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Case Notes Facts Issue/Held 1 CIR Vs Benigno Toda: Whether or Not This Is A Case of Tax Avoidance or Tax Evasion
Case Notes Facts Issue/Held 1 CIR Vs Benigno Toda: Whether or Not This Is A Case of Tax Avoidance or Tax Evasion
Case Notes Facts Issue/Held 1 CIR Vs Benigno Toda: Whether or Not This Is A Case of Tax Avoidance or Tax Evasion
1 CIR vs Benigno difference between tax CIC authorized Benigno P. Toda, Jr., President and owner Whether or not this is a case of tax avoidance or tax evasion.
Toda avoidance (legal) vs tax of 99% of its issued and outstanding capital stock, to sell
evasion (crime) the disputed the building and lot on which it stands for an Tax evasion.
amount of not less than P90 million. Afterwards, Toda
purportedly sold the property for P100 million to Rafael A. Tax planning is by definition to reduce, if not eliminate
Altonaga, who, in turn, sold the same property on the same altogether, a tax. Surely petitioner cannot be faulted for
day to Royal Match Inc. (RMI) for P200 million. For the wanting to reduce the tax from 35% to 5%. However, the
sale of the property to RMI, Altonaga paid capital gains tax scheme resorted to by CIC in making it appear that there
in the amount of P10 million. were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be
Later, CIC filed its corporate annual income tax return, considered a legitimate tax planning. Such scheme is
declaring, among other things, its gain from the sale of real tainted with fraud.
property. Then, Toda sold his entire shares of stocks in CIC
to Le Hun T. Choa for P12.5 million, as evidenced. It is significant to note that prior to the purported sale of
Afterwards, the Bureau of Internal Revenue (BIR) sent an the disputed property by CIC to Altonaga, CIC received P40
assessment notice[ and demand letter to the CIC for million from RMI, and not from Altonaga. Also, another
deficiency income tax. P40 million was debited later. This would show that the
real buyer of the properties was RMI, and not the
Afterwards, the Estate of Benigno P. Toda, Jr., represented intermediary Altonaga. Altonaga was merely a close
by special co-administrators Lorna Kapunan and Mario business associate and one of the many trusted corporate
Luza Bautista, received a Notice of Assessment from the executives of Toda.
Commissioner of Internal Revenue for deficiency income
tax. It’s obvious that the objective of the sale to Altonaga was
to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to
only 5% individual capital gains tax, and not the 35%
corporate income tax. Altonaga’s sole purpose of acquiring
and transferring title of the subject properties on the same
day was to create a tax shelter. Altonaga never controlled
the property and did not enjoy the normal benefits and
burdens of ownership. The sale to him was merely a tax
ploy, a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was
calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability.
2 Ungab vs Cusi BIR Examiner Ben Garcia examined the income tax returns Whether or not that the filing of the informations was
filed by the herein petitioner, Quirico P. Ungab. In the precipitate and premature since the Commissioner of
course of his examination, he discovered that the Internal Revenue has not yet resolved his protests against
petitioner failed to report his income derived from sales of the assessment
banana saplings. As a result, the BIR District Revenue
Officer at Davao City sent a "Notice of Taxpayer" to the An assessment isn’t necessary before a criminal action can
petitioner informing him that there is due from him proceed.
(petitioner) the amount representing income, business tax
and forest charges and inviting petitioner to an informal The contention is without merit. What is involved here is
conference where the petitioner, duly assisted by counsel, not the collection of taxes where the assessment of the
may present his objections to the findings of the BIR Commissioner of Internal Revenue may be reviewed by
Examiner. the Court of Tax Appeals, but a criminal prosecution for
violations of the National Internal Revenue Code which is
Upon receipt of the notice, the petitioner wrote the BIR within the cognizance of courts of first instance. While
District Revenue Officer protesting the assessment and there can be no civil action to enforce collection before the
that his income, as reported in his income tax returns for assessment procedures provided in the Code have been
the said year, was accurately stated. BIR Examiner Ben followed, there is no requirement for the precise
Garcia, however, was fully convinced that the petitioner computation and assessment of the tax before there can be
had filed a fraudulent income tax return so that he a criminal prosecution under the Code.
submitted a "Fraud Referral Report," to the Bureau of
Internal Revenue. The contention is made, and is here rejected, that an
assessment of the deficiency tax due is necessary before
Thereafter, State Prosecutor Jesus Acebes conducted a the taxpayer can be prosecuted criminally for the charges
preliminary investigation of the case, and finding probable preferred. The crime is complete when the violator has, as
cause, filed six (6) informations against the petitioner with in this case, knowingly and willfully filed fraudulent
the Court of First Instance of Davao City concerning returns with intent to evade and defeat a part or all of the
violations of the Tax Code. tax.
On 21 March 1997, the Office of the Government Corporate SEC. 2. General Terms Defined. –– x x x x
Counsel (OGCC) issued Opinion No. 061. The OGCC opined (10) Instrumentality refers to any agency of the National
that the Local Government Code of 1991 withdrew the Government, not integrated within the department
exemption from real estate tax granted to MIAA under framework, vested with special functions or jurisdiction by
Section 21 of the MIAA Charter. Thus, MIAA negotiated law, endowed with some if not all corporate powers,
with respondent City of Parañaque to pay the real estate administering special funds, and enjoying operational
tax imposed by the City. MIAA then paid some of the real autonomy, usually through a charter. x x x (Emphasis
estate tax already due. supplied)
On 28 June 2001, MIAA received Final Notices of Real When the law vests in a government instrumentality
Estate Tax Delinquency from the City of Parañaque for the corporate powers, the instrumentality does not become a
taxable years 1992 to 2001. corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent
domain, police authority and the levying of fees and
charges. At the same time, MIAA exercises "all the powers
of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of
this Executive Order."
13 Meralco Securities The late Juan G. Maniago (substituted in these proceedings Whether or not mandamus avails to compel the
Corp. vs Savellano by his wife and children) submitted to petitioner Commissioner to impose the alleged deficiency tax
Commissioner of Internal Revenue confidential assessment on the Meralco Securities Corporation.
denunciation against the Meralco Securities Corporation
for tax evasion for having paid income tax only on 25 % of Mandamus doesn’t lie.
the dividends it received from the Manila Electric Co. for
the years 1962-1966, thereby allegedly shortchanging the Since the office of the Commissioner of Internal Revenue is
government of income tax due from 75% of the said charged with the administration of revenue laws, which is
dividends. the primary responsibility of the executive branch of the
government, mandamus may not lie against the
Petitioner Commissioner of Internal Revenue investigated Commissioner to compel him to impose a tax assessment
the denunciation after which he found and held that no not found by him to be due or proper for that would be
deficiency corporate income tax was due from the Meralco tantamount to a usurpation of executive functions.
Securities Corporation on the dividends it received from
the Manila Electric Co. The Commissioner informed Thus, the Commissioner who is specifically charged by law
Maniago of his findings and ruling and therefore denied with the task of enforcing and implementing the tax laws
Maniago's claim for informer's reward on a non-existent and the collection of taxes had after a mature and
deficiency. thorough study rendered his decision or ruling that no tax
is due or collectible, and his decision is sustained by the
Maniago filed a petition for mandamus to compel the Secretary, now Minister of Finance (whose act is that of
Commissioner to impose the alleged deficiency tax the President unless reprobated), such decision or ruling is
assessment on the Meralco Securities Corporation and to a valid exercise of discretion in the performance of official
award to him the corresponding informer's reward. duty and cannot be controlled much less reversed by
mandamus. A contrary view, whereby any stranger or
informer would be allowed to usurp and control the
official functions of the Commissioner of Internal Revenue
would create disorder and confusion, if not chaos and total
disruption of the operations of the government.
Considering then that respondent judge may not order by
mandamus the Commissioner to issue the assessment
against Meralco Securities Corporation when no such
assessment has been found to be due, no deficiency taxes
may therefore be assessed and collected against the said
corporation. Since no taxes are to be collected, no
informer's reward is due to private respondents as the
informer's heirs. Informer's reward is contingent upon the
payment and collection of unpaid or deficiency taxes. An
informer is entitled by way of reward only to a percentage
of the taxes actually assessed and collected. Since no
assessment, much less any collection, has been made in the
instant case, respondent judge's writ for the Commissioner
to pay respondents 25% informer's reward is gross error
and without factual nor legal basis.
14 Asia Int’l Facts
Congress enacted Republic Act (R.A.) No. 7227 Whether or not the trial court has jurisdiction over the case.
Auctioneers Inc. vs. creating the Subic Special Economic Zone (SSEZ) and
Parayno extending a number of economic or tax incentives therein. Trial court has no jurisdiction.
Later, the CIR issued Revenue Memorandum Circular
(RMC) No. 31-2003 setting the "Uniform Guidelines on the Petitioners contend that jurisdiction over the case at bar
Taxation of Imported Motor Vehicles through the Subic properly pertains to the regular courts as this is "an action
Free Port Zone and Other Freeport Zones that are Sold at to declare as unconstitutional, void and against the
Public Auction." provisions of [R.A. No.] 7227" the RMCs issued by the CIR.
Petitioners Asia International Auctioneers, Inc. (AIAI) and They explain that they "do not challenge the rate, structure
Subic Bay Motors Corporation are corporations organized or figures of the imposed taxes, rather they challenge the
under Philippine laws with principal place of business authority of the respondent Commissioner to impose and
within the SSEZ. They are engaged in the importation of collect the said taxes." They claim that the challenge on the
mainly secondhand or used motor vehicles and heavy authority of the CIR to issue the RMCs does not fall within
transportation or construction equipment which they sell the jurisdiction of the Court of Tax Appeals (CTA).
to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo Petitioners’ arguments do not sway.
City, praying for the nullification of RMC No. 31-2003 for
being unconstitutional and an ultra vires act. RMCs are considered administrative rulings which are
issued from time to time by the CIR.
The cases of Rodriguez vs. Blaquera and CIR vs. Leal re-
affirmed.
15 Hydro Resources vs The National Irrigation Administration agreed with Whether or not Hydro should pay the 3% ad valorem tax
CA petitioner Hydro Resources Contractors Corporation to even if the contract was perfected before EO 860 was
construct the Magat River Multipurpose Project. promulgated.
Under the contract, petitioner was allowed to procure new Not pay.
construction equipment, spare parts and tools from
abroad, the payment for which was advanced by NIA Executive Order No. 860 which was the basis for the
under a financing plan embodied in the contract. By the imposition of the 3% ad valorem duty upon the said
terms of the contract, NIA undertakes payment of all the importations, took effect on December 21, 1982. The
import duties and taxes incident to the importations. importations were effected in 1978 and 1979 by NIA.
HYDRO shall repay NIA in full the value of the construction
equipment out of the same proceeds before eventual The subsequent executions of the Deeds of Sale of the
transfer of subject construction equipment upon equipment in question on 1982 and 1983 are not relevant
termination of the contract. in considering the application of Executive Order No. 860
because said Deeds of Sale were mere formalities in the
NIA reneged and failed in the compliance of its tax implementation of Contract executed on 1978, which
obligations. In the meantime, HYDRO had fully repaid the should be reckoned and construed as the actual date of
value of the construction equipment so much so that NIA sale. This must be so because the contract of purchase and
executed deeds of sale covering the same and transferring sale of the NIA-financed/owned equipment to Hydro took
the ownership thereof in favor of petitioner. Upon the place in 1978 when Contract was signed by NIA and
transfer of the ownership of the said equipment the HYDRO wherein the contracting parties provided for their
Bureau of Customs assessed HYDRO the corresponding financing, procurement, delivery, repayment, transfer of
customs duty and compensating tax. possession and ownership.
HYDRO was assessed additional 3% ad valorem duty The contract of sale of the equipment between them was
prescribed in Executive Order 860. HYDRO paid this perfected in 1978. It is a perfected contract of sale subject
amount but this time under protest. to a suspensive condition, the full payment by HYDRO of
the consideration for the subject of the contract is the
operative act to compel NIA to effect the transfer of
absolute ownership thereof to HYDRO.
DEVOID of merit.