ESTATE TAX 4.
On appeal, CTA En Banc upheld the ruling of the First
92. COMMISSIONER OF INTERNAL REVENUE
(CIR), petitioner, vs. Pilipinas Shell Petroleum
Corporation, respondent.
G.R. No. 188497 April 25, 2012 VILLARAMA,
JR., J.:
Because an excise tax is a tax on the manufacturer and
not on the purchaser, and there being no express grant
under the NIRC of exemption from payment of excise tax
to local manufacturers of petroleum products sold to
international carriers, and absent any provision in the
Code authorizing the refund or crediting of such excise
taxes paid, the Court holds that Sec. 135 (a) should be
construed as prohibiting the shifting of the burden of the
excise tax to the international carriers who buys
petroleum products from the local manufacturers. The
provision merely allows the international carriers to
purchase petroleum products without the excise tax
component as an added cost in the price fixed by the
manufacturers or distributors/sellers. Consequently, the
oil companies which sold such petroleum products to
international carriers are not entitled to a refund of
excise taxes previously paid on the goods.
Facts:
1. Respondent is engaged in the business of
processing, treating and refining petroleum for the
purpose of producing marketable products and the
subsequent sale thereof. Respondent filed several
formal claims with the Large Taxpayers Audit &
Investigation Division II of the BIR on the following
dates:
a. On July 2002 for refund or tax credit in the
total amount of P28,064,925.15,
representing excise taxes it allegedly paid
on sales and deliveries of gas and fuel oils to
various international carriers during the
period October to December 2001.
b. On October 2002, a similar claim for refund
or tax credit was filed by respondent with
the BIR covering the period January to
March 2002 in the amount
of P41,614,827.99.
c. On July 2003, a formal claim for refund or
tax credit in the amount of P30,652,890.55
covering deliveries from April to June 2002
2. Since no action was taken by the petitioner on its
claims, respondent filed petitions for review before
the CTA on September and December of 2003.
3. CTA’s First Division ruled that respondent is entitled
to the refund of excise taxes in the reduced amount
of P95,014,283.00. The CTA First Division relied on a
previous ruling rendered by the CTA En Banc in the
case of “Pilipinas Shell Petroleum Corporation v. CIR
(Nov. 2006)” where the CTA also granted
respondent’s claim for refund on the basis of excise
tax exemption for petroleum products sold to
international carriers of foreign registry for their use
or consumption outside the Philippines. Petitioner’s
MR denied.
Division. Petitioner’s MR with CTA likewise denied.
Hence, this petition.
5. Respondent claims it is entitled to a tax refund
because those petroleum products it sold to
international carriers are not subject to excise tax,
hence the excise taxes it paid upon withdrawal of
those products were erroneously or illegally
collected and should not have been paid in the first
place. Since the excise tax exemption attached to
the petroleum products themselves, the
manufacturer or producer is under no duty to pay
the excise tax thereon.
Issue: whether respondent as manufacturer or producer
of petroleum products is exempt from the payment of
excise tax on such petroleum products it sold to
international carriers?
Held: NO. CTA decision REVERSED and SET ASIDE. The
claims for tax refund or credit filed by respondent are
DENIED for lack of basis.
1. Excise taxes, as the term is used in the NIRC, refer to
taxes applicable to certain specified goods or articles
manufactured or produced in the Philippines for
domestic sales or consumption or for any other
disposition and to things imported into the Philippines.
These taxes are imposed in addition to the value-added
tax (VAT). As to petroleum products, Sec. 148 provides
that excise taxes attach to the following refined and
manufactured mineral oils and motor fuels as soon as
they are in existence.
2. Beginning January 1, 1999, excise taxes levied on locally
manufactured petroleum products and indigenous
petroleum are required to be paid before their removal
from the place of production. However, Sec. 135
provides: “Petroleum Products Sold to International
Carriers and Exempt Entities or Agencies. – Petroleum
products sold to the following are exempt from excise
tax:
(a) International carriers of Philippine or foreign
registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold
to these international carriers shall be stored in a bonded
storage tank and may be disposed of only in accordance
with the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the
Commissioner; x x x
3. Under Chapter II “Exemption or Conditional Tax-Free
Removal of Certain Goods” of Title VI, Sections 133, 137,
138, 139 and 140 cover conditional tax-free removal of
specified goods or articles, whereas Sections 134 and 135
provide for tax exemptions. While the exemption found
in Sec. 134 makes reference to the nature and quality of
the goods manufactured (domestic denatured alcohol)
without regard to the tax status of the buyer of the said
goods, Sec. 135 deals with the tax treatment of a
specified article (petroleum products) in relation to its
buyer or consumer. Respondent’s failure to make this
important distinction apparently led it to mistakenly
assume that the tax exemption under Sec. 135 (a)
“attaches to the goods themselves” such that the excise
tax should not have been paid in the first place.
4. On July 1996, petitioner Commissioner issued Revenue
Regulations 8-96 (“Excise Taxation of Petroleum
 Products”) which provides: “SEC. 4. Time and Manner of
Payment of Excise Tax on Petroleum Products, Non-
Metallic Minerals and Indigenous Petroleum –
I. Petroleum Products x x x x a) On locally
manufactured petroleum products: The specific
tax on petroleum products locally manufactured or
produced in the Philippines shall be paid by the
manufacturer, producer, owner or person having
possession of the same, and such tax shall be paid
within fifteen (15) days from date of removal from the
place of production.
5. Thus, if an airline company purchased jet fuel from an
unregistered supplier who could not present proof of
payment of specific tax, the company is liable to pay the
specific tax on the date of purchase. Since the excise tax
must be paid upon withdrawal from the place of
production, respondent cannot anchor its claim for
refund on the theory that the excise taxes due thereon
should not have been collected or paid in the first place.
6. Sec. 229 of the NIRC allows the recovery of taxes
erroneously or illegally collected. An “erroneous or illegal
tax” is defined as one levied without statutory authority,
or upon property not subject to taxation or by some
officer having no authority to levy the tax, or one which is
some other similar respect is illegal.
7. Respondent’s locally manufactured petroleum products
are clearly subject to excise tax under Sec. 148. Hence,
its claim for tax refund may not be predicated on Sec. 229
of the NIRC allowing a refund of erroneous or excess
payment of tax. Respondent’s claim is premised on what
it determined as a tax exemption “attaching to the goods
themselves,” which must be based on a statute granting
tax exemption, or “the result of legislative grace.” Such a
claim is to be construed strictissimi juris against the
taxpayer, meaning that the claim cannot be made to rest
on vague inference. Where the rule of strict
interpretation against the taxpayer is applicable as the
claim for refund partakes of the nature of an exemption,
the claimant must show that he clearly falls under the
exempting statute.
8. The exemption from excise tax payment on petroleum
products under Sec. 135 (a) is conferred on international
carriers who purchased the same for their use or
consumption outside the Philippines. The only condition
set by law is for these petroleum products to be stored in
a bonded storage tank and may be disposed of only in
accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
9. [JURISPRUDENCE] In addition, the Solicitor General,
argues that respondent cannot shift the tax burden to
international carriers who are allowed to purchase its
petroleum products without having to pay the added cost
of the excise tax. In Philippine Acetylene Co., Inc. v.
CIR, this Court held that petitioner manufacturer who
sold its oxygen and acetylene gases to NPC, a tax-exempt
entity, cannot claim exemption from the payment of sales
tax simply because its buyer NPC is exempt from
taxation. The Court explained that the percentage tax on
sales of merchandise imposed by the Tax Code is due
from the manufacturer and not from the buyer.
10. The language of Sec. 135 indicates that the tax exemption
mentioned therein is conferred on
specified buyers or consumers of the excisable articles or
goods. Unlike Sec. 134 which explicitly exempted the
article or goods itself without due regard to the tax
status of the buyer or purchaser, Sec. 135 exempts from
excise tax petroleum products which were sold to
international carriers and other tax-exempt agencies and
entities.
11. Considering that the excise taxes attaches to petroleum
products “as soon as they are in existence as such, ”there
can be no outright exemption from the payment of excise
tax on petroleum products sold to international carriers.
The sole basis then of respondent’s claim for refund is
the express grant of excise tax exemption in favor of
international carriers under Sec. 135 (a) for their
purchases of locally manufactured petroleum
products. Pursuant to our ruling in Philippine Acetylene,
a tax exemption being enjoyed by the buyer cannot be
the basis of a claim for tax exemption by the
manufacturer or seller of the goods for any tax due to it
as the manufacturer or seller. The excise tax imposed on
petroleum products under Sec. 148 is the direct liability
of the manufacturer who cannot thus invoke the excise
tax exemption granted to its buyers who are international
carriers.
12. In Maceda v. Macaraig, Jr., the Court specifically
mentioned excise tax as an example of an indirect tax
where the tax burden can be shifted to the buyer.
However, because of the tax exemptions privileges being
enjoyed by NPC under existing laws, the tax burden may
not be shifted to it by the oil companies who shall pay for
fuel oil taxes on oil they supplied to NPC.
13. On April 1978, then President Ferdinand E. Marcos issued
Presidential Decree (P.D.) No. 1359 which amended the
1077 Tax Code provided under 2 nd par. of Sec. 134:
“However, petroleum products sold to an international
carrier for its use or consumption outside of the
Philippines shall not be subject to specific tax, provided,
that the country of said carrier exempts from tax
petroleum products sold to Philippine carriers.”
14. Founded on the principles of international comity and
reciprocity, P.D. No. 1359 granted exemption from
payment of excise tax but only to foreign international
carriers who are allowed to purchase petroleum products
free of specific tax provided the country of said carrier
also grants tax exemption to Philippine carriers. Both
the earlier amendment in the 1977 Tax Code and the
present Sec. 135 of the 1997 NIRC did not exempt the oil
companies from the payment of excise tax on petroleum
products manufactured and sold by them to international
carriers.
THUS:
15. Because an excise tax is a tax on the manufacturer and
not on the purchaser, and there being no express grant
under the NIRC of exemption from payment of excise tax
to local manufacturers of petroleum products sold to
international carriers, and absent any provision in the
Code authorizing the refund or crediting of such excise
taxes paid, the Court holds that Sec. 135 (a) should be
construed as prohibiting the shifting of the burden of the
excise tax to the international carriers who buys
petroleum products from the local manufacturers. Said
provision thus merely allows the international carriers to
purchase petroleum products without the excise tax
component as an added cost in the price fixed by the
manufacturers or distributors/sellers. Consequently, the
 oil companies which sold such petroleum products to
international carriers are not entitled to a refund of
excise taxes previously paid on the goods.
16. Time and again, we have held that tax refunds are in the
nature of tax exemptions which result to loss of revenue
for the government. Upon the person
claiming an exemption from tax payments rests the
burden of justifying the exemption by words too plain to
be mistaken and too categorical to be misinterpreted, it is
never presumed nor be allowed solely on the ground of
equity. These exemptions, therefore, must not rest on
vague, uncertain or indefinite inference, but should be
granted only by a clear and unequivocal provision of
law on the basis of language too plain to be mistaken.
Such exemptions must be strictly construed against the
taxpayer, as taxes are the lifeblood of the government.
The Collector Of Internal Revenue vs Campos Rueda
42 SCRA 238 [GR No. L-13250 October 29, 1971]
Facts: This is an appeal interposed by herein respondent
Antonio Campos Rueda as administrator of the estate of
the deceased Doña Maria de la Estrella Soriano Vda de
Cedeira, from the decision of the petitioner, collector of
internal revenue, assessing against and demanding from
the former the sum of Php161,874.95 as deficiency
estate and inheritance taxes, including interest therein
and penalties, on the transfer of intangible personal
properties situated in the Philippines and belonging to
said Maria Cedeira. She is a spanish national, by reason of
her marriage to a spanish citizen and was a resident of
Tangier, Morocco from 1931 up to her death on January
2, 1955. At the time of her demise, she left among
others, intangible personal properties in the Philippines.
On September 29, 1955, respondent filed a provisional
estate and inheritance tax return on all the properties of
Maria Cedeira. On the same date, petitioner, pending
investigation issued an assessment for estate and
inheritance tax in the respective amounts of
Php111,592.48 and Php 157,791.48 or a total of
Php369,383.96 which tax liabilities were paid by
respondent. On November 27, 1955, an amended return
was filed wherein intangible personal properties with the
value of Php396,308.90 were claimed as exempt from
taxes. On November 23, 1955, petitioner issued another
assessment for estate and inheritance taxes in the
amounts of Php 202,262.40 and Php267,402.84
respectively or a total of Php469,665.24. In a letter dated
January 11, 1956, respondent denied the request for the
exemption on the ground that the law of Tangier is not
reciprocal with section 122 of the National Internal
Revenue Code. Hence, respondent demanded the
payment of the sums of Php239,439.79 representing the
deficiency estate and inheritance taxes including ad
valorem penalties, surcharges, interest and compromise
penalties. In a letter dated February 8, 1956, respondent
requested for the reconsideration of the decision denying
the claim for the tax exemption. However, the same was
denied. The denial was premise on the ground that there
was no reciprocity with Tangier, which was moreover a
mere principality, not a foreign country.
Issue: Whether or not the intangible personal properties
of Maria Cedeira are exempt from estate and inheritance
tax.
Held: Yes. The controlling legal provision as noted is a
proviso in section 122 of the NIRC. It reads thus:
that no tax shall be collected under this title in respect of
intangible personal properties
1. if the decedent at the time of his death
was a resident of a foreign country
which at the time of his death did not
impose a transfer tax or death tax of
any character in respect of intangible
personal properties of the Philippines
not residing in that foreign country; or
2. if the laws of the foreign country of
which the decedent was a resident at
the time of his death allow a similar
exemption from transfer taxes or death
taxes of every character in respect of
intangible personal properties owned
by citizens of the Philippines not
residing in that foreign country.
This court commit itself to the doctrine that even a tiny
principality, hardly an international personality in the
sense did fall under the exempt category.
The expression “foreign country,” was used in the last
proviso of section 122 of NIRC refers to a government of
that foreign power which although not an international
person in the sense of international law does not impose
transfer or death upon intangible person properties of
our citizens not residing therein whose law allow a similar
exemption from such taxes. It is therefore not necessary
that Tangier should have been recognized by our
government in order to entitle the respondent to the
exemption benefits of the proviso of said section 122 of
our tax code.
THE COLLECTOR OF INTERNAL REVENUE v. ANTONIO
CAMPOS RUEDA. G.R. No. L-13250. October 29, 1971
FACTS:
Antonio Campos Rueda is the administrator of the estate
of the deceased Maria Cerdeira. Cerdeira is a Spanish
national, by reason of her marriage to a Spanish citizen
and was a resident of Tangier, Morocco up to her death.
At the time of her demise she left, among others,
intangible personal properties in the Philippines. The CIR
then issued an assessment for state and inheritance taxes
of P369,383.96. Rueda filed an amended return stating
that intangible personal properties worth P396,308.90
should be exempted from taxes. The CIR denied the
request on the ground that the law of Tangier is not
reciprocal to Section 122 (now Section 104) of the
National Internal Revenue Code.
The case was elevated to the CTA which sided with
Rueda. The CTA stated that the foreign country
mentioned in Section 122 "refers to a government of that
foreign power which, although not an international
person in the sense of international law, does not impose
transfer or death upon intangible person properties of
our citizens not residing therein, or whose law allows a
similar exemption from such taxes. It is, therefore, not
necessary that Tangier should have been recognized by
our Government order to entitle the petitioner to the
exemption benefits of the proviso of Section 122 of our
Tax. Code."
ISSUE: Whether the exemption is valid.
RULING:
YES.
The controlling legal provision as noted is a proviso in
Section 122 of the National Internal Revenue Code. It
reads thus: "That no tax shall be collected under this Title
in respect of intangible personal property (a) if the
decedent at the time of his death was a resident of a
foreign country which at the time of his death did not
impose a transfer tax or death tax of any character in
respect of intangible person property of the Philippines
not residing in that foreign country, or (b) if the laws of
the foreign country of which the decedent was a resident
at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect
of intangible personal property owned by citizens of the
Philippines not residing in that foreign country."
It does not admit of doubt that if a foreign country is to
be identified with a state, it is required in line with
Pound's formulation that it be a politically organized
sovereign community independent of outside control
bound by penalties of nationhood, legally supreme within
its territory, acting through a government functioning
under a regime of law. A foreign country is thus a
sovereign person with the people composing it viewed as
an organized corporate society under a government with
the legal competence to exact obedience to its
commands.
Even on the assumption then that Tangier is bereft of
international personality, the CIR has not successfully
made out a case. The Court did commit itself to the
doctrine that even a tiny principality, like Liechtenstein,
hardly an international personality in the sense, did fall
under this exempt category.
Collector of Internal Revenue vs. Fisher
GR. No. L-11622
January 28, 1961
DOCTRINE: “Reciprocity must be total. If any of the two
states collects or imposes or does not exempt any
transfer, death, legacy or succession tax of any character,
the reciprocity does not work.”
FACTS:
Walter G. Stevenson was born in the Philippines of British
parents, married in Manila to another British subject,
Beatrice. He died in 1951 in California where he and his
wife moved to.
In his will, he instituted Beatrice as his sole heiress to
certain real and personal properties, among which are
210,000 shares of stocks in Mindanao Mother Lode
Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary
administrator of his estate filed an estate and inheritance
tax return. He made a preliminary return to secure the
waiver of the CIR on the inheritance of the Mines shares
of stock.
In 1952, Beatrice assigned all her rights and interests in
the estate to the spouses Fisher.
Statt filed an amended estate and inheritance tax return
claiming ADDITIOANL EXEMPTIONS, one of which is the
estate and inheritance tax on the Mines’ shares of stock
pursuant to a reciprocity proviso in the NIRC, hence,
warranting a refund from what he initially paid. The
collector denied the claim. He then filed in the CFI of
Manila for the said amount.
CFI ruled that (a) the ½ share of Beatrice should be
deducted from the net estate of Walter, (b) the intangible
personal property belonging to the estate of Walter is
exempt from inheritance tax pursuant to the reciprocity
proviso in NIRC.
ISSUE/S:
Whether or not the estate can avail itself of the
reciprocity proviso in the NIRC granting exemption from
the payment of taxes for the Mines shares of stock.
RULING:
NO.
Reciprocity must be total. If any of the two states collects
or imposes or does not exempt any transfer, death,
legacy or succession tax of any character, the reciprocity
does not work.
In the Philippines, upon the death of any citizen or
resident, or non-resident with properties, there are
imposed upon his estate, both an estate and an
inheritance tax.
But, under the laws of California, only inheritance tax is
imposed. Also, although the Federal Internal Revenue
Code imposes an estate tax, it does not grant exemption
on the basis of reciprocity. Thus, a Filipino citizen shall
always be at a disadvantage. This is not what the
legislators intended.
SPECIFICALLY:
Section122 of the NIRC provides that “No tax shall be
collected under this Title in respect of intangible personal
property
(a) if the decedent at the time of his death was a resident
of a foreign country which at the time of his death did
not impose a transfer of tax or death tax of any
character in respect of intangible personal property of
citizens of the Philippines not residing in that foreign
country, or
(b) if the laws of the foreign country of which the
decedent was a resident at the time of his death allow a
similar exemption from transfer taxes or death taxes of
every character in respect of intangible personal property
owned by citizens of the Philippines not residing in that
foreign country."
On the other hand, Section 13851 of the California
Inheritance Tax Law provides that intangible personal
property is exempt from tax if the decedent at the time
of his death was a resident of a territory or another State
of the United States or of a foreign state or country which
then imposed a legacy, succession, or death tax in respect
to intangible personal property of its own residents, but
either:.
Did not impose a legacy, succession, or death tax of any
character in respect to intangible personal property of
residents of this State, or
Had in its laws a reciprocal provision under which
intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every
character if the Territory or other State of the United
States or foreign state or country in which the
nonresident resided allowed a similar exemption in
respect to intangible personal property of residents of
the Territory or State of the United States or foreign state
or country of residence of the decedent."
COURT SETTLEMENT
Dizon v CTA (Taxation)
Dizon v CTA G.R. No. 140944 April 30, 2008
FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died.
Thereafter, a petition for the probate of his will was filed
with Branch 51 of the Regional Trial Court (RTC) of Manila
(probate court). The probate court then appointed
retired Supreme Court Justice Arsenio P. Dizon (Justice
Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate).
Petitioner alleged that several requests for extension of
the period to file the required estate tax return were
granted by the BIR since the assets of the estate, as well
as the claims against it, had yet to be collated,
determined and identified.
ISSUES:
1. Whether or not the CTA and the CA gravely erred in
allowing the admission of the pieces of evidence which
were not formally offered by the BIR; and
2. Whether the actual claims of the aforementioned
creditors may be fully allowed as deductions from the
gross estate of Jose despite the fact that the said claims
were reduced or condoned through compromise
agreements entered into by the Estate with its creditors
Or Whether or not the CA erred in affirming the CTA in
the latter's determination of the deficiency estate tax
imposed against the Estate.
RULING:
1. Yes. While the CTA is not governed strictly by technical
rules of evidence, as rules of procedure are not ends in
themselves and are primarily intended as tools in the
administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may
be disregarded considering that it is the only means by
which the CTA may ascertain and verify the truth of BIR's
claims against the Estate. The BIR's failure to formally
offer these pieces of evidence, despite CTA's directives, is
fatal to its cause
2. Yes. The claims existing at the time of death are
significant to, and should be made the basis of, the
determination of allowable deductions. Also, as held
in Propstra v. U.S., where a lien claimed against the estate
was certain and enforceable on the date of the
decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude
the estate from deducting the entire amount of the claim
for estate tax purposes. This is called the date-of-death
valuation rule.
DIZON V. CTA (TAX, REMEDIAL)
FIRST ISSUE: Whether or not the CTA and the CA gravely
erred in allowing the admission of the pieces of evidence
which were not formally offered by the BIR.
The petition is impressed with merit.
Under Section 8, RA 1125, the CTa is categorically
described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute
aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR,
as the rules on documentary evidence require that these
documents be formally offered before the CTA.
While the CTA is not governed strictly by technical rules
of evidence, as rules of procedure are not ends in
themselves ans are primarily intended as tools in the
administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may
be disregarded considering that it is the only means by
which the STA may ascertain and verify the truth of BIR"s
claims against the Estate. BUR's failure to formally offer
these pieces of evidence, despite CTA's directives, is fatal
to its cause. such failure is aggravated by the fact that not
even a single reason was advanced by the BIR to justify
such fatal omission. This we take against BIR.
SECOND ISSUE: Whether or not the CA erred in affirming
the CTA in the latter's determination of the deficiency
estate tax imposed against the Estate.
Verily, this involves the construction of Section 79 of the
NIRC, which provides for the allowable deductions from
the gross estate of the decedent. The specific question is
whether the actual claims of the creditors may be fully
allowed as deductions from the gross estate of the
decedent despite the fact that the said claims were
reduced or condoned through compromise agreements
entered into by the Estate with its creditors.
CLAIMS AGAINST THE ESTATE as allowable deductions
from the gross estate are basically a reproduction of the
deductions allowed under the NIRC, and which was the
first codification of Philippine tax laws, which in turn,
were based on the federal tax laws of the US. Thus,
pursuant to established rules of statutory construction,
the decisions of US courts construing the federal tax code
are entitled to great weight in the interpretation of our
own tax laws.
We express our agreement with the DATE-OF-DEATH
VALUATION RULE, made pursuant to the ruling of the US
SC in Ithaca Trust co. v. US.
First, there is no law, nor do we discern any legislative
intent in our tax laws, which disregards the date-of-death
valuation principle and particularly provides that post-
death developments must be considered in determining
the net value of the estate. It bears emphasis that tax
burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly
imports, tax statutes being construed strictly against the
government. Any doubt on whether a person, article, or
activity is taxable is generally resolved against taxation.
Second, such construction finds relevance and
consistency in our rules on Special Proceedings wherein
the term "claims" required to be presented against a
decendent's estate is generally construed to mean debts
or demands of a pecuniary nature which could have been
enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death.
Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the
determination of allowable deductions.
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs.
CIR
GR. No. 155541; January 27, 2004
Facts: During the lifetime of the decedent Juliana vda. De
Gabriel, her business affairs were managed by the
Philippine Trust Company (PhilTrust). The decedent died
on April 3, 1979 but two days after her death, PhilTrust
filed her income tax return for 1978 not indicating that
the decedent had died. The BIR conducted an
administrative investigation of the decedent’s tax liability
and found a deficiency income tax for the year 1997 in
the amount of P318,233.93. Thus, in November 18, 1982,
the BIR sent by registered mail a demand letter and
assessment notice addressed to the decedent “c/o
PhilTrust, Sta. Cruz, Manila, which was the address stated
in her 1978 income tax return. On June 18, 1984,
respondent Commissioner of Internal Revenue issued
warrants of distraint and levy to enforce the collection of
decedent’s deficiency income tax liability and serve the
same upon her heir, Francisco Gabriel. On November 22,
1984, Commissioner filed a motion to allow his claim
with probate court for the deficiency tax. The Court
denied BIR’s claim against the estate on the ground that
no proper notice of the tax assessment was made on the
proper party. On appeal, the CA held that BIR’s service on
PhilTrust of the notice of assessment was binding on the
estate as PhilTrust failed in its legal duty to inform the
respondent of antecedent’s death. Consequently, as the
estate failed to question the assessment within the
statutory period of thirty days, the assessment became
final, executory, and incontestable.
Issue: (1) Whether or not the CA erred in holding that the
service of deficiency tax assessment on Juliana through
PhilTrust was a valid service as to bind the estate; (2)
Whether or not the CA erred in holding that the tax
assessment had become final, executory, and
incontestable.
Held: (1) Since the relationship between PhilTrust and the
decedent was automatically severed the moment of the
taxpayer’s death, none of the PhilTrust’s acts or
omissions could bind the estate of the taxpayer. Although
the administrator of the estate may have been remiss in
his legal obligation to inform respondent of the
decedent’s death, the consequence thereof merely refer
to the imposition of certain penal sanction on the
administrator. These do not include the indefinite tolling
of the prescriptive period for making deficiency tax
assessment or waiver of the notice requirement for such
assessment.
(2) The assessment was served not even on an heir or the
estate but on a completely disinterested party. This
improper service was clearly not binding on the
petitioner. The most crucial point to be remembered is
that PhilTust had absolutely no legal relationship with the
deceased or to her Estate. There was therefore no
assessment served on the estate as to the alleged
underpayment of tax. Absent this assessment, no
proceeding could be initiated in court for collection of
said tax; therefore, it could not have become final,
executory and incontestable. Respondent’s claim for
collection filed with the court only on November 22,
1984 was barred for having been made beyond the five-
year prescriptive period set by law.
(Liability of Heirs)
CIR v. PINEDA
GR No. L-22734, September 15, 1967
21 SCRA 105
FACTS:
Atanasio Pineda died, survived by his wife, Felicisima
Bagtas, and 15 children, the eldest of whom is Atty.
Manuel Pineda. Estate proceedings were had in Court so
that the estate was divided among and awarded to the
heirs. Atty Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the BIR
investigated the income tax liability of the estate for the
years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal
Revenue filed said returns for the estate issued an
assessment and charged the full amount to the
inheritance due to Atty. Pineda who argued that he is
liable only to extent of his proportional share in the
inheritance.
ISSUE:
Can BIR collect the full amount of estate taxes from an
heir's inheritance.
HELD:
Yes. The Government can require Atty. Pineda to pay the
full amount of the taxes assessed.
The reason is that the Government has a lien on the
P2,500.00 received by him from the estate as his share in
the inheritance, for unpaid income taxes for which said
estate is liable. By virtue of such lien, the Government
has the right to subject the property in Pineda's
possession to satisfy the income tax assessment. After
such payment, Pineda will have a right of contribution
from his co-heirs, to achieve an adjustment of the proper
share of each heir in the distributable estate.
All told, the Government has two ways of collecting the
tax in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax
proportionate to the inheritance received; and second, is
by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax
due. This second remedy is the very avenue the
Government took in this case to collect the tax. The
Bureau of Internal Revenue should be given, in instances
like the case at bar, the necessary discretion to avail itself
of the most expeditious way to collect the tax as may be
envisioned in the particular provision of the Tax Code
above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is
an imperious need.
(Payment Before Delivery By Executor)
MARCOS II vs. CA
273 SCRA 47
GR No. 120880, June 5, 1997
"The approval of the court sitting in probate is not a
mandatory requirement in the collection of estate taxes."
"In case of failure to file a return, the tax may be assessed
at anytime within 10 years after the omission."
FACTS: Bongbong Marcos sought for the reversal of the
ruling of the Court of Appeals to grant CIR's petition to
levy the properties of the late Pres. Marcos to cover the
payment of his tax delinquencies during the period of his
exile in the US. The Marcos family was assessed by the
BIR after it failed to file estate tax returns. However the
assessment were not protested administratively by Mrs.
Marcos and the heirs of the late president so that they
became final and unappealable after the period for filing
of opposition has prescribed. Marcos contends that the
properties could not be levied to cover the tax dues
because they are still pending probate with the court,
and settlement of tax deficiencies could not be had,
unless there is an order by the probate court or until the
probate proceedings are terminated.
Petitioner also pointed out that applying Memorandum
Circular No. 38-68, the BIR's Notices of Levy on the
Marcos properties were issued beyond the allowed
period, and are therefore null and void.
ISSUE: Are the contentions of Bongbong Marcos correct?
HELD: No. The deficiency income tax assessments and
estate tax assessment are already final and unappealable
-and-the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue
Code. This summary tax remedy is distinct and separate
from the other tax remedies (such as Judicial Civil actions
and Criminal actions), and is not affected or precluded by
the pendency of any other tax remedies instituted by the
government.
The approval of the court, sitting in probate, or as a
settlement tribunal over the deceased's estate is not a
mandatory requirement in the collection of estate taxes.
On the contrary, under Section 87 of the NIRC, it is the
probate or settlement court which is bidden not to
authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a
Certification by the Commissioner of Internal Revenue
that the estate taxes have been paid. This provision
disproves the petitioner's contention that it is the
probate court which approves the assessment and
collection of the estate tax.
On the issue of prescription, the omission to file an
estate tax return, and the subsequent failure to contest
or appeal the assessment made by the BIR is fatal to the
petitioner's cause, as under Sec.223 of the NIRC, in case
of failure to file a return, the tax may be assessed at
anytime within 10 years after the omission, and any tax
so assessed may be collected by levy upon real property
within 3 years (now 5 years) following the assessment of
the tax. Since the estate tax assessment had become final
and unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is no
reason why the BIR cannot continue with the collection
of the said tax
DONOR’S TAX
REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF
INTERNAL REVENUE and The COURT of TAX APPEALS.
G.R. No. L-19201. June 16, 1965
FACTS:
M.B. Estate, Inc. donated P10,000.00 in cash to the parish
priest of Victorias, Negros Occidental, for the
construction of a new Catholic Church in the locality. The
total amount was actually spent for the purpose
intended.
A year later, M.B. Estate, Inc., filed the donor's gift tax
return. CIR issued an assessment for donee's gift tax
against the parish, of which petitioner was the priest.
Petitioner filed a protest which was denied by the CIR. He
then filed an appeal with the CTA citing that he was not
the parish priest at the time of donation, that there is no
legal entity or juridical person known as the "Catholic
Parish Priest of Victorias," and, therefore, he should not
be liable for the donee's gift tax and that assessment of
the gift tax is unconstitutional.
The CTA denied the appeal thus this case.
ISSUE: Whether petitioner and the parish are liable for
the donee's gift tax.
RULING:
Yes for the parish. The Constitution only made mention of
property tax and not of excise tax as stated in Section 22,
par 3. The assessment of the CIR did not rest upon
general ownership; it was an excise upon the use made of
the properties, upon the exercise of the privilege of
receiving the properties. A gift tax is not a property tax,
but an excise tax imposed on the transfer of property by
way of gift inter vivos, the imposition of which on
property used exclusively for religious purposes, does not
constitute an impairment of the Constitution.
No for the petitioner. The Court ordered petitioner to be
substituted by the Head of Diocese to pay the said gift tax
after the CIR and Solicitor General did not object to such
substitution.
MARIA CARLA PIROVANO, etc., et al. v. THE
COMMISSIONER OF INTERNAL REVENUE. G.R. No. L-
19865. July 31, 1965
FACTS:
De la Rama Steamship Co. insured the life of Enrico
Pirovano, who was then its President and General
Manager until the time of his death. The Company then
received the total sum of P643,000.00 as proceeds of the
said life insurance policies. The Company renounced all
its rights on the money in favor of the decendent's
children.
After a case that marred Estefania Pirovano, the guardian
and the Company (see Pirovano vs. De la Rama
Steamship Co., 96 Phil. 335.), the Company paid in favor
of the children.
The CIR then assessed donees' gift tax against Pirovano
and donor's tax against the Company. Pirovano contested
with the CIR which she lost and thus appealed with the
CTA.
The CTA held that donees' gift tax were correctly
assessed.
ISSUE: Whether Pirovano should pay the donees' gift tax.
RULING:
YES. Pirovano contends that the Court itself declared that
the donation was renumenatory and not simple and it
was made for a full and adequate compensation for the
valuable services by decedent to the Company; hence,
the donation does not constitute a taxable gift under the
provisions of Section 108 of the National Internal
Revenue Code (old law).
The Court states that it is a donation; that the
consideration for the donation was, therefore, the
company's gratitude for his services, and not the services
themselves and whether the donation was simple or
renumenatory, it was still a gift taxable under the law.
MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D.
REGALA, AVELINO V. CRUZ v. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS. G.R. No.
120721. February 23, 2005
FACTS:
During the 1987 national elections, petitioners, who are
partners in the ACCRA law firm, contributed P882,661.31
each to the campaign funds of Senator Edgardo Angara,
then running for the Senate. The BIR then assessed each
of the petitioners P263,032.66 for their contributions.
Petitioners questioned the assessment claiming that
political or electoral contributions are not considered
gifts under NIRC therefore, not liable for donors tax. The
claim for exemption was denied by the Commissioner.
The BIR denied their motion. They then filed a petition
with the CTA, which was granted.
On appeal, the CA again held in favor of the BIR.
ISSUE: Whether the contributions are liable for donor's
tax.
RULING:
Yes. The NIRC does not define transfer of property by gift.
However, the Civil Code, by reference, considers such as
donations. The present case falls squarely within the
definition of a donation. There was intent to do an act of
liberality or animus donandi was present since each of
the petitioners gave their contributions without any
consideration.
Taken together with the Civil Code definition of donation,
Section 91 of the NIRC is clear and unambiguous, thereby
leaving no room for construction.
Petitioners contribution of money without any material
consideration evinces animus donandi. The fact that their
purpose for donating was to aid in the election of the
donee does not negate the presence of donative intent.
Petitioners raise the fact that since 1939 when the first
Tax Code was enacted, up to 1988 the BIR never
attempted to subject political contributions to donors tax.
This Court holds that the BIR is not precluded from
making a new interpretation of the law, especially when
the old interpretation was flawed. It is a well-entrenched
rule that
"erroneous application and enforcement of the law by
public officers do not block subsequent correct
application of the statute" (PLDT v. Collector of Internal
Revenue, 90 Phil. 676), "and that the Government is
never estopped by mistake or error on the part of its
agents" (Pineda v. Court of First Instance of Tayabas, 52
Phil. 803, 807; Benguet Consolidated Mining Co. v.
Pineda, 98 Phil. 711, 724).
PhilAm LIFE vs. Secretary of Finance, G.R. No. 210987,
Facts:
Philam Life sold its shares in Philam Care Health Systems
to STI Investments Inc., the highest bidder. After the sale
was completed, Philam life applied for a tax clearance
and was informed by BIR that there is a need to secure a
BIR Ruling due to a potential donor’s tax liability on the
sold shares.
ISSUE on DONOR’S TAX:
W/N the sales of shares sold for less than an adequate
consideration be subject to donor’s tax?
PETITIONER’S CONTENTION:
The transaction cannot attract donor’s tax liability since
there was no donative intent and, ergo, no taxable
donation, citing BIR Ruling [DA-(DT-065) 715-09] dated
November 27, 2009; that the shares were sold at their
actual fair market value and at arm’s length; that as long
as the transaction conducted is at arm’s length––such
that a bonafide business arrangement of the dealings is
done in the ordinary course of business––a sale for less
than an adequate consideration is not subject to donor’s
tax; and that donor’s tax does not apply to sale of shares
sold in an open bidding process.
CIR DENYING THE REQUEST:
Through BIR Ruling No. 015-12. As determined by the
Commissioner, the selling price of the shares thus sold
was lower than their book value based on the financial
statements of Philam Care as of the end of 2008. The
Commissioner held donor’s tax became imposable on the
price difference pursuant to Sec. 100 of the National
Internal Revenue Code (NIRC):
SEC. 100. Transfer for Less Than Adequate and full
Consideration. - Where property, other than real
property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money or
money’s worth, then the amount by which the fair
market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by
this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar
year.
RULING:
The price difference is subject to donor’s tax.
Petitioner’s substantive arguments are unavailing. The
absence of donative intent, if that be the case, does not
exempt the sales of stock transaction from donor’s tax
since Sec. 100 of the NIRC categorically states that the
amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed
a gift. Thus, even if there is no actual donation, the
difference in price is considered a donation by fiction of
law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec.
100 of the NIRC but merely sets the parameters for
determining the “fair market value” of a sale of stocks.
Such issuance was made pursuant to the Commissioner’s
power to interpret tax laws and to promulgate rules and
regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11,
having been issued after the sale, was being applied
retroactively in contravention to Sec. 246 of the NIRC.26
Instead, it merely called for the strict application of Sec.
100, which was already in force the moment the NIRC
was enacted.
ISSUE on TAX REMEDIES:
The issue that now arises is this––where does one seek
immediate recourse from the adverse ruling of the
Secretary of Finance in its exercise of its power of review
under Sec. 4?
Petitioner essentially questions the CIR’s ruling that
Petitioner’s sale of shares is a taxable donation under
Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC,
Sec. 7 (C.2.2) and RMC 25-11 is merely questioned
incidentally since it was used by the CIR as bases for its
unfavourable opinion. Clearly, the Petition involves an
issue on the taxability of the transaction rather than a
direct attack on the constitutionality of Sec. 100, Sec.7
(c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant
Petition properly pertains to the CTA under Sec. 7 of RA
9282.
As a result of the seemingly conflicting pronouncements,
petitioner submits that taxpayers are now at a quandary
on what mode of appeal should be taken, to which court
or agency it should be filed, and which case law should
be followed.
Petitioner’s above submission is specious (erroneous).
CTA, through its power of certiorari, to rule on the
validity of a particular administrative rule or regulation so
long as it is within its appellate jurisdiction. Hence, it can
now rule not only on the propriety of an assessment or
tax treatment of a certain transaction, but also on the
validity of the revenue regulation or revenue
memorandum circular on which the said assessment is
based.
Guided by the doctrinal teaching in resolving the case at
bar, the fact that the CA petition not only contested the
applicability of Sec. 100 of the NIRC over the sales
transaction but likewise questioned the validity of Sec.
7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the
CTA of its jurisdiction over the controversy, contrary to
petitioner’s arguments.