Dumaguete Cathedral Credit Cooperative v.

Commissioner on Internal Revenue

G.R. No. 182722
January 22,2010

Doctrine:

Interpretations of administrative agencies in charge of enforcing a law are entitled to

great weight and consideration by the courts, unless such interpretations are in a sharp
conflict with the governing statute or the Constitution and other laws.

Facts:

Petitioner Dumaguete Cathedral Credit Cooperative (DCCCO) is a credit cooperative

duly registered with and regulated by the Cooperative Development Authority (CDA).

Petitioner received two Pre-Assessment Notices for deficiency withholding taxes for
taxable years 1999 and 2000 which were protested by petitioner on July 23,
2002.  Thereafter, on October 16, 2002, petitioner received two other Pre-Assessment
Notices for deficiency withholding taxes also for taxable years 1999 and 2000.  The
deficiency withholding taxes cover the payments of the honorarium of the Board of
Directors, security and janitorial services, legal and professional fees, and interest on
savings and time deposits of its members.
Petitioner informed BIR Regional Director Flores that it would only pay the deficiency
withholding taxes corresponding to the honorarium and per diems of the Board of
Directors, security and janitorial services, legal and professional fees for the year 1999
and 2000, and that it would avail of the Voluntary Assessment and Abatement
Program (VAAP) of the BIR under Revenue Regulations No. 17-2002. 
On April 24, 2003, petitioner received from the BIR Regional Director Flores, Letters of
Demand with attached Transcripts of Assessment and Audit Results/Assessment
Notices, ordering petitioner to pay the deficiency withholding taxes, inclusive of
penalties, for the years 1999 and 2000.
On May 9, 2003, petitioner protested the Letters of Demand and Assessment
Notices with the Commissioner of Internal Revenue (CIR).  However, the latter failed
to act on the protest within the prescribed 180-day period. Hence, on December 3,
2003, petitioner filed a Petition for Review before the CTA. CTA then modified
petitioner’s assessment for deficiency of withholding tax. Dissatisfied, petitioner
moved for a partial reconsideration, but was denied.

Petitioner filed a Petition for Review with the CTA En Banc,  interposing the lone issue
of whether or not petitioner is liable to pay the deficiency withholding taxes on interest
from savings and time deposits of its members for taxable years 1999 and 2000, and
the consequent delinquency interest of 20% per annum. 
Finding no reversible error in the Decision dated February 6, 2007 and the Resolution
dated May 29, 2007 of the CTA First Division, the CTA En Banc denied the Petition
for Review  as well as petitioner's Motion for Reconsideration.

Issue:

Whether or not it is liable to pay the deficiency withholding taxes on interest from
savings and time deposits of its members for the taxable years 1999 and 2000, as well
as the delinquency interest of 20% per annum.||

Held:

Given that petitioner is a credit cooperative duly registered with the Cooperative
Development Authority (CDA), Section 24 (B) (1) of the NIRC must be read together
with RA 6938, as amended by RA 9520.
Under Article 2 of RA 6938, as amended by RA 9520, it is a declared policy of the
State to foster the creation and growth of cooperatives as a practical vehicle for
promoting self-reliance and harnessing people power towards the attainment of
economic development and social justice. Thus, to encourage the formation of
cooperatives and to create an atmosphere conducive to their growth and
development, the State extends all forms of assistance to them, one of which is
providing cooperatives a preferential tax treatment.
The legislative intent to give cooperatives a preferential tax treatment is apparent in
Articles 61 and 62 of RA 6938, which read:
ART. 61. Tax Treatment of Cooperatives. — Duly registered
cooperatives under this Code which do not transact any business with
non-members or the general public shall not be subject to any
government taxes and fees imposed under the Internal Revenue Laws
and other tax laws. Cooperatives not falling under this article shall be
governed by the succeeding section.
ART. 62. Tax and Other Exemptions. — Cooperatives transacting
business with both members and nonmembers shall not be subject to
tax on their transactions to members. Notwithstanding the provision of
any law or regulation to the contrary, such cooperatives dealing with
nonmembers shall enjoy the following tax exemptions; . . . .
This exemption extends to members of cooperatives. It must be emphasized that
cooperatives exist for the benefit of their members. In fact, the primary objective of
every cooperative is to provide goods and services to its members to enable them to
attain increased income, savings, investments, and productivity.  Therefore, limiting
the application of the tax exemption to cooperatives would go against the very
purpose of a credit cooperative. Extending the exemption to members of cooperatives,
on the other hand, would be consistent with the intent of the legislature. Thus,
although the tax exemption only mentions cooperatives, this should be construed to
include the members, pursuant to Article 126 of RA 6938, which provides:
ART. 126. Interpretation and Construction. – In case of doubt as
to the meaning of any provision of this Code or the regulations issued in
pursuance thereof, the same shall be resolved liberally in favor of the
cooperatives and their members. 

Topic:

Tax Treaty in relation to Income Tax

Doctrine:
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000.
Logically, noncompliance with tax treaties has negative implications on international relations, and
unduly discourages foreign investors.

Facts:
In accordance with Section 28 (A) (5)  of the NIRC, petitioner withheld and remitted to respondent on 21
October 2003 the amount of PHP67,688,553.51, which represented the fifteen percent (15%) branch
profit remittance tax (BPRT) on its regular banking unit (RBU) net income remitted to Deutsche Bank
Germany (DB Germany) for 2002 and prior taxable years. 
Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large Taxpayers
Assessment and Investigation Division on 4 October 2005 an administrative claim for refund or
issuance of its tax credit certificate in the total amount of PHP22,562,851.17. On the same date,
petitioner requested from the International Tax Affairs Division (ITAD) a confirmation of its entitlement to
the preferential tax rate of 10% under the RP-Germany Tax Treaty. 
Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for Review  with the
CTA on 18 October 2005. Petitioner reiterated its claim for the refund or issuance of its tax credit
certificate for the amount of PHP22,562,851.17 representing the alleged excess BPRT paid on branch
profits remittance to DB Germany.
The claim of petitioner for a refund was denied by CTA Second Division on the ground that the application
for a tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual
remittance of its branch profits to DB Germany, or prior to its availment of the preferential rate of ten
percent (10%) under the RP-Germany Tax Treaty provision. The court a quo held that petitioner violated
the fifteen (15) day period mandated under Section III paragraph (2) of Revenue Memorandum Order
(RMO) No. 1-2000.
 
CTA En Banc affirmed the CTA Second Division's Decision.
 
Issue:
Whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the
benefit of a tax treaty.|||
 
Held:
 
 Our Constitution provides for adherence to the general principles of international law as part of the
law of the land.  The time-honored international principle of pacta sunt servanda demands the
performance in good faith of treaty obligations on the part of the states that enter into the agreement.
Every treaty in force is binding upon the parties, and obligations under the treaty must be performed
by them in good faith.  More importantly, treaties have the force and effect of law in this jurisdiction. 
"A state that has contracted valid international obligations is bound to make in its legislations those
modifications that may be necessary to ensure the fulfillment of the obligations undertaken."   Thus,
laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties
entitled thereto. The BIR must not impose additional requirements that would negate the availment of
the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty
does not provide for any pre-requisite for the availment of the benefits under said agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We
recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA's outright
denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony
with the objectives of the contracting state to ensure that the benefits granted under tax treaties are
enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty
relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would
constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of
the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the
administrative issuance would impair the value of the tax treaty. At most, the application for a tax
treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000.
Logically, noncompliance with tax treaties has negative implications on international relations, and unduly
discourages foreign investors. While the consequences sought to be prevented by RMO No. 1-2000
involve an administrative procedure, these may be remedied through other system management
processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those who are entitled to
the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior
application for tax treaty relief.
Topic: Jurisdiction

Doctrine:
Exhaustion of administrative remedies is required prior to resort to the CTA precisely to give the
Commissioner the opportunity to "re-examine its findings and conclusions" and to decide the issues
raised within her competence.  
Facts:
On September 9, 2009, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice 
(PAN) against V.Y. Domingo, assessing the latter the total amount of P2,781,844.21 representing
deficiency income tax and value-added tax, inclusive of interest, for the taxable year 2006.
V.Y. Domingo filed a Request for Re-evaluation/Re-investigation and Reconsideration  dated
September 17, 2009 with the Regional Director of BIR-Revenue Region No. 6.
V.Y. Domingo then received a Preliminary Collection Letter  (PCL) dated August 10, 2011 from the
Revenue District Office (RDO) No. 28-Novaliches, informing it of the existence of Assessment Notice
No. 32-06-IT-0242 and Assessment Notice No. 32-06-VT-0243, both dated November 18, 2010, for
collection of its tax liabilities in the amounts of P1,798,889.80 and P1,365,727.63, respectively, for a
total amount of P3,164,617.43.
On September 12, 2011, V.Y. Domingo sent a letter to the BIR Revenue District Office No. 28 in
Quezon City, requesting certified true copies of Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-
0243. Upon receipt of the requested copies of the notices on September 15, 2011, V.Y. Domingo filed
on September 16, 2011 a Petition for Review with the CTA in Division, praying that Assessment Notice
Nos. 32-06-IT-0242 and 32-06-VT-0243 dated November 18, 2010 and the PCL dated August 10, 2011
be declared null and void, cancelled, withdrawn, and with no force and effect, for allegedly having been
issued beyond the prescriptive period for assessment and collection of internal revenue taxes.
During trial, the CIR filed her Motion to Dismiss  the petition for lack of jurisdiction. She argued that, it is
neither the assessment nor the formal letter of demand that is appealable to the CTA but the decision of
the CIR on a disputed assessment.
In a Resolution dated January 29, 2014, the CTA First Division granted the CIR's motion and dismissed
V.Y. Domingo's Petition for Review. It held that it was without jurisdiction to entertain the petition, as the
rule is that for the CTA to acquire jurisdiction, as assessment must first be disputed by the taxpayer and
either ruled upon by the CIR to warrant a decision, or denied by the CIR through inaction. The CTA First
Division ruled that what were appealed to it were the subject assessments, not a decision or the CIR's
denial of its protest; thus, the said assessments had attained finality, and the CTA in Division was
without jurisdiction to entertain the appeal.
V.Y. Domingo's motion for reconsideration having been denied in a Resolution dated April 23, 2014, it
filed on May 30, 2014 a petition for review before the CTA En Banc.It argued that the CTA First Division
erred when it upheld the CIR's position that V.Y. Domingo should have administratively protested the
Assessment Notices first before filing its Petition for Review. Furthermore, V.Y. Domingo claimed that it
was denied due process when the CIR failed to send the Notice of Final Assessment to it.
In its Decision dated July 1, 2015, the CTA En Banc granted V.Y. Domingo's Petition for Review,
reversing and setting aside the January 29, 2014 and April 23, 2014 Resolutions of the CTA First
Division. It remanded the case to the CTA First Division for further proceedings to afford the CIR full
opportunity to present her evidence.
Issue:
Whether the First Division of the CTA has jurisdiction to entertain V.Y. Domingo's petition for review 
Held:
No. It is clear from the said provisions of the law that a protesting taxpayer like V.Y. Domingo has only
three options to dispute an assessment:
1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the
taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the
protest;
2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer
may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest;
3. If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30
days from the lapse of the 180-day period.
Evidently, V.Y. Domingo's immediate recourse to the CTA First Division was in violation of the doctrine
of exhaustion of administrative remedies.
Under the doctrine of exhaustion of administrative remedies, before a party is allowed to seek the
intervention of the court, he or she should have availed himself or herself of all the means of
administrative processes afforded him or her.  Section 228 of the Tax Code requires taxpayers to
exhaust administrative remedies by filing a request for reconsideration or reinvestigation within 30 days
from receipt of the assessment.  Exhaustion of administrative remedies is required prior to resort to the
CTA precisely to give the Commissioner the opportunity to "re-examine its findings and conclusions"
and to decide the issues raised within her competence.  

Topic:
Zero-rated or effectively zero-rated sales
Doctrine:
In order to be entitled to a refund/tax credit of excess input VAT attributable to zero-rated or effectively
zero-rated sales, the following requisites must be complied with:
1.    The taxpayer is VAT-registered;
2.    The claim for refund was filed within the prescriptive period both in the administrative and
judicial levels;
3.    There must be zero-rated or effectively zero-rated or effectively zero-rated sales;
4.    That input taxes were incurred or paid;
5.    The input taxes due or paid are attributable to zero-rated or effectively zero-rated sales;
and
6.    The input taxes were not applied against any output VAT liability.
Facts:
Petitioner Carmen Copper Corporation is engaged in the business of mining ores and other mineral
resources. Petitioner duly filed its quarterly VAT Return for the first quarter of TY 2014.
On March 30, 2016, petitioner filed with the BIR administrative claims for refund of its alleged excess
and unutilized input CAT payments for the first quarter of TY 2014. On July 28, 2016, petitioner
received a letter partially denying petitioner’s claim for refund.
In view of the lapse of the 120-day period and the partial denial of its administrative claims for refund,
petitioner filed a Petition for Review with the CTA for the refund or issuance of TCC for its alleged
excess and unutilized input VAT denied by the CIR.
Issue:
Whether or not petitioner is entitled to a refund/tax credit of excess input VAT attributable to zero-rated
or effectively zero-rated sales
Held:
No. In order to be entitled to a refund/tax credit of excess input VAT attributable to zero-rated or
effectively zero-rated sales, the following requisites must be complied with:
1.    The taxpayer is VAT-registered;
2.    The claim for refund was filed within the prescriptive period both in the administrative and
judicial levels;
3.    There must be zero-rated or effectively zero-rated or effectively zero-rated sales;
4.    That input taxes were incurred or paid;
5.    The input taxes due or paid are attributable to zero-rated or effectively zero-rated sales;
and
6.    The input taxes were not applied against any output VAT liability.
 
A bulk of the disallowances mentioned above was due to the fact that various amounts of Customer
Charges were deducted from the corresponding foreign currency inward remittances which were not
supported with any documents. Even if the amounts per sales invoice was accordingly traced to foreign
currency inward remittances as summarized in Annex A-2 of the ICPA Report/6 a portion therein shows
that significant amounts of Customer Charges were deducted from the invoice price before arriving at the
net remittances made on various dates. These amounts are too significant to be waived for further
perusal. Since petitioner did not present any supporting documents to show that these Customer Charges
were actually deducted from the total amount due per sales invoice, the Court cannot be convinced that
the alleged corresponding foreign currency inward remittance actually pertains to the zero-rated sales
reported in the Amended 1st Quarterly VAT Return for TY 2014.
 
Petitioner failed As for the zero-rated sales which were disallowed on the ground that the amount cannot
be traced to the supporting VAT sales invoice ("SI"), it must be noted that in the same Annex A-2 of the
ICPA Report, the discrepancies noted between the amount per Schedule of Zero-Rated Sales for the 1st
quarter of TY 2014 and the invoice amount per SI Nos. 5081, 5173, and 5182 were reported either in the
previous or subsequent quarters. However, petitioner did not submit these previous quarter returns and
other corroborating documents for the previous and subsequent quarter returns (i.e. reconciliation
schedule of zero-rated sales and sales invoices) to verify that the discrepancies noted were actually
traceable to other quarters and thereby satisfactorily account for the zero-rated sales in question.
 
In fine, the pieces of evidence show that the total zero-rated sales reported by petitioner in the Amended
1st Quarterly VAT Return for TY 2014 must be disallowed for VAT refund purposes. There being no valid
zero-rated sales pursuant to Section 106(A)(2)(A)(l) of the NIRC of 1997, as amended, the claimed input
VAT allegedly attributable thereto cannot be refunded.