CIR vs.

Menguito
Taxation Pre-Assessment Notice Estoppel Piercing the Veil of
Corporate Fiction
DominadorMenguito and his wife are the owners of Copper Kettle Catering
Services, Inc. (CKCSI). They also operate several restaurant branches in
the Philippines. One such branch was the Copper Kettle Cafeteria
Specialist (CKCS) in Club John Hay, Baguio City. The branch was
registered as a sole proprietorship. In September 1997, a formal
assessment notice (FAN) was issued against the spouses and they were
adjudged to pay P34 million in deficiency taxes for the years 1991 to 1993.
The Bureau of Internal Revenue found that in order for CKCS to operate in
Club John Hay, a contract was entered into by CKCSI and Club John Hay;
hence, CKCS and CKCSI are one and the same.
Mrs.Menguito then sent a letter to the BIR acknowledging receipt of the
assessment notice. She asked for more time to sort the issue. Later, when
Menguito eventually filed a protest, he denied, through his witness (Ma.
Therese Nalda, CKCS employee), receiving the FAN; that the FAN was
addressed to the wrong person because it was addressed to CKCSI not
CKCS. He presented as evidence a photocopy of the articles of
incorporation (AOI) of CKCSI.
On the other hand, the Commissioner of Internal Revenue (CIR) presented
proof of the due mailing of the FAN. It however was not able to prove that it
issued a pre-assessment notice (PAN) or a post-assessment notice.
ISSUE: Whether or not due process was observed by the Commissioner of
Internal Revenue.
HELD: Yes. The veil of corporate fiction is pierced because it was proven
that CKCSI is actively managing CKCS. Further, CKCS is more known as
CKCSI. Also, the photocopy of the AOI presented by Menguito is not a
conclusive proof of the separate personality of CKCSI and CKCS.
More importantly, Menguito and his wife are in estoppel because they
already acknowledged the receipt of the FAN through the letter sent by
Mrs.Menguito to the BIR. They cannot later on deny the receipt of the FAN.
Worse, it should be Menguito who should be directly denying the receipt
and not through an employee (Nalda) who was not even an employee of
the spouses when the FAN was issued and received in 1997. It was only in
1998 that Nalda was employed by CKCS. Since Menguito did not legally
deny the receipt of the FAN, the presumption that he actually received it still
subsists. Further, based on the records, Menguito, in the stipulation of
facts, acknowledged the receipt of the FAN.
Anent the issue of the non-issuance of the PAN, the same is not vital to due
process. The Supreme Court ruled that the strict requirement of proving

that an assessment is sent and received by the taxpayer is only applicable

to FANs and to PANs. The issuance of a valid formal assessment is a
substantive prerequisite to tax collection, for it contains not only a
computation of tax liabilities but also a demand for payment within a
prescribed period, thereby signaling the time when penalties and interests
begin to accrue against the taxpayer and enabling the latter to determine
his remedies therefor. A PAN or a post-assessment notice does not bear
the gravity of a FAN. Neither notice contains a declaration of the tax liability
of the taxpayer or a demand for payment thereof. Hence, the lack of such
notices inflicts no prejudice on the taxpayer for as long as the latter is
properly served a formal assessment notice.
NOTE: In the case of CIR vs Metro Star Superama (December 2010), the
Supreme Court held that the due issuance of the PAN is part of due
process. Hence, this superseded the ruling in this case as regards the
issuance of PANs. (CIR vsMenguito is a September 2008 case).
CIR vs. Enron Subic Power Corp.
In 1997, Enron Subic Power Corporation received a pre-assessment notice
from the Bureau of Internal Revenue (BIR). Enron allegedly had a tax
deficiency of P2.8 million for the year 1996. Enron filed a protest. In 1999,
Enron received a final assessment notice (FAN) from the BIR for the same
amount of tax deficiency.
Enron however assailed the FAN because according to Enron the FAN is
not compliant with Section 228 of the National Internal Revenue Code
(NIRC) which provides that the legal and factual bases of the assessment
must be contained in the FAN. The FAN issued to Enron only contained the
computation of its alleged tax liability.
The Commissioner of Internal Revenue (CIR) admitted that the FAN did not
contain the legal and factual bases of the assessment however, the CIR
insisted that the same has been substantially complied with already
because during the pre-assessment stage, the representative of Enron has
been advised of the said factual and legal bases of the assessment.
ISSUE: Whether or not there is a valid final assessment notice issued to
Enron.
HELD: No. The wording of Section 228 of the NIRC provides:
The taxpayer shall be informed in writing of the law and the facts on which
the assessment is made; otherwise the assessment shall be void.
The word shall is mandatory. The law requires that the legal and factual
bases of the assessment be stated in the formal letter of demand and
assessment notice. It cannot be substituted by other notices or advisories
issued or delivered to the taxpayer during the preliminary stage.

CIR V. FMF DEVELOPMENT CORP.

Facts: On April 15, 1996, FMF filed its Corporate Annual Income Tax
Return for taxable year 1995 and declared a loss of P3,348,932.The BIR
then sent FMF pre-assessment notices informing it of its alleged tax
liabilities. FMF filed a protest against these notices with the BIR and
requested for a reconsideration/reinvestigation. RDO Rogelio Zambarrano
informed FMF that the reinvestigation had been referred to Revenue Officer
Alberto Fortaleza.
On February 9, 1999, FMF President executed a waiver of the three-year
prescriptive period for the BIR to assess internal revenue taxes to extend
the assessment period until October 31, 1999. The waiver was accepted
and signed by RDO Zambarrano.
On October 18, 1999, FMF received amended pre-assessment notices
dated October 6, 1999 from the BIR. FMF immediately filed a protest on
November 3, 1999 but on the same day, it received BIRs Demand Letter
and Assessment Notice dated October 25, 1999 reflecting FMFs alleged
deficiency taxes and accrued interests the total of which amounted to
P2,053,698.25.
On November 24, 1999, FMF filed a letter of protest on the assessment
invoking the defense of prescription by reason of the invalidity of the
waiver.
The BIR insisted that the waiver is valid. It ordered FMF to immediately
settle its tax liabilities, otherwise, judicial action will be taken. Treating this
as BIRs final decision, FMF filed a petition for review with the CTA.
The CTA granted the petition and cancelled Assessment Notice made by
the BIR because it was already time-barred. The CTA ruled that the waiver
did not extend the three-year prescriptive period within which the BIR can
make a valid assessment because it did not comply with the procedures
laid down in Revenue Memorandum Order (RMO) No. 20-90. On appeal,
the Court of Appeals affirmed the decision of the CTA.
Issues:
(1) Is the waiver valid? and
(2) Did the three-year period to assess internal revenue taxes already
prescribe?
Held: Petitioner contends that the waiver was validly executed mainly
because it complied with Section 222 (b) of the National Internal Revenue
Code (NIRC). On the other hand, respondent counters that the waiver is
void because it did not comply with RMO No. 20-90Moreover, a waiver of
the statute of limitations is not a waiver of the right to invoke the defense of
prescription.

Petition lacks merit. Under Section 203 of the NIRC, internal revenue taxes
must be assessed within three years counted from the period fixed by law
for the filing of the tax return or the actual date of filing, whichever is later.
This mandate governs the question of prescription of the governments
right to assess internal revenue taxes primarily to safeguard the interests of
taxpayers from unreasonable investigation. Accordingly, the government
must assess internal revenue taxes on time so as not to extend indefinitely
the period of assessment and deprive the taxpayer of the assurance that it
will no longer be subjected to further investigation for taxes after the
expiration of reasonable period of time.
An exception to the three-year prescriptive period on the assessment of
taxes is Section 222 (b) of the NIRC, which provides:
(b) If before the expiration of the time prescribed in Section 203 for the
assessment of the tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may
be extended by subsequent written agreement made before the expiration
of the period previously agreed upon.
The above provision authorizes the extension of the original three-year
period by the execution of a valid waiver. Under RMO No. 20-90, which
implements Sections 203 and 222 (b), the following procedures should be
followed:
1. The waiver must be in the form identified as Annex "A" hereof.
2. The waiver shall be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by
any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of
Internal Revenue or the revenue official authorized by him, as hereinafter
provided, shall sign the waiver indicating that the Bureau has accepted and
agreed to the waiver. The date of such acceptance by the Bureau should
be indicated. Both the date of execution by the taxpayer and date of
acceptance by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
3. Commissioner For tax cases involving more than P1M
B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still pending
investigation and the period to assess is about to prescribe regardless of
amount.
4. The waiver must be executed in three (3) copies, the original copy to be
attached to the docket of the case, the second copy for the taxpayer and
the third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official
found not to have complied with this Order resulting in prescription of the
right to assess/collect shall be administratively dealt with.
Applying RMO No. 20-90, the waiver in question here was defective and
did not validly extend the original three-year prescriptive period.
Firstly, it was not proven that respondent was furnished a copy of the BIRaccepted waiver. Secondly, the waiver was signed only by a revenue
district officer, when it should have been signed by the Commissioner as
mandated by the NIRC and RMO No. 20-90, considering that the case
involves an amount of more than P1 million, and the period to assess is not
yet about to prescribe. Lastly, it did not contain the date of acceptance by
the Commissioner of Internal Revenue, a requisite necessary to determine
whether the waiver was validly accepted before the expiration of the
original three-year period. Bear in mind that the waiver in question is a
bilateral agreement, thus necessitating the very signatures of both the
Commissioner and the taxpayer to give birth to a valid agreement.
The waiver of the statute of limitations under the NIRC, to a certain extent
being a derogation of the taxpayers right to security against prolonged and
unscrupulous investigations, must be carefully and strictly construed. The
waiver of the statute of limitations does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally, particularly
where the language of the document is equivocal. Notably, in this case, the
waiver became unlimited in time because it did not specify a definite date,
agreed upon between the BIR and respondent, within which the former
may assess and collect taxes. It also had no binding effect on respondent
because there was no consent by the Commissioner. On this basis, no
implied consent can be presumed, nor can it be contended that the
concurrence to such waiver is a mere formality.
Consequently, petitioner cannot rely on its invocation of the rule that the
government cannot be estopped by the mistakes of its revenue officers in
the enforcement of RMO No. 20-90 because the law on prescription should
be interpreted in a way conducive to bringing about the beneficent purpose
of affording protection to the taxpayer within the contemplation of the
Commission which recommended the approval of the law.

CIR V. ISABELA CULTURAL CORP.

Facts: Isabela Cultural Corporation (ICC), a domestic corporation received
an assessment notice for deficiency income tax and expanded withholding
tax from BIR. It arose from the disallowance of ICCs claimed expense for
professional and security services paid by ICC; as well as the alleged
understatement of interest income on the three promissory notes due from
Realty Investment Inc. The deficiency expanded withholding tax was
allegedly due to the failure of ICC to withhold 1% e-withholding tax on its
claimed deduction for security services.
ICC sought a reconsideration of the assessments. Having received a final
notice of assessment, it brought the case to CTA, which held that it is
unappealable, since the final notice is not a decision. CTAs ruling was
reversed by CA, which was sustained by SC, and case was remanded to
CTA. CTA rendered a decision in favor of ICC. It ruled that the deductions
for professional and security services were properly claimed, it said that
even if services were rendered in 1984 or 1985, the amount is not yet
determined at that time. Hence it is a proper deduction in 1986. It likewise
found that it is the BIR which overstate the interest income, when it applied
compounding absent any stipulation.
Petitioner appealed to CA, which affirmed CTA, hence the petition.
Issue: Whether or not the expenses for professional and security services
are deductible.
Held: No. One of the requisites for the deductibility of ordinary and
necessary expenses is that it must have been paid or incurred during the
taxable year. This requisite is dependent on the method of accounting of
the taxpayer. In the case at bar, ICC is using the accrual method of
accounting. Hence, under this method, an expense is recognized when it is
incurred. Under a Revenue Audit Memorandum, when the method of
accounting is accrual, expenses not being claimed as deductions by a
taxpayer in the current year when they are incurred cannot be claimed in
the succeeding year.
The accrual of income and expense is permitted when the all-events test
has been met. This test requires: 1) fixing of a right to income or liability to
pay; and 2) the availability of the reasonable accurate determination of
such income or liability. The test does not demand that the amount of
income or liability be known absolutely, only that a taxpayer has at its
disposal the information necessary to compute the amount with reasonable
accuracy.
From the nature of the claimed deductions and the span of time during
which the firm was retained, ICC can be expected to have reasonably
known the retainer fees charged by the firm. They cannot give as an

excuse the delayed billing, since it could have inquired into the amount of
their obligation and reasonably determine the amount.
CIR v Japan Airlines (JAL)
(Situs of Taxation)
Facts:
JAL is a foreign corporation engaged in the business of International air
carriage. Since mid-July of 1957, JAL hadmaintained an office at the
Filipinas Hotel, RoxasBoulevardManila. The said office did not sell tickets
but was merely for the promotion of the company. On July 17 1957,
JALconstituted PAL as its agent in the Philippines. PAL sold ticketsfor and
in behalf of JAL.On June 1972, JAL then received deficiency income
taxassessments notices and a demand letter from petitioner for years 1959
through 1963. JAL protested against saidassessments alleging that as a
non-resident foreigncorporation, it as taxable only on income from
Philippinessources as determined by section 37 of the Tax Code,
therebeing no income on said years, JAL is not liable for taxes.
Issue: WON proceeds from sales of JAL tickets sold in thePhilippines
are taxable as income from sources within thePhilippines.
Held: The ticket sales are taxable.
Citing the case of CIR v BOAC, the court reiterated that thesource of an
income is the property, activity or service thatproduced the income. For the
source of income to beconsidered as coming from the Philippines, it is
sufficient thatthe income is derived from activity within the Philippines.The
absence of flight operations to and from the Philippines isnot determinative
of the source of income or the situs of income taxation. The test of taxability
is the source, and thesource of the income is that activity which produced
theincome. In this case, as JAL constitutes PAL as its agent, thesales of
JAL tickets made by PAL is taxable
COMMISSIONER OF INTERNAL REVENUE v.
MANILA MINING
CORPORATION
468 SCRA 571 (2005), THIRD DIVISION, (Carpio Morales,
For a judicial claim for refund to prosper, the party must not only prove that
it is a VAT registered entity, it must substantiate the input VAT paid by
purchase invoices or official receipts.
Respondent Manila Mining Corporation (MMC), a VAT-registered
enterprise, filed its VAT
Returns for the year of 1991 with the BIR. MMC, relying on Sec. 2 of
Executive Order (E.O.) 581 as
amended which provides that gold sold to the Central Bank is considered
an export sale which under Section 100(a)(1) of the NIRC, as amended by

E.O. 273, is subject to zero-rated if such sale is made by a VAT-registered

person, filed an application for tax refund/credit of the input VAT it paid
from such year.
The Commissioner of Internal Revenue (CIR) failed to act upon MMCs
application within sixty
(60) days from the dates of filing. MMC was then filed a Petition for Review
against the CIR before the Court of Tax Appeals (CTA) seeking the
issuance of tax credit certificate or refund. The CIR specifically denied the
veracity of the amounts stated in MMCs VAT returns and application for
credit/refund as the same continued to be under investigation. However,
such was not verified prompting MMC to file a SUPPLEMENT (To
Annotation of Admission) alleging that as the reply was not under
oath, an implied admission of its requests arose as a consequence
thereof. The CTA granted MMCs Request for Admissions and denied the
CIRs Motion to Admit Reply.
The CTA denied MMCs claim for refund of input VAT for failure to
prove that it paid the
amounts claimed as such for the year 1991, no sales invoices, receipts
or other documents as required having been presented. Upon appeal of
MMC to the Court of Appeals (CA), it reversed the decision of the CTA and
granted MMCs claim for refund or issuance of tax credit certificates on
the ground that there was no need for MMC to present the photocopies of
the purchase invoices or receipts evidencing the VAT paid and the best
evidence rule is misplaced since this rule does not apply to matters which
have been judicially admitted.
ISSUE:
Whether or not MMC adduced sufficient evidence to prove its claim for
refund of its input VAT
for taxable year 1991
HELD:
As export sales, the sale of gold to the Central Bank is zero-rated, hence,
no tax is chargeable to it
as purchaser. Zero rating is primarily intended to be enjoyed by the
seller MMC, which charges no output VAT but can claim a refund of or
a tax credit certificate for the input VAT previously charged to it by
suppliers.
For a judicial claim for refund to prosper, however, MMC must not only
prove that it is a VAT
registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input
VAT paid by purchase invoices or official receipts. It is required that a
photocopy of the purchase Invoice or receipt evidencing the vat paid shall
be submitted together with the application. The MMC failed to do.

CIR vs. Marubeni

The dividends received by Marubeni Corporation from Atlantic Gulf and
Pacific Co. are not income arising from the business activity in which
Marubeni Corporation is engaged. Accordingly, said dividends if remitted
abroad are not considered branch profits subject to Branch Profit
Remittance Tax.
Facts:
Marubeni Corporation is a Japanese corporation licensed to engage in
business in the Philippines. When the profits on Marubenis investments in
Atlantic Gulf and Pacific Co. of Manila were declared, a 10% final dividend
tax was withheld from it, and another 15% profit remittance tax based on
the remittable amount after the final 10% withholding tax were paid to the
Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or tax
credit for the amount which it has allegedly overpaid the BIR.
Issues and Ruling:
1. Whether or not the dividends Marubeni Corporation received from
Atlantic Gulf and Pacific Co. are effectively connected with its conduct or
business in the Philippines as to be considered branch profits subject to
15% profit remittance tax imposed under Section 24(b)(2) of the National
Internal Revenue Code.
NO. Pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits
remitted abroad by a branch office to its head office which are effectively
connected with its trade or business in the Philippines are subject to the
15% profit remittance tax. The dividends received by Marubeni Corporation
from Atlantic Gulf and Pacific Co. are not income arising from the business
activity in which Marubeni Corporation is engaged. Accordingly, said
dividends if remitted abroad are not considered branch profits for purposes
of the 15% profit remittance tax imposed by Section 24(b)(2) of the Tax
Code, as amended.
2. Whether Marubeni Corporation is a resident or non-resident foreign
corporation.
Marubeni Corporation is a non-resident foreign corporation, with respect to
the transaction. Marubeni Corporations head office in Japan is a separate
and distinct income taxpayer from the branch in the Philippines. The
investment on Atlantic Gulf and Pacific Co. was made for purposes
peculiarly germane to the conduct of the corporate affairs of Marubeni
Corporation in Japan, but certainly not of the branch in the Philippines.
3. At what rate should Marubeni be taxed?
15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in
conjunction with the Philippine-Japan Tax Treaty of 1980. As a general rule,
it is taxed 35% of its gross income from all sources within the Philippines.
However, a discounted rate of 15% is given to Marubeni Corporation on

dividends received from Atlantic Gulf and Pacific Co. on the condition that
Japan, its domicile state, extends in favor of Marubeni Corporation a tax
credit of not less than 20% of the dividends received. This 15% tax rate
imposed on the dividends received under Section 24(b)(1)(iii) is easily
within the maximum ceiling of 25% of the gross amount of the dividends as
decreed in Article 10(2)(b) of the Tax Treaty.
Note:
Each
tax
has
a
different
tax
basis.
Under the Philippine-Japan Tax Convention, the 25% rate fixed is the
maximum rate, as reflected in the phrase shall not exceed. This means
that any tax imposable by the contracting state concerned hould not
exceed the 25% limitation and said rate would apply only if the tax imposed
by our laws exceeds the same.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MIRANT
PAGBILAO CORPORATION, respondent. G.R. No. 159593, October 12,
2006; Chico-Nazario, J.
The facts of this case are straight forward. Respondent is a registered VATtaxpayer with a certificate of registration issued on January 26, 1996. For
the period April 1, 1996 to December 31, 1996, respondent religiously filed
its quarterly VAT returns reflecting thereon the amount of accumulated input
taxes. These input taxes were paid to VAT suppliers of capital goods and
services for the construction and development of the power generating
plant in Pagbilao, Quezon.
A claim for refund for these input taxes was filed with the BIR. Without
waiting for its resolution in the administrative level, it filed a petition for
review with the CTA on July 10, 1998, in order to toll the running of the toeyear prescriptive period for claiming a refund under the law.
In answer to this petition, the Commissioner advanced as special and
affirmative defenses that: MPCs claim for refund is still pending
investigation and consideration before his office, accordingly, the filing of
the petition is premature; well-settled is the doctrine that provisions for
refund and credit are construed strictly against the taxpayer as they are in
the nature of tax exemption; the claimant has the burden to show that the
taxes are erroneously paid and that the claim is filed within the prescriptive
period.
The CTA ruled in favor of MPC and declared that MPC had overwhelmingly
proved, through the VAT invoices and official receipts it had presented, that
its purchases of goods and services were necessary in the construction of
power plant facilities which is used in its business of power generation and
sale.
On an appeal to the CA, the Commissioner raised new arguments which
were never raised in the CTA MPC is an electric utility subject to the
franchise tax and since it is exempt from VAT, it is not entitled to the refund.

The CA, finding no merit in the Commissioners petition, affirmed the CTA
decision.
Issue: Can the Commissioner change his theory of the case on appeal by
raising for the first time on appeal questions of both fact and law not taken
up in the tax court?
HELD: The SC ruled against the petitioner. The SC emphasized that The
settled rule is that defenses not pleaded in the answer may not be raised
for the first time on appeal. A party cannot, change fundamentally the
nature of the issue in the case. When a party deliberately adopts a certain
theory and the case is decided upon that theory in the court below, he will
not be permitted to change the same on appeal, because to permit him to
do so would be unfair to the adverse party. (Carantes v. Court of Appeals,
G.R. No. L-33360, April 25, 1977, 76 SCRA 514).
COMMISSIONER OF INTERNAL REVENUE V.
MISTUBISHIMETAL CORPORATION (181 SCRA 214)
Facts: Atlas Consolidated Mining andDevelopment Corporation, a domestic
corporation, entered into a Loan and Sales Contract with Mitsubishi Metal
Corporation, a Japanese corporation licensed to engage in business in the
Philippines. To be able to extend the loan to Atlas, Mitsubishi entered into
another loan agreement with Export-Import Bank (Eximbank), a financing
institution owned, controlled, and financed by the Japanese government.
After making interest payments to Mitsubishi, with the corresponding 15%
tax thereon remitted to the Government of the Philippines, Altas claimed for
tax credit with the Commissioner of Internal Revenue based on Section
29(b)(7) (A) of the National Internal Revenue Code, stating that since
Eximbank, and not Mitsubishi, is where the money for the loan originated
from Eximbank, then it should be exempt from paying taxes on its loan
thereon.
Issue: WON the interest income from the loans extended to Atlas by
Mitsubishi is excludible from gross income taxation.
NO. Mitsubishi secured the loan from Eximbank in its own independent
capacity as a private entity and not as a conduit of Eximbank. Therefore,
what the subject of the 15% withholding tax is not the interest income paid
by Mitsubishi to Eximbank, but the interest income earned by Mitsubishi
from the loan to Atlas. Thus, it does not come within the ambit of Section
29(b)(7)(A), and it is not exempt from the payment of taxes.
Notes: Findings of fact of the Court of Tax Appeals are entitled to the highest
respect and can only be disturbed on appeal if they are not supported by
substantial evidence or if there is a showing of gross error or abuse on the
part of the tax court. Laws granting exemption from tax are
construed strictissimijurisagainst the taxpayer and liberally in favor of
the taxing power. Taxation is the rule and exemption is the exception.

COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE HEALTH

CARE PROVIDERS, INC. G.R. No. 168129. April 24, 2007
FACTS:
On 1987, CIR issued VAT Ruling No. 231-88 stating that Philhealth, as a
provider of medical services, is exempt from the VAT coverage. When RA
8424 or the new Tax Code was implemented it adopted the provisions of
VAT and E-VAT. On 1999, the BIR sent Philhealth an assessment notice for
deficiency VAT and documentary stamp taxes for taxable years 1996 and
1997. After CIR did not act on it, Philhealth filed a petition for review with
the CTA. The CTA withdrew the VAT assessment. The CIR then filed an
appeal with the CA which was denied.
ISSUES:
Whether Philhealth is subject to VAT.
Whether VAT Ruling No. 231-88 exempting Philhealth from payment of VAT
has retroactive application.
RULING:
YES. Section 103 of the NIRC exempts taxpayers engaged in the
performance of medical, dental, hospital, and veterinary services from VAT.
But, in Philhealth's letter requesting of its VAT-exempt status, it was held
that it showed Philhealth provides medical service only between their
members and their accredited hospitals, that it only provides for the
provision of pre-need health care services, it contracts the services of
medical practitioners and establishments for their members in the delivery
of health services.
Thus, Philhealth does not fall under the exemptions provided in Section
103, but merely arranges for such, making Philhealth not VATexempt. YES. Generally, the NIRC has no retroactive application except
when:
where the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal
Revenue;
where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based, or
where the taxpayer acted in bad faith.
The Court held that Philhealth acted in good faith. The term health
maintenance organization was first recorded in the Philippine statute books
in 1995. It is apparent that when VAT Ruling No. 231-88 was issued in
Philhealth'sfavor, the term health maintenance organization was unknown
and had no significance for taxation purposes. Philhealth, therefore,
believed in good faith that it was VAT exempt for the taxable years 1996
and 1997 on the basis of VAT Ruling No. 231-88. The rule is that the BIR
rulings have no retroactive effect where a grossly unfair deal would result to
the prejudice of the taxpayer.

Commissioner of Internal Revenue vs. Primetown Property Group,

Inc.
G.R. No. 162155, August 28, 2007
FACTS
On April 14, 1998 Primetown Property Group. Inc. filed its final adjusted
return. On March 11, 1999 Gilbert Yap, vice chair of Primetown Property
Group. Inc., filed for the refund or tax credit of income tax paid in 1997.
However, it was not acted upon. Thus Primetown filed a petition for review
but the Court of Tax Appeals dismissed it claiming that it was filed beyond
the two-year reglementary period provided by section 229 of the National
Internal Revenue Code. The Court of Tax Appeals further argued that in
National Marketing Corp. vs. Tecson the Supreme Court ruled that a year is
equal to 365 days regardless of whether it is a regular year or a leap year.
ISSUE
Whether or not the respondents petition was filed within the two-year
reglementary period.
RULING
The Supreme Court held that the petition was filed within the two-year
reglementary period because Article 13 of the New Civil Code that provides
that a year is composed of 365 years is repealed by Executive Order 292
or the Administrative Code of the Philippines. Under Executive Order 292, a
year is composed of 12 calendar months.
CIR vs. P&G
NON-RESIDENT FOREIGN CORPORATION- DIVIDENDS
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be
applied to dividend remittances to non-resident corporate stockholders of a
Philippine corporation. This rate goes down to 15% ONLY IF the country of
domicile of the foreign stockholder corporation shall allow such foreign
corporation a tax credit for taxes deemed paid in the Philippines,
applicable against the tax payable to the domiciliary country by the foreign
stockholder corporation. However, such tax credit for taxes deemed paid in
the Philippines MUST, as a minimum, reach an amount equivalent to 20
percentage points
FACTS:
Procter and Gamble Philippines declared dividends payable to its parent
company and sole stockholder, P&G USA. Such dividends amounted to
Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the BIR which
amounted to Php 8.3M It subsequently filed a claim with the Commissioner

of Internal Revenue for a refund or tax credit, claiming that pursuant to

Section 24(b)(1) of the National Internal Revenue Code, as amended by
Presidential Decree No. 369, the applicable rate of withholding tax on the
dividends remitted was only 15%.
MAIN ISSUE:
Whether or not P&G Philippines is entitled to the refund or tax credit.
HELD:
YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that an
ordinary 35% tax rate will be applied to dividend remittances to nonresident corporate stockholders of a Philippine corporation. This rate goes
down to 15% ONLY IF he country of domicile of the foreign stockholder
corporation shall allow such foreign corporation a tax credit for taxes
deemed paid in the Philippines, applicable against the tax payable to the
domiciliary country by the foreign stockholder corporation. However, such
tax credit for taxes deemed paid in the Philippines MUST, as a minimum,
reach an amount equivalent to 20 percentage points which represents the
difference between the regular 35% dividend tax rate and the reduced 15%
tax rate. Thus, the test is if USA shall allow P&G USA a tax credit for
taxes deemed paid in the Philippines applicable against the US taxes of
P&G USA, and such tax credit must reach at least 20 percentage points.
Requirements were met.
NOTES: Breakdown:
a) Deemed paid requirement: US Internal Revenue Code, Sec 902: a
domestic corporation (owning 10% of remitting foreign corporation) shall be
deemed to have paid a proportionate extent of taxes paid by such foreign
corporation upon its remittance of dividends to domestic corporation.
CIR vs. Rosemarie Acosta
G.R. No. 154068
Quisombing, J.:

August 3, 2007

FACTS:
Acosta is an employee of Intel and was assigned in a foreign country.
During that period Intel withheld the taxes due and remitted them to BIR.
Respondent claimed overpayment of taxes and filed petition for review with
CTA. CTA dismissed the petition for failure to file a written claim for refund
with the CIR a condition precedent to the filing of a petition for review with
the CTA. CA reversed the decision reasoning that Acostas filing of an
amended return indicating an overpayment was sufficient compliance with
the requirement of a written claim.
ISSUE:
Whether or not CTA has jurisdiction to take cognizance of respondents
petition for review.
RULING:

A party seeking an administrative rimedy must not merely initiate the

prescribed administrative procedure to obtain relie but also to pursue it to
its appropriate conclusion before seeking judicial intervention in order to
give administrative agency an opportunity to decide the matter itself
correctly and prevent unnecessary and premature resort to court action. At
the time respondent filed her amended return, the 1997, NIRC was not yet
in effect, hence respondent had no reason to think that the filing of an
amended return would constitute the written claim required by law.
CTA likewise stressed that even the date of filing of the Final Adjustment
return was omitted, inadvertently or otherwise, by respondent in her petition
for review. This is fatal to respondents claim, for it deprived the CTA of its
jurisdiction over the subject matter of the case.
Finally, revenue statutes are substantive laws and in no sense must with
that of remedial laws. Revenue laws are not intended to be liberally
constructed.
CIR vs WANDER PHILIPPINES, INC. - CASE DIGEST
G.R. NO. L-68275, April 15, 1988
Commissioner of Internal Revenue, petitioner
vs
WANDER Philippines, Inc., and the Court of Tax Appeals, respondents
FACTS:
Private respondents Wander Philippines, Inc. (wander) is a domestic
corporation organized under Philippine laws. It is wholly-owned subsidiary
of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for
business in the Philippines.
Wander filed it'switholding tax return for 1975 and 1976 and remitted to its
parent company Glaro dividends from which 35% withholding tax was
withheld and paid to the BIR.
In 1977, Wander filed with the Appellate Division of the Internal Revenue a
claim for reimbursement, contending that it is liable only to 15% withholding
tax in accordance with sec. 24 (b) (1) of the Tax code, as amended by PD
nos. 369 and 778, and not on the basis of 35% which was withheld ad paid
to and collected by the government. petitioner failed to act on the said claim
for refund, hence Wander filed a petition with Court of Tax Appeals who in
turn ordered to grant a refund and/or tax credit. CIR's petition for
reconsideration was denied hence the instant petition to the Supreme
Court.
ISSUE:

Whether or not Wander is entitled to the preferential rate of 15%

withholding tax on dividends declared and to remitted to its parent
corporation.
HELD:
Section 24 (b) (1) of the Tax code, as amended by PD 369 and 778, the law
involved in this case, reads:
sec. 1. The first paragraph of subsection (b) of section 24 of the NIRC, as
amended is hreby further amended to read as follows:
(b) Tax on foreign corporations - (1) Non resident corporation -- A foreign
corporation not engaged in trade or business in the Philippines, including a
foreign life insurance company not engaged in life insurance business in
the Philippines, shall pay a tax equal to 35% of the gross income received
during its taxable year from all sources within the Philippines, as interest
(except interest on a foreign loans which shall be subject to 15% tax),
dividends, premiums, annuities, compensation, remuneration for technical
services or otherwise emolument, or other fixed determinable annual,
periodical ot casual gains, profits and income, and capital gains: xxx
Provided, still further that on dividends received from a domestic
corporation liable to tax under this chapter, the tax shall be 15% of the
dividends received, which shall be collected and paid as provided in sec 53
(d) of this code, subject to the condition that the country in which the nonresident foreign corporation is domiciled shall allow a credit against tax due
from the non-resident foreign corporation taxes deemed to have been paid
in the Philippines equivalent to 20% which represents the difference
between the regular tax (35%) on corporation and the tax (15%) dividends
as provided in this section: xxx."
From the above-quoted provision, the dividends received from a domestic
corporation liable to tax, the tax shall be 15% of the dividends received,
subject to the condition that the country in which the non-resident foreign
corporation is domiciled shall allow a credit against the tax due from the
non-resident foreign corporation taxes deemed to have been paid in the
Philippines equivakent to 20% which represents the difference betqween
the regular tax (35%) on corpoorations and the tax (15%) on dividends.
While it may be true that claims for refund construed strictly against the
claimant, nevertheless, the fact that Switzerland did not impose any tax on
the dividends received by Glaro from the Philippines should be considered
as a full satisfaction if the given condition. For, as aptly stated by
respondent Court, to deny private respondent the privilege to withhold only
15% tax provided for under PD No. 369 amending section 24 (b) (1) of the
Tax Code, would run counter to the very spirit and intent of said law and
definitely will adversely affect foreign corporations interest here and
discourage them for investing capital in our country.
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC. vs.
EXECUTIVE SECRETARY- Minimum Corporate Income Tax

FACTS:
CREBA assails the imposition of the minimum corporate income tax (MCIT)
as being violative of the due process clause as it levies income tax even if
there is no realized gain. They also question the creditable withholding tax
(CWT) on sales of real properties classified as ordinary assets stating that
(1) they ignore the different treatment of ordinary assets and capital assets;
(2) the use of gross selling price or fair market value as basis for the CWT
and the collection of tax on a per transaction basis (and not on the net
income at the end of the year) are inconsistent with the tax on ordinary real
properties; (3) the government collects income tax even when the net
income has not yet been determined; and (4) the CWT is being levied upon
real estate enterprises but not on other enterprises, more particularly those
in the manufacturing sector.
ISSUE:
Are the impositions of the MCIT on domestic corporations and
CWT on
income from sales of real properties classified as
ordinary assets
unconstitutional?
HELD:
NO. MCIT does not tax capital but only taxes income as shown by the fact
that the MCIT 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. Besides, there are sufficient safeguards that exist for the
MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows
the carry forward of any excess MCIT paid over the normal income tax; and
(3) the Secretary of Finance can suspend the imposition of MCIT in
justifiable instances.
The regulations on CWT did not shift the tax base of a real estate business
income tax from net income to GSP or FMV of the property sold since the
taxes withheld are in the nature of advance tax payments and they are thus
just installments on the annual tax which may be due at the end of the
taxable year. As such the tax base for the sale of real property classified as
ordinary assets remains to be the net taxable income and the use of the
GSP or FMV is because these are the only factors reasonably known to the
buyer in connection with the performance of the duties as a withholding
agent.
Neither is there violation of equal protection even if the CWT is levied only
on the real industry as the real estate industry is, by itself, a class on its
own and can be validly treated different from other businesses.
CYANAMID PHILS. Vs. CA
In order to determine whether profits are accumulated for the reasonable
needs of the business to avoid the surtax upon the shareholders, it must be
shown that the controlling intention of the taxpayer is manifested at the time
of the accumulation, not intentions subsequently, which are mere
afterthoughts.

Facts:
Petitioner is a corporation organized under Philippine laws and is a wholly
owned subsidiary of American Cyanamid Co. based in Maine, USA. It is
engaged in the manufacture of pharmaceutical products and chemicals, a
wholesaler of imported finished goods and an imported/indentor. In 1985
the CIR assessed on petitioner a deficiency income tax of P119,817) for the
year 1981. Cyanamid protested the assessments particularly the 25%
surtax for undue accumulation of earnings. It claimed that said profits were
retained to increase petitioners working capital and it would be used for
reasonable business needs of the company. The CIR refused to allow the
cancellation of the assessments, petitioner appealed to the CTA. It claimed
that there was not legal basis for the assessment because 1) it
accumulated its earnings and profits for reasonable business requirements
to meet working capital needs and retirement of indebtedness 2) it is a
wholly owned subsidiary of American Cyanamid Company, a foreign
corporation, and its shares are listed and traded in the NY Stock Exchange.
The CTA denied the petition stating that the law permits corporations to set
aside a portion of its retained earnings for specified purposes under Sec.
43 of the Corporation Code but that petitioners purpose did not fall within
such purposes. It found that there was no need to set aside such retained
earnings as working capital as it had considerable liquid funds. Those
corporations exempted from the accumulated earnings tax are found under
Sec. 25 of the NIRC, and that the petitioner is not among those exempted.
The CA affirmed the CTAs decision.
Issue: Whether or not the accumulation of income was justified.
Held:
In order to determine whether profits are accumulated for the reasonable
needs of the business to avoid the surtax upon the shareholders, it must be
shown that the controlling intention of the taxpayer is manifested at the time
of the accumulation, not intentions subsequently, which are mere
afterthoughts. The accumulated profits must be used within reasonable
time after the close of the taxable year. In the instant case, petitioner did
not establish by clear and convincing evidence that such accumulated was
for the immediate needs of the business.
To determine the reasonable needs of the business, the United States
Courts have invented the Immediacy Test which construed the words
reasonable needs of the business to mean the immediate needs of the
business, and it is held that if the corporation did not prove an immediate
need for the accumulation of earnings and profits such was not for
reasonable needs of the business and the penalty tax would apply. (Law of
Federal Income Taxation Vol 7) The working capital needs of a business
depend on the nature of the business, its credit policies, the amount of
inventories, the rate of turnover, the amount of accounts receivable, the
collection rate, the availability of credit and other similar factors. The Tax
Court opted to determine the working capital sufficiency by using the ration

between the current assets to current liabilities. Unless, rebutted, the

presumption is that the assessment is correct. With the petitioners failure
to prove the CIR incorrect, clearly and conclusively, the Tax Courts ruling is
upheld.
Eastern Telecommunications Philippines, Inc. vs. Commissioner of
Internal Revenue
G.R. No. 168856
August 29, 2012.
National Internal Revenue Code; Value Added Tax; claim for credit or
refund of input value-added tax; printing of zero-rated.. Section 244 of the
National Internal Revenue Code (NIRC) explicitly grants the Secretary of
Finance the authority to promulgate the necessary rules and regulations for
the effective enforcement of the provisions of the tax code. Consequently,
the following invoicing requirements enumerated in Section 4.108-1 of the
Revenue Regulations (RR) 7-95 must be observed by all VAT-registered
taxpayers: (1) the name, TIN and address of seller; (2) date of transaction;
(3) quantity, unit cost and description of merchandise or nature of service;
(4) the name, TIN, business style, if any, and address of the VAT-registered
purchaser, customer or client; (5) the word zero-rated imprinted on the
invoice covering zero-rated sales; and the invoice value or consideration.
The need for taxpayers to indicate in their invoices and receipts the fact
that they are zero-rated or that its transactions are zero-rated became more
apparent upon the integration of the abovementioned provisions of RR No.
7-95 in Section 113 of the NIRC enumerating the invoicing requirements of
VAT-registered persons when the NIRC was amended by Republic Act No.
9337. The Court has consistently ruled that the absence of the word zerorated on the invoices and receipts of a taxpayer will result in the denial of
the claim for tax refund.
Philacor Credit Corporation vs. Commissioner of Internal Revenue,
G.R. No. 169899. February 6, 2013

National Internal Revenue Code; documentary stamp tax; issuance of

promissory notes; persons liable for the payment of DST;
acceptance. Under Section 173 of the National Internal Revenue Code, the
persons primarily liable for the payment of DST are the persons (1) making;
(2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable
documents, instruments or papers. Should these parties be exempted from
paying tax, the other party who is not exempt would then be liable. In this
case, petitioner Philacor is engaged in the business of retail financing.
Through retail financing, a prospective buyer of home appliance may
purchase an appliance on installment by executing a unilateral promissory

note in favor of the appliance dealer, and the same promissory note is
assigned by the appliance dealer to Philacor. Thus, under this
arrangement, Philacor did not make, sign, issue, accept or transfer the
promissory notes. It is the buyer of the appliances who made, signed and
issued the documents subject to tax while it is the appliance dealer who
transferred these documents to Philacor which likewise indisputably
received or accepted them. Acceptance, however, is an act that is not
even applicable to promissory notes, but only to bills of exchange. Under
the Negotiable Instruments Law, the act of acceptance refers solely to bills
of exchange. In a ruling adopted by the Bureau of Internal Revenue as
early as 1995, acceptance has been defined as having reference to
incoming foreign bills of exchange which are accepted in the Philippines by
the drawees thereof, and not as referring to the common usage of the word
as in receiving. Thus, a party to a taxable transaction who accepts any
documents or instruments in the plain and ordinary meaning does not
become primarily liable for the tax.

National Internal Revenue Code; documentary stamp tax; issuance of

promissory notes; persons liable for the payment of DST; Revenue
Regulations No. 26 Revenue Regulations No. 26. Section 42 of Revenue
Regulations (RR) No. 26 issued on March 26, 1924 provides that the
person using a promissory note can be held responsible for the payment of
documentary stamp tax (DST). The rule uses the word can which is
permissive, rather than the word shall, which would make the liability of
the persons named definite and unconditional. In this sense, a person
using a promissory note can be made liable for the DST if the person is: (a)
among those persons enumerated under the law i.e., the person who
makes, issues, signs, accepts or transfers the document or instrument; or
(2) if these persons are exempt, a non-exempt party to the transaction.
Such interpretation would avoid any conflict between Section 173 of the
1997 National Internal Revenue Code and section 42 of RR No. 26 and
make it unnecessary for the latter to be struck down as having gone
beyond the law it seeks to interpret. However, section 42 of RR No. 26
cannot be interpreted to mean that anyone who uses the document,
regardless of whether such person is a party to the transaction, should be
liable, as this reading would go beyond section 173 of the 1986 National
Internal Revenue Code, the law it seeks to implement. Implementing rules
and regulations cannot amend a law for they are intended to carry out, not
supplant or modify, the law. To allow RR No. 26 to extend the liability for
DST to persons who are not even mentioned in the relevant provisions of
the tax codes (particularly the 1986 National Internal Revenue Code which
is the relevant law at that time) would be a clear breach of the rule that a

statute must always be superior to its implementing regulations. Philacor

Credit Corporation vs. Commissioner of Internal Revenue, G.R. No.
169899. February 6, 2013.

National Internal Revenue Code; documentary stamp tax; assignment or

transfer of evidence of indebtedness. Under Section 198 of the then 1986
National Internal Revenue Code, an assignment or transfer becomes
taxable only in connection with mortgages, leases and policies of
insurance. The list does not include the assignment or transfer of evidence
of indebtedness; rather it is the renewal of these that is taxable. The
present case does not involve a renewal, but a mere transfer or assignment
of the evidence of indebtedness or promissory notes. A renewal would
involve an increase in the amount of indebtedness or an extension of a
period, and not the mere change in the person of the payee. The law has
set a pattern of expressly providing for the imposition of documentary
stamp tax on the transfer and/or assignment of documents evidencing
certain transactions. Where the law did not specify that such transfer and/or
assignment is to be taxes, there would be no basis to recognize an
imposition. Philacor Credit Corporation vs. Commissioner of Internal
Revenue, G.R. No. 169899. February 6, 2013.

RCBC V. CIR
FACTS:
RCBC received the final assessment notice on July 5, 2001. It filed a
protest on July 20, 2001. As the protest was not acted upon, it filed a
Petition for Review with the Court of Tax Appeals (CTA) on April 30, 2002,
or more than 30 days after the lapse of the 180-day period reckoned from
the submission of complete documents. The CTA dismissed the Petition for
lack of jurisdiction since the appeal was filed out of time.
ISSUE:
Has the action to protest the assessment judicially prescribed?
HELD:
YES. The assessment has become final. The jurisdiction of the CTA has
been expanded to include not only decision but also inactions and both are
jurisdictional such that failure to observe either is fatal.
However, if there has been inaction, the taxpayer can choose between (1)
file a Petition with the CTA within 30 days from the lapse of the 180-day
period OR (2) await the final decision of the CIR and appeal such decision
to the CTA within 30 days after receipt of the decision. These options are
mutually exclusive and resort to one bars the application of the other. Thus,

if petitioner belatedly filed an action based on inaction, it can not

subsequently file another petition once the decision comes out.
REPUBLIC V. GST PHIL. INC
FACTS
Respondent GST is a VAT registered domestic corporation primarily
engaged in steel and iron products. During taxable years 2004-2005, GST
filed claimed for unutilized excess input VAT attributable to its zero rated
sales.
For failure of CIR to act on its administrative claims, GST filed for a petition
for review before the CTA. The CTA granted the petition. CIR filed an MR
but was denied. In a petition for review before the CTA En Banc, CIR raised
that the appeal before the CTA was filed beyond the reglementary period.
GST asserts that under Section 112 (A) of the Tax Code, the prescriptive
period is complied with if both the administrative and judicial claims are
filed within the two-year prescriptive period; and that compliance with the
120-day and 30-day periods under Section 112 (D) of the Tax Code is not
mandatory
ISSUE
Whether GSTs action for refund has complied with the prescriptive periods
under the Tax Code.
HELD
NO, as to claims in 2004 and first quarter of 2005.
YES, as to second and third quarter of 2005.
The 120-day period is mandatory and jurisdictional.However, the Supreme
Court categorically held that BIR Ruling No. DA-489-03 dated December
10, 2003 provided a valid claim for equitable estoppel under Section 246 of
the Tax Code. BIR Ruling No. DA-489-03 expressly states that
the taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for
Review.As such, all taxpayers can rely on said ruling from the time of its
issuance on December 10, 2003 up to its reversal by the Supreme Court
in Aichi on October 6, 2010, where it was held that the 120+30 day periods
are mandatory and jurisdictional.
Therefore, GST can benefit from BIR Ruling No. DA-489-03 with respect to
its claims for refund of unutilized excess input VAT for the second and third
quarters of taxable year 2005 which were filed before the CIR on
November 18, 2005 but elevated to the CTA on March 17, 2006 before the
expiration of the 120-day period (March 18, 2006 being the 120th day). BIR
Ruling No. DA-489-03 effectively shielded the filing of GSTs judicial claim
from the vice of prematurity.

Silkair (Singapore) Pte. Ltd. vs. Commissioner

Revenue, G.R. No. 166482, January 25, 2012.

of

Internal

National Internal Revenue Code; excise tax; proper party to seek a tax
refund. Silkair (Singapore) is a foreign corporation licensed to do business
in the Philippines as an on-line international carrier. It purchased aviation
fuel from Petron and paid the excise taxes. It filed an administrative claim
for refund for excise taxes on the purchase of jet fuel from Petron, which it
alleged to have been erroneously paid. For indirect taxes, the proper party
to question or seek a refund of the tax is the statutory taxpayer, the person
on whom the tax is imposed by law and who paid the same even when he
shifts the burden thereof to another. Thus, Petron, not Silkair, is the
statutory taxpayer which is entitled to claim a refund. Excise tax is due from
the manufacturers of the petroleum products and is paid upon removal of
the products from their refineries. Even before the aviation jet fuel is
purchased from Petron, the excise tax is already paid by Petron. Petron,
being the manufacturer, is the person subject to tax. In this case, Petron,
which paid the excise tax upon removal of the products from its Bataan
refinery, is the person liable for tax. Petitioner is neither a person liable
for tax nor a person subject to tax.
Southern Cross Cement Corp. v. Cement Manufacturers Association
of the Phils., G.R. No. 158540, Aug. 3, 2005
(HOLY

CRAP,

CHECK

OUT

THE

INTRO!!!!

^.^)

Cement is hardly an exciting subject for litigation. Still, the parties in this
case have done their best to put up a spirited advocacy of their respective
positions, throwing in everything including the proverbial kitchen sink. At
present, the burden of passion, if not proof, has shifted to public
respondents Department of Trade and Industry (DTI) and private
respondent Philippine Cement Manufacturers Corporation (Philcemcor),[1]
who now seek reconsideration of our Decision dated 8 July 2004
(Decision), which granted the petition of petitioner Southern Cross Cement
Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For respondents,
it is about love of country and the future of the domestic industry in the face
of foreign competition. For this Court, it is about elementary statutory
construction, constitutional limitations on the executive power to impose
tariffs and similar measures, and obedience to the law. Just as much was
asserted in the Decision, and the same holds true with this present
Resolution.
POWER OF PRESIDENT TO IMPOSE TARIFF RATES: Without Section
28(2), Article VI, the executive branch has no authority to impose tariffs and
other similar tax levies involving the importation of foreign goods. Assuming

that Section 28(2) Article VI did not exist, the enactment of the SMA by
Congress would be voided on the ground that it would constitute an undue
delegation of the legislative power to tax. The constitutional provision
shields such delegation from constitutional infirmity, and should be
recognized as an exceptional grant of legislative power to the President,
rather than the affirmation of an inherent executive power.
QUALIFIERS: This being the case, the qualifiers mandated by the
Constitution on this presidential authority attain primordial consideration: (1)
there must be a law; (2) there must be specified limits; and (3) Congress
may impose limitations and restrictions on this presidential authority.
POWER EXERCISED BY ALTER EGOS OF PRES: The Court recognizes
that the authority delegated to the President under Section 28(2), Article VI
may be exercised, in accordance with legislative sanction, by the alter egos
of the President, such as department secretaries. Indeed, for purposes of
the Presidents exercise of power to impose tariffs under Article VI, Section
28(2), it is generally the Secretary of Finance who acts as alter ego of the
President. The SMA provides an exceptional instance wherein it is the DTI
or Agriculture Secretary who is tasked by Congress, in their capacities as
alter egos of the President, to impose such measures. Certainly, the DTI
Secretary has no inherent power, even as alter ego of the President, to levy
tariffs and imports.
TARIFF COMMISSION AND DTI SEC ARE AGENTS: Concurrently, the
tasking of the Tariff Commission under the SMA should be likewise
construed within the same context as part and parcel of the legislative
delegation of its inherent power to impose tariffs and imposts to the
executive branch, subject to limitations and restrictions. In that regard, both
the Tariff Commission and the DTI Secretary may be regarded as agents of
Congress within their limited respective spheres, as ordained in the SMA,
in the implementation of the said law which significantly draws its strength
from the plenary legislative power of taxation. Indeed, even the President
may be considered as an agent of Congress for the purpose of imposing
safeguard measures. It is Congress, not the President, which possesses
inherent powers to impose tariffs and imposts. Without legislative
authorization through statute, the President has no power, authority or right
to impose such safeguard measures because taxation is inherently
legislative, not executive.
When Congress tasks the President or his/her alter egos to impose
safeguard measures under the delineated conditions, the President or the
alter egos may be properly deemed as agents of Congress to perform an
act that inherently belongs as a matter of right to the legislature. It is basic
agency law that the agent may not act beyond the specifically delegated
powers or disregard the restrictions imposed by the principal. In short,
Congress may establish the procedural framework under which such

safeguard measures may be imposed, and assign the various offices in the
government bureaucracy respective tasks pursuant to the imposition of
such measures, the task assignment including the factual determination of
whether the necessary conditions exists to warrant such impositions. Under
the SMA, Congress assigned the DTI Secretary and the Tariff Commission
their respective functions in the legislatures scheme of things.
There is only one viable ground for challenging the legality of the limitations
and restrictions imposed by Congress under Section 28(2) Article VI, and
that is such limitations and restrictions are themselves violative of the
Constitution. Thus, no matter how distasteful or noxious these limitations
and restrictions may seem, the Court has no choice but to uphold their
validity unless their constitutional infirmity can be demonstrated.
What are these limitations and restrictions that are material to the present
case? The entire SMA provides for a limited framework under which the
President, through the DTI and Agriculture Secretaries, may impose
safeguard measures in the form of tariffs and similar imposts.
POWER BELONGS TO CONGRESS: the cited passage from Fr. Bernas
actually states, Since the Constitution has given the President the power
of control, with all its awesome implications, it is the Constitution alone
which can curtail such power. Does the President have such tariff powers
under the Constitution in the first place which may be curtailed by the
executive power of control? At the risk of redundancy, we quote Section
28(2), Article VI: The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and restrictions as it
may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the Government. Clearly the power to impose
tariffs belongs to Congress and not to the President.
South African Airways vs. Commissioner of Internal Revenue, G.R.
No. 180356, February 16, 2010.

Gross Philippine billings; off line carrier. South African Airways, an off-line
international carrier selling passage documents through an independent
sales agent in the Philippines, is engaged in trade or business in the
Philippines subject to the 32% income tax imposed by Section 28 (A)(1) of
the 1997 NIRC.

The general rule is that resident foreign corporations shall be liable for a
32% income tax on their income from within the Philippines, except for
resident foreign corporations that are international carriers that derive
income from carriage of persons, excess baggage, cargo and mail
originating from the Philippines which shall be taxed at 2 1/2% of their
Gross Philippine Billings. Petitioner, being an international carrier with no
flights originating from the Philippines, does not fall under the exception. As
such, petitioner must fall under the general rule. This principle is embodied
in the Latin maxim, exception firmatregulam in casibus non exceptis, which
means, a thing not being excepted must be regarded as coming within the
purview of the general rule.
To reiterate, the correct interpretation of the above provisions is that, if an
international air carrier maintains flights to and from the Philippines, it shall
be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while
international air carriers that do not have flights to and from the Philippines
but nonetheless earn income from other activities in the country will be
taxed at the rate of 32% of such income.

Tan vs. Del Rosario

237 SCRA 324
Facts:
Petitioners challenge the constitutionality of RA 7496 or the simplified
income taxation scheme (SNIT) under Arts (26) and (28) and III (1). The
SNIT contained changes in the tax schedules and different treatment in the
professionals which petitioners assail as unconstitutional for being isolative
of the equal protection clause in the constitution.
Issue:
Is the contention meritorious?
Ruling:
No. uniformity of taxation, like the hindered concept of equal protection,
merely require that all subjects or objects of taxation similarly situated are
to be treated alike both privileges and liabilities. Uniformity, does not offend
classification as long as it rest on substantial distinctions, it is germane to
the purpose of the law. It is not limited to existing only and must apply
equally to all members of the same class.
The legislative intent is to increasingly shift the income tax system towards
the scheduled approach in taxation of individual taxpayers and maintain the
present global treatment on taxable corporations. This classification is
neither arbitrary nor inappropriate.