Republic of the Philippines vs.

Caguioa
GR No. 168584 October 15, 2007
Ponente: Carpio Morales, J

Facts:
In 1992, Congress enacted Republic Act No. 7227 also known as the Bases Conversion
and Development Act of 1992 which created the Subic Special Economic and Freeport
Zone (SBF) and the Subic Bay Metropolitan Authority (SBMA)
Included in RA 7227:
o Subic Special Economic Zone shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capital
within, into and exported out of the Subic Special Economic Zone, as well as
provide incentives and equipment. However, exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other parts of
the Philippine territory shall be subject to customs duties and taxes under
the Customs and Tariff Code.
o The provisions of existing laws, rules and regulations to the contrary
notwithstanding, no taxes, local and national, shall be imposed within the
Subic Special Economic Zone.
Pursuant to the law, several private respondents applied for and were granted
Certificates of Registration and Tax Exemption by the SBMA. Their respective
certificates states that:
o The Company shall be entitled to tax and duty-free importation of raw
materials, capital equipment, and household and personal items for use
solely on the Subic Bay Freeport Zone.
Congress subsequently passed RA 9334 effective Jan. 1, 2005 which states that all
importations of cigars, cigarettes, distilled spirits, fermented liquors and wines into the
SBF, including those intended to be transhipped to other free ports in the Philippines,
shall be treated as ordinary importations subject to all applicable taxes, duties and
charges, including excise taxes. (Sec. 6)
On Feb. 3, 2005, former BIR Commissioner Payano, requested the Customs
Commissioner Jereos to immediately collect the excise tax due on imported alcohol and
tobacco products brought to the Duty Free Philippines (DFP) and Freeport zones.
On Feb. 7, 2005, SBMA issued a Memorandum directing the departments concerned to
require locators/importers in the SBF to pay the corresponding duties and taxes on
their importations of cigars, cigarettes, liquors and wines before said items are cleared
and released from the Freeport. However, certain SBF locators which were exclusively
engaged in the transhipment of cigarette products for foreign destinations were
allowed by the SBMA to process their import documents subject to their submission of
an Undertaking with the Bureau of Customs.
On Feb. 15, 2005, private respondents wrote the offices of the Collector of Customs
and the SBMA Administrator requesting for a reconsideration of the directives in the
imposition of duties and taxes on cigars, cigarettes, liquor and wines. Despite these
letters, they were not allowed to file any warehouse entry for shipment.
Thus, the private respondent enterprises, brought before the RTC of Olongapo City a
civil action for declatory relief to have certain provisions of RA 9334 declared
unconstitutional. These are their arguments:
o RA 9334 should not be interpreted as altering, modifying or amending the
provisions of RA 7227 because repeals by implication are not favoured
o A general law like RA 9334 cannot amend RA 7227, which is a special law
o The assailed law violates the one-bill-one-subject rule embodied in Sec. 26
Art. VI of the Constitution as well as the constitutional proscription against
the impairment of the obligations of contracts.
The private respondents also prayed for the issuance of a writ of preliminary injunction
and/or Temporary Restraining Order (TRO) and preliminary mandatory injunction
alleging that great and irreparable loss and injury would befall them as a consequence
of the imposition of taxes on alcohol and tobacco products brought into the SBF.
Petitioners opposed the private respondents prayer arguing that:
o Tax exemptions are not presumed and even when granted, are strictly
construed against the grantee
o An increase in business expense is not the injury contemplated by law
o The drawback mechanism established in the law clearly negates the
possibility of the feared injury
o Taxes are the lifeblood of the government and their prompt and certain
availability is an imperious need. Greater injury would be inflicted on the
public should the writ be granted.
On May 11, 2005 Caguioa granted private respondents application for issuance of writ
of preliminary injunction.
Petitioners seek via petition for certiorari and prohibition to annul the May 4, 2005
Order issued by public respondent Caguioa of the RTC granting private respondents
application for issuance of writ of preliminary injunction.

Issue: Whether or not, Caguioa erred in the issuance of the writ of preliminary injunction
Whether or not, RA 9334 is unconstitutional because it violates the constitutional
provision on the proscription against the impairment of obligations of contracts.

Courts Ruling:
The arguments raised by private respondents which pertain to the
constitutionality of RA 9334 subject matter of the case pending litigation before
the trial court have no bearing in resolving the present petition.
On the issue of the issuance of the preliminary injunction and the petitioners
petition for certiorari:
o The writ of certiorari to nullify and set aside the Order of May 4, 2005
as well as the Writ of Preliminary Injunction issued by respondent
Caguioa is granted.
o As a rule, courts should avoid issuing a writ of preliminary injunction
which would in effect dispose of the main case without trial.
o A court may issue a writ of preliminary injunction only when the
petitioner assailing a statute has made out a case of unconstitutionality
or invalidity strong enough, in the mind of the judge, to overcome the
presumption of validity, in addition to a showing of a clear legal right to
the remedy sought.
Tax exemption being a mere statutory privilege, may be modified or withdraw at
will by the granting authority. Taxation is subject to restrictions which rest on the
discretion of the authority exercising it.
As a general rule, tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. The burden of proof rests
upon the party claiming exemption to prove that it is in fact covered by the
exemption so claimed. In case of doubt, non-exemption is favored.
A tax exemption cannot be grounded upon the continued existence of a statute
which precludes its change or repeal.
The rights granted under the Certificates of Registration and Tax Exemption of
private respondents are not absolute and unconditional as to constitute rights in
esse - those clearly founded on or granted by law or is enforceable as a matter of
law.
Whatever right may have been acquired on the basis of the Certificates of
Registration and Tax Exemption must yield to the State's valid exercise of police
power.
The feared injurious effects of the imposition of duties, charges and taxes on
imported cigars, cigarettes, distilled spirits, fermented liquors and wines on
private respondents' businesses cannot possibly outweigh the dire consequences
that the non-collection of taxes, not to mention the unabated smuggling inside
the SBF, would wreak on the government.

Note:
Private respondents include Indigo Distribution Corporation, W Star Trading and
Warehousing Corporation, Freedom Brands Philippines Corporation, Branded
Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park `N Shop,
Incorporated, Trading Gateways International Philippines, Inc., Duty Free Superstore
(DFS) Inc., Chijmes Trading, Inc., Premier Freeport, Inc., Future Trade Subic Freeport,
Inc., Grand Comtrade Int'l., Corp., and First Platinum International, Inc., (which are all
domestic corporations doing business at the SBF) represented by Caguioa.
Petitioners include Republic of the Philippines, Represented by the Honorable Secretary
of Finance, the Honorable Commissioner of Bureau of Internal Revenue, the Honorable
Commissioner of Customs, and the Collector of Customs of the Port of Subic.

Diaz vs. Secretary of Finance (2011)

Facts:

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory
relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of
Internal Revenue (BIR) on the collections of tollway operators. Court treated the case as one of
prohibition.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll
fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's
tax," not asale of services; that to impose VAT on toll fees would amount to a tax on public
service; and that, since VAT was never factored into the formula for computing toll fees, its
imposition would violate thenon-impairment clause of the constitution.

The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees,
including toll way operations; that the Court should seek the meaning and intent of the law from
the words used in the statute; and that the imposition of VAT on toll way operations has been
the subject as early as 2003 of several BIR rulings and circulars. The government also argues
that petitioners have no right to invoke the non-impairment of contracts clause since they clearly
have no personal interest in existing toll operating agreements (TOAs) between the government
and tollway operators. At any rate, the non-impairment clause cannot limit the State's sovereign
taxing power which is generally read into contracts.

Issue: May toll fees collected by tollway operators be subjected to VAT (Are toll way operations a
franchise and/or a service that is subject to VAT)?

Ruling: When a toll way operator takes a toll fee from a motorist, the fee is in effect for the
latter's use of the tollway facilities over which the operator enjoys private proprietary rights that
its contract and the law recognize. In this sense, the toll way operator is no different from the
service providers under Section108 who allow others to use their properties or facilities for a fee.

Toll way operators are franchise grantees and they do not belong to exceptions that Section 119
spares from the payment of VAT. The word "franchise" broadly covers government grants of a
special right to do an act or series of acts of public concern. Toll way operators are, owing to the
nature and object of their business, "franchise grantees." The construction, operation, and
maintenance of toll facilities on public improvements are activities of public consequence that
necessarily require a special grant of authority from the state.

A tax is imposed under the taxing power of the government principally for the purpose of raising
revenues to fund public expenditures. Toll fees, on the other hand, are collected by private toll
way operators as reimbursement for the costs and expenses incurred in the construction,
maintenance and operation of the toll ways, as well as to assure them a reasonable margin of
income. Although toll fees are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be demanded by either the government
or private individuals or entities, as an attribute of ownership.








CITY OF MANILA VS. COCA-COLA BOTTLERS PHILIPPINES, INC.- CTA, DOUBLE
TAXATION

FACTS:
Respondent paid the local business tax only as a manufacturers as it was expressly exempted
from the business tax under a different section and which applied to businesses subject to
excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended the
ordinance by deleting the provision exempting businesses under the latter section if they have
already paid taxes under a different section in the ordinance. This amending ordinance was later
declared by the Supreme Court null and void. Respondent then filed a protest on the ground of
double taxation. RTC decided in favor of Respondent and the decision was received by Petitioner
on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time
to File Petition for Review asking for a 15-day extension or until May 20, 2007 within which to file
its Petition. A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-
day extension to file the Petition. Petitioner finally filed the Petition on May 30, 2007 even if the
CTA had earlier issued a resolution dismissing the case for failure to timely file the Petition.

ISSUES:
(1) Has Petitioners the right to appeal with the CTA lapsed?
(2) Does the enforcement of the latter section of the tax ordinance constitute double taxation?

HELD:
(1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20,
2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review
with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the
lapse of the 30-day period on 20 May 2007, in which they prayed for another extended period of
10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion
for Extension of petitioners. Thus, when Petitioner filed their Petition via registered mail their
Petition for Review on 30 May 2007, they were able to comply with the period for filing such a
petition.

(2) YES. There is indeed double taxation if respondent is subjected to the taxes under both
Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject
matter the privilege of doing business in the City of Manila; (2) for the same purpose to
make persons conducting business within the City of Manila contribute to city revenues; (3) by
the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction
within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per
calendar year; and (6) of the same kind or character a local business tax imposed on gross
sales or receipts of the business.







CIR vs SOLIDBANK (2003)
TOPIC: Either Application and Construction or Double Taxation

FACTS:

1. Respondent Solidbank seasonably filed (w/in 20-days at end of each quarter) its
Quarterly Percentage Tax Returns.

a. Respondent included the total gross receipts the sum of P350.8 M. representing gross
receipts from passive income which was already subjected to 20% final withholding tax (FWT).

2. Hence, it filed a refund alleging overpayment of gross receipts tax. It relied on the
ruling in Asian Bank Corporation vs. Commissioner of Internal Revenue, wherein it was held that
the 20% final withholding tax on banks interest income should NOT form part of its taxable
gross receipts for purposes of computing the gross receipts tax (GRT).

3. Without waiting for an action from the CIR, Solid Bank filed a petition for review with
CTA in order to toll the running of the two-year prescriptive period to judicially claim for the
refund.

4. CTA ordered CIR to refund the overpayment to respondent.

5. Petitioner CIR appealed to CA. CA affirmed CTA, hence this petition.

ISSUE#1: Whether or not the 20% (FWT) final withholding tax on a banks interest income forms
part of the taxable gross receipts in computing the 5% (GRT) gross receipts tax.

*See below: SUB-ISSUE = about Application and construction = ISSUE#2 = about Double
Taxation (not sure anu important sa case na ito!!)

PARTIES CONTENTION:

P: CIR claims it is part even if not actually received by the CIR because it was remitted directly to
the government.

R: Solid Bank maintains CA correctly ruled.

Held: Yes. The amount of interest income, withheld in payment of the 20% Final Withholding Tax
(FWT), forms part of gross receipts in computing for the GRT on banks. (Further Explanation is in
SUB-ISSUE)

Although the 20% FWT on respondents interest income was not actually received by respondent
because it was remitted directly to the government, the fact that the amount redounded to the
banks benefit makes it part of the taxable gross receipts in computing the 5% GRT.

The 5% GRT is included under Title V. Other Percentage Taxes of the Tax Code and is not
subject to withholding. The 20% FWT, on the other hand, falls under Section 24(e)(1) of Title
II. Tax on Income. It is a tax on passive income, deducted and withheld at source by the
payor-corporation and/or person as withholding agent.

The forgoing provisions clearly show that two types of taxes are involved in the present
controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is an income tax.
As a bank, petitioner is covered by both taxes. The argument that there is double taxation cannot
be sustained, as the two taxes are different. The one is a business tax which is not subject to
withholding while the other is an income tax subject to withholding.

Percentage tax is a national tax measured by a certain percentage of the gross selling price or
gross value in money of foods sold, bartered or imported; or of the gross receipts or earning
derived by any person engaged in the sale of services. Not subject to withholding.

Income tax, on the other hand, is a national tax imposed on the net or the gross income realized
in a taxable year. It is subject to withholding.

In a withholding tax system:

Payee = taxpayers, person on whom the tax is imposed
Payor = separate entity, acts as no more than an agent of the government for the collection of
the tax in order to ensure its payment.

The amount used to settle tax liability is deemed sourced from the proceeds constitutive of the
tax base. Proceeds are either actual or constructive.

Both parties herein agree that there is no actual receipt by the bank of the amount withheld.
What needs to be determined is if there is constructive receipt thereof. Since the payee -- not
the payor -- is the real taxpayer, the rule on constructive receipt can be easily rationalized, if not
made clearly manifest.

SUB-ISSUE: (Application and construction) Whether or not there is constructive receipt since the
payee, and not the payor, is the real taxpayer.

PARTIES CONTENTION:

P: CIR based the interpretation on Sec 7 of RR 17-84 that if the recipient of the above-
mentioned items (interest paid or accrued on bank deposits or deposit substitutes declared for
purpose of imposing the WT) of income are financial institutions, the same shall be included as
part of the tax base upon which the receipts tax is imposed.

R: Solidbank based the interpretation on Sec.4(e) of RR 12-80, that the tax rates to be imposed
on the gross receipts of banks xxx shall be based on all items of income actually received.

Section 7 of RR 17-84 states:
SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. (a) The
interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected
to the withholding taxes in accordance with these regulations need not be included in the gross
income in computing the depositors/investors income tax liability in accordance with the
provision of Section 29(b), (c) and (d) of the National Internal Revenue Code, as amended.

Section 4(e) of RR 12-80 states:
The tax rates to be imposed on the gross receipts of banks, non-bank financial intermediaries,
financing companies, and other non-bank financial intermediaries not performing quasi-banking
activities shall be based on all items of income actually received.

Note:
1. if there was receipt (actual or constructive) then the 20% final withholding tax should be
included in the base amount to determine the 5% GRT.
2. if 20% FWT is included in the base amount, then Solid Bank as a consequence has to pay a
higher GRT. [Reason why Solid Bank doesn't want it to be included]
HELD: There is constructive receipt

By analogy, SC applied to the receipt of income the rules on actual and constructive possession
provided in Articles 531 and 532 of our Civil Code.

Art. 531: Possession is acquired by the material occupation of a thing or the exercise
of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal
formalities established for acquiring such right.
Art. 532: Possession may be acquired by the same person who is to enjoy it, by his
legal representative, by his agent, or by any person without any power whatever; but in the last
case, the possession shall not be considered as acquired until the person in whose name the act
of possession was executed has ratified the same, without prejudice to the juridical
consequences of negotiorum gestio in a proper case.
Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is
through the proper acts and legal formalities established therefor. The withholding process is
one such act. There may not be actual receipt of the income withheld; however, as provided for
in Article 532, possession by any person without any power whatsoever shall be considered as
acquired when ratified by the person in whose name the act of possession is executed.

In our withholding tax system, possession is acquired by the payor as the withholding agent of
the government, because the taxpayer ratifies the very act of possession for the government.
There is thus constructive receipt. The processes of bookkeeping and accounting for interest on
deposits and yield on deposit substitutes that are subjected to FWT are indeed -- for legal
purposes -- tantamount to delivery, receipt or remittance. Besides, respondent itself admits that
its income is subjected to a tax burden immediately upon receipt, although it claims that it
derives no pecuniary benefit or advantage through the withholding process. There being
constructive receipt of such income -- part of which is withheld -- RR 17-84 applies, and that
income is included as part of the tax base upon which the GRT is imposed.

RR 12-80 Superseded by RR 17-84

General Rule: Rules and regulations issued by administrative or executive officers pursuant to the
procedure or authority conferred by law upon the administrative agency have the force and
effect, or partake the nature, of a statute. The reason is that statues express the policies,
purposes, objectives, remedies and sanctions intended by the legislature in general terms.

Details and manner of carrying them out are left to the administrative agency entrusted with
their enforcement.

Here it is the finance secretary who promulgates the revenue regulations, upon the recomm of
the BIR Comm.

A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation
is followed.

Regulation must be:
a) Germane to the object and purpose of the law
b) Not contradict, but conform to, the standards the law prescribes;
c) Be issued for the sole purpose of carrying into effect the general provisions of our tax
laws.

Repeal=express or implied.
Express-declaration in a regulation, that another identified regulation, is repealed.
Implied=all others.

Two categories of implied repeals:

a. In case the provisions are in irreconcilable conflict, the later regulation, to the extent of
the conflict, constitutes an implied repeal of an earlier one
b. If the later regulation covers the whole subject of an earlier one and is clearly intended
as a substitute.

RR- 12-80 repealed RR 17-84. Section 4(e) of the earlier RR 12-80 provides that only items of
income actually received shall be included in the tax base for computing the GRT, but Section
7(c) of the later RR 17-84 makes no such distinction and provides that all interests earned shall
be included. The exception having been eliminated, the clear intent is that the later RR 17-84
includes the exception within the scope of the general rule.

RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their
mere accrual, while RR 17-84 includes all interest income in computing the GRT. RR 12-80 is
superseded by the later rule, because Section 4(e) thereof is not restated in RR 17-84. Clearly
therefore, as petitioner correctly states, this particular provision was impliedly repealed when the
later regulations took effect.

Reconciling the Two Regulations

Granting that the two regulations can be reconciled, respondents reliance on Section 4(e) of RR
12-80 is misplaced and deceptive. The accrual referred to therein should not be equated with
the determination of the amount to be used as tax base in computing the GRT. Such accrual
merely refers to an accounting method that recognizes income as earned although not received,
and expenses as incurred although not yet paid.

Accrual should NOT be confused with the concept of constructive possession or receipt as earlier
discussed. Petitioner correctly points out that income that is merely accrued -- earned, but not
yet received -- does not form part of the taxable gross receipts; income that has been received,
albeit constructively, does.

The word actually, used confusingly in Section 4(e), will be clearer if removed entirely.
Besides, if actually is that important, accrual should have been eliminated for being a mere
surplusage. The inclusion of accrual stresses the fact that Section 4(e) does not distinguish
between actual and constructive receipt. It merely focuses on the method of accounting known
as the accrual system.

The government subsequently becomes the owner of the money when the financial institutions
pay the FWT to extinguish their obligation to the government. As held before, this is the
consideration for the transfer of ownership of the FWT from these institutions to the government.
It is ownership that determines whether interest income forms part of taxable gross receipts.
Being originally owned by these financial institutions as part of their interest income, the FWT
should form part of their taxable gross receipts.

ISSUE#2: Whether or not there was Double Taxation

HELD: NONE! Double Taxation means taxing the same property twice when it should be taxed
only once i.e. taxing the same person twice by the same jurisdiction for the same thing.

Direct Duplicate Taxation = two taxes must be imposed
a. on the same subject matter
b. for the same purpose,
c. by the same taxing authority,
d. within the same jurisdiction,
e. during the same taxing period, and
f. they must be of the same kind or character.

Taxes imposed here are on two different subject matter.

FWT is a passive income while GRT is a privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence it is an excise
rather than a property tax.

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of
Appeals are hereby REVERSED and SET ASIDE.