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INCOME TAX CASES || 1
2014 SC Cases
[G.R. No. 215427. December 10,
2014.]
PHILIPPINE AMUSEMENT AND GAMING CORPORATION
(PAGCOR), petitioner, vs. THE BUREAU OF INTERNAL REVENUE,
represented by JOSE MARIO BUÑAG, in his capacity as
Commissioner of the Bureau of Internal Revenue, and JOHN DOE
and JANE DOE, who are persons acting for, in behalf or under the
authority of respondent, respondents
FACTS:
PAGCOR filed a Petition for Review on Certiorari and Prohibition
seeking the declaration of nullity of Section 1 RA 9337 insofar as it
amends RA 8424, otherwise known as the NIRC by excluding PAGCOR
from the enumeration of GOCCs exempted from liability for corporate
income tax. BIR issued RMC No. 33-2013 which clarifies the Income
Tax and Franchise Tax Due from the PAGCOR, its contractees and
licenses. It provides that PAGCOR, its contractees and licensees are
entities duly authorized and licensed by PAGCOR to perform gambling
casinos, gaming clubs and other similar recreation or amusement places
and gaming pools. These contractees and licensees are subject to
income tax under the NIRC. Likewis, PAGCOR is subject to a franchise
tax of % of the gross revenues or earnings it derives from its operations.
PAGCOR filed a reconsideration of the tax treatment of its income from
gaming operations and other related operations. However, it was denied
by the BIR. PAGCOR then filed a Motion for Clarification.
ISSUES:
Whether PAGCOR's gaming income is subject to both 5%
franchise tax and income tax.
HELD:
After a thorough study of the arguments and points raised by the parties,
and in accordance with our Decision dated March 15, 2011, we sustain
petitioner's contention that its income from gaming operations is subject
only to five percent (5%) franchise tax under P.D. 1869, as amended,
while its income from other related services is subject to
corporate income tax pursuant to P.D. 1869, as amended, as well
as R.A. No. 9337. Under P.D. 1869, as amended, petitioner is subject
to income tax only with respect to its operation of related services.
Accordingly, the income tax exemption ordained under Section 27 (c)
of R.A. No. 8424 clearly pertains only to petitioner's income from
operation of related services.
Given that petitioner's Charter is not deemed repealed or amended
by R.A. No. 9337, petitioner's income derived from gaming operations is
subject only to the five percent (5%) franchise tax, in accordance
with P.D. 1869, as amended. With respect to petitioner's income from
operation of other related services, the same is subject to income tax
only. The five percent (5%) franchise tax finds no application with
respect to petitioner's income from other related services, in view of the
express provision of Section 14 (5) of P.D. 1869
For proper guidance, the first classification of
PAGCOR's income under RMC No. 33-2013 (i.e., income from its
operations and licensing of gambling casinos, gaming clubs and other
similar recreation or amusement places, gambling pools) should be
interpreted in relation to Section 13 (2) of P.D. 1869, which pertains to
the income derived from issuing and/or granting the license to operate
casinos to PAGCOR's contractees and licensees, as well as earnings
derived by PAGCOR from its own operations under the Franchise. On
the other hand, the second classification of
PAGCOR's income under RMC No. 33-2013 (i.e., income from other
related operations) should be interpreted in relation to Section 14 (5)
of P.D. 1869, which pertains to income received by PAGCOR from its
contractees and licensees in the latter's operation of casinos, as well as
PAGCOR's own income from operating necessary and related services,
shows and entertainment.
[G.R. No. 187589. December 3, 2014.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE
STANLEY WORKS SALES (PHILS.), INCORPORATED, respondent.
FACTS:
Stanley Works Sales and Stanley Works Agencies (Pte.) Limited,
Singapore (Stanley-Singapore) entered into a Representation
Agreement whereby the former is its sole agent for the selling of its
products within the Philippines on an indent basis. On April 16, 1990,
respondent filed with the BIR its Annual Income Tax Return for taxable
year 1989. On March 19, 1993, pursuant to Letter of Authority dated July
3, 1992, the BIR issued against respondent a Pre-Assessment Notice
(PAN) for 1989 deficiency income tax. It received its copy of the PAN.
The Notice was sent on April 15, 1993 and respondent received it on
April 21, 1993. Respondent, through its external auditors Punongbayan
& Araullo, filed a protest letter and requested reconsideration and
cancellation of the assessment. Mr. John Ang, on behalf of respondent,
executed a "Waiver of the Defense of Prescription under the Statute of
Limitations of the National Internal Revenue Code" (Waiver)On
November 29, 2001, the Chief of the BIR Appellate Division sent a letter
to respondent requiring it to submit duly authenticated financial
statements for the worldwide operations of Stanley Works and a sworn
declaration from the home office on the allocated share of respondent
as a "branch office.'' IEHTaAOn March 4, 2002, respondent, through its
counsel, the Quisumbing Torres Law Offices, submitted a Supplemental
Memorandum alleging, inter alia, that petitioner's right to collect the
alleged deficiency income tax has prescribed.On March 22, 2004,
petitioner rendered a Decision denying respondent's request for
reconsideration and ordering respondent to pay the
deficiency income tax plus interest that may have accrued.
ISSUES:
Whether or not petitioner's right to collect the
deficiency income tax of respondent for taxable
year 1989 has prescribed.
Whether or not respondent's repeated requests
and positive acts constitute "estoppel" from
setting up the defense of prescription under the
NIRC. 6
HELD:
The statute of limitations on the right to assess and collect a tax means
that once the period established by law for the assessment and
collection of taxes has lapsed, the government's corresponding right to
enforce that action is barred by provision of law.
The period to assess and collect deficiency taxes may be extended only
upon a written agreement between the CIR and the taxpayer prior to the
expiration of the three-year prescribed period in accordance with
Section 222 (b) of the NIRC. In relation to the implementation of this
provision, the CIR issued Revenue Memorandum Order (RMO) No. 20-
90 10 on 4 April 1990 to provide guidelines on the proper execution of
the Waiver of the Statute of Limitations.
To emphasize, the Waiver was not a unilateral act of the taxpayer;
hence, the BIR must act on it, either by conforming to or by disagreeing
with the extension. A waiver of the statute of limitations, whether on
assessment or collection, should not be construed as a waiver of the
right to invoke the defense of prescription but, rather, an agreement
between the taxpayer and the BIR to extend the period to a date certain,
within which the latter could still assess or collect taxes due. The waiver
does not imply that the taxpayer relinquishes the right to invoke
prescription unequivocally. 15
Anent the second issue, we do not agree with petitioner that respondent
is now barred from setting up the defense of prescription by arguing that
the repeated requests and positive acts of the latter constituted
estoppels, as these were attempts to persuade the CIR to delay the
collection of respondent's deficiency income tax.
True, respondent filed a Protest and asked for a reconsideration and
cancellation of the assessment on 19 May 1993; however, it is
uncontested that petitioner failed to act on that Protest until 29
November 2001, when the latter required the submission of other
supporting documents. In fact, the Protest was denied only on 22 March
2004.
Since the Waiver in this case is defective and therefore invalid, it
produces no effect; thus, the prescriptive period for collecting
deficiency income tax for taxable year 1989 was never suspended or
tolled. Consequently, the right to enforce collection based on
Assessment Notice No. 002523-89-6014 has already prescribed.
2015 CTA En Banc
COMMISSIONER OF INTERNAL REVENUE v. ST. LUKES
MEDICAL CENTER, INC.,
CTA EB No. 1183, August 26, 2015
Fabon-Victorino, J.
FACTS: Respondent was assessed deficiency Income Taxes (ITs) of
P97,700,084.50 for taxable year 2003, and P134,841,854.84 for taxable
year 2004, or a total deficiency ITs of P232,541,939.34. On January 14,
2008, respondent filed its protest against such assessments.
Respondent also received from the BIR an undated Formal Letter of
Demand (FLD) and Details of Discrepancies, with attached Assessment
Notices, assessing it deficiency taxes of P287,222,259.61 for the year
2004. On February 20, 2008, respondent filed with the BIR its protest
against the assessments indicated in the FLD and Assessment Notices.
Petitioner failed to act on the protest within the 180- day period
prescribed under Section 228 of the National Internal Revenue Code
(NIRC) of 1997, as amended, prompting respondent to file two (2)
separate Petitions for Review with the Court in Division.
The Court in Division promulgated the assailed Decision rendering
cancellation due to prescription the assessment issued by (petitioner)
against (respondent) for the taxable year 2003 covering alleged
deficiency income tax for the taxable year 2003. However, the
assessments issued by (petitioner) against (respondent) for the taxable
year 2004 covering deficiency income tax, deficiency value-added tax,
deficiency withholding tax on compensation, deficiency expanded
withholding tax and deficiency documentary stamp tax are upheld but
with some modifications.
In the Resolution dated May 29, 2014, the Court in Division denied
petitioner's Motion for Reconsideration for lack of merit. Hence, this
appeal before the Court En Banc.
ISSUE: WON Sec. 228 of the NIRC was complied
HELD: NO. Section 228 of the National Internal Revenue Code (NIRC),
as amended, provides that an aggrieved taxpayer can administratively
protest an assessment issued against him within thirty (30) days from
receipt thereof. On the other hand, the CIR has 180 days from the filing
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of the protest and the submission of documents to act thereon. If the CIR
failed to act on the protest within the 180-day period from submission of
documents, the taxpayer adversely affected by such inaction may
appeal to the CTA within 30 days from the lapse of the said 180-day
period.
The failure to comply with the 30-day statutory period bars the appeal
and deprives the Court of Tax Appeals of jurisdiction to entertain and
determine the correctness of the assessment. On the ground that the
two Petitions for Review were filed by respondent one (1) day late, they
should be dismissed for lack of jurisdiction. It also worth to note that the
right to appeal is a statutory right, not a natural nor a constitutional right.
The party who intends to appeal must comply with the procedures and
rules governing appeals; otherwise, the right of appeal may be lost or
squandered.
The Decision dated February 18, 2014 and the Resolution dated May
29, 2014 rendered by the Court in Division are REVERSED and SET
ASIDE.
COMMISSIONER OF INTERNAL REVENUE v. AXIA POWER
HOLDINGS PHILIPPINES CORPORATION
CTA EB No. 1135, September 21, 2015
Uy, J.
FACTS: Respondent, as the surviving corporation, and Marubeni Pacific
Energy Holdings Corporation, Marubeni Pacific II Energy Holdings
Corporation, and Marubeni Energy Services Corporation (MESC), as
the absorbed corporations, entered into an Articles of Merger and Plan
of Merger, which was approved by the SEC. MESC filed its income tax
returns for taxable year 2009 and sent a Letter dated April 13, 2010 to
petitioner requesting for the cancellation of its TIN and the issuance of
a Tax Clearance Certificate (TCC/TCL) in its favor. Attached to the said
letter is MESC's Application for Tax Credits/Refunds. Consequently, the
BIR issued a Letter of Authority dated May 24, 2010, authorizing RO
Ferdinand Apalisoc and RO Myrabel dela Cruz/GS Jane C. Denosta to
examine responent's books of accounts and other accounting records in
connection with the latter's closure of business and claim for refund.
Due to inaction of the petitioner, respondent, being the surviving entity
after the merger, filed a Petition for Review before the Court in Division.
Petitioner filed her Answer interposing, among others, certain special
and affirmative defenses, to wit: that petitioner's claim for refund or
issuance of a tax credit certificate in the amount of P11, 106,080.00, as
alleged unutilized creditable withholding taxes for calendar year ending
December 31, 2009 was not fully substantiated by proper documents
and that it is incumbent upon herein respondent, Axia Power Holdings
Phils. Corporation to show that it has complied with the provision of
Section 204 (C) in relation to Section 229 of the 1997 NIRC, as
amended, for in an action for refund, the burden is upon the taxpayer to
prove that he is entitled thereto, and failure to discharge the burden is
fatal to the claim of the taxpayer.
In the assailed Decision, the Court in Division granted respondent's
Petition for Review, ordering petitioner to refund or to issue a tax credit
certificate in favor of respondent in the amount of P11, 106,080.00,
supposedly representing respondent's excess creditable withholding
taxes for taxable year 2009. Petitioner filed the instant Petition for
Review before the Court En Banc and prays for the reconsideration and
setting aside of the said Decision and Resolution and that a new one be
rendered, denying respondent's claim for refund or issuance of tax credit
in the amount of P11, 106,080.00, allegedly representing unutilized
creditable withholding taxes for taxable year 2009.
ISSUE: WON the presentation of succeeding quarterly income tax
returns/annual income tax return is indispensable to respondent's claim
for refund of its excess/unutilized creditable withholding taxes (CWT) for
taxable year 2009 in order to prove that it did not utilize or carry-over its
claimed excess CWT to the succeeding quarters/year
HELD: NO. The non-presentation of the annual income tax return or the
final adjustment return (FAR) for purposes of determining whether the
concerned taxpayer utilized or carried over excess creditable
withholding tax to the succeeding quarters/years has already been
settled by the Supreme Court. In the the Philam case, the Supreme
Court ruled as follows:
"Requiring that the ITR or the FAR of the succeeding year be
presented to the BIR in requesting a tax refund has no basis in law
and jurisprudence.
First, Section 76 of the Tax Code does not mandate it. The law merely
requires the filing of the FAR for the preceding - not the succeeding -
taxable year. Indeed, any refundable amount indicated in the FAR of the
preceding taxable year may be credited against the estimated income
tax liabilities for the taxable quarters of the succeeding taxable year.
However, nowhere is there even a tinge of a hint in any of the provisions
of the Tax Code that the FAR of the taxable year following the period to
which the tax credits are originally being applied should also be
presented to the BIR.
INCOME TAX CASES || 2
Second, Section 5 of RR 12-94, amending Section 1 O(a) of RR 6-85,
23 merely provides that claims for the refund of income taxes deducted
and withheld from income payments shall be given due course only (1)
when it is shown on the ITR that the income payment received is being
declared part of the taxpayer's gross income; and (2) when the fact of
withholding is established by a copy of the withholding tax statement,
duly issued by the payor to the payee, showing the amount paid and
the income tax withheld from that amount.
XXX XXX XXX
Fourth, the BIR ought to have on file its own copies of petitioner's FAR
for the succeeding year, on the basis of which it could rebut the assertion
that there was a subsequent credit of the excess income tax payments
for the previous year. xxx."
2016 CTA Division (jan-june)
LUCIO L. CO, SUSAN P. CO, FERDINAND VINCENT P. CO and
PAMELA JUSTINE P. CO
vs.
Commissioner of Internal Revenue
[CTA Case No. 8831, June 2, 2016]
FACTS:
On May 21, 2014, taxpayers filed their administrative claims
for refund of capital gains tax (CGT) allegedly paid erroneously on June
26 and 28, 2012. Citing inaction on their claims for refund, petitioners
filed the instant Petition for Review on June 6, 2014. The BIR claims that
one of the requirements for recovery of tax erroneously or illegally
collected under Section 229 of the NIRC, as amended, is that a written
administrative claim for refund must be filed by the taxpayer with the
BIR. In the instant case, it was not the taxpayers but the Zambrano and
Gruba Law Offices who filed on May 21, 2014 the administrative claim
for refund. In effect, no administrative claims for refund were filed by
taxpayers before resorting to judicial action, thereby depriving the Court
of jurisdiction over the case. The BIR argued that while the Special
Power of Attorney (SPA) in favor of Zambrano and Gruba Law Offices
was executed by taxpayers on May 20, 2014, it was notarized only on
May 23, 2014. Thus, the SPA constituting Zambrano and Gruba Law
Offices as duly authorized representative of petitioner became a public
document binding upon third persons only after it was notarized on May
23, 2014. Hence, at the time the administrative claim for refund was filed
on May 21, 2014, the said law firm was not yet deemed to be the duly
authorized representative of taxpayers. Accordingly, the filing of the
administrative claim for refund on May 21, 2014, could not be deemed
as valid written claims for refund or tax credit filed by petitioner-taxpayer
with the BIR.
ISSUE:
Whether or not the Court has jurisdiction to entertain the
instant Petition for Review.
RULING:
YES. Zambrano and Gruba Law Offices had the authority to
represent taxpayers in their administrative claims for refund filed with the
BIR even if the SPA was notarized only after its filing. Consequently, the
Court properly acquired jurisdiction over the case. In the subject SPA,
taxpayers gave Zambrano and Gruba Law Offices the authority to
represent them in administrative cases and in any other proceedings in
connection with their application and/or claim for tax refund of the CGT.
In the same SPA, taxpayers also ratified all previous acts done or may
lawfully do or cause to be done by the law office, by virtue of the authority
granted unto them. Even an unauthorized appearance of an attorney
may be ratified by the client either expressly or impliedly. Ratification
retroacts to the date of the lawyer's first appearance and validates the
action taken by him.
LUFTHANSA GERMAN AIRLINES-PHILIPPINE BRANCH
vs.
COMMISSIONER OF INTERNAL REVENUE
[CTA Case no. 8601 March 21, 2016]
FACTS:
Lufthansa was assessed with deficiency income tax. The
deficiencies were mainly derived from two sources of income: 1) Income
from Gross Philippine Billings; and 2) Income subject to regular income
tax rate. As to the first item, the BIR contends that Lufthansa cannot use
the preferential tax rate for Gross Philippine Billings under the RP-
Germany Tax Treaty as it failed to file for a Tax Treaty Relief Application
(TTRA) with the International Tax Affairs Division (ITAD). Lufthansa, on
the other hand, invokes the Supreme Court Rulings in the cases of
Deutsche Bank and CBK. For the second item, the BIR contends that
Lufthansa under declared its income subject to regular income tax rates
based on the IATA BSP Report. Said report contains the ticket agents,
the amount of tickets sold, as well as the agents’ commissions.
Lufthansa, on the other hand, contends that said report does not
faithfully capture its true revenue. It claims that it only makes income on
flights that it has actually flown. There are instances where certain legs
of a particular flight that are flown by other carriers. In such cases,
Lufthansa holds the payment as a mere agent, and is required to turn
over the funds to the other airline.
ISSUES:
1) Whether or not Lufthansa may avail of the preferential tax
rate under the RP-Germany Tax Treaty;
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2) Whether or not Lufthansa under declared its income based
on the IATA BSP report.
RULING:
1) YES. The CTA declared that the denial of the BIR has no legal basis.
The doctrine in Deutsche Bank prevails. The CTA made a finding, and
eventually found, that Lufthansa is indeed entitled to the preferential
rate.
2) NO. Lufthansa was able to establish its processes. Clearly, it earns
income only in instances where it is actually carrying the passenger in
its planes. On legs that are flown by other airlines, it is obliged to
surrender the payment corresponding to that leg. As such, Lufthansa
earns no income therefrom. However, Lufthansa failed to establish that
the amount it is claiming as actual income, was indeed the income from
flights it actually flown passengers in. Thus, the assessment of BIR
stands.
The CTA also affirmed the doctrine that Courts cannot force parties to
pay compromise penalties abse8nt a clear agreement. It also found that
the payment made by Lufthansa should have been deducted from the
amount in the FDDA.
Kep (Philippines) Realty Corporation v. Commissioner of Internal
Revenue
[CTA Case No. 8983, April 20, 2016]
FACTS:
Kep (Philippines) Realty Corporation (“KPRC”) purchased
parcels of land within the Cebu Light Industrial Park, a special economic
zone. It then leased the same to Knowles Electronics (Philippines)
Corporation (KEPC). KEPC is a registered PEZA entity and qualified for
VAT zero-rating on its transactions with local suppliers. KPRC then
applied for VAT refund with the BIR. However, the BIR did not act on the
application after 120 days. Thus, KPRC elevated the matter to the CTA.
The BIR alleged that KPRC failed to meet the requirements for VAT
refund attributable to zero-rated sales.
ISSUE:
Whether or not KPRC is entitled to refund.
RULING:
YES. The CTA ruled that KPRC met the following
requirements for VAT refund: (1) that the claimant must be a VAT-
registered person; (2) that there must be zero-rated or effectively zero-
rated sales; (3) that input taxes were incurred or paid; (4) that such input
taxes are attributable to zero-rated or effectively zero-rated sales; (5)
that the input taxes were not applied against any output VAT liability;
and (6) that the claim for refund was filed within the two-year prescriptive
period. The above was proved as follows:
BIR insists that petitioner failed to submit the needed documents, thus,
its claim must fail. However, as borne by the records, KPRC
simultaneously submitted the supporting documents when it filed its
administrative claim for refund or issuance of tax credit certificate. Even
if KPRC was remiss in submission of documents, this Court has
consistently ruled in a number of cases that the alleged non-submission
of complete documents at the administrative level is not fatal to a claim
for refund or issuance of tax credit certificate at the judicial level.
Moreover, if there is indeed truth to the allegation of non-submission of
complete documents before the BIR, the latter could have simply denied
outright the administrative claim on that ground, and not allow the lapse
of considerable length of time without action on KPRC's claim.
2015 SC Cases
Winebrenner &Iñigo Insurance Brokers, Inc vs. Commissioner of
Internal Revenue
G.R. No. 206526, January 28, 2015
Ponente: Justice Mendoza
FACTS:
On April 15, 2004, petitioner filed its Annual ITR for CY 2003.
Two years thereafter, he applied for the administrative tax credit/refund
claiming entitlement to the refund of its excess or unutilized CWT for CY
2003. CTA Division partially granted petitioner’s claim for refund of
excess and unutilized CWT. Petitioner filed a Motion for partial
Reconsideration praying that an amended decision be issued granting
the entirety of its claim for refund. CIR also moved for reconsideration
praying for the denial of the entire amount of refund because petitioner
failed to present the quarterly ITRs for CY 2004. To the CIR, the
presentation of the 2004 quarterly ITRs was indispensable in proving
petitioner’s entitlement to the claimed amount because it would prove
that no carry-over of unutilized and excess CWT for 4 quarters of CY
2003 to the succeeding 4 quarters of CY 2004 was made. This was in
accordance with the irrevocability rule under Section 76 of the NIRC.
The CTA Division reversed itself and denied the entire claim
of petitioner. It reasoned out that petitioner should have presented as
evidence its 1st, 2nd, and 3rd quarterly ITRs for the year 2004 to prove
that the unutilized CWT being claimed had not been carried over to the
succeeding quarters. CTA En Banc affirmed the amended decision of
the CTA-Division.
ISSUE:
INCOME TAX CASES || 3
Whether or not the submission of the quarterly ITRs of the
succeeding quarters of a taxable year is indispensable in a claim for
refund.
RULING:
NO. The Court held that a taxpayer who seeks a refund of
excess and unutilized CWT must: (1) File the claim with the CIR within
the 2 year period from the date of payment of the tax; (2) Show on the
return that the income received was declared as part of the gross
income; and (3) Establish the fact of withholding by a copy of a
statement duly issued by the payor to the payee showing the amount
paid and the amount of tax withheld.
In the amended decision, it was pointed out that because
petitioner failed to present the quarterly ITRs of the subsequent year,
there was an impossibility of determining compliance with the
irrevocability rule under Section 76 of the NIRC as in those documents
could be found evidence of whether the excess CWT was applied to its
income tax liabilities in the quarters of 2004. The irrevocability rule under
Sec. 76 of the NIRC means that once an option, either for refund or
issuance of tax credit certificate or carry-over of CWT has been
exercised, the same can no longer be modified for the succeeding
taxable years.
There is no question that those who claim must not only prove
its entitlement to the excess credits, but likewise must prove that no
carry-over has been made in cases where refund is sought. However,
the Court ruled that proving that no carry-over has been made does not
absolutely require the presentation of the quarterly ITRs. What Section
76 requires is to prove the prima facie entitlement to a claim, including
the fact of not having carried over the excess credits to the subsequent
quarters or taxable years. It does not say that to prove such a fact,
succeeding quarterly ITRs are absolutely needed. Section 76 of the
NIRC requires a corporation to file a Final Adjustment Return (or Annual
ITR) covering the total taxable income for the preceding calendar or
fiscal year. The total taxable income contains the combined income for
the 4 quarters of the taxable year, as well as the deductions and excess
tax credits carried over in the quarterly income tax returns for the same
period.
Verily, with the petitioner having complied with the
requirements for refund, and without the CIR showing contrary evidence
other than its bare assertion of the absence of the quarterly ITRs, copies
of which are easily verifiable by its very own records, the burden of proof
of establishing the propriety of the claim for refund has been sufficiently
discharged. Hence, the grant of refund is proper.
Republic of the Philippines vs. Team (Phils.) Energy Corporation
G.R. No. 188016, January 14, 2015
Ponente: Justice Bersamin
FACTS:
Respondent, a domestic corporation, is primarily engaged in
the business of developing, designing, constructing, erecting,
assembling, commissioning, owning, operating, maintaining,
rehabilitating and managing gas turbine and other power generating
plants and related facilities for conversion into electricity, coal, distillate
and other fuel provided by and under contract with the Government, or
any subdivision, instrumentality or agency thereof, or any GOCC or any
entity engaged in the development, supply, or distribution of energy.
Respondent filed on August 16, 2001 with the SEC its Amended AOI
stating its intent to change its corporate name from Mirant (Philippines)
Mobile Corporation to Mirant (Philippines) Energy Corporation; and to
include the business of supplying and delivering electricity and providing
services necessary in connection with the supply or delivery of
electricity. It was approved by the SEC.
The respondent filed its annual ITR for calendar years 2002
and 2003 on April 15, 2003 and April 15, 2004, respectively, reflecting
overpaid income taxes or excess creditable withholding taxes. It
indicated in the ITRs its option for the refund of the tax overpayment for
CYs 2002 and 2003. On March 22, 2005, respondent filed and
administrative claim for refund or issuance of tax credit certificate with
the BIR. Due to the inaction of the BIR and in order to toll the running of
the 2 year prescriptive period for claiming refund, it filed a petition for
review on the CTA. CTA in Division rendered its decision in favor of the
respondent. It found that the respondent had signified in its ITRs for the
same year its intent to have its excess creditable tax withheld for CYs
2002 and 2003 be refunded; that the respondent’s administrative and
judicial claims for refund had been timely filed within the 2 year
prescriptive period; that the fact of withholding had been established by
the respondent because it had submitted its certificate of creditable tax
withheld at source showing that the aggregate amount of P17, 168,
749.60 constituted the CWT withheld by the respondent on its services
to the Republic Cement Corporation, Mirant (Phils) Industrial Power
Corp. and Solid Dev’t Corp for taxable years 2002 and 2003; and that
the income from which the CWT had been withheld was duly declared
as part of the respondent’s income in its annual ITRs for 2002 and 2003.
Petitioner brought the case before CTA En Banc but the latter affirmed
the decision of CTA-Division. It held that the defenses raised by the
petitioner were general and standard arguments were general and
standard arguments to oppose any claim for refund by a taxpayer; that
the trial proper was conducted in the CTA in Division, during which the
 ALGABRE |BACAY | CLAVERIA | ESCASINAS | NUÑEZ | QUIAPON | RESURRECCION | RET | SIAZAR | TARADJI
respondent presented evidence of its entitlement to the refund and in
negation of the defenses of the petitioner; and that the petitioner raised
the issue on the non presentment of the respondent’s quarterly returns
for 2002 and 2003 only in the petition for review which was not allowed
ISSUE:
WON the respondent proved its entitlement to the refund.
RULING:
YES. Section 76 of the NIRC outlines the mechanisms and
remedies that a corporate taxpayer may opt to exercise. The two options
are alternative and not cumulative in nature, that is, the choice of one
precludes the other. In the instant case, the respondent opted to be
refunded or to be issued a tax credit certificate, not to carry over the
excess withholding tax for taxable year 2002 to the following taxable
year.
The requirements for entitlement of a corporate taxpayer for a
refund or the issuance of tax credit certificate involving excess
withholding taxes are as follows: (1) that the claim for refund was filed
within the 2 year reglementary period; (2) when it is shown on the ITR
that the income payment received is being declared part of the
taxpayer’s gross income; and (3) when the fact of withholding is
established by a copy of the withholding tax statement, duly issued by
the payor to the payee, showing the amount paid and income tax
withheld from that amount.
The respondent complied with the above requirements. The
first requirement was not contested by the petitioner that the respondent
filed its administrative and judicial claim for refund within the statutory
period. With regard to the second requirement, it is fundamental that the
findings of fact by the CTA in Division are not to be disturbed without
any showing of grave abuse of discretion considering that the members
of Division are in the best position to analyze the documents presented
by the parties. With respect to the third requirement, the respondent
proved that it had met the requirement by presenting the 10 certificates
of creditable taxes withheld at source. Thus, respondent proved its
entitlement to the refund.
2016 CTA En Banc
COMMISSIONER OF INTERNAL REVENUE v. UNIVATION MOTOR
PHILIPPINES, INC.
CTA EB No. 1333, December 22, 2016
FACTS:
Respondent Univation Motor Philippines, Inc., filed its Quarterly Income
Tax Returns for 2010 through the BIR’s Electronic Filing and Payment
Systems (EFPS). On April 15, 2011, Univation filed its Annual Income
Tax Return for taxable year 2010 (2010 Annual ITR). On July 1, 2011, it
filed through the EFPS its Amended Annual ITR, which was manually
received by the BIR, showing a total gross income of P117,084,174.00
and an overpayment of income taxes amounting to P26,103,898.52.
Univation opted to claim its overpayment of income tax through the
issuance of a tax credit certificate. Since Univation’s administrative claim
has not yet been acted upon by the BIR, to preserve its right and to toll
the running of the prescriptive period for its judicial claim, Univation filed
a Petition for Review before this Court.
Petitioner Commissioner raised the following special and affirmative
defenses, that the present claim for refund is tainted with procedural
infirmity due to petitioner’s failure to submit complete documents in
support of its administrative claim for refund; that petitioner miserably
failed to exhaust administrative remedies before elevating the case to
this Court; that claims for refund are construed strictly against the
taxpayer and in favor of the government, and that portions of the income
payments related to the creditable withholding taxes did not form part of
the gross income of respondent in its 2010 Annual Income Tax Return.
CTA First Division rendered the assailed decision which partially granted
respondent’s Petition for Review.
Hence this Petition for Review filed by the Commissioner. Petitioner-
Commissioner argues that respondent Univation may have mistakenly
included the CWT’s pertaining to income payments for the years 2006,
2008 and 2009 to form part of its 2010 judicial claim for refund or credit.
ISSUE: WON the portions of the income payments related to the
creditable withholding taxes did not form part of the gross income of
respondent? (NO)
HELD:
This Court find petitioner’s argument untenable.
The Independent Certified Public Accountant sufficiently explained why
the income payments from which the CWTS were withheld were
declared in its returns covering the years, 2006, 2008, 2009 and 2010.
In the normal course of business, Univation’s sales of goods and
INCOME TAX CASES || 4
services to its dealers/payors are collected promptly or within the agreed
credit terms ranging from 30 to 120 days. The dealers/payors issue the
certificates of creditable taxes withheld upon payment of their accounts
to Univation. However, in 2008 and 2009, some dealers were unable to
dispose their inventories, causing the delay in the settlement of their
accounts under the normal credit terms granted. As a result, the dealers
requested that their credit terms be extended, which Univation
approved. Consequently, certain sales to these dealers in 2008 and
2009 were collected in 2010.
Clearly, the delay in collection of certain income payments of respondent
caused the timing difference between the actual reporting of the income
by respondent and the actual withholding of the corresponding
creditable income tax by respondent’s customers. Univation presented,
among others, Certificates of Creditable Tax Withheld at Source,
detailed general ledgers, and Summary of Sales of Goods and Services
for the years 2008 to 2010, which this Court finds to be sufficient to prove
that the income payments related to the claimed CWTS were, indeed,
included in respondent’s returns.
Moreover, perusal of the Certificates shows that the creditable income
taxes reported were withheld by respondent’s customers-payors for CY
2010, as clearly indicated in the box “For the period”. In the natural order
of things, no payor would withhold tax twice, or more, on the same
income payment.
STATELAND, INC. v. COMMISSIONER OF INTERNAL REVENUE
CTA EB No. 1148, July 4, 2016
FACTS:
In the year 2008, Petitioner Stateland had accumulated CWT in the total
amount of P54,561,791.00, composed of taxes paid in 2008, and that
which was carried over from prior taxable years. In 2009, Stateland paid
additional CWT in the amount of P11,570,181.00. On July 21, 2010,
petitioner filed an administrative claim for refund of a portion of its excess
and unutilized CWT for the year ending December 31, 2009 in the
amount of P11,570,181.00. Petitioner’s request for refund resulted in
respondent’s issuance of a Letter of Authority dated August 26, 2010
and subsequent examination of petitioner’s account. The examination
yielded no adverse effect on petitioner’s claim for refund of excess CWT.
Nevertheless, respondent failed to act on the request prompting
petitioner to elevate the matter to the Court in Division via a Petition for
Review, which was later on denied.
The denial was based on the Courts finding that while petitioner was
able to meet the two requisites for entitlement to refund, namely, the
timeliness of the filing of both its administrative and judicial claims for
refund and the fact of withholding of taxes by the payor, it was unable to
satisfy the requisite that the income from which the subject taxes were
withheld were included in petitioner’s ITR for the year 2009. Petitioner
failed to account for the discrepancy in the amount of P129,928,217.22
after it compared petitioner’s income payments indicated in the
Certificates if Tax Withheld with those appearing in its 2009 ITR.
Not convinced, petitioner filed a Motion for Reconsideration which the
Court in Division denied for lack of merit. Hence, this appeal before the
Court En Banc.
ISSUE: WON petitioner was able to prove all the requisites provided to
be entitled to its claim for refund of its alleged excess payment of CWT
for the year 2009? (NO)
HELD:
Basic is the rule that a corporation entitled to refund or tax credit of its
excess estimated quarterly income taxes has two options under Section
76 of the NIRC, as amended: (1) to carry over the excess credit to the
succeeding taxable quarters/years until it is fully utilized, or (2) file a
claim for refund either in the form of cash or tax credit certificate. These
two options are alternative and the choice of one precludes the other.
Evidence shows that petitioner opted to be refunded its alleged excess
CWT for year 2009, having marked the option “To be refunded” in its
2009 ITR. However, to be entitled to refund, petitioner must establish
compliance with the following requisites:
1) The administrative and judicial claims for refund were filed
within the mandatory two-year period reckoned from the filing
of the final adjusted return;
2) The fact of withholding as evidence by a copy of the statement
duly issued by the payor to the payee showing the amount
paid and the amount of the tax withheld; and
3) It is shown on the return of the recipient that the income
payment received was declared as part of the gross income.
The Court En Banc agrees with the Court in Divisions that the first and
second requisite were satisfied by the petitioner, however, the third
requisite is missing. The Independent Certified Public Accountant
(ICPA) Report that the income payments received were declared as part
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INCOME TAX CASES || 5

of petitioner’s gross income and reported in its returns either on cash memoranda. Only the petitioner filed a Memorandum, after which the
basis is as well of no moment for there is nothing in the record to back it case was submitted for decision. PETITION DENIED.
up. Further, the Court is not bound by the findings of the ICPA, as the
ICPA Report is but a tool or guide to aid the Court in the resolution of Thus, this case.
the case. The determination of the merit or the probative value of such
report is still within the province of the Court. In addition, the Court is Issue: WHETHER THE HONORABLE CTA EN BANC ERRED IN
free to adopt or disregard, completely or partially, the findings of the RENDERING ITS DECISION DENYING THE PETITION FOR
ICPA. It can even make its own audit and evaluation of the documents REVIEW FOR THE PETITIONER'S SUPPOSED FAILURE TO
pertinent to the case presented during the trial in order to intelligently PROSECUTE
resolve the conflict brought before it, as it did in the present case.
Held: Yes. The records of the case reveal that, indeed, the petitioner
had earlier submitted a letter of the RD of BIR Revenue Region
2016 CTA Division (july-dec) No. 6, recommending the criminal prosecution of Valeriano. This
[G.R. No. 199480. October 12, 2016.] letter was attached to the Information along with other documents
PEOPLE OF THE PHILIPPINES, petitioner, vs. TESS S. pertinent to the case. However, this was not deemed as compliance
VALERIANO, respondent. with Section 220, as the letter was not from the BIR Commissioner
himself. Further, After the dismissal decreed by the CTA Special
Facts: First Division, the petitioner, through a motion for reconsideration,
presented an alleged copy of the written approval signed by then
This is a Petition for Review on Certiorari fi led by the People of BIR Commissioner Jose Mario C. Buñag. Yet, as the CTA en banc
the Philippines (petitioner) assailing the Decision of the Court of found, the contents of the photocopied letter were faded and almost
Tax Appeals (CTA) sustaining the Resolutions CTA Special First imperceptible.
Division which dismissed the criminal case against Tess S.
Valeriano (Valeriano). The prerequisite approval of the BIR Commissioner in the ling of
a civil or criminal action is provided under Section 220 of the 1997
On February 9, 2006, the Regional Director (RD) of the Bureau of NIRC, which states that:
Internal Revenue (BIR), Revenue Region No. 6, wrote a Letter to
the City Prosecutor of Manila, recommending the criminal Sec. 220. Sec. 220. Form and Mode of Proceeding in Actions
prosecution of Valeriano as president/authorized officer of the Arising under this Code. — Civil and criminal actions and
Capital Insurance & Surety Co., Inc. (Corporation) for failure to proceedings instituted in behalf of the Government under the
pay the following internal revenue tax obligations of the Corporation authority of this Code or other law enforced by the Bureau of
(in violation of Section 255, in relation to Section 253 (d) 7 and Internal Revenue shall be brought in the name of the Government
Section 256, 8 of the 1997 NIRC): of the Philippines and shall be conducted by legal officers of the
Bureau of Internal Revenue but no civil or criminal action for
Kind of Assessment Year Date Amount the recovery of taxes or the enforcement of any fine, penalty
Tax No./ Demand or forfeiture under this Code shall be filed in court without the
No. approval of the Commissioner. (Emphasis ours)
Def. 34-2000 2000 January P12,541,339.18
Income 14, 2004 Thus, The required approval of the Commissioner provided under
Tax Section 220 of the 1997 NIRC aside, Section 7 thereof allows the
Def[.] 34-2000 2000 January 16,296,946.70 delegation of powers of the Commissioner to any subordinate official
VAT 14, 2004 with the rank equivalent to a division chief or higher,
Def. 34-2000 2000 January 4,397,619.73
EWT 14, 2004 In this case, the approval of filing of a criminal action is not one of
Def. 34-2000 2000 January 17,513,440.24 the non-delegable functions of the Commissioner. As previously
DST 14, 2004 stated, the petitioner had earlier submitted a written recommendation
from the RD to file the instant case against Valeriano. Therefore,
the recommendation of the RD to file the instant case constitutes
An Information was filed before CTA by Assistant City Prosecutor as compliance with the requirement under Section 220 of the 1997
Suwerte L. Ofrecio-Gonzales against Valeriano for violation of NIRC. Notwithstanding the foregoing, the petitioner is cautioned to
Section 255, in relation to Section 253 (d) and Section 256, of the take the initiative of periodically checking on the progress of its
1997 NIRC. cases to avoid a similar instance where its counsel's negligence or
failure to comply with court orders would result to delay or worse,
The CTA First Division issued a Resolution, whereby Assistant City constitute as bar in the prosecution of criminal tax cases.
Prosecutor Ofrecio-Gonzales was ordered to submit within five days
from receipt thereof proof that the filing of the criminal case was PETITION GRANTED. REVERSED AND SET ASIDE. FURTHER, THE
with the written approval of the BIR Commissioner, and not by the CASE IS REMANDED TO CTA FOR FURTHER PROCEEDINGS.
RD, in compliance with Section 220 of the 1997 NIRC, as amended.
[G.R. No. 212530. August 10, 2016.]
However, Assistant City Prosecutor Ofrecio-Gonzales failed to BLOOMBERRY RESORTS AND HOTELS, INC., petitioner, vs.
comply with the order to submit the approval of the Commissioner. BUREAU OF INTERNAL REVENUE, REPRESENTED BY
Thus, CTA First Division, through a Resolution dismissed the case COMMISSIONER KIM S. JACINTO-HENARES, respondent.
against Valeriano for failure to prosecute.
Facts:
But, a Special Attorney from the Legal Division of BIR Revenue
Region No. 6 filed an "Entry of Appearance with Leave to Admit This is a Petition for Certiorari and Prohibition under Rule 65 of
Manifestation and Motion for Reconsideration." Attached thereto was the Rules on Court seeking: (a) to annul the issuance by the
a photocopy of the supposed written approval of the BIR Commissioner of Internal Revenue (CIR) of an alleged unlawful
Commissioner to file the criminal case against Valeriano. governmental regulation, specifically the provision of Revenue
Memorandum Circular (RMC) No. 33-2013 subjecting contractees
CTA Special First Division then promulgated an Order requiring and licensees of the Philippine Amusement and Gaming Corporation
Valeriano to comment on the Motion with Leave to Admit (PAGCOR) to income tax under the National Internal Revenue
Manifestation and Motion for Reconsideration led by the counsel of Code (NIRC) of 1997, as amended; and (b) to enjoin respondent
the BIR Commissioner. However, the records disclose that Valeriano CIR from implementing the assailed provision of RMC No. 33-2013.
had already moved out of her address of record.
PAGCOR granted to petitioner a provisional license to establish
CTA Special First Division issued a Resolution, denying the and operate an integrated resort and casino complex at the
petitioner's motion for reconsideration for lack of merit. Entertainment City project site of PAGCOR. Petitioner and its parent
company, Sureste Properties, Inc., own and operate Solaire Resort
A Petition for Review with the CTA en banc was filed, arguing that & Casino. Thus, being one of its licensees, petitioner only pays
it was not at fault when Assistant City Prosecutor Ofrecio-Gonzales PAGCOR license fees, in lieu of all taxes, as contained in its
failed to comply with the orders of the CTA Special First Division provisional license and consistent with the PAGCOR Charter or
and that the government is not bound by the errors committed by Presidential Decree (PD) No. 1869, which provides the exemption
its agents. from taxes of persons or entities contracting with PAGCOR in
casino operations.However, when Republic Act (R.A.) No. 9337
CTA en banc, in its Resolution directed Valeriano to file her took effect, it amended Section 27 (C) of the NIRC of 1997, which
comment. But as with the other documents sent to her, the excluded PAGCOR from the enumeration of government owned or
resolution was returned unserved with the notation "RTS moved controlled corporations (GOCCs) exempt from paying corporate
out." As Valeriano failed to file Comment, the CTA en banc, through income tax.
a Resolution directed the parties to submit their respective
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Consequently, in implementing the aforesaid amendments made by
R.A. No. 9337, respondent issued RMC No. 33-2013 declaring that
PAGCOR, in addition to the five percent (5%) franchise tax of its
gross revenue under Section 13 (2) (a) of PD No. 1869, is now
subject to corporate income tax under the NIRC of 1997, as
amended. In addition, a provision therein states that PAGCOR's
contractees and licensees, being entities duly authorized and
licensed by it to perform gambling casinos, gaming clubs and other
similar recreation or amusement places, and gaming pools, are
likewise subject to income tax under the NIRC of 1997, as
amended.
Aggrieved, as it is now being considered liable to pay corporate
income tax in addition to the 5% franchise tax, petitioner
immediately elevated the matter through a petition for certiorari and
prohibition before this Court asserting the following arguments:
(i) PD No. 1869, as amended by R.A. No. 9487, is an
existing valid law, and expressly and clearly exempts
the contractees and licensees of PAGCOR from the
payment of all kinds of taxes except the 5%
franchise tax on its gross gaming revenue;
(ii) This clear exemption from taxes of PAGCOR's
contracting parties under Section 13 (2) (b) of PD
No. 1869, as amended by R.A. No. 9487, was not
repealed by the deletion of PAGCOR in the list of
tax-exempt entities under the NIRC;
(iii) Respondent CIR acted without or in excess of its
jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction when she
issued the assailed provision in RMC No. 332013
which, in effect, repealed or amended PD No. 1869;
and
(iv) Respondent CIR, in issuing the assailed provision in
RMC No. 33-2013, will adversely affect an industry
which seeks to create income for the government,
promote tourism and generate jobs for the Filipino
people.
The Petitioner invoked that Section 4 of the NIRC of 1997, as
amended, gives respondent CIR the power to interpret the
provisions of tax laws through administrative issuances, she cannot,
in the exercise of such power, issue administrative rulings or
circulars not consistent with the law sought to be applied since
administrative issuances must not override, supplant or modify the
law, but must remain consistent with the law they intend to carry
out.
The Respondent, counters that there was no grave abuse of
discretion on her part when she issued the subject revenue
memorandum circular since it did not alter, modify or amend the
intent and meaning of Section 13 (2) (b) of PD No. 1869, as
amended, insofar as the imposition is concerned, considering that
it merely clarified the taxability of PAGCOR and its contractees
and licensees for income tax purposes as well as other franchise
grantees.
Issue:
(i) whether or not the assailed provision of RMC No. 33-
2013 subjecting the contractees and licensees of
PAGCOR to income tax under the NIRC of 1997, as
amended, was issued by respondent CIR with grave
abuse of discretion amounting to lack or excess of
jurisdiction; and
(ii) whether or not said provision is valid or constitutional
considering that Section 13 (2) (b) of PD No. 1869, as
amended (PAGCOR Charter), grants tax exemptions to
such contractees and licensees.
Held: Yes, Upon payment of the 5% franchise tax, petitioner's
income from its gaming operations of gambling casinos, gaming
clubs and other similar recreation or amusement places, and
gaming pools, defined within the purview of the aforesaid section,
is not subject to corporate income tax. PETITION IS HEREBY
GRANTED. Respondent be ordered to Cease and Desist Internal
Revenue.
Under the law:
1. Under P.D. No. 1869, as amended, [PAGCOR] is subject to
income tax only with respect to its operation of related
services. Accordingly, the income tax exemption ordained
under Section 27(c) of R.A. No. 8424 clearly pertains only to
[PAGCOR's] income from operation of related services. Such
income tax exemption could not have been applicable to
[PAGCOR's] income from gaming operations as it is already
exempt therefrom under P.D. No. 1869, as amended No. 1869,
as amended, to wit:
(2) Income and other taxes. — (a) Franchise Holder: No
tax of any kind or form, income or otherwise, as well as
fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under
INCOME TAX CASES || 6
this Franchise from the Corporation; nor shall any form
of tax or charge attach in any way to the earnings of the
tax or charge of the Corporation, except a Franchise Tax
of five (5%) percent of the gross revenue or earnings
derived by the Corporation from its operation under this
Franchise Such tax shall be due and payable quarterly to
the National Government and shall be in lieu of all kinds
of taxes, levies, fees or assessments of any kind, nature
or description, levied, established or collected by any
municipal, provincial, or national government authority.
This is clear from the wordings of P.D. No. 1869, as amended,
imposing a franchise tax of five percent (5%) on its gross revenue
or earnings derived by [PAGCOR] from its operation under the
Franchise in lieu of all taxes of any kind or form, as well as fees,
charges or levies of all taxes of any kind or form, as well as fees,
charges or levies of whatever nature, which necessarily include
corporate income tax.
2. Every effort must be exerted to avoid a conflict between
statutes; so that if reasonable construction is possible, the
laws must be reconciled in the manner.
Theres no conflict between P.D. No. 1869, and R.A. No. 9337. The
former lays down the taxes imposable upon [PAGCOR], as follows:
(1) a five percent (5%) franchise tax of the gross revenues or
earnings derived from its operations conducted under the Franchise,
which shall be due and payable in lieu of all kinds of taxes, levies,
fees or assessments of any kind, nature or description, levied,
established or collected by any municipal, provincial or national
government authority; and (2) income tax for income realized from
other necessary and related services, shows and entertainment of
[PAGCOR].
3. Even assuming that an inconsistency exists, P.D. No. 1869,
as amended, which expressly provides the tax treatment of
[PAGCOR's] income prevails over R.A. No. 9337, which is a
general law. It is a canon of statutory It is a canon of statutory
construction that a special law prevails over a general law
— construction that a special law prevails over a general law
— regardless of their dates of passage — and the special is
to be regardless of their dates of passage — and the special
is to be considered as remaining an exception to the general
considered as remaining an exception to the general.
Therefore, it is without a doubt that, like PAGCOR, its contractees
and licensees remain exempted from the payment of corporate
income tax and other taxes since the law is clear that said
exemption inures to their benefit. The Court adhere to the cardinal
rule in statutory construction that when the law is clear and free
from any doubt or ambiguity, there is no room for construction or
interpretation. As has been our consistent ruling, where the law
speaks in clear and categorical language, there is no occasion for
interpretation; there is only room for application.
2017 CTA En Banc
COMMISSIONER OF INTERNAL REVENUE VS. SONOMA
SERVICES, INC.
CTA EB NO. 1357 January 30, 2017
Facts:
Respondent Sonoma Services, Inc., a registered taxpayer of
BIR, is a duly organized domestic corporation which is incorporated for
the primary purpose of carrying on and conducting general services
business with any party, including the rendering of management and
allied services within the limits allowed by law.
On April 15, 2011, Respondent filed its Annual Income Tax
Return (ITR) for CY 2010 with the BIR through the Electronic Filing and
Payment System (EFPS), indicating its choice for refund of its excess
and unutilized CWT for CY 2010. On December 6, 2011, Respondent
filed with the BIR ROO No. 50 an administrative claim for refund of the
excess and unutilized CWT for CY 2010 in the amount of P3,911,850.00.
On April 12, 2013, Respondent filed the instant Petition for
Review anchored on alleged inaction of the CIR. Respondent filed an
Answer, praying for the dismissal of the instant Petition for lack of basis.
The Commissioner averred that Respondent's administrative claim for
refund is still pending with BIR which should be given the opportunity to
investigate and confirm the veracity of subject claim before it grants the
refund. Moreover, it does not appear from Sonoma's documents that the
tax subject of refund was erroneously or illegally collected. Likewise,
Respondent must establish that it did not carry-over its 2010 alleged
unutilized creditable withholding taxes to the succeeding taxable
quarters/years, lest it is precluded from claiming a cash refund/tax credit
of its alleged excess tax credit for taxable year 2010. Petitioner also
invoked the presumption that taxes paid and collected are made in
accordance with the law and regulations, and that claim for refund
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partakes the nature of an exemption, hence, must be construed strictly
against the claimant.
CPA Katherine Constantino stated in her Affidavit that based
on her audit, Respondent's total excess and unutilized CWT for CY 2010
amounted to P3,911,850.00. Respondent's prior years excess credits
were sufficient to cover its income tax due, resulting to an overpayment
of P4,999,450.12. Moreover, all the expanded withholding taxes claimed
by Respondent were properly documented and represent revenues that
were claimed, reported in the ITRs for 2010, and were not carried over
in the succeeding periods.
On April 15, 2015, the CTA Third Division ordered the refund
of P3,911,850.00 representing the excess and unutilized creditable
withholding taxes for calendar year 2010.
Issue:
Whether or not Respondent’s failure to present documents
whereby the income payments related to the claimed CWT may be
confirmed as part of the taxable gross income reflected in the Annual
ITR is fatal to its claim.
Ruling:
In the claim for refund of excess and unutilized CWT, the
taxpayer must prove that the claim was filed within 2 years from
payment, the income received was declared as part of the gross income
and the fact of withholding by a copy of a statement duly issued by the
payor to the payee showing the amount paid and the amount of tax
withheld.
In this case, Respondent filed its claim with the CIR within the
two-year period from the date of payment of the tax and the fact of
withholding by a copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of tax withheld.
As to the alleged failure of Respondent to present the
aforesaid documents, upon re-examination of the records, the Court
found that Respondent submitted Certificates of Creditable Tax
Withheld at Source duly issued to it by various withholding agents
showing that creditable taxes in the aggregate amount of P3,911,850.00
were withheld on professional fees it received in the year 2010.
COMMISSIONER OF INTERNAL REVENUE VS. ANSI
AGRICULTURAL PRODUCTS, INC.
CTA EB NO. 1340 January 30, 2017
Facts:
A Letter of Authority was issued against Respondent AAPI on
June 29, 2010 for the investigation of its tax for the entire year of 2009.
After investigation, a PAN was received by AAPI, informing the same of
a deficiency income tax for the calendar year ending December 31,
2009. AAPI filed a letter of protest with the Quezon City Assessment
Division, Revenue Region No. 7, BIR, explaining its position by way of
response to the PAN. Thereafter, an Assessment Notice together with
an FLD was issued upon, and was received by AAPI. It protested such
Assessment.
In a Letter-Notice to Taxpayer received by AAPI, Petitioner
informed the former of the re-assignment of Letter of Authority and the
continuance of examination of books of accounts and other accounting
records. A considerable length of time had elapsed but no examination
of books of accounts and other accounting records was done by the CIR.
Likewise, no action was taken on AAPI's protest. More than one year
had passed when AAPI finally received on July 26, 2012 a letter dated
July 6, 2012 from the CIR, denying its protest on the ground of failure to
submit documents supporting its protest, which said letter constitutes
the final decision of the CIR in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the 1997 NIRC or other
laws administered by the BIR. On August 28, 2012, AAPI filed via
registered mail the Petition for Review, praying for the reversal and
cancellation of the CIR's final decision on disputed assessment.
On April 20, 2015, the Court in Division partially granted the
Petition for Review, while affirming with modification the assessment for
deficiency income tax issued by the CIR against AAPI, covering
deficiency income tax for taxable year 2009; and ordering AAPI to pay
the amount of Php1,365,323.25 inclusive of 25% surcharge, a deficiency
interest, and a delinquency interest.
Issue:
Whether the offsetting of AAPI’s receivable account from Swift
Foods, Inc. with its own payable account to the same debtor-creditor, as
a consequence of the partial settlement of the latter’s prior debt, will not
produce any taxable income.
Ruling:
Under the accrual basis of accounting, revenue is recognized
when it is earned and realized or realizable. In 2004, AAPI sold animal
feed ingredients to Swift for a total value of P6,768,357.50.26. This was
recorded in the books as an increase in Accounts Receivable (due from
Swift) and Sales. At this point, income was already recognized by AAPI
and there was already a debt whereby AAPI is creditor and Swift is
debtor.
INCOME TAX CASES || 7
In early 2005, Swift made partial payments to AAPI totaling
P700,000.00, which was recorded as an increase in Cash and a
decrease in Accounts Receivable (due from Swift). Afterwards, Swift had
financial difficulties and entered into a swap agreement with AAPI, who
received old-stock chickens from Swift worth P2,310,495.50, this was
recorded by AAPI as an increase in Purchases and Accounts Payable
(due to Swift). Hence, a second debt arose wherein AAPI is debtor and
Swift is creditor.
In 2009, offsetting was done in the books where the amount
of P2,310,495.50 was deducted from Accounts Receivable (due from
Swift) and Accounts Payable (due to Swift). Swift likewise made several
small payments, hence, there was an increase in Cash and a decrease
in Accounts Receivable (due from Swift). As for the balance in the
Accounts Receivable (due from Swift) account, this was written off after
several demands. The revenue of AAPI from its sale of animal feed
ingredients was already earned and realizable at the time the receivable
was recognized in taxable year 2004, when income tax arising therefrom
was due and presumably paid. To recognize income and to demand
payment of income tax in taxable year 2009 from AAPI on the same
revenue, upon offsetting, will effectively reimpose a tax which was
already paid.
Tax assessments by examiners are presumed correct and
made in good faith. However, in the instant case, AAPI was able to prove
that no income was realized in the offsetting of its debts from Swift with
the amount due to it from the latter's debt.
2017 CTA Division
CTA CASE NO. 9041 First Division (Feb. 23, 2017)
ANTHONY ORTILE TUASON, Petitioner,
-versus
COMMISSIONER OF INTERNAL REVENUE, Respondent.
On April 12, 2013, respondent CIR issued Revenue Memorandum
Circular (RMC) 31-20133 (Guidelines on the Taxation of Compensation
Income of Philippine Nationals and Alien Individuals Employed by
Foreign Governments/Embassies/Diplomatic Missions and International
Organizations Situated in the Philippines), which states that only officers
and staff of the ADS who are not Philippine nationals shall be exempt
from Philippine income tax.
Claiming to have been ordered to pay income tax on his salary pursuant
to the aforesaid RMC, petitioner filed his Amended Annual Income Tax
Return and paid the amount of P264,588.045 on May 15, 2013 as
income tax on his salary for 2012. On the same date, petitioner sent a
Letter to the Commissioner of Internal Revenue stating that he is availing
the abatement of surcharge, interest and/or compromise penalty under
Revenue Regulations No. 7-2013.
Two Filipino ADB employees on behalf of the other Filipino employees
of the ADB questioned the legality of RMC No. 31-2013 at the RTC of
Mandaluyong City in “Erwin Sa/avera and Portia Gonzales by
themselves and as Attorneys-in-Fact of the concerned Filipino
employees of the Asian Development Bank vs. Commissioner of Internal
Revenue, Civil Case No. MC14-8775”, promulgated a Decision
declaring Section 2 (d) (1) of RMC 31-2013 as void for being issued
without legal basis
Petitioner filed a claim for refund of income taxes erroneously and/or
illegally collected by respondent.
Petitioner contends that in their particular case as Filipino ADB
employees, they were exempt from paying taxes since day one of the
establishment of the ADB. Petitioner elaborates that its exempt status
has always been observed and practiced because there was no
subsequent legislation or enabling law that would have modified or
interpreted the section of the ADB Charter on "Exemption from Taxation.
Petitioner further contends that with the RTC Decision, there was a
reversion to the default status of exemption, and the taxes previously
paid in compliance with RMC No. 31-2013 are erroneous that should be
returned to the taxpayers like the petitioner.
ISSUE: Whether or not petitioner is entitled to the claimed refund in the
amount of Php264,588.04 as alleged to be erroneously paid income tax
for taxable year 2012.
HELD:
NO. In the absence of a specific grant of income tax exemption, the
Court holds that salaries and emoluments received by officers and
employees of ADB who are resident citizens or nationals of the
Philippines are subject to income tax pursuant to Section 24(A)(1 )(a) of
the NIRC of 1997, as amended. Since petitioner's income tax payment
for salaries and emoluments received from ADB for the taxable year
2012 was not illegally or erroneously collected by the BIR, it cannot be
the proper subject of refund under Section 229 of the NIRC of 1997, as
amended.
Resident citizens who are officers and employees of ADB are subject to
income tax on salaries and emoluments they receive from ADB.
Evidently, the ADB Charter provides a tax exemption provision with
respect to the salaries and emoluments paid by ADB to its officers and
employees, but the same also contains a proviso wherein a member-
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country may opt to retain its right to tax the salaries and emoluments
paid by ADB to the citizens or nationals of such member-country which
declaration must be made in the instrument of ratification or acceptance.
Similarly, the ADB Headquarters Agreement recognizes the tax
exemption privilege of ADB officers and employees but said Agreement
also declares in no uncertain terms that the same is subject to the power
of the Government to tax its nationals.
Pursuant to Article 56 (2) of the ADB Charter, the Philippine government
made a specific declaration, when it ratified and confirmed the ADB
Charter, through Senate Resolution No. 6, that it is retaining its right to
tax the salaries and emoluments paid by ADB to its citizens and
nationals. Said declaration of the Philippine government's right to tax its
citizens is categorical in the proviso "subject to the reservation that the
Philippines declares that it retains for itself and its political subdivision
the right to tax salaries and emoluments paid bv the Bank to citizens or
nationals of the Philippines".
OFF-LINE AIR CARRIER SUBJECT TO INCOME TAX ON INCOMES
DERIVED WITHIN THE PHILIPPINES
South African Airways v. Commissioner Of Internal Revenue
G.R. No. 180356 February 10, 2016
VELASCO, JR., J:
FACTS: This is a Petition for Review on Certiorari under Rule 45 to the
Supreme Court, seeking the reversal of the decision of the Court of Tax
Appeals (CTA) En Banc affirming the decision of the CTA First Division
which denied petitioner South African Airways’ claim for refund of its
claimed erroneously paid tax. Petitioner, a foreign corporation, is an
international air carrier having no landing rights in the country but has a
general sales agent in the Philippines, Aerotel Limited Corporation
(Aerotel). Aerotel sells passage documents for petitioner off-line flights
for the carriage of passengers and cargo between ports or points outside
the territorial jurisdiction of the Philippines. In 2000, petitioner filed
separate quarterly and annual income tax returns for its off-line flights.
Subsequently, petitioner filed with the Bureau of Internal Revenue, a
claim for the refund of the amount of P1,727,766.38 as erroneously paid
tax on Gross Philippine Billings (GPB). Such claim was unheeded. Thus,
petitioner filed a Petition for Review with the CTA for the refund of the
abovementioned amount. CTA First Division denied their petition, and
further ruled that although the petitioner is not liable to pay tax on its
GPB under Section 28(A)(3)(a) of the National Internal Revenue Code
(NIRC), it is liable to pay a tax of 32% on its income derived from the
sales of passage documents in the Philippines. Thereafter, petitioner
filed a Petition for Review before the CTA En Banc reiterating its claim
for a refund but the same denied their petition. On appeal, petitioners
contend that with the new definition of GPB, it is no longer liable since it
does not maintain flights to or from the Philippines. Petitioner further
posits the view that due to the non-applicability of Sec. 28(A)(3)(a) to it,
it is precluded from paying any other income tax for its sale of passage
documents in the Philippines.
ISSUE: Are off-line flights considered as income within the Philippines,
hence, subject to Income Tax of 32%?
HELD: Yes. Off-line flights sales are subject to Income Tax. In
Commissioner of Internal Revenue v. British Overseas Airways
Corporation, this Court ruled that off-line air carriers having general
sales agents in the Philippines are engaged in or doing business in the
Philippines and that their income from sales of passage documents here
is income from within the Philippines. Thus, in that case, we held the off-
line air carrier liable for the 32% tax on its taxable income. Moreover,
Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign
corporations are liable for 32% tax on all income from sources within the
Philippines. Sec. 28(A)(3) is an exception to this general rule. In the
instant case, 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 GPB. Petitioner, being an international
carrier with no flights originating from the Philippines, does not fall under
the exception. 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 GPB,
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.
INCOME TAX CASES || 8
2017 SC
GR. No. 203 514, Feb 13, 2017
CIR vs. St. Luke’s Medical Center
FACTS:
St. Luke’s (SMLC) received an assessment deficiency income
tax under Sec.27 (B) of the 1997 NIRC, as amended for taxable year
2005 in the amount of P78, 617, 434. 54 and for taxable year 2006 in
the amount of P 57,119,867.33.
On January 14, 2008, SLMC filed with petitioner CIR an
administrative protest assailing the assessments. SMLC claimed that as
a non-stock, non-profit charitable and social welfare organization under
Sec 30€ and (g) of the 1997 NIRC, as amended, it is exempt from paying
income tax. April of the same year, FDDA increasing the deficiency
income for years above was received by SMLC.
CTA division and CTA En Banc ruled in favor of SMLC, that
the latter complies with all the requisites under Sec 30€ and (G) of the
1997 NIRC and thus, entitled to the tax exemption provided therein. CTA
en Banc denied the motion for reconsideration filed by CIR.
ISSUE:
Whether or not CTA erred in exempting SMLC from the
payment of income tax.
HELD:
SMLC is liable for income tax under Section 27 (B) of the 1997
NIRC insofar as its revenues from paying patients are concerned has
been settled in GR. Nos. 195909 and 195960 (CIR v St. Luke’s Medical
Center, Inc) where the court ruled that:
Xxx We hold that Sec 27(B) of the NIRC does not remove the
income tax exemption of proprietary non-profit hospitals under Sec 30(e)
and (g) , Sec 27(B) on one hand, and Sec 30(e) and (g) on the other
hand, can be construed together without the removal of such tax
exemption. The effect of the introduction of Sec 27(B) is to subject the
taxable income of two specific institutions and proprietary non-profit
hospitals, among the institutions covered by Section 30, to the 10%
preferential rate under Sec 27 (B) instead of the ordinary 30% corporate
under the last paragraph of Sec 30 in relation to Sec 27(A)(1).
Sec 27(B) of the NIRC imposes a 10% preferential tax rate on
the income of (1) proprietary non profit educational institutions and (2)
proprietary non-profit hospitals. The only qualification for hospitals are
that they must be proprietary and non-profit. ‘Proprietary’ means private,
following the definition of a ‘proprietary educational institution’ as ‘any
private school maintained and administered by private individuals or
groups’ with a government permit. ‘non-profit’ means no net income or
asset accrues to or benefits any member or specific person, with all the
net income or asset devoted to the institution’s purposes and all its
activities conducted not for profit.
‘Non profit’ does not necessarily mean ‘charitable’. The Court
defined ‘charity’ in Lung Center of the Philippines v Quezon City as ‘a
gift, to be applied consistently with existing laws, for the benefit of an
indefinite number persons, either by bringing their minds and hearts
under the influence of education or religion, by assisting them to
establish themselves in life or by otherwise lessening the burden of
government.’ An organization may be considered as non-profit if it does
not distribute any part of its income to stockholders or members.
However, despite its being tax exempt institution, any income such
institution earns from activities earns from activities conducted for profit
is taxable, as expressly provided in the last paragraph of Sec.30.
Charitable institutions, however, are not ipso facto entitled to
a tax exemption. The requirements for a tax exemption are specified by
the law granting it. The requirements for a tax exemption are strictly
construed against the taxpayer because an exemption restricts the
collection of taxes necessary for the existence of the government.
The Constitution exempts charitable institutions only from real
property taxes. In the NIRC, Congress decided to extend the exemption
to income taxes. However, the way Congress crafted Sec 30(e) of the
NIRC is materially different from Sec28(3), Art.VI of the Constitution.
Sec30(E) of NIRC defines the corporation or association that is exempt
from income tax. On the other hand, Sec. 28(3), Art VI of the Constitution
does not define a charitable institution, but requires that the institution
‘actually, directly and exclusively’ use for a charitable purpose.
Sec 30(e) of the NIRC provides that a charitable institution
must be: (1) a non- stock corporation or association; (2) organized
exclusively for charitable purposes; (3) operated exclusively for
charitable purposes; and (4) no part of its net income or asset shall
belong to or inure to the benefit of any member, organizer, officer or any
specific person.
There is no dispute that St. Luke’s is organized as non-stock
and non-profit charitable institution. However, this does not
automatically exempt St. Luke’s from paying taxes. This only refers to
the organization of St. Luke’s. Even if St. Luke’s meets the test of charity,
a charitable institution is not ipso facto tax exempt. To be exempt from
real property taxes, Sec28(3), Article VI of the Constitution requires that
a charitable institution use the property ‘actually, directly, and
exclusively’ for charitable purposes. To be exempt from income taxes,
Sec 30 (e) of the NIRC requires that a charitable institution must be
‘organized and operated exclusively for charitable purposes. Likewise,
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to be exempt from income taxes, Sec.30(G) of the NIRC requires that
the institution be ‘operated exclusively’ for social welfare.
However, the last paragraph of Sec.30 of the NIRC provides
that is a tax exempt charitable institution conducts ‘any activity for profit,
such activity is not tax exempt even as its not-for-profit activities remain
tax exempt.
Even if the charitable institution must be ‘organized and operated
exclusively’ for charitable purposes, it is nevertheless allowed to
engaged in ‘activities conducted for profit’ without losing its tax exempt
status for its not-for-profit activities. The only consequence is that the
‘income of whatever kind and character’ of a charitable institution ‘from
any of its activities conducted for profit, regardless of the disposition
made of such income, shall be subject to tax.’ Prior to the introduction
of Sec.27(B), the tax rate on such income from for-profit activities was
the ordinary corporate rate under Sec27(A). with the introduction of
Sec27(B), the tax rate now is 10%.
In 1998, St. Luke’s had total revenues of P1, 730,367,965
from services to paying patients. It cannot be disputed that a hospital
which receives approximately P1.73 billion from paying patients is not
an institution ‘operated exclusively’ for charitable purposes. Clearly,
revenues from paying patients are income received from ‘activities
conducted for profit.’ Indeed, St. Luke’s admits that it derived profits from
its paying patients. St. Luke’s declared P1,730,367,965 as ‘Revenues
from Services to Patients’ in contrast to its ‘Free Services’ expenditure
of P218,187,498. In its comment in GR. No 195909, St Luke’s showed
the following calculation to support its claim that 65.20% of its income
after expenses was allocated to free or charitable services in 1998.
Xxx
The Court finds that St. Luke’s is a corporation that is not ‘operated
exclusively’ for charitable or social welfare purposes insofar as its
revenues from paying patients are concerned. This ruling is based not
only on a strict interpretation of a provision granting tax exemption, but
also on the clear and plain text of Sec30(e) and(g). Sec 30(e) and (g) of
the NIRC requires that an institution be operated exclusively for
charitable or social welfare purposes to be completely exempt from
income tax. An institution under Sec30(e) or (g) does not lose its tax
exemption if it earns income from its for-profit activities. Such income
from for-profit activities, under the last paragraph of Sec30, is merely
subject to income tax, previously at the ordinary corporate rate but now
at the preferential 10% rate pursuant to Sec. 27(b).
St. Luke’s fails to meet the requirements under Sec 30(e) and
(g) of the NIRC to be completely tax exempt from all its income.
However, it remains a proprietary non-profit hospital under Sec27(B) of
the NIRC as long as is does not distribute any of its profit to its members
and such profits are reinvested pursuant to its corporate purposes. St
Luke’s, as proprietary non-profit hospital, is entitled to the preferential
tax rate of 10% on its net income from its for-profit activities. Therefore,
St. Luke’s is liable for deficiency income tax in 1998 under Sec27(B) of
the NIRC but not subject to the imposition of surcharges and interest
because it relied in good faith and honest belief that it is not subject to
tax on the basis of previous interpretation of government agencies
tasked to implement tax laws.
SLMC is not liable for compromise penalty under Sec 248(A) of the
1997NIRC on the basis of good faith and honest belief that it is not
subject to tax.
However, in view of the payment of the basic taxes made by SMLC on
April 30, 2013, the instant petition has become moot by the payment
made by the SLMC of the basic taxes for the taxable years 2005 and
2006. In fine, the Court resolves to dismiss the instant petition.
GR No. 184450
Feb 8, 2017
Jaime Soriano, Michael Vernon Guerrero, Mary Anne L. Reyes,
Marah Sharyn De Castro and Cris P Tenorio VS. Sec of Finance and
CIR
GR NO 184508
Senator Manuel Roxas VS Teves, in his capacity as Sec of DOF and
Lilian Hefti, in her capacity as Commissioner of BIR
GR NO.184538
TUCP, represented by its Pres. Mendoza VS. Teves. In his capacity
as Sec of DOF and Lilian Hefti, in her capacity as Commissioner of
BIR.
GR. No. 185234
Sen. Francis Joseph G. Escudero, Tax Management Association of
the Phils and Ernesto G. Ebro VS. Teves. In his capacity as Sec of
DOF and Sixto Esquivias IV, in his capacity as Commissioner of
BIR.
January 24, 2017.
INCOME TAX CASES || 9
FACTS:
This is a consolidated case of petitions for certiorari, prohibition, and
mandamus which seek to nullify certain provisions of RR 10-2008. The
RR was issued by BIR on Sept 24, 2008 to implement the provisions of
RA 9504. The law granted, among others, income tax exemption for
minimum wage earners (MWEs), as well as increase in personal and
additional exemptions for individual taxpayers.
Petitioners assail the subject RR as an unauthorized
departure from the legislative intent of RA 9504. The regulation allegedly
restricts the implementation of the MWEs’ income tax exemption to the
entire year of 2008. They further challenge the BIR’s adoption of the
prorated application of the new set of personal and additional
exemptions for taxable year 2008. They also contest the validity of the
RR’s alleged imposition of a condition for the availment by MWEs of the
exemption provided by RA 9504. Supposedly, in the event they receive
other benefits in excess of P30,000, they can no longer avail themselves
of that exemption. Petitioners contend that the law provides for the
unconditional exemption of MWEs from income tax and, thus, pray that
the RR be nullified.
ISSUES:
1. WON the increased personal and additional exemptions
provided by RA 9504 should be applied to the entire taxable
year 2008 or prorated, considering that the law took effect only
on July 6, 2008.
2. WON an MWE is exempt for the entire taxable year 2008 or
from July 6, 2008 only.
HELD:
1. Yes. The personal and additional exemptions established
by RA 9504 should be applied to the entire taxable year
2008. The policy in this jurisdiction is full taxable year
treatment.
This Court ruled in the affirmative,
considering that the increased exemptions were
already available on or before April 15, 1992, the
date for the filing of individual income tax returns.
Further, the law itself provided that the new set of
personal and additional exemptions would be
immediately available upon its effectivity. While RA
7167 had not yet become effective during calendar
year 1991, the Court found that it was a piece of
legislation that was in part intended to alleviate the
economic plight of the lower income taxpayers. For
that purposes, the new law provided for
adjustments “to the poverty threshold level”
prevailing at the time of the enactment of the law.
RA 9504, like RA 7167 in Umali, was a piece of
social legislation clearly intended to afford
immediate tax relief to individual taxpayers,
particularly low –income compensation earners.
Indeed, if RA 9504 was to take effect beginning
taxable year 2009 or half the year 2008 only, then
the intent of Congress to address the increase in
the cost of living in 2008 would have been negated.
Following Umali, the test is whether the new set of
personal and additional exemptions was available
at the time of the filing of the ITR. In other words,
while the status of the individual tax payers is
determined at the close of the taxable year, their
personal and additional exemptions – and
consequently the computation of their taxable
income – are reckoned when the tax becomes due,
and not while the income is being earned or
received.
The rule of full taxable year treatment for
the availment of personal and additional
exemptions was established, not by the
amendments introduced by RA9504, but by the
provisions of the 1997 Tax Code itself, which
adopted the policy from as early as 1969. The new
law merely introduced a change in the amounts of
the basic and additional personal exemptions.
Hence, the fact that RA9504 took effect only on July
6, 2008 is irrelevant.
We have perused RA9504, and we see nothing that
expressly provides or even suggests a prorated
application of the exemptions for taxable year 2008.
On the otherhand, the policy of full taxable year
treatment, especially of the personal and additional
exemptions, is clear under Sec 35, particularly
paragraph C of RA 8424 or the 1997 Tax Code.
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INCOME TAX CASES || 10

Paragraph C does not allow the prorating of the incomes for taxpayers whose incomes for taxable year2008 were the
personal and additional exemptions provided in subject of the prorated increase in personal and additional tax
paragraphs A and B, even in case a status exemption; (ii) all MWEs whose minimum wage incomes were subjected
changing event occurs during the taxable year. to tax for their receipt of the 13th month pay and other bonuses and
Rather, it allows the fullest benefit to the individual benefits exceeding the threshold amount under Sec 32(B)(7)(e) of the
tax payer. This manner of reckoning the taxpayer;s 1997 Tax Code.
status for purposes of the personal and additional
exemptions clearly demonstrates the legislative NOTE:
intention; that is, for the state to give the taxpayer *Bracket creep – the process by which inflation pushes
the maximum exemptions that can be availed, individuals into higher tax brackets.
notwithstanding the fact that the latter’s actual
status would qualify only for a lower exemption if
prorating were employed. Therefore, there should
be no distinction between the income earned prior
to the effectivity of the amendment (from Jan1,2008
to July 5,2008) and that earned thereafter (from
July 6,2008 to Dec31, 2008) as none is indicated in
the law. The principle that the courts should not
distinguish when the law itself does not distinguish
squarely applies to this case.

The prorated application of the new set of

personal and additional exemptions for the year
2008, which was introduced by respondents,
cannot even be justified under the exception to the
canon of non-delegability; that is, when Congress
makes a delegation to the executive branch. In this
case, respondents went beyond enforcement of the
law, given the absence of a provision in RA 9504
mandating the prorated application of the new
amounts of personal and additional exemptions for
2008.

2. Yes. The MWE is exempt for the ENTIRE TAXABLE YEAR

2008. As it stands, the calendar year 2008 remained as
one taxable year for an individual taxpayer. Therefore, RR
10-2008 cannot declare the income earned by a minimum
wage earner from Jan 1, 2008 to July 5 2008 to be taxable
and those earned by him for the rest of that year to be tax-
exempt. To do so would be to contradict the NIRC and
jurisprudence, as taxable income would the cease to be
determined on a yearly basis.
The MWE exemption is available for the entire
taxable year 2008 is premised on the fact of one’s status as a
MWE; that is whether the employee during the entire year of
2008 was a MWE as defined by RA 9504. When the wages
received exceed the minimum wage anytime during the
taxable year, the employee necessarily loses the MWE
qualification. Therefore, wages become taxable as the
employee ceased to be an MWE. But the exemption of the
employee from tax on the income previously earned as an
MWE remains.
As the exemption is based on the employee’s
status as an MWE, the operative phrase is “when the
employee ceases to be an MWE. Even beyond 2008, it is
therefore possible for one employee to be exempt early in the
year for being an MWE for that period, and subsequently
become taxable in the middle of the same year with respect
to the compensation income, as when the pay is increased
higher that the minimum wage. The improvement of one’s lot,
however, cannot justly operate to make the employee liable
for tax on the income earned as an MWE.
Additionally, on the question whether one who
ceases to be an MWE may still be entitled to the personal and
additional exemptions, the answer must necessarily be yes.
The MWE exemption is separate and distinct from the
personal and additional exemptions. One’s status as an MWE
does not preclude enjoyment of the personal and additional
exemptions. Thus, when one is an MWE during a part of the
year and later earns higher that the minimum wage and
becomes a non-MWE is subject to tax. It also necessarily
follows that such an employee is entitled to the personal and
additional exemptions that any individual taxpayer with
taxable gross income is entitled.

Wherefore, the Court declared null and void the following provisions of
RR No. 10-2008 :
i. Sections 1 and 3, insofar as they disqualify MWEs
who earn purely compensation income from the
privilege of the MWE exemption in case they
receive bonuses and other compensation-related
benefits exceeding the statutory ceiling of P30,000.;
ii. Sec 3 insofar as it provides for the prorated
application of the personal and additional
exemptions under RA9504 for taxable year 2008
and for the period of applicability of the MWE
exemption to begin only on July 6, 2008.
The Court direct respondents Sec of Finance and CIR to grant refund,
or allow application of the refund by way of withholding tax adjustments
or allow a claim for tax credits by (i) all individual taxpayers whose