Taxation; Prescription; Having settled that the case falls under Section 203 of report sales, receipts or income
come in an amount exceeding thirty percent (30%)
the Tax Code, the three (3)-year prescriptive period should be applied.—For
the ten-year period under Section 222(a) to apply, it is not enough that fraud
is alleged in the complaint, it must be established by clear and convincing
evidence. The petitioner, having failed to discharge the burden of proving
fraud, cannot invoke Section 222(a). Having settled that the case falls under
Section 203 of the Tax Code, the three-year prescriptive period should be
applied. In GMCC’s case, the last day prescribed by law for filing its 1998 tax
return was April 15, 1999. The petitioner had three years or until 2002 to
make an assessment. Since the Preliminary Assessment was made only on
December 8, 2003, the period to assess the tax had already prescribed.
Republic vs. GMCC United Development Corporation, 813 SCRA 136,
G.R. No. 191856 December 7, 2016
Remedial Law; Civil Procedure; Courts; Court of Tax Appeals; The findings of
fact of the Court of Tax Appeals (CTA) are, as a rule, respected by the
Supreme Court (SC), but they can be set aside in exceptional cases.—It is
true that the findings of fact of the CTA are, as a rule, respected by the Court,
but they can be set aside in exceptional cases. In Barcelon, Roxas Securities,
Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal
Revenue, 498 SCRA 126 (2006), this Court in Toshiba Information Equipment
(Phils.), Inc. v. Commissioner of Internal Revenue, explicitly pronounced —
Jurisprudence has consistently shown that this Court accords the findings of
fact by the CTA with the highest respect. In Sea-Land Service, Inc. v. Court of
Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this
Court recognizes that the Court of Tax Appeals, which by the very nature of
its function is dedicated exclusively to the consideration of tax problems, has
necessarily developed an expertise on the subject, and its conclusions will not
be overturned unless there has been an abuse or improvident exercise of
authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or
abuse on the part of the Tax Court. In the absence of any clear and
convincing proof to the contrary, this Court must presume that the CTA
rendered a decision which is valid in every respect.
Taxation; Assessment; Tax Assessment; Generally, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law
for the filing of the return, or where the return is filed beyond the period,
from the day the return was actually filed; In the case of a false or fraudulent
return with intent to evade tax or of failure to file a return, the assessment
may be made within ten (10) years from the discovery of the falsity, fraud or
omission.—Generally, internal revenue taxes shall be assessed within three
(3) years after the last day prescribed by law for the filing of the return, or
where the return is filed beyond the period, from the day the return was
actually filed. Section 222 of the NIRC, however, provides for exceptions to
the general rule. It states that in the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the assessment may be made
within ten (10) years from the discovery of the falsity, fraud or omission.
Same; Same; Same; Under Section 248(B) of the National Internal Revenue
Code (NIRC), there is a prima facie evidence of a false return if there is a
substantial underdeclaration of taxable sales, receipt or income. The failure to
what is declared in the returns constitutes substantial underdeclaration.—
Under Section 248(B) of the NIRC, there is a prima facie evidence of a false
return if there is a substantial underdeclaration of taxable sales, receipt or
income. The failure to report sales, receipts or income in an amount
exceeding 30% what is declared in the returns constitute substantial
underdeclaration. A prima facie evidence is one which that will establish a fact
or sustain a judgment unless contradictory evidence is produced. In other
words, when there is a showing that a taxpayer has substantially
underdeclared its sales, receipt or income, there is a presumption that it has
filed a false return. As such, the CIR need not immediately present evidence
to support the falsity of the return, unless the taxpayer fails to overcome the
presumption against it.
Same; Same; Same; In Samar-I Electric Cooperative v. Commissioner of
Internal Revenue, 744 SCRA 459 (2014), the Supreme Court (SC) ruled that
it sufficed that the taxpayer was substantially informed of the legal and
factual bases of the assessment enabling him to file an effective protest.—It is
true that neither the FAN nor the FDDA explicitly stated that the applicable
prescriptive period was the ten (10)-year period set in Section 222 of the
NIRC. They, however, made reference to the PAN, which categorically stated
that “[t]he running of the three-year statute of limitation as provided under
Section 203 of the 1997 National Internal Revenue Code (NIRC) is not
applicable x x x but rather to the ten (10)-year prescriptive period pursuant
to Section 222(A) of the tax code x x x.” In Samar-I Electric Cooperative v.
Commissioner of Internal Revenue, 744 SCRA 459 (2014), the Court ruled
that it sufficed that the taxpayer was substantially informed of the legal and
factual bases of the assessment enabling him to file an effective protest.
Commissioner of Internal Revenue vs. Asalus Corporation, 818 SCRA
543, G.R. No. 221590 February 22, 2017
Taxation; To avail of the extraordinary period of assessment in Section 222(a)
of the National Internal Revenue Code (NIRC), the Commissioner of Internal
Revenue (CIR) should show that the facts upon which the fraud is based is
communicated to the taxpayer.—To avail of the extraordinary period of
assessment in Section 222(a) of the National Internal Revenue Code, the
Commissioner of Internal Revenue should show that the facts upon which the
fraud is based is communicated to the taxpayer. The burden of proving that
the facts exist in any subsequent proceeding is with the Commissioner.
Furthermore, the Final Assessment Notice is not valid if it does not contain a
definite due date for payment by the taxpayer.
Same; Assessment refers to the determination of the taxes due from a
taxpayer under the National Internal Revenue Code (NIRC) of 1997.—An
assessment “refers to the determination of amounts due from a person
obligated to make payments.” “In the context of national internal revenue
collection, it refers to the determination of the taxes due from a taxpayer
under the National Internal Revenue Code of 1997.”
Same; The formal letter of demand and assessment notice shall state the
facts, jurisprudence, and law on which the assessment was based; otherwise,
these shall be void.—The formal letter of demand and assessment notice shall
state the facts, jurisprudence, and law on which the assessment was based;
otherwise, these shall be void. The taxpayer or the authorized representative
may administratively protest the formal letter of demand and assessment
notice within 30 days from receipt of the notice.
Same; Between the power of the State to tax and an individual’s right to due
process, the scale favors the right of the taxpayer to due process.—The
rationale behind the requirement that taxpayers should be informed of the
facts and the law on which the assessments are based conforms with the
constitutional mandate that no person shall be deprived of his or her property
without due process of law. Between the power of the State to tax and an
individual’s right to due process, the scale favors the right of the taxpayer to
due process.
Same; The purpose of the written notice requirement is to aid the taxpayer in
making a reasonable protest, if necessary. Merely notifying the taxpayer of
his or her tax liabilities without details or particulars is not enough.—The
purpose of the written notice requirement is to aid the taxpayer in making a
reasonable protest, if necessary. Merely notifying the taxpayer of his or her
tax liabilities without details or particulars is not enough.
Same; To immediately ensue with tax collection without initially
substantiating a valid assessment contravenes the principle in administrative
investigations that taxpayer should be able to present their case and adduce
supporting evidence.—Due process requires that taxpayers be informed in
writing of the facts and law on which the assessment is based in order to aid
the taxpayer in making a reasonable protest. To immediately ensue with tax
collection without initially substantiating a valid assessment contravenes the
principle in administrative investigations “that taxpayers should be able to
present their case and adduce supporting evidence.”
Same; The prescriptive period in making an assessment depends upon
whether a tax return was filed or whether the tax return filed was either false
or fraudulent.—The prescriptive period in making an assessment depends
upon whether a tax return was filed or whether the tax return filed was either
false or fraudulent. When a tax return that is neither false nor fraudulent has
been filed, the Bureau of Internal Revenue may assess within three (3) years,
reckoned from the date of actual filing or from the last day prescribed by law
for filing.
Same; The willful neglect to file the required tax return or the fraudulent
intent to evade the payment of taxes cannot be presumed.—Fraud is a
question of fact that should be alleged and duly proven. “The willful neglect to
file the required tax return or the fraudulent intent to evade the payment of
taxes, considering that the same is accompanied by legal consequences,
cannot be presumed.” Fraud entails corresponding sanctions under the tax
law.
Same; The issuance of a valid formal assessment is a substantive prerequisite
for collection of taxes.—The issuance of a valid formal assessment is a
substantive prerequisite for collection of taxes. Neither the National Internal
Revenue Code nor the revenue regulations provide for a “specific definition or
form of an assessment.”
Same; Taxes are the lifeblood of government and should be collected without
hindrance. However, the collection of taxes should be exercised reasonably
and in accordance with the prescribed procedure.—Taxes are the lifeblood of
government and should be collected without hindrance. However, the
collection of taxes should be exercised “reasonably and in accordance with the
prescribed procedure.” Commissioner of Internal Revenue vs. Fitness by
Design, Inc., 808 SCRA 422, G.R. No. 215957 November 9, 2016
Taxation; Income Tax; Assessments; Prescription; Proceeding for collection of
deficiency taxes based on false return, fraudulent return or failure to file a
return prescribes in ten years.—In the three different cases of (1) false
return, (2) fraudulent return with intent to evade tax, (3) failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within ten years
after the discovery of the falsity, fraud, or omission.
Same; Same; Words and phrases; Distinction between false return and
fraudulent return explained.—Our stand that the law should be interpreted to
mean a separation of the three different situations of false return, fraudulent
return with intent to evade tax, and failure to file a return is strengthened
immeasurably by the last portion of the provision which segregates the
situations into three different classes, namely—“falsity”, “fraud” and
“omission”. That there is a difference between “false return” and “fraudulent
return” cannot be denied. While the first merely implies deviation from the
truth, whether intentional or not, the second implies intentional or deceitful
entry with intent to evade the taxes due.
Same; Same; Assessments; Prescription; Ten year period of prescription
applies where the government is prevented from making proper
assessments.—The ordinary period of prescription of 5 years within which to
assess tax liabilities under Sec. 331 of the NIRC should be applicable to
normal circumstances, but whether the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax
liabilities due to false returns, fraudulent returns intended to evade payment
of tax or failure to file returns, the period of ten years provided for in Sec.
332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission
even seems to be inadequate and should be the one enforced.
Same; Court of Tax Appeals; Findings of fact of the tax court will not be
disturbed if supported by substantial evidence.—As to the alleged errors
committed by the Court of Tax Appeals in not deducting from the alleged
undeclared income of the taxpayer for 1946 the proceeds from the sale of
jewelries valued at P30,000; in not excluding from other schedules of assets
of the taxpayer certain items, these issues would depend for their resolution
on determination of questions of facts based on an evaluation of evidence,
and the general rule is that the findings of fact of the Court of Tax Appeals
supported by substantial evidence should not be disturbed upon review of its
decision.
Same; Income tax; Assessments; Reconstruction of property does not render
it valueless as an asset.—Regarding a house in Talisay, Cebu (covered by Tax
Declaration No. 8165) which was listed as an asset during the years 1945 and
1947 to 1951, but which was not listed as an asset in 1946 because of a
notation in the tax declaration that it was reconstructed in 1947, the lower
court correctly concluded that the reconstruction of the property did not
render it valueless during the time it was being reconstructed and
consequently it should be listed as an asset as of January 1, 1946, with the
same valuation as in 1945, that is P1,500.
Same; Same; Same; Taxpayer’s statements to the bank as to his assets
prevail over contrary claims made during the hearing.—On the question of
accounts receivables, doubtful accounts (bad debts), and valuation of
buildings, it is clear that they were included in the taxpayer’s statements
given to the Philippine National Bank. These statements are to be given
greater credit over subsequent claims tending to alter the taxpayer’s own
estimate of his assets.
Same; Same; Same; Buildings destroyed by typhoon should be written off as
assets of the taxpayer.—Petitioner did not question the inclusion of these
buildings in the inventory for the years prior to 1950, but objected to their
inclusion as assets as of January 1, 1950, because both buildings were
destroyed by a typhoon in November of 1949. There is sufficient evidence
(Exh. G-1, etc.) to prove that the two buildings were really destroyed by
typhoon in 1949 and, therefore, should be eliminated from the petitioner’s
inventory of assets beginning December 31, 1949.
Same; Same; Same; Expenses in hollow-blocks business are investments and
should be treated as assets.—The inclusion of expenses (labor and raw
materials) as part of the hollow block business is sanctioned in the inventory
method of tax verification. It is a sound accounting practice to include raw
materials that will be used for future manufacture. Inclusion of direct labor is
also proper, as all these items are to be embodied in a summary of assets.
There is no evidence to show that there was duplication in the inclusion of the
building used for hollow blocks business as part of petitioner’s investment as
this building was not included in the listing of real properties of petitioner
(Exh. 45-C p. 187 B.I.R. rec.).
Same; Same; Penalties; Actual fraud, not constructive fraud, is subject to
50% surcharge as penalty.—The lower court’s conclusion regarding the
existence of fraudulent intent to evade payment of taxes was based merely
on a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. The
fraud contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done or
resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to evade the
tax contemplated by law. It must amount to intentional wrong-doing with the
sole object of avoiding the tax. Aznar vs. Court of Tax Appeals, 58 SCRA
519, No. L-20569 August 23, 1974
Statutory Construction; Verba Legis Doctrine; Following the verba legis
doctrine, the law must be applied exactly as worded since it is clear, plain,
and unequivocal.—Following the verba legis doctrine, the law must be applied
exactly as worded since it is clear, plain, and unequivocal. A textual reading
of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options:
1. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days from
receipt of the whole or partial denial of the protest. 2. If the protest is wholly
or partially denied by the CIR’s authorized representative, then the taxpayer
may appeal to the CIR within 30 days from receipt of the whole or partial
denial of the protest. 3. If the CIR or his authorized representative failed to
act upon the protest within 180 days from submission of the required
supporting documents, then the taxpayer may appeal to the CTA within 30
days from the lapse of the 180-day period. Philippine Amusement and
Gaming Corporation vs. Bureau of Internal Revenue, 782 SCRA 402,
G.R. No. 208731 January 27, 2016
Taxation; National Internal Revenue Code; Assessments; Under Section 228
of the National Internal Revenue Code (NIRC), a tax payer shall be informed
in writing of the law and the facts on which the assessment is made,
otherwise, the assessment shall be void.—Central to the resolution of the
issue is Section 228 of the NIRC and RR No. 12-99, as amended. They lay out
the procedure to be followed in tax assessments. Under Section 228 of the
NIRC, a taxpayer shall be informed in writing of the law and the facts on
which the assessment is made, otherwise, the assessment shall be void. In
implementing Section 228 of the NIRC, RR No. 12-99 reiterates the
requirement that a taxpayer must be informed in writing of the law and the
facts on which his tax liability was based.
Same; Same; Same; Section 3.1.6 of Revenue Regulations (RR) No. 12-99
specifically requires that the decision of the Commissioner of Internal
Revenue (CIR) or his duly authorized representative on a disputed
assessment shall state the facts, law and rules and regulations, or
jurisprudence on which the decision is based.—The importance of providing
the taxpayer of adequate written notice of his tax liability is undeniable.
Section 228 of the NIRC declares that an assessment is void if the taxpayer is
not notified in writing of the facts and law on which it is made. Again, Section
3.1.4 of RR No. 12-99 requires that the FLD must state the facts and law on
which it is based, otherwise, the FLD/FAN itself shall be void. Meanwhile,
Section 3.1.6 of RR No. 12-99 specifically requires that the decision of the CIR
or his duly authorized representative on a disputed assessment shall state the
facts, law and rules and regulations, or jurisprudence on which the decision is
based. Failure to do so would invalidate the FDDA.
Same; Same; Same; As implemented by Revenue Regulations (RR) No. 12-
99, the written notice requirement for both the Formal Letter of Demand
(FLD) and the Formal Assessment Notice (FAN), is in observance of due
process — to afford the taxpayer adequate opportunity to file a protest on the
assessment and thereafter file an appeal in case of an adverse decision.—
Section 228 of the NIRC should not be read restrictively as to limit the written
notice only to the assessment itself. As implemented by RR No. 12-99, the
written notice requirement for both the FLD and the FAN is in observance of
due process — to afford the taxpayer adequate opportunity to file a protest
on the assessment and thereafter file an appeal in case of an adverse
decision. To rule otherwise would tolerate abuse and prejudice. Taxpayers will
be unable to file an intelligent appeal before the CTA as they would be
unaware on how the CIR or his authorized representative appreciated the
defense raised in connection with the assessment. On the other hand, it
raises the possibility that the amounts reflected in the FDDA were arbitrarily
made if the factual and legal bases thereof are not shown.
Same; Assessments; Courts; Court of Tax Appeals; Jurisdiction; The Court of
Tax Appeals (CTA) is conferred with appellate jurisdiction over the decision of
the Commissioner of Internal Revenue (CIR) in cases involving disputed
assessments, as well as inaction of the CIR in disputed assessments.—The
CTA is conferred with appellate jurisdiction over the decision of the CIR in
cases involving disputed assessments, as well as inaction of the CIR in
disputed assessments. From the foregoing, it is clear that what is appealable
to the CTA is the “decision” of the CIR on disputed assessment and not the
assessment itself. An assessment becomes a disputed assessment after a
taxpayer has filed its protest to the assessment in the administrative level.
Thereafter, the CIR either issues a decision on the disputed assessment or
fails to act on it and is, therefore, considered denied. The taxpayer may then
appeal the decision on the disputed assessment or the inaction of the CIR. As
such, the FDDA is not the only means that the final tax liability of a taxpayer
is fixed, which may then be appealed by the taxpayer. Under the law, inaction
on the part of the CIR may likewise result in the finality of a taxpayer’s tax
liability as it is deemed a denial of the protest filed by the latter, which may
also be appealed before the CTA.
Same; Same; Final Decision on Disputed Assessment; Failure of the Final
Decision on Disputed Assessment (FDDA) to reflect the facts and law on which
it is based will make the decision void. It, however, does not extend to the
nullification of the entire assessment.—Section 228 of the NIRC provides that
an assessment shall be void if the taxpayer is not informed in writing of the
law and the facts on which it is based. It is, however, silent with regards to a
decision on a disputed assessment by the CIR which fails to state the law and
facts on which it is based. This void is filled by RR No. 12-99 where it is stated
that failure of the FDDA to reflect the facts and law on which it is based will
make the decision void. It, however, does not extend to the nullification of
the entire assessment.
Same; Same; Due Process; The reason for requiring that taxpayers be
informed in writing of the facts and law on which the assessment is made is
the constitutional guarantee that no person shall be deprived of his property
without due process of law.—The reason for requiring that taxpayers be
informed in writing of the facts and law on which the assessment is made is
the constitutional guarantee that no person shall be deprived of his property
without due process of law. Merely notifying the taxpayer of its tax liabilities
without elaborating on its details is insufficient. Commissioner of Internal
Revenue vs.<br/>Liquigaz Philippines Corporation, 790 SCRA 79, G.R.
No. 215534, G.R. No. 215557 April 18, 2016
Corporation Law; Taxation; Respondent is not liable for the payment of
documentary stamp tax (DST) on its deposit on subscription for the reason
that there is yet no subscription that creates rights and obligations between
the subscriber and the corporation.—The deposit on stock subscription as
reflected in respondent’s Balance Sheet as of 1998 is not a subscription
agreement subject to the payment of DST. There is no P800,000 worth of
subscribed capital stock that is reflected in respondent’s GIS. The deposit on
stock subscription is merely an amount of money received by a corporation
with a view of applying the same as payment for additional issuance of shares
in the future, an event which may or may not happen. The person making a
deposit on stock subscription does not have the standing of a stockholder and
he is not entitled to dividends, voting rights or other prerogatives and
attributes of a stockholder. Hence, respondent is not liable for the payment of
DST on its deposit on subscription for the reason that there is yet no
subscription that creates rights and obligations between the subscriber and
the corporation.
Same; Same; Section 228 states that if the protest is not acted upon within
180 days from submission of documents, the taxpayer adversely affected by
the inaction may appeal to the Court of Tax Appeals (CTA) within 30 days
from the lapse of the 180-day period.—Section 228 states that if the protest
is not acted upon within 180 days from submission of documents, the
taxpayer adversely affected by the inaction may appeal to the CTA within 30
days from the lapse of the 180-day period. Respondent, having submitted its
supporting documents on the same day the protest was filed, had until 31
July 2002 to wait for petitioner’s reply to its protest. On 28 August 2002 or
within 30 days after the lapse of the 180-day period counted from the filing of
the protest as the supporting documents were simultaneously filed,
respondent filed a petition before the CTA. Commissioner of Internal
Revenue vs. First Express Pawnshop Company, Inc., 589 SCRA 253,
G.R. Nos. 172045-46 June 16, 2009
Taxation; Statute of Limitations; Under Section 223 of the Tax Reform Act of
1997, the running of the Statute of Limitations provided under the provisions
of Sections 203 and 222 of the same Act shall be suspended when the
taxpayer cannot be located in the address given by him in the return filed
upon which a tax is being assessed or collected.—It is true that, under
Section 223 of the Tax Reform Act of 1997, the running of the Statute of
Limitations provided under the provisions of Sections 203 and 222 of the
same Act shall be suspended when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or
collected. In addition, Section 11 of Revenue Regulation No. 12-85 states
that, in case of change of address, the taxpayer is required to give a written
notice thereof to the Revenue District Officer or the district having jurisdiction
over his former legal residence and/or place of business. However, this Court
agrees with both the CTA Special First Division and the CTA En Banc in their
ruling that the above mentioned provisions on the suspension of the three-
year period to assess apply only if the BIR Commissioner is not aware of the
whereabouts of the taxpayer.
Same; Same; In a number of cases, the Supreme Court (SC) has explained
that the statute of limitations on the collection of taxes primarily benefits the
taxpayer.—It bears stressing that, in a number of cases, this Court has
explained that the statute of limitations on the collection of taxes primarily
benefits the taxpayer. In these cases, the Court exemplified the detrimental
effects that the delay in the assessment and collection of taxes inflicts upon
the taxpayers. Thus, in Commissioner of Internal Revenue v. Philippine Global
Communication, Inc., 506 SCRA 427 (2006), this Court echoed Justice
Montemayor’s disquisition in his dissenting opinion in Collector of Internal
Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 819 (1958),
regarding the potential loss to the taxpayer if the assessment and collection
of taxes are not promptly made, thus: Prescription in the assessment and in
the collection of taxes is provided by the Legislature for the benefit of both
the Government and the taxpayer; for the Government for the purpose of
expediting the collection of taxes, so that the agency charged with the
assessment and collection may not tarry too long or indefinitely to the
prejudice of the interests of the Government, which needs taxes to run it; and
for the taxpayer so that within a reasonable time after filing his return, he
may know the amount of the assessment he is required to pay, whether or
not such assessment is well-founded and reasonable so that he may either
pay the amount of the assessment or contest its validity in court x x x. It
would surely be prejudicial to the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and the collection because
by the time the collecting agency finally gets around to making the
assessment or making the collection, the taxpayer may then have lost his
papers and books to support his claim and contest that of the Government,
and what is more, the tax is in the meantime accumulating interest which the
taxpayer eventually has to pay.
Same; Assessment; To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations: that taxpayers should be able to present
their case and adduce supporting evidence.—It might not also be amiss to
point out that petitioner’s issuance of the First Notice Before Issuance of
Warrant of Distraint and Levy violated respondent’s right to due process
because no valid notice of assessment was sent to it. An invalid assessment
bears no valid fruit. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations: that taxpayers should be able to present
their case and adduce supporting evidence. In the instant case, respondent
has not properly been informed of the basis of its tax liabilities. Without
complying with the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because no
effective protest can be made. Commissioner of Internal Revenue vs.
BASF Coating + Inks Phil., Inc., 743 SCRA 113, G.R. No. 198677
November 26, 2014
Courts; Taxation; National Internal Revenue Code; Section 203 of the NIRC
provides that internal revenue taxes must be assessed within three years
from the last day within which to file the return.—The issuance of an
assessment is vital in determining the period of limitation regarding its proper
issuance and the period within which to protest it. Section 203 of the NIRC
provides that internal revenue taxes must be assessed within three years
from the last day within which to file the return. Section 222, on the other
hand, specifies a period of ten years in case a fraudulent return with intent to
evade was submitted or in case of failure to file a return. Also, Section 228 of
the same law states that said assessment may be protested only within thirty
days from receipt thereof. Necessarily, the taxpayer must be certain that a
specific document constitutes an assessment. Otherwise, confusion would
arise regarding the period within which to make an assessment or to protest
the same, or whether interest and penalty may accrue thereon.
Same; Same; Same; Assessment is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer.—It
should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer. In the
present case, the revenue officers’ Affidavit merely contained a computation
of respondents’ tax liability. It did not state a demand or a period for
payment. Worse, it was addressed to the justice secretary, not to the
taxpayers.
Same; Same; Same; Section 222 of the NIRC specifically states that in cases
of failure to file a return, proceedings in court may be commenced without an
assessment.—Private respondents maintain that the filing of a criminal
complaint must be preceded by an assessment. This is incorrect, because
Section 222 of the NIRC specifically states that in cases where a false or
fraudulent return is submitted or in cases of failure to file a return such as
this case, proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates that the civil
and criminal aspects of the case may be pursued simultaneously. In Ungab v.
Cusi, petitioner therein sought the dismissal of the criminal Complaints for
being premature, since his protest to the CTA had not yet been resolved. The
Court held that such protests could not stop or suspend the criminal action
which was independent of the resolution of the protest in the CTA. This was
because the commissioner of internal revenue had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal case against
the taxpayer or to do both.
Same; Same; Same; Section 222 states that an assessment is not necessary
before a criminal charge can be filed.—Private respondents insist that Section
222 should be read in relation to Section 255 of the NIRC, which penalizes
failure to file a return. They add that a tax assessment should precede a
criminal indictment. We disagree. To reiterate, said Section 222 states that an
assessment is not necessary before a criminal charge can be filed. This is the
general rule. Private respondents failed to show that they are entitled to an
exception. Moreover, the criminal charge need only be supported by a prima
facie showing of failure to file a required return. This fact need not be proven
by an assessment.
Same; Same; Same; A criminal complaint is instituted not to demand
payment, but to penalize the taxpayer for violation of the Tax Code.—The
issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-
assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by
him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast,
the criminal charge need not go through all these. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case
had been filed against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.
Commissioner of Internal Revenue vs. Pascor Realtyand Development
Corporation, 309 SCRA 402, G.R. No. 128315 June 29, 1999
Taxation; Tax Exemptions; When a non-stock, nonprofit educational
institution proves that it uses its revenues actually, directly, and exclusively
for educational purposes, it shall be exempted from income tax, value-added
tax (VAT), and local business tax. On the other hand, when it also shows that
it uses its assets in the form of real property for educational purposes, it shall
be exempted from real property tax.—Thus, when a non-stock, nonprofit
educational institution proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted from income tax,
VAT, and LBT. On the other hand, when it also shows that it uses its assets in
the form of real property for educational purposes, it shall be exempted from
RPT.
Same; Same; Income and revenues of non-stock, nonprofit educational
institution not used actually, directly and exclusively for educational purposes
are not exempt from duties and taxes.—Parenthetically, income and revenues
of non-stock, nonprofit educational institution not used actually, directly and
exclusively for educational purposes are not exempt from duties and taxes. To
avail of the exemption, the taxpayer must factually prove that it used
actually, directly and exclusively for educational purposes the revenues or
income sought to be exempted.
Same; Same; While a non-stock, nonprofit educational institution is classified
as a tax-exempt entity under Section 30 (Exemptions from Tax on
Corporations) of the National Internal Revenue Code (NIRC), a proprietary
educational institution is covered by Section 27 (Rates of Income Tax on
Domestic Corporations).—While a non-stock, nonprofit educational institution
is classified as a tax-exempt entity under Section 30 (Exemptions from Tax
on Corporations) of the Tax Code, a proprietary educational institution is
covered by Section 27 (Rates of Income Tax on Domestic Corporations).
Same; A proprietary educational institution is entitled only to the reduced rate
of ten percent (10%) corporate income tax. The reduced rate is applicable
only if: (1) the proprietary educational institution is nonprofit and (2) its gross
income from unrelated trade, business or activity does not exceed fifty
percent (50%) of its total gross income.—By the Tax Code’s clear terms, a
proprietary educational institution is entitled only to the reduced rate of 10%
corporate income tax. The reduced rate is applicable only if: (1) the
proprietary educational institution is nonprofit and (2) its gross income from
unrelated trade, business or activity does not exceed 50% of its total gross
income.
Same; The last paragraph of Section 30 of the National Internal Revenue
Code (NIRC) is declared without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of non-
stock, nonprofit educational institutions used actually, directly and exclusively
for educational purpose.—Thus, we declare the last paragraph of Section 30
of the Tax Code without force and effect for being contrary to the Constitution
insofar as it subjects to tax the income and revenues of non-stock, nonprofit
educational institutions used actually, directly and exclusively for educational
purpose. We make this declaration in the exercise of and consistent with our
duty to uphold the primacy of the Constitution.
Same; The requirement to specify the taxable period covered by the Letter of
Authority (LOA) is simply to inform the taxpayer of the extent of the audit
and the scope of the revenue officer’s authority.—Read in this light, the
requirement to specify the taxable period covered by the LOA is simply to
inform the taxpayer of the extent of the audit and the scope of the revenue
officer’s authority. Without this rule, a revenue officer can unduly burden the
taxpayer by demanding random accounting records from random unverified
years, which may include documents from as far back as ten years in cases of
fraud audit.
Same; Jurisdiction; Court of Tax Appeals; The Court will not lightly set aside
the conclusions reached by the Court of Tax Appeals (CTA) which, by the very
nature of its function of being dedicated exclusively to the resolution of tax
problems, has developed an expertise on the subject, unless there has been
an abuse or improvident exercise of authority.—It is doctrinal that the Court
will not lightly set aside the conclusions reached by the CTA which, by the
very nature of its function of being dedicated exclusively to the resolution of
tax problems, has developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority. We thus accord the
findings of fact by the CTA with the highest respect.
Taxation; Equality and uniformity of taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate.—Equality
and uniformity of taxation means that all taxable articles or kinds of property
of the same class shall be taxed at the same rate. A tax is uniform when it
operates with the same force and effect in every place where the subject of it
is found. Commissioner of Internal Revenue vs. De La Salle University,
Inc., 808 SCRA 156, G.R. No. 196596, G.R. No. 198841, G.R. No.
198941 November 9, 2016
Taxation; Tax Amnesty; Taxpayers with pending tax cases may avail
themselves of the tax amnesty program under Republic Act (RA) No. 9480.—
Taxpayers with pending tax cases may avail themselves of the tax amnesty
program under Republic Act No. 9480. In CS Garment, Inc. v. Commissioner
of Internal Revenue, 718 SCRA 614 (2014), this court has “definitively
declare[d] . . . the exception ‘[i]ssues and cases which were ruled by any
court (even without finality) in favor of the BIR prior to amnesty availment of
the taxpayer’ under BIR [Revenue Memorandum Circular No.] 19-2008 [as]
invalid, [for going] beyond the scope of the provisions of the 2007 Tax
Amnesty Law.”

Same; Same; There is nothing in Republic Act (RA) No. 9480 which can be
construed as authority for respondent Commissioner of Internal Revenue
(CIR) to introduce exceptions and/or conditions to the coverage of the law nor
to disregard its provisions and substitute his own personal judgment.—
Contrary to respondent Commissioner of Internal Revenue’s stance, Republic
Act No. 9480 confers no discretion on respondent Commissioner of Internal
Revenue. The provisions of the law are plain and simple. Unlike the power to
compromise or abate a taxpayer’s liability under Section 204 of the 1997
National Internal Revenue Code that is within the discretion of respondent
Commissioner of Internal Revenue, its authority under Republic Act No. 9480
is limited to determining whether (a) the taxpayer is qualified to avail oneself
of the tax amnesty; (b) all the requirements for availment under the law were
complied with; and (c) the correct amount of amnesty tax was paid within the
period prescribed by law. There is nothing in Republic Act No. 9480 which can
be construed as authority for respondent Commissioner of Internal Revenue
to introduce exceptions and/or conditions to the coverage of the law nor to
disregard its provisions and substitute his own personal judgment.
Same; Same; A tax amnesty “partakes of an absolute waiver by the
Government of its right to collect what otherwise would be due it.”—Republic
Act No. 9480 provides a general grant of tax amnesty subject only to the
cases specifically excepted by it. A tax amnesty “partakes of an absolute . . .
waiver by the Government of its right to collect what otherwise would be due
it[.]” The effect of a qualified taxpayer’s submission of the required
documents and the payment of the prescribed amnesty tax was immunity
from payment of all national internal revenue taxes as well as all
administrative, civil, and criminal liabilities founded upon or arising from
nonpayment of national internal revenue taxes for taxable year 2005 and
prior taxable years.
Same; Same; Documentary Stamp Tax; Income Taxation; The documentary
stamp tax (DST) and onshore income tax are covered
by the tax amnesty program under Republic Act (RA) No. 9480 and its
Implementing Rules and Regulations (IRR).—The documentary stamp tax and
onshore income tax are covered by the tax amnesty program under Republic
Act No. 9480 and its Implementing Rules and Regulations. Moreover, as to
the deficiency tax on onshore interest income, it is worthy to state that
petitioner ING Bank was assessed by respondent Commissioner of Internal
Revenue, not as a withholding agent, but as one that was directly liable for
the tax on onshore interest income and failed to pay the same. Considering
petitioner ING Bank’s tax amnesty availment, there is no more issue
regarding its liability for deficiency documentary stamp taxes on its special
savings accounts for 1996 and 1997 and deficiency tax on onshore interest
income for 1996, including surcharge and interest.
Same; Income Taxation; Withholding Tax; Under the National Internal
Revenue Code (NIRC), every form of compensation for personal services is
subject to income tax and, consequently, to withholding tax.—Under the
National Internal Revenue Code, every form of compensation for personal
services is subject to income tax and, consequently, to withholding tax. The
term “compensation” means all remunerations paid for services performed by
an employee for his or her employer, whether paid in cash or in kind, unless
specifically excluded under Sections 32(B) and 78(A) of the 1997 National
Internal Revenue Code. The name designated to the remuneration for
services is immaterial. Thus, “salaries, wages, emoluments and honoraria,
bonuses, allowances (such as transportation, representation, entertainment,
and the like), [taxable] fringe benefits[,] pensions and retirement pay, and
other income of a similar nature constitute compensation income” that is
taxable.
Same; Same; Same; The tax on compensation income is withheld at source
under the creditable withholding tax system wherein the tax withheld is
intended to equal or at least approximate the tax due of the payee on the
said income.—The tax on compensation income is withheld at source under
the creditable withholding tax system wherein the tax withheld is intended to
equal or at least approximate the tax due of the payee on the said income. It
was designed to enable (a) the individual taxpayer to meet his or her income
tax liability on compensation earned; and (b) the government to collect at
source the appropriate taxes on compensation. Taxes withheld are creditable
in nature. Thus, the employee is still required to file an income tax return to
report the income and/or pay the difference between the tax withheld and the
tax due on the income. For over withholding, the employee is refunded.
Therefore, absolute or exact accuracy in the determination of the amount of
the compensation income is not a prerequisite for the employer’s withholding
obligation to arise.
Same; Same; Same; Compensation is constructively paid within the meaning
of these regulations when it is credited to the account of or set apart for an
employee so that it may be drawn upon by him at any time although not then
actually reduced to possession.—Constructive payment of compensation is
further defined in Revenue Regulations No. 6-82: Section 25. Applicability;
constructive receipt of compensation.—. . . . Compensation is constructively
paid within the meaning of these regulations when it is credited to the
account of or set apart for an employee so that it may be drawn upon by him
at any time although not then actually reduced to possession. To constitute
payment in such a case, the compensation must be credited or set apart for
the employee without any substantial limitation or restriction as to the time or
manner of payment or condition upon which payment is to be made, and
must be made available to him so that it may be drawn upon at any time, and
its payment brought within his control and disposition.
Same; Same; Same; If the taxpayer is on cash basis, the expense is
deductible in the year it was paid, regardless of the year it was incurred. If he
is on the accrual method, he can deduct the expense upon accrual thereof.—
If the taxpayer is on cash basis, the expense is deductible in the year it was
paid, regardless of the year it was incurred. If he is on the accrual method, he
can deduct the expense upon accrual thereof. An item that is reasonably
ascertained as to amount and acknowledged to be due has “accrued”; actual
payment is not essential to constitute “expense.” Stated otherwise, an
expense is accrued and deducted for tax purposes when (1) the obligation to
pay is already fixed; (2) the amount can be determined with reasonable
accuracy; and (3) it is already knowable or the taxpayer can reasonably be
expected to have known at the closing of its books for the taxable year.

Same; Same; Same; Section 29(j) of the 1977 National Internal Revenue
Code (NIRC) (Section 34[K] of the 1997 NIRC) expressly requires, as a
condition for deductibility of an expense, that the tax required to be withheld
on the amount paid or payable is shown to have been remitted to the Bureau
of Internal Revenue (BIR) by the taxpayer constituted as a withholding agent
of the government.—Section 29(j) of the 1977 National Internal Revenue
Code (Section 34[K] of the 1997 National Internal Revenue Code) expressly
requires, as a condition for deductibility of an expense, that the tax required
to be withheld on the amount paid or payable is shown to have been remitted
to the Bureau of Internal Revenue by the taxpayer constituted as a
withholding agent of the government. The provision of Section 72 of the 1977
National Internal Revenue Code (Section 79 of the 1997 National Internal
Revenue Code) regarding withholding on wages must be read and construed
in harmony with Section 29(j) of the 1977 National Internal Revenue Code
(Section 34[K] of the 1997 National Internal Revenue Code) on deductions
from gross income. This is in accordance with the rule on statutory
construction that an interpretation is to be sought which gives effect to the
whole of the statute, such that every part is made effective, harmonious, and
sensible, if possible, and not defeated nor rendered insignificant,
meaningless, and nugatory. If we go by the theory of petitioner ING Bank,
then the condition imposed by Section 29(j) would have been rendered
nugatory, or we would in effect have created an exception to this mandatory
requirement when there was none in the law. ING Bank N.V. vs.
Commissioner of Internal Revenue, 763 SCRA 359, G.R. No. 167679
July 22, 2015
Taxation; Air Transportation; Petitioner, as an offline international carrier with
no landing rights in the Philippines, is not liable to tax on Gross Philippine
Billings under Section 28(A)(3) of the 1997 National Internal Revenue Code
(NIRC).—At the outset, we affirm the Court of Tax Appeals’ ruling that
petitioner, as an offline international carrier with no landing rights in the
Philippines, is not liable to tax on Gross Philippine Billings under Section
28(A)(3) of the 1997 National Internal Revenue Code: SEC. 28. Rates of
Income Tax on Foreign Corporations.—(A) Tax on Resident Foreign
Corporations.—. . . . (3) International Carrier.—An international carrier doing
business in the Philippines shall pay a tax of two and one-half percent (2
1/2%) on its ‘Gross Philippine Billings’ as defined hereunder: (a) International
Air Carrier.—‘Gross Philippine Billings’ refers to the amount of gross revenue
derived from carriage of persons, excess baggage, cargo and mail originating
from the Philippines in a continuous and uninterrupted flight, irrespective of
the place of sale or issue and the place of payment of the ticket or passage
document: Provided, That tickets revalidated, exchanged and/or indorsed to
another international airline form part of the Gross Philippine Billings if the
passenger boards a plane in a port or point in the Philippines: Provided,
further, That for a flight which originates from the Philippines, but
transshipment of passenger takes place at any port outside the Philippines on
another airline, only the aliquot portion of the cost of the ticket corresponding
to the leg flown from the Philippines to the point of transshipment shall form
part of Gross Philippine Billings. (Emphasis supplied) Under the foregoing
provision, the tax attaches only when the carriage of persons, excess
baggage, cargo, and mail originated from the Philippines in a continuous and
uninterrupted flight, regardless of where the passage documents were sold.
Not having flights to and from the Philippines, petitioner is clearly not liable
for the Gross Philippine Billings tax.
Same; Resident Foreign Corporation; Petitioner falls within the definition of
resident foreign corporation under Section 28(A)(1) of the 1997 National
Internal Revenue Code (NIRC), thus, it may be subject to thirty-two percent
(32%) tax on its taxable income.—Petitioner, an offline carrier, is a resident
foreign corporation for income tax purposes. Petitioner falls within the
definition of resident foreign corporation under Section 28(A)(1) of the 1997
National Internal Revenue Code, thus, it may be subject to 32% tax on its
taxable income. x x x The definition of “resident foreign corporation” has not
substantially changed through-out the amendments of the National Internal
Revenue Code. All versions refer to “a foreign corporation engaged in trade or
business within the Philippines.” Commonwealth Act No. 466, known as the
National Internal Revenue Code and approved on June 15, 1939, defined
“resident foreign corporation” as applying to “a foreign corporation engaged in
trade or business within the Philippines or having an office or place of
business therein.” Section 24(b)(2) of the National Internal Revenue Code, as
amended by Republic Act No. 6110, approved on August 4, 1969, reads: Sec.
24. Rates of tax on corporations.—. . . (b) Tax on foreign corporations.—. . .
(2) Resident corporations.—A corporation organized, authorized, or existing
under the laws of any foreign country, except a foreign life insurance
company, engaged in trade or business within the Philippines, shall be taxable
as provided in subsection (a) of this section upon the total net income
received in the preceding taxable year from all sources within the Philippines.
Same; Same; Doing Business; Words and Phrases; The Implementing Rules
and Regulations (IRR) of Republic Act (RA) No. 7042 clarifies that “doing
business” includes “appointing representatives or distributors, operating
under full control of the foreign corporation, domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods totaling
one hundred eighty (180) days or more.”—Republic Act No. 7042 or the
Foreign Investments Act of 1991 also provides guidance with its definition of
“doing business” with regard to foreign corporations. Section 3(d) of the law
enumerates the activities that constitute doing business: d. the phrase “doing
business” shall include soliciting orders, service contracts, opening offices,
whether called “liaison” offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in
the country for a period or periods totalling one hundred eighty (180) days or
more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any
other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of
the business organization: Provided, however, That the phrase “doing
business” shall not be deemed to include mere investment as a shareholder
by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor; nor having a nominee director
or officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account[.] (Emphasis supplied)
While Section 3(d) above states that “appointing a representative or
distributor domiciled in the Philippines which transacts business in its own
name and for its own account” is not considered as “doing business,” the
Implementing Rules and Regulations of Republic Act No. 7042 clarifies that
“doing business” includes “appointing representatives or distributors,
operating under full control of the foreign corporation, domiciled in the
Philippines or who in any calendar year stay in the country for a period or
periods totaling one hundred eighty (180) days or more[.]”
Air Transportation; Offline Carrier; Words and Phrases; An offline carrier is
“any foreign air carrier not certificated by the [Civil Aeronautics] Board, but
who maintains office or who has designated or appointed agents or
employees in the Philippines, who sells or offers for sale any air transportation
in behalf of said foreign air carrier and/or others, or negotiate for, or holds
itself out by solicitation, advertisement, or otherwise sells, provides,
furnishes, contracts, or arranges for such transportation.”—An offline carrier
is “any foreign air carrier not certificated by the [Civil Aeronautics] Board, but
who maintains office or who has designated or appointed agents or
employees in the Philippines, who sells or offers for sale any air transportation
in behalf of said foreign air carrier and/or others, or negotiate for, or holds
itself out by solicitation, advertisement, or otherwise sells, provides,
furnishes, contracts, or arranges for such transportation.” “Anyone desiring to
engage in the activities of an offline carrier [must] apply to the [Civil
Aeronautics] Board for such authority.” Each offline carrier must file with the
Board a monthly report containing information on the tickets sold, such as the
origin and destination of the passengers, carriers involved, and commissions
received. Petitioner is undoubtedly “doing business” or “engaged in trade or
business” in the Philippines.
Taxation; Resident Foreign Corporation; Petitioner is a resident foreign
corporation that is taxable on its income derived from sources within the
Philippines.—Aerotel performs acts or works or exercises functions that are
incidental and beneficial to the purpose of petitioner’s business. The activities
of Aerotel bring direct receipts or profits to petitioner. There is nothing on
record to show that Aerotel solicited orders alone and for its own account and
without interference from, let alone direction of, petitioner. On the contrary,
Aerotel cannot “enter into any contract on behalf of [petitioner Air Canada]
without the express written consent of [the latter,]” and it must perform its
functions according to the standards required by petitioner. Through Aerotel,
petitioner is able to engage in an economic activity in the Philippines. Further,
petitioner was issued by the Civil Aeronautics Board an authority to operate
as an offline carrier in the Philippines for a period of five years, or from April
24, 2000 until April 24, 2005. Petitioner is a resident foreign corporation that
is taxable on its income derived from sources within the Philippines.
Petitioner’s income from sale of airline tickets, through Aerotel, is income
realized from the pursuit of its business activities in the Philippines.
Same; Same; Air Transportation; International air carrier[s] maintain[ing]
flights to and from the Philippines . . . shall be taxed at the rate of two and
one-half percent (2 1⁄2%) of its Gross Philippine Billings[;] while international
air carriers that do not have flights to and from the Philippines but
nonetheless earn income from other activities in the country [like sale of
airline tickets] will be taxed at the rate of thirty-two percent (32%) of such
[taxable] income.—In the earlier case of South African Airways v.
Commissioner of Internal Revenue, 612 SCRA 665 (2010), this court held that
Section 28(A)(3)(a) does not categorically exempt all international air carriers
from the coverage of Section 28(A)(1). Thus, if Section 28(A)(3)(a) is
applicable to a taxpayer, then the general rule under Section 28(A)(1) does
not apply. If, however, Section 28(A)(3)(a) does not apply, an international
air carrier would be liable for the tax under Section 28(A)(1). This court in
South African Airways declared that the correct interpretation of these
provisions is that: “international air carrier[s] maintain[ing] flights to and
from the Philippines . . . shall be taxed at the rate of 2 1/2% of its Gross
Philippine Billings[;] while international air carriers that do not have flights to
and from the Philippines but nonetheless earn income from other activities in
the country [like sale of airline tickets] will be taxed at the rate of 32% of
such [taxable] income.”
Same; Tax Treaties; Words and Phrases; A tax treaty is an agreement
entered into between sovereign states “for purposes of eliminating double
taxation on income and capital, preventing fiscal evasion, promoting mutual
trade and investment, and according fair and equitable tax treatment to
foreign residents or nationals.”—A tax treaty is an agreement entered into
between sovereign states “for purposes of eliminating double taxation on
income and capital, preventing fiscal evasion, promoting mutual trade and
investment, and according fair and equitable tax treatment to foreign
residents or nationals.” Commissioner of Internal Revenue v. S.C. Johnson
and Son, Inc., 309 SCRA 87 (1999), explained the purpose of a tax treaty:
The purpose of these international agreements is to reconcile the national
fiscal legislations of the contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions. More precisely, the tax
conventions are drafted with a view towards the elimination of international
juridical double taxation, which is defined as the imposition of comparable
taxes in two or more states on the same taxpayer in respect of the same
subject matter and for identical periods. The apparent rationale for doing
away with double taxation is to encourage the free flow of goods and services
and the movement of capital, technology and persons between countries,
conditions deemed vital in creating robust and dynamic economies. Foreign
investments will only thrive in a fairly predictable and reasonable international
investment climate and the protection against double taxation is crucial in
creating such a climate.
Same; Same; Same; The application of the provisions of the National Internal
Revenue Code (NIRC) must be subject to the provisions of tax treaties
entered into by the Philippines with foreign countries.—The application of the
provisions of the National Internal Revenue Code must be subject to the
provisions of tax treaties entered into by the Philippines with foreign
countries. In Deutsche Bank AG Manila Branch v. Commissioner of Internal
Revenue, 704 SCRA 216 (2013), this court stressed the binding effects of tax
treaties. It dealt with the issue of “whether the failure to strictly comply with
[Revenue Memorandum Order] RMO No. 1-2000 will deprive persons or
corporations of the benefit of a tax treaty.”
Air Transportation; General Sales Agent; Words and Phrases; Section 3 of
Republic Act (RA) No. 776, as amended, also known as The Civil Aeronautics
Act of the Philippines, defines a general sales agent as “a person, not a bona
fide employee of an air carrier, who pursuant to an authority from an airline,
by itself or through an agent, sells or offers for sale any air transportation, or
negotiates for, or holds himself out by solicitation, advertisement or otherwise
as one who sells, provides, furnishes, contracts or arranges for, such air
transportation.”—Section 3 of Republic Act No. 776, as amended, also known
as The Civil Aeronautics Act of the Philippines, defines a general sales agent
as “a person, not a bona fide employee of an air carrier, who pursuant to an
authority from an airline, by itself or through an agent, sells or offers for sale
any air transportation, or negotiates for, or holds himself out by solicitation,
advertisement or otherwise as one who sells, provides, furnishes, contracts or
arranges for, such air transportation.” General sales agents and their
property, property rights, equipment, facilities, and franchise are subject to
the regulation and control of the Civil Aeronautics Board. A permit or
authorization issued by the Civil Aeronautics Board is required before a
general sales agent may engage in such an activity.
Taxation; Income Taxation; Income attributable to Aerotel or from business
activities effected by petitioner through Aerotel may be taxed in the
Philippines.—Under Article VII (Business Profits) of the Republic of the
Philippines-Canada Tax Treaty, the “business profits” of an enterprise of a
Contracting State is “taxable only in that State[,] unless the enterprise carries
on business in the other Contracting State through a permanent
establishment[.]” Thus, income attributable to Aerotel or from business
activities effected by petitioner through Aerotel may be taxed in the
Philippines. However, pursuant to the last paragraph of Article VII in relation
to Article VIII (Shipping and Air Transport) of the same Treaty, the tax
imposed on income derived from the operation of ships or aircraft in
international traffic should not exceed 1 1/2% of gross revenues derived from
Philippine sources.
Same; Tax Treaties; Tax treaties form part of the law of the land, and
jurisprudence has applied the statutory construction principle that specific
laws prevail over general ones.—While petitioner is taxable as a resident
foreign corporation under Section 28(A)(1) of the 1997 National Internal
Revenue Code on its taxable income from sale of airline tickets in the
Philippines, it could only be taxed at a maximum of 1 1/2% of gross
revenues, pursuant to Article VIII of the Republic of the Philippines-Canada
Tax Treaty that applies to petitioner as a “foreign corporation organized and
existing under the laws of Canada[.]” Tax treaties form part of the law of the
land, and jurisprudence has applied the statutory construction principle that
specific laws prevail over general ones. The Republic of the Philippines-
Canada Tax Treaty was ratified on December 21, 1977 and became valid and
effective on that date. On the other hand, the applicable provisions relating to
the taxability of resident foreign corporations and the rate of such tax found
in the National Internal Revenue Code became effective on January 1, 1998.
Ordinarily, the later provision governs over the earlier one. In this case,
however, the provisions of the Republic of the Philippines-Canada Tax Treaty
are more specific than the provisions found in the National Internal Revenue
Code.
Same; Tax Refund; In an action for the refund of taxes allegedly erroneously
paid, the Court of Tax Appeals (CTA) may determine whether there are taxes
that should have been paid in lieu of the taxes paid.—In SMI-ED Philippines
Technology, Inc. v. Commissioner of Internal Revenue, 739 SCRA 691
(2014), we have ruled that “[i]n an action for the refund of taxes allegedly
erroneously paid, the Court of Tax Appeals may determine whether there are
taxes that should have been paid in lieu of the taxes paid.” The determination
of the proper category of tax that should have been paid is incidental and
necessary to resolve the issue of whether a refund should be granted.
Same; “Tax” and “Debt,” Distinguished.—Philex Mining Corporation v.
Commissioner of Internal Revenue, 294 SCRA 687 (1998), ruled that “[t]here
is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government
in its sovereign capacity.” Rejecting Philex Mining’s assertion that the
imposition of surcharge and interest was unjustified because it had no
obligation to pay the excise tax liabilities within the prescribed period since,
after all, it still had pending claims for VAT input credit/refund with the
Bureau of Internal Revenue.
Same; Offsetting; The taxpayer cannot simply refuse to pay tax on the
ground that the tax liabilities were offset against any alleged claim the
taxpayer may have against the government.—In sum, the rulings in those
cases were to the effect that the taxpayer cannot simply refuse to pay tax on
the ground that the tax liabilities were offset against any alleged claim the
taxpayer may have against the government. Such would merely be in keeping
with the basic policy on prompt collection of taxes as the lifeblood of the
government. Here, what is involved is a denial of a taxpayer’s refund claim on
account of the Court of Tax Appeals’ finding of its liability for another tax in
lieu of the Gross Philippine Billings tax that was allegedly erroneously paid.
Air Canada vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R.
No. 169507 January 11, 2016
Taxation; Tax Exemptions; The Supreme Court holds that Section 27(B) of
the National Internal Revenue Code (NIRC) does not remove the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and
(G).―The Court partly grants the petition of the BIR but on a different
ground. We hold that Section 27(B) of the NIRC does not remove the income
tax exemption of proprietary non-profit hospitals under Section 30(E) and
(G). Section 27(B) on one hand, and Section 30(E) and (G) on the other
hand, can be construed together without the removal of such tax exemption.
The effect of the introduction of Section 27(B) is to subject the taxable
income of two specific institutions, namely, proprietary non-profit educational
institutions and proprietary non-profit hospitals, among the institutions
covered by Section 30, to the 10% preferential rate under Section 27(B)
instead of the ordinary 30% corporate rate under the last paragraph of
Section 30 in relation to Section 27(A)(1).
Same; Preferential Tax Rate; Section 27(B) of the National Internal Revenue
Code (NIRC) imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals.―Section 27(B) of the NIRC imposes a 10% preferential tax rate on
the income of (1) proprietary non-profit educational institutions and (2)
proprietary non-profit hospitals. The only qualifications for hospitals are that
they must be proprietary and non-profit. “Proprietary” means private,
following the definition of a “proprietary educational institution” as “any
private school maintained and administered by private individuals or groups”
with a government permit. “Non-profit” means no net in come or asset
accrues to or benefits any member or specific person, with all the net income
or asset devoted to the institution’s purposes and all its activities conducted
not for profit.
Same; “Non-profit” does not necessarily mean “charitable.”―“Non-profit”
does not necessarily mean “charitable.” In Collector of Internal Revenue v.
Club Filipino Inc. de Cebu, 5 SCRA 321 (1962), this Court considered as non-
profit a sports club organized for recreation and entertainment of its
stockholders and members. The club was primarily funded by membership
fees and dues. If it had profits, they were used for overhead expenses and
improving its golf course. The club was non-profit because of its purpose and
there was no evidence that it was engaged in a profit-making enterprise.
Same; Tax Exemptions; Charity is essentially a gift to an indefinite number of
persons which lessens the burden of government. In other words, charitable
institutions provide for free goods and services to the public which would
otherwise fall on the shoulders of government; The government forgoes taxes
which should have been spent to address public needs, because certain
private entities already assume a part of the burden.―To be a charitable
institution, however, an organization must meet the substantive test of
charity in Lung Center of the Philippines vs. Quezon City, 433 SCRA 119
(2004). The issue in Lung Center concerns exemption from real property tax
and not income tax. However, it provides for the test of charity in our
jurisdiction. Charity is essentially a gift to an indefinite number of persons
which lessens the burden of government. In other words, charitable
institutions provide for free goods and services to the public which would
otherwise fall on the shoulders of government. Thus, as a matter of efficiency,
the government forgoes taxes which should have been spent to address
public needs, because certain private entities already assume a part of the
burden. This is the rationale for the tax exemption of charitable institutions.
The loss of taxes by the government is compensated by its relief from doing
public works which would have been funded by appropriations from the
Treasury.
Same; Same; Charitable institutions are not ipso facto entitled to a tax
exemption. The requirements for a tax exemption are specified by the law
granting it.―Charitable institutions, however, are not ipso facto entitled to a
tax exemption. The requirements for a tax exemption are specified by the law
granting it. The power of Congress to tax implies the power to exempt from
tax. Congress can create tax exemptions, subject to the constitutional
provision that “[n]o law granting any tax exemption shall be passed without
the concurrence of a majority of all the Members of Congress.” The
requirements for a tax exemption are strictly construed against the taxpayer
because an exemption restricts the collection of taxes necessary for the
existence of the government.
Same; Same; Income Taxation; Real Estate Taxes; For real property taxes,
the incidental generation of income is permissible because the test of
exemption is the use of the property; The effect of failing to meet the use
requirement is simply to remove from the tax exemption that portion of the
property not devoted to charity.―For real property taxes, the incidental
generation of income is permissible because the test of exemption is the use
of the property. The Constitution provides that “[c]haritable institutions,
churches and personages or convents appurtenant thereto, mosques, non-
profit cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes
shall be exempt from taxation.” The test of exemption is not strictly a
requirement on the intrinsic nature or character of the institution. The test
requires that the institution use the property in a certain way, i.e. for a
charitable purpose. Thus, the Court held that the Lung Center of the
Philippines did not lose its charitable character when it used a portion of its lot
for commercial purposes. The effect of failing to meet the use requirement is
simply to remove from the tax exemption that portion of the property not
devoted to charity.
Same; Same; The Constitution exempts charitable institutions only from real
property taxes. In the National Internal Revenue Code (NIRC), Congress
decided to extend the exemption to income taxes.―The Constitution exempts
charitable institutions only from real property taxes. In the NIRC, Congress
decided to extend the exemption to income taxes. However, the way
Congress crafted Section 30(E) of the NIRC is materially different from
Section 28(3), Article VI of the Constitution. Section 30(E) of the NIRC
defines the corporation or association that is exempt from income tax. On the
other hand, Section 28(3), Article VI of the Constitution does not define a
charitable institution, but requires that the institution “actually, directly and
exclusively” use the property for a charitable purpose.
Same; Same; Real Estate Taxes; Income Taxation; To be exempt from real
property taxes, Section 28(3), Article VI of the Constitution requires that a
charitable institution use the property “actually, directly and exclusively” for
charitable purposes. To be exempt from income taxes, Section 30(E) of the
National Internal Revenue Code (NIRC) requires that a charitable institution
must be “organized and operated exclusively” for charitable purposes.
Likewise, to be exempt from income taxes, Section 30(G) of the National
Internal Revenue Code (NIRC) requires that the institution be “operated
exclusively” for social welfare.―There is no dispute that St. Luke’s is
organized as a non-stock and non-profit charitable institution. However, this
does not automatically exempt St. Luke’s from paying taxes. This only refers
to the organization of St. Luke’s. Even if St. Luke’s meets the test of charity,
a charitable institution is not ipso facto tax exempt. To be exempt from real
property taxes, Section 28(3), Article VI of the Constitution requires that a
charitable institution use the property “actually, directly and exclusively” for
charitable purposes. To be exempt from income taxes, Section 30(E) of the
NIRC requires that a charitable institution must be “organized and operated
exclusively” for charitable purposes. Likewise, to be exempt from income
taxes, Section 30(G) of the NIRC requires that the institution be “operated
exclusively” for social welfare.
Same; Same; Even if the charitable institution must be “organized and
operated exclusively” for charitable purposes, it is nevertheless allowed to
engage in “activities conducted for profit” without losing its tax exempt status
for its not-for-profit activities.―Even if the charitable institution must be
“organized and operated exclusively” for charitable purposes, it is
nevertheless allowed to engage in “activities conducted for profit” without
losing its tax exempt status for its not-for-profit activities. The only
consequence is that the “income of whatever kind and character” of a
charitable institution “from any of its activities conducted for profit, regardless
of the disposition made of such income, shall be subject to tax.” Prior to the
introduction of Section 27(B), the tax rate on such income from for-profit
activities was the ordinary corporate rate under Section 27(A). With the
introduction of Section 27(B), the tax rate is now 10%.
Same; Income Taxation; Preferential Tax Rate; The Supreme Court finds that
St. Luke’s is a corporation that is not “operated exclusively” for charitable or
social welfare purposes insofar as its revenues from paying patients are
concerned; Such income from for-profit activities, under the last paragraph of
Section 30, is merely subject to income tax, previously at the ordinary
corporate rate but now at the preferential 10% rate pursuant to Section
27(B).―The Court finds that St. Luke’s is a corporation that is not “operated
exclusively” for charitable or social welfare purposes insofar as its revenues
from paying patients are concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also on the clear and
plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC
requires that an institution be “operated exclusively” for charitable or social
welfare purposes to be completely exempt from income tax. An institution
under Section 30(E) or (G) does not lose its tax exemption if it earns income
from its for-profit activities. Such income from for-profit activities, under the
last paragraph of Section 30, is merely subject to income tax, previously at
the ordinary corporate rate but now at the preferential 10% rate pursuant to
Section 27(B).
Same; Tax Exemptions; A tax exemption is effectively a social subsidy
granted by the State because an exempt institution is spared from sharing in
the expenses of government and yet benefits from them.―A tax exemption is
effectively a social subsidy granted by the State because an exempt
institution is spared from sharing in the expenses of government and yet
benefits from them. Tax exemptions for charitable institutions should
therefore be limited to institutions beneficial to the public and those which
improve social welfare. A profit-making entity should not be allowed to exploit
this subsidy to the detriment of the government and other taxpayers.
Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc.,
682 SCRA 66, G.R. No. 195909 September 26, 2012
Taxation; Assessment; Words and Phrases; The term “assessment” refers to
the determination of amounts due from a person obligated to make
payments.—The term “assessment” refers to the determination of amounts
due from a person obligated to make payments. In the context of national
internal revenue collection, it refers the determination of the taxes due from a
taxpayer under the National Internal Revenue Code of 1997.
Same; Same; Bureau of Internal Revenue; The power and duty to assess
national internal revenue taxes are lodged with the Bureau of Internal
Revenue (BIR).—The power and duty to assess national internal revenue
taxes are lodged with the BIR. Section 2 of the National Internal Revenue
Code of 1997 provides: SEC. 2. Powers and Duties of the Bureau of Internal
Revenue.—The Bureau of Internal Revenue shall be under the supervision and
control of the Department of Finance and its powers and duties shall
comprehend the assessment and collection of all national internal revenue
taxes, fees, and charges, and the enforcement of all forfeitures, penalties,
and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary
courts. The Bureau shall give effect to and administer the supervisory and
police powers conferred to it by this Code or other laws. (Emphasis supplied)
The BIR is not mandated to make an assessment relative to every return filed
with it. Tax returns filed with the BIR enjoy the presumption that these are in
accordance with the law. Tax returns are also presumed correct since these
are filed under the penalty of perjury. Generally, however, the BIR assesses
taxes when it appears, after a return had been filed, that the taxes paid were
incorrect, false, or fraudulent. The BIR also assesses taxes when taxes are
due but no return is filed.
Same; Court of Tax Appeals; Jurisdiction; Section 7(a)(1) and Section 7(a)(2)
of Republic Act (RA) No. 1125, as amended by RA No. 9282, provide that the
Court of Tax Appeals (CTA) reviews decisions and inactions of the
Commissioner of Internal Revenue (CIR) in disputed assessments and claims
for tax refunds.—The Court of Tax Appeals has no power to make an
assessment at the first instance. On matters such as tax collection, tax
refund, and others related to the national internal revenue taxes, the Court of
Tax Appeals’ jurisdiction is appellate in nature. Section 7(a)(1) and Section
7(a)(2) of Republic Act No. 1125, as amended by Republic Act No. 9282,
provide that the Court of Tax Appeals reviews decisions and inactions of the
Commissioner of Internal Revenue in disputed assessments and claims for tax
refunds.
Same; Assessment; Taxes are generally self-assessed. They are initially
computed and voluntarily paid by the taxpayer. The government does not
have to demand it.—Taxes are generally self-assessed. They are initially
computed and voluntarily paid by the taxpayer. The government does not
have to demand it. If the tax payments are correct, the BIR need not make
an assessment. The self-assessing and voluntarily paying taxpayer, however,
may later find that he or she has erroneously paid taxes. Erroneously paid
taxes may come in the form of amounts that should not have been paid.
Thus, a taxpayer may find that he or she has paid more than the amount that
should have been paid under the law. Erroneously paid taxes may also come
in the form of tax payments for the wrong category of tax. Thus, a taxpayer
may find that he or she has paid a certain kind of tax that he or she is not
subject to.
Same; Same; Court of Tax Appeals; The Court of Tax Appeals (CTA) has no
power to make an assessment.—Petitioner argued that the Court of Tax
Appeals had no jurisdiction to subject it to 6% capital gains tax or other taxes
at the first instance. The Court of Tax Appeals has no power to make an
assessment. As earlier established, the Court of Tax Appeals has no
assessment powers. In stating that petitioner’s transactions are subject to
capital gains tax, however, the Court of Tax Appeals was not making an
assessment. It was merely determining the proper category of tax that
petitioner should have paid, in view of its claim that it erroneously imposed
upon itself and paid the 5% final tax imposed upon PEZA-registered
enterprises.
Same; Tax Refunds; A claim for tax refund carries the assumption that the
tax returns filed were correct.—The issue of petitioner’s claim for tax refund is
intertwined with the issue of the proper taxes that are due from petitioner. A
claim for tax refund carries the assumption that the tax returns filed were
correct. If the tax return filed was not proper, the correctness of the amount
paid and, therefore, the claim for refund become questionable. In that case,
the court must determine if a taxpayer claiming refund of erroneously paid
taxes is more properly liable for taxes other than that paid.
Same; Republic Act No. 7916; The purpose of Republic Act (RA) No. 7916 is
to promote development and encourage investments and business activities
that will generate employment.—Essentially, the purpose of Republic Act No.
7916 is to promote development and encourage investments and business
activities that will generate employment. Giving fiscal incentives to businesses
is one of the means devised to achieve this purpose. It comes with the
expectation that persons who will avail these incentives will contribute to the
purpose’s achievement. Hence, to avail the fiscal incentives under Republic
Act No. 7916, the law did not say that mere PEZA registration is sufficient.
Same; Capital Assets; Words and Phrases; “Capital assets” refers to
taxpayer’s property that is NOT any of the following: Stock in trade; Property
that should be included in the taxpayer’s inventory at the close of the taxable
year; Property held for sale in the ordinary course of the taxpayer’s business;
Depreciable property used in the trade or business; and Real property used in
the trade or business.—Thus, “capital assets” refers to taxpayer’s property
that is NOT any of the following: 1. Stock in trade; 2. Property that should be
included in the taxpayer’s inventory at the close of the taxable year; 3.
Property held for sale in the ordinary course of the taxpayer’s business; 4.
Depreciable property used in the trade or business; and 5. Real property used
in the trade or business.
Same; Corporations; For corporations, the National Internal Revenue Code
(NIRC) of 1997 treats the sale of land and buildings, and the sale of
machineries and equipment, differently.—For corporations, the National
Internal Revenue Code of 1997 treats the sale of land and buildings, and the
sale of machineries and equipment, differently. Domestic corporations are
imposed a 6% capital gains tax only on the presumed gain realized from the
sale of lands and/or buildings. The National Internal Revenue Code of 1997
does not impose the 6% capital gains tax on the gains realized from the sale
of machineries and equipment.
Taxation; Assessment; Income Tax Returns; Section 203 of the National
Internal Revenue Code (NIRC) of 1997 provides that as a general rule, the
Bureau of Internal Revenue (BIR) has three (3) years from the last day
prescribed by law for the filing of a return to make an assessment.—Section
203 of the National Internal Revenue Code of 1997 provides that as a general
rule, the BIR has three (3) years from the last day prescribed by law for the
filing of a return to make an assessment. If the return is filed beyond the last
day prescribed by law for filing, the three-year period shall run from the
actual date of filing. Thus: SEC. 203. Period of Limitation Upon Assessment
and Collection.—Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law
for the filing of the return, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such period:
Provided, That in a case where a return is filed beyond the period prescribed
by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such
last day. SMI-ED Philippines Technology, Inc. vs. Commissioner of
Internal Revenue, 739 SCRA 691, G.R. No. 175410 November 12,
2014
Taxation; Capital Gains Tax; The Bureau of Internal Revenue (BIR), in BIR
Ruling No. 476-2013 dated December 18, 2013, has constituted the
Department of Public Works and Highways (DPWH) as a withholding agent
tasked to withhold the six percent (6%) final withholding tax in the
expropriation of real property for infrastructure projects.—The Bureau of
Internal Revenue (BIR), in BIR Ruling No. 476-2013 dated December 18,
2013, has constituted the DPWH as a withholding agent tasked to withhold
the 6% final withholding tax in the expropriation of real property for
infrastructure projects. Thus, as far as the government is concerned, the
capital gains tax in expropriation proceedings remains a liability of the seller,
as it is a tax on the seller’s gain from the sale of real property. Besides, as
previously explained, consequential damages are only awarded if as a result
of the expropriation, the remaining property of the owner suffers from an
impairment or decrease in value. In this case, no evidence was submitted to
prove any impairment or decrease in value of the subject property as a result
of the expropriation. More significantly, given that the payment of capital
gains tax on the transfer of the subject property has no effect on the increase
or decrease in value of the remaining property, it can hardly be considered as
consequential damages that may be awarded to respondents. Republic vs.
Salvador, 826 SCRA 492, G.R. No. 205428 June 7, 2017
Taxation; Umali v. Estanislao, 209 SCRA 446 (1992), supports the Supreme
Court’s (SC’s) stance that Republic Act (RA) No. 9504 should be applied on a
full-year basis for the entire taxable year 2008.—Umali v. Estanislao, 209
SCRA 446 (1992), supports this Court’s stance that R.A. 9504 should be
applied on a full-year basis for the entire taxable year 2008. In Umali,
Congress enacted R.A. 7167 amending the 1977 National Internal Revenue
Code (NIRC). The amounts of basic personal and additional exemptions given
to individual income taxpayers were adjusted to the poverty threshold level.
R.A. 7167 came into law on 30 January 1992. Controversy arose when the
Commission of Internal Revenue (CIR) promulgated RR 1-92 stating that the
regulation shall take effect on compensation income earned beginning 1
January 1992. The issue posed was whether the increased personal and
additional exemptions could be applied to compensation income earned or
received during calendar year 1991, given that R.A. 7167 came into law only
on 30 January 1992, when taxable year 1991 had already closed. This Court
ruled in the affirmative, considering that the increased exemptions were
already available on or before 15 April 1992, the date for the filing of
individual income tax returns. Further, the law itself provided that the new set
of personal and additional exemptions would be immediately available upon
its effectivity. While R.A. 7167 had not yet become effective during calendar
year 1991, the Court found that it was a piece of social legislation that was in
part intended to alleviate the economic plight of the lower-income taxpayers.
For that purpose, the new law provided for adjustments “to the poverty
threshold level” prevailing at the time of the enactment of the law.
Same; The taxable income of an individual taxpayer shall be computed on
the basis of the calendar year.—The taxable income of an individual taxpayer
shall be computed on the basis of the calendar year. The taxpayer is required
to file an income tax return on the 15th of April of each year covering income
of the preceding taxable year. The tax due thereon shall be paid at the time
the return is filed. It stands to reason that the new set of personal and
additional exemptions, adjusted as a form of social legislation to address the
prevailing poverty threshold, should be given effect at the most opportune
time as the Court ruled in Umali v. Estanislao, 209 SCRA 446 (1992).
Same; Prospectivity of Laws; In Umali v. Estanislao, 209 SCRA 446 (1992),
the Supreme Court (SC) ruled that the application of the law was prospective,
even if the amending law took effect after the close of the taxable year in
question, but before the deadline for the filing of the return and payment of
the taxes due for that year.—In the present case, the increased exemptions
were already available much earlier than the required time of filing of the
return on 15 April 2009. R.A. 9504 came into law on 6 July 2008, more than
nine months before the deadline for the filing of the income tax return for
taxable year 2008. Hence, individual taxpayers were entitled to claim the
increased amounts for the entire year 2008. This was true despite the fact
that incomes were already earned or received prior to the law’s effectivity on
6 July 2008. Even more compelling is the fact that R.A. 9504 became
effective during the taxable year in question. In Umali v. Estanislao, 209
SCRA 446 (1992), the Court ruled that the application of the law was
prospective, even if the amending law took effect after the close of the
taxable year in question, but before the deadline for the filing of the return
and payment of the taxes due for that year. Here, not only did R.A. 9504 take
effect before the deadline for the filing of the return and payment for the
taxes due for taxable year 2008, it took effect way before the close of that
taxable year. Therefore, the operation of the new set of personal and
additional exemption in the present case was all the more prospective.
Same; The policy of full taxable year treatment, especially of the personal
and additional exemptions, is clear under Section 35, particularly paragraph C
of Republic Act (RA) No. 8424 or the 1997 Tax Code.—We have perused R.A.
9504, and we see nothing that expressly provides or even suggests a
prorated application of the exemptions for taxable year 2008. On the other
hand, the policy of full taxable year treatment, especially of the personal and
additional exemptions, is clear under Section 35, particularly paragraph C of
R.A. 8424 or the 1997 Tax Code.
Same; While Section 23 of the 1977 Tax Code underwent changes, the
provision on full taxable year treatment in case of the taxpayer’s change of
status was left untouched.—While Section 23 of the 1977 Tax Code
underwent changes, the provision on full taxable year treatment in case of
the taxpayer’s change of status was left untouched. Executive Order No. 37,
issued on 31 July 1986, retained the change of status provision verbatim. The
provision appeared under Section 30(1)(3) of the NIRC, as amended: (3)
Change of status.—If the taxpayer married or should have additional
dependents as defined above during the taxable year, the taxpayer may claim
the corresponding personal and additional exemptions, as the case may be, in
full for such year. If the taxpayer should die during the taxable year, his
estate may still claim the personal and additional exemptions for himself and
his dependents as if he died at the close of such year. If the spouse or any of
the dependents should die or if any of such dependents becomes twenty-one
years old during the taxable year, the taxpayer may still claim the same
exemptions as if they died, or if such dependents become twenty-one years
old at the close of such year.
Same; The legislative policy of full taxable year treatment of the personal and
additional exemptions has been in our jurisdiction continuously since 1969.
The prorating approach has long since been abandoned.—The legislative
policy of full taxable year treatment of the personal and additional exemptions
has been in our jurisdiction continuously since 1969. The prorating approach
has long since been abandoned. Had Congress intended to revert to that
scheme, then it should have so stated in clear and unmistakable terms. There
is nothing, however, in R.A. 9504 that provides for the reinstatement of the
prorating scheme. On the contrary, the change-of-status provision utilizing
the full-year scheme in the 1997 Tax Code was left untouched by R.A. 9504.
Same; There is no legal basis for the Bureau of Internal Revenue (BIR) to
reintroduce the prorating of the new personal and additional exemptions.—
There is, of course, nothing to prevent Congress from again adopting a policy
that prorates the effectivity of basic personal and additional exemptions. This
policy, however, must be explicitly provided for by law to amend the
prevailing law, which provides for full-year treatment. As already pointed out,
R.A. 9504 is totally silent on the matter. This silence cannot be presumed by
the BIR as providing for a half-year application of the new exemption levels.
Such presumption is unjust, as incomes do not remain the same from month
to month, especially for the MWEs. Therefore, there is no legal basis for the
BIR to reintroduce the prorating of the new personal and additional
exemptions. In so doing, respondents overstepped the bounds of their rule-
making power. It is an established rule that administrative regulations are
valid only when these are consistent with the law. Respondents cannot
amend, by mere regulation, the laws they administer. To do so would violate
the principle of non--delegability of legislative powers.
Same; Tax Exemption; Minimum Wage Earner; Words and Phrases; To be
exempt, one must be a Minimum Wage Earner (MWE), a term that is clearly
defined. Section 22(HH) says he/she must be one who is paid the statutory
minimum wage if he/she works in the private sector, or not more than the
statutory minimum wage in the nonagricultural sector where he/she is
assigned, if he/she is a government employee.—To be exempt, one must be
an MWE, a term that is clearly defined. Section 22(HH) says he/she must be
one who is paid the statutory minimum wage if he/she works in the private
sector, or not more than the statutory minimum wage in the nonagricultural
sector where he/she is assigned, if he/she is a government employee. Thus,
one is either an MWE or he/she is not. Simply put, MWE is the status acquired
upon passing the litmus test — whether one receives wages not exceeding
the prescribed minimum wage.
Same; Same; Same; The minimum wage exempted by Republic Act (RA) No.
9504 is that which is referred to in the Labor Code. It is distinct and different
from other payments including allowances, honoraria, commissions,
allowances or benefits that an employer may pay or provide an employee.—
While the Labor Code’s definition of “wage” appears to encompass any
payments of any designation that an employer pays his or her employees, the
concept of minimum wage is distinct. “Minimum wage” is wage mandated;
one that employers may not freely choose on their own to designate in any
which way. In Article 99, minimum wage rates are to be prescribed by the
Regional Tripartite Wages and Productivity Boards. In Articles 102 to 105,
specific instructions are given in relation to the payment of wages. They must
be paid in legal tender at least once every two weeks, or twice a month, at
intervals not exceeding 16 days, directly to the worker, except in case of
force majeure or death of the worker. These are the wages for which a
minimum is prescribed. Thus, the minimum wage exempted by R.A. 9504 is
that which is referred to in the Labor Code. It is distinct and different from
other payments including allowances, honoraria, commissions, allowances or
benefits that an employer may pay or provide an employee.
Same; Same; Same; The law exempts from income taxation the most basic
compensation an employee receives — the amount afforded to the lowest
paid employees by the mandate of law.—Additional compensation in the form
of overtime pay is mandated for work beyond the normal hours based on the
employee’s regular wage. Those working between ten o’clock in the evening
and six o’clock in the morning are required to be paid a night shift differential
based on their regular wage. Holiday/premium pay is mandated whether one
works on regular holidays or on one’s scheduled rest days and special
holidays. In all of these cases, additional compensation is mandated, and
computed based on the employee’s regular wage. R.A. 9504 is explicit as to
the coverage of the exemption: the wages that are not in excess of the
minimum wage as determined by the wage boards, including the
corresponding holiday, overtime, night differential and hazard pays. In other
words, the law exempts from income taxation the most basic compensation
an employee receives — the amount afforded to the lowest paid employees
by the mandate of law. In a way, the legislature grants to these lowest paid
employees additional income by no longer demanding from them a
contribution for the operations of government. This is the essence of R.A.
9504 as a social legislation. The government, by way of the tax exemption,
affords increased purchasing power to this sector of the working class.
Administrative Agencies; An administrative agency may not enlarge, alter or
restrict a provision of law. It cannot add to the requirements provided by law.
To do so constitutes lawmaking, which is generally reserved for Congress.—
An administrative agency may not enlarge, alter or restrict a provision of law.
It cannot add to the requirements provided by law. To do so constitutes
lawmaking, which is generally reserved for Congress. In CIR v. Fortune
Tobacco, 559 SCRA 160 (2008), we applied the plain meaning rule when the
Commissioner of Internal Revenue ventured into unauthorized administrative
lawmaking: [A]n administrative agency issuing regulations may not enlarge,
alter or restrict the provisions of the law it administers, and it cannot engraft
additional requirements not contemplated by the legislature. The Court
emphasized that tax administrators are not allowed to expand or contract the
legislative mandate and that the “plain meaning rule” or verba legis in
statutory construction should be applied such that where the words of a
statute are clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. As we have previously
declared, rule-making power must be confined to details for regulating the
mode or proceedings in order to carry into effect the law as it has been
enacted, and it cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute.
Administrative regulations must always be in harmony with the provisions of
the law because any resulting discrepancy between the two will always be
resolved in favor of the basic law.
Taxation; Minimum Wage Earner; Tax Exemptions; Workers who receive the
statutory minimum wage their basic pay remain Minimum Wage Earners
(MWEs). The receipt of any other income during the year does not disqualify
them as MWEs. They remain MWEs, entitled to exemption as such, but the
taxable income they receive other than as MWEs may be subjected to
appropriate taxes.—In sum, the proper interpretation of R.A. 9504 is that it
imposes taxes only on the taxable income received in excess of the minimum
wage, but the MWEs will not lose their exemption as such.
who receive the statutory minimum wage their basic pay remain MWEs. The
receipt of any other income during the year does not disqualify them as
MWEs. They remain MWEs, entitled to exemption as such, but the taxable
income they receive other than as MWEs may be subjected to appropriate
taxes.
Same; Tax Exemptions; Liberal Interpretation; The canon is tempered by
several exceptions, one of which is when the taxpayer falls within the purview
of the exemption by clear legislative intent. In this situation, the rule of liberal
interpretation applies in favor of the grantee and against the government.—
We are mindful of the strict construction rule when it comes to the
interpretation of tax exemption laws. The canon, however, is tempered by
several exceptions, one of which is when the taxpayer falls within the purview
of the exemption by clear legislative intent. In this situation, the rule of liberal
interpretation applies in favor of the grantee and against the government. In
this case, there is a clear legislative intent to exempt the minimum wage
received by an MWE who earns additional income on top of the minimum
wage. As previously discussed, this intent can be seen from both the law and
the deliberations. Accordingly, we see no reason why we should not liberally
interpret R.A. 9504 in favor of the taxpayers.
Same; Bracket Creep; Words and Phrases; “Bracket creep,” “the process by
which inflation pushes individuals into higher tax brackets.”—When tax tables
do not get adjusted, inflation has a profound impact in terms of tax burden.
“Bracket creep,” “the process by which inflation pushes individuals into higher
tax brackets,” occurs, and its deleterious results may be explained as follows:
[A]n individual whose dollar income increases from one year to the next
might be obliged to pay tax at a higher marginal rate (say 25% instead of
15%) on the increase, this being a natural consequence of rate progression.
If, however, due to inflation the benefit of the increase is wiped out by a
corresponding increase in the cost of living, the effect would be a heavier tax
burden with no real improvement in the taxpayer’s economic position. Wage
and salary-earners are especially vulnerable. Even if a worker gets a raise in
wages this year, the raise will be illusory if the prices of consumer goods rise
in the same proportion. If her marginal tax rate also increased, the result
would actually be a decrease in the taxpayer’s real disposable income.
Same; Tax Exemptions; Republic Act (RA) No. 9504 provides relief by
declaring that an Minimum Wage Earner (MWE), one who is paid the statutory
minimum wage (SMW), is exempt from tax on that income, as well as on the
associated statutory payments for hazardous, holiday, overtime and night
work.—R.A. 9504 provides relief by declaring that an MWE, one who is paid
the statutory minimum wage (SMW), is exempt from tax on that income, as
well as on the associated statutory payments for hazardous, holiday, overtime
and night work. RR 10-2008, however, unjustly removes this tax relief. While
R.A. 9504 grants MWEs zero tax rights from the beginning or for the whole
year 2008, RR 10-2008 declares that certain workers — even if they are being
paid the SMW, “shall not enjoy the privilege.” Following RR 10-2008’s
“disqualification” injunction, the MWE will continue to be pushed towards the
higher tax brackets and higher rates. As Table 2 shows, as of June 2016, an
MWE would already belong to the 4th highest tax bracket of 20% (see also
Table 3), resulting in a tax burden of 9.9%. This means that for every P100
the MWE earns, the government takes back P9.90. Soriano vs. Secretary of
Finance, 815 SCRA 316, G.R. No. 184450, G.R. No. 184508, G.R. No.
184538, G.R. No. 185234 January 24, 2017
Remedial Law; Civil Procedure; Exhaustion of Administrative Remedies; The
remedy within the administrative machinery must be resorted to first and
pursued to its appropriate conclusion before the court’s judicial power can be
sought.—Under Section 4 of the 1997 National Internal Revenue Code,
interpretative rulings are reviewable by the Secretary of Finance. SEC. 4.
Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.—
The power to interpret the provisions of this Code and other tax laws shall be
under the exclusive and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance. (Emphasis supplied) Thus, it was held
that “[i]f superior administrative officers [can] grant the relief prayed for,
[then] special civil actions are generally not entertained.” The remedy within
the administrative machinery must be resorted to first and pursued to its
appropriate conclusion before the court’s judicial power can be sought.
Nonetheless, jurisprudence allows certain exceptions to the rule on
exhaustion of administrative remedies: [The doctrine of exhaustion of
administrative remedies] is a relative one and its flexibility is called upon by
the peculiarity and uniqueness of the factual and circumstantial settings of a
case. Hence, it is disregarded (1) when there is a violation of due process, (2)
when the issue involved is purely a legal question, (3) when the
administrative action is patently illegal amounting to lack or excess of
jurisdiction, (4) when there is estoppel on the part of the administrative
agency concerned, (5) when there is irreparable injury, (6) when the
respondent is a department secretary whose acts as an alter ego of the
President bears the implied and assumed approval of the latter, (7) when to
require exhaustion of administrative remedies would be unreasonable, (8)
when it would amount to a nullification of a claim, (9) when the subject
matter is a private land in land case proceedings, (10) when the rule does not
provide a plain, speedy and adequate remedy, (11) when there are
circumstances indicating the urgency of judicial intervention.
Same; Same; Courts; Court of Tax Appeals; Under Republic Act (RA) No.
1125 (An Act Creating the Court of Tax Appeals [CTA]), as amended by RA
No. 9282, such rulings of the Commissioner of Internal Revenue (CIR) are
appealable to that court.—We agree with respondents that the jurisdiction to
review the rulings of the Commissioner of Internal Revenue pertains to the
Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-
2011 were issued in connection with the implementation of the 1997 National
Internal Revenue Code on the taxability of the interest income from zero-
coupon bonds issued by the government. Under Republic Act No. 1125 (An
Act Creating the Court of Tax Appeals), as amended by Republic Act No.
9282, such rulings of the Commissioner of Internal Revenue are appealable to
that court.
Same; Same; In exceptional cases, the Supreme Court (SC) entertained
direct recourse to it when “dictated by public welfare and the advancement of
public policy, or demanded by the broader interest of justice, or the orders
complained of were found to be patent nullities, or the appeal was considered
as clearly an inappropriate remedy.”—In exceptional cases, however, this
court entertained direct recourse to it when “dictated by public welfare and
the advancement of public policy, or demanded by the broader interest of
justice, or the orders complained of were found to be patent nullities, or the
appeal was considered as clearly an inappropriate remedy.” In Philippine
Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary,
Department of Interior and Local Government, 403 SCRA 558 (2003), this
court noted that the petition for prohibition was filed directly before it “in
disregard of the rule on hierarchy of courts. However, [this court] opt[ed] to
take primary jurisdiction over the . . . petition and decide the same on its
merits in view of the significant constitutional issues raised by the parties
dealing with the tax treatment of cooperatives under existing laws and in the
interest of speedy justice and prompt disposition of the matter.”
Taxation; Withholding Tax; Under Sections 24(B)(1), 27(D)(1), and 28(A)(7)
of the 1997 National Internal Revenue Code (NIRC), a final withholding tax at
the rate of twenty percent (20%) is imposed on interest on any currency bank
deposit and yield or any other monetary benefit from deposit substitutes and
from trust funds and similar arrangements.—Under Sections 24(B)(1),
27(D)(1), and 28(A)(7) of the 1997 National Internal Revenue Code, a final
withholding tax at the rate of 20% is imposed on interest on any currency
bank deposit and yield or any other monetary benefit from deposit substitutes
and from trust funds and similar arrangements.
Deposit Substitutes; Words and Phrases; The term ‘deposit substitutes’ shall
mean an alternative form of obtaining funds from the public (the term ‘public’
means borrowing from twenty [20] or more individual or corporate lenders at
any one time) other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower’s own account, for the
purpose of relending or purchasing of receivables and other obligations, or
financing their own needs or the needs of their agent or dealer.—The
definition of deposit substitutes was amended under the 1997 National
Internal Revenue Code with the addition of the qualifying phrase for public —
borrowing from 20 or more individual or corporate lenders at any one time.
Under Section 22(Y), deposit substitute is defined thus: SEC. 22.
Definitions.—When used in this Title: . . . . (Y) The term ‘deposit substitutes’
shall mean an alternative form of obtaining funds from the public (the term
‘public’ means borrowing from twenty (20) or more individual or corporate
lenders at any one time) other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower’s own
account, for the purpose of relending or purchasing of receivables and other
obligations, or financing their own needs or the needs of their agent or dealer.
These instruments may include, but need not be limited to, bankers’
acceptances, promissory notes, repurchase agreements, including reverse
repurchase agreements entered into by and between the Bangko Sentral ng
Pilipinas (BSP) and any authorized agent bank, certificates of assignment or
participation and similar instruments with recourse: Provided, however, That
debt instruments issued for interbank call loans with maturity of not more
than five (5) days to cover deficiency in reserves against deposit liabilities,
including those between or among banks and quasi-banks, shall not be
considered as deposit substitute debt instruments. (Emphasis supplied) Under
the 1997 National Internal Revenue Code, Congress specifically defined
“public” to mean “twenty (20) or more individual or corporate lenders at any
one time.” Hence, the number of lenders is determinative of whether a debt
instrument should be considered a deposit substitute and consequently
subject to the 20% final withholding tax.
Taxation; Deposit Substitutes; Interest income from deposit substitutes are
necessarily part of taxable income.—It must be emphasized, however, that
debt instruments that do not qualify as deposit substitutes under the 1997
National Internal Revenue Code are subject to the regular income tax. The
phrase “all income derived from whatever source” in Chapter VI, Computation
of Gross Income, Section 32(A) of the 1997 National Internal Revenue Code
discloses a legislative policy to include all income not expressly exempted as
within the class of taxable income under our laws. “The definition of gross
income is broad enough to include all passive incomes subject to specific tax
rates or final taxes.” Hence, interest income from deposit substitutes are
necessarily part of taxable income. “However, since these passive incomes
are already subject to different rates and taxed finally at source, they are no
longer included in the computation of gross income, which determines taxable
income.” “Stated otherwise . . . if there were no withholding tax system in
place in this country, this 20 percent portion of the ‘passive’ income of
[creditors/lenders] would actually be paid to the [creditors/lenders] and then
remitted by them to the government in payment of their income tax.”
Same; Withholding Tax; When there are twenty (20) or more
lenders/investors in a transaction for a specific bond issue, the seller is
required to withhold the twenty percent (20%) final income tax on the
imputed interest income from the bonds.—This court, in Chamber of Real
Estate and Builders’ Associations, Inc. v. Romulo, 614 SCRA 605 (2010),
explained the rationale behind the withholding tax system: The withholding
[of tax at source] was devised for three primary reasons: first, to provide the
taxpayer a convenient manner to meet his probable income tax liability;
second, to ensure the collection of income tax which can otherwise be lost or
substantially reduced through failure to file the corresponding returns[;] and
third, to improve the government’s cash flow. This results in administrative
savings, prompt and efficient collection of taxes, prevention of delinquencies
and reduction of governmental effort to collect taxes through more
complicated means and remedies. (Citations omitted) “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.” Hence, when there are 20 or
more lenders/investors in a transaction for a specific bond issue, the seller is
required to withhold the 20% final income tax on the imputed interest income
from the bonds.
Same; The interest income earned from bonds is not synonymous with the
“gains” contemplated under Section 32(B)(7)(g) of the 1997 National Internal
Revenue Code (NIRC), which exempts gains derived from trading,
redemption, or retirement of long-term securities from ordinary income tax.—
The interest income earned from bonds is not synonymous with the “gains”
contemplated under Section 32(B)(7)(g) of the 1997 National Internal
Revenue Code, which exempts gains derived from trading, redemption, or
retirement of long-term securities from ordinary income tax. The term “gain”
as used in Section 32(B)(7)(g) does not include interest, which represents
forbearance for the use of money. Gains from sale or exchange or retirement
of bonds or other certificate of indebtedness fall within the general category
of “gains derived from dealings in property” under Section 32(A)(3), while
interest from bonds or other certificate of indebtedness falls within the
category of “interests” under Section 32(A)(4). The use of the term “gains
from sale” in Section 32(B)(7)(g) shows the intent of Congress not to include
interest as referred under Sections 24, 25, 27, and 28 in the exemption.
Hence, the “gains” contemplated in Section 32(B)(7)(g) refers to: (1) gain
realized from the trading of the bonds before their maturity date, which is the
difference between the selling price of the bonds in the secondary market and
the price at which the bonds were purchased by the seller; and (2) gain
realized by the last holder of the bonds when the bonds are redeemed at
maturity, which is the difference between the proceeds from the retirement of
the bonds and the price at which such last holder acquired the bonds. For
discounted instruments, like the zero-coupon bonds, the trading gain shall be
the excess of the selling price over the book value or accreted value (original
issue price plus accumulated discount from the time of purchase up to the
time of sale) of the instruments.
Taxation; Tax Exemptions; Under Section 24 of the 1997 National Internal Treasury was justified in withholding the amount corresponding to the 20%
Revenue Code (NIRC), interest income received by individuals from long-term final withholding tax from the proceeds of the PEACe Bonds, as it received
deposits or investments with a holding period of not less than five (5) years is this court’s temporary restraining order only on October 19, 2011, or the day
exempt from the final tax.—Should there have been a simultaneous sale to 20 after this tax had been withheld. Banco de Oro vs. Republic, 745 SCRA
or more lenders/investors, the PEACe Bonds are deemed deposit substitutes 361, G.R. No. 198756 January 13, 2015
within the meaning of Section 22(Y) of the 1997 National Internal Revenue
Code and RCBC Capital/CODE-NGO would have been obliged to pay the 20%
final withholding tax on the interest or discount from the PEACe Bonds.
Further, the obligation to withhold the 20% final tax on the corresponding
interest from the PEACe Bonds would likewise be required of any
lender/investor had the latter turned around and sold said PEACe Bonds,
whether in whole or part, simultaneously to 20 or more lenders or investors.
We note, however, that under Section 24 of the 1997 National Internal
Revenue Code, interest income received by individuals from long-term
deposits or investments with a holding period of not less than five (5) years is
exempt from the final tax.

Same; Prescription; The three (3)-year prescriptive period under Section 203
of the 1997 National Internal Revenue Code (NIRC) to assess and collect
internal revenue taxes is extended to ten (10) years in cases of (1) fraudulent
returns; (2) false returns with intent to evade tax; and (3) failure to file a
return, to be computed from the time of discovery of the falsity, fraud, or
omission.—The three (3)-year prescriptive period under Section 203 of the
1997 National Internal Revenue Code to assess and collect internal revenue
taxes is extended to 10 years in cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a return, to be
computed from the time of discovery of the falsity, fraud, or omission. Section
203 states: SEC. 203. Period of Limitation Upon Assessment and Collection.—
Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, That
in a case where a return is filed beyond the period prescribed by law, the
three (3)-year period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on such last day. (Emphasis
supplied) . . . . SEC. 222. Exceptions as to Period of Limitation of Assessment
and Collection of Taxes.—(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be filed without
assessment, at any time within ten (10) years after the discovery of the
falsity, fraud or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.

Taxation; Withholding Tax; In case of doubt, a withholding agent may always

protect himself or herself by withholding the tax due and return the amount
of the tax withheld should it be finally determined that the income paid is not
subject to withholding.—At any rate, “[i]n case of doubt, a withholding agent
may always protect himself or herself by withholding the tax due” and return
the amount of the tax withheld should it be finally determined that the
income paid is not subject to withholding. Hence, respondent Bureau of