CIR vs. SM Prime Holdings, Inc.

G.R. No. 183505, February 26, 2010

Facts:
Respondents SM Prime Holdings and First Asia are domestic
corporations duly organized and existing under Philippine laws. On
September 26, 2003, the BIR sent SM Prime a Preliminary Assessment
Notice for VAT deficiency on their cinema ticket sales in the amount of
P119,276,047.40 for the taxable year 2000. In response, filed a letter-
protest. On May 15,2002, the BIR sent First Asia a PAN for VAT deficiency
on cinema ticket sales for taxable year 1999 and First Asia also filed a
protest. On April 16, 2004, First Asia was again sent by BIR a PAN for VAT
deficiency on cinema ticket sales for taxable year 2000. This went on for
the years 2002-2005. The Commissioner of Internal Revenue filed his
answers to the petitions filed by both respondents. Petitioner argues that
the enumeration of services subject to VAT in Section 108 of the NIRC is
not exhaustive because it covers all sales of services unless exempted by
law. Respondents then argue that a plain reading of the same section
shows that the gross receipts of proprietors or operators of cinemas/theater
derived from public admission are not among the services subject to VAT
as they were never intended to be subject to any tax imposed by the
national government.

Issue: Whether the gross receipts derived by operators or proprietors of

cinema/theater houses from admission tickets are subject to VAT

Ruling:
The petition is bereft of merit.

A reading of Section 108 of the NIRC of 1997 clearly shows that the
enumeration of the “sale or exchange of services” subject to VAT is not
exhaustive. It is not the legislative intent to impose VAT on those already
covered by the amusement tax. The fact that the local government is the
one that taxes the cinema/theater operators and not the national
government is immaterial. To hold otherwise would be unreasonable as the
cinema/theater houses would be subject to 10% VAT AND 30% amusement
tax.
 Also, rules on tax exemption does not apply in this case.
Respondents need not prove their entitlement to an exemption from the
coverage of VAT. The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is clearly subject to the
tax being levied against him. The reason is that it is both illogical and
impractical to determine who are exempted without first determining who
are covered by the provision. Thus, unless a statute imposes a tax clearly,
expressly and unambiguously, what applies is the equally well-settled rule
that the imposition of a tax cannot be presumed.

WHEREFORE, the petition is denied.

 Southern Cross Cement Corp. vs The Philippine Cement Manufacturers
Corp.
G.R. No. 158540, July 8, 2004

Facts:
Petitioner Southern Cross is a domestic corporation engaged in the
business of cement manufacturing, production, importation and exportation.
Private respondent Philcemcor is an association of domestic cement
manufacturers with 18 members. On May 22, 2001, DTI accepted an
application from respondent alleging that importation of Portland cement in
increased quantities has cause decline in domestic production, capacity
utilization, market share, sales and employment. On November 7 2001, DTI
issued an order as a provisional measure equivalent to P20.60 per 40kg of
importations of Portland cement for a period not exceeding 200 days from
the date of the issuance by the Bureau of Customs of the implementing
Customs Memorandum Order.

Meanwhile, the Tariff Commission, on November 2001, received a

request from DTI for a formal investigation to determine whether or not to
impose a definitive safeguard measure on imports of gray Portland cement,
pursuant to Section 9 of the Safeguard Measures Act and its IRR. After the
investigation, the Tariff made the following condition, to wit:
The elements of serious injury and imminent threat of serious injury
not having been established, it is hereby recommended that no definitive
general safeguard measure be imposed on the importation of gray Portland
cement.

The DTI then received the report and then DTI secretary, Manuel
Roxas II disagreed with the conclusion of the Tariff Commission that there
was no serious injury to the local cement industry cause by the surge of
imports. After consulting with the DOJ regarding its scope of actions to
take, they have no alternative but to abide by the Commission’s
recommendations and denied Philcemcor’s application for safeguard
measures.

Philcemcor received a copy of the DTI decision and later filed with the
Court of Appeals seeking to set aside the DTI decision. They also applied
for a TRO to enjoin the DTI and the BOC from implementing the questioned
Decision and Report. After conducting a hearing, the Court of Appeals
granted the writ sought.

Issue: Whether the TRO is proper?

Ruling:
No. The TRO is improper.

The Court did not grant the provisional relief sought for it would be
tantamount to enjoining the collection of taxes, a peremptory judicial act
which is traditionally frowned upon, unless there is a clear statutory basis
for it. In that regard, Sec. 218 of the Tax Reform Act of 1997 prohibits any
court from granting an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by the internal revenue code. A
similar philosophy is expressed by Section 29 of the SMA, which states that
the filing of a petition for review before the CTA does not stop, suspend, or
otherwise toll the imposition or collection of the appropriate tariff duties or
the adoption of other appropriate safeguard measures. This evinces a clear
legislative intent that the imposition of safeguard measures, despite the
availability of judicial review, should not be enjoined notwithstanding any
timely appeal of the imposition.
 Ormoc Sugar Company vs The Treasurer of Ormoc City
G.R. No. L-23794, Feb. 17, 1968

Facts:
The Municipal Board of Ormoc City passed Ordinance No. 4,
imposing “on any and all productions of centrifugal sugar milled at the
Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to
1% per export sale to the USA and other foreign countries.”

Ormoc Sugar Company, Inc. made payments for the taxes under
protest for a total of P12,087.50. Petitioner then filed before the Court of
First Instance a complaint against the City of Ormoc and its Treasurer,
Municipal Board, and Mayor, alleging that the ordinance was
unconstitutional for being violative of the equal protection clause and the
rule of uniformity of taxation.

Issue: Is the Ordinance issued constitutional?

Held:
No. The ordinance is declared unconstitutional.

The Constitution in the bill of rights provides: ". . . nor shall any
person be denied the equal protection of the laws." (Sec. 1 [1], Art. III)
In Felwa vs. Salas, we ruled that the equal protection clause applies only to
persons or things identically situated and does not bar a reasonable
classification of the subject of legislation, and a classification is reasonable
where (1) it is based on substantial distinctions which make real
differences; (2) these are germane to the purpose of the law; (3) the
classification applies not only to present conditions but also to future
conditions which are substantially identical to those of the present; (4) the
classification applies only to those who belong to the same class.

A perusal of the requisites instantly shows that the questioned

ordinance does not meet them, for it taxes only centrifugal sugar produced
and exported by the Ormoc Sugar Company, Inc. and none other. At the
time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is
true, was the only sugar central in the city of Ormoc. Still, the classification,
to be reasonable, should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and exclusive as to exclude
any subsequently established sugar central, of the same class as plaintiff,
for the coverage of the tax. As it is now, even if later a similar company is
set up, it cannot be subject to the tax because the ordinance expressly
points only to Ormoc City Sugar Company, Inc. as the entity to be levied
upon.
 CIR vs. PLDT
G.R. No. 140230, December 15, 2005

Facts:
PLDT paid the BIR the amount of P164,510,953.00 for various taxes
such as compensating tax, advance sales tax, etc. On March 15, 1994,
PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax
exemption privilege under Sec. 12 of RA 7082. As a response, BIR issued
a ruling that PLDT shall only be subject to the 3% franchise tax and are
exempt from all taxes including VAT. PLDT then filed on December 2, 1993
a claim for tax credit/refund of the VAT, compensating taxes, etc. that it had
been paying in connection with its importation of various equipment,
machineries and spare part needed for its operations.

Issue: Whether or not PLDT is exempt from paying VAT, compensating

taxes, etc. on its importations.

Ruling:
Statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority. To the
one who claims a refund or exemption from tax payments rests the burden
of justifying the exemption by words too plain to be mistake and too
categorical to be misinterpreted.

Jurisprudence thus teaches that imparting the "in lieu of all

taxes" clause a literal meaning, as did the Court of Appeals and the CTA
before it, is fallacious. It is basic that in construing a statute, it is the duty of
courts to seek the real intent of the legislature, even if, by so doing, they
may limit the literal meaning of the broad language.

All told, we fail to see how Section 12 of RA 7082 operates as

granting PLDT blanket exemption from payment of indirect taxes, which, in
the ultimate analysis, are not taxes on its franchise or earnings. PLDT has
not shown its eligibility for the desired exemption. None should be granted.

Pacquiao vs. CTA

G.R. No. 213394, April 5, 2016

Facts:
The controversy began on March 25, 2012, when Pacquiao received
a Letter of Authority from the RDO of BIR for the examination of his books
of accounts and other accounting records for the period covering Jan. 1,
2008 to Dec. 31, 2008. When Pacquiao filed his 2009 ITR, it reflected only
his Philippine sourced income and failed to include his income derived from
his earnings in the US. He also failed to file his VAT returns for 2008 and
2009.

Finding the need to directly conduct the investigation and determine

petitioners’ tax liabilities, respondent CIR issued another Letter of Authority
authorizing BIR’s National Investigation Division to examine the books of
accounts and other accounting records of both Pacquiao and Jinkee for the
last 15 years. Petitioners then wrote a letter questioning the propriety of the
CIR investigation as they, allegedly, are already subjected to an earlier
investigation by the BIR and no fraud was ever found to have been
committed. CIR then informed the petitioners that the reinvestigation was
justified because the assessment thereof was pursuant to a “fraud
investigation” against the petitioners under the RATE program of BIR.

Petitioners then submitted various income tax related documents for

the years of 2007-2009 but they cannot furnish the documents for the years
1995-2006. After such investigation, the CIR then determined that the
petitioners have deficiencies in their tax liabilities and issued a Preliminary
Assessment Notice. The petitioners then filed their protest against the PAN.
Finding that the assessment to be unfair, petitioner then sought redress
and filed a petition for review with the CTA where petitioners filed an Urgent
Motion for the CTA to lift the warrants of distraint, levy and garnishments
issued by the CIR against their assets.

Issue: Whether or not the CTA may issue writs to restrain tax collection
Ruling:

Section 11 of R.A. No. 1125, as amended by R.A. No. 9282,

embodies the rule that an appeal to the CTA from the decision of the CIR
will not suspend the payment, levy, distraint, and/or sale of any property of
the taxpayer for the satisfaction of his tax liability as provided by existing
law. When, in the view of the CTA, the collection may jeopardize the
interest of the Government and/or the taxpayer, it may suspend the said
collection and require the taxpayer either to deposit the amount claimed or
to file a surety bond

The application of the exception to the rule is the crux of the subject
controversy

No appeal taken to the CTA from the decision of the Commissioner of

Internal Revenue or the Commissioner of Customs or the Regional Trial
Court, provincial, city or municipal treasurer or the Secretary of Finance,
the Secretary of Trade and Industry and Secretary of Agriculture, as the
case may be shall suspend the payment, levy, distraint, and/or sale of any
property of the taxpayer for the satisfaction of his tax liability as provided by
existing law:

Provided, however, That when in the opinion of the Court the

collection by the aforementioned government agencies may
jeopardize the interest of the Government and/or the taxpayer, the
Court at any stage of the proceeding may suspend the said collection
and require the taxpayer either to deposit the amount claimed or to
file a surety bond for not more than double the amount with the Court.
 Chamber of Real Estate and Builders’ Association, Inc. vs.
The Hon. Executive Secretary Alberto Romulo
G.R. No. 160756, March 9, 2010

Facts:
Petitioner is an association of real estate developers and builders in
the Philippines. They assail the validity of the imposition of minimum
corporate income tax (MCIT) on corporations and creditable withholding tax
(CWT) on sales of real properties classified as ordinary assets. They assert
that the provisions of the subject revenue regulations violate the due
process clause because, like the MCIT, the government collects income tax
even when the net income has not yet been determined. They contravene
the equal protection clause as well because the CWT is being levied upon
real estate enterprises but not on other business enterprises, more
particularly those in the manufacturing sector.

Issue: Whether or not the imposition of the MCIT and CWT is

constitutional?

Held:
MCIT is not violative of the due process clause.

The constitutional safeguard of due process is embodied in the fiat

"[no] person shall be deprived of life, liberty or property without due process
of law." The court held in previous cases that the due process clause may
be invoked to invalidate a revenue measure when it amounts to a
confiscation of property. But the court will not strike down a revenue
measure as unconstitutional on the mere allegation of arbitrariness by the
taxpayer. There must be factual foundation to such unconstitutionality.

For income to be taxable, the following requisites must exist:

 (1) There must be gain;
(2)The gain must be realized or received; and
(3)The gain must not be excluded by law or treaty from
taxation.

An income tax is arbitrary and confiscatory if it taxes capital because

capital is not income. In other words, it is income, not capital, which is
subject to income tax. However, the MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived at by
deducting the capital spent by a corporation in the sale of its goods, i.e., the
cost of goods and other direct expenses from gross sales. Clearly, the
capital is not being taxed. Statutes taxing the gross "receipts," "earnings,"
or "income" of particular corporations are found in many jurisdictions.
Tax thereon is generally held to be within the power of a state to impose; or
constitutional, unless it interferes with interstate commerce or violates the
requirement as to uniformity of taxation.

The CWT is also not violative of the equal protection clause.

The equal protection clause under the Constitution means that "no
person or class of persons shall be deprived of the same protection of laws
which is enjoyed by other persons or other classes in the same place and
in like circumstances." It follows that the guaranty of the equal protection of
the laws is not violated by legislation based on a reasonable classification.
Classification, to be valid, must (1) rest on substantial distinctions; (2) be
germane to the purpose of the law; (3) not be limited to existing conditions
only and (4) apply equally to all members of the same class.

Petitioner, in insisting that its industry should be treated similarly as

manufacturing enterprises, fails to realize that what distinguishes the real
estate business from other manufacturing enterprises, for purposes of the
imposition of the CWT, is not their production processes but the prices of
their goods sold and the number of transactions involved. The income from
the sale of a real property is bigger and its frequency of transaction limited,
making it less cumbersome for the parties to comply with the withholding
tax scheme.

A reading of Section 2.57.2 (M) of RR 2-98 will also show that

petitioner’s argument is not accurate. The sales of manufacturers who have
clients within the top 5,000 corporations, as specified by the BIR, are also
subject to CWT for their transactions with said 5,000 corporations.

Association of Non-Profit Clubs, Inc. vs. BIR

G.R. No. 228539, June 26, 2019

Facts:
On August 3, 2012, BIR issued RMC No. 35-2012 which was
addressed to all revenue official, employees, and other concerned for their
guidance regarding the income tax and VAT liability of the said recreational
clubs. It stated that clubs which are organized and operated exclusively for
pleasure, recreation, and other non-profit purposes are subject to income
tax under the NIRC of 1997.

Aggrieved, ANPC, on behalf of its club members filed a petition for

declaratory relief before the RTC to declare the RMC as invalid, unjust,
oppressive, confiscatory, and in violation of the due process clause of the
Constitution. They argue that BIR acted beyond its rule-making authority in
interpreting that the payments of membership fees, assessment dues, and
service fees are considered as income subject to income tax, as well as a
sale of service that is subject to VAT. RTC then denied the petition for
declaratory relief and upheld the validity and constitutionality of the RMC.

Issue: Whether or not the RMC was constitutional?

Held:

RMC No. 35-2012 erroneously foisted a sweeping interpretation

that membership fees and assessment dues are sources of income of
recreational clubs from which income tax liability may accrue, viz.:

The provision in the [1977 Tax Code] which granted income tax
exemption to such recreational clubs was omitted in the current list of tax-
exempt corporations under the [1997 NIRC], as amended. Hence, the
income of recreational clubs from whatever source, including but not
limited to membership fees, assessment dues, rental income, and
service fees [is] subject to income tax. (Emphases and underscoring
supplied)

Case law provides that in order to constitute "income," there must be

realized "gain." Clearly, because of the nature of membership fees and
assessment dues as funds inherently dedicated for the maintenance,
preservation, and upkeep of the clubs' general operations and facilities,
nothing is to be gained from their collection. Given these recreational clubs'
non-profit nature, membership fees and assessment dues cannot be
considered as funds that would represent these clubs' interest or profit from
any investment. In fact, these fees are paid by the clubs' members without
any expectation of any yield or gain (unlike in stock subscriptions), but only
for the above-stated purposes and in order to retain their membership
therein.

In fine, for as long as these membership fees, assessment dues, and

the like are treated as collections by recreational clubs from their
members as an inherent consequence of their membership, and are,
by nature, intended for the maintenance, preservation, and upkeep of
the clubs' general operations and facilities, then these fees cannot be
classified as "the income of recreational clubs from whatever source"
that are "subject to income tax." Instead, they only form part of capital
from which no income tax may be collected or imposed.

It is a well-enshrined principle in our jurisdiction that the State cannot

impose a tax on capital as it constitutes an unconstitutional confiscation of
property.

As ANPC aptly pointed out, membership fees, assessment dues, and the
like are not subject to VAT because in collecting such fees, the club is not
selling its service to the members. Conversely, the members are not buying
services from the club when dues are paid; hence, there is no economic or
commercial activity to speak of as these dues are devoted for the
operations/maintenance of the facilities of the organization. As such, there
could be no "sale, barter or exchange of goods or properties, or sale
of a service" to speak of, which would then be subject to VAT under
the 1997 NIRC.
 Hermanos vs. CIR
G.R. No. L-21551, September 30, 1969

Facts:
The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation
organized for the principal purpose of engaging in business as an
"investment company" with main office at Manila. Upon verification of the
taxpayer's income tax returns for the period in question, the Commissioner
of Internal Revenue assessed against the taxpayer the sums of
P13,414.00, P119,613.00, P11,698.00, P6,887.00 and P14,451.00 as
alleged deficiency income taxes for the years 1950, 1951, 1952, 1953 and
1954, respectively. Said assessments were the result of alleged
discrepancies found upon the examination and verification of the taxpayer's
income tax returns for the said years.

Issue: Is the Tax Court’s ruling correct with respect to the disputed items of
disallowances enumerated?

Held:
The Tax Court's disallowance of the write-off was proper. The Solicitor
General has rightly pointed out that the taxpayer has taken an "ambiguous
position " and "has not definitely taken a stand on whether the amount
involved is claimed as losses or as bad debts but insists that it is either a
loss or a bad debt." We sustain the government's position that the
advances made by the taxpayer to its 100% subsidiary, Palawan
Manganese Mines, Inc. amounting to P587,308,07 as of 1951 were
investments and not loans.
 The taxpayer's contention that its advances were loans to its
subsidiary as against the Tax Court's finding that under their memorandum
agreement, the taxpayer did not expect to be repaid, since if the subsidiary
had no earnings, there was no obligation to repay those advances,
becomes immaterial, in the light of our resolution of the question. The Tax
Court correctly held that the subsidiary company was still in operation in
1951 and 1952 and the taxpayer continued to give it advances in those
years, and, therefore, the alleged debt or investment could not properly be
considered worthless and deductible in 1951, as claimed by the taxpayer.

The Commissioner advances no valid grounds in his brief for

contesting the Tax Court's findings. Certainly, these increases in the
taxpayer's net worth were not taxable increases in net worth, as they were
not the result of the receipt by it of unreported or unexplained taxable
income, but were shown to be merely the result of the correction of errors
in its entries in its books relating to its indebtednesses to certain creditors,
which had been erroneously overstated or listed as outstanding when they
had in fact been duly paid. The Tax Court's action must be affirmed.