PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES (PICOP), petitioner, vs.

COURT OF APPEALS, COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents. G.R. Nos. 106949-50 December 1, 1995

COMMISSIONER INTERNAL REVENUE, petitioner, vs. PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES, THE COURT OF APPEALS and THE COURT OF TAX APPEALS, respondents. G.R. Nos. 106984-85 December 1, 1995

Decision by: Justice Feliciano Facts: Paper Industries Corporation of the Philippines (PICOP) is a Philippine corporation registered with the Board of Investments (BOI) as a preferred pioneer enterprise with respect to its integrated pulp and paper mill, and as a preferred non-pioneer enterprise with respect to its integrated plywood and veneer mills. Petitioner received from the Commissioner of Internal Revenue (CIR) two (2) letters of assessment and demand (a) one for deficiency transaction tax and for documentary and science stamp tax; and (b) the other for deficiency income tax for 1977, for an aggregate amount of PhP88,763,255.00. PICOP protested the assessment of deficiency transaction tax , the documentary and science stamp taxes, and the deficiency income tax assessment. CIR did not formally act upon these protests, but issued a warrant of distraint on personal property and a warrant of levy on real property against PICOP, to enforce collection of the contested assessments, thereby denying PICOP's protests. Thereupon, PICOP went before (CTA) appealing the assessments. On 15 August 1989, CTA rendered a decision, modifying the CIRs findings and holding PICOP liable for the reduced aggregate amount of P20,133,762.33. Both parties went to the Supreme Court, which referred the case to the Court of Appeals (CA). CA denied the appeal of the CIR and modified the judgment against PICOP holding it liable for transaction tax and absolved it from payment of documentary and science stamp tax and compromise penalty. It also held PICOP liable for deficiency of income tax. Issues: 1. Whether PICOP is liable for transaction tax 2. Whether PICOP is liable for documentary and science stamp tax 3. Whether PICOP is liable for deficiency income tax Held: 1. YES. PICOP reiterates that it is exempt from the payment of the transaction tax by virtue of its tax exemption under R.A. No. 5186, as amended, known as the Investment Incentives Act, which in the form it existed in 1977-1978, read in relevant part as follows: "SECTION 8. Incentives to a Pioneer Enterprise. In addition to the incentives provided in the preceding section, pioneer enterprises shall be granted the following incentive benefits: (a) Tax Exemption. Exemption

from all taxes under the National Internal Revenue Code, except income tax, from the date of investment is included in the Investment Priorities Plan x x x. The Supreme Court holds that that PICOP's tax exemption under R.A. No. 5186, as amended, does not include exemption from the thirty-five percent (35%) transaction tax. In the first place, the thirty-five percent (35%) transaction tax is an income tax, a tax on the interest income of the lenders or creditors as held by the Supreme Court in the case of Western Minolco Corporation v. Commissioner of Internal Revenue. The 35% transaction tax is an income tax on interest earnings to the lenders or placers. The latter are actually the taxpayers. Therefore, the tax cannot be a tax imposed upon the petitioner. In other words, the petitioner who borrowed funds from several financial institutions by issuing commercial papers merely withheld the 35% transaction tax before paying to the financial institutions the interest earned by them and later remitted the same to the respondent CIR. The tax could have been collected by a different procedure but the statute chose this method. Whatever collecting procedure is adopted does not change the nature of the tax. It is thus clear that the transaction tax is an income tax and as such, in any event, falls outside the scope of the tax exemption granted to registered pioneer enterprises by Section 8 of R.A. No. 5186, as amended. PICOP was the withholding agent, obliged to withhold thirty-five percent (35%) of the interest payable to its lenders and to remit the amounts so withheld to the Bureau of Internal Revenue ("BIR"). As a withholding, agent, PICOP is made personally liable for the thirty-five percent (35%) transaction tax 10 and if it did not actually withhold thirty-five percent (35%) of the interest monies it had paid to its lenders, PICOP had only itself to blame. 2. NO. The CIR assessed documentary and science stamp taxes, amounting to PhP300,000.00, on the issuance of PICOP's debenture bonds. Tax exemptions are, to be sure, to be "strictly construed," that is, they are not to be extended beyond the ordinary and reasonable intendment of the language actually used by the legislative authority in granting the exemption. The issuance of debenture bonds is certainly conceptually distinct from pulping and paper manufacturing operations. But no one contends that issuance of bonds was a principal or regular business activity of PICOP; only banks or other financial institutions are in the regular business of raising money by issuing bonds or other instruments to the general public. The actual dedication of the proceeds of the bonds to the carrying out of PICOP's registered operations constituted a sufficient nexus with such registered operations so as to exempt PICOP from taxes ordinarily imposed upon or in connection with issuance of such bonds. The Supreme Court agrees with the Court of Appeals on this matter that the CTA and the CIR had erred in rejecting PICOP's claim for exemption from stamp taxes. 3. YES. PICOP did not deny the existence of discrepancy in their Income Tax Return and Books of Account owing to their procedure of recording its export sales (reckoned in U.S. dollars) on the basis of a fixed rate, day to day and month to month, regardless of the actual exchange rate and without waiting when the actual proceeds are received. In other words, PICOP recorded its export sales at a pre-determined fixed exchange rate. That pre-determined rate was decided upon at the beginning of the year and continued to be used throughout the year. Because of this, the CIR has made out at least a prima facie case that PICOP had understated its sales and

overstated its cost of sales as set out in its Income Tax Return. For the CIR has a right to assume that PICOP's Books of Accounts speak the truth in this case since, as already noted, they embody what must appear to be admissions against PICOP's own interest.

FIRST LEPANTO CERAMICS, INC., petitioner, vs. THE COURT OF APPEALS and MARIWASA MANUFACTURING, INC., respondents. G.R. No. 110571. March 10, 1994. Decision by: Justice Nocon. Facts: The Omnibus Investments Code of 1981, as amended, provided that appeals from decisions of the Board of Investments (BOI) shall be the exclusive jurisdiction of the Court of Appeals (CA). The Omnibus Investments Code of 1987 (Executive Order 226) was promulgated after the 1987 Constitution took effect. The Omnibus Investments Code of 1987 provides in Article 82 thereof that the appeals be directly filed with the Supreme Court (SC). The SC, pursuant to its Constitutional power under Section 5(5), Article VIII of the 1987 Constitution to promulgate rules concerning pleading, practice and procedure in all courts, and by way of implementation of B.P. 129, issued Circular 1-91 prescribing the rules governing appeals to the Court of Appeals from final orders or decisions of the Court of Tax Appeals and quasi-judicial agencies to eliminate unnecessary contradictions and confusing rules of procedure. Relying on said Circular, the SCs Second Division sustained the appellate jurisdiction of the CA in this present case. First Lepanto Ceramics, Inc. (FLCI) move to reconsider and question the ruling which states that although the right to appeal granted by Article 82 of in the Omnibus Investments Code of 1987 is a substantive right which cannot be modified by a rule of procedure, questions concerning where and in what manner the appeal can be brought are only matters of procedure which the CA has the power to regulate. FLCI contend that Circular No. 191, a rule of procedure, cannot supersede Article 82 of Omnibus Investments Code of 1987, a law. Issue: Whether the CA is correct in sustaining the appellate jurisdiction of the CA in decisions from the Board of Investments. Held: YES. Executive Order 226 was promulgated after the 1987 Constitution took effect. Thus, Article 82 thereof, which provides for increasing the appellate jurisdiction of the SC, is invalid and therefore never became effective for the concurrence of the Court was not sought in its enactment. Omnibus Investments Code of 1981 as amended still stands. The exclusive jurisdiction on appeals from decisions of the BOI belongs to the CA. Although a circular is not strictly a statute or law, it has, however, the force and effect of law according to settled jurisprudence. The right to appeal from decisions or final orders of the BOI under E.O. 226 remains and continues to be respected. Circular 1-91 simply transferred the venue of appeals from

decisions of this agency to respondent Court of Appeals and provided a different period of appeal, i.e., fifteen (15) days from notice. It did not make an incursion into the substantive right to appeal. Circular 1-91 effectively repealed or superseded Article 82 of E.O. 226 insofar as the manner and method of enforcing the right to appeal from decisions of the BOI are concerned. Appeals from decisions of the BOI, which by statute was previously allowed to be filed directly with the Supreme Court, should now be brought to the Court of Appeals.

GEORG GROTJAHN GMBH & CO., petitioner, vs. HON. LUCIA VIOLAGO ISNANI, Presiding Judge, Regional Trial Court, Makati, Br. 59; ROMANA R. LANCHINEBRE; and TEOFILO A. LANCHINEBRE, respondents. G.R. No. 109272. August 10, 1994. Decision by: Justice Puno Facts: Georg Grojtahn GMBH & Co. (GGGMBH) is a multinational company organized and existing under the laws of the Federal Republic of Germany, whose application for the establishment of a regional or area headquarters in the Philippines was approved by the Board of Investments (BOI) of the Securities and Exchange Commission (SEC). Romana R. Lanchinebre was a sales representative of GGGMBH from 1983 to mid-1992. She secured a loan from GGGMBH for PhP25,000, and additional cash advances in the sum of PhP10,000.00. PHp12,170.37 remained unpaid. Later, Lanchinebre filed with NLRC a Complaint for illegal suspension, dismissal and non-payment of commissions against petitioner. GGGMBH in turn filed against private respondent a Complaint for damages amounting to PhP120,000, and Complaint for collection of sum of money, which Complaint was raffled to Regional Trial Court judge Hon. Lucia Violago Isnani, who granted a motion to dismiss, contending that the said cash advances were made pursuant to the employer-employee relationship between the (petitioner) and the said (private respondent) and as such, within the original and exclusive jurisdiction of the National Labor Relations Commission, and that GGGMBH has capacity to sue. Issue: 1. Whether GGGMBH has capacity to sue. Held: 1. YES. Petitioner is covered by the Omnibus Investment Code of 1987. Said law defines "doing business," as follows: . . . shall include soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling

one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. There is no general rule or governing principle as to what constitutes "doing" or "engaging in" or "transacting" business in the Philippines. Each case must be judged in the light of its peculiar circumstances.In the case at bench, petitioner does not engage in commercial dealings or activities in the country because it is precluded from doing so by P.D. No. 218, under which it was established. Nonetheless, it has been continuously, since 1983, acting as a supervision, communications and coordination center for its home office's affiliates in Singapore, and in the process has named its local agent and has employed Philippine nationals like Lanchinebre. From this uninterrupted performance by petitioner of acts pursuant to its primary purposes and functions as a regional/area headquarters for its home office, it is clear that petitioner is doing business in the country. Moreover, private respondents are estopped from assailing the personality of petitioner.