1.

COLLECTOR OF INTERNAL REVENUE VS. DOMINGO DE LARA (AS

ANCILLIARY ADMINISTRATOR OF THE ESTATE OF HUGO H. MILLER) &
COURT OF TAX APPEALS
GR Nos. L-9456 & L-9481, January 6, 1958

TOPIC: ON ESTATE TAXES

FACTS:
Hugo H. Miller is an American citizen born in Santa Cruz, California, USA. In 1905, he came to the Philippines to work as a
public school teacher and later as a division superintendent. After his retirement, he accepted an executive position in a
US-based book publishing company (Ginn & Co.) where he was stationed in the Philippines as the Oriental representative.
In 1941, Hugo executed his last will and testament in Santa Cruz, California, in which he declared that he was “of Santa Cruz,
California”. At the time of his death allegedly by execution by the Japanese forces in Leyte during the Pacific War, he owned
several real and personal properties situated in California and shares of stocks in Philippine corporations.
Testate proceedings were instituted before a California court which admitted the will to probate and wherein it was found that
Hugo Miller was a resident of the Santa Cruz County, California at the time of his death. Subsequently, ancillary proceedings
were also filed by the executors before the CFI of Manila, which also admitted the will to probate. The co-executor named in the
will filed an estate and inheritance tax return with the CIR, covering only the shares of stocks issued by Philippine corporations.
The CIR made an assessment of the liability for estate and inheritance taxes. The estate of Miller protested but to no avail.
The ancillary administrator (private respondent) appealed the same up to the CTA which rendered a decision
ordering private respondent to pay the assessed estate taxes. Hence, this appeal.

ISSUE:
WON the decedent was a resident of the Philippines at the time of his death for the purpose of determining his gross estate.

RULING:
No. At the time of the promulgation of the NIRC, the prevailing construction given by the courts to the term "residence" was
synonymous with domicile, and that the two were used interchangeably. In the United States, for estate tax purposes, a resident
is considered one who at the time of his death had his domicile in the United States.

2.

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
ANTONIO CAMPOS RUEDA, respondent.
G.R. No. L-13250
Oct. 29, 1971

FACTS:

This is an appeal interposed by petitioner Antonio Campos Rueda, administrator of the estate of the deceased Doña Maria de la
Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector of Internal Revenue, assessing against and
demanding from the former the sumP161,874.95 as deficiency state and inheritance taxes, including interests and penalties, on
the transfer of intangible personal properties situated in the Philippines and belonging to said Maria de la Estrella Soriano Vda.
de Cerdeira. Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish national, because of her
marriage to a Spanish citizen and was a resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At the time
of her demise she left, among others, intangible personal properties in the Philippines.” Then came this portion: “On September
29, 1955, petitioner filed a provisional estate and inheritance tax return on all the properties of the late Maria Cerdeira. On the
same date, respondent, pending investigation, issued an assessment for estate and inheritance taxes which tax liabilities were
paid by petitioner.
On November 17, 1955, an amended return was filed …where intangible personal properties with were claimed as exempted
from taxes. On November 23, 1955, respondent, pending investigation, issued another assessment for estate and inheritance
taxes. In a letter, dated January 11, 1956, respondent denied the request for exemption on the ground that the law of Tangier is
not reciprocal to Section 122 of the National Internal Revenue Code. Hence, respondent demanded the payment OF deficiency
estate and inheritance taxes including ad valorem penalties, surcharges, interests and compromise penalties . . . . In a letter
dated February 8, 1956, and received by respondent on the following day, petitioner requested for the reconsideration of the
decision denying the claim for tax exemption of the intangible personal properties and the imposition of the 25% and 5% ad
valorem penalties. However, respondent denied this request, in his letter dated May 5, 1956 . . . and received by petitioner on
May 21, 1956. Respondent premised the denial because there was no reciprocity [with Tangier, which was moreover] a mere
principality, not a foreign country. Consequently, respondent demanded the payment of deficiency estate and inheritance taxes
including surcharges, interests and compromise penalties

ISSUE:
Is Tangier a foreign country?

HELD:
Yes. It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line with Pound’s
formulation that it be a politically organized sovereign community independent of outside control bound by ties of nationhood,
legally supreme within its territory, acting through a government functioning under a regime of law. 9 It is thus a sovereign
person with the people composing it viewed as an organized corporate society under a government with the legal competence
to exact obedience its commands. It has been referred to as a body politic organized by common consent for mutual defense
and mutual safety and to promote the general welfare. Correctly has it been described by Esmein as “the juridical
personification of the nation.” This is to view it in the light its historical development. The stress is on its being a nation, its
people occupying a definite territory, politically organized, exercising by means of its government its sovereign will over the
individuals within it and maintaining its separate international personality. Laski could speak of it then as a territorial society
divided into government and subjects, claiming within its allotted area a supremacy over all other institutions. McIver similarly
would point to the power entrusted to its government to maintain within its territory the conditions of a legal order and to enter
into international relations. With the latter requisites satisfied, international law does not exact independence as a condition of
statehood. So Hyde did opine.
Even on the assumption then that Tangier is bereft of international personality petitioner has not successfully made out a case.
It bears repeating that four days after the filing of this petition on January 6, 1958 in Collector of Internal Revenue v. De Lara, it
was specifically held by us: “Considering the State of California as a foreign country in relation to section 122 of our Tax Code we
believe and hold, as did the Tax Court, that the Ancillary Administrator is entitled to exemption from the inheritance tax on the
intangible personal property found in the Philippines.” There can be no doubt that California as a state in the American Union
was lacking in the alleged requisite of international personality. Nonetheless, it was held to be a foreign country within the
meaning of Section 122 of the National Internal Revenue Code.

3.
Dizon v. CTA G.R. No. 140944; 30 April 2008
Dizon v. CTA
G.R. No. 140944, 30 April 2008

Facts:
1.     Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will was filed.

2.     The probate court then appointed retired  Justice Dizon and petitioner, Atty. Rafael Arsenio P. Dizon as Special and Assistant
Special Administrator.

3.     Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the
Estate.

4.     Petitioner alleged that several requests for extension of the period to file the required estate tax return were granted by the
BIR since the assets of the estate, as well as the claims against it, had yet to be collated, determined and identified.

5.     Justice Dizon authorized Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return and to
represent the same in securing a Certificate of Tax Clearance.

6.     Atty. Gonzales wrote a letter addressed to the BIR Regional Director and filed the estate tax return with the same BIR
Regional Office, showing therein a NIL estate tax liability.

7.     BIR Regional Director issued Certification stating that the taxes due on the transfer of real and personal properties of Jose
had been fully paid and said properties may be transferred to his heirs.

8.     Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the purpose of
paying its creditors. However, the Assistant Commissioner for Collection of the BIR, issued Estate Tax Assessment Notice
demanding the payment of P66,973,985.40 as deficiency estate tax.
9.     Atty. Gonzales moved for the reconsideration of the said estate tax assessment but the BIR Commissioner denied the
request. So petitioner filed a petition for review before the CTA.

10.    During the hearings conducted, petitioner did not present testimonial evidence but merely documentary evidence
consisting of the following:

a.     Letter to CIR informing them of the probate proceedings

b.     Petition for probate of will and issuance of letter of administration
c.      Inventory
d.     Several claims against the estate
e.     Estate tax return
f.      Certification of Payment of Taxes

11.   Respondent's [BIR] counsel presented one witness in the person of Alberto Enriquez, who was one of the revenue
examiners who conducted the investigation on the estate tax case of Jose. In the course of the direct examination of the
witness, he identified the following:
a.     Estate tax return prep by BIR
b.     Demand Letter
c.      Assessment Notice
d.     Etc…..

12.   CTA: denied pet. For review citing this Court's ruling in Vda. de Oñate v. Court of Appeals, the CTA opined that the
aforementioned pieces of evidence introduced by the BIR were admissible in evidence.
a.      Although the above-mentioned documents were not formally offered as evidence for respondent, considering that
respondent has been declared to have waived the presentation thereof during the hearing on March 20, 1996, still they could be
considered as evidence for respondent since they were properly identified during the presentation of respondent's witness,
whose testimony was duly recorded as part of the records of this case. Besides, the documents marked as respondent's exhibits
formed part of the BIR records of the case.

b.     the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of the deficiency
estate tax.= P 37,419,493.7

13.   Petitioner filed a pet. For review with the CA. CA: Affirmed CTA; the petitioner's act of filing an estate tax return with the
BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR Commissioner of her authority to re-
examine or re-assess the said return filed on behalf of the Estate. MR denied

Issue:
WON the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which were not formally offered by
the BIR

Contentions:
Petitioner- claims that in as much as the valid claims of creditors against the Estate are in excess of the gross estate, no estate
tax was due; that the lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda. de Oñate has
already been abandoned in a long line of cases in which the Court held that evidence not formally offered is without any weight
or value; that Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in character;
that, while BIR's witness Alberto Enriquez (Alberto) in his testimony before the CTA identified the pieces of evidence
aforementioned such that the same were marked, BIR's failure to formally offer said pieces of evidence and depriving petitioner
the opportunity to cross-examine Alberto, render the same inadmissible in evidence; that assuming arguendo that the ruling in
Vda. de Oñate is still applicable, BIR failed to comply with the doctrine's requisites because the documents herein remained
simply part of the BIR records and were not duly incorporated in the court records

Respondent- counters that the documents, being part of the records of the case and duly identified in a duly recorded testimony
are considered evidence even if the same were not formally offered;

Held:
Yes, No evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence
require that these documents must be formally offered before the CTA.

The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated this Court's previous rulings in People v. Napat-a
and People v. Mate on the admission and consideration of exhibits which were not formally offered during the trial. Although in
a long line of cases many of which were decided after Vda. de Oñate, we held that courts cannot consider evidence which has not
been formally offered, nevertheless, petitioner cannot validly assume that the doctrine laid down in Vda. de Oñate has already
been abandoned.

Recently, in Ramos v. Dizon, this Court, applying the said doctrine, ruled that the trial court judge therein committed no error
when he admitted and considered the respondents' exhibits in the resolution of the case, notwithstanding the fact that the
same were not formally offered.

Indubitably, the doctrine laid down in Vda. De Oñate still subsists in this jurisdiction. In Vda. de Oñate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered. Corollarily, the
mere fact that a particular document is identified and marked as an exhibit does not mean that it has already been offered as
part of the evidence of a party. Xxx

However, in People v. Napat-a citing People v. Mate, we relaxed the foregoing rule and allowed evidence not formally offered to
be admitted and considered by the trial court provided the following requirements are present, viz.: first, the same must have
been duly identified by testimony duly recorded and, second, the same must have been incorporated in the records of the case.

From the foregoing declaration, however, it is clear that Vda. de Oñate is merely an exception to the general rule. Being an
exception, it may be applied only when there is strict compliance with the requisites mentioned therein; otherwise, the general
rule in Section 34 of Rule 132 of the Rules of Court should prevail.

In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence were presented and
marked during the trial particularly when Alberto took the witness stand. Alberto identified these pieces of evidence in his direct
testimony. He was also subjected to cross-examination and re-cross examination by petitioner. But Alberto's account and the
exchanges between Alberto and petitioner did not sufficiently describe the contents of the said pieces of evidence presented by
the BIR. In fact, petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be summoned totestify, inasmuch as
Alberto was incompetent to answer questions relative to the working papers. The lead examiner never testified. Moreover,
while Alberto's testimony identifying the BIR's evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case.

A common fact threads through Vda. de Oñate and Ramos that does not exist at all in the instant case. In the aforementioned
cases, the exhibits were marked at the pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:

In this case, we find and so rule that these requirements have been satisfied.
The exhibits in question were presented and marked during the pre-trial of the case thus, they have been incorporated into the
records. Further, Elpidio himself explained the contents of these exhibits when he was interrogated by respondents' counsel...

While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in themselves and are
primarily intended as tools in the administration of justice, the presentation of the BIR's evidence is not a mere procedural
technicality which may be disregarded considering that it is the only means by which the CTA may ascertain and verify the truth
of BIR's claims against the Estate. The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to
its cause. Such failure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence [48] in the hearing of February 21, 1996, but BIR's
counsel failed to appear.[49] The CTA denied petitioner's motion to consider BIR's presentation of evidence as waived, with a
warning to BIR that such presentation would be considered waived if BIR's evidence would not be presented at the next hearing.
Again, in the hearing of March 20, 1996, BIR's counsel failed to appear [50] Thus, in its Resolution [51] dated March 21, 1996, the
CTA considered the BIR to have waived presentation of its evidence. In the same Resolution, the parties were directed to file
their respective memorandum. Petitioner complied but BIR failed to do so [52] In all of these proceedings, BIR was duly notified.
Hence, in this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]
A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon
the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the purpose or purposes for
which the proponent is presenting the evidence. On the other hand, this allows opposing parties to examine the evidence and
object to its admissibility. Moreover, it facilitates review as the appellate court will not be required to review documents not
previously scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled that the formal offer of
one's evidence is deemed waived after failing to submit it within a considerable period of time. It explained that the court
cannot admit an offer of evidence made after a lapse of three (3) months because to do so would "condone an inexcusable laxity
if not non-compliance with a court order which, in effect, would encourage needless delays and derail the speedy administration
of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to consider that
petitioners had waived their right to make a formal offer of documentary or object evidence. Despite several extensions of time
to make their formal offer, petitioners failed to comply with their commitment and allowed almost five months to lapse before
finally submitting it. Petitioners' failure to comply with the rule on admissibility of evidence is anathema to the efficient,
effective, and expeditious dispensation of justice.

*other issue:
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. Verily, the second issue in this case
involves the construction of Section 79 of the NIRC which provides for the allowable deductions from the gross estate of the
decedent.

The specific question is whether the actual claims of the aforementioned creditors may be fully allowed as deductions from the
gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered
into by the Estate with its creditors.

We express our agreement with the date-of-death valuation rule. Xxx the claims existing at the time of death are significant to,
and should be made the basis of, the determination of allowable deductions.

4.
Vera vs. Fernandez
No. L-31364, March 30, 1979

FACTS:
Petitioner CIR and BIR Regional Director filed an Allowance of Claim and for an Order of Payment of Taxes in the Special
Proceedings for the settlement of  intestate estate of Luis Tongoy. The claim represents the indebtedness of the deceased to the
government for the deficiency income taxes for the years 1963 and 1964. The petitioners filed the motions after the expiration
of the time limited in the notice but before an order of the distribution is entered. Respondent Judge Fernandez granted the
opposition by the Administrator on the ground that the claim has already prescribed.

ISSUE:
May the claim for taxes against the estate of a deceased person be still collected?

RULING:
Yes. The claim for taxes against a decedent’s estate is exempted from the application of the statute of non-claims as taxes are
the lifeblood of the government and their prompt and certain availability are imperious need.
This is not a case of prescription. Claims for taxes may be collected even after the distribution of the decedent’s estate among
his heirs who shall be liable therefore in proportion of their share.
Tax obligations of decedent which are created by law are different from money claims against decedent arising from contract
provided by Section 5 Rule 85 of the Rules of Court. Taxes are entirely of different character from the claims expressly
enumerated in this provision, such as: all claims for money against the decedent arising from contract, express or implied,
whether the same be due, not due or contingent, all claims for funeral expenses and expenses for the last sickness of the
decedent and judgment for money against the decedent.

5.
Commissioner of Internal Revenue vs Pineda
No. L-22734, September 15, 1967

FACTS:
Respondent Manuel Pineda, as one of the heirs of the deceased Atanasio Pineda, received an amount of P2500 from the estate
of his deceased father as his share in the inheritance. The BIR assessed the estate with income tax deficiency and made Manuel
Pineda liable for the payment of all the taxes due from the estate in the total amount of P760.28 instead of only for the amount
of taxes corresponding to his share in the estate.

ISSUE:
Can the Government require an heir to pay the full amount of the taxes assessed?
RULING:
Yes, an heir is liable but it cannot exceed the amount of his share. He is liable for the assessment as an heir and as a holder-
transferee of property belonging to the estate-taxpayer. As an heir he is individually answerable for the part of the tax
proportionate to the share he received from the inheritance. As a holder of the property belonging to the estate, he is liable for
the tax up to the amount of the property in his possession. The Government has a lien on such property. But after payment of
such amount, he will have a right to contribution from his co-heirs.
The Government has two ways of collecting the taxes in question:
1. By going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance
received; or
2. 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.
In this case, the BIR opted for the second remedy to collect the tax as it has the discretion to avail the most expeditious way to
collect the tax. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need.

6.

ABELLO vs. CIR

Facts:

1. During the 1987 national elections, petitioners, who are partners in the Angara, Abello,

Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882, 661.31 each to the campaign funds of Senator Edgardo
Angara, then running for the Senate.

2. The BIR assessed each of the petitioners P263, 032.66 for their contributions.

3. Petitioners questioned the assessment.

4. They claimed that political or electoral contributions are not considered gifts under the NIRC, and that, therefore, they
are not liable for donors tax.

5. The claim for exemption was denied by the Commissioner.

Issue/Ruling:

(1) Whether or not the political contribution is considered donation

Section 91 of the National Internal Revenue Code (NIRC) reads:

(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property
by gift, a tax, computed as provided in Section 92

(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible.

Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the patrimony of
the donee; and, (c) the intent to do an act of liberality or animus donandi.

The present case falls squarely within the definition of a donation. Petitioners, each gave P882, 661.31 to the
campaign funds of Senator Edgardo Angara, without any material consideration. All three elements of a donation are present.
The patrimony of the four petitioners were reduced by P882, 661.31 each. Senator Edgardo Angaras patrimony correspondingly
increased by P3, 530,645.24. There was intent to do an act of liberality or animus donandi was present since each
of the petitioners gave their contributions without any consideration.

(2) Whether or not there is intention to do an act of liberality

First of all, donative intent is a creature of the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present when one gives a part of ones patrimony to
another without consideration.
Second, donative intent is not negated when the person donating has other intentions, motives or purposes which do not
contradict donative intent. This Court is not convinced that since the purpose of the contribution was to help elect a
candidate, there was no donative intent. Petitioners’ contribution of money without any material consideration evinces
animus donandi. The fact that their purpose for donating was to aid in the election of the donee does not negate the presence
of donative intent.

(3) The definition of an electoral contribution under the Omnibus Election Code is essential to appreciate how a political
contribution differs from a taxable gif

Section 94(a) of the said Code defines electoral contribution as follows:

The term "contribution" includes a gift, donation, subscription, loan, advance or deposit of money or anything of value, or a
contract, promise or agreement to contribute, whether or not legally enforceable, made for the purpose of influencing
the results of the elections but shall not include services rendered without compensation by individuals volunteering a portion
or all of their time in behalf of a candidate or political party. It shall also include the use of facilities voluntarily donated by other
persons, the money value of which can be assessed based on the rates prevailing in the area.

Since the purpose of an electoral contribution is to influence the results of the election, petitioners again claim that donative
intent is not present. Petitioners attempt to place the barrier of mutual exclusivity between donative intent and the purpose of
political contributions. The Court reiterates that donative intent is not negated by the presence of other intentions, motives or
purposes which do not contradict donative intent. Petitioners would distinguish a gift from a political donation by saying that the
consideration for a gift is the liberality of the donor, while the consideration for a political contribution is the desire of the giver
to influence the result of an election by supporting candidates who, in the perception of the giver, would influence the shaping
of government policies that would promote the general welfare and economic wellbeing of the electorate, including the giver
himself.

The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute, in no
way amounts to a valuable material consideration so as to remove political contributions from the purview of a donation.

Senator Angara was under no obligation to benefit the petitioners. The proper performance of his duties as a legislator is his
obligation as an elected public servant of the Filipino people and not a consideration for the political contributions he received.
In fact, as a public servant, he may even be called to enact laws that are contrary to the interests of his benefactors, for the
benefit of the greater good.

(4) Final Note

Subsequent to the donations involved in this case, Congress approved Republic Act No. 7166 on November 25, 1991, providing
in Section 13 thereof that political/electoral contributions, duly reported to the Commission on Elections, are not subject
to the payment of any gift tax. These all the more shows that the political contributions herein made are subject to the payment
of gift taxes, since the same were made prior to the exempting legislation, and Republic Act No. 7166 provides no retroactive
effect on this point.

7.

CIR vs. Seagate Technology

Commissioner of Internal Revenue vs. Seagate Technology (Philippines)

G.R. NO. 153866, February 11, 2005

FACTS:
Respondent, Seagate Technology is registered with the Philippine Export Zone Authority (PEZA) under Presidential Decree No.
66, as amended, to engage in the manufacture of recording components primarily used in computers for export. Also a VAT-
registered entity, it filed VAT returns for the period 1 April 1998 to 30 June 1999. However, on 4 October 1999 it filed an
administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 representing the value of the taxes of the
capital goods and services it had purchased. This application for refund was not acted upon by the CIR on the ground that
Seagate failed to prove that it was entitled to the refund/credit sought so the latter filed a Petition for Review with the CTA.

CTA’s decision: Granted the claim for refund.

CA’s decision: Affirmed the grant of refund in the reduced amount. Seagate had availed itself only of the fiscal incentives under
Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of those under both Presidential
Decree No. (PD) 66, as amended, 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.

ISSUE:
Whether or not Seagate Technology is entitled to the refund or issuance of Tax Credit Certificate in the amount of
P12,122,922.66 representing its unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30,
1999.

RULING:
Yes, it is entitled to a refund of or credit for input VAT. Respondent, as a PEZA-registered enterprise within a special economic
zone, is entitled to the fiscal incentives and benefits provided for in PD 66. It shall also enjoy all privileges, benefits, advantages
or exemptions under both Republic Act Nos. (RA) 7227 and 7844.

Special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone,
which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes,
including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the
5% preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer
be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-
rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having
satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods
purchased, respondent is entitled to VAT refund or credit.

NOTES:

Preferential Tax Treatment Under Special Laws

Petitioner enjoys preferential tax treatment. It is not subject to internal revenue laws and regulations and is even entitled to tax
credits. The VAT on capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the
transactions involving such tax are not exempt, petitioner as a VAT-registered person, however, is entitled to their credits.

A “VAT-registered person” is a taxable person who has registered for VAT purposes under §236 of the Tax Code. VAT-registered
persons shall pay the VAT on a monthly basis.

Nature of the VAT and the Tax Credit Method

The Tax Credit Method relies on invoices wherein an entity can credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports. 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. It is when the output taxes exceed the input
taxes that the excess has to be paid. If, however, the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. 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 instead be refunded to the taxpayer or credited against other
internal revenue taxes.

Indirect tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. While
the liability is imposed on one person, the burden may be passed on to another.

“Output taxes” refer to the VAT due on the sale or lease of taxable goods, properties or services by a VAT-registered or VAT-
registrable person.

By “input taxes” is meant the VAT due from or paid by a VAT-registered person in the course of trade or business on the
importation of goods or local purchases of goods or services, including the lease or use of property from a VAT-registered
person.

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.
Distinction between Exempt Transaction and Exempt Party
An exempt transaction involves goods or services which, by their nature, are specifically listed in and expressly exempted from
the VAT under the Tax Code, without regard to the tax status –VAT-exempt or not — of the party to the transaction. Indeed,
such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.

An exempt party, on the other hand, is 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.

A “customs territory” means the national territory of the Philippines outside of the proclaimed boundaries of the ecozones,
except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic
zones and/or free ports.

Under the cross-border principle of the VAT system being enforced by the Bureau of Internal Revenue (BIR), no VAT shall be
imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. If
exports of goods and services from the Philippines to a foreign country are free of the VAT, then the same rule holds for such
exports from the national territory — except specifically declared areas — to an ecozone.

An ecozone — indubitably a geographical territory of the Philippines — is, however, regarded in law as foreign soil.

8.

CIR v. CA and COMASERCO (G.R. No. 125355)

March 30, 2000

Commissioner of Internal Revenue, petitioner

CA and Commonwealth Management and Services Corporation, respondents

FACTS: 

1. Commonwealth Management and Services Corp. (COMASERCO) is a corporation duly organized and existing under the laws of
the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the latter to perform
collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other
affiliates.

2. On January 24, 1992, the BIR issued an assessment to Commonwealth Management and Services Corp. (COMASERCO) for
deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988

3. On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT. On
August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the
deficiency VAT.

4. On September 29,1992, COMASERCO filed with the CTA a petition for review contesting the Commissioner's assessment. Its
arguments are as follows:

 The services it rendered to Philamlife and its affiliates, relating to collections, consultative and other technical
assistance, including functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis;

 That it was not engaged in the business of providing services to Philamlife and its affiliates and that it was established to
ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of
services; and 
  That it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss
in taxable year 1988. Since it was not engaged in business, it was not liable to pay VAT.

CTA: Denied COMASERCO's petition. Affirmed the Commissioner's deficiency VAT assessment for the year 1988.

CA: Reversed CTA ruling. Cancelled the assessment for deficiency VAT for the year 1988. The basis for the CA's ruling was a prior
ruling it made in another case involving COMASERCO, where it was held that COMASERCO was not liable to pay fixed and
contractor's tax for services rendered to Philamlife and its affiliates and as such was not engaged in business of providing
services to Philamlife and its affiliates.

Hence, the instant petition for review on certiorari by the Commissioner.

ISSUE:

Whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.

HELD: 

Petition granted. Reversed CA ruling. Reinstated CTA ruling. COMASERCO ordered to pay deficiency VAT as per the assessment
issued by the Commissioner for the taxable year 1988.

1. Who are the persons liable for VAT?

"Section 99, NIRC. Persons liable. - 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 value-added tax (VAT)
imposed in Sections 100 to 102 of this Code.""

2. What does "in the course of trade or business" mean? 

COMASERCO:  The term "in the course of trade or business" requires that the "business" is carried on with a view to profit or
livelihood. In other words, the activities of the entity must be profit-oriented.

SC: Under Sec. 105 (Persons Liable) of  R.A. No. 7716, or the Expanded VAT Law (EVAT), the phrase "in the course of trade or
business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit organization
(irrespective of the disposition of its net income and whether or not it sells exclusively to members of their guests), or
government entity.

This definition applies to all transactions even to those made prior to the enactment of the EVAT Law, which merely stresses that
even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services.

3. Are non-stock, nonprofit organizations or government entities (such as COMASERCO) liable to pay VAT for the sale of goods
and services?

COMASERCO: No, profit motive is material in ascertaining who to tax for purposes of determining liability for VAT.

SC: Yes, even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or services.

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.
This contention finds support in BIR Ruling No. 010-98 issued by the Commissioner on February 5, 1998, which provides that a
domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and
received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services
rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or profit
generated by the entity in the conduct of its activities, was subject to income tax.

4. Is COMASERCO liable to pay VAT?

COMASERCO: Because COMASERCO 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," it couldn't be said that it is performing acts
in the course of trade or business. Hence, it is not liable for the payment of VAT.

SC: The services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. The performance of all kinds of
services for others for a fee, remuneration or consideration is considered as sale of services subject to VAT. (See items 1-3 in
ratio.)

5. Can the CA's ruling in a prior case involving COMASERCO be made applicable in the instant case?

SC: No. The issue in the first case (i.e., whether COMASERCO is engaged in business to determine liability for the payment of
fixed and percentage taxes), is different from the present case, which involves COMASERCO's liability for VAT.

9.

COMMISSIONER OF INTERNAL REVENUE versus SONY PHILIPPINES, INC.

G.R. No. 178697 November 17, 2010

Facts:

1.     the CIR issued Letter of Authority (LOA 19734) authorizing certain revenue officers to examine Sonys books of accounts and
other accounting records regarding revenue taxes for the period 1997 and unverified prior years.

2.     A preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony protested.

3.     Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of demand and the details of
discrepancies.

4.     The CIR assessed a deficiency VAT - P11,141,014.41

Issue:

1.     Whether or not he Letter of Authority is Valid

2.     Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41

Ruling:

1. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer
assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and
other accounting records of a taxpayer for the purpose of collecting the correct amount of tax.

There must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is
that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the
assessment or examination is a nullity.

The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR acting through its revenue officers
went beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from
January to March 1998 or using the fiscal year which ended in March 31, 1998.
It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority should cover a taxable period not
exceeding one taxable year.

2. CIRs argument that Sonys advertising expense could not be considered as an input VAT credit because the same was
eventually reimbursed by Sony International Singapore (SIS).

Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits that should have been realized
from the advertising expense of the latter. It is evident under Section 110 of the 1997 Tax Code that an advertising expense duly
covered by a VAT invoice is a legitimate business expense.  There is also no denying that Sony incurred advertising expense.
Aluquin testified that advertising companies issued invoices in the name of Sony and the latter paid for the same. Indubitably,
Sony incurred and paid for advertising expense/ services. Where the money came from is another matter all together but will
definitely not change said fact.

The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable.

Insofar as the subsidy may be considered as income and, therefore, subject to income tax, the Court agrees. However, the Court
does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as
reimbursement was not even exclusively earmarked for Sonys advertising expense for it was but an assistance or aid in view of
Sonys dire or adverse economic conditions, and was only equivalent to the latters (Sonys) advertising expenses.

There must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale,
barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties
sold, bartered or exchanged by Sony.

10.

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION vs. COMMISSIONER OF

INTERNAL REVENUE, G.R. No. 226556, July 3, 2019

Facts

PSALM, a GOCC created under RA 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA), is mandated to manage the
orderly sale, disposition, and privatization of the NPC generation assets, real estate and other disposable assets, and
Independent Power Producer contracts with the objective of liquidating all NPC financial obligations and stranded contract
costs in an optimal manner.

The BIR issued a Final Assessment Notice (FAN) alleging that, for taxable year ending 31 December 2008, PSALM is liable to pay a
deficiency VAT.

PSALM filed its administrative protest against the FAN, alleging that the privatization of NPC assets is an original mandate of
PSALM and not subject to VAT.

CIR issued its Final Decision on Disputed Assessment, which denied PSALM's protest for lack of factual and legal bases. The CIR
held that the sale of electricity is subject to VAT under RA 9337 and the real properties sold by PSALM are regarded as real
properties used in trade or business.

Thus, PSALM filed a petition for review before the CTA.

CTA Division

PSALM is liable to pay the deficiency VAT, because the enactment of RA 9337 superseded BIR Ruling No. 020-2002, on which
PSALM relied for its VAT exemption. The CTA Third Division found that the sale of generating assets of PSALM - the Masinloc,
Ambuklao-Binga and Pantabangan power plants – fall under "all kinds of goods and properties" subject to VAT under Section
106 of the National Internal Revenue Code of 1997 (NIRC).
CTA En Banc

PSALM is subject to VAT for its sale of generating assets, lease of Naga Complex, and collection of income and receivables,
because these were done in the course of trade or business, and RA 9337 placed the electric power industry under the VAT
system.

*CIR posits that the VAT exemption accorded to PSALM under BIR Ruling No. 020-02 is also deemed revoked since PSALM is a
successor-in-interest of NPC.

Issues

A. Whether psalm's privatization activities are subject to vat

B. Whether psalm is liable for deficiency vat for transactions incidental to its privatization activities

C. Whether psalm is liable for deficiency vat for receivables not arising from sale of goods or services

Ruling

No (A, B and C). The relevant provisions of the NIRC, as amended, state:

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of
the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act 7716.

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively
to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by
nonresident foreign persons shall be considered as being rendered in the course of trade or business.

Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale, disposition, and privatization of
the NPC generation assets, real estate and other disposable assets, and IPP's contracts with the objective of
liquidating all NPC's financial obligations and stranded contract costs in an optimal manner.

PSALM is not a successor-in-interest of NPC. Under its charter, NPC is mandated to "undertake the development of
hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as
well as the transmission of electric power on a nationwide basis." With the passage of the EPIRA law which restructured
the electric power industry into generation, transmission, distribution, and supply sectors, the NPC is now primarily
mandated to perform missionary electrification function through the Small Power Utilities Group (SPUG) and is responsible for
providing power generation and associated power delivery systems in areas that are not connected to the
transmission system. On the other hand, PSALM, a government-owned and -controlled corporation, was created under the
EPIRA law to manage the orderly sale and privatization of NPC's assets with the objective of liquidating all of NPC's financial
obligations in an optimal manner. Clearly, NPC and PSALM have different functions. Since PSALM is not a successor-in-interest of
NPC, the repeal by RA 9337 of NPC's VAT exemption does not affect PSALM.

In any event, even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power plants is not "in the course of
trade or business" as contemplated under Section 105 of the NIRC, and thus, not subject to VAT. The sale of the power plants is
not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC
generation assets. PSALM was created primarily to liquidate all NPC financial obligations and stranded contract costs
in an optimal manner. The purpose and objective of PSALM are explicitly stated in Section 50 of the EPIRA law.
PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is not "in the course of
trade or business" but purely for the specific purpose of privatizing NPC assets in order to liquidate all NPC financial obligations.

Since the lease of Naga Complex and collection of income and receivables are within PSALM's powers necessary to discharge its
mandate under the law and likewise undertaken in the exercise of PSALM's governmental function, we do not find these
activities subject to VAT.