TAX ALERT

July 31, 2006

SUPREME COURT RULES THAT THE SALE OF GOODS NOT IN THE
COURSE OF TRADE OR BUSINESS IS NOT SUBJECT TO VALUE-ADDED
TAX.
In a case involving the sale of vessels, pursuant to the privatization efforts of the
government, by a GOCC engaged in the business of leasing out properties, the
Supreme Court held that the sale of goods not in the course of trade or business of the
taxpayer is not subject to VAT. The Supreme Court pointed out that under Section 99
(now Section 105) of the Tax Code, the tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such activities, in the course
of trade or business. Transactions undertaken outside the course of trade or business
may invariably contribute to the production chain, but they do so only as a matter of
accident or incident. As the sales of goods or services do not occur within the course of
trade or business, the providers of such goods or services would hardly, if at all, have
the opportunity to appropriately credit any VAT liability as against their own accumulated
VAT collections since the accumulation of output VAT arises in the first place only
through the ordinary course of trade or business. Commissioner of Internal Revenue v.

Magsaysay Lines Inc. et al, GR No. 146984 dated July 28, 2006.
THE BUREAU OF INTERNAL REVENUE (BIR) ISSUES REGULATIONS
IMPLEMENTING
GUIDELINES
ON
THE
TAXATION
AND
MONITORING OF RAW MATERIALS
USED AND THE BIOETHANOLBLENDED GASOLINE (E-GASOLINE) PRODUCED UNDER THE FUEL
BIOETHANOL
PROGRAM
OF
THE
DEPARTMENT
OF
ENERGY. Revenue Regulations No. 8-2006 dated May 9, 2006.
THE BIR PRESCRIBES GUIDELINES AND CONDITIONS FOR THE TAX
TREATMENT OF SECURITIES BORROWING AND LENDING (SBL)
TRANSACTIONS INVOLVING SHARES OF STOCKS LISTED IN THE
PHILIPPINE STOCK EXCHANGE WITH THE END IN VIEW OF
INSTITUTIONALIZING THE SBL FACILITY IN THE PHILIPPINE CAPITAL
MARKET. Revenue Regulations No. 10-2006 dated June 23, 2006.
THE
BIR
ISSUES
CONSOLIDATED
REGULATIONS
ON
THE
ACCREDITATION OF TAX PRACTITIONERS/AGENTS AS A PREREQUISITE
TO THEIR PRACTICE OR REPRSENTATION BEFORE THE BIR, FURTHER
SIMPLIFYING AND SUPERSEDING REV. REGS. NO. 15-99. Revenue
Regulations No. 11-2006 dated June 15, 2006.
REVENUE REGULATIONS THAT ARE NOT IN CONSONANCE WITH THE
LAW ARE VOID.
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The Supreme Court ruled that in case of conflict between Revenue Regulations issued by
the Department of Finance and the law, the law should prevail. The Supreme Court held:
This case should remind all heads of executive agencies which are given the power to
promulgate rules and regulations, that they assume the roles of lawmakers. It is wellsettled that a regulation should not conflict with the law it implements. Thus, those
drafting the regulations should study well the laws their rules will implement, even to the
extent of reviewing the minutes of the deliberations of Congress about its intent when it
drafted the law. They may also consult the Secretary of Justice or the Solicitor General
for their opinions on the drafted rules. Administrative rules, regulations and orders have
the efficacy and force of law so long as they do not contravene any statute or the
Constitution. It is then the duty of the agencies to ensure that their rules do not deviate
from or amend acts of Congress, for their regulations are always subordinate.
Commissioner of Internal Revenue v. Bicolandia Drug Corporation, GR No. 148083
dated July 21, 2006.
A VAT-REGISTERED TAXPAYER MUST PRESENT VAT RETURNS FOR THE
YEARS SUCCEEDING THE YEAR OF CLAIM TO PROVE THAT THE INPUT
VAT SOUGHT TO BE REFUNDED WAS NOT APPLIED AGAINST ANY
OUTPUT VAT LIABILITY.
th
Facts: T Corp. purchased a parcel of land in the 4 quarter of 2001 for which it incurred
input VAT of P4 million. In 2003, T Corp. filed a claim for refund of unutilized input VAT
pertaining to the purchase of the parcel of land. Held: The CTA denied the claim for
refund because T Corp. failed to prove that the input taxes being claimed have not been
th
utilized against output taxes. T Corp.s 4 quarter return for 2001 and all the quarterly
returns for 2002 all showed that T Corp. had no commercial operations. Thus, there was
no output VAT liability against which the claimed input VAT may be applied or credited.
st
The amount sought to be refunded was carried over in T Corps amended 2002 1 quarter
return and the same amount was deducted as any VAT Refund/TCC claimed from the
nd rd
th
Total Available Input Tax. However, the 2 , 3 , and 4 quarter VAT returns for 2002
no longer carried over the amount sought to be refunded. Nonetheless, the CTA held that
the said returns were insufficient to prove that no amount of the claimed input VAT was
applied against output VAT. The CTA pointed out that T Corp. should have presented the
quarterly VAT returns for 2003 to prove that the output VAT was not applied against any
output VAT liability. TBG Development Corp. v.
Commissioner of Internal Revenue, CTA Case No. 6852 dated June 22, 2006.
FOR PURPOSES OF CLAIMING A TAX REFUND BASED ON ERRONEOUS
PAYMENT, IT IS IMPERATIVE THAT THE TAXPAYER IS ABLE TO PRESENT
SUBSTANTIAL EVIDENCE TO ESTABLISH HIS CLAIM.
E Corp. filed a claim for refund based on erroneous payment. E Corp. initially declared a
P50M cash dividend and withheld the income tax due on the said declaration and
remitted the same to the BIR. Months later, the board of E Corp. resolved to reverse the
dividend declaration. E Corp. then filed a request with its RDO that it be permitted to
offset the withholding tax paid on the dividends to future liabilities. The RDO denied the
request thus E Corp. filed a claim for refund. The CTA held that E Corp. was not able to
establish through documentary evidence its entitlement to the refund. The CTA pointed

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out that E Corp. failed to present corporate records and/or relevant documentary evidence
that it was entitled to a refund. Engtek Philippines Inc. v. Commissioner of Internal
Revenue, CTA EB No. 89 dated June 14, 2006.
A WAIVER SIGNED AND ACCEPTED BY THE REVENUE DISTRICT
OFFICER FIVE MONTHS BEFORE THE EXPIRATION OF THE PERIOD TO
ASSESS INVOLVING MORE THAN ONE MILLION PESOS IS NOT VALID.
RMO 20-90 authorizes Revenue District Officers to sign and accept waivers where the
period to assess is about to prescribe regardless of the amount. In the instant case, the
CTA declared as void the waiver signed by the Revenue District Officer because said
waiver was signed five (5) months before the end of the period to assess, therefore, the
period to assess was not about to prescribe. Commissioner of Internal Revenue v.
Maruka Enterprises, Inc. , CTA EB No. 105 dated June 1, 2006.
IF A TAXPAYER OPTS TO APPEAL TO THE CTA THE INACTION OF THE
COMMISSIONER ON A DULY PROTESTED ASSESSMENT, HE MUST LODGE
THE APPEAL WITHIN 30 DAYS FROM THE LAPSE OF THE 180-DAY
PERIOD. HOWEVER, WHERE THE TAXPAYER FAILED TO SUBMIT
RELEVANT SUPPORTING DOCUMENTS RELATIVE TO THE PROTEST
WITHIN 60 DAYS FROM FILING OF THE PROTEST, THE 180-DAY PERIOD
SHALL BE RECKONED FROM THE DATE WHEN THE PROTEST WAS
FILED.
The 60-day period shall not be added to the computation of the 180 -day period because
from the wordings of the law, in case the taxpayer fails to submit relevant supporting
documents, the assessment becomes final. The 180-day period, therefore, commenced to
run from the date when the protest was filed. Oceanic Wireless Network Inc. v.
Commissioner of Internal Revenue, CTA EB No. 76 dated June 22, 2006.
DELIVERY OF PRESUMPTIVE LEGITIMES PURSUANT TO A COURT
ORDER IS NOT SUBJECT TO CAPITAL GAINS TAX, DONORS TAX AND
DOCUMENTARY STAMP TAX.
However, an annotation of the transmission of properties to children as presumptive
legitimes must be made in the corresponding transfer certificates of title covering such
realties for estate tax purposes. The properties being considered as advances on the
childrens legitime shall be included in the gross estate of the parents and subject to estate
tax, if any, upon the death of either of the parents. BIR Ruling No. DA 414-2006 dated
July 4, 2006.
AGREEMENTS TO SELL PROPERTY ON INSTALLMENT BASIS ARE NOT
SUBJECT TO DOCUMENTARY STAMP TAX IMPOSED UNDER SECTION 196
OF THE TAX CODE UNLESS THEY VEST TITLE ON THE VENDEE. BIR
Ruling No. DA 431-2006 dated July 18, 2006.

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THE REIMBURSEMENT OF COSTS FOR ADMINISTRATIVE, ACCOUNTING,
LOGISTICS, DEVELOPMENT AND OPERATIONS ASSISTANCE ON A
REIMBURSEMENT OF COST BASIS BETWEEN THE HEAD OFFICE AND ITS
PHILIPPINE BRANCH IS NOT SUBJECT TO WITHHOLDING TAX AND
BRANCH PROFITS REMITTANCE TAX. BIR Ruling No. DA 432-2006 dated July
18,2006.
THE INFUSION OF ADDITIONAL PAID-IN CAPITAL (APIC) WITHOUT THE
ISSUANCE OF ADDITIONAL SHARES OF STOCK IS NOT SUBJECT TO
INCOME, DONORS AND DOCUMENTARY STAMP TAXES.
The infusion of APIC without the issuance of additional shares of stock is considered a
capital investment which is not included within the purview of taxable income. Neither
is the infusion subject to donors tax, there being no donative intent, the transaction being
purely for business purposes. BIR Ruling No. DA 398-2006 dated June 26, 2006.
ROYALTY FEES RECEIVED BY A CORPORATION ENGAGED IN THE
BUSINESS OF GRANTING FRANCHISES ARE SUBJECT TO ORDINARY
CORPORATE INCOME TAX RATE AND NOT TO THE 20% FINAL
WITHHOLDING TAX.
Royalty fees received from franchise holders are considered active income of the
taxpayer since the said income was derived from the active pursuit of its business of
franchising. The 20% final withholding tax on royalties refers only to royalty payments
considered passive income. BIR Ruling No. DA 368-2006 dated June 13, 2006.
MERE REVISION OF THE PAYMENT TERMS OF A LOAN AGREEMENT IS
NOT SUBJECT TO DOCUMENTARY STAMP TAX.
The DST will apply only if the proposed revision will extinguish the existing loan
agreement and result in an entirely new contract or agreement between the contracting
parties. BIR Ruling No. DA 340-2006 dated May 26, 2006.
NOTE:
The information provided herein is general and may not be applicable in all situations. It
should not be acted upon without specific legal advice based on particular situations. If
you have any questions, please feel free to contact any of the following at telephone
number (632) 633-9418, facsimile number (632) 633-1911, or at the indicated e-mail
address:
Atty. Carlos G. Baniqued
Atty. Laura Victoria A.S. Yuson-Layug
Atty. Terence Conrad H. Bello
Atty. Ma. Carlota Christina G. Laio-Santiago
Atty. Suzette A. Celicious
Atty. Madeline L. Zialcita-Villapando
Atty. Kathleen L. Saga

cgbaniqued@baniquedlaw.com
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mlzvillapando@baniquedlaw.com
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