U.P.
LAW BOC lustre5159
TAXATION
RECENT JURISPRUDENCE
2019
CASE FACTS
STEAG State Steag State Power filed an
Power, Inc v. CIR administrative claim for
refund of its unutilized input
GR No. 205282 | VAT on capital goods. Due
Jan. 14, 2019 | to the inaction of the CIR,
Leonen Steag filed a petition for
review before the CTA. CTA
denied the petition. On
appeal, the CTA affirmed
the dismissal of the cases.
Relying on CIR v. Aichi
Forging, the CTA denied
the appeal for having been
filed late. Steag insists that
its claims are timely,
arguing that although the
claims were filed beyond
the 120+30 day periods
under Sec. 112 of the
NIRC, they were
nonetheless filed within the
2 year period under Sec.
229, in accordance with RR
7-95.
Page 1 of 20
lustre5159
TAXATION
HELD DOCTRINE
Claims for refund or tax The 120+30 day
credit of excess input periods under Sec. 112
tax are governed not by of NIRC are mandatory
Sec. 229 but by Sec. and jurisdictional. Non-
112. Sec. 112 plainly compliance is fatal to
states that a taxpayer the taxpayer’s judicial
may appeal the CIR’s claim.
denial or inaction only
within 30 days from
denial or from the
expiration of the 120
day period. Steag’s
reliance on RR 7-95 is
misplaced as this had
already been
superseded and
revoked by RR 16-
2005, which was the
prevailing rule at the
time Steag filed its
judicial claim. RR 16-
2005 merely reiterates
Sec. 112 of the NIRC.
Moreover, under Sec.
112, only the
administrative claim for
refund of input VAT
must be filed within the
2 year prescriptive
period, the judicial
claim need not be.
Since Steag filed its
judicial claim beyond
the 30 day period to
appeal, the CTA lost its
jurisdiction over the
petition.
U.P. LAW BOC lustre5159
2018
CASE FACTS
International The taxpayer was assessed
Container by the City Treasurer for 2
Terminal businesses taxes. It paid
Services, Inc. v. the additional assessment
City of Manila but subsequently protested
the same before the City
G.R. No. 185622 | Treasurer, assailing the
October 17, 2018 | validity of the assessment
J. Leonen and collection of additional
business tax. With respect
to taxes covering payments
after the 3rd quarter of
1999, the CTA denied the
claim for refund for the
taxpayer’s failure to submit
the relevant protest letter to
prove its compliance with
procedural requirements.
Commissioner of Avon filed its several tax
Internal Revenue returns for the year 1999.
v. Avon Products However, it was still served
Manufacturing, a Preliminary Assessment
Inc. Notice containing items of
deficiency taxes which was
allegedly already paid. Avon
filed a protest. Without
ruling on this protest, a
Final Assessment Notice
(FAN) was served. Avon
resubmitted its protest. BIR
officers allegedly expressed
that the FAN would be
Page 2 of 20
lustre5159
TAXATION
HELD DOCTRINE
Sections 195 and 196 To be entitled to a
of the LGC govern the refund under Sec. 196
remedies of a taxpayer of the LGC, the
for taxes collected by taxpayer must comply
LGUs, except for real with the following
property taxes. If the procedural
taxpayer receives an requirements: first, file
assessment, the a written claim for
remedy is Sec. 195, refund or credit with the
which requires the filing local treasurer; and
of a written protest with second, file a judicial
the local treasurer. If no case for refund within 2
assessment notice is years from the payment
issued and the of the tax, fee, or
taxpayer claims an charge, or from the
erroneous or illegal date when the taxpayer
collection of tax, then is entitled to a refund or
Sec. 196 applies. To be credit.
entitled to refund under
Sec. 196, the taxpayer
must: (a) file a written
claim for refund or
credit with the local
treasurer; and (b) file a
judicial case within 2
years from the payment
of the tax. Since no
notice of assessment
was issued for taxes
collected after the first
3 quarters of 1999, the
filing of a protest letter
is not a precondition for
its claim for refund
under Sec. 196.
The BIR has the The due process
administrative requirement before
adjudicatory power administrative bodies
over the rights and are not as strict
liabilities of taxpayers. compared to
However, this power judicial tribunals in that
must be exercised it suffices that a party is
reasonably and under given a reasonable
the prescribed opportunity to be
procedure. heard. Nevertheless,
Administrative due such "reasonable
process requires: 1.) opportunity" should not
the right to notice of the be confined to the mere
institution of submission of position
U.P. LAW BOC lustre5159
cancelled provided Avon
pays part of it, which it did.
However, the BIR still
recommended the
enforcement of the
assessments. Avon sought
to have the assessments
void for violation of
administrative due process
but CTA ruled that there
was no such violation as it
was afforded an opportunity
to explain and present its
evidence.
Team Energy Team Energy is a VAT-
Corp. v. registered entity engaged in
Commissioner of power generation and
Internal Revenue electricity sale to
NAPOCOR. It filed a claim
GR No. 197663 | for refund of unutilized input
March 14, 2018 | VAT for all the quarters in
J. Leonen 2003. CTA En Banc
disallowed the claim for the
2nd-4th quarters on the
ground of lack of
jurisdiction. CTA En Banc
allowed the claim for the 1st
quarter but reduced it on
the ground that some failed
to meet the substantiation
requirements. The issue is
whether or not the claims
should prosper.
Commissioner of JP Morgan-Philippines
Internal Revenue entered into a Master
v. J.P. Morgan Service Provider Agreement
Chase Bank, (Agreement) with
N.A.-Philippine PeopleSupport
Customer Care (Philippines), Inc.
Center (PeopleSupport), a
Philippine Economic Zone
G.R. No. 210528 | Authority (PEZA)-registered
November 28, Economic Zone IT (Export)
2018 Enterprise, which enjoys an
income tax holiday period
Page 3 of 20
lustre5159
TAXATION
proceedings, 2.) papers and/or affidavits
reasonable opportunity and the parties must be
to appear and defend given the
its rights and introduce opportunity to examine
evidence, 3.) a tribunal the witnesses against
constituted as to give them.
him impartiality and one
that has competent
jurisdiction, and 4.) the
decision of that tribunal
must be supported by
substantial evidence.
The refund for the 1st For a judicial claim for
Quarter is proper, VAT refund to prosper,
placing the highest the claim must not only
accord on the factual be filed within the
finding of the CTA En mandatory 120+30-day
Banc. For a judicial periods. The taxpayer
claim for VAT refund to must also prove the
prosper, the claim must factual basis of its claim
not only be filed within and comply with the
the mandatory 120+30- invoicing requirements
day periods. The of the NIRC, as
taxpayer must also amended, and other
prove the factual basis appropriate revenue
of its claim and comply regulations.
with the invoicing
requirements of the
NIRC, as amended,
and other appropriate
revenue regulations.
Input VAT payments on
local purchases of
goods or services must
be substantiated with
VAT invoices or official
receipts, respectively.
Court ruled that the
services provided Tax incentives to which
between the an Ecozone Enterprise
respondent and is entitled do not
PeopleSupport are not necessarily include all
part of the latter’s kinds of income
registered activities received during the
with PEZA, and as period of entitlement.
such should be subject Only income actually
to regular income tax gained or received by
and creditable the Ecozone Enterprise
withholding taxes. related to the conduct
U.P. LAW BOC lustre5159
from May to July 2007.
Under the Agreement,
PeopleSupport would
provide and lease physical
transmission facilities to
J.P. Morgan-Philippines for
a fee. J.P Morgan withheld
taxes from it’s payment to
PeopleSupport and is now
seeking a refund claiming
that it should not have
withheld taxes from
PeopleSupport as the latter
enjoys income tax holiday.
CIR contends that the
agreement between JP
Morgan and PeopleSupport
wherein the former leases
physical facilities to the
latter is not one of the
registered activities of
PeopleSupport, and as
such, should be subject to
creditable withholding
taxes. Note that
PeopleSupport is registered
with PEZA to "engage in the
establishment of a contact
center which will provide
outsourced customer care
services and [business
process outsourcing]
services." Respondent
insists that it contracted out
to PeopleSupport the
function of "maintaining and
managing the infrastructure
and transmission facilities"
provided by
[PeopleSupport]." It further
contends that "information
technology infrastructure
and support services" is a
business process, which it
outsourced to
PeopleSupport.
Page 4 of 20
lustre5159
TAXATION
Providing information of its registered
technology-enabled business activity are
services is different covered by fiscal
from providing incentives.
information technology
facilities, infrastructure, Hence, to qualify for
or equipment. Service the income tax holiday
entails "useful labor or incentive, respondent
work rendered or to be must satisfactorily show
rendered by one that its transaction with
person to another. PeopleSupport is a
Information technology registered activity or
facilities or embraced within the
infrastructures are the latter's registered
medium used to activities with the
support the business PEZA.
processes and
functions of companies.
PeopleSupport's
registered activity of
rendering "business
process outsourcing
services" refer to
provision of information
technology-enabled
services that support
certain business
processes of its clients.
The Agreement
between respondent
and PeopleSupport
pertains to the
provision of physical
plant space, voice and
data infrastructure, all
workstation
infrastructure, and
platform and support
for inbound
telemarketing activities.
PeopleSupport's
leasing services to
respondent are within
the scope of the activity
of a facilities
provider/enterprise.
Tax incentives that
may be granted to an
information
technology service
enterprise are
different from tax
U.P. LAW BOC lustre5159
Metropolitan MWSS received Final
Waterworks and Notices of Real Property
Sewerage Tax (RPT) Delinquency
System v. Local from the Local Government
Government of of Quezon City on its real
Quezon City properties. The LGU issued
warrants of levy on the
G.R. No. 194388 | properties and sent a notice
November 07, of sale of delinquent real
2018 | J. Leonen properties. MWSS argued
that its real properties in
Quezon City were
exclusively devoted to
public use, and thus, were
exempt from real property
tax. It also maintained it is a
government instrumentality
exempt from real property
taxation. The sole issue is
whether or not an LGU may
assess RPT on MWSS.
Philippine These consolidated cases
Airlines, Inc. v. stem from a refund claim by
Commissioner of Philippine Airlines, Inc.
Internal Revenue (PAL) for final taxes
withheld on its interest
G.R. Nos. income from its peso and
206079-80 | dollar deposits with
January 17, 2018 | Chinabank, JPMorgan,
Leonen, J. PBCom, and Standard
Chartered. PAL asserts that
it is entitled to a refund of
the withheld taxes because
it is exempted from paying
the tax on interest income
under its franchise,
Presidential Decree No.
Page 5 of 20
lustre5159
TAXATION
incentives granted to
an information
technology facilities
provider/enterprise.
SC held that MWSS is A government
not liable for RPT, instrumentality
except if the beneficial exercising corporate
use of its properties powers is not liable for
has been extended to a the payment of real
taxable person. Under property taxes on its
EO 596, petitioner is properties unless it is
categorized with other alleged and proven that
government agencies the beneficial use of its
that were found to be properties been
exempt from the extended to a taxable
payment of RPT. person.
Congress also passed
the GOCC Governance Sec. 234 of the Local
Act of 2011, which Government Code is
adopted the same only applicable to
categorization and GOCCs.
explicitly lists MWSS as
exempt from the
payment of RPT. The
Executive and
Legislative Branches,
therefore, have already
categorized MWSS not
as a GOCC but as a
Government
Instrumentality with
Corporate Powers/
Government Corporate
Entity.
SC held that PAL is Taxes withheld by the
entitled to its claim for withholding agent are
refund for taxes deemed to be the full
withheld by the banks. and final payment of
PAL is uncontestedly the income tax due
exempt from paying the from the income earner
income tax on interest or payee. As such,
earned. Under its remittance need not be
franchise, PD No. proven. To claim a
1590, petitioner may refund, SC held that
either pay a franchise PAL needs only to
tax or the basic prove that taxes were
corporate income tax, withheld.
and is exempt from
paying any other tax, The ff principles apply
including taxes on (i) the payor-
U.P. LAW BOC lustre5159
1590. 6 However, the
Commissioner refused to
grant the claim, arguing that
PAL failed to prove the
remittance of the withheld
taxes to the BIR.
Thus, the issue involves
whether or not PAL is
required to prove the
remittance to the BIR of the
final withholding tax on its
interest from currency bank
deposits to be entitled to tax
refund.
Page 6 of 20
lustre5159
TAXATION
interest earned from withholding agent is
deposits. responsible for the
withholding and
PAL is likewise entitled remitting of the income
to a refund because it taxes; (ii) the payee-
is not responsible for refund claimant has no
the remittance of tax to control over the
the BIR. The taxes on remittance of the taxes
interest income from withheld from its
bank deposits are in income; (iii) the
the nature of a Certificates of Final Tax
withholding tax. Thus, Withheld at Source
the party liable for issued by the
remitting the amounts withholding agents of
withheld is the the government are
withholding agent of the prima facie proof of
BIR. Clearly, the actual payment by
withholding agent is the payee-refund claimant
payor liable for the tax, to the government itself
and any deficiency in and are declared under
its amount shall be perjury.
collected from it.
Should the BIR find that
the taxes were not
properly remitted, its
action is against the
withholding agent, and
not against the
taxpayer..
U.P. LAW BOC lustre5159
2017
CASE FACTS
Commissioner of BIR granted SMC’s request
Internal Revenue for registration and authority
v. San Miguel to manufacture San Mig
Corporation Light. Subsequently, upon a
(SMC) letter by SMC, the BIR
confirmed that San Mig
G.R. No. 205045 Light was classified as a
& 205723 | new brand. Subsequently,
January 25, 2017 | however, the BIR issued a
Leonen, J. Notice of Discrepancy
against SMC stating that
San Mig Light was merely a
variant of its existing beer
variants and must be
subjected to the higher
excise tax rate for variants.
The CTA held in favor of
SMC.
CIR v. Transitions Optical received
Transitions Letter of Authority to
Optical examine Transition
Philippines, Inc. Optical's books of accounts
for internal revenue tax
purposes for 2004. On
October 9, 2007, the parties
allegedly executed a First
Waiver. In this supposed
First Waiver, the
prescriptive period for the
assessment to June 20,
2008. This was followed by
another supposed Second
Waiver dated June 2, 2008.
Page 7 of 20
lustre5159
TAXATION
HELD DOCTRINE
The SC held that the A variant is determined
CTA did not err in by the brand (name) of
finding in favor of SMC. the beer product,
The BIR’s Notice of whether it was formed
Discrepancy was by prefixing or suffixing
effectively nullified by a modifier to the root
the subsequent name of the alleged
issuance of BIR parent brand, or
Revenue Memo Order whether it carries the
No. 6-2003 which same logo or design.
included San Mig Light
as a new brand. The While estoppel
SC found that SMC generally does not
already acquired a apply against
vested right on the tax government, especially
classification of San when the case involves
Mig Light as a new the collection of taxes,
brand. To allow the CIR an exception can be
to change its position made when the
will result in deficiency application of the rule
assessments in will cause injustice
substantial amounts against an innocent
against SMC to the party.
latter's prejudice.
Also, "San Mig Light"
and "Pale Pilsen" do
not share a root word.
Neither is there an
existing brand called
"San Mig" to conclude
that "Light" is a suffix
rendering "San Mig
Light" as its "variant."
The doctrine of Estoppel applies
estoppel applies in this against a taxpayer who
case. BIR was at fault did not only raise at the
when it accepted earliest opportunity its
respondent's Waivers representative's lack of
despite their non- authority to execute two
compliance with the (2) waivers of defense
requirements. of prescription, but was
Nonetheless, also accorded, through
respondent's acts also these waivers, more
show its implied time to comply with the
admission of the audit requirements of
validity of the waivers. the Bureau of Internal
First, respondent never Revenue. Nonetheless,
raised the invalidity of a tax assessment
U.P. LAW BOC lustre5159
This time, the prescriptive
period was supposedly
extended to November 30,
2008. CIR issued PAN
dated November 11, 2008.
Transitions Optical raised
the defense of prescription
by claiming the waivers it
executed were not valid.
CE Luzon CE Luzon filed an
Geothermal administrative claim for
Power Co., Inc. refund of its unutilized
Page 8 of 20
lustre5159
TAXATION
the Waivers at the served beyond the
earliest opportunity, extended period is void.
either in its Protest to
the PAN, Protest to the
FAN, or Supplemental
Protest to the FAN.
Second, respondent
does not dispute
petitioner's assertion
that respondent
repeatedly failed to
comply with petitioner's
notices. The Waivers
were necessary to give
respondent time to fully
comply with the Bureau
of Internal Revenue
notices for audit
examination and to
respond to its Informal
Conference request to
discuss the
discrepancies. Thus,
having benefitted from
the Waivers executed
at its instance,
respondent is estopped
from claiming that they
were invalid and that
prescription had set in.
But, even as
respondent is estopped
from questioning the
validity of the Waivers,
the assessment is
nonetheless void
because it was served
beyond the supposedly
extended period.The
First Division of the
Court of Tax Appeals
found that "the date
indicated in the
envelope/mail matter
containing the FAN and
the FLD is December 4,
2008, which is
considered as the date
of their mailing."
Taxpayers must await The 120-day and 30-
either the decision of day reglementary
the CIR or for the lapse periods under Sec. 112
U.P. LAW BOC lustre5159
v. CIR creditable input tax. Without
waiting for the CIR to act on
GR No. 197526 & its claim or for the expiration
199676-77 | July of 120 days, CE Luzon filed
26, 2017 | Leonen before the CTA a judicial
claim for refund. CTA ruled
that CE Luzon failed to
observe the 120-day period
under Sec. 112 of NIRC,
hence, it was barred from
claiming a refund of its input
VAT. The judicial claims
were prematurely filed. CE
Luzon argues that the
prescriptive periods in Sec.
112 are merely permissive.
National Power NPC was assessed for
Corp. v. deficiency franchise tax for
Provincial the years 2001 to 2003
Government of based on its sale of
Bataan electricity generated from its
power plants in Bataan.
G.R. No. 180654 | NPC argued that it had
March 6, 2017 | J. ceased to be liable for
Leonen, franchise tax after the
enactment of RA 9136 or
the Electric Power Industry
Reform Act (EPIRA), which
provided that power
generation is not a public
utility operation requiring a
franchise, hence, not
taxable. While the business
of transmission and
distribution of electricity
remains subject to local
franchise tax, NPC has also
Page 9 of 20
lustre5159
TAXATION
of the 120 days before of NIRC are mandatory
filing their judicial and jurisdictional. Non-
claims with the CTA. compliance with these
Failure to observe the periods renders a
120-day period renders judicial claim for refund
the judicial claim of creditable input tax
premature. However, premature. However,
despite non-compliance taxpayers who relied on
with Sec. 112, CE BIR Ruling DA-489-03
Luzon’s judicial claims from its issuance on
are shielded from the Dec. 10, 2003 until its
vice of prematurity reversal on Oct. 6,
because it relied on 2010 in the Aichi ruling
BIR Ruling DA-489-03 are shielded from the
which expressly states vice of prematurity.
that a taxpayer need
not wait for the lapse of
the 120 day period
before it could seek
judicial relief. Pursuant
to the San Roque
ruling, taxpayers who
relied on such ruling
are exempt from the
strict application of Sec.
112 on the ground that
taxpayers should not
be prejudiced by
erroneous
interpretations of the
CIR.
Section 137 of the LGC Without a franchise, a
is categorical in stating local government unit
that franchise tax can cannot impose
only be imposed on franchise tax.
businesses enjoying a
franchise. Under
EPIRA, a national
franchise is no longer
required before
engaging in power
generation. Hence, as
regards NPC's
business of generating
electricity, the franchise
taxes sought to be
collected are devoid of
any statutory basis. As
regards its electric
transmission function,
all transmission assets
of NPC were, by virtue
U.P. LAW BOC lustre5159
ceased to engage in
transmission at the time.
CIR v. Apo BIR assessed Apo for
Cement deficiency taxes for the year
Corporation 1999. Apo protested but it
was denied by the BIR.
While the petition for review
in the CTA was pending,
Apo availed of the tax
amnesty under RA 9480
and thereafter moved to
cancel the assessment. The
CTA granted. The CIR
argues that one of the
requirements for the
availment of the amnesty in
the same law is the
submission of the SALN.
Therefore, the CIR can still
question the correctness of
the SALN Apo submitted. If
proven, incorrect, then Apo
can be disqualified from
availing the amnesty.
Page 10 of 20
lustre5159
TAXATION
of EPIRA, already
transferred to another
corporation at the time
of the levy and auction
of its real properties.
Thus, the foreclosure
sale of the properties
must be declared null
and void.
RA 9480, Sec. 4 The amnesty granted
provides that there is a under the law is
presumption of revoked once the
correctness of the taxpayer is proven to
SALN submitted except have under-declared
where there is his assets in his SALN
underdeclaration to the by 30% or more.
extent of 30% or more Amnesty taxpayers
at the instance of, who willfully understate
parties other than the their net worth shall not
BIR or its agents. This only be liable for
means that the BIR has perjury under the
no standing to dispute Revised Penal Code,
the correctness of but, upon conviction,
Apo’s SALN. also subject to
immediate tax fraud
investigation in order to
collect all taxes due
and to criminally
prosecute for tax
evasion.
U.P. LAW BOC lustre5159
2016
CASE FACTS
CIR v. Fitness By Fitness filed its Annual
Design, Inc. Income Tax Return for
1995. It received a Final
GR No. 215957 | Assessment Notice
November 09, assessing them of tax
2016 | J. Leonen deficiency worth P10.6M
and was used as basis to
issue a Warrant of Distraint
and/or Levy. The
Commissioner stood by his
position that their right to
assess has not yet been
prescribed because the
income tax return filed was
fraudulent and thus they
have 10 years from the
discovery of fraud or
omission to assess.
Air Canada v. Air Canada is a foreign
Commissioner of corporation organized under
Internal Revenue the laws of Canada and it
was granted an authority to
operate as an offline carrier
by the Civil Aeronautics
Board. Air Canada does not
have flights originating from
or coming to the Philippines
[and does not] operate any
airplane [in] the Philippines.
Air Canada engaged the
services of Aerotel as its
general sales agent in the
Philippines to sell passage
documents in the
Page 11 of 20
lustre5159
TAXATION
HELD DOCTRINE
First, the disputed Final The issuance of a valid
Assessment Notice formal assessment is a
(FAN) is not a valid substantive prerequisite
assessment. It lacks for collection of taxes.
the definite amount of
tax liability for which
respondent is
accountable. There are
also no due dates in
the FAN which negates
petitioner’s demand for
payment. Thus, the
Warrant of Distraint
and/or Levy is void
since an invalid
assessment bears no
valid effect.
The Commissioner’s
right to assess has
likewise prescribed.
Fraud is a question of
fact that should be
alleged and duly
proven. It is
indispensable for the
Commissioner to
include the basis for its
allegations of fraud in
the assessment notice
so to aid the taxpayer
in filing an effective
protest.
SC held that Air An offline international
Canada as an offline air carrier selling
international carrier passage tickets in the
with no landing rights in Philippines, through a
the Philippines, is not general sales agent, is
liable to tax on Gross a resident foreign
Philippine Billings corporation doing
under Section 28(A)(3) business in the
of the NIRC because Philippines. As such, it
under that provision, is taxable under
the tax attaches only Section 28(A)(1), and
when the carriage of not Section 28(A)(3) of
persons, excess the 1997 National
baggage, cargo, and Internal Revenue Code,
mail originated from the subject to any
Philippines in a applicable tax treaty to
U.P. LAW BOC lustre5159
Philippines. Air Canada filed
and paid ITR’s in the PH.
Later, they filed a claim for
refund. Air Canada is
saying that the applicable
tax rate against it is 2.5%
under the law on tax on
Resident Foreign
Corporations (RFCs) for
international carriers. It
argues that, as an
international carrier doing
business in the Philippines,
it is not subject to tax at the
regular rate of 32%. The
issue is whether petitioner
Air Canada is subject to the
2 1/2% tax on Gross
Philippine Billings pursuant
to Section 28(A)(3). If not,
whether an offline
international carrier selling
passage documents
through a general sales
agent can be subject to the
regular corporate income
tax of 32% on taxable
income pursuant to Section
28(A)(1).
Republic v. BIR issued a Letter of
GMCC United Authority for the
Development examination of the books of
Corp. accounts and records of
GMCC for taxable years
G.R. No. 191856 | 1998 and 1999. After
December 07, investigation, BIR found out
2016 | J. Leonen that GMCC had not
declared the correct amount
of income. BIR issued PAN
(on Dec 8, 2003) and FAN.
GMCC protested, citing that
the period to assess and
collect the tax had already
prescribed. BIR denied the
Page 12 of 20
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TAXATION
continuous and which the Philippines is
uninterrupted flight, a signatory. Pursuant to
regardless of where the Article 8 of the Republic
passage documents of the Philippines-
were sold. Canada Tax Treaty, Air
Petitioner falls within Canada may only be
the definition of imposed a maximum
resident foreign tax of 1 1/2% of its
corporation under gross revenues earned
Section 28(A)(1) of the from the sale of its
1997 NIRC. As early as tickets in the
1987, this court in CIR Philippines.
v. British Overseas
Airways Corporation
declared British
Overseas Airways
Corporation, an
international air carrier
with no landing rights in
the Philippines, as a
resident foreign
corporation engaged in
business in the
Philippines through its
local sales agent that
sold and issued tickets
for the airline company.
Aerotel performs acts
or works or exercises
functions that are
incidental and
beneficial to the
purpose of petitioner's
business. The activities
of Aerotel bring direct
receipts or profits to the
petitioner.
SC held that the 3-year For the 10-year period
prescriptive period under Sec 222(a) to
applies in this case. apply, it is not enough
Petitioner fails to that fraud is alleged in
convince that the complaint, it must
respondents filed a be established by clear
fraudulent tax return. and convincing
The respondents may evidence.
have erred in reporting
their tax liability when Sec. 203 prohibits two
they recorded the acts after the expiration
assailed transactions in of the 3-year period.
the wrong year, but First, an assessment
such error stemmed for the collection of the
from the wrong taxes in the return, and
U.P. LAW BOC lustre5159
protest and filed criminal
action against GMCC. The
DOJ dismissed the criminal
complaint. CA affirmed this.
Before the SC, BIR insists
that Sec. 222 of the NIRC
(10-year period) should be
applied and not Sec. 203
(3- year period).
ING Bank N.V. v. ING Bank is a foreign
Commissioner of banking corporation
Internal Revenue incorporated in the
Netherlands. In ING,
G.R. No. 167679 | employee bonuses were
July 22, 2015, determined during the year
April 20, 2016 (1996 and 1997) but were
(Resolution) | distributed in the
Leonen, J. succeeding year. No
withholding of income tax
was effected but the
bonuses were claimed as
an expense for the year. In
this case, one of its
assertions is that it is not
liable for deficiency
withholding taxes on
bonuses accruing to its
officers and employees
Page 13 of 20
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TAXATION
application of the law second, initiating a
and is not an indication court proceeding on the
of their intent to evade basis of such return.
payment. If there were
really an intent to
evade payment,
respondents would not
have reported and
subsequently paid the
income tax, albeit in the
wrong year.
The last day prescribed
by law for filing its 1998
tax return was April 15,
1999. The petitioner
had 3 years or until
2002 to make an
assessment. Since the
PAN was made only on
December 8, 2003, the
period to assess the tax
had already prescribed.
The State Prosecutor
was correct in
dismissing the
complaint for tax
evasion since it was
clear that the
prescribed return
cannot be used as
basis for the case.
SC held ING bank is The obligation of the
liable for deficiency payor/employer to
withholding tax on deduct and withhold the
accrued bonuses for related withholding tax
taxable years 1996 and arises at the time the
1997. Petitioner ING income was paid or
Bank accrued or accrued or recorded as
recorded the bonuses an expense in the
as deductible expense payor's/employer's
in its books. Therefore, books, whichever
its obligation to comes first
withhold the related
withholding tax due
from the deductions for
accrued bonuses arose
at the time of accrual
and not at the time of
actual payment.
U.P. LAW BOC lustre5159
during taxable years 1996
and 1997. It maintains its
position that the liability of
the employer to withhold the
tax does not arise until such
bonus is actually
distributed.
Banco de Oro The Bureau of Treasury
(BDO) v. (BTr) issued a notice to all
Republic Government Securities
Eligible Dealers (GSED)
G.R. No. 198756 | announcing that P30 billion
August 16, 2016 | worth of 10-year Zero-
Leonen, J. coupon Bonds (PEACe
Bonds) would be auctioned
off and that “being limited to
19 lenders and while
taxable shall not be subject
to the 20% final withholding
tax.” RCBC participated in
the auction on behalf of
Caucus of Development
NGO Networks (CODE-
NGO) and won the bid. On
the same day, RCBC
entered into an underwriting
agreement with CODE-
NGO. Banco de Oro, et al.
purchased the Government
Bonds from RCBC, the
underwriter. Eleven days
before the maturity of the
Bonds, the BIR issued BIR
Ruling No. 370-2011
declaring that the PEACe
Bonds, being deposit
substitutes, were subject to
20% final withholding tax.
Upon a petition filed directly
before the SC, it held in
favor of the petitioners and
ordered the BTr to release
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TAXATION
Compensation is
constructively paid
within the meaning of
these regulations when
it is credited to the
account of or set apart
for an employee so that
it may be drawn upon
by him at any time
although not then
actually reduced to
possession. To
constitute payment in
such a case, the
compensation must be
credited or set apart for
the
The SC ruled that the For internal revenue tax
reckoning of the phrase purposes, even debt
"20 or more lenders" instruments issued and
should be at the time sold to 20 or more
when RCBC Capital lenders/investors by
sold the PEACe bonds commercial or industrial
to investors (secondary companies to finance
market). Should the their own needs are
number of investors to considered deposit
whom RCBC Capital substitutes, taxable as
distributed the PEACe such.
bonds be found to be
20 or more, the PEACe The existence of 20 or
Bonds are considered more lenders should be
deposit substitutes reckoned at the time
subject to the 20% final when the successful
withholding tax. GSED (Government
Securities Eligible
RCBC/CODE-NGO and Dealer)-bidder
RCBC Capital, as well distributes the
as the final government securities
bondholders who have to final holders. When
recourse to government the GSED sells the
upon maturity, are government securities
liable to pay the 20% to 20 or more investors,
final withholding tax. the government
However, the Court securities are deemed
found that the decision to be in the nature of a
should only be applied deposit substitute,
prospectively as the taxable as such.
herein petitioners
simply relied in good
faith on the opinions of
the BIR stating that the
20-lender rule is to be
U.P. LAW BOC lustre5159
the 20% final withholding
tax it had withheld on the
transactions.
ING Bank v. CIR A prior decision of the CA
held petitioner ING Bank
liable for multiple deficiency
taxes for 1996 and 1997 .
While this case was
pending before the SC, ING
Bank filed a Manifestation
and Motion stating that it
availed itself of the
government’s tax amnesty
program under RA No.
9480. Nevertheless, a FAN
was still issued for the
deficiency taxes for said
years. The FAN also
covered deficiency
withholding tax
compensation which was
not covered by the tax
amnesty, to which ING
Bank protested as said
compensation was not yet
distributed to its employees
at these taxable years.
Page 15 of 20
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TAXATION
determined at the time
of the original issuance
(primary market). To
apply the herein
interpretation
retroactively would be
tantamount to a
violation of due
process.
Neither the law nor the Qualified taxpayers
implementing rules with pending tax cases
state that a court ruling may still avail
that has not attained themselves of the tax
finality would preclude amnesty program
the availment of the under RA No. 9480,
benefits of the Tax otherwise known as the
Amnesty Law. Both 2007 Tax Amnesty Act.
R.A. 9480 and DOF Thus, the provision in
Order No. 29-07 are BIR Revenue
quite precise in Memorandum Circular
declaring that "[t]ax No. 19-2008 excepting
cases subject of final "issues and cases
and executory which were ruled by
judgment by the courts" any court (even without
are the ones excepted finality) in favor of the
from the benefits of the BIR prior to amnesty
law. In LG Electronics availment of the
Philippines, Inc. v. taxpayer" from the
Commissioner of benefits of the law is
Internal Revenue, the illegal, invalid, and null
court ruled that only and void. The duty to
cases that involve final withhold the tax on
and executory compensation arises
judgments are upon its accrual.
excluded from the tax
amnesty program as
explicitly provided
under Section 8 of RA
No. 9480. Thus,
petitioner ING Bank is
not disqualified from
availing itself of the tax
amnesty under the law
during the pendency of
its appeal before this
court.
The tax on
compensation income
is withheld at source
under the creditable
withholding tax system
wherein the tax
U.P. LAW BOC lustre5159 TAXATION

withheld is intended to
equal or at least
approximate the tax
due of the payee on the
said income. It was
designed to enable (a)
the individual taxpayer
to meet his or her
income tax liability on
compensation earned;
and (b) the government
to collect at source the
appropriate taxes on
compensation. Taxes
withheld are creditable
in nature. Thus, the
employee is still
required to file an
income tax return to
report the income
and/or pay the
difference between the
tax withheld and the tax
due on the income. For
over withholding, the
employee is refunded.
Therefore, absolute or
exact accuracy in the
determination of the
amount of the
compensation income
is not a prerequisite for
the employer’s
withholding obligation
to arise.
For a taxpayer using
the accrual method, the
determinative question
is, when do the facts
present themselves in
such a manner that the
taxpayer must
recognize income or
expense? The accrual
of income and expense
is permitted when the
all-events test has been
met. This test requires:
(1) fixing of a right to
income or liability to
pay; and (2) the
availability of the
reasonable accurate

Page 16 of 20
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U.P. LAW BOC lustre5159 TAXATION

determination of such
income or liability.
If the taxpayer is on
cash basis, the
expense is deductible
in the year it was paid,
regardless of the year it
was incurred. If he is on
the accrual method, he
can deduct the
expense upon accrual
thereof. An item that is
reasonably ascertained
as to amount and
acknowledged to be
due has "accrued";
actual payment is not
essential to constitute
"expense."
Stated otherwise, an
expense is accrued and
deducted for tax
purposes when (1) the
obligation to pay is
already fixed; (2) the
amount can be
determined with
reasonable accuracy;
and (3) it is already
knowable or the
taxpayer can
reasonably be
expected to have
known at the closing of
its books for the taxable
year.
Petitioner ING Bank
accrued or recorded
the bonuses as
deductible expense in
its books. Therefore, its
obligation to withhold
the related withholding
tax due from the
deductions for accrued
bonuses arose at the
time of accrual and not
at the time of actual
payment.

Page 17 of 20
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U.P. LAW BOC lustre5159
2015
CASE FACTS
CE Casecnan v. On Sept. 26, 2007, CE
CIR Casecnan filed before the
BIR an administrative claim
GR No. 203928 | for refund or issuance of tax
July 22, 2015 | credit certificate for
Leonen unutilized input VAT. On
March 14, 2008, it filed a
petition for review w/ CTA
due to the inaction of the
CIR on its administrative
claim. CTA denied the
judicial claim for having
been filed beyond the 30
day period in Sec. 112 of
the NIRC.
BDO v. Republic The Bureau of Treasury
issued zero-coupon
GR No. 198756 | treasury certificates (T-
Jan. 13, 2015 | notes) to RCBC/CODE-
Leonen NGO which were sold to
investors as the PEACe
bonds. The net proceeds
would be used to endow a
permanent fund to finance
projects of NGOs. A zero-
coupon bond is bought at a
price substantially lower
than its face value, with the
face value repaid at the
time of maturity. It does not
Page 18 of 20
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TAXATION
HELD DOCTRINE
The prescriptive The 30 day period to
periods regarding appeal in Sec. 112 of
claims for refund or NIRC is mandatory and
credit of input VAT are jurisdictional. The
explicitly set forth in window of exemption in
Sec. 112 of the NIRC. San Roque is limited to
Compliance with the premature filing of the
120 day and 30 day judicial remedy and
periods are mandatory does not cure lack of
and jurisdictional. In jurisdiction due to late
this case, the filing.
administrative claim
was filed on Sept. 26,
2007. CASE Thus, the
120 day period for the
BIR to act on the claim
lapsed on Jan. 24,
2008. CE Casecnan
had until Feb. 23, 2008
to file a petition before
the CTA, but it filed its
appeal only on March
14, 2008. The only
exception to the rule is
VAT refund cases that
were prematurely filed
between Dec. 10, 2003
and Oct. 6, 2010,
pursuant to the San
Roque ruling. This
exception pertains only
to premature claims
and does not extend to
belatedly filed claims.
Sec. 22(Y) of the NIRC To qualify as a deposit
defines a deposit substitute subject to
substitute as an 20% FWT, the funds
alternative form of must be obtained from
obtaining funds from 20 or more lenders at
the public other than any one time. ‘At any
deposits, through the one time’ refers to
issuance of debt every transaction
instruments for the executed whether in
borrower’s own the primary or
account. The law secondary market.
further defines the term
‘public’ to mean
borrowing from 20 or
more individual or
U.P. LAW BOC lustre5159
make periodic interest
payments, however, the
discount to face value
constitutes the return to the
bondholder. CIR issued BIR
Ruling No. 370-2011
declaring that the PEACe
bonds being deposit
substitutes are subject to
20% final withholding tax,
regardless of the number of
purchasers/lenders at the
time of origination/issuance.
Thus, the Secretary of
Finance directed the
Bureau of Treasury to
withhold 20% final tax from
the face value of the bonds
upon their payment at
maturity. BIR later issued
BIR Ruling No. DA 378-
2011 clarifying that the tax
should be imposed on all
subsequent holders of the
bonds. Petitioners seek to
annul the BIR Rulings and
prohibit the Bureau of
Treasury from withholding
the tax.
Page 19 of 20
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TAXATION
corporate lenders at
any one time. The
number of lenders is
determinative of
whether a debt
instrument is
considered a deposit
substitute subject to
FWT. The phrase ‘at
any one time’ refers to
every transaction
executed whether in
the primary or
secondary market.
Debt instruments that
are not deposit
substitutes, while not
subject to FWT, are
subject to regular
income tax. BIR Ruling
370-2011 is void
because it completely
disregarded the 20 or
more lender rule
provided in the NIRC.
Administrative
issuances must not
override the law but
must remain consistent
with the law they intend
to carry out. Only
Congress can repeal or
amend the law.
The sale of the PEACe
bonds involved the
issuance of the bonds
by the Bureau of
Treasury to RCBC/
CODE-NGO, and the
sale by RCBC/CODE-
NGO of the PEACe
bonds to undisclosed
investors. In reality, the
entire borrowing
received by the Bureau
of Treasury in
exchange for the
PEACe bonds was
sourced directly from
the undisclosed
number of investors. At
this point, however, we
U.P. LAW BOC lustre5159 TAXATION

do not know how many

investors the bonds
were sold to by RCBC.
Should there have
been a simultaneous
sale to 20 or more
investors, the PEACe
bonds are deemed
deposit substitutes
subject to 20% FWT on
the discount. The
obligation to withhold
would likewise be
required of any investor
who sells the bonds
simultaneously to 20 or
more investors. Should
the PEACe bonds be
found to be a deposit
substitute, the proper
procedure was for the
Bureau of Treasury to
pay the face value to
the bondholders and for
BIR to collect the FWT
from RCBC or any
investor, as the
withholding agents.

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