corporation, is that amount which is shown on its final
adjustment return and not on its quarterly returns.
Therefore, when private respondent paid P3,246,141.00 on May 30,
1983, it would not have been able to ascertain on that date, that the
said amount was refundable. The same applies with cogency to the
payment of P396,874.00 on August 29, 1983.
Clearly, the prescriptive period of two years should commence to run
only from the time that the refund is ascertained, which can only be
determined after a final adjustment return is accomplished.
In the present case, the claim for refund and petition for review were
made within the two-year reglementary period.
Philamlife being a corporation, Section 292 (now Section 230) cannot
serve as the sole basis for determining the two-year prescriptive period
for refunds.
As we have earlier said in the TMX Sales case, Sections 68, 69, and 70
on Quarterly Corporate Income Tax Payment and Section 321 should be
considered in conjunction with it.
Moreover, even if the two-year period had already lapsed, the same is
not jurisdictional and may be suspended for reasons of equity and
other special circumstances.
ACCRA v CA
ACCRA Investments, a domestic corp engaged in real estate and mgmt
consultancy, filed its annual corp income tax return.
In the return, it declared as creditable all taxes withheld at source by
various witholding agents, amounting to P82k.
The withholding agents had already paid and remitted the amounts to
BIR, way ahead of ACCRAIns filing of its return.
ACCRAIn filed a claim for refund inasmuch as it had no tax liability
against which to credit the amounts withheld.
CTA denied the claim on the ground that the 2-year prescriptive period
had already lapsed, based on the case of Gibbs ruling w/c stated that
a taxpayer whose income is withheld at source will be deemed to
have paid his tax liability when the same falls due at the end of the tax
year.
THUS, w/ the withholding agents paying taxes WAY AHEAD of ACCRAIn,
its now too late for ACCRAIn to claim for a refund, since it is deemed to
have paid a long time ago already.
I: W/n ACCRAIN is barred from recovering the 82k overpaid taxes
R: No, ACCRAIN is NOT barred from recovering. The prescriptive period
did NOT run when the taxes were paid.
Sec 230 of the old NIRC provides that no suit or proceeding shall begin
after the expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment.
The lower court was wrong in considering the end of the tax year as
the proper reckoning date based on Gibbs, because ACCRAIn is NOT
claming a refund for overpaid witholding taxes, per se.
INSTEAD, it is asking for the recovery of 82k, refundable or creditable
amount determined upon the petitioner corps filing of its FINAL
ADJUSTMENT TAX RETURN on / before April 15 1982.
THUS, there is the need to file a return first before a claim for refund
can prosper inasmuch as the respondent Commissioner by his own
rules and regulations mandates that the corporate taxpayer opting to
ask for a refund must show in its final adjustment return the income it
received from all sources and the amount of withholding taxes remitted
by its withholding agents to the Bureau of Internal Revenue.
The petitioner corporation filed its final adjustment return for its 1981
taxable year on April 15, 1982, w/c was WITHIN the period.
The petitioner sought judgment ordering the CIR to pay as refund the
amount of P623,169.30, with 20% interest per annum, plus the costs
of suit.
On August 4, 1994, the CTA rendered its decision, quoted at the
outset, granting the tax refund, but only to the extent of
P16,747.36 (only 20% of the specific taxes deemed paid under R.A.
1435).
Petitioner seeks a higher tax base (specific taxes actually paid) for the
refund it seeks.
CIR v PNB
FEBTC v CIR
FEBTC is the trustee of various retirement plans established by several
companies for its employees. As trustee of the retirement plans,
petitioner was authorized to hold, manage, invest and reinvest the
assets of these plans. It invested the retirement funds in various
money market placements, bank deposits, deposit substitute
instruments and government securities. These investments necessarily
earned interest income. Petitioners claim for refund centers on the tax
withheld by the various withholding agents, and paid to the CIR for the
four (4) quarters of 1993, amounting to P6,049,971.83.
On four dates, 12 May 1993, 16 August 1993, 31 January 1994, and 29
April 1994, petitioner filed its written claim for refund with the BIR,
alleging that the employees trusts are exempted by specific mandate
of law from income taxation. Nonetheless, the claims were denied.
Meanwhile, the petitioner already had a pending petition before the CTA,
apparently involving the same legal issue but a previous taxable period.
Hoping to comply with the 2-year period within which to file an action for
refund under Section 230 of the Tax Code, petitioner filed a Motion to
Admit Supplemental Petition in the said pending case.
The CTA denied the motion, claiming that it would further delay the
proceedings. Nonetheless, the CTA advised that petitioner could instead file
a separate petition for review for the refund of the withholding taxes paid in
1993.
Petitioner followed the CTAs advice, and on October 9, 1995, it filed
another petition for review with the CTA. This was again denied due to
prescription and for failing to submit such necessary documentary proof of
transactions, such as confirmation receipts and purchase orders.
Its MR and/or Motion New Trial were also denied. The CA affirmed the CTAs
ruling.
Issues/Held: Did the lower courts erred in dismissing FEBTCs petition on a
mere technicality? NO! Petition denied.
Ratio:
1. Procedural error of FEBTC
Sec. 6 of Rule 43 provides that the petition for review must be accompanied
by "certified true copies of such material portions of the record referred to
in the petition and other supporting papers". Under Section 7, Rule 43, the
failure to attach such documents which should accompany the petition is
sufficient ground for the dismissal of the petition.
The CA would have no way to ascertain the veracity of the submissions
unless the certified true copies of such portions of the record referred to in
the petition be attached. The records are an essential requisite for the
determination of prima facie basis for giving due course to the petition.
The confirmation receipts and purchase orders would ordinarily show the
fact of purchase of treasury bills or money market placements by the
various funds. They represent the best evidence on the participation of the
funds. What has to be established though, as a matter of evidence, is that
the amount sought to be refunded to petitioner actually corresponds to the
tax withheld on the interest income earned from the exempt employees
trusts. The need to be determinate on this point especially that petitioner
earns interest income not only from its investments of employees trusts,
but on a whole range of accounts which do not enjoy the same broad
exemption as employees trusts. For these certifications to hold value, there
is particular need for them to segregate such taxes withheld from the
interest income of employees trusts, and those withheld from other income
sources. Otherwise, these certifications are ineffectual to establish the
present claim for refund.
FEBTC failed to submit documentary proof of transactions.
2. It is a fact that Income from Employees trust are exempted from income
tax, therefore, Section 230 of the NIRC applies.
RA 4917, RA 8424 and Section 60(B) of the NIRC granted exemption from
income tax to employees trusts. But FEBTC did pay the income tax when it
was withheld, therefore Such taxes were erroneously assessed or collected,
giving rise to the application of Section 230.
SEC. 230. ....In any case, no such suit or proceeding shall
be begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment...
3. When should the 2-year prescriptive period be reckoned?
FEBTC submits that it should be reckoned from the date of its filing of the
Supplemental Petition on 28 April 1995, not from the filing of its new
petition for review after the Supplemental Petition was denied.
Even granting that this should be the case, such argument would still
preclude the refund of taxes wrongfully paid from January to 27 April 1993,
the two (2)-year prescriptive period for those taxes paid then having
already become operative.
4. Could the 2-year prescriptive period for the refund be deemed tolled by
the filing of the Supplemental Petition? NO!
In this case, there is no doubt that the CTA has jurisdiction over actions
seeking the refund of income taxes erroneously paid. But it should be borne
in mind that petitioner initially sought to bring its claim for refund for the
taxes paid in 1993 through a supplemental petition in another case pending
before the CTA, and not through an original action. The admission of
supplemental pleadings remains in the sound discretion of the court. It is
only upon the admission by the court of the supplemental complaint that it
may be deem to augment the original complaint. Until such time, the court
acquires no jurisdiction over such new claims as may be raised in the
supplemental complaint. In this case, the CTA refused to admit the
supplemental petition, thus it cannot even be deemed as having been filed.
The CTA only acquired jurisdiction over the claim for refund for taxes paid
by petitioner in 1993 only upon the filing of the new Petition for Review on
9 October 1995.
From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit
Certificates (TCCs) which it acquired through the Department of Finance
(DOF)
One
Stop
Shop
Inter-Agency
Tax
Credit
and Duty Drawback Center (Center)
from
other
BOI-registered
companies. BIR accepted the TCC payments and issued a tax debit
memoranda (TDM) .
April 22 1998 - However, despite such payment, BIR assess PSPC for
alleged deficiency excise tax liabilities of PhP1.7M for the taxable years
1992 and 1994 to 1997, inclusive of delinquency surcharges and interest.
BIR said that PSPC is not a qualified transferee of the TCCs it acquired
from other BOI-registered companies.
PSPC protested the collection letter, but the protest was denied. PSPC filed
its motion for reconsideration. CIR did not reply. PSPC filed a petition for
review before the CTA
CTA held that payment by the
that respondents attempt to
penalties from PSPC without
due process. Thus, it held that
appealed to the CA.
Pending appeal of Case 1, the Center sent letters to PSPC requiring the
latter to submit copies of pertinent sales invoices and delivery receipts
covering a) sale transactions with
the TCC assignors/transferors
purportedly in connection with an ongoing post audit and; b) PSPC
Industrial Fuel Oil (IFO) deliveries to Spintex International, Inc. PSPC replied
saying that the required submission of these documents had no legal basis,
for the applicable rules and regulations on the matter only require that both
the assignor and assignee of TCCs be BOI-registered entities. The Center
ignored this defense and informed PSPC of the cancellation of the first
batch of TCCs transferred to PSPC and the TDM covering PSPCs use of
these TCCs as well as the corresponding TCC assignments. PSPCs MR was
ignored.
November
22,
1999
PSPC
received
the November
15,
1999 assessment letter from respondent for excise tax deficiencies,
surcharges, and interest based on the first batch of cancelled TCCs
and TDM covering PSPCs use of the TCCs. PSPC protested the assessment
letter, but the protest was denied by the BIR, constraining it to file another
petition for review before the CTA
Tax credits were granted under EO 226 as incentives to encourage investments in certain
businesses. A tax credit generally refers to an amount that may be subtracted directly from ones
formal assessment, such does not denigrate the fact that it was deprived of
statutory and procedural due process to contest the assessment before it
was issued.
What is applicable is RR 12-99 10, which superseded RR 12-85, pursuant to
Sec. 244 in relation to Sec. 245 of the NIRC implementing Secs. 6, 7, 204,
228, 247, 248, and 249 on the assessment of national internal revenue
taxes, fees, and charges. The procedures delineated in the said statutory
provisos and RR 12-99 were not followed by respondent, depriving PSPC of
due process in contesting the formal assessment levied against
it. Respondent ignored RR 12-99 and did not issue PSPC a notice for
informal conference and a preliminary assessment notice, as required.
PSPCs November 4, 1999 motion for reconsideration of the purported
Center findings and cancellation of the subject TCCs and the TDM was not
even acted upon. PSPC was merely informed that it is liable for the amount
of excise taxes it declared in its excise tax returns for 1992 and 1994 to
1997 covered by the subject TCCs via the formal letter of demand and
assessment notice. For being formally defective, the November 15, 1999
formal letter of demand and assessment notice is void.
While the Center has authority to cancel the TCCs, it must bear in mind the
nature of the TCCs immediate effectiveness and validity for which
cancellation may only be exercised before a transferred TCC has been fully
utilized or canceled by the BIR after due application of the available tax
credit to the internal revenue tax liabilities of an innocent transferee for
value, unless of course the claimant or transferee was involved in the
perpetration of the fraud in the TCCs issuance, transfer, or utilization. The
utilization of the TCC will not shield a guilty party from the consequences of
the fraud committed.
While we agree with respondent that the State in the performance of
governmental function is not estopped by the neglect or omission of its
agents, and nowhere is this truer than in the field of taxation, this principle
cannot be applied to work injustice against an innocent party. In the case
at bar, PSPCs rights as an innocent transferee for value must be
protected. Therefore, the remedy for respondent is to go after the claimant
companies who allegedly perpetrated the fraud (was the subject of a
criminal prosecution before the Sandiganbayan.)
4.
5.
Respondent merely relied on the findings of the Center which did not give
PSPC ample opportunity to air its side. While PSPC indeed protested the
10