CHAPTER III: EXEMPTIONS FROM TAXATION:

I. IN GENERAL:

A. Definition;
 Tax exemption is a monetary exemption which reduces taxable income.
 Tax exempt status can provide complete relief from taxes, reduced rates, or tax on
only a portion of items.
 Tax exemption also refers to removal from taxation of a particular item rather than a
deduction.

B. Kinds of Exemption;

C. Rationale of giving tax exemption;

D. Nature of power to grant tax exemption;

E. Grounds for tax exemption;

F. Examples of Exemption;

1. Constitutional Exemption;

2. Legislative grant of exemption;

3. Exemption created by Treaty;

G. Cases:
(FT) - IR v Botelho Shipping Corp. 20 SCRA 487;

Appeal by the Government from a decision of the Court of Tax Appeals, reversing of the
decisions of the Commissioner of Internal Revenue and the Commissioner of Customs, in
Cases No. 956 and 957 of said Court, holding Botelho Shipping Corporation and General
Shipping Co., Inc. — hereinafter referred to collectively as the Buyers — liable for the payment
of the sum of P483,433.00 and P494,824.00, respectively, as compensating taxes on the
vessels "M/S Maria Rosello" and "M/S General Lim."

On August 30, 1960, the Reparations Commission of the Philippines — hereinafter referred to
as the Commission — and Botelho Shipping Corporation — hereinafter referred to as Botelho
— entered into a "Contract of Conditional Purchase and Sale of Reparations Goods," whereby
the former agreed to sell to Botelho for P6,798,888.88 the vessel "M/S Maria Rosello,"
procured by the Commission from Japan, pursuant to the provisions of the Philippine-
Japanese Reparations Agreement of May 9, 1956. On September 19, 1960, the Commission
signed a similar contract with General Shipping Co., Inc. — hereinafter referred to as General
Shipping — for the sale thereto of "M/S General Lim" at the price of P6,951,666.66. Both
agreements, couched in identical terms, except as to price, stipulated that:
 a) The Reparations Commission "retains title to and ownership of the above described
vessel until it is fully paid for." (Exh. "A", p. 2, both cases)

b) The stipulated purchase price of the M/S MARIA ROSELLO was to be paid by Botelho
to the Commission under a deferred payment plan in 10 equal yearly installments of
P717,333.49, bearing 3% interest per annum, beginning August 31, 1962 and August
31 of every year thereafter until the year 1972, while the purchase price of the M/S
GENERAL LIM was to be paid by General Shipping to the Commission under a deferred
payment plan in 10 equal yearly installments of P723,132.68, bearing 3% interest per
annum beginning September 30 of every year until the year 1972. (Exhs. 9, p. 4 and
A-2, both cases) (See Respondents' brief, p. 4.)

Delivered in Japan to its respective buyers, acting on behalf of the Commission, the vessels,
upon their departure from Tokyo, on the maiden trip thereof to the Philippines, were issued,
by the Philippine Vice-Consul in said city, provisional certificates of Philippine registry in the
name of the Commission, so that the vessels could proceed to the Philippines and secure
therein the respective final registration document.

Upon arrival at the port of Manila, the Buyer filed the corresponding applications for
registration of the vessels, but, the Bureau of Customs placed the same under custody and
refused to give due course to said applications, unless the aforementioned sums of P483,433
and P494,824 be paid as compensating tax. As the Commissioner of Customs refused to
reconsider the stand taken by his office, the Buyers simultaneously filed with the Court of Tax
Appeals their respective petitions for review, against the Commissioner of Customs and the
Commissioner of Internal Revenue — hereinafter referred to collectively as Appellants — with
urgent motion for suspension of the collection of said tax. After a joint hearing on this motion,
the same was, on October 31, 1960, granted by the Tax Court, upon the sum of a P500,000.00
bond by each one of the Buyers.

On June 17, 1961, while these cases were pending trial in said Court, Republic Act No. 3079
amended Republic Act No. 1789 — the Original Reparations Act, under which the
aforementioned contracts with the Buyers had been executed — by exempting buyers of
reparations goods acquired from the Commission, from liability for the compensating tax.
Moreover, section 20 of Republic Act No. 3079, provides:

x x x This Act shall take effect upon its approval, except that the amendment contained
in Section seven hereof relating to the requirements of procurement orders including
the requirement of down payment by private applicant end-users shall not apply to
procurement orders already duty issued and verified at the time of the passage of this
amendatory Act, and except further that the amendment contained in Section ten
relating to the insurance of the reparations goods by the end-users upon delivery shall
apply also to goods covered by contracts already entered into by the Commission and
end-user prior to the approval of this amendatory Act as well as goods already
delivered to the end-user, and except further that the amendments contained in
Sections eleven and twelve hereof relating to the terms of installment payments on
capital goods disposed of to private parties, and the execution of a performance bond
before delivery of reparations goods, shall not apply to contracts for the utilization of
reparations goods already entered into by the Commission and the end-users prior to
the approval of this amendatory Act: Provided, That any end-user may apply for the
renovation of his utilization contract with the Commission in order to avail of any
provision of this amendatory Act which is more favorable to an applicant end-user than
has heretofore been granted in like manner and to the same extent as an end-user
 filing his application after the approval of this amendatory Act, and the Commission
may agree to such renovation on condition that the end-user shall voluntarily assume
all the new obligations provided for in this amendatory Act.

Invoking the provisions of this section 20, the Buyers applied, therefore, for the renovation
of their utilizations contracts with the Commission, which granted the application, and, then,
filed with the Tax Court, their supplemental petitions for review. Subsequently, the parties
submitted Stipulations of Fact and, after a joint trial, at which they introduced additional
evidence, said Court rendered the appealed decision, reversing the decisions herein
Appellants, and declared said Buyers exempt from the compensating tax sought to be
assessed against the vessels aforementioned. Hence, these appeals by the Government G.R.
No. L-21633 refers to the case as regards "M/S Maria Rosello," whereas "M/S General Lim" is
the subject-matter of G.R. No. L-21634.

It seems clear that, under Republic Act No. 1789 — pursuant to which the contracts of
Conditional Purchase and Sale in question had been executed — the vessels "M/S Maria
Rosello" and "M/S General Lim" were subject to compensating tax. Indeed, Section 14 of said
Act provides that "reparations goods obtained by private parties shall be exempt only from
the payment of customs duties, consular fees and the special import tax." Although this
Section was amended by R.A. No. 3079, to include the compensating tax" among the
exemptions enumerated therein, such amendment took place, not only after the contracts
involved in these appeals had been perfected and partly consummated, but, also, after the
corresponding compensating tax had become due and payment thereof demanded by
Appellants herein. It is, moreover, obvious that said additional exemption should not and
cannot be given retroactive operation, in the absence of a manifest intent of Congress to do
this effect. The issue in the cases at bar hinges on whether or not such intent is clear.

Appellants maintain the negative, upon the ground that a tax exemption must be clear and
explicit; that there is no express provision for the retroactivity of the exemption, established
by Republic Act No. 3079, from the compensating tax; that the favorable provisions, which
are referred to in section 20 thereof, cannot include the exemption from compensating tax;
and, that Congress could not have intended any retroactive exemption, considering that the
result thereof would be prejudicial to the Government.

The inherent weakness of the last ground becomes manifest when we consider that, if true,
there could be no tax exemption of any kind whatsoever, even if Congress should wish to
create one, because every such exemption implies a waiver of the right to collect what
otherwise would be due to the Government, and, in this sense, is prejudicial thereto. In fact,
however, tax exemptions may and do exist, such as the one prescribed in section 14 of
Republic Act No. 1789, as amended by Republic Act No. 3079, which, by the way, is "clear
and explicit," thus, meeting the first ground of appellant's contention. It may not be amiss to
add that no tax exemption — like any other legal exemption or exception — is given without
any reason therefor. In much the same way as other statutory commands, its avowed purpose
is some public benefit or interest, which the law-making body considers sufficient to offset
the monetary loss entitled in the grant of the exemption. Indeed, section 20 of Republic Act
No. 3079 exacts a valuable consideration for the retroactivity of its favorable provisions,
namely, the voluntary assumption, by the end-user who bought reparations goods prior to
June 17, 1961 of "all the new obligations provided for in" said Act.

The argument adduced in support of the third ground is that the view adopted by the Tax
Court would operate to grant exemption to particular persons, the Buyers herein. It should
be noted, however, that there is no constitutional injunction against granting tax exemptions
to particular persons. In fact, it is not unusual to grant legislative franchises to specific
individuals or entities, conferring tax exemptions thereto. What the fundamental law forbids
is the denial of equal protection, such as through unreasonable discrimination or
classification.1äwphï1.ñët

Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the

compensating tax, not particular persons, but persons belonging to a particular class. Indeed,
appellants do not assail the constitutionality of said section 14, insofar as it grants exemptions
to end-users who, after the approval of Republic Act No. 3079, on June 17, 1961, purchased
reparations goods procured by the Commission. From the viewpoint of Constitutional Law,
especially the equal protection clause, there is no difference between the grant of exemption
to said end-users, and the extension of the grant to those whose contracts of purchase and
sale mere made before said date, under Republic Act No. 1789.

It is true that Republic Act No. 3079 does not explicitly declare that those who purchased
reparations goods prior to June 17, 1961, are exempt from the compensating tax. It does not
say so, because they do not really enjoy such exemption, unless they comply with the proviso
in Section 20 of said Act, by applying for the renovation of their respective utilization
contracts, "in order to avail of any provision of the Amendatory Act which is more favorable"
to the applicant. In other words, it is manifest, from the language of said section 20, that the
same intended to give such buyers the opportunity to be treated "in like manner and to the
same extent as an end-user filing his application after this approval of this Amendatory Act."
Like the "most-favored-nation-clause" in international agreements, the aforementioned
section 20 thus seeks, not to discriminate or to create an exemption or exception, but
to abolish the discrimination, exemption or exception that would otherwise result, in favor of
the end-user who bought after June 17, 1961 and against one who bought prior thereto.
Indeed, it is difficult to find a substantial justification for the distinction between the one and
the other. As correctly held by the Tax Court in Philippine Ace Lines, Inc. v. Commissioner of
Internal Revenue (C.T.A. Nos. 964 and 984, January 25, 1963), and reiterated in the cases
under consideration:

x x x In providing that the favorable provision of Republic Act No. 3079 shall be
available to applicants for renovation of their utilization contracts, on condition that
said applicants shall voluntarily assume all the new obligations provided in the new
law, the law intends to place persons who acquired reparations goods before the
enactment of the amendatory Act on the same footing as those who acquire
reparations goods after its enactment. This is so because of the provision that once an
application for renovation of a utilization contract has been approved, the favorable
provisions of said Act shall be available to the applicant "in like manner and to the
same extent, as an end-user filing his application alter the approval of this amendatory
Act." To deny exemption from compensating tax to one whose utilization contract has
been renovated, while granting the exemption to one who files an application for
acquisition of reparations goods after the approval of the new law, would be contrary
to the express mandate of the new law, that they both be subject to the same
privileges in like manner and to the same extent. It would be manifest distortion of
the literal meaning and purpose of the new law.

Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed in toto,
without any pronouncement as to costs. It is so ordered.

CIR v CTA, GCL Retirement Plan, 207 SCRA 487;

This case is said to be precedent setting. While the amount involved is insignificant, the
Solicitor General avers that there are about 85 claims of the same nature pending in the Court
of Tax Appeals and Bureau of Internal Revenue totalling approximately P120M.

Petitioner, the Commissioner of Internal Revenue, seeks a reversal of the Decision of

respondent Court of Appeals, dated August 27, 1990, in CA-G.R. SP No. 20426, entitled
"Commissioner of Internal Revenue vs. GCL Retirement Plan, represented by its Trustee-
Director and the Court of Tax Appeals," which affirmed the Decision of the latter Court, dated
15 December 1986, in Case No. 3888, ordering a refund, in the sum of P11,302.19, to the
GCL Retirement Plan representing the withholding tax on income from money market
placements and purchase of treasury bills, imposed pursuant to Presidential Decree No. 1959.

There is no dispute with respect to the facts. Private Respondent, GCL Retirement Plan (GCL,
for brevity) is an employees' trust maintained by the employer, GCL Inc., to provide
retirement, pension, disability and death benefits to its employees. The Plan as submitted
was approved and qualified as exempt from income tax by Petitioner Commissioner of Internal
Revenue in accordance with Rep. Act No. 4917.1

In 1984, Respondent GCL made investsments and earned therefrom interest income from
which was witheld the fifteen per centum (15%) final witholding tax imposed by Pres. Decree
No. 1959,2 which took effect on 15 October 1984, to wit:

Date Kind of Investment Principal Income Earned 15% Tax

ACIC
12/05/84 Market Placement P236,515.32 P8,751.96 P1,312.66
10/22/84 — 234,632.75 9,815.89 1,472.38
11/19/84 — 225,886.51 10,629.22 1,594.38
11/23/84 — 344,448.64 17,313.33 2,597.00
12/05/84 — 324,633.81 15,077.44 2,261.52
COMBANK Treasury Bills 2,064.15
——————
P11,302.19

On 15 January 1985, Respondent GCL filed with Petitioner a claim for refund in the amounts
of P1,312.66 withheld by Anscor Capital and Investment Corp., and P2,064.15 by Commercial
Bank of Manila. On 12 February 1985, it filed a second claim for refund of the amount of
P7,925.00 withheld by Anscor, stating in both letters that it disagreed with the collection of
the 15% final withholding tax from the interest income as it is an entity fully exempt from
income tax as provided under Rep. Act No. 4917 in relation to Section 56 (b) 3 of the Tax
Code.

The refund requested having been denied, Respondent GCL elevated the matter to respondent
Court of Tax Appeals (CTA). The latter ruled in favor of GCL, holding that employees' trusts
are exempt from the 15% final withholding tax on interest income and ordering a refund of
the tax withheld. Upon appeal, originally to this Court, but referred to respondent Court of
Appeals, the latter upheld the CTA Decision. Before us now, Petitioner assails that disposition.

It appears that under Rep. Act No. 1983, which took effect on 22 June 1957, amending Sec.
56 (b) of the National Internal Revenue Code (Tax Code, for brevity), employees' trusts were
exempt from income tax. That law provided:
 Sec. 56 Imposition of tax. —(a) Application of tax. — The taxes imposed by this
Title upon individuals shall apply to the income of estates or of any kind of
property held in trust, including —

xxx xxx xxx

(b) Exception. — The tax imposed by this Title shall not apply to employees'
trust which forms a part of a pension, stock bonus or profit-sharing plan of an
employer for the benefit of some or all of his employees (1) if contributions are
made to trust by such employer, or employees, or both, for the purpose of
distributing to such employees the earnings and principal of the fund
accumulated by the trust in accordance with such
plan, . . .

On 3 June 1977, Pres. Decree No. 1156 provided, for the first time, for the withholding from
the interest on bank deposits at the source of a tax of fifteen per cent (15%) of said interest.
However, it also allowed a specific exemption in its Section 53, as follows:

Sec. 53. Withholding of tax at source. —

xxx xxx xxx

(c) Withholding tax on interest on bank deposits. — (1) Rate of withholding

tax. — Every bank or banking institution shall deduct and withhold from the
interest on bank deposits (except interest paid or credited to non-
resident alien individuals and foreign corporations), a tax equal to fifteen per
cent of the said interest: Provided, however, That no withholding of tax shall
be made if the aggregate amount of the interest on all deposit accounts
maintained by a depositor alone or together with another in any one bank at
any time during the taxable period does not exceed three hundred fifty pesos
a year or eighty-seven pesos and fifty centavos per quarter. For this purpose,
interest on a deposit account maintained by two persons shall be deemed to be
equally owned by them.

(2) Treatment of bank deposit interest. — The interest income shall be included
in the gross income in computing the depositor's income tax liability in
according with existing law.

(3) Depositors enjoying tax exemption privileges or preferential tax

treatment. — In all cases where the depositor is tax-exempt or is enjoying
preferential income tax treatment under existing laws, the withholding tax
imposed in this paragraph shall be refunded or credited as the case may be
upon submission to the Commissioner of Internal Revenue of proof that the
said depositor is a tax-exempt entity or enjoys a preferential income tax
treatment.

xxx xxx xxx

This exemption and preferential tax treatment were carried over in Pres. Decree No. 1739,
effective on 17 September 1980, which law also subjected interest from bank deposits and
yield from deposit substitutes to a final tax of twenty per cent (20%). The pertinent provisions
read:

Sec. 2. Section 21 of the same Code is hereby amended by adding a new

paragraph to read as follows:

Sec. 21. Rates of tax on citizens or residents. —

xxx xxx xxx

Interest from Philippine Currency bank deposits and yield from

deposit substitutes whether received by citizens of the
Philippines or by resident alien individuals, shall be subject to the
final tax as follows: (a) 15% of the interest on savings deposits,
and (b) 20% of the interest on time deposits and yield from
deposit substitutes, which shall be collected and paid as provided
in Sections 53 and 54 of this Code. Provided, That no tax shall
be imposed if the aggregate amount of the interest on all
Philippine Currency deposit accounts maintained by a depositor
alone or together with another in any one bank at any time
during the taxable period does not exceed Eight Hundred Pesos
(P800.00) a year or Two Hundred Pesos (P200.00) per
quarter. Provided, further, That if the recipient of such interest
is exempt from income taxation, no tax shall be imposed and
that, if the recipient is enjoying preferential income tax
treatment, then the preferential tax rates so provided shall be
imposed (Emphasis supplied).

Sec. 3. Section 24 of the same Code is hereby amended by adding a new

subsection (cc) between subsections (c) and (d) to read as follows:

(cc) Rates of tax on interest from deposits and yield from deposit
substitutes. — Interest on Philippine Currency bank deposits and
yield from deposit substitutes received by domestic or resident
foreign corporations shall be subject to a final tax on the total
amount thereof as follows: (a) 15% of the interest on savings
deposits; and (b) 20% of the interest on time deposits and yield
from deposit substitutes which shall be collected and paid
as provided in Sections 53 and 54 of this Code. Provided, That if
the recipient of such interest is exempt from income taxation, no
tax shall be imposed and that, if the recipient is enjoying
preferential income tax treatment, then the preferential tax rates
so provided shall be imposed (Emphasis supplied).

Sec. 9. Section 53(e) of the same Code is hereby amended to read as follows:

Se. 53(e) Withholding of final tax on interest on bank deposits

and yield from deposit substitutes. —

(1) Withholding of final tax. — Every bank or non-bank financial

intermediary shall deduct and withhold from the interest on bank
 deposits or yield from deposit substitutes a final tax equal to
fifteen (15%) per cent of the interest on savings deposits and
twenty (20%) per cent of the interest on time deposits or yield
from deposit substitutes: Provided, however, That no
withholding tax shall be made if the aggregate amount of the
interest on all deposit accounts maintained by a depositor alone
or together with another in any one bank at any time during the
taxable period does not exceed Eight Hundred Pesos a year or
Two Hundred Pesos per quarter. For this purpose, interest on a
deposit account maintained by two persons shall be deemed to
be equally owned by them.

(2) Depositors or placers/investors enjoying tax exemption

privileges or preferential tax treatment. — In all cases where the
depositor or placer/investor is tax exempt or is enjoying
preferential income tax treatment under existing laws, the
withholding tax imposed in this paragraph shall be refunded or
credited as the case may be upon submission to the
Commissioner of Internal Revenue of proof that the said
depositor, or placer/investor is a tax exempt entity or enjoys a
preferential income tax treatment.

Subsequently, however, on 15 October 1984, Pres. Decree No. 1959 was issued, amending
the aforestated provisions to read:

Sec. 2. Section 21(d) of this Code, as amended, is hereby further amended to

read as follows:

(d) On interest from bank deposits and yield or any other

monetary benefit from deposit substitutes and from trust fund
and similar arrangements. — Interest from Philippine Currency
Bank deposits and yield or any other monetary benefit from
deposit substitutes and from trust fund and similar arrangements
whether received by citizens of the Philippines, or by
resident alien individuals, shall be subject to a 15% final tax to
be collected and paid as provided in Sections 53 and 54 of this
Code.

Sec. 3. Section 24(cc) of this Code, as amended, is hereby further amended to

read as follows:

(cc) Rates of tax on interest from deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund
and similar arrangements. — Interest on Philippine Currency
Bank deposits and yield or any other monetary benefit from
deposit substitutes and from trust fund and similar arrangements
received by domestic or resident foreign corporations shall be
subject to a 15% final tax to be collected and paid as provided in
Section 53 and 54 of this Code.

Sec. 4. Section 53 (d) (1) of this code is hereby amended to read as follows:
 Sec. 53 (d) (1). Withholding of Final Tax. — Every bank or non-
bank financial intermediary or commercial. industrial, finance
companies, and other non-financial companies authorized by the
Securities and Exchange Commission to issue deposit substitutes
shall deduct and withhold from the interest on bank deposits or
yield or any other monetary benefit from deposit substitutes a
final tax equal to fifteen per centum (15%) of the interest on
deposits or yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements.

It is to be noted that the exemption from withholding tax on interest on bank deposits
previously extended by Pres. Decree No. 1739 if the recipient (individual or corporation) of
the interest income is exempt from income taxation, and the imposition of the preferential
tax rates if the recipient of the income is enjoying preferential income tax treatment, were
both abolished by Pres. Decree No. 1959. Petitioner thus submits that the deletion of the
exempting and preferential tax treatment provisions under the old law is a clear manifestation
that the single 15% (now 20%) rate is impossible on all interest incomes from deposits,
deposit substitutes, trust funds and similar arrangements, regardless of the tax status or
character of the recipients thereof. In short, petitioner's position is that from 15 October 1984
when Pres. Decree No. 1959 was promulgated, employees' trusts ceased to be exempt and
thereafter became subject to the final withholding tax.

Upon the other hand, GCL contends that the tax exempt status of the employees' trusts
applies to all kinds of taxes, including the final withholding tax on interest income. That
exemption, according to GCL, is derived from Section 56(b) and not from Section 21 (d) or
24 (cc) of the Tax Code, as argued by Petitioner.

The sole issue for determination is whether or not the GCL Plan is exempt from the final
withholding tax on interest income from money placements and purchase of treasury bills
required by Pres. Decree No. 1959.

We uphold the exemption.

To begin with, it is significant to note that the GCL Plan was qualified as exempt from income
tax by the Commissioner of Internal Revenue in accordance with Rep. Act No. 4917 approved
on 17 June 1967. This law specifically provided:

Sec. 1. Any provision of law to the contrary notwithstanding, the retirement

benefits received by officials and employees of private firms, whether individual
or corporate, in accordance with a reasonable private benefit plan maintained
by the employer shall be exempt from all taxes and shall not be liable to
attachment, levy or seizure by or under any legal or equitable process
whatsoever except to pay a debt of the official or employee concerned to the
private benefit plan or that arising from liability imposed in a criminal action; .
. . (emphasis ours).

In so far as employees' trusts are concerned, the foregoing provision should be taken in
relation to then Section 56(b) (now 53[b]) of the Tax Code, as amended by Rep. Act No.
1983, supra, which took effect on 22 June 1957. This provision specifically exempted
employee's trusts from income tax and is repeated hereunder for emphasis:
 Sec. 56. Imposition of Tax. — (a) Application of tax. — The taxes imposed by
this Title upon individuals shall apply to the income of estates or of any kind of
property held in trust.

xxx xxx xxx

(b) Exception. — The tax imposed by this Title shall not apply to employee's
trust which forms part of a pension, stock bonus or profit-sharing plan of an
employer for the benefit of some or all of his
employees . . .

The tax-exemption privilege of employees' trusts, as distinguished from any other kind of
property held in trust, springs from the foregoing provision. It is unambiguous. Manifest
therefrom is that the tax law has singled out employees' trusts for tax exemption.

And rightly so, by virtue of the raison de'etre behind the creation of employees' trusts.
Employees' trusts or benefit plans normally provide economic assistance to employees upon
the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or
disability. It provides security against certain hazards to which members of the Plan may be
exposed. It is an independent and additional source of protection for the working group. What
is more, it is established for their exclusive benefit and for no other purpose.

The tax advantage in Rep. Act No. 1983, Section 56(b), was conceived in order to encourage
the formation and establishment of such private Plans for the benefit of laborers and
employees outside of the Social Security Act. Enlightening is a portion of the explanatory note
to H.B. No. 6503, now R.A. 1983, reading:

Considering that under Section 17 of the social Security Act, all contributions
collected and payments of sickness, unemployment, retirement, disability and
death benefits made thereunder together with the income of the pension
trust are exempt from any tax, assessment, fee, or charge, it is proposed that
a similar system providing for retirement, etc. benefits for employees outside
the Social Security Act be exempted from income taxes. (Congressional Record,
House of Representatives, Vol. IV, Part. 2, No. 57, p. 1859, May 3, 1957; cited
in Commissioner of Internal Revenue v. Visayan Electric Co., et al., G.R. No. L-
22611, 27 May 1968, 23 SCRA 715); emphasis supplied.

It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust.
Otherwise, taxation of those earnings would result in a diminution accumulated income and
reduce whatever the trust beneficiaries would receive out of the trust fund. This would run
afoul of the very intendment of the law.

The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and
preferential tax rates under the old law, therefore, can not be deemed to extent to employees'
trusts. Said Decree, being a general law, can not repeal by implication a specific provision,
Section 56(b) now 53 [b]) in relation to Rep. Act No. 4917 granting exemption from income
tax to employees' trusts. Rep. Act 1983, which excepted employees' trusts in its Section 56
(b) was effective on 22 June 1957 while Rep. Act No. 4917 was enacted on 17 June 1967,
long before the issuance of Pres. Decree No. 1959 on 15 October 1984. A subsequent statute,
general in character as to its terms and application, is not to be construed as repealing a
special or specific enactment, unless the legislative purpose to do so is manifested. This is so
even if the provisions of the latter are sufficiently comprehensive to include what was set
forth in the special act (Villegas v. Subido, G.R. No. L-31711, 30 September 1971, 41 SCRA
190).

Notably, too, all the tax provisions herein treated of come under Title II of the Tax Code on
"Income Tax." Section 21 (d), as amended by Rep. Act No. 1959, refers to the final tax on
individuals and falls under Chapter II; Section 24 (cc) to the final tax on corporations under
Chapter III; Section 53 on withholding of final tax to Returns and Payment of Tax under
Chapter VI; and Section 56 (b) to tax on Estates and Trusts covered by Chapter VII, Section
56 (b), taken in conjunction with Section 56 (a), supra, explicitly excepts employees' trusts
from "the taxes imposed by this Title." Since the final tax and the withholding thereof are
embraced within the title on "Income Tax," it follows that said trust must be deemed exempt
therefrom. Otherwise, the exception becomes meaningless.

There can be no denying either that the final withholding tax is collected from income in
respect of which employees' trusts are declared exempt (Sec. 56 [b], now 53 [b], Tax Code).
The application of the withholdings system to interest on bank deposits or yield from deposit
substitutes is essentially to maximize and expedite the collection of income taxes by requiring
its payment at the source. If an employees' trust like the GCL enjoys a tax-exempt status
from income, we see no logic in withholding a certain percentage of that income which it is
not supposed to pay in the first place.

Petitioner also relies on Revenue Memorandum Circular 31-84, dated 30 October 1984, and
Bureau of Internal Revenue Ruling No. 027-e-000-00-005-85, dated 14 January 1985, as
authorities for the argument that Pres. Decree No. 1959 withdrew the exemption of
employees' trusts from the withholding of the final tax on interest income. Said Circular and
Ruling pronounced that the deletion of the exempting and preferential tax treatment
provisions by Pres. Decree No. 1959 is a clear manifestation that the single 15% tax rate is
imposable on all interest income regardless of the tax status or character of the recipient
thereof. But since we herein rule that Pres. Decree No. 1959 did not have the effect of
revoking the tax exemption enjoyed by employees' trusts, reliance on those authorities is now
misplaced.

WHEREFORE, the Writ of Certiorari prayed for is DENIED. The judgment of respondent Court
of Appeals, affirming that of the Court of Tax Appeals is UPHELD. No costs.

SO ORDERED.

CIR v Guerrero, 21 SCRA 180;

Phil. Acetylene v CIR, 20 SCRA 1056;

DOCTRINE: The tax imposed on the manufacturer or producer is not a tax on the purchaser.

QUICK FACTS: Philippine Acetylene Co made various sales to the NPC and to VOA which the
CIR assessed a deficiency sales tax that Philippine Acetylene denied liability for payment on
the ground that both the NPC and VOA are exempt from taxation.

FACTS: Philippine Acetylene Co Inc is a corporation engaged in the manufacture and sale of
oxygen and acetylene gases. During the period from June 2, 1953 to June 30, 1958, it made
various sales of its products to the National Power Corporation, an agency of the Philippine
Government, and to the Voice of America an agency of the United States Government. The
sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683, on
account of which the Commission of Internal Revenue assessed against, and demanded from
Philippine Acetylene Co Inc the payment of P12,910.60 as deficiency sales tax and surcharge,
pursuant to Sec. 186 and Sec 183 of the NIRC which involves the payment of percentage
taxes.

Sec. 186. Percentage tax on sales of other articles.—There shall be levied, assessed
and collected once only on every original sale, …, intended to transfer ownership of,
or title to, …a tax equivalent to seven per centum of the gross selling price or gross
value in money of the articles so sold, bartered exchanged, or transferred, such tax to
be paid by the manufacturer or producer: . . . .

Philippine Acetylene’s contention: It has no liability for the payment of the tax on the ground
that both NPC and VOA are exempt from taxation. NPC enjoys a tax exemption by virtue of
an act of Congress and the immunity would be impaired by the imposition of a tax on sales
made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately
shifted by the latter to the former. It invokes in support of its position a 1954 opinion of the
Sec of Justice which ruled that NPC is exempt from payment of all taxes "whether direct or
indirect."

CIR’s Contention: Denied Philippine Acetylene’s reconsideration of the assessment. Philippine

Acetylene is liable for the tax on sales to both NPC and VOA, pursuant to the NIRC.

CTA: Denied. The tax on the sale of articles or goods in section 186 of the Code is a tax on
the manufacturer and not on the buyer with the result that Philippine Acetylene, the
manufacturer or producer of oxygen and acetylene gases sold to NPC, cannot claim exemption
from the payment of sales tax simply because its buyer — the NPC — is exempt from the
payment of all taxes. With respect to the sales made to the VOA, the goods purchased by the
American Government or its agencies from manufacturers or producers are exempt from the
payment of the sales tax under the agreement between the Government of the Philippines
and that of the United States, provided the purchases are supported by certificates of
exemption, and since purchases amounting to only P558, out of a total of P1,683, were not
covered by certificates of exemption, only the sales in the sum of P558 were subject to the
payment of tax. Accordingly, the assessment was revised and the liability was reduced from
P12,910.60, as assessed by the commission, to P12,812.16.

Sales to NPC P145,866.70

Sales to VOA P 558.00
Total sales subject to tax P146,424.70
7% sales tax due thereon P 10,249.73
Add 25% surcharge P 2,562.41
Total amount due and collectible P 12,812.16

ISSUE: W/N Philippine Acetylene is exempt from paying tax on sales it made to NPC and VOA
because both are exempt from taxation?

HELD:

No, Philippine Acetylene is not exempt. Decision of CTA is modified by ordering Philippine
Acetylene to pay the CIR the amount of P12,910.60 as sales tax and surcharge.

HELD: The tax imposed by section 186 of the National Internal Revenue Code is a tax on the
manufacturer or producer and not a tax on the purchaser except probably in a very remote
and inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like
the NPC is permissible. The sales to the VOA are subject to the payment of percentage taxes
under section 186 of the Code. Only sales made "for exclusive use in the construction,
maintenance, operation or defense of the bases," in a word, only sales to the quartermaster,
are exempt under article V from taxation. Sales of goods to any other party even if it be an
agency of the United States, such as the VOA, or even to the quartermaster but for a different
purpose, are not free from the payment of the tax. Philippine Acetylene is thus liable for
P12,910.60

Sales to NPC P145,866.70

Sales to VOA P 1,683.00
Total sales subject to tax P147,549.70
7% sales tax due thereon P 10,328.48
Add: 25% surcharge P 2,582.12
Total amount due and collectible P 12,910.60

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it
does the tax becomes a part of the price which the purchaser must pay. It does not matter
that an additional amount is billed as tax to the purchaser. The method of listing the price
and the tax separately and defining taxable gross receipts as the amount received less the
amount of the tax added, merely avoids payment by the seller of a tax on the amount of the
tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or
may pay the seller more for the goods because of the seller's obligation, but that is all and
the amount added because of the tax is paid to get the goods and for nothing else. (Philippine
Acetylene Co. vs. Blaquera, GR L-13728, 1962). But the tax burden may not even be shifted
to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of
economics1. Then it can no longer be contended that a sales tax is a tax on the purchaser.
Footnote: 1"In the long run a sales tax is probably shifted to the consumer, but during the
period when supply is being adjusted to changes in demand, it must be in part absorbed. In
practice the businessman will treat the levy as an added cost of operation and distribute it
over his sales as he would any other cost, increasing by more than the amount of the tax
prices of goods demand for which will be least affected and leaving other prices unchanged."
47 Harv. Ld. Rev. 860, 869 (1934).

Maceda v Macaraig, Jr 197 SCRA 771;

FACTS: Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and
resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of
Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for
exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358, RA
6395 and PD 380 expressly grant NPC exemptions from all taxes whether direct or indirect.
In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs
including the NPC but granted the President and/or the Secretary of Finance by
recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the
latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the
NPC. The actions of the respondents were thus questioned by the petitioner by this petition
for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or
restraining order. To which public respondents argued, among others, that petitioner does
not have the standing to challenge the questioned orders and resolution because he was not
in any way affected by such grant of tax exemptions.

ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the
FIRB restoring the tax exemptions?
HELD:

Yes, In this petition it is alleged that petitioner is "instituting this suit in his capacity as a
taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that
petitioner must show that he has sustained direct injury as a result of the action and that it
is not sufficient for him to have a mere general interest common to all members of the public.
The Court however agrees with the petitioner that as a taxpayer he may file the instant
petition following the ruling in Lozada when it involves illegal expenditure of public money.
The petition questions the legality of the tax refund to NPC by way of tax credit certificates
and the use of said assigned tax credits by respondent oil companies to pay for their tax and
duty liabilities to the BIR and Bureau of Customs.

Sea-Land Service v. CA 357 SCRA 441;

FACTS: Appeal via certiorari from the decision of the Court of Appeals affirming in toto that
of the Court of Tax Appeals which denied petitioners claim for tax credit or refund of income
tax paid on its gross Philippine billings.

Sea-Land Service Incorporated (SEA-LAND), an American international shipping company

licensed by the SEC to do business in the Philippines entered into a contract with the United
States Government to transport military household goods and effects of U. S. military
personnel assigned to the Subic Naval Base. From the aforesaid contract, SEA-LAND derived
an income for the taxable year 1984 amounting to P58,006,207.54. During the taxable year
in question, SEA-LAND filed with the BIR the corresponding corporate Income Tax Return
(ITR) and paid the income tax due thereon of 1.5% as required in Section 25 (a) (2) of the
National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty,
amounting to P870,093.12.

Claiming that it paid the aforementioned income tax by mistake, a written claim for refund
was filed with the BIR. However, before the said claim for refund could be acted upon by the
Commissioner of Internal Revenue, SEA-LAND filed a petition for review with the CTA
docketed, to judicially pursue its claim for refund and to stop the running of the two-year
prescriptive period under the then Section 243 of the NIRC. CTA rendered its decision denying
SEA-LANDs claim for refund of the income tax it paid in 1984. Petitioner appealed the decision
of the CTA to the CA. The CA promulgated its decision dismissing the appeal and affirming in
toto the decision of the CTA. Hence, this petition.

ISSUE: W/N the income that petitioner derived from services in transporting the household
goods and effects of U. S. military personnel falls within the tax exemption provided in Article
XII, paragraph 4 of the RP-US Military Bases Agreement?

HELD:

No, Laws granting exemption from tax are construed strictissimi juris against the taxpayer
and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception.
The law does not look with favor on tax exemptions and that he who would seek to be thus
privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.

Under Article XII (4) of the RPUS Military Bases Agreement, the Philippine Government agreed
to exempt from payment of Philippine income tax nationals of the United States, or
corporations organized under the laws of the United States, residents in the United States in
respect of any profit derived under a contract made in the United States with the Government
of the United States in connection with the construction, maintenance, operation and defense
of the bases.

It is obvious that the transport or shipment of household goods and effects of U. S. military
personnel is not included in the term construction, maintenance, operation and defense of the
bases. Neither could the performance of this service to the U. S. government be interpreted
as directly related to the defense and security of the Philippine territories. When the law
speaks in clear and categorical language, there is no reason for interpretation or construction,
but only for application.

The avowed purpose of tax exemption is some public benefit or interest, which the lawmaking
body considers sufficient to offset the monetary loss entailed in the grant of the exemption.
The hauling or transport of household goods and personal effects of U. S. military personnel
would not directly contribute to the defense and security of the Philippines.

H. Tax Exemption vs. Tax Amnesty

1. Definition;
Tax Exemption is an immunity from the civil liability only. It is an immunity or privilege, a
freedom from a charge or burden to which others are subjected.

Tax Amnesty is an immunity from all criminal, civil and administrative liabilities arising from
non-payment of taxes. It is a general pardon given to all taxpayers. It applies only to past
tax periods, hence, of retroactive application.

Cases:
(F) - 2. People v Castaneda GR No. L-46881, Sept 15, 1988;

In this Petition for certiorari and mandamus, the People seek the annulment of the Orders of
respondent Judge quashing criminal informations against the accused upon the grounds that:
(a) accused Francisco Valencia was entitled to tax amnesty under Presidential Decree No.
370; and (b) that the dismissal of the criminal cases against accused Valencia inured to the
benefit of his co-accused Vicente Lee Teng and Priscilla Castillo de Cura, and denying the
People's Motion for Reconsideration of said Orders.

Sometime in 1971, two (2) informants submitted sworn information under Republic Act No.
2338 (entitled "An Act to Provide for Reward to Informers of Violations of the Internal Revenue
and Customs Laws," effective June 19, 1959) to the Bureau of Internal Revenue ("BIR"),
concerning alleged violations of provisions of the Internal Revenue Code committed by the
private respondents, The record of this case includes an affidavit executed on 27 December
1971 by Mr. William Chan, one of the said informers, describing the details of alleged
violations of the tax code. 1 After conducting an investigation, the BIR applied for and obtained
search warrants from Executive Judge Malcolm Sarmiento. Following investigation and
examination by the BIR of the materials and documents yielded by service of such search
warrants, criminal informations were filed in court against the private respondents.

In July 1973, State Prosecutor Estanislao L. Granados Department of Justice, filed with the
Court of First Instance of Pampanga an information docketed as Criminal Case No. 439 for
violation of Sec. 170 (2) of the National Internal Revenue Code, as amended, against
Francisco Valencia, Apolonio G. Erespe y Comia and Priscilla Castillo de Cura, committed as
follows:
 That on or about the 19th day of January, 1972, in the premises of Valencia
Distillery located at del Pilar Street, San Fernando, Pampanga, Philippines, and
within the jurisdiction of the abovenamed Court, the accused FRANCISCO
VALENCIA, APOLONIO ERESPE Y COMIA and PRISCILLA QUIAZON OR "QUIAPO"
alias "MARY JO," conspiring and confederating with one another, did then and
there willfully, unlawfully, and feloniously have in their possession, custody and
control, false and counterfeit or fake internal revenue labels consisting of five
(5) sheets containing ten (10) labels each purporting to be regular labels of the
Tanduay Distillery, Inc. bearing Serial Nos. 2571891 to 2571901 to 2571910,
2571911 to 2571920, 05381 to 05390 and 05391 to 05400.

CONTRARY to the provisions of Section 170, paragraph 2 of the National

Internal Revenue Code, as amended. 2

On the same date, another criminal information docketed as Criminal Case No. 440 was filed
by the same State Prosecutor in the same court for violation of Section 174 (3) of the National
Internal Revenue Code, as amended against the same persons, charging them as follows:

That on or about the 19th day of January 1972 in the premises of Valencia
Distillery located at del Pilar Street, San Fernando, Pampanga, Philippines and
within the jurisdiction of this Honorable Court, the accused FRANCISCO
VALENCIA, APOLONIO G. ERESPE y COMIA and PRISCILLA QUIAZON or
QUIANO alias MARY JO, conspiring and confederating together, did then and
there wilfully, unlawfully and feloniously, have in their possession, custody and
control, locally manufactured articles subject to specific tax, the tax on which
has not been paid in accordance with law, THIRTY THREE (33) boxes of 24
bottles each of alleged Anejo Rum, 375 cc., NINE (9) BOXES of alleged Tanduay
Rum of TWELVE (12) BOTTLES each, 750 cc., TWENTY (20) BOXES of alleged
Ginebra San Miguel Gin of TWENTY FOUR (24) BOTTLES each, 375 cc., THREE
(3) BOXES OF TWENTY FOUR (24) BOTTLES each, 375 cc., of Ginebra San
Miguel Gin, ONE (1) GALLON bottle of wine improver, NINE lbs. net with actual
contents of 1/5 of the bottle, ONE (1) SMALL BOTTLE, 1 Ib, net, of Rum
Jamaica, half-full, ONE (1) BOTTLE, 1 Ib. net of the wine improvers (full),
TWELVE (12) BOTTLES of alleged Tanduay Rum, 750 cc., pale, FOUR (4)
BOTTLES of Ginebra San Miguel (alleged) 350 cc. and TWO (2) BOTTLES of
Tanduay Rum, 375 cc. the total specific tax due on which is P160.01.

CONTRARY to Section 174 of the National Internal Revenue Code, as

amended. 3

As a result of further investigation of the sworn complaints filed by the informers with the
BIR, on 14 March 1974, six (6) more criminal informations docketed as Criminal Cases Nos.,
538-543 were filed in the Pampanga Court of First Instance against Vicente Lee Teng alias
"Vicente Lee," alias "Lee Teng," and Francisco Valencia. These informations charged the two
(2) with violations of Section 178, in relation to Sections 182 (A) (1) (3c) and 208 of the
National Internal Revenue Code, as amended based on their failure to pay annual privilege
taxes for each of the six (6) years from 1966 to 1972. The six (6) informations uniformly
charged the accused as follows:

The undersigned State Prosecutor accuses VICENTE LEE TENG alias VICENTE
LEE alias LEE TENG, and FRANCISCO VALENCIA of the crime of Violation of Sec.
 178 in relation with Sec. 182 (A) (1) 3c and Sec. 208 of the National Internal
Revenue Code as amended, committed as follows:

That on or about the 19th of January 1972, [also during the years 1967, 1968,
1969, 1970 and 1971] in the premises of Valencia Distillery located at del Pilar
Street, San Fernando, Pampanga, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, conspiring and confederating
together and mutually helping one another, did then and there willfully,
unlawfully and feloniously distill, rectify, repair compound or manufacture
alcoholic products subject to specific tax without having paid the privilege tax
therefor. CONTRARY TO LAW. 4

On 22 April 1974, after arraignment, accused Valencia filed a Motion to Quash Criminal Cases
Nos. 538-543 inclusive, upon the grounds that the six (6) informations had been filed without
conducting the necessary preliminary investigation and that he was entitled to the benefits of
the tax amnesty provided by P.D. No. 370. The State Prosecutor opposed the Motion to Quash
arguing that the necessary preliminary investigation in the six (6) criminal cases had in fact
been conducted and that in any case, failure to hold the preliminary investigation was not a
ground for a motion to quash. The State Prosecutor further argued that the accused Valencia
was not entitled to avail himself of the benefits of P.D. No. 370 since his tax cases were the
subject of valid information submitted under R.A. No. 2338 as of 31 December 1973.

The respondent Judge granted the Motion to Quash and issued an Order, dated 15 July 1974,
dismissing not only Criminal Cases Nos. 538-543 but also Criminal Cases Nos. 439 and 440
insofar as accused Francisco Valencia was concerned. A Motion for Reconsideration by the
People was similarly denied by respondent Judge.

On 14 December 1975, the remaining accused Vicente Lee Teng and Priscilla Castillo de Cura,
having been arraigned, filed Motions to Quash Criminal Cases Nos. 538-543 and 439 and 440,
upon the common ground that the dismissal of said cases insofar as accused Francisco
Valencia was concerned, inured to their benefit. The People opposed the Motions to Quash
upon the ground that the accused were not entitled to the benefits of the tax amnesty under
P.D. No. 370 and that, assuming the dismissal of said criminal cases was valid insofar as
accused Valencia was concerned, the resulting immunity from criminal prosecution was
personal to accused Valencia.

The respondent Judge granted the Motions to Quash by Vicente Lee Teng and Priscilla Castillo
de Cura, and denied the People's Motion for Reconsideration.

There are two (2) preliminary issues which need to be addressed before dealing with the
questions of substantive law posed by this case. The first preliminary issue-whether or not
the People of the Philippines are guilty of laches-was raised by private respondents in their
Answer. 5 The respondent Judge denied the People's Motion for Reconsideration of his Order
granting Francisco Valencia's Motion to Quash the eight (8) criminal cases, on 18 November
1974. Vicente Lee Teng and Priscilla Castillo de Cura filed their respective Motions to Quash
on 14 December 1975; respondent Judge granted their Motions to Quash on 31 March 1976.
The People filed a Motion for Reconsideration which was denied on 17 February 1977.
Approximately seven (7) months later, on 12 September 1977, the present Petition
for certiorari and mandamus was filed by the People. Initially, the Court resolved to dismiss
this Petition in a Resolution dated 5 July 1978. The People, however, filed a Motion for
Reconsideration of that Order and the Court, in its Resolution of 1 October 1979, set aside its
Resolution of dismissal and considered this case as submitted for decision.
Ordinarily, perhaps, a Petition for certiorari brought seven (7) months after rendition of the
last order sought to be set aside might be regarded as barred by laches. In the case at bar,
however, the Court believes that the equitable principle of laches should not be applied to bar
this Petition for certiorari and Mandamus. The effect of such application would not be the
avoidance of an inequitable situation (the very raison d'etre of the laches principle), but rather
the perpetuation of the state of facts brought about by the orders of the respondent Judge, a
state of facts which, as will be seen later, is marked by a gross disregard of the legal rights
of the People. The Court, in other words, is compelled to take into account both the importance
of the substantive issues raised in this case and the nature of the result brought about by the
respondent Judge's orders. Moreover, on a more practical level, the dismissal of the cases
was resisted vigorously by the prosecution which filed both oppositions to the Motion to
Dismiss and Motions for Reconsideration of the Orders granting the Motions to Quash. The
private respondents, in other words, were under no illusion as to the position taken and urged
by the People in this Case. We hold that, in the circumstances of this case, the Petition
for certiorari and mandamus is not barred by laches.

The second preliminary issue was also raised by private respondents in their Answer, that is,
whether or not the defense of double jeopardy became available to them with the dismissal
by respondent Judge of the eight (8) criminal cases. This defense need not detain us for long
for it is clearly premature in the present certiorari proceeding. In the certiorari petition at bar,
the validity and legal effect of the orders of dismissal issued by the respondent Judge of the
eight (8) criminal cases are precisely in issue. Should the Court uphold these dismissal orders
as valid and effective and should a second prosecution be brought against the accused
respondents, that second prosecution may be defended against with the plea of double
jeopardy. If, upon the other hand, the Court finds the dismissal orders to be invalid and of no
legal effect, the legal consequence would follow that the first jeopardy commenced by the
eight (8) informations against the accused has not yet been terminated and accordingly a
plea of second jeopardy must be rejected both here and in the continuation of the criminal
proceedings against the respondents-accused.

We turn, therefore, to the first substantive issue that needs to be resolved: whether or not
the accused Valencia, Lee Teng and de Cura are entitled to the benefits available under P.D.
No. 370.

The scope of application of the tax amnesty declared by P.D. No. 370 is marked out in the
following broad terms:

1. A tax amnesty is hereby granted to any person, natural or juridical, who for
any reason whatsoever failed to avail of Presidential Decree No. 23 and
Presidential Decree No. 157; or, in so availing of the said Presidential Decrees
failed to include all that were required to be declared therein if he now
voluntarily discloses under this decree all his previously untaxed income and/or
wealth such as earnings, receipts, gifts, bequests or any other acquisitions from
any source whatsoever which are or were previously taxable under the National
Internal Revenue Code, realized here or abroad by condoning all internal
revenue taxes including the increments or penalties on account of non-payment
as well as all civil, criminal or administrative liabilities, under the National
Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt
Practices Act, the Revised Administrative Code, the Civil Service Laws and
Regulations, laws and regulations on Immigration and Deportation, or any
other applicable law or proclamation, as it is hereby condoned, provided a tax
 of fifteen (15%) per centum on such previously untaxed income and/or wealth
is imposed subject to the following conditions:

a. Such previously untaxed income and/or wealth must have been earned or
realized prior to 1973, except the following:

b. Capital gains transactions where the taxpayer has availed of Presidential

Decree No. 16, as amended, but has not complied with the conditions thereof;

c. Tax liabilities with or without assessments, on withholding tax at source

provided under Sections 53 and 54 of the National Internal Revenue Code, as
amended;

d. Tax liabilities with assessment notices issued as of December 31, 1 973;

e. Tax cases which are the subject of a valid information under Republic Act
No. 2338 as of December 31, 1973; and

f. Property transferred by reason of death or by donation during the year 1972.

xxx xxx xxx

The first point that should be made in respect of P.D. No. 370 is that compliance with all the
requirements of availment of tax amnesty under P.D. No. 370 would have the effect of
condoning not just income tax liabilities but also "all internal revenue taxes including the
increments or penalties on account of non-payment as well as all civil, criminal or
administrative liabilities, under the Internal Revenue Code, the Revised Penal Code, the Anti-
Graft and Corrupt Practices Act, the Revised Administrative Code, the Civil Service Laws and
Regulations, laws and regulations on Immigration and Deportation, or any other applicable
law or proclamation." Thus, entitlement to benefits of P.D. No. 370 would have the effect of
condoning or extinguishing the liabilities consequent upon possession of false and counterfeit
internal revenue labels; the manufacture of alcoholic products subject to specific tax without
having paid the annual privilege tax therefor, and the possession, custody and control of
locally manufactured articles subject to specific tax on which the taxes had not been paid in
accordance with law, in other words, the criminal liabilities sought to be imposed upon the
accused respondents by the several informations quoted above.

It should be underscored, secondly, that to be entitled to the extinction of liability provided

by P.D. No. 370, the claimant must have voluntarily disclosed his previously untaxed income
or wealth and paid the required fifteen percent (15%) tax on such previously untaxed income
or wealth imposed by P.D. No.370.6 Where the disclosure of such previously untaxed income
or wealth was not voluntary but rather the accompaniment or result of tax cases or tax
assessments already pending as of 31 December 1973, the claimant is not entitled to the
benefits of P.D. No. 370. Section 1 (a) (4) of P.D. No. 370, expressly excluded from the
coverage of P.D. No. 370: "tax cases which are the subject of a valid information under R.A.
No. 2338 as of December 31, 1973." 7 In the instant case, the violations of the National
Internal Revenue Code with which the respondent accused were charged, had already been
discovered by the BIR when P.D. No. 370 took effect on 9 January 1974, by reason of the
sworn information or affidavit-complaints filed by informers with the BIR under Republic Act
No. 2338 prior to 31 December 1973.
It is necessary to note that the "valid information under Republic Act No. 2338" referred to in
Section 1 (a) (4) of P.D. No. 370, refers not to a criminal information filed in court by a fiscal
or special prosecutor, but rather to the sworn information or complaint filed by an informer
with the BIR under R.A. No. 2338 in the hope of earning an informer's reward. The sworn
information or complaint filed with the BIR under R.A. No. 2338 may be considered "valid"
where the following conditions are complied with:

(1) that the information was submitted by a person other than an internal
revenue or customs official or employee or other public official, or a relative of
such official or employee within the sixth degree of consanguinity;

(2) that the information must be definite and sworn to and must state the facts
constituting the grounds for such information; and

(3) that such information was not yet in the possession of the BIR or the Bureau
of Customs and does not refer to "a case already pending or previously
investigated or examined by the Commissioner of Internal Revenue or the
Commissioner of Customs, or any of their deputies, agents or examiners, as
the case may be, or the Secretary of Finance or any of his deputies or agents.8

In the instant case, not one but two (2) "informations' or affidavit-complaints concerning
private respondents' operations said to be in violation of certain provisions of the National
Internal Revenue Code, had been filed with the BIR as of 31 December 1973. In fact, those
two (2) affidavit-complaints had matured into two (2) criminal informations in court -Criminal
Cases Nos. 439 and 440 against the respondent accused, by 31 December 1973. The six (6)
informations docketed as Criminal Cases Nos. 538-543, while filed in court only on 14 March
1974, had been based upon the sworn information previously submitted as of 31 December
1973 to the BIR.

It follows that, even assuming respondent accused Francisco Valencia was otherwise entitled
to the benefits of P.D. No. 370, none of the informations filed against him could have been
condoned under the express provisions of the tax amnesty statute.

Accused Valencia argued that the People were estopped from questioning his entitlement to
the benefits of the tax amnesty, considering that agents of the BIR had already accepted his
application for tax amnesty and his payment of the required fifteen percent (15%) special
tax.

This contention does not persuade. At the time he paid the special fifteen percent (15%) tax
under P.D. No. 370, accused Francisco Valencia had in fact already been subjected by the BIR
to extensive investigation such that the criminal charges against him could not be condoned
under the provisions of the amnesty statute. Further, acceptance by the BIR agents of accused
Valencia's application for tax amnesty and payment of the fifteen percent (15%) special tax
was no more than a ministerial duty on the part of such agents. Accused Valencia does not
pretend that the BIR had actually ruled that he was entitled to the benefits of the tax amnesty
statute. In any case, even assuming, though only arguendo, that the BIR had so ruled, there
is the long familiar rule that "erroneous application and enforcement of the law by public
officers do not block, subsequent correct application of the statute and that the government
is never estopped by mistake or error on the part of its agent." 9 which finds application in
the case at bar. Still further, a tax amnesty, much like to a tax exemption, is never favored
nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax
exemption must be construed strictly against the taxpayer and liberally in favor of the taxing
authority.10 Valencia's payment of the special fifteen percent (15%) tax must be regarded as
legally ineffective.

We turn to the second substantive issue which is whether or not the dismissal by the
respondent court of the criminal informations against accused Valencia, inured to the benefit
of Valencia's co-accused. Because of the conclusion reached above, that is, that accused
Francisco Valencia was not legally entitled to the benefits of P.D. No. 370 and that the
dismissal of the criminal information as against him was serious error on the part of the
respondent Judge, it may not be strictly necessary to deal with this second issue. There was
in fact nothing that could have inured to the benefit of Valencia's co-accused. It seems
appropriate to stress, nonetheless, that co-accused and co-respondents Lee Teng and Priscilla
Castillo de Cura, in order to enjoy the benefits of the tax amnesty statute here involved, must
show that they have individually complied with and come within the terms of that
statute. 11 The fact that conspiracy had been alleged in each of the criminal informations here
involved certainly could not result in an automatic exemption of Lee Teng and Priscilla Castillo
de Cura from compliance with the requirements of the tax amnesty statute. In the second
place, assuming, for present purposes only, that accused Francisco Valencia was (and he was
not) legally entitled to the benefits of P.D. No. 370 the defense of amnesty which
(hypothetically) became available to Valencia was personal to him. Once more, the allegation
of conspiracy made in the several criminal informations here involved, did not have the effect
of making a defense available to one co-conspirator automatically available to the other co-
conspirators. The defense of the tax amnesty under P.D. No. 370 is, like insanity, a personal
defense; for that defense relates to the circumstances of a particular accused and not to the
character of the acts charged in the criminal information. The statute makes the defense of
extinguishment of liability available only under very specific circumstances and on the basis
of reciprocity, as it were: the claimant must disclose his previously untaxed income or wealth
(which then may be effectively subjected to future taxation) and surrender to the Government
fifteen percent (15%) of such income or wealth; then, and only then, would the claimant's
liability be extinguished. Lee Teng and Pricilla Castillo de Cura never pretended that they had
complied with the requirements of PD No. 370, including that of reciprocity.

We conclude that the respondent Judge's error in respect of the first and second substantive
issues considered above is so gross and palpable as to amount to arbitrary and capricious
action and to grave abuse of discretion. Those orders effectively prevented the People from
prosecuting and presenting evidence against the accused-respondents; they denied the
People its day in court. It is well-settled that:

[a] purely capricious dismissal of an information as herein involved, moreover,

deprives the State of fair opportunity to prosecute and convict. It denies the
prosecution its day in court. Accordingly, it is a dismissal without due process
and, therefore, null and void. A dismissal invalid for lack of a fundamental
requisite, such as due process, will not constitute a proper basis for the claim
of double jeopardy. 12

WHEREFORE, the Orders of respondent Judge dated 15 July 1974, 18 November 1974, 31
March 1976 and 17 February 1977 are hereby SET ASIDE. Respondent Judge no longer being
with the Judiciary, the branch of the Regional Trial Court of Pampanga seized of Criminal
Cases Nos. 439 and 440, and 538-543 inclusive, against the surviving respondent accused,
13 is hereby ORDERED to proceed with the trial of these criminal cases. Costs against private
respondents.

SO ORDERED.
3. Phil. Banking vs.CIR; GR No. 170574, Jan. 30, 2009;
FACTS: Petitioner is a domestic corporation duly licensed as a banking institution. For the
taxable years 1996 and 1997, petitioner offered its Special/Super Savings Deposit Account
(SSDA) to its depositors. On 10 January 2000, the Commissioner of Internal Revenue
(respondent) sent petitioner a Final Assessment Notice assessing deficiency DST based on the
outstanding balances of its SSDA, including increments, in the total sum of P17,595,488.75
for 1996 and P47,767,756.24 for 1997.

Petitioner claims that the SSDA is in the nature of a regular savings account. Petitioner
maintains that the tax assessments are erroneous because Section 180 of the 1977 NIRC
does not include deposits evidenced by a passbook among the enumeration of instruments
subject to DST. Petitioner also argues that even on the assumption that a passbook evidencing
the SSDA is a certificate of deposit, no DST will be imposed because only negotiable
certificates of deposits are subject to tax under Section 180 of the 1977 NIRC.

Respondent avers that under Section 180 of the 1977 NIRC, certificates of deposits deriving
interest are subject to the payment of DST. Petitioner’s passbook evidencing its SSDA is
considered a certificate of deposit, and being very similar to a time deposit account, it should
be subject to the payment of DST. Respondent further argues that Section 180 of the 1977
NIRC categorically states that certificates of deposit deriving interest are subject to DST
without limiting the enumeration to negotiable certificates of deposit.

The CTA held that a passbook representing an interest-earning deposit account issued by a
bank qualifies as a certificate of deposit drawing interest.

On 14 December 2005, petitioner appealed to this Court the CTA decision.

ISSUE: whether petitioner’s product called Special/Super Savings Account is subject to DST
under Section 180 of the 1977 NIRC.

HELD:

Yes, Documentary stamp tax is a tax on documents, instruments, loan agreements, and
papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or
property incident thereto. A DST is actually an excise tax because it is imposed on the
transaction rather than on the document. A DST is also levied on the exercise by persons of
certain privileges conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments. Hence, in imposing the DST, the
Court considers not only the document but also the nature and character of the transaction.
Section 180 of the 1977 NIRC imposes a DST of P0.30 on each P200 of the face value of any
certificate of deposit drawing interest. As correctly observed by the CTA, a certificate of
deposit is a written acknowledgment by a bank of the receipt of a sum of money on deposit
which the bank promises to pay to the depositor, to the order of the depositor, or to some
other person or his order, whereby the relation of debtor or creditor between the bank and
the depositor is created.

Petitioner’s SSDA has the following features:

1. Although the money placed in the SSDA can be withdrawn anytime, the money is subject
to a holding period in order to earn a higher interest rate. Otherwise, in case of premature
withdrawal, the depositor will not earn the preferred interest ranging from 8% or higher but
only the normal interest rate on regular savings deposit.
2. In order to qualify for an SSDA, the depositor must place a substantial amount of money
of not less than P50,000. This amount is even larger than what is needed to open a time
deposit which is P20,000. Aside from the substantial amount of money required, this amount
must be maintained within a certain period just like a time deposit.

3. On the issue of penalty, in an SSDA, if the depositor withdraws the money and the balance
falls below the "minimum balance" of P50,000, the interest is reduced. This condition is
identical to that imposed on a time deposit that is withdrawn before maturity.

Based on these features, it is clear that the SSDA is a certificate of deposit drawing interest
subject to DST even if it is evidenced by a passbook and non-negotiable in character. In
International Exchange Bank v. Commissioner of Internal Revenue, we held that: A document
to be deemed a certificate of deposit requires no specific form as long as there is some written
memorandum that the bank accepted a deposit of a sum of money from a depositor. What is
important and controlling is the nature or meaning conveyed by the passbook and not the
particular label or nomenclature attached to it, inasmuch as substance, not form, is
paramount.

TAX AMNESTY:
On 24 May 2007, during the pendency of this case before this Court, RA. 9480 or "An Act
Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid
Internal Revenue Taxes Imposed by the National Government for Taxable Year 2005 and Prior
Years", lapsed into law.
On 21 September 2007, Metrobank, the surviving entity that absorbed petitioner’s banking
business, filed a Tax Amnesty Return, paid the amnesty tax and fully complied with all the
requirements. Petitioner contends that the availment includes all deficiency tax assessments
of the BIR subject of this petition.

The DST is one of the taxes covered by the Tax Amnesty Program under RA 9480. As
discussed above, petitioner is clearly liable to pay the DST on its SSDA for the years 1996
and 1997. However, petitioner, as the absorbed corporation, can avail of the tax amnesty
benefits granted to Metrobank.

Wherefore, we GRANT the petition, and SET ASIDE the Court of Tax Appeals’ Decision dated
23 November 2005 in CTA EB No. 63 solely in view of petitioner’s availment of the Tax
Amnesty Program.

NOTE: In case matingala mo classmates na wla nko g.mention ang tax amnesty sa facts or
issue. The tax amnesty program was discussed na sa ruling sa court but wla siya sa contention
sa petitioner nor was it mentioned in the facts of the case. Sa ruling na sa court xa g.mention.

4. CIR v Marubeni; GR No. 137377 Dec 18, 2001;

FACTS:CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting
the 1985 deficiency income, branch profit remittance and contractor’s taxes from Marubeni
Corp after finding the latter to have properly availed of the tax amnesty under EO 41 & 64,
as amended.

Marubeni, a Japanese corporation, engaged in general import and export trading, financing
and construction, is duly registered in the Philippines with Manila branch office. CIR examined
the Manila branch’s books of accounts for fiscal year ending March 1985, and found that
respondent had undeclared income from contracts with NDC and Philphos for construction of
a wharf/port complex and ammonia storage complex respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency
taxes. CIR claims that the income respondent derived were income from Philippine sources,
hence subject to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for review
with CTA: the first, questioned the deficiency income, branch profit remittance and
contractor’s tax assessments and second questioned the deficiency commercial broker’s
assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and
that taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni filed its
tax amnesty return on Oct 30, 1986.

On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes under
Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of availment to
Dec 15, 1986 and stated those who already availed amnesty under EO 41 should file an
amended return to avail of the new benefits. Marubeni filed a supplemental tax amnesty
return on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.

ISSUE: W/N Marubeni is exempted from paying tax?

HELD:
Yes,

1. On date of effectivity

CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception
in Sec 4b of EO 41:

“Sec. 4. Exceptions.—The following taxpayers may not avail themselves of the amnesty herein
granted: xxx b) Those with income tax cases already filed in Court as of the effectivity
hereof;”

Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986,
a case had already been filed and was pending before the CTA and Marubeni therefore fell
under the exception. However, the point of reference is the date of effectivity of EO 41 and
that the filing of income tax cases must have been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with
CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been filed.
Marubeni does not fall in the exception and is thus, not disqualified from availing of the
amnesty under EO 41 for taxes on income and branch profit remittance.

The difficulty herein is with respect to the contractor’s tax assessment (business tax) and
respondent’s availment of the amnesty under EO 64, which expanded EO 41’s coverage. When
EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage of the
amnesty for business, estate and donor’s taxes. Instead, Section 8 said EO provided that:

“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or
inconsistent with this amendatory Executive Order shall remain in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or by necessary implication and
no vested right or obligations of contract are thereby impaired.

2. On situs of taxation

Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable
for the deficiency tax because the income from the projects came from the “Offshore Portion”
as opposed to “Onshore Portion”. It claims all materials and equipment in the contract under
the “Offshore Portion” were manufactured and completed in Japan, not in the Philippines, and
are therefore not subject to Philippine taxes.

(BG: Marubeni won in the public bidding for projects with government corporations NDC and
Philphos. In the contracts, the prices were broken down into a Japanese Yen Portion (I and
II) and Philippine Pesos Portion and financed either by OECF or by supplier’s credit. The
Japanese Yen Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.
Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of both
materials and services to the client, they are contracts for a piece of work and are indivisible.
The situs of the two projects is in the Philippines, and the materials provided and services
rendered were all done and completed within the territorial jurisdiction of the Philippines.
Accordingly, respondent’s entire receipts from the contracts, including its receipts from the
Offshore Portion, constitute income from Philippine sources. The total gross receipts covering
both labor and materials should be subjected to contractor’s tax (a tax on the exercise of a
privilege of selling services or labor rather than a sale on products).

Marubeni, however, was able to sufficiently prove in trial that not all its work was performed
in the Philippines because some of them were completed in Japan (and in fact subcontracted)
in accordance with the provisions of the contracts. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under Japanese Yen Portion I
were made and completed in Japan. These services were rendered outside Philippines’ taxing
jurisdiction and are therefore not subject to contractor’s tax. Petition denied.

5. Sample Amnesty Program: RA No. 9480;

Republic Act No. 9480

AN ACT ENHANCING REVENUE ADMINISTRATION AND COLLECTION BY GRANTING

AN AMNESTY ON ALL UNPAID INTERNAL REVENUE TAXES IMPOSED BY THE
NATIONAL GOVERNMENT FOR TAXABLE YEAR 2005 AND PRIOR YEARS

Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
assembled:

SECTION 1. Coverage. — There is hereby authorized and granted a tax amnesty which shall
cover all national internal revenue taxes for the taxable year 2005 and prior years, with or
without assessments duly issued therefore, that have remained unpaid as of December 31,
2005: Provided, however, That the amnesty hereby authorized and granted shall not cover
persons or cases enumerated under Section 8 hereof.
SEC. 2. Availment of the Amnesty. — Any person, natural or juridical, who wishes to avail
himself of the tax amnesty authorized and granted under this Act shall file with the Bureau of
Internal Revenue (BIR) a notice and Tax Amnesty Return accompanied by a Statement of
Assets, Liabilities and Networth (SALN) as of December 31, 2005, in such form as may be
prescribed in the implementing rules and regulations (IRR) of this Act, and pay the applicable
amnesty tax within six months from the effectivity of the IRR.

SEC. 3. What to Declare in the SALN. — The SALN shall contain a declaration of the assets,
liabilities and networth as of December 31, 2005, as follows:

1. Assets within or without the Philippines, whether real or personal, tangible or

intangible, whether or not used in trade or business: Provided, That property other
than money shall be valued at the cost at which the property was acquired: Provided,
further, That foreign currency assets and/or securities shall be valued at the rate of
exchange prevailing as of the date of the SALN;

2. All existing liabilities which are legitimate and enforceable, secured or unsecured,
whether or not incurred in trade or business; and

3. The networth of the taxpayer, which shall be the difference between the total assets
and total liabilities.

SEC. 4. Presumption of Correctness of the SALN. — The SALN as of December 31, 2005
shall be considered as true and correct except where the amount of declared networth is
understated to the extent of thirty percent (30%) or more as may be established in
proceedings initiated by, or at the instance of, parties other than the BIR of its agents:
Provided, That such proceedings must be initiated within one year following the date of the
filing of the tax amnesty return and the SALN. Findings of or admission in congressional
hearings, other administrative agencies of government, and/or courts shall be admissible to
prove a thirty percent (30%) under-declaration.

SEC. 5. Grant of Tax Amnesty. — Except for the persons or cases covered in Section 8
hereof, any person, whether natural or juridical, may avail himself of the benefits of tax
amnesty under this Act, and pay the amnesty tax due thereon, based on his networth as of
December 31, 2005 as declared in the SALN as of said period, in accordance with the following
schedule of amnesty tax rates and minimum amnesty tax payments required:

(a) Individuals (whether resident or nonresident citizens, 5% or P50,000, whichever

including resident or nonresident aliens), Trusts and Estates is higher
(b) Corporations
(1) With subscribed capital of above P50 Million 5% or P500,000
whichever is higher
(2) With subscribed capital of above P20 Million up to 5% or P250,000,
P50 Million whichever is higher
(3) With subscribed capital of P5 Million to P20 Million 5% or P100,000,
whichever is higher
(4) With subscribed capital of 5% or P25,000, whichever
is higher
below P5 Million
 (c) Other juridical entities, including, but not limited to, 5% or P50,000,
cooperatives and foundations, that have become taxable as
of December 31, 2005 whichever is higher.
(d) Taxpayers who filed their balance sheet/SALN, together with their income tax
returns for 2005, and who desire to avail of the tax amnesty under this Act shall amend
such previously filed statements by including still undeclared assets and/or liabilities
and pay an amnesty tax equal to five percent (5%) based on the resulting increase in
networth: Provided, That such taxpayers shall likewise be categorized in accordance
with, and subjected to the minimum amounts of amnesty tax prescribed under the
provisions of this Section.

SEC. 6. Immunities and Privileges. — Those who availed themselves of the tax amnesty
under Section 5 hereof, and have fully complied with all its conditions shall be entitled to the
following immunities and privileges:

1. The taxpayer shall be immune from the payment of taxes, as well as addition
thereto, and the appurtenant civil, criminal or administrative penalties under the
National Internal Revenue Code of 1997, as amended, arising from the failure to pay
any and all internal revenue taxes for taxable year 2005 and prior years.

2. The taxpayer's Tax Amnesty Returns and the SALN as of December 31, 2005 shall
not be admissible as evidence in all proceedings that pertain to taxable year 2005 and
prior years, insofar as such proceedings relate to internal revenue taxes, before
judicial, quasi-judicial or administrative bodies in which he is a defendant or
respondent, and except for the purpose of ascertaining the networth beginning January
1, 2006, the same shall not be examined, inquired or looked into by any person or
government office. However, the taxpayer may use this as a defense, whenever
appropriate, in cases brought against him.

3. The books of accounts and other records of the taxpayer for the years covered by
the tax amnesty availed of shall not be examined: Provided, That the Commissioner
of Internal Revenue may authorize in writing the examination of the said books of
accounts and other records to verify the validity or correctness of a claim for any tax
refund, tax credit (other than refund or credit of taxes withheld on wages), tax
incentives, and/or exemptions under existing laws.

All these immunities and privileges shall not apply where the person failed to file a SALN and
the Tax Amnesty Return, or where the amount of networth as of December 31, 2005 is proven
to be understated to the extent of thirty percent (30%) or more, in accordance with the
provisions of Section 3 hereof.

SEC. 7. When and Where to File and Pay. — The filing of the Tax Amnesty Return and the
payment of the amnesty tax for those availing themselves of the tax amnesty shall be made
within six months starting from the effectivity of the IRR. It shall be filed at the office of the
Revenue District Officer which has jurisdiction over the legal residence or principal place of
business of the filer. The Revenue District Officer shall issue an acceptance of payment form
authorizing an authorized agent bank, or in the absence thereof, the collection agent or
municipal treasurer concerned, to accept the amnesty tax payment

SEC. 8. Exceptions. — The tax amnesty provided in Section 5 hereof shall not extend to the
following persons or cases existing as of the effectivity of this Act:
 1. Withholding agents with respects to their withholding tax liabilities;

2. Those with pending cases falling under the jurisdiction of the Presidential
Commission on Good Government;

3. Those with pending cases involving unexplained or unlawfully acquired wealth or

under the Anti-Graft and Corrupt Practices Act;

4. Those with pending cases filed in court involving violation of the Anti-Money
Laundering Law;

5. Those with pending criminal cases for tax evasion and other criminal offenses under
Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and
the felonies of frauds, illegal exactions and transactions, and malversation of public
funds and property under Chapters III and IV of Title VII of the Revised Penal Code;
and

6. Tax cases subject of final and executory judgment by the courts.

SEC. 9. Unlawful Divulgence of Tax Amnesty Return and Statement of Assets,

Liabilities and Networth. — Except as otherwise provided herein and in Section 14 hereof,
it shall be unlawful for any person having knowledge of the Tax Amnesty Return and SALN
filed pursuant hereto, to disclose any information relative to such declaration and statement,
and any violation hereof shall subject the offender to the penalties under Section 10 (c) of
this Act: Provided, however, That the Commissioner of Internal Revenue may disclose the
content of the Tax Amnesty Return and the SALN upon the request of Congress pursuant to
and in accordance with Section 20(A) or Section 290of the National Internal Revenue Code of
1997, as amended.

SEC. 10. Penalties. —

1. Any person who, having filed a statement or Tax Amnesty Return under this Act,
willfully understates his networth to the extent of thirty percent (30%) or more shall,
upon conviction, be subject to the penalties of perjury under the Revised Penal Code.

2. The willful failure to declare any property in the statement and/or in the Tax
Amnesty Return shall be deemed in prima facie evidence of fraud and shall constitute
a ground upon which attachment of such property may be issued in favor of the BIR
to answer for the satisfaction of any judgment that may be acquired against the
declarant.

In addition to the penalties provided in paragraphs (a) and (b) above, immediate tax
fraud investigation shall be conducted to collect all taxes due, including increments,
and to criminally prosecute those found to have willfully evaded lawful taxes due.

In the case of associations, partnerships, or corporations, the penalty shall be imposed

on the partner, president, general manager, branch manager, treasurer, officer-in-
charge and employees responsible for the violation.
 3. Any person who makes an unlawful divulgence of the Tax Amnesty Return or the
SALN shall be penalized by a fine of not less than Fifty thousand pesos (P50,000.00)
and imprisonment of not less than six years but not more than ten (10) years.

If the offender is an officer or employee of the BIR or any government entity, he/ she shall
likewise suffer an additional penalty of perpetual disqualification to hold public office to vote
and to participate in any public election.

SEC. 11. Moratorium on the Grant of Tax Amnesty. — In order to encourage and improve
tax compliance by taxpayers, it is hereby declared the policy of this Congress that the grant
of tax amnesty, in whatever manner and form, shall not henceforth be allowed: Provided,
That this moratorium shall likewise apply to any administrative tax amnesty by the BIR.

SEC. 12. Information Management Program. — For purposes of enhancing revenue

administration, revenue collection and policy formulation, the Department of Finance, in
coordination with the BIR, Land Registration Authority, Department of Trade and Industry,
Securities and Exchange Commission, Land Transportation Office, and other concerned
agencies shall institute an Information Management Program for the effective use of
information declared or obtainable from the Tax Amnesty Returns and the SALNs required to
the filed under this Act.

SEC. 13. Disposition of Proceeds from the Tax Amnesty. — An amount equivalent to
Four hundred million pesos (P400,000,000.00) of the collection from the tax amnesty herein
granted shall accrue to the Department of Finance and shall be used exclusively for purposes
of instituting a Management Information System as mandated under Section 12 of this Act.

SEC. 14. Publication of List of Taxpayers and Filers. — Following the implementation of
the tax amnesty authorized and granted under this Act, the provisions of Sections 71 and 270
of the National Internal Revenue Code of 1997, as amended, and Section 26 of Republic Act
No. 6388, to the contrary notwithstanding, the Commissioner of Internal Revenue shall, on
or before May 31 following the close of each calendar year, prepare a list containing the names
of all taxpayers, their gross income and amount of income taxes paid for the immediately
preceding taxable year, and allow the publication of the same in at least two newspapers of
general circulation or the Bureau of Internal Revenue website.

SEC. 15. Implementing Rules and Regulations. — The Secretary of Finance shall, in
coordination with the Commissioner of Internal Revenue, promulgate and publish the
necessary rules and regulations within sixty (60) days from the effectivity of this Act.

SEC. 16. Effectivity. — This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in any two newspapers of general circulation, whichever comes earlier.

I. Tax Exemption vs. Tax Avoidance vs. Tax Evasion:

1. Definitions;

Tax Exemptions - is a monetary exemption which reduces taxable income.

Examples include exemption of charitable organizations from property taxes and income
taxes, veterans, and certain cross-border or multi-jurisdictional scenarios.

Tax Avoidance (Tax Minimization) – tax saving device that is legally permissible.
Tax Evasion - is an illegal action in which a person or entity deliberately avoids paying a true
tax liability. Those caught evading taxes are generally subject to criminal charges and
substantial penalties. To willfully fail to pay taxes is a federal offense under the Internal
Revenue Service (IRS) tax code.

Cases:
2. CIR v. The Estate of Benigno P. Toda GR 147188, Sept 14, 2004;
Lessons Applicable: Tax evasion v. Tax avoidance

Laws Applicable:

FACTS: March 2, 1989: Cibeles Insurance Corp. (CIC) authorized Benigno P. Toda Jr.,
President and Owner of 99.991% of outstanding capital stock, to sell the Cibeles Building and
2 parcels of land which he sold to Rafael A. Altonaga on August 30, 1987 for P 100M who then
sold it on the same day to Royal Match Inc. for P 200M.

CIC included gains from sale of real property of P 75,728.021 in its annual income tax return
while Altonaga paid a 5% capital gains tax of P 10M
July 12, 1990: Toda sold his shares to Le Hun T. Choa for P 12.5M evidenced by a deed of ale
of shares of stock which provides that the buyer is free from all income tax liabilities for 1987,
1988 and 1989.

Toda Jr. died 3 years later.

March 29, 1994: BIR sent an assessment notice and demand letter to CIC for deficiency of
income tax of P 79,099, 999.22

January 27, 1995: BIR sent the same to the estate of Toda Jr.
Estate filed a protest which was dismissed - fraudulent sale to evade the 35% corporate
income tax for the additional gain of P 100M and that there is in fact only 1 sale.
Since it is falsity or fraud, the prescription period is 10 years from the discovery of the falsity
or fraud as prescribed under Sec. 223 (a) of the NIRC

CTA: No proof of fraudulent transaction so the applicable period is 3 years after the last day
prescribed by law for filing the return

CA: affirmed

CIR appealed

ISSUE: W/N there is falsity or fraud resulting to tax evasion rather than tax avoidance so the
period for assessment has not prescribed?

HELD:
Yes, Estate shall be liable since NOT yet prescribed.

Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. ax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due.
(2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or
deliberate and not accidental; and
(3) a course of action or failure of action which is unlawful.

All are present in this case. The trial balance showed that RMI debited P 40M as "other-inv.
Cibeles Building" that indicates RMI Paid CIC (NOT Altonaga)

Fraud in its general sense, is deemed to comprise anything calculated to deceive, including
all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.

Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax
to be paid especially that the transfer from him to RMI would then subject the income to only
5% individual capital gains tax, and not the 35% corporate income tax.
Generally, a sale of or exchange of assets will have an income tax incidence only when it is
consummated but such tax incidence depends upon the substance of the transaction rather
them mere formalities.

3. CIR vs. Arieta; GR. No. 164152 Jan. 21, 2010;

II. CONSTRUCTION OF STATUTORY EXEMPTIONS:

A. General rule;

B. Applicability to Claims for Refund;

C. When exemption statutes are liberally construed;

D. Cases:
E. Rodriguez, Inc. v Collector 28 SCRA 119;

Republic Flour Mills v CIR, 31 SCRA 148;

Wonder Mechanical Engineering v CTA 64 SCRA 555;

Luzon Stevedoring Corp. v CTA 163 SCRA 647;

Floro Cement v Hen. Gorospe 200 SCRA 480;

CIR v Ledesma 31 SCRA 95;

Resins, Inc. v Auditor Gen. 25, SCRA 754;

CIR v. CA & YMCA 298 SCRA 83;

II. CONSTRUCTION OF STATUTORY EXEMPTIONS:

A. General rule;

B. Applicability to Claims for Refund;

C. When exemption statutes are liberally construed;

D. Cases:
E. Rodriguez, Inc. v Collector 28 SCRA 119;

Republic Flour Mills v CIR, 31 SCRA 148;

Wonder Mechanical Engineering v CTA 64 SCRA 555;

Luzon Stevedoring Corp. v CTA 163 SCRA 647;

Floro Cement v Hen. Gorospe 200 SCRA 480;

CIR v Ledesma 31 SCRA 95;

Resins, Inc. v Auditor Gen. 25, SCRA 754;

CIR v. CA & YMCA 298 SCRA 83;

CHAPTER IV: SOURCES AND CONSTRUCTION OF TAX LAWS:

I. SOURCES OF TAX LAW;

A. Statutes;

B. Revenue Regulations

C. Revenue Memorandum Circulars/Orders;

BIR Revenue Administrative Order (RAO) No. 2-2001;

D. BIR Rulings;
BIR Revenue Administrative Order (RAO) No. 2-2001;

Revenue Regulation 5-2012;

E. Opinions of the Secretary of Justice;

F. Legislative Materials;

G. Court Decision;

II. THE STATUTE:

A. Existing Tax Law;

1. National;
a. National Internal revenue Code of 1997;
b. Tariff and Customs Code;

2. Local;
a. Book II, 1991 Local Government Code

III. REVENUE REGULATIONS:

A. BIR-RR

1. Authority to promulgate. S244

2. Specific provisions to be contained in RR. S245
3. What is the force and effect of RR?

Art. 7, Civil Code

Asturias Sugar Central v Comm., 29 SCRA 617

IV. BIR RULINGS:

A. Power of CIR to Interpret Tax Laws. S4;

B. Non-Retroactivity of Rulings; S246;

Cases:
CIR v Burroughs Ltd., G.R. 66653. June 19, 1986;

CIR v Mega Gen. Merchandising 166 SCRA 166;

1. Exceptions

Case:
PBCOM vs. CIR 302 SCRA 241

V. CONSTRUCTION OF TAX LAW:

A. General Rules of Construction of Tax Laws;

Case:
Stevedoring v Trinidad, 43 Phil. 803
B. Mandatory vs. Directory Provisions;

Case:
Serafica v Treasurer of Ormoc City 27 SCRA 110

C. Application of Tax Laws;